Application hosting: a strategy for outsourcing financial systems. (Solutions).

The GFOA Research and Consulting Center was recently retained by a large city to assist in the task of helping outsource its enterprise resource planning system. The city faced a dilemma that is becoming all too common in the public sector. After implementing a new $25 million system just a few years ago and enduring multiple upgrades since then, the city has not fully realized the benefits the system can provide. This article describes the business drivers motivating the outsourcing of financial systems and describes GFOA's role in helping the city procure the right solution.

WHY OUTSOURCING?

One of the major barriers facing governments in acquiring ERP systems is the significant staffing required to maintain the system on an ongoing basis. Many GFOA members are surprised to learn that while new systems provide many benefits, they also require specialized skill sets. These skill sets (e.g., programming skills using an ERP software product's built-in toolset) are in high demand in the commercial marketplace, leaving governments unable to respond because of rigidities in public sector pay scales. Governments that attempt to build a system support organization in-house may also find that the scale of the effort does not justify fulltime staffing. These factors have led governments to examine application hosting and application management using external service providers.

The city felt that its IT staff could better serve its customers if it acted as an internal business process consulting group to help departments make better use of the ERP system. This type of a role would also reduce the amount of customization in future software upgrades because the IT staff could help departments reengineer to the embedded processes in the software. IT staff would also be able to provide greater assistance to the end user community and to educate them on how to use the functionality in the software more effectively. The constant barrage of upgrade releases and bug patches and fixes prevented IT from fulfilling this "internal consultant" vision.

To break this cycle, the city chose to explore an outsourcing arrangement in which the ERP software would reside on hardware at an external hosting location. The hosting firm would be responsible for all system maintenance-upgrades, bugs, patches, help desk support, and training. Since the field of applications hosting is still in its infancy-especially in the public sector-the city engaged GFOA's Research and Consulting Center to help develop an RFP, evaluate proposals, and negotiate a service level agreement with the winning bidder. The balance of this article identifies some of the key elements of a financial system outsourcing RFF.

SCOPE OF HOSTING SERVICES

The first step in RFP development was to identify and define all of the services to be included in any application hosting agreement. This proved to be a difficult task, given the city's desire to migrate the application to a new location and its requirement that the potential service provider be adept enough at software implementation to provide upgrade services in the future. GFOA consultants and the city were concerned that the firms that were most qualified for the hosting aspect may not be the experts at implementing future releases of the system. The solution was to compartmentalize the REP, using different pricing options for each element and allowing the vendors to partner with specialized firms.