3. Increase the range of support services and software development delivered from KCT offshore centre in Bangkok
Current IT situation
Currently IT services are spread throughout the whole organization, e.g. application development activities in technical departments, IT support in departments and decentralized offices. In order to get a clear picture of cost & savings for the recommendation about IT consolidation, it is important to have a common baseline. This cost baseline includes all the IT services which should be provided by the Information Management/ Technology division with view on current FTE and costs.
Table 2-17: Current IT situation
Department Contract type # total (FTE) Cost 15/ year [ USD]
KC Staff 11016 13’620’000
KC NSHR / work orders 9217 7’980’000
KC Vacant position18 16 0
Other department Staff 619 1’140’000
Other department NSHR 12720 8’840’000
Other department staff (OTC,ITO, deployment) 47,521 3’100’00022
Decentralized Offices staff (ITO,IRC, IT clerk) 907 3’750’00023
488,5 38’430’000
Not included are the following types of IT activities: § External contracts for software development
§ Letter of agreement and memorandum of understanding for software development IT responsibilities and functions should be consolidated in one CIO
A key measure of IT support to a business is the percentage of IT employees in an organization compared to the total number of employees. According to a 2008 Gartner survey24 about IT staffing, this ratio came to 1:18 for Organizations from the state, local and federal government as well as government-
15 Pires rates based on different levels and NSHR on Financial Management Food and Agriculture Organization (FAO) Monthly
Consultant Cost Worksheet
16 Including KCT and KCEW
17 Including NSHR (KCT, KCEW) and work order from the Consultant Information System (CIS) , date of 31/12/2008 18
The standard cost of vacant positions (USD x – to be calculated) has not been included, because it is assumed that those funds are used to provide NSHR whose terms of reference cover the duties of the vacant positions. Similarly, the count of FTE involved in IT does not include the vacant positions, because it is assumed that each such vacancy is covered by NSHR, and if a position is filled, one NSHR would be relinquished.
19 Including Information System Specialist outside KC division 20
Including NSHR not part of KC with specialty “Computer information systems specialists, date of 31/12/2008”
21 Considering non full-time OTC, IRC etc. through FTE calculation 22 See Annex M for details on costs calculation
23 See Annex L for details on costs calculation 24 IT Spending and Staffing Report, 2009
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affiliated. The current rate for FAO amounts to a ratio of 1:14. It is important to note that FAO due to its nature as a knowledge organization and decentralized organization structure, resulting in need for on-site IT support in many decentralized locations, does require more IT personnel that standard national government organizations. The RBR notes that benchmark survey always contains elements of inaccuracy due to diverse potential interpretations but they also give a first indication and could lead to further analysis.
The following saving calculation is based on the consolidation of IT activities into the Information CIO Division. Economics of scale are the main factor for the headcount reduction resulting in a future ratio of 1:16.
Cost saving activities:
Headcount reduction (FTE) through...
• efficient employment of resources in application development • streamlined application support structure
• leverage enterprise-wide competencies
This headcount reduction is only based on resource optimization through bundling into one unit and not through reduction of redundant application development.
Cost implication
• implementation cost for transition (e.g. transfer of responsibility of systems, people and processes, establish communication and relationships)
As IT consolidation is confined to Headquarters, the focus on the following savings calculation is also confined to Headquarters. During the transition phase in 2009 no savings will be made. According to general experiences a 5% headcount reduction of NSHR at headquarters is realistic for 2010 and a headcount reduction of 10% in 2011, due to economies of scale and synergy of resources. This headcount reduction takes into consideration that among these 202, some NSHR provide skill sets which cannot be leveraged and are reduced during an IT consolidation (e.g. mainly in the infrastructure area). At the end of 2010 the IT consolidation should be completed.
In addition to the expected efficiencies in NSHR use such that the same outputs could bedelivered with a reduced level of resource, it is expected that there may be some synergies within the CIO Division by comparison with the present situation which could be reflected in staff counts. However, in order to achieve the desired improvement inInformation Management across a wider scope of FAO information thanis presently covered, the staff effort required will undoubtedly increase–consequently nochange to staffinglevels is proposed.
OTCs and staff in the Decentralized offices are not part of the IT consolidation in Headquarter, therefore no tangible savings are considered. However the proposed improvements in the processes which they use should lead to a measurable improvement in their effectiveness at delivering the user support services, hence in users’ ability to contribute to Strategic and Functional Objectives.
The transition cost for the IT consolidation project amount to USD 200’000 containing fees for external organization-design experts.
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Table 2-18: Costs & Savings 1
Department # total (FTE) Cost 25/ year [USD] Saving 2009 [USD] Saving 2010 [USD] Saving 2011 [USD] Saving 2012 [USD]
CIO Division (staff, HQ) 116 14’760’000 CIO Division (NSHR, work orders HQ) 202 26 16’250’000 812’ 500 1’625’000 CIO Division (NSHR, outside HQ) 17 570’000 Cost implication -100’000 -100’000
Total saving (net) - 100’000 712’500 1’625’000
IT governance in the organization should be strengthened
In particular the FAO situation where application development has been performed in a more or less uncoordinated way throughout different departments provides significant efficiency gains in this area. Cost savings activities
• reduction of duplication of applications • reuse of existing applications
• exploitation of functionalities with current applications Cost Implications:
• implementation of the “Proposed New Structure for the Governance of Knowledge Management Services”
• system harmonization cost
This calculation is based on the total IT spending on application development and support across FAO in the 08/09 biennium. The RBR has requested these figures - IT costs for application development and support -from each department (see Annex K). The RBR is aware of the difficulties for Technical Departments in segregating pure IT application development and support costs from subject-matter Knowledge Management activities. Nevertheless the provided figures give an indication as to the opportunities where savings can be made. In order to get an initial perception of the potential savings that could be made, an analysis of all applications has been performed.
Preliminary results of the analysis have shown that, in the first year it is unlikely that savings could be achieved, however, thereafter an overall saving of 20% in the costs of new development and 35% in the costs of support and maintenance could be obtained. (See Annex J) As this analysis is very high-level, the RBR recommends that a more detailed analysis of the current application landscape within FAO is carried out. Nonetheless a conservative estimation would expect that savings of at least 10% can be achieved when application development and support have been centralized.
In the following table annual savings have been calculated, with emphasis on capital expenditure (reduced saving percentage of 5% due to stricter approval process), regular program budget and extra- budgetary resources. These calculations also show the cost implication for this recommendation. The cost implications encompass costs for implementing IT governance and costs for harmonizing systems.
25 Pires rates based on different levels and NSHR on Financial Management Food and Agriculture Organization (FAO)Monthly
Consultant Cost Worksheet.
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Table 2-19: Costs & Savings 2
IT spending on application development/ year
Saving 2009 [USD] Saving 2010 [USD] Saving 2011 [USD] Saving 2012 [USD]
Capital Expenditure (Chapter 827) 2’990’000 149’500 149’500
Regular Budget 1’170’000 117’000 117’000
Extra Budget 674’000 67’400 67’400
IT spending on application support / year
Capital Expenditure (Chapter 8)
Regular Budget 3’170’000 317’000 317’000
Extra Budget 514’000 51’400 51’400
Cost Implication
Implementation of IT Governance
structure -100’000
Harmonization of systems (per year) -200’000 -200’000
Total saving (net) -100’000 502’300 502’300
Dependencies:
Theoretically the enforcement of IT governance can be done independently from the recommendations of “one CIO”. Practically it is much easier to imply and control IT governance if IT activities are consolidated into one unit.
Increase the range of support services and software development delivered from KCT offshore centre in Bangkok
It is important for FAO to review on a regular basis the possibility to transfer IT activities to a low cost location. It is self-evident that careful and appropriate selection of these activities is required.
The savings related to NSHR as part of 2008-09 PWB have already been harvested.
In the current case, the calculation is based on a saving of USD 33’000/ per NSHR transfer per year from the HQ in Rome to Bangkok. But it can also be assumed that this cost difference would also be valid for other low cost locations, if a move from Bangkok were to become desirable. An estimated headcount transfer of 10 NSHR based on the total number of 172 NSHR in 2011 to low cost locations in 2011 onwards is achievable.
27The Capital Expenditure Facility was established by Conference Resolution 10/2003 First implemented in the 2006-07 biennium.
Its purpose is to provide financing for major items of a capital nature. Unlike other regular program funds, unspent CapEx funds can be carried over into the next biennium, under Financial Regulation 6.11.
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Table 2-20: Costs & Savings 3
# of headcount transfer saving per NSHR headcount transfer/ year Saving 2009 [USD] Saving 2010 [USD] Saving 2011 [USD] Saving 2012 [USD] 10 33’000 330’000 Cost Implication On board training -25’000
Total saving (net) 305’000
Dependencies:
The consolidation of IT function support the opportunities to transfer IT activities to Bangkok. The more IT activities are bundled into the “one CIO”, the higher the possibility of transferring substantial headcount numbers of IT works to Bangkok. However, the present accommodation has a finite capacity and the 10 headcount described here almost exhausts it. Further such transfers would require investment in fit-out of larger accommodation for OSDSC.
In the following table the total savings are consolidated on a biennium basis. Table 2-21: Total savings
Recommendation Saving
2009 [USD]
Saving Biennium 10/11 [USD]
IT responsibilities and functions should be consolidated into one
CIO - 100’000 2’337’000
IT governance in the organization should be strengthen - 100’000 1’005’000
Increase the range of support services and software development
delivered from KCT offshore centre in Bangkok 305’000
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2.7.6. Final recommendations
The following table gives an overview of all the recommendation made in the previous chapter. Table 2-22: Final recommendations
# Description