How the Proposed Budget Affects the U.S. Government’s IT Vendors

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The Bush administration’s proposed budget for the U.S. government for fiscal 2002 emphasizes e-procurement, streamlining and outsourcing. Education and medical research get big increases, but other IT-intensive agencies are not so lucky.

Vendors should check their strategies against President Bush’s priorities.
Event: On 28 February 2001, U.S. President George W. Bush submitted to Congress his budget proposal for fiscal 2002, ending 30 September 2002.

First Take: By changing spending priorities, a new federal budget can affect the IT industry in many different ways.

Bush’s proposal emphasizes increasing reliance on IT capabilities such as e-procurement and e-government; the budget cites cost savings as a primary motive. Although e-procurement can save money, Gartner expects achieving savings will require head count reductions in the acquisition corps and a long, focused effort to streamline federal acquisition regulations. Also, e-procurement’s primary return on investment may lie outside the procurement process itself — namely, in improving the enterprise's nimbleness and effectiveness.

A further benefit to the IT service industry is the budget's emphasis on outsourcing. Programs would be streamlined, outsourced and consolidated, which could allow government to serve constituents more effectively at less cost.

Unfortunately, the flaw in this strategy is that outsourcing often costs more. This budget perpetuates the Defense Department’s myth of 20 percent to 30 percent cost savings from outsourcing.

Gartner projects that through 2005, to achieve the $14 billion in savings from outsourcing called for in the budget, the federal government will let out for competitive bid at least $140 billion in services (0.4 probability).

Achieving the president's streamlining goals will take e-government and interoperability. The budget earmarks $100 million for e-government over four years ($10 million in fiscal 2002), which amounts to a wedge into a very expensive transformation. The Council for Excellence in Government has called for Congress to appropriate $3 billion through 2005 for an e-government “strategic investment fund” to provide seed money for highly leveragable e-government initiatives.

IT vendors focused on President Bush’s top priority of education and on medical research will likely do well. The president's focus on education will likely mean a boost for vendors of e-learning and e-procurement for primary and secondary schools, and the budget of the National Institutes of Health will double over several years. However, big agencies with large IT budgets, such as Defense, Education and the National Aeronautics and Space Administration, will likely face big streamlining initiatives.

Overall, the new budget, released just a month into the new administration, makes significant inroads into setting the vision for the impact of IT on government in President Bush’s first term. Vendors dependent on federal spending would be wise to scrutinize the president’s budget and begin to develop their ownഊstrategies for what will be a lean period when federal agencies will look at performance metrics and value for their money.

Analytical Source: French Caldwell, Knowledge Management

March 26, 2001
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2001-3-29 -04:00

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