CALIFORNIA DEPARTMENT OF TECHNOLOGY

July 10, 2015

Jerome Horton, ChairState Board of EqualizationP.O. Box 942879Sacramento, CA 94279

Chairman Horton:

In an effort to provide you, and the other members of the Board, with background concerning theDepartment’s recent decision to add time to the procurement for the Board of Equalization’s(BOE) Centralized Revenue Opportunity (CROS) project, I wanted to provide you with thefollowing information:

The due date for vendor bids was changed from June 15, 2015 to October 15, 2015 to afford theBOE additional time to complete a critically needed integrated master schedule. This decisionwas made after many months of working with BOE’s CROS Project Team to address concernswith the Project and after careful consideration of the various BOE initiatives that will competewith CROS for your organization’s resources. Our interest is to minimize the risk of failure ofsuch an important initiative.

Government Code Section 11546, vests the Department of Technology with the responsibility ofproviding oversight of information technology projects. Large public sector technology projectsare often complex and risky endeavors. They require careful planning and strict adherence tosound project management practices. We focus particular attention on the underlying issues thatcause projects to fail or to run into significant challenges. One of the common elements of failedand troubled projects is insufficiency of planning for the time, effort and resources required tosuccessfully complete a project. This is directly attributable to the lack of comprehensivedocumentation of a project’s related activities, timeframes and staff resources. As the state’soversight entity, we monitor project management issues and require agencies to address thoseissues that put projects at risk. When necessary, we intercede as we have here.

The BOE CROS project is a large, complex project, which requires careful and thoroughplanning across the entire BOE organization. CROS will automate and fundamentally transformBOE’s collection and enforcement program and implement a new customer service system. TheCROS system will be designed, developed and implemented in 36 different tax and feeprograms.

CALIFORNIA DEPARTMENT OF TECHNOLOGY1325 J Street- Suite 16O0 Sacramento, California 95814

Phone (916)319-9223. Fax (916)342-1734- www.cio.ca.ov

Jerome Horton, ChairJuly 10, 2015Page 2

Further, the benefits-based contract model for CROS means that the vendor will be paid fromnew tax and fee revenue after the system has been built and deployed. To secure a return ontheir investment, the vendor will seek to move as quickly as possible. Once a contract isexecuted, any delays in progress caused by the unavailability of key BOE staff or insufficiencyof schedule planning will have an adverse financial impact to the vendor and could expose thestate to significant financial consequences. Moreover, the CROS project is only one of severalcritical and concurrent initiatives that BOE is undertaking. Consequently, the need for cross-organizational planning, scheduling and accounting for critical staff resources is of even greaterimportance.

An integrated master schedule is an essential element of resource planning and a criticalcomponent of managing a large, complex project. It is one of the most important tools tomitigate risk and an essential best practice. Without it, the chances of project success arenegligible. The integrated master schedule is necessary to enable the BOE and the Departmentof Technology to:

• Assess, document and validate BOE’s organizational capacity. BOE will need this in order

to effectively review and evaluate its ability to accept and keep-up with the Project schedules

proposed by bidders.

• Ensure that the resource needs of other initiatives (e.g., FISCAL and AB 1717) do not result

in resource conflicts for critical CROS project resources.

• Plan for the work that BOE staff will be contractually obligated to perform such as:

o Participating in the design of the proposed technical systems

o Receiving, reviewing and approving vendor deliverables

o Documenting and modifying business operations

o Testing the proposed technical system

o User Training

Our Independent Project Oversight Reports have documented the lack of a comprehensiveintegrated master schedule as a critical project risk since May 2014. We have repeatedlydiscussed the issue with the CROS Project Team and have raised the concern to other membersof the BOE Executive Leadership Team. We have provided the CROS project flexibility inaddressing our concerns however, to date the Project has failed adhere to our requests.

We know from California’s experience with challenged IT projects that insufficient planningbefore securing a vendor results in significant time and cost overruns. Worse, and all too often,insufficient planning leads to project failure. Just recently, the lack of organizational readinessand necessary upfront planning on a state technology project resulted in adding 27 months to theproject schedule and a cost increase of $28 million.

I can appreciate the concern expressed by some BOE Board Members regarding the additionaltime we have built into the procurement schedule. The delay is necessary to allow the CROS

Jerome Horton, ChairJuly 10, 2015Page 3

Project Team time to complete an integrated master schedule. I would urge the Board toconsider the additional time as a risk mitigation and cost avoidance measure.

I hope this information is helpful and I would be pleased to provide any additional informationthat you may find useful.

Sincerely,

CARLOS RAMOSDirector

cc: Marybel Batjer, Secretary, California Government Operations AgencyFiona Ma, Member, Board of EqualizationDiane L. Harkey, Member, Board of EqualizationGeorge Runner, Member, Board of EqualizationBetty T. Yee, California State ControllerCynthia Bridges, Executive Director, Board of Equalization