Board Report: 2014-IT-B-002 February 7, 2014
The Board has not reevaluated the overall funding for relocating the data center since it initially approved the consultant's cost projection of $201.5 million in June 2012 as the overall budget for the project. This cost projection was a 10-year total cost of ownership (TCO) estimate based on ROM pricing that was intended to compare the financial impact of the eight alternatives, rather than to serve as a detailed budget for the selected alternative. The U.S. Government Accountability Office (GAO) has issued guidance concerning the limitations of ROM estimates as budget-quality estimates for capital program costs. Since the initial budget was approved, an A/E firm has been selected and the Board has finalized the data center's design, which includes increases in leased space from the initial estimates. As the actual build-out work begins, additional changes and cost increases are possible, which could potentially affect the budget. Additionally, both the build-out and operations costs are being funded by the overall budget; therefore, any change in one component will have to be absorbed elsewhere within the overall budget. Without reevaluating the overall data center budget, the approved $201.5 million may not provide for adequate funding to build and operate the data center over the next 10 years.
The overall budget for the data center relocation was based on the consultant's business case, which represented a 10-year TCO estimate prepared using conceptual ROM estimates that were ± 30 percent. The intent of the ROM analysis was to help the Board understand the investment required and the related operating expense impacts of the various options. Further, the consultant that developed the business case also recommended in its report that the Board develop a budget for the project as a next step. GAO developed the GAO Cost Estimating and Assessment Guide to establish a consistent methodology that is based on best practices and that can be used across the federal government for developing, managing, and evaluating capital program cost estimates.3 The GAO Cost Estimating and Assessment Guide states that ROM estimates are helpful for examining differences in high-level alternatives to determine which are most feasible; however, because these estimates are developed from limited data and in a short period of time, an ROM analysis should not be considered a budget-quality cost estimate.
Since the overall budget was approved, the Board has selected a final design for the data center that added additional leased space, which may result in higher costs to build and operate the data center. The consultant's business case estimated 7,000 square feet of raised flooring and 6,300 square feet of additional support equipment space. However, the consultant's business case TCO estimate only included costs associated with 7,000 square feet of leased space. In March 2013, an A/E firm was selected to perform the design work for the new data center. The firm worked on several options, and in May 2013 the Board selected a final design requiring approximately 13,000 square feet of leased space, which met both the recommendation of the A/E firm and the total required space noted by the consultant's business case. The Board estimated an increase to operating costs as a result of the nearly doubling of the consultant's estimate of leased space, but the overall budget has not been adjusted from the initial $201.5 million. The GAO guidance states that after a cost estimate has been accepted and approved, it should be updated periodically as the program matures and as schedules and requirements change.
The overall budget is intended to cover all costs associated with building, migrating, and operating the data center for 10 years. As a result, funding for build-out of the data center is being monitored in combination with the funding for data center operations to the overall budget. Officials informed us that any cost increases in one component, such as the build-out, would have to be absorbed elsewhere within the overall budget, potentially affecting the operations budget.
The approved data center relocation budget was based on the consultant's business case, which represented a 10-year TCO estimate prepared using conceptual ROM estimates that were ± 30-percent. Since the initial budget was approved, a final design has been selected that includes more leased space, yet the overall budget has not been reevaluated to reflect this information. Additionally, build-out and operations expenses are funded together and continue to be tracked to one overall budget number. The budget should be reevaluated, with build-out and operations costs tracked separately, to ensure adequate funds for all phases of the project.
We recommend that the Director of the IT Division
The Director of the IT Division stated that she agrees in principle with the recommendation and that the IT Division has taken actions to implement a process for reevaluating and updating the project status on a monthly basis based on project changes and tracking project expenditures in three separate categories, including design and construction, transition and migration, and operations. Further, periodic budget meetings are held with the Chief Financial Officer and the Chief Operating Officer. Finally, project expenditures are tracked against the total project budget and reflected in quarterly performance reports.
In our opinion, the actions described by the Director are responsive to our recommendation. We plan to follow up on the division's actions to ensure that the recommendation is fully addressed.
