Misplaced Priorities 101

Amid a drastic budget crisis, why is the California State University system spending $400 million on computers? And where is the money coming from?

On the Midwestern campuses of the Big Ten -- where Ohio State University overran its budget by $30 million and the University of Minnesota spent $18 million more than its $42 million allotment -- seven different university presidents authored a letter of protest to PeopleSoft's chief executive in 1999.

Earlier this year, the University of Missouri announced it had blown a $40 million budget by nearly 20 percent. Cleveland State University, probably the poster child for PeopleSoft problems, was still dealing with malfunctions after quadrupling its $4 million budget.

And at the University of Colorado, which spent $33 million over four years, a top payroll official described the implementation problem this way for the Associated Press last year: "It's tremendous stress, a tremendous amount of work. Every month, I wonder about who's not going to get paid."

The mere presence of consulting help -- even consultants "certified" by PeopleSoft itself -- does not insure success.

In 1997, W.L. Gore, the Delaware company that makes Gore Tex fabric, sued PeopleSoft and one of its certified "implementation partners," Deloitte Consulting, alleging violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) after an implementation was badly botched. (In a particularly infamous episode, Deloitte consultants working at Gore entered the names of Disney characters into a payroll system as part of a demonstration project -- and then were unable to stop the system from cutting valid company checks to Mickey Mouse and Donald Duck.)

And, beginning in 1996, San Francisco's school district endured a software nightmare that took more than five years and $5 million to resolve. ("The PeopleSoft Touch," Nov. 22, 2000).


David Ernst, CSU's vice chancellor for information technology, is sitting in a third-floor conference room inside the sparkling Long Beach headquarters of the CSU system, a strikingly modern, glassy building that sits on a paved section of waterfront. When confronted with PeopleSoft's past, he seems as untroubled as the glistening water visible through the window behind him.

"We were concerned initially when we read a lot of the same articles," he says. "So we did our own research. And what we found, in almost every single case, is that the software's not the problem. The problem was that the management resources weren't in place to do the project right. And I think we've learned from that."

To hear Ernst tell it, CSU officials took full advantage of the openness inherent in academia, interviewing officials from universities that succeeded and failed at implementing PeopleSoft, picking their brains for advice and cautionary tales.

And what did CSU learn?

Ernst says the most frequent mistakes schools made occurred when executives lost interest in the projects and/or left them for technology departments to impose on their campuses. He also says some schools erred by relying too much on their own tech personnel, who were frequently unfamiliar with PeopleSoft.

"There was a misguided view that you can do a project like this without consulting assistance," says Ernst, whose office has signed contracts with 23 consulting firms for the Common Management System project. He says the number of consulting firms approved to work on the project makes it easier to replace firms that are doing substandard work. "When we invest in consulting as we have, it's really an investment in success."

Ernst says that so far, in the early stages of the CSU project, there are no signs of major cost overruns. Of course, much of the $150 million the CSU has spent to date has gone for fixed-cost items like a data center and software licenses; if they occur, budget overruns are more likely to be visible during the project's installation phase, when $100- to $300-an-hour consultants will be working on all 23 campuses.

"[Our research into other school's problems] is no guarantee we won't have problems," says Ernst, referring to the lessons Cal State learned from other schools. "But I think the problems the other places have had are ones we won't have."

It's already clear that Ernst is right about one thing: Cal State is having its own problems.


In March, after more than two years of complaint by CSU faculty and staff, the state auditor began to investigate the Common Management System project.

The $185,000 audit is expected to last into winter and to discover what the project is costing CSU, in financial and other terms. CSU never made a specific request for funding from the Legislature, and is, therefore, paying for the project out of a variety of line items in its budget. State Sen. Richard Alarcon (D-San Fernando Valley) and Assemblyman Manny Diaz (D-San Jose) requested the audit at the behest of the two major CSU unions, which voiced the same basic question: If the Cal State system isn't asking for money for its $400 million project, where is the money coming from?

"I don't have a problem with centralizing data," Alarcon says. "I have a problem when it costs $400 million, and it's not done in the light of day."

To hear many faculty members tell it, the Common Management System is being funded at the direct expense of instruction. According to the California Faculty Association, between the 1990-91 and 2000-01 academic years, spending on instruction at CSU has dropped from 55 percent of the system's budget to 43 percent. Cal State officials might not agree with the methodology that produced those figures, but, in a letter responding to the state audit, the chancellor's office said that it has "committed to completing 1,000 faculty searches in the coming year."

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