Federal per-employee spending on IT outpaces industry by fourfold — report

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The federal government spends nearly four times as much on information technology per employee than private sector organizations, a new study found.

According to researchers at IDC Government Insights, the government spends on average $39,177 per employee on a range of hardware, software, applications, services and other IT assets. In contrast, the average for IT spending per employee across all other industries is just under $9,900. The all-industries average derives from IDC’s U.S. IT Budget Benchmarks program, which collects IT statistics across the private sector.

The disparity between government per-employee spending and that of private industry wasn’t a surprise, but the size of the gap was jarring, said Shawn P. McCarthy, IDC Government Insights’ research director.

“I did expect [government spending] to be higher because government has certain requirements that they have to adhere to, such as bidding rules, all of which is going to drive the price up a bit,” McCarthy told FedScoop. “But four times was a surprise.”

Also surprising was the huge range in per-employee IT spending among individual agencies. The Health and Human Services Department, for example, spends more than $187,000 per employee, while the Department of Veterans Affairs disburses just under $13,000 per employee, IDC found.

The reasons for the high per-employee cost of government IT are varied, according to the report. With no revenue stream, unlike private companies, government agencies find it challenging to justify systems upgrades. As a result, legacy systems contribute to the high cost of IT in government. According to the Office of Management and Budget, a whopping 73 percent of the federal IT budget is aimed at operating and maintaining existing systems versus developing new systems.

“There seem to be a lot of outliers in government as far as systems that are incredibly expensive to maintain,” McCarthy said. “Nine times out of 10 there is something that’s highly customized or something’s that pretty old and has been kept going for quite a while. The older it is, the more expensive it gets.”

Indeed, in a recent report on aging and outdated agency IT investments, the Government Accountability Office called for a renewed focus on older and obsolete legacy systems.

Another factor in the steep cost of government IT is that agencies are often limited to particular spending choices, such as having to buy from specific contracts. 

Inefficient asset management is another factor. Agencies could do a better job of managing their IT systems, including identifying and prioritizing legacy IT that needs to be modernized and replaced, according to the report.

“There is enough evidence that federal agencies can better manage their IT assets, which in turn could help bring down IT costs that are significantly higher than the industry average,” McCarthy. “When it comes to citizen service, that kind of proactive IT management is very much what the government needs.”

The per-employee spending discrepancies among agencies are also due to a range of factors, as varied as the agency missions themselves. HHS, for example, is burdened by the high cost of its Medicaid Management Information System, budgeted in fiscal year 2017 at $6.4 billion — 70 percent of which is targeted at legacy-system maintenance and operations.

McCarthy cautioned that IT spending per employee is only one measure of IT efficiency in government, but it’s an important measure that should not be ignored.

“Ongoing measurement of IT cost per employee can help government agencies put an important stake in the ground when it comes to evaluating what they spend on IT and how they can work toward greater efficiencies in their investment decisions,” he said. “It’s one of many key performance indicators that can help federal agencies measure themselves against their peers.” 

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