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ERP in Government Failure (again), Some Analysis


February 19, 2013

Doug Hadden, VP Products

Word came a little over a week ago about another Enterprise Resource Planning (ERP) failure in government. This time, a payroll implementation in the State of California. I was involved in some conversations on twitter that I storified below.

Relevant Details

  • Project name: MyCalPAYS
  • Functionality: Civil Service Management including payroll, position management, leave accruals, time & attendance, benefits, employee self-service, reporting
  • Functionality not included: talent & succession management, training, recruitment & e-recruitment, compensation management, personnel cost planning
  • Includes business process re-engineering to leverage “out-of-the-box” functionality
  • Total number of employees when project was to be completed: 240,000 including 160 departments and 21 different bargaining units, State University campuses
  • Total number of employees in first phase: 1,300
  • 8 months of tests with 1,300 employees with no run without errors
  • Original testing was with a sample set of 22,000
  • Project started in 2003 with original contract provided in 2006
  • Fired the original systems integrator in 2009 replaced by the software vendor
  • $26M paid to original systems integrator and $50M paid to the vendor
  • Reportedly $371M total budget of which $254M has been spent
  • Data migration seen as a major problem
  • Dedicated staffing by the State with a governance structure, project plan and change management processes
  • Risk management identified of 16 of 34 attributes as higher complexity (3 or 3.5 out of 4) and overall complexity rating of 2.6 out of 4

Initial Analysis

  • It is a misnomer to suggest that the amount spent was for 1,300 employees, the total $371M budget is for 240,000 employees
  • The $371M cost seems to assume all hardware, maintenance and personnel costs including the State team: the full Total Cost of Ownership over a relatively lengthy period
  • Saying that $371M is an order of magnitude higher TCO than we experience for similar scope Civil Service Management implementations for complete countries
  • There has been sufficient time and budget to develop a full government COTS solution (we did in the same time frame at lower costs)
  • Some analysts seem to think that it was a mistake for the software vendor to step into the project, but my view is that this is better to have the manufacturer in the governance structure than at arm’s length
  • Payroll implementations without salary planning and management in the public sector, especially in a developed country, is probably a mistake because governments are budget driven
  • There was a desire to use generic processes from the COTS software in order to reduce risks and accelerate implementation
  • On the surface, project and risk management processes run by the State appear adequate when compared to other projects that I’ve seen

What could have gone wrong?

The “blame game” is in full force. The general consensus is that the State is probably at fault with systems integration, including the manufacturer, running a close second. Most observers believe that the ERP software is less at fault.

My perspective, coming from a Government Resource Planning (GRP) specialist, is somewhat at a polar opposite to the general consensus.

  1. ERP software has been noted for high failure rates in the public sector – therefore it is unlikely that the victim should be blamed for all failure and more likely that the software is a significant contributor
  2. Significant, if not overwhelming budget, is another clue about the difficulty of customizing software designed for the private sector for the public sector
  3. Vendors have a moral obligation to advise public sector clients and augment project management processes and teams because it is public money

There are some significant but well-understood differences between public and private sector human resource systems. These differences often require significant code customization and therefore higher project risks in government. Some of these factors include:

  • Some process reform to follow many out-of-the-box processes in private sector COTS is often not possible without changes to the law – like it or not, code customization is required
  • Salary calculations including the modeling of collective agreements across one or more sets of salary scales shows how public sector payroll can be more complicated to articulate than in the private sector
  • Secondment and shared personnel are more typical scenarios in the public sector
  • Leave accruals and benefits calculation also tends to be more complex because of longer-term entitlements and complex flexible benefits
  • Time and attendance including seasonal workers and overtime rules can also be more complex in the public sector

Research Sources


Tracing an ERP Fail Story

Interesting reaction to the lawsuit from the State of California related to a failed ERP project.

Storified by · Sat, Feb 16 2013 07:10:21

Ugh RT @chriskanaracus: California terminates contract with #SAP over massive IT project Scavo
Here is another link on CA PR project, from December. Scavo
The project budget seems very high for a Human Resources and Payroll implementation.
Here is the statement from the CA State Controller re: the SAP Payroll project cancellation No mention of funding cutsFrank Scavo
MyPOV: State of CA has already spent a whopping $254 million on its failed SAP PR implementation. Don’t tell me project was underfundedFrank Scavo
@fscavo lack of funding was not the problem. They already funded and fired Bearingpoint. This was small project of 1300 users out of 240k.Michael Krigsman
Many experts in the field speculate on the cause of the problem. 
@SAP_Jarret Please tell me other US governmental agencies have successfully implemented SAP US Payroll. They have, right?Frank Scavo
I will defend the #SAP Payroll offering but how in the world can SAP being the Prime on a high profile project see it fall apart.Jarret Pazahanick
@SAP_Jarret seriously, whole countries pay orders of magnitude less for Payroll software than thisFreeBalance
The general consensus was that something went amiss in the project and that the ERP software is unlikely at fault.
@bhaines0 @fscavo CA has a misguided interest in blaming everyone but themselves. I firmly believe this is not #SAP sw fault. @SAP_JarretMichael Krigsman
@bhaines0 @fscavo CA has already brought in a fired a big consulting firm and then brought in and fired #SAP. It’s an internal problem.Michael Krigsman
@SAP_Jarret So, really, how hard can it be for a 1000 employee CA agency to implement SAP Payroll?Frank Scavo
@mkrigsman @fscavo @chriskanaracus 1,300 was the pilot. Not significant added problem to go to 40K if was working & same scalesFreeBalance
My view was different. Whole national governments implement computerized payroll and human resources for orders of magnitude less than the budget from the State of California. There are some significant differences in government payroll that may have been difficult and expensive to support in general purpose software.
@mkrigsman @fscavo @chriskanaracus 1 of 3 probs come from salary scale complexity, tax/benefits on calendar year vs. fiscal yearFreeBalance
@mkrigsman @fscavo @chriskanaracus 2 of 3 probs from flex benefits in insurance, training & certification cost structures, leave accrualsFreeBalance
@mkrigsman @fscavo @chriskanaracus 3 of 3: probs from bonus structures, budget controls (it is government), overtime, hourly wagesFreeBalance
@freebalance Thanks for sharing your expertise! @fscavo @chriskanaracusMichael Krigsman

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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