The 2019-20 Budget

Aligning the State’s IT Project Approval Process With the Annual Budget Process

In this post, we describe how the California Department of Technology’s (CDT) information technology (IT) project approval process—known as the Project Approval Lifecycle (PAL)—does not always align with the state’s annual budget process. We identify seven funding requests in the Governor’s 2019-20 proposed budget for IT project proposals that are currently in various stages of the PAL process. We then describe how these requests for project funding prior to the completion of the PAL planning process may inhibit the Legislature from fully realizing the anticipated benefits of the PAL process, discuss how some project-specific factors can cause misalignment of the budget cycle and PAL, and provide issues for legislative consideration.

Background

Role of CDT. CDT, a department within the California Government Operations Agency, is the state’s central IT organization and has broad authority over all aspects of technology in state government. One of CDT’s responsibilities is to review and approve IT project proposals received from state agencies and departments. CDT evaluates agencies’ and departments’ proposals to ensure that proposed projects are based on well-defined programmatic needs; consider feasible alternatives (based on a number of criteria, including cost) to address the identified needs; identify a sound technical solution; implement project management best practices; and comply with state policies and procedures, among other CDT considerations.

Project Approval Process Prior to PAL Often Resulted in Unanticipated Changes in Project Cost and Timing. Before PAL (which was fully implemented in 2016), CDT required agencies and departments to submit Feasibility Study Reports (FSRs) for IT project proposals. Agencies and departments largely drafted FSRs, without much input from CDT (or a predecessor agency). The FSR identified the problem the system would solve, evaluated alternatives, and identified a technical solution. Various shortcomings of the FSR process (for example, limited upfront planning) meant that projects often experienced challenges once they were underway. These challenges were often associated with significant cost increases and schedule extensions. When a project changed in scope or deviated from the cost and/or schedule that was established in the FSR, agencies and departments were then required to submit Special Project Reports (SPRs)—which update the project plan when cost, schedule, and/or scope changes significantly once a project was underway. Under the FSR planning process, projects often submitted multiple SPRs over the duration of the project. SPRs were sometimes problematic because the Legislature had approved a project based on the expectations that were laid out in the FSR, but the final project may have ended up with significant cost, schedule, and/or scope differences.

PAL Planning Process Replaces FSR Process. To improve the planning quality of IT project proposals, CDT fully implemented a new project approval process—PAL—in 2016. (For a comprehensive description of the PAL process, please refer to our February 17, 2017 report—The 2017-18 Budget: The New IT Project Approval and Funding Process.) Established administratively under CDT’s authority to approve and oversee IT projects, PAL divides CDT’s project approval process into four stages: (1) business analysis, (2) alternatives analysis, (3) solution development (including procurement analysis), and (4) project approval and readiness (including bid analysis and finalization of project details). Figure 1 provides a visual depiction of the PAL process.

Each stage in PAL requires agencies and departments to conduct specific planning-related analyses and submit an associated planning document to CDT, and provides CDT with a discrete decision point in its approval process. Each stage in the PAL process builds off the analysis from the prior stage. Collectively, the planning documents from the four stages create a comprehensive plan for implementing the proposed project.

For purposes of comparison, the FSR process was roughly similar to the first two stages of PAL, which meant the solution development (Stage 3) and project readiness and approval (Stage 4) occurred after CDT had approved the FSR. Because agencies and departments generally learn more about the actual cost of achieving their technology objectives by interacting with potential project vendors through the procurement process, the timing of the procurement typically resulted in unanticipated cost increases and schedule extensions beyond those established in the FSR.

PAL Addresses Some Shortcomings of Prior Planning Process. The former FSR approval process gave the Legislature very little information about the final cost, schedule, and scope of the project, and would very often lead to cost increases and schedule extensions shortly after the Legislature had approved initial project funding. By incorporating procurement activities into the project approval process, PAL is intended to give the administration and Legislature a better understanding, and more confidence in, the project cost and schedule prior to approving funding for the project through the annual budget process. To date, none of the projects that have completed the PAL process have needed an SPR to account for significant changes in project cost or schedule.

Annual Budget Process. The Legislature’s annual budget process largely occurs in the first half of the calendar year, between January and June. Budget deliberations start after January 10^th, when the Governor’s proposed budget is released, and continue through late May and early June (after the release of the Governor’s May Revision). The budget must be passed by June 15^th each year.

Governor’s Budget Proposals Reveal That PAL Does Not Always Align With Budget Cycle. One emerging trade-off of PAL is that it does not always align with the annual budget process. While the Governor’s 2019-20 budget includes funding requests for at least three IT projects that have fully completed PAL process, it also includes funding requests for seven project proposals that have not completed the PAL. Because PAL requires more work upfront to complete, it generally takes longer for agencies and departments to complete than the former FSR approval process. This means an agency or department could receive approval from CDT for Stage 4 of the PAL process midway through a state fiscal year for which funding is being requested. Although funding requests should ideally be made after a project has been approved at all four stages, there have been recent requests that indicate that, if an agency or department anticipates that development and implementation activities for an IT project could occur in the same fiscal year that Stage 4 is anticipated to be approved, they could request project funding before Stage 4 documents are approved by CDT. In these cases, the Legislature is being asked to approve funding without the benefit of a complete project plan.

Governor’s 2019-20 IT Project Proposals
Currently in PAL

Seven 2019-20 Budget Proposals Request Funding to Implement IT Projects in Various Stages of PAL Planning Process. The 2019-20 proposed budget includes seven budget proposals requesting a total of $115 million ($81 million General Fund) over the next three fiscal years (and $5.2 million ongoing thereafter) to develop and implement IT projects that have not completed the PAL planning process. Figure 2 provides a list of these proposals and their current PAL stage (as of March 11, 2019).

Assessment of Administration’s Approach to IT Project Proposals in 2019-20 Proposed Budget

Drivers of Misalignment of PAL With the Budget Process

The length and timing of the PAL planning process is one of the main reasons why PAL does not always align with the annual budget process. Both PAL and the annual budget processes follow relatively rigid time lines, procedures, and rules. There are also project-specific factors that can cause this misalignment. We discuss each driver below.

Length and Timing of the PAL Planning Process

While Five IT Project Proposals Assert Completion of PAL by Start of 2019-20 . . . As shown in Figure 3, the administration anticipates that five of the seven IT project proposals will finish the PAL planning process by July 1, 2019—meaning they will be ready to begin in the 2019-20 budget year and require funding for project development and implementation costs. If these proposals complete PAL before the Legislature finishes its 2019-20 budget deliberations, the agencies or departments could update their funding requests to reflect their most recent PAL documents.

. . . Average Time to Complete Each PAL Stage Suggests These IT Project Proposals Might Not Complete PAL by Start of 2019-20, as Expected. While we acknowledge it is possible that some of the seven IT project proposals with funding requests for 2019-20 could finish the PAL planning process by July 1, 2019, the length of time required to complete the PAL stages varies by proposal. According to CDT, how long a proposal takes to complete PAL depends on its complexity and size, the availability of skilled planning resources at the agency or department, on whether the agency or department is actively participating in the process, and CDT’s workload constraints. Figure 4 shows, based on CDT data from 15 proposals that have completed all four PAL stages, the average and median length of time it takes to complete the entire process as well as each stage.

Of the PAL stages, these data show Stages 2 and Stage 3—on average—take the longest amount of time to complete (nine months for Stage 2 and three months for Stage 3). Of the seven IT projects with proposals for 2019-20, currently fire proposals are either in Stage 2 or Stage 3. While we recognize these data are limited due to the small number of proposals that have completed all four PAL stages, the data do suggest that some proposals might not complete PAL by the start of 2019-20, as expected.

Project-Specific Factors Also Drive Funding Requests Prior to PAL Approval

Legislatively Mandated Deadlines. Another potential reason why PAL might not align with the budget cycle is related to statutory deadlines to implement IT projects. Some project proposals are submitted through PAL by agencies and departments implementing recently chaptered legislation. The complexity of the implementation for these projects varies: some new laws require relatively modest modifications to existing IT systems, while others require new systems that, for example, must interface with other federal, state, and local systems. Some legislation, however, might mandate an IT system be implemented quickly, leaving agencies and departments little time to modify or create their systems and even less time for the PAL process. Based on our conversations with one department, we acknowledge that CDT can decide to expedite proposals through PAL. (It is unclear, however, what documents or steps are missed in expediting the process, raising potential oversight concerns.) Some proposals, however, still might not finish the PAL process in advance of the budget cycle for which funding is requested. Therefore, legislatively mandated deadlines and their effect on the time line to implement a proposed IT project can also lead agencies and departments to submit funding requests before finishing the PAL process.

Project Implementation Approach. Another possible reason why PAL might not align with the budget cycle is related to the approach of the IT project to implementing the proposed IT system. Under the traditional approach, any implementation of a new system would not begin until the entire project is completely developed. Beginning in 2015, however, more projects began to follow what is referred to as the “agile” approach to project implementation. In contrast to the traditional approach, the agile approach is an iterative and incremental approach for implementing IT systems. Instead of trying to build a system in its entirety and then deploying the system as a whole, the system is built iteratively from the start of the project and deployed module by module. To implement this approach, projects are divided into multiple discrete modules and, sometimes, a separate vendor is selected to develop and implement each module.

While the agile approach is more flexible than the traditional approach and can allow more vendors to bid on a project, the PAL process was not developed with the agile approach in mind. As a result, CDT has modified the PAL process on a case-by-case basis to make PAL work for projects proposing to use the agile approach. For example, some projects using the agile approach are submitted through PAL as one proposal with multiple modules, while others are submitted as separate PAL proposals for each module—in this case, the entire PAL process is applied to each of the individual modules. If one proposal with multiple modules is submitted through PAL, the Legislature might receive a more comprehensive plan for implementing the entire proposed project. The proposal could take longer, however, to finish the PAL process if different vendors are selected for different modules. Alternatively, if each module for the proposed project is submitted individually through PAL, different modules could be approved by CDT and request funding through the budget process at different times, with no comprehensive project plan available to the Legislature.

Consequences of Misalignment

IT project proposals that do not finish the PAL process before requesting funding from the Legislature prevent the Legislature from fully realizing the anticipated benefits of PAL. Despite the absence of a complete project plan, some of these proposals also request funding for multiple years, which limits the Legislature’s oversight of the project’s development and implementation. One of the budget proposals acknowledges the challenge of approving project funding prior to a project proposal completion of PAL, and proposes budget bill language that would make funding for the project contingent on approval of PAL documents by CDT and the Department of Finance (DOF). The proposed budget bill language, however, does not provide the Legislature with an opportunity to review and approve the proposal and associated funding amounts once the PAL process is complete. We discuss each of these consequences below.

Proposals Could Inhibit Legislature From Fully Realizing Anticipated Benefits of PAL

Of the seven proposals, six of them request all project-related funding and one requests some amount of funding before finishing the PAL planning process. Given the PAL process for these project proposals has not been fully completed, the departments likely have yet to develop solicitations for project development; select vendors; and establish firmer baseline expectations for the projects in terms of cost, schedule, and scope—all key steps in developing the more comprehensive picture of the project that was envisioned when the PAL process replaced the FSR process. We acknowledge that the administration does consider the projects on a case-by-case basis when evaluating and submitting their funding requests, and tries to inform their initial cost estimates using market research. However, the Legislature still may have limited information—sometimes more in line with the level of information it had under the old FSR process—to fully assess the project proposals and determine the merits of funding their development and implementation.

Even with Less Information, Funding Is Requested for Multiple Years

The Legislature also typically approves funding for IT projects on a year-to-year basis, which requires an agency or department to return in a subsequent funding year with a status update and a request for additional funding. Despite the fact that these projects have not completed PAL, the requests are for multiple years of funding. Fully funding the development and implementation of the projects at this time would likely limit the Legislature’s ability to track project progress and hold agencies and departments accountable should challenges arise.

One Proposal Attempts to Mitigate Consequences of Misalignment, but Proposed Language Stops Short of Providing Legislative Oversight

The Office of Statewide Health Planning and Development’s proposal includes budget bill language that would make funding for the development and implementation of the IT project contingent on approval of PAL documents by CDT and DOF. The language suggests an awareness by the administration that the PAL planning process might not finish before the end of the 2019-20 budget cycle and that a project should not be funded until all the planning activities are completed. We do note that, as written, the proposed language does not address key legislative oversight concerns because it does not include written notification of, and approval by, the Legislature to—for example—update the cost, schedule, and scope of the proposal after Stage 4 approval and, if necessary, modify approved funding amounts. Additionally, it is unclear to us why the administration would propose this budget bill language for one proposal, but not for the others.

Issues for Legislative Consideration

As the Legislature continues to exercise oversight of the PAL process at the same time it receives funding requests for project proposals that have not yet completed the PAL process, we raise a number of issues for legislative consideration.

Better Alignment of PAL With the Budget Process Will Likely Require Process Improvements. In our initial analysis of the PAL process, we acknowledged potential misalignment of CDT’s approval of planning documents through the PAL process and the budget cycle, and the need for the Legislature to build in additional oversight methods such as budget bill language. The number of proposals submitted by departments asking for significant amounts of funding (often multiyear) without completing the PAL process, however raises concerns highlighted in this report. As more projects are funded prior to completing the PAL process, the relative benefits of PAL over the prior FSR process are potentially diminished. Additionally, project-specific factors such as the agile implementation approach will further prevent the Legislature from fully realizing the benefits of PAL. The Legislature could require CDT and DOF to address these issues, including providing a list of potential changes that could be made to the PAL process to better align it with the budget cycle. In preparing for these discussions, the Legislature should consider the following questions:

• What information does the Legislature require before it approves funding for a project, particularly for projects with a legislatively mandated deadline?

• What information does the Legislature require when considering one or more modules of a larger project using the agile approach?

• Based on the information the Legislature requires, how should CDT and DOF advise agencies and departments that are submitting funding requests for project proposals in PAL? Are there exceptions to this advice, and in what circumstances?

• When setting implementation dates in future legislation, how can the Legislature identify projects that require IT system changes and build in time for PAL? How much time should be built in for PAL?

• When should the Legislature evaluate PAL? In evaluating PAL, how would the Legislature determine its effectiveness and define project “success”?

Budget Bill Language Could Increase Legislative Oversight in Certain Circumstances. While one of the 2019-20 requests did propose budget bill language that would make funding for an IT project proposal contingent on approval of PAL documents by CDT and DOF, others did not include similar language. Additionally, the proposed language stops short of providing legislative oversight by not including written notification of, and approval by, the Legislature. We acknowledge that each project proposal should be considered by the Legislature on a case-by-case basis. If, based on this consideration, the Legislature is interested in funding any of these proposals prior to completion of the PAL process—for example, to meet legislatively mandated deadlines or to avert a potential loss of federal funding—it should consider approving the funding request with budget bill language that conditions the funding on prior written notification of, and approval by, the Legislature once PAL documents have been approved. This would allow the Legislature to review and approve any updates to the cost, schedule, and scope of the project after Stage 4 approval. A review period would give the Legislature an opportunity to realize the benefits of PAL by again considering project funding after vendors are selected and a complete project plan is available. If the project finishes PAL before the completion of the Legislature’s 2019-20 budget deliberations, the Legislature could require that agencies and/or departments involved in the project update their funding requests to reflect the project’s most recent approved PAL document.