Veterans Affairs: Status of Effort to Consolidate VA Data Centers (Letter
Report, 04/22/1998, GAO/AIMD-98-94).

GAO reviewed the Department of Veterans Affairs' (VA) plans to
consolidate mainframe computer operations at the Veterans Benefits
Administration's benefits delivery centers in Hines, Illinois, and
Philadelphia, Pennsylvania, and at VA's Austin, Texas Automation Center.
This report discusses the current status of VA's efforts to consolidate
its data centers.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-98-94
     TITLE:  Veterans Affairs: Status of Effort to Consolidate VA Data
	     Centers
      DATE:  04/22/1998
   SUBJECT:  Federal agency reorganization
	     Mainframe computers
	     Claims processing
	     Federal downsizing
	     Information resources management
	     Cost effectiveness analysis
	     Systems conversions
	     Veterans benefits
	     Centralization
IDENTIFIER:  Y2K

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GAO/AIMD-98-94

Cover
================================================================ COVER

Report to the Honorable
Chaka Fattah, House of Representatives

April 1998

VETERANS AFFAIRS - STATUS OF
EFFORT TO CONSOLIDATE VA DATA
CENTERS

GAO/AIMD-98-94

Status of Effort to Consolidate VA Data Centers

(511235)

Abbreviations
=============================================================== ABBREV

  AAC - VA's Austin, Texas Automation Center
  MIPS - millions of instructions per second
  OMB - Office of Management and Budget
  VA - Department of Veterans Affairs
  VBA - Veterans Benefits Administration

Letter
=============================================================== LETTER

B-279359

April 22, 1998

The Honorable Chaka Fattah
House of Representatives

Dear Mr.  Fattah:

As requested by your office, we reviewed the Department of Veterans
Affairs' (VA) plans to consolidate mainframe computer operations at
the Veterans Benefits Administration's (VBA) benefits delivery
centers in Hines, Illinois, and Philadelphia, Pennsylvania, at VA's
Austin, Texas Automation Center (AAC).  Our objective was to
determine the current status of VA's efforts to consolidate its data
centers.

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

In response to a 1995 Office of Management and Budget (OMB) bulletin
urging federal departments to consolidate their data centers as a way
of reducing operating costs, VA hired a contractor to study various
alternatives.  The contractor concluded, in June 1996, that
consolidation of VBA's Hines and Philadelphia data centers at VA's
AAC was the most cost-effective solution and would bring VA into
compliance with OMB's criteria for cost-effective data center size.

However, in March 1997 VA decided to defer consolidation to ensure
that available resources and attention could be focused on solving
VBA's Year 2000 computing problem.\1 OMB subsequently urged VA to
address consolidation concurrently with the Year 2000 issue.

The department is now planning the data center consolidation.  VA and
VBA have recently formed a team to develop plans to address factors
that were not fully considered in the original 1996 analysis, such as
how displaced personnel at Hines and Philadelphia will be
accommodated.  VA and VBA have stated that they intend to proceed in
2000 with data center consolidation, once VBA has completed its
effort to address the Year 2000 issue.

--------------------
\1 The Year 2000 problem is rooted in how dates are recorded and
computed.  For the past several decades, many existing computer
systems have used a two-digit date field to represent the current
year--such as "97" for 1997.  However, such a format does not
distinguish between 2000 and 1900.  Computer programs that are not
corrected to accommodate the 2000 date could process information
incorrectly, affecting the payment of benefits and provision of
services.

   BACKGROUND
------------------------------------------------------------ Letter :2

VA comprises three major components:  the Veterans Health
Administration, which provides services through the nation's largest
health care system; the National Cemetery System, which provides
burial services in 113 national cemeteries and headstones for
veterans in private cemeteries; and VBA, which provides nonmedical
benefits to veterans and their dependents.  In fiscal year 1997, VBA
reported that it paid about
$23 billion in benefits to at least 4.4 million veterans and their
dependents.

Three data centers currently support key VA business processes.  AAC,
VA's data center in Austin, uses IBM and other computer equipment to
process the department's accounting and financial management
information related to administrative operations.  AAC also provides
information systems and telecommunications services to several VA
customers, including the National Cemetery System, Veterans Health
Administration, and the Office of the Inspector General.  AAC had a
computer operations staff of 114 as of January 1998.

VBA's Hines center processes compensation and pension, education, and
vocational rehabilitation claims using Honeywell and IBM computer
equipment; VBA's Philadelphia center processes insurance claims using
IBM equipment and processes benefit transactions using Honeywell
equipment.  As of January 1998, the Hines center had an operations
staff of 164 and the Philadelphia center had an operations staff of
98.  Each location also has a VBA systems development center, staffed
with 102 people at Hines, 48 people at Philadelphia, and 59 people at
Austin, as of January 1998, providing software development and
service support to VBA's benefits programs.

   OBJECTIVE, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

Our objective was to determine the current status of VA's plans to
consolidate its data centers.  To do this, we reviewed relevant
studies and plans commissioned by VA and VBA on data center
consolidation.  These studies and plans included VA's Summary of Data
Center Consolidation Implementation Plans, January 1997; VA's Data
Center Consolidation Alternatives Analysis and Business Case
Analysis, June 1996; VA's Data Center Consolidation Strategic Plan,
June 1996; Veterans Benefits Delivery Network Payment System
Conversion Analysis, February 1996; Conversion Study for the
Department of Veterans Affairs (Philadelphia, Pennsylvania), January
1996; and the Conversion Study for the Department of Veterans Affairs
(Hines, Illinois), December 1995.  We did not independently verify
savings estimations or other information in these studies and plans.

We compared VA's plans with guidance contained in OMB Bulletin 96-02,
dated October 4, 1995.  In addition, we interviewed VA and VBA
information resources management officials in Washington, D.C., VBA
officials at the Hines and Philadelphia benefits delivery and systems
development centers, and representatives of VA's data center
consolidation support contractor.  We also met with OMB officials
regarding OMB Bulletin 96-02 and VA's compliance with its
requirements.  We performed our audit work between October 1997 and
March 1998 in accordance with generally accepted government auditing
standards.

We requested written comments on a draft of this report from the
Acting Secretary of Veterans Affairs or his designee.  The Assistant
Secretary for Policy and Planning provided us with written comments.
These comments are discussed in the "Agency Comments" section and are
reprinted in appendix I.

   VA RESPONDS TO OMB REQUIREMENT
------------------------------------------------------------ Letter :4

In September 1993, the National Performance Review issued a report\2
that discussed information technology goals, including establishing
an effective and efficient information infrastructure to support
electronic operations.  One action item for this goal was to develop
a governmentwide data center consolidation and modernization plan for
reducing the number of federal data centers and improving their
operations.  A committee comprised of personnel from the National
Performance Review and the Council of Federal Data Center Directors
was tasked to develop this plan.  The committee issued a report\3 in
February 1995 that recommended a data center consolidation strategy
to improve efficiency and lower costs, and provided a plan for
implementing this strategy.

Acting upon the recommendations in the committee's report, OMB issued
Bulletin 96-02 on consolidation\4 of agency data centers in October
1995.  The bulletin directs federal agencies to reduce the number of
data centers and their cost of operations.  OMB wanted agencies to
achieve this goal over a 24-month period by consolidating operations
at smaller data centers to larger ones.  Under OMB Bulletin 96-02,
agencies were to prepare analyses and plans for data center
consolidation and complete consolidation activities by June 1998.
Agencies were to submit to OMB the following documents:  (1) an
inventory of agency data centers by March 1, 1996, (2) a data center
consolidation strategy by June 3, 1996, and (3) a detailed
implementation plan by September 2, 1996.

--------------------
\2 From Red Tape to Results:  Creating a Government that Works Better
& Costs Less, Report of the National Performance Review, Vice
President Al Gore, September 7, 1993.

\3 Consolidation of Federal Data Centers, Federal Data Center
Consolidation Committee, Council of Federal Data Center Directors,
February 1995.

\4 The bulletin defines three types of consolidation:  (1)
collocation or moving information processing systems from multiple
locations to one location where they operate as discrete systems, (2)
hardware consolidation/upgrade or combining hardware components from
various locations into centralized, modernized (upgraded)
configurations, and (3) workload consolidation or moving software
applications from two or more computer systems to a single computer
system.

      VA ANALYSIS CONCLUDES THAT
      AAC CONSOLIDATION IS THE
      MOST COST-EFFECTIVE SOLUTION
---------------------------------------------------------- Letter :4.1

In 1996, VA took action to address the OMB requirements by
contracting with a consulting firm to develop an alternatives and
business case analysis, as well as a strategic plan and an
implementation plan for data center consolidation.  The contractor
considered three alternatives:  (1) keep the VBA data centers and AAC
at their current locations, (2) consolidate all IBM and part of the
Honeywell processing at AAC, but leave Hines as a redundant site
handling regional processing, and (3) consolidate all VBA IBM and
Honeywell processing at AAC.

The contractor concluded that consolidation of VBA's data center
operations at AAC was the most cost-effective alternative and would
meet the OMB requirement for data center consolidation.  According to
the contractor's analysis, consolidating the VBA data centers at AAC
would save VA almost $49 million, compared with the other two
alternatives, over a 6-year life.\5 Most of the savings would result
from eliminating computer operations positions at VBA data centers.

The contractor recommended consolidation of the VBA data centers at
AAC because this was the only alternative meeting the criteria in
OMB's Bulletin 96-02.  The criteria stipulated minimum data center
mainframe processor target sizes in terms of millions of instructions
per second (MIPS).\6 Table 1 compares the size of AAC and VBA data
center processing equipment with OMB's minimum sizing requirements
for data center mainframe processors.  Data centers that have fewer
MIPS than OMB's target sizes are considered to be candidates for
consolidation.  According to a Federal Data Center study, larger data
centers are more effective than smaller data centers.  Empirical
studies\7 of data centers and experience show that the cost per unit
of output of a large data center is less than the cost of the same
unit of output from a smaller data center.

                                Table 1

                VA Data Center Size and OMB Criteria for
                   Cost-Effective Data Center Sizing

                               IBM MIPS             Honeywell MIPS
                        ----------------------  ----------------------
                               OMB        Data         OMB        Data
                           minimum      center     minimum      center
                        requiremen      actual  requiremen      actual
Data center                      t        size           t        size
----------------------  ----------  ----------  ----------  ----------
AAC                          325.0       404.0       175.0         n/a
Hines                        325.0        13.5       175.0        13.0
Philadelphia                 325.0        28.0       175.0        10.0
----------------------------------------------------------------------
Source:  OMB Bulletin 96-02 and Department of Veterans Affairs Data
Center Consolidation Alternatives Analysis and Business Case
Analysis, June 1996.  We did not independently verify this
information.

Only VA's AAC met OMB's minimum MIPS requirement; VBA's Hines and
Philadelphia centers did not meet this requirement.

The contractor's January 1997 implementation plan discussed at a high
level several areas that VA would have to address in order to
successfully collocate its data centers at one location, including a
consolidation management strategy and a detailed human resources
strategy with transfer options and other benefits to limit any
adverse impact on VA employees.  According to the contractor's
implementation plan, consolidation would result in as many as 274
mainframe operations positions being phased out or redirected--177 at
Hines and 97 at Philadelphia.  Because consolidation of the systems
development centers was not considered, systems development personnel
at these centers would not be affected.

--------------------
\5 This estimate is in present-value dollars.

\6 MIPS is a measure of processor speed.

\7 These studies analyzed certain metrics, including a total
cost-per-unit of processing power consumed, central processing unit
utilization, and some measure of disk and tape utilization and print
management.

      VA CONSOLIDATION POSTPONED
      PENDING COMPLETION OF VBA
      YEAR 2000 COMPLIANCE
      ACTIVITY
---------------------------------------------------------- Letter :4.2

In March 1997, VA decided to postpone its plans for data center
consolidation because of concerns that VBA might not be able to
complete necessary Year 2000 computer system modifications and
consolidation at the same time.  We first raised concerns about the
Year 2000 issue in June 1996.\8 At that time, we indicated that Year
2000 should be VBA's first information technology priority and that
plans to consolidate VBA's data centers would be an additional risk
to VBA's Year 2000 effort.  VA told OMB that the decision to postpone
data center consolidation reflects VA's primary goal of ensuring that
payments to veterans and their dependents continue without
interruption beyond January 1, 2000.  VA also told OMB that it plans
to proceed with data center consolidation once the Year 2000
computing problem is resolved.

--------------------
\8 Veterans Benefits Administration:  Management and Technical
Weaknesses Must be Overcome If Modernization Is To Succeed
(GAO/T-AIMD-96-103, June 19, 1996).

      OMB ASKS VA TO ADDRESS YEAR
      2000 AND DATA CENTER
      CONSOLIDATION CONCURRENTLY
---------------------------------------------------------- Letter :4.3

In June 1997, OMB informed VA that it should reconsider its decision
to postpone data center consolidation.  OMB officials stated their
belief that VA and VBA could address both the Year 2000 computing
problem and data center consolidation at the same time.  OMB further
said that it would use its statutory authority to ensure compliance
with OMB Bulletin 96-02.\9 In November 1997, as part of internal
fiscal year 1999 budget negotiations between OMB and VA, OMB again
urged VA to accelerate data center consolidation and concurrently
address Year 2000 computer modifications.

According to VA's Deputy Assistant Secretary for Information
Resources Management, the department is now taking steps to proceed
with data center consolidation planning.  However, she stressed that
VA is still committed to resolving the VBA Year 2000 computing
problem before it begins data center consolidation.  At the present
time, VA expects to consolidate its mainframe computer operations
sometime in 2000.

--------------------
\9 Clinger-Cohen Act (P.L.  104-106, section 5113(b)(5)(B)).

   CURRENT STATUS OF DATA CENTER
   CONSOLIDATION
------------------------------------------------------------ Letter :5

In response to OMB's concern about data center consolidation, the VA
Chief Information Officer and VBA formed a team comprised of the data
center directors, staff in the VBA Chief Information Officer's
office, and a liaison from VA's Office of Information Resources
Management to jointly develop a new plan for collocation.  The new
plan is to take into account the changes that have occurred since the
contractor's January 1997 implementation plan, including upgrades to
various computer platforms and Year 2000 strategy changes.  VA
officials acknowledged that, among other things, a detailed human
resources plan is needed to address how displaced personnel at the
benefits delivery centers will be accommodated.  OMB has asked that
VA submit the collocation plan to them by March 31, 1998.

To meet the OMB requirements, VA expects that its data center
collocation plan will contain several items, including

  -- a human resources plan to include transfer and training options
     describing how VA will accommodate VBA benefits delivery center
     employees at risk of losing their jobs,

  -- a transition plan, describing how VA will move from its current
     architecture to its planned post-consolidation architecture,\10

  -- a security and disaster recovery plan covering the transition
     and post-consolidation environments,

  -- an acquisition plan to support data center consolidation and
     modernization efforts that require new or upgraded hardware,
     software, and communications equipment and facility
     improvements,

  -- a fee-for-service structure describing how new customers will be
     charged for use of the data center, and

  -- a resources management plan that reflects projected
     consolidation costs for capital investments, travel and
     relocation, software licenses, human resources, communications,
     facility improvements, and disaster recovery.

According to VBA's Chief Information Officer, VBA has drafted a
collocation plan covering the above items.  However, to date the
VA/VBA joint team has not met to discuss this draft plan.

--------------------
\10 According to OMB Bulletin 96-02, the transition plan should
describe (1) the baseline workload mix and corresponding performance
levels of the closing site that must be met by the receiving site,
(2) reconfiguration of the receiving site to accommodate additional
data processing and communications workload requirements, and (3)
systems integration and testing to ensure that the configuration
meets the specifications.  This plan should also include a schedule
showing start and end dates for transition tasks and milestones.

   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

In commenting on a draft of this report, the Department of Veterans
Affairs provided additional comments regarding the joint VA/VBA
team's efforts to develop a data center collocation plan.  VA stated
that, in January 1998, VBA began to draft a collocation plan.  In
February 1998, VBA forwarded this draft plan to VA's Chief
Information Officer and AAC for their review and comments.  In
addition, VA stated that, while the data center consolidation team
has not formally met, it did conduct a series of telephone conference
calls during March 1998 to discuss the draft plan.  VA stated that it
plans to submit to OMB a framework addressing the areas required by
OMB.  In addition, VA advised us that it plans to develop a detailed
cost analysis and human resources analysis that will identify and
provide employment options for personnel at the data centers affected
by consolidation.  Finally, VA stated that it plans to contact OMB
during May 1998 to provide the status of its planning efforts.

---------------------------------------------------------- Letter :6.1

As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 5 days
from the date of the report.  At that time, we will send copies to
the Chairman and Ranking Minority Member of the Subcommittee on
Oversight and Investigations, House Committee on Veterans' Affairs,
and the Chairman and Ranking Minority Member of the Subcommittee on
Benefits, House Committee on Veterans' Affairs.  We will also provide
copies to the Chairmen and Ranking Minority Members of the Senate and
House Committees on Veterans' Affairs, the Senate and House
Committees on Appropriations, the Secretary of Veterans Affairs, and
the Director of the Office of Management and Budget.  Copies will
also be made available to others upon request.

Please contact me at (202) 512-6253 or by e-mail at
[email protected] if you have any questions concerning this
report.  Major contributors to this report are listed in appendix II.

Sincerely yours,

Joel C.  Willemssen
Director, Civil Agencies Information Systems

(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
VETERANS AFFAIRS
============================================================== Letter

(See figure in printed edition.)

MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

   ACCOUNTING AND INFORMATION
   MANAGEMENT DIVISION,
   WASHINGTON, D.C.
-------------------------------------------------------- Appendix II:1

Helen Lew, Assistant Director
Tonia L.  Johnson, Senior Information Systems Analyst
J.  Michael Resser, Business Process Analyst-in-Charge

*** End of document. ***