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?

To Prof. Patricia Hill, who teaches history at California State University's campus in San Jose, budget problems are never clearer than when she walks into a classroom -- and sees students without desks.

"There are classes in the social sciences for juniors and seniors where there are 10 or 15 students sitting on the floor, waiting for people to drop [the class], so they can literally have a seat," she says. "My colleagues are told to accept as many students as possible, even for a seminar class. So you'll have 40 or 50 people in a seminar. There's nothing wrong with classes that size.

"But they're not seminars."

Cal State Vice Chancellor David Ernst.
Steven Dewall
Cal State Vice Chancellor David Ernst.
PeopleSoft executive Jim McGlothlin.
Steven Dewall
PeopleSoft executive Jim McGlothlin.
Click Here to See Bar Chart!According to the California Faculty Association's 
analysis, Cal State's spending on teaching has been 
dropping for a decade.
Click Here to See Bar Chart!

According to the California Faculty Association's analysis, Cal State's spending on teaching has been dropping for a decade.

To the extent people outside the system know anything about CSU, they know it's huge and broke. Unlike its smaller, more prestigious, better-funded UC cousin, CSU -- or just "Cal State," as it often is called -- did not prosper during the 1990s boom. Rather than load up on new, tenure-track faculty and watch endowments bulge, CSU spent much of the last decade in brutal labor negotiations and harrowing budget disputes. Full-time faculty ratios dropped; enrollment soared. But if CSU missed the boom, it got a full share of the bust: This spring, Governor Davis slashed the system's already razor-thin budget by $43 million.

Amid the budget carnage, Cal State Chancellor Charles Reed has instituted and is continuing to push a $400 million plan to centralize the system's computer operations, using PeopleSoft software, which has been connected to massive cost overruns at other schools.

CSU officials say the package -- funded, in a less than transparent fashion, from a variety of sources within the system's already-strapped budget -- will save the school millions in the long run. But as controversy swirls around a $95 million state government contract for Oracle software, auditors are attempting to determine where the money for the CSU installation -- the largest in the history of American higher education -- is coming from, and whether the project is harming State's academic programs.

University staff and faculty, meanwhile, are fuming.

"We don't have enough chairs for our students," says California Faculty Association spokesperson Alice Sunshine. "This is $400 million over seven years. I don't think we can afford to be taking the chancellor's word for it."

Late in 1996, word spread in tech circles of a fruitful and almost endless contracting opportunity: California State University was seeking to centralize its disparate computer systems. At least as far as higher education goes, the scope of the project was unprecedented. With 23 campuses, nearly 400,000 students, and 42,000 employees, the CSU system is the largest in the country and, from a technology perspective, a long way from being wired. The system's mountains of data on employees, finances, and students were stored on incompatible systems at 23 separate computing hubs around the state.

The project -- eventually known as the Common Management System, or CMS -- was aimed at dropping all CSU data into a slick database accessible all over the university system. Centralizing business practices via snazzy new software "suites" was a common goal in 1996, when much of America was fretting over the computer-freezing possibilities of Year 2000. Cost-conscious colleges were easily enticed by promises that their costly, cumbersome, and often redundant ways of tracking personnel, spending, grades, enrollment, and admissions could be streamlined.

Major software vendors -- including, obviously, Oracle and PeopleSoft -- were able to build huge businesses in the 1990s while selling such Enterprise Resource Planning software to business, government, and educational institutions. College campuses all over the country invested heavily in the software (sometimes with far-from-optimum results), but no entire university system tried to fully integrate computing operations -- until Cal State made the leap.

"I was at Oracle at the time, and I can tell you the competition [for the contract] was fierce," recalls Jim McGlothlin, a regional vice president in PeopleSoft's education and government division. "Between CSU and SUNY [the State University of New York, which was weighing, but later abandoned, a similar project], we actually contemplated acquiring a company to help us get the contract."

Oracle's inability to provide the student administration component -- the piece of the software suite responsible for enrollment, class registration, financial aid, admissions, and grade reporting, among other things -- wound up being the difference. PeopleSoft knew exactly how big its victory was. "We may not be building the pyramids," a PeopleSoft attorney wrote to a CSU contract official (who had just returned from Egypt), "but a state-wide standardized HR, Financial and Student system for [the] California State University system is still quite an undertaking."

Considering what some schools have experienced while trying to make PeopleSoft software work, a working PeopleSoft system for CSU's 23 campuses might be every bit as wondrous as anything Pharaoh ever contemplated.

When installed properly, PeopleSoft suites have saved hundreds of businesses millions of dollars by streamlining and integrating the traditionally disjointed realms of human resources, finance, and, on college campuses, student administration. But the systems are not easy -- or cheap -- to install properly, and perhaps nowhere has that been clearer than in the field of higher education, where PeopleSoft blow-ups have been frequent and sometimes catastrophic.

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."

To help the system cope with growth, the chancellor's office has traditionally given campuses money for each student added to enrollment. The money is still passed out; but now, much of it is going toward each campus's PeopleSoft project. The chancellor's office said that the enrollment funds are discretionary, and therefore appropriate for the Common Management System.

Faculty hiring is slow. Student populations are growing. Budgets are shrinking. And many CSU teachers and staff are skeptical, if not outright angry, about the Common Management System. George Diehr, a business professor at the San Marcos campus, says the project makes a lot more sense for the Chancellor's Office than it does for the schools.

"The chancellor would like to see Cal State as a single university with branch campuses," says Diehr. "This project involves a tremendous centralization of management, and maybe it makes sense for the chancellor's office. But students don't bounce from campus to campus."

San Jose State professor Patricia Hill says faculty at Bay Area campuses, where meager salaries pale in comparison to some of the nation's highest living costs, are especially frustrated by the CMS project. Instead of raises or more professors, she says, CSU is spending money on computer centralization, raising a host of questions administrators have been reluctant to answer.

"The problem for us is the contrast," Hill says. "They're spending $400 million, plus God knows what, at the same time that spending on instruction keeps dropping. Where's the $400 million coming from?"

And with the loud complaints about cost come persistent reports that the $400 million software system isn't working as well as it should.

Although it has cost more than $150 million to date, the Common Management System is still only in its "first wave" of installation. Eleven of the system's 23 campuses have installed all or parts of the programs that will manage personnel records and track finances, but none has the occasionally combustible student administration module up and running yet.

It is far too early to evaluate the installation as a whole, but not too early to be unsettled by some of its glitches. Exhibit A: a wildly expensive but apparently malfunctioning data center that is supposed to be the foundation of the entire enterprise.

Because systems like the one being built for CSU run only as well as the hubs that store their data and run their software, and because this project is particularly massive, CSU had no choice but to find an off-site data center to run its PeopleSoft system.

Cal State courted bids from the two largest data outsourcing companies, IBM and Unisys Corp., and chose IBM, which submitted the low bid. (Staff evaluations called Unisys' center "quite functional," but a little "too boilerplate" compared to IBM's.) IBM eventually opted out of the contract, leaving CSU with Unisys, essentially by default. In March, Cal State agreed to pay Unisys $60 million over five years for use of its Salt Lake City data center, meaning that the most crucial piece of the PeopleSoft puzzle would also be the most expensive.

So far, however, there is evidence that CSU hasn't gotten what it paid for. On Nov. 12, 2001, Cal State's contract department sent a letter to Unisys complaining, "CSU considers the performance problem on the part of the Salt Lake City operations to be at a "critical' level.

"The CSU continues to experience daily and repeated errors ... negligent monitoring of CSU daily operations; erroneous scheduling and change control procedures which have a negative impact on CSU administrative operations; and, finally, the CSU is not receiving adequate or timely communications from the Center."

Ernst says the concerns raised in that letter have been addressed, and Cal State has Unisys on an "improvement plan" to address other shortcomings. And the project clearly has had other shortcomings.

For instance, when CSU implemented software at its Northridge campus last year, according to the California State Employees Association, employees assigned to the project no longer had time to do their actual, non-PeopleSoft jobs. In fact, the employees complained, their jobs had been made significantly more difficult by inaccurate personnel data the system was producing.

The association, which represents tech workers and other non-teaching Cal State staff, also described workers in Humboldt having to flip through 13 monitor screens of data to accomplish tasks that required three screens in the old system.

Meanwhile, workers at the Humboldt campus reported, the new system wasn't able to keep track of the campus' 1,300 student employees if they missed even a single pay cycle.

Not long after the human resources and payroll systems were installed at San Jose State, staff members there reported an unusually high number of late paychecks. Employees complained of near-constant system crashes, malfunctioning hardware, and insufficient training. "All of us just went crazy," a department secretary said of the switch to PeopleSoft. "It was definitely frustrating."

Reports filed by Cal State's project manager say that February tests of the student administration component of the software at the Sonoma and Fresno campuses revealed "poor" system performance. (A team of technicians was able to bring the software up to an "acceptable" level, but, according to a CSU report, "both PeopleSoft and CSU acknowledge that some of these items will continue to appear sporadically.") The same report says CSU was concerned about system performance once the bulk of data from the system's larger campuses was online.

Ernst says the project, despite a few "burps," is still on schedule and within budget. But that budget is itself a product of rough estimates about what each campus will have to spend to get PeopleSoft running. And, so far, the estimating has been rough, indeed.

In 1998, CSU projected that the installation at its Long Beach campus would cost about $12 million, according to project manager Janet Foster. In 2001, the estimate was revised to $22 million.

"This estimate was made when the PeopleSoft Student Administration component was still a new product, so little was known as to what its implementation would require," Foster said in a written response to an SF Weekly inquiry. "The Student Administration component was more than we had originally anticipated in terms of complexity and cost."

Any or all of these glitches could, of course, just be minor stumbles on the way to a successful implementation of a money-saving software suite. Given the history of botched PeopleSoft installations at colleges across the country, of course, any or all of the glitches could also be a harbinger of disaster -- multiplied by 23.

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