Report on the

2010-11 ICT Benchmarking Survey

Report on the 2010-11 ICT Benchmarking Survey i

Table of Contents

Executive Summary 1

High Level Findings 1

Overview 2

About the Survey 2

Next Steps 3

Survey Findings 4

Total ICT Expenditure 4

ICT Capital Investment 5

ICT Investment Model 6

Applications Expenditure 7

ICT Personnel 9

ICT Management Personnel 10

Report on the 2010-11 ICT Benchmarking Survey 1

Executive Summary

The 2010-11 ICT Benchmarking Survey is the third round of data collection in relation

to NSW Government information and communications technology (ICT) expenditure.

The Benchmarking Survey is a comprehensive survey of ICT expenditure data that

facilitates comparison internally between different agencies and clusters or against

external benchmarks.

The Benchmarking Survey has been peer reviewed, but not audited.

High Level Findings

Total ICT expenditure

In 2010-11 NSW Government total ICT expenditure was approximately $2 billion. This

represents 3.1% of total agency expenditure of $65 billion.

ICT capital investment

In 2010-11 ICT capital expenditure was $596 million, representing 30% of total ICT

expenditure across government. The industry benchmark proportion of

capital/operational expenditure is 21% and 79% respectively. It is noted that there may

be a short term increase in capital expenditure during the transition to more ‘as a

service’ arrangements, including the consolidation of NSW Government data centres.

Applications expenditure

In 2010-11 applications expenditure accounted for 42% of the total ICT expenditure at

$831 million. Applications expenditure comprised 34% of the total ICT operating

expenditure and 60% of total ICT capital expenditure.

ICT management

In 2010-11 expenditure on ICT management personnel accounted for 6.6% of total ICT

expenditure. This proportion is below the local / state government benchmark of 8%,

and the external benchmark of 11%.

Report on the 2010-11 ICT Benchmarking Survey 2

Overview

The 2010-11 ICT Benchmarking Survey is the third round of data collection in relation

to NSW Government ICT expenditure. The Benchmarking Survey is a comprehensive

survey of ICT expenditure data that facilitates comparison internally between different

agencies and clusters or against external benchmarks. It will inform ICT governance

decisions and assist in identifying whole of government or inter-agency opportunities.

Cluster and agency level CIOs are using the survey data as a management tool to

compare performance and to target inefficiencies.

The ICT benchmarking program is designed to:

• Provide a baseline for improving performance and monitoring changes over time.

• Identify areas of best practice and opportunities for improvement, including through comparison between agencies, with other governments, and with industry benchmarks.

• Enable agencies to evaluate their performance through transparent, comparable expenditure reporting.

• Provide data to support informed investment decisions.

In April 2012, the NSW Government adopted the NSW ICT Strategy 2012. This

Benchmarking survey will be a key contribution to ongoing monitoring of its

implementation. The scope of this survey is limited to benchmarking expenditure. It

does not assess the quality or effectiveness of the delivery of services.

About the Survey

• The current survey covers the period 1 July 2010 to 30 June 2011. This report is based on the results of this survey and the previous two financial years’ data being 2008-09 and 2009-10.

• The benchmarking report shows NSW Government ICT expenditure, including both operational and capital expenditure, at a whole of government and cluster level.

• The survey covers 67 agencies across the nine principal departments. This equates to 95% of total agency expenditure (smaller agencies were exempted from the survey).

• All ICT expenditure is included - front office, back office and operational.

• The survey excludes embedded technology such as radiology scanners or CAT machines.

• Data is provided by agencies, validated internally and approved by the agency CIO.

Report on the 2010-11 ICT Benchmarking Survey 3

Survey Findings

Total ICT Expenditure

In 2010-11 NSW Government total ICT expenditure was approximately $2 billion. This

represents 3.1% of the total agency expenditure of $65 billion. A detailed breakdown of

ICT expenditure by service tower (category) is provided in Table 1, below.

Service Tower 2008/2009*

(m)

2009/2010*

(m)

% Change

YoY

2010/2011

(m)

%Change

YoY

% Change

in 3 Yrs

Applications $802 $862 7% $831 -4% 4%

End user

infrastructure

$291 $335 15% $307 -8% 5%

Facilities $42 $46 10% $47 2% 12%

Gateway $13 $14 8% $11 -21% -15%

Helpdesk $66 $57 -14% $51 -11% -23%

ICT Management $128 $121 -5% $132 9% 3%

LAN and RAS $38 $37 -3% $41 11% 8%

Mainframe $13 $21 62% $15 -29% 15%

Midrange $146 $134 -8% $137 2% -6%

Storage $31 $40 29% $38 -5% 23%

Voice services $226 $195 -14% $191 -2% -15%

WAN $220 $199 -10% $193 -3% -12%

Total ICT

expenditure

$2,016 $2,061 2% $1,994 -3% -1%

*Figures updated – December 2012

Table 1 - ICT expenditure by service tower (category)

The proportion of ICT expenditure to overall public sector expenditure is broadly

consistent with Gartner Benchmarks for state and local governments (3.6%), and

with that of industry (4.5%).

Benchmark data indicate that the figure of $2 billion is broadly appropriate for an

entity the size of the NSW public sector. However, it is where and how this money

Report on the 2010-11 ICT Benchmarking Survey 4

is spent that will provide government with opportunities for savings, efficiencies and

improvements to internal and external service delivery. The Commission of Audit

Report identifies that,

“The spend on projects and services is not as focussed on service

delivery as better practice would dictate. This is evident through a

low ratio of spend on front line service delivery as compared to back

office functions. The aim is usually to spend about 40% on back

office and 60% on frontline services or businesses. In the

government at present the spend ratio is 55% back office and only

45% frontline.”

ICT Capital Investment

The NSW Government ICT Strategy 2012 (ICT Strategy) positions government to take

advantage of two major industry trends that are driven by technology commodification

and the adoption of web services:

• a move to a service orientation by both vendors and buyers, and

• the deployment of cloud technologies into mainstream business operations.

The ICT Strategy details the benefits of moving to a service orientation, consolidating

infrastructure and using cloud based services – all areas in which government can

make significant capital savings, and increase efficiency and flexibility. The ICT

Strategy positions government to move to a model where it leverages third party

infrastructure and acquires software and other services on an agile, as needed, basis.

This will provide government with flexibility to address changing internal requirements

and align government services with customer needs and expectations, particularly in

relation to mobile and online service provision (anytime, anywhere).

The Commission of Audit Report notes that buying, owning and managing ICT in-

house is an outdated approach to ICT procurement, and is both inefficient and

inconsistent with new developments in service offerings.

In 2010-11, ICT capital expenditure was $596 million. This represents 30% of the total

ICT expenditure across government (see Figure 1, below).

Report on the 2010-11 ICT Benchmarking Survey 5

Figure 1 - NSW Government ICT expenditure - capital (capex) and operating (opex).

Note: FACS includes Businesslink and DFS includes ServiceFirst.

The industry benchmark proportion of capital and operating expenditure is 21% and

79% respectively. As identified in the ICT Strategy, and emphasised in the Commission

of Audit Report, there are opportunities to use as-a-service models to reduce capital

expenditure and increase efficiency and flexibility in internal and external service

delivery.

Across government, capital expenditure fell by 10% in the 2010-11 observed year. It is

noted that this fall pre-dates the adoption by government of the ICT Strategy. The

decrease could reflect deferred investment in advance of data centre reform, or to

support agency delivery of savings targets. However, in comparison to the industry

benchmark, this still represents a relatively heavy weighting to capital ICT investment.

Analysis of the data suggests that there is scope for the NSW public sector to further

lower its ICT capital expenditure as it moves from owning and operating hardware and

software, to the service model environment outlined above.

ICT Investment Model

The move from a reliance on government owned and operated infrastructure and

hardware to outsourced or as-a-service models is not well supported by traditional

approaches to investment, which are geared around capital funding.

Report on the 2010-11 ICT Benchmarking Survey 6

The full benefits of an as-a-service solution should be taken into account in the

assessment of an ICT project. These may include the flexibility to:

• move resources quickly and easily to take advantage of new technologies or

service offerings,

• redirect resources to where they are needed most – either within/across

agencies, or to address urgent or emerging service delivery priorities,

• avoid technology ‘lock in’ where costly and long term arrangements are not

delivering the right solutions, and

• allocate back office savings to front line service delivery.

The ICT Strategy provides for a whole of government approach to maximising

opportunities for collaboration and standardisation. This should also shift the balance

from capital to operating expenditure, thereby allowing for more flexibility in meeting

demand and achieving both internal and external service delivery priorities.

However, an effective mechanism for moving from capital to recurrent funding, in line

with modern ICT investment, will have to be developed to support government to be

able to take full advantage of cloud and managed services.

Applications expenditure

In 2010-11 Applications expenditure accounted for 42% of the total ICT expenditure at

$831m. Applications expenditure comprised 34% of the total ICT operating expenditure

and 60% of the total ICT capital expenditure. This is the most significant of all

categories of public sector ICT expenditure and represents a potential opportunity for

long term and sustainable efficiencies and cost reduction.

Figure 2 - NSW Government total ICT spend per service tower (combined capital and operating expenditure).

Report on the 2010-11 ICT Benchmarking Survey 7

The NSW ICT Strategy 2012 outlines a shift across the government to common

approaches, common standards and leveraging investment opportunities, including for

as-a-service solutions. At this time, it is unclear from the data what proportion of the

$831m spend on applications presents an opportunity for consolidation, sharing and

standardisation. That expenditure covers back-office applications (such as ERP and

Reporting) and common applications (such as email and office applications), as well as

unique, bespoke, dedicated line of business applications (such as Computer Aided

Dispatch (CAD) within AGJ, or Picture Archiving and Communication System (PACS)

within Health). Before developing an approach to improving the efficiency of the

applications spend, it is necessary to better understand the nature of the applications

themselves.

Figure 3 - Proportion of total ICT expenditure on applications by cost element (opex and capex).

The breakdown in Figure 3, above, shows the cost elements that comprise the current

spend on applications.

Report on the 2010-11 ICT Benchmarking Survey 8

ICT Personnel

In 2010-11, NSW Government expenditure on ICT personnel was $736 million ($571

million in operational and $165 million in capital expenditure). This accounts for more

than one third of total government ICT expenditure.

Figure 4 - ICT full-time equivalent (FTE) employees by service tower.

The average annualised cost per full-time equivalent (FTE) employee for internal

personnel across all service towers is $110,000, while the average annualised cost per

FTE for external personnel is $192,000.

The NSW public sector ICT workforce will need to adapt to ensure that Government

has the right mix of skills to deliver its strategic agenda. The development of ICT skills

and capabilities across the sector is a key strategic initiative under the ICT Strategy.

The Strategy identifies people as a key enabler of improved service delivery and better

value ICT investment. It forecasts an increasing demand across the public sector for

contract and vendor management capability as the Government transitions, where

appropriate, to as-a-service sourcing models.

As shown in Figure 5, below, personnel are a significant cost element in each service

tower (component) of ICT expenditure.

Report on the 2010-11 ICT Benchmarking Survey 9

Figure 5 - Proportion of expenditure on ICT personnel by category.

ICT Management Personnel

ICT management personnel expenditure in 2010-11 represents 6.6% of total ICT

expenditure. This proportion is below the local/state government benchmark of 8%, and

considerably less than the Federal Government figure of 12% and the external

benchmark of 11%.

Implementation of the ICT Strategy and an increased use of outsourcing and as-a-

service models will require a significant shift in staffing profile to contract/vendor

management skills.

Department of Finance & Services

Policy and Executive Services 2 - 24 Rawson Place Sydney NSW 2000 www.services.nsw.gov.au