1. State of Kansas Financial Management System Needs Assessment Steering Committee Meeting January 4, 2007

2. 2 Meeting Agenda  Introductions  Project Status  Findings and Recommendations  Composition of Final Report  Next Steps  Questions

3. 3 Project Status Project Status Since the last Steering Committee meeting on November 30, 2006:  Final input received from agencies on requirements  Collected information on interfaces from Regents Institutions and other State agencies  Presented final results to Project Sponsors  All project deliverables completed and approved/accepted by State  Final report posted to public project Web site at http://da.ks.gov/ar/fms/  Final project filing due to Kansas Information Technology Office (KITO) on January 10, 2007

4. 4 Findings and Recommendations Overview of Study Results Findings and Recommendations Overview of Study Results  Estimated Implementation Costs  Estimated Ongoing Costs  Estimated Benefits/Savings  Business Case (Payback Analysis)  Project Scope  Implementation Approach, Timeline, Go-live  Project Organization and Governance  Staffing  Pre-Implementation Activities  Other Observations  Alternative Solutions

5. 5 Findings and Recommendations Overall Recommendation  The State should proceed with a project to acquire and implement a statewide Financial Management System just as Accenture recommended in its 2001 Needs Assessment report The State could realize a significant financial return on its investment in a new FMS—Payback in Year 12, $5.7 million annual net savings beginning in Year 5 The FMS would provide a number of significant intangible benefits to the State that are not addressed by the financial calculations performed in this Study, such as better decision-making resulting from better information, improved level of service to internal and external customers, etc. Agencies continue to spend, and have plans to spend, significant amounts on enhancing their existing agency-specific legacy systems or purchase their own agency-specific integrated systems – this funding could be applied toward the implementation of a single, statewide FMS Redundant, manual work continuing to proliferate, along with smaller custom shadow systems Previously existing shadow systems getting older, with even less technical support available Increased retirements in next decade will provide more risk around custom/non-standard approaches, but also increase opportunity to capture savings through process standardization and automation

6. 6 Findings and Recommendations Estimated Implementation Costs CategoryAmount Consulting Fees$ 27,371,600 Cost of State Employee “Backfilling”$ 5,265,246 Software License Fee$ 4,000,000 Software Maintenance Fees (1st year)$ 800,000 Facilities/Other (incl. bar-coding equip. for Asset Mgmt)$ 1,250,000 Technical Platform/Infrastructure (during implementation)$ 2,040,000 Total Cost of Implementation $ 40,726,846 Key Assumptions: $210/hr average consulting rate, 100% backfill of 50 state staff at $33.85/hr ($50,000 salary; 30% benefits; 1,920 hours per year), total cost of implementation accurate to within +/-10%; the figures above do not include an amount for contingency.

7. 7 Findings and Recommendations Funding Approach  Addressed in Governor’s Budget 2008 Recommendations  Proposed Funding Components Ongoing Appropriation for Department of Administration One-time contributions from state agencies in Fiscal Year 2009 and 2010 Ongoing Cost Recovery Fee charged to agencies upon implementation to cover ongoing maintenance and upgrades

8. 8 Findings and Recommendations Estimated Ongoing Costs  Infrastructure Estimate of $1,200,000 per year  Annual software maintenance fees Estimate of $824,000 in FY2011 and assumes 3% increase each year thereafter  Staffing Estimate of $1,820,000 per year to provide ongoing support, training, and operations  Upgrades Assumes an application software upgrade will be required in Year 7 and Year 11 at an estimated cost of $5,053,134 for each upgrade.

9. 9 Findings and Recommendations Estimated Benefits  System Savings Total of approximately $27,600,000 in estimated annual systems cost savings reported over 11-year estimating period  Process Improvement Benefits FTE-based benefits estimated at $3.5 million annually after discounting; this amount decreased significantly from the $8.5 million previously reported due to the application of discounting factors and removal of some savings that were inappropriately included in survey responses Non-FTE-based benefits estimated at $3 million annually (procurement and postage savings)

10. 10 Findings and Recommendations Business Case (Payback Analysis)  Approximately $5.7 million annually in benefits beginning with second full year of implementation  Payback in Year 12 (go-live in Year 4)  Process improvements and system savings are significantly understated: Most agencies reported no significant investment in new and existing systems in next 10 years if no statewide FMS is implemented Potential under-reporting of process-improvement benefits based on comparison to other states FTE-based benefits/savings have been significantly discounted

11. 11 Findings and Recommendations Project Scope  General Ledger (including Grant Accounting and Cost Allocation)  Accounts Payable  Procurement  Asset Management  Budget Development Integration (3 options)  Reporting/Data Warehouse  SOKI3 and Set-Off out of scope for initial implementation  Regents Institutions will continue to interface

12. 12 Findings and Recommendations Implementation Approach, Timeline, Go-Live  Implementation Approach Big Bang (all agencies go-live simultaneously)  Timeline for Implementation Project 21 months  Implementation Date (Go-Live) July 1, 2010 used for estimating purposes. Actual date dependent upon decision on mid-year vs. FY- end go-live and duration of pre-implementation phase  Estimated Implementation Project Start Date October 1, 2008. Actual date will depend on when approval to go forward is obtained and time period required to complete pre-implementation activities

13. 13 Findings and Recommendations Project Organization and Governance  Sponsors Governor’s Office Secretary of Administration Executive Branch Chief Information Technology Officer Agencies that contribute major funding to effort  Steering Committee Continue existing steering committee approach/membership  Organization Run as an independent enterprise project office separate from the Department of Administration to reflect statewide nature of project

14. 14 Findings and Recommendations Project Staffing  Staffing Project will require 50 state staff and 33 consultants at peak Assumed to be composed of both central and state agency staff, with some new hires or retirees engaged to participate on project team Budget includes funding for use in hiring temporary replacements for 100% of state project team staff Study recommends pursuing additional compensation and incentives for project team members. However, the current project budget estimate does not include these costs

15. 15 Findings and Recommendations Pre-Implementation Activities  Formalize pre-implementation governance structure and organization as a project and then staff appropriately  Perform organizational change readiness assessment  Develop and initiate staffing approach for implementation project  Document State’s “As Is” business processes  Develop inventory of existing legacy systems  Perform data cleansing activities  Review and evaluate existing chart of accounts

16. 16 Findings and Recommendations Pre-Implementation Activities  Conduct alternative solutions analysis to determine how best to address SHARP time and effort functionality  Develop RFP(s) for FMS software and implementation services  Develop demonstration evaluation scripts to be followed by vendor finalists during their software demonstrations  Proposal evaluation and contract negotiations  Plan and prepare for project logistics (physical space for project team, etc.)

17. 17 Findings and Recommendations Other Observations  Procurement opportunities  Lack of statewide focus on Fixed Assets  Potential for negotiation with Oracle- PeopleSoft  Some agencies considering moving forward in interim even if project is approved – attempting to meet immediate needs, but potentially diverting focus and resources from statewide project  State has not taken on a statewide project of this magnitude in 10+ years

18. 18 Findings and Recommendations Agency Impact and Commitment  Staffing Agency executives must be willing to commit best and brightest staff to project for as long as 24 months Includes encouraging participation, collaborating to develop backfill and training strategies, committing to return staff to positions after implementation  Champion FMS Project within and outside agency  Participate in Project Governance  Invest resources in process reengineering and elimination of existing shadow systems and processes, while minimizing modifications to FMS

19. 19 Findings and Recommendations Alternative Solutions  Status quo (do nothing)  Custom development  Implement a “best-of-breed” solution to address immediate needs (e.g., eProcurement system)  Enhance existing systems and processes  Outsourcing Outsourced hosting Outsourced business processes Some combination of above

20. 20 Composition of Final Report  Executive Summary  Introduction  Business Case Analysis  System Requirements Validation  Implementation Best Practices  Organizational Best Practices  Budget Development Integration with FMS  Human Resources and Payroll Integration with FMS  Reporting Approach  Alternative Solutions Analysis

21. 21 Next Steps  Submit final project report to Kansas Information Technology Office (KITO) by 1/10/07  Schedule meeting of Focus Group participants to present study results and recognize their contributions  Present study results to constituent groups, including ASTRA, ITAB, Small Agency Group, Regents Controllers, etc. and obtain feedback  Work with Legislature to obtain approval  Use Web site to continue to provide updates and other pertinent information as available

22. 22 Ongoing Project Information http://da.ks.gov/ar/fms/

23. 23 Questions