Funding solutions

Public sector organisations are not always known as the most forward thinking and cost effective users of technology but times are changing, and with their ongoing commitment to provide the best possible services to the community comes an increased recognition and respect for the role information communication and technology (ICT) can play.
    
A rising demand for the Government to provide more integrated and interactive information and services and to provide a seamless and consistent service across the public sector is also driving ICT research and acquisition. Public bodies must embrace new finance models if they are to develop and sustain technology improvement programmes while maintaining and protecting capital.
    
Generating efficiency
The procurement of public sector ICT equipment is forecast to rise from a baseline of £2.7 billion in 2005-2006 to £4.1 billion by 2010-2011, an increase of over 50 per cent. It is vitally important that public sector bodies understand how they can generate more efficiency in terms of process, risk and finance and in the disposal of equipment and technology from a statutory and ethical standpoint. Most recent industry focus has been on total cost of ownership (TCO), which is defined as the cost of procuring, operating and disposing of an asset. It includes the cost of support, services, maintenance and repairs incurred over the life of an individual unit of ICT equipment.
    
There is little doubt that public sector organisations are making more informed judgments about the life of assets, but it could be argued that public sector bodies often ‘sweat their assets’: extend their use for longer than their real technological life. This ultimately affects performance and efficiency in a world when technological advances play an important role in an organisation’s success, development and competitiveness.
    
The typical sweating of assets scenario sees a public sector body using technology or equipment beyond five years and even up to seven or ten years, depending upon the facility and its internal upgrade system. In their 2007 briefing Improving the Disposal of Public Sector ICT, the National Audit Office (NAO) demonstrate that many of the problems and issues associated with holding onto equipment longer than the recommended term result in the requirement of additional financial support. The NAO suggests a more appropriate strategy would be to operate a reduction in age profile and a replacement process that operates on a three-year basis.
    
The forecasted new equipment expenditure for the period up until 2010 to 2011, will have a major impact upon procurement departments, ICT departments and finance departments when selecting the most appropriate method of acquisition. As it stands, approximately 80 per cent of equipment is procured, purchased and managed by the public sector using its own funding budgets, loans via the Public Works Loan Board in Local Government or by cash.          

These payment options all place a high degree of risk and ongoing management and resource on the public sector body, in the form of administration, acquisition, servicing and disposal, when they are often not best placed to deal with such matters.
    
Real value
Just over 20 per cent of ICT acquisition is now procured either through outsourcing or managed service i.e. a manufacturer or supplier providing a full service that includes management of assets for control, complaisance and risk purposes, but also disposal at the end of assets’ life. Leasing is typically also offered by the service provider as it offers a real value and alternative to internal public sector borrowing, which is often linked to wider purpose loans over periods not matched to the life of the asset or their use. For example, a local authority might borrow a considerable amount of money over 15 or 20 years from the Public Works Loan Board. On the face of it the borrowing rate may look attractive, but associated management costs can quickly eat into any perceived financial advantage. The flexible payment structure of a lease can be designed to reflect the agreement term, the profile of the ICT implementation plan and an organisation’s cashflow, and can provide a cost effective, transparent and predictive approach to budgeting.
    
Return on investment
Investment in public sector ICT is already paying off, with the introduction of new products and services, enhanced existing products and services, and achieved efficiencies. There are opportunities for even greater gains as public sector organisations transform their existing processes by the strategic application of ICT. For individual organisations and public bodies, the most significant gains are achieved when ICT decisions are business-driven so those involved in ICT acquisition need to look long and hard at strategy, planning, life-cycle management, replacement and disposal issues with an underpinning focus on financial cost and prudence to deliver the most appropriate and cost effective solution.

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