A Plan for the Implementation of Enterprise Resource Planning (ERP) for the State of Texas

Executive Summary

The Enterprise Resource Planning Advisory Council (“Advisory Council”) is pleased to submit “A Plan for the Implementation of Enterprise Resource Planning (ERP) for the State of Texas” (Plan) to the Texas Legislature. We believe adoption of this Plan is in the best interest of the State of Texas.

It is important for anyone reviewing this Plan to first have an understanding and appreciation of the scope of the initiative. Within this Plan, we address an ERP solution to support a state government that serves a state with the 12th largest economy in the world. Texas’ 230,000 plus state employees and $168 billion biennial budget comprise the third largest state government in the United States. In terms of a financial enterprise, Texas state government is comparable to such private sector companies as Home Depot and Proctor and Gamble. We believe this Plan not only takes into account the size and complexity of Texas state government, but also the government transparency expectations of our Texas citizens.

Background and Purpose

In May 2007, the 80th Texas Legislature passed House Bill (HB) 3106, which address the concept of ERP for the state of Texas. From a practical standpoint, the term ERP for the state of Texas refers to an integrated software package that provides functionality similar to that offered in the existing statewide administrative systems (e.g., USAS, SPA, USPS, SPRS) as well as critical additional functionality currently provided by agency and institution of higher education administrative systems. The scope of this ERP project follows the definition stated in Section §5.300 Enterprise Resource Planning of Title 34 Texas Administrative Code effective Jan. 8, 2008. That definition excludes higher education student system administration as well as community colleges.

HB 3106 requires the Comptroller to set clear standards for the implementation of ERP software for the state. The Legislation also requires the Comptroller to establish and coordinate an Enterprise Resource Planning Advisory Council (established Feb. 8, 2008) charged with the development of a plan that contains key requirements, constraints, and alternative approaches for the Comptroller’s implementation of ERP standards, including related core functionality and business process reengineering requirements.

HB 3106 establishes the Advisory Council members as the Department of Information Resources (DIR), Health and Human Services Commission (HHSC), Information Technology Council for Higher Education (ITCHE), Texas Comptroller of Public Accounts and two State agencies selected by the Comptroller with fewer than 100 employees (Texas Commission on the Arts and Texas Soil and Water Conservation Board).

The Advisory Council adopted guiding principles fundamental to the ERP Plan. Those principles are as follows:

• Through workgroups and committees, we will engage statewide agencies and institutions of higher education in the project;
• We will establish and implement common data standards where possible;
• We must ensure future ERP system projects are compatible with statewide standards;
• We will not throw out what works; and
• We will adapt our processes to the software rather than the software to our processes when possible.

The legislation requires the Comptroller to report to the Legislature on progress made toward implementing the Plan prior to each legislative session. This report must include any planned modifications and/or upgrades to existing statewide and agency-specific administrative systems and the associated financial impact of those modifications and upgrades.

In June 2008, the Comptroller’s office hired an independent consulting firm (Salvaggio, Teal & Associates) to develop a comprehensive business case analysis (BCA) and the related strategic planning associated with ERP, collectively referred to as the “Study.” The Study was completed on Sept. 17, 2008 and reviewed with the Advisory Council and Comptroller on Sept. 24, 2008. The purpose of the Study was to provide the ERP Advisory Council and the State Comptroller with alternatives, data and other information necessary to determine whether implementing a statewide ERP system is economically feasible for the State of Texas. The following three alternative scenarios were analyzed:

• Business Case Alternative 1: Status Quo (BCA 1) – The State continues on its current path and each agency and institution of higher education continues operating their existing administrative systems as currently planned. The 11-year cost for this approach per the business case was $1,342,400,000.
• Business Case Alternative 2: Statewide ERP Platform Deployment (BCA 2) – Replace the existing statewide legacy administrative systems (USAS, USPS, SPA, SPRS, HRIS, TINS) with a new, fully integrated, commercially-available ERP system that would provide all functionality identified in HB 3106. One statewide ERP system for all State agencies and all Higher Education would be established and operated by the Comptroller. The 11-year cost for this approach per the business case was $1,813,400,000.
• Business Case Alternative 3: Hub Model (BCA 3) – Replace the existing statewide legacy administrative systems (USAS, USPS, SPA, SPRS, HRIS, TINS) with a new, fully-integrated, commercially-available ERP system that the Comptroller’s office would operate as an Application Service Provider (ASP) for all state agencies with the exception of the Health and Human Services (HHS) agencies and institutions of higher education. The HHS agencies and Higher Education would operate under a decentralized processing model as data reporting “Hubs”. They would interface into the Statewide Data Warehouse platform and their transactional data would interface into the new ERP system. The 11-year cost for this approach per the business case was $1,377,800,000.

Of the three alternatives, Salvaggio Teal & Associates (STA) recommended BCA 3.

Summary of Advisory Council’s Recommended Plan

While the recommendation in this Plan regarding the ERP solution is based on the Study conducted by STA, the ERP Advisory Council’s final recommendations are based on our assessment of the project scope, timeline, and budget, as well as the legislative appropriation cycle and best value for the state of Texas.

From a financial and business perspective, the Advisory Council believes that BCA 3 is by far the best of the three alternatives evaluated in the Study. The business case Executive Summary, which is Exhibit B of this document, provides an 11-year perspective. Under BCA 3 approximately $249 million would be needed over a 7-year ERP implementation period. The reconciliation between the 11-year business case and 7-year project is presented in Exhibit C. The Advisory Council recommends that an additional contingency amount be reserved equal to $37 million (15 per cent) of the total estimated project budget to address unforeseen costs and/ or costs that could not adequately be addressed as part of the STA study due to specific information not being available at the time the study was performed. This brings the recommended project total to $285.7 million, which would be spent as described below:

In arriving at the contingency, we considered the risks associated with the state’s ability to successfully implement a project of this nature, as well as the perception of the state’s ability to adapt to such a significant change. The Advisory Council recommends following a planning, development and deployment schedule that postpones the start and completion of the project by approximately one year when compared to the Business Case Study. The contingency includes the time value of money with the shift of the project one year into the future.

Given that the contingency is to address “unknown” costs, the contingency amount is being presented as a total add-on to the estimated project cost as opposed to being allocated across project years and phases.

These collective costs are what would be considered “new funding” until the Comptroller is able to retire the existing statewide administrative systems. The following table provides project and ongoing operations costs by fiscal year for recommended BCA 3.

The Assumptions provided in the ERP Advisory Council’s Plan are very important to the recommendations regarding BCA 3. Changes to any of the Assumptions or any future negotiations with vendors may materially impact the project’s timeline, cost, scope, resources and expectations.

Under the recommended BCA 3:

• State agencies (with the exception of Health and Human Services and institutions of higher education) would migrate to a new statewide ERP platform operated by the Comptroller’s ASP service;
• Health and Human Services and institutions of higher education would operate as reporting hubs and interface directly into the Statewide Data Warehouse, and their transactional data would interface into the new ERP system;
• Existing statewide legacy administrative systems (USAS, USPS, SPA, HRIS, SPRS, TINS) would be replaced by the statewide ERP system that would provide all functionality identified in HB 3106;
• Each hub would be able to operate its own platform with the only restriction being that the hub reporting capability conforms to the statewide data standards required for statewide reporting; and
• The statewide ERP baseline code would be made available to every Hub for its use, if desired, and would be maintained according to the ERP vendor’s recommended schedule.

Our recommendation of BCA 3 is based upon the following reasons:

• It addresses HB 3106 requirements and the functionality required by the Comptroller’s Rider 16 regarding fleet management.
• It complies with the ERP Advisory Council’s guiding principle of “not throwing out what works” by leveraging the considerable work done to date by institutions of higher education and Health and Human Services in implementing their own ERP systems.
• The State will achieve business process standardization based on best practices, economies of scale and efficiency gains through the implementation of a single, unified platform for almost all state agencies while still allowing for the differences in the functional requirements of the hubs.
• It provides for significantly enhanced statewide reporting for both higher education and the state agencies, which will greatly facilitate a “single source of the truth” and taxpayer transparency.
• It eliminates the use of Social Security Numbers as the primary identifier in the statewide administrative systems, thus helping to reduce identity theft opportunities.
• It provides for compliance with Section 508 of the Americans with Disabilities Act regarding accessibility.
• It eliminates much of the fragmentation associated with the state’s existing administrative systems environment.
• Total project implementation costs are considerably less than the costs of implementing the alternative ERP scenario (BCA 2) presented by STA in their business case analysis.
• It is the model most often utilized by other states to meet their statewide administrative system needs, resulting in lower overall project risk.
• It eliminates proliferation of agency ERP and other administrative shadow systems, while allowing higher education to maintain its own ERP solutions that are integrated with other ERP functions such as patient care, student information, learning management and library systems.
• It provides a plan that allows the state to significantly upgrade the functionality and reporting capabilities of its statewide administrative systems and retire the legacy systems (USAS, SPRS, USPS, HRIS, SPA, TINS) over a period of seven years.
• It establishes a common language for reporting expenditures through use of commodity codes (NIGP) and focuses the use of Comptroller Object Codes on financial reporting (ACFR, GASB), thereby allowing for consistent reporting and better analysis of how the state’s money is spent.
• It provides for a statewide procurement system that will be fully-integrated with the financial accounting, asset management, and Inventory management modules, as well as the Online Ordering System currently in development by the Comptroller’s office.
• It provides for better tracking of the state’s assets, thus helping agencies and the Legislature in budget planning by identifying replacement costs and schedules.
• Hubs will gain the benefit of centralized reporting at the system or enterprise level through data warehouses that will be used to gather and normalize disparate institutional data to support effective statewide reporting goals.
• It allows for the hubs to consider ERP consolidations through an evolutionary process should their existing systems reach the end of their useful lives.

Recommended Deployment Approach

Only the state agencies (excluding Health and Human Services and institutions of higher education) would be deployed under this model. The participating agencies would be logically organized into deployment groups or waves. All functional modules would be deployed for all agencies within a specific group or wave. The first phase would include the development of a model that would become the “blueprint” for deploying all functionality among agencies. Deployment phases would be executed sequentially until all agencies have been deployed on the statewide ERP system.

For cost estimating purposes, STA and the Comptroller project team developed a detailed deployment schedule for State agencies under the hub model. The schedule was used solely for the purposes of developing STA estimates and the Comptroller has not made any decisions or plans regarding the deployment schedule should an actual ERP project be funded by the Legislature. Additionally, ITCHE members and HHSC representatives assisted in determining the years in which the Hub data warehouses would be placed into production.

In summary, although the costs associated with implementing ERP will be significant, the Advisory Council believes there is a compelling business case for the State to proceed with implementation of a new statewide ERP system.