Arkansas set to pull the plug on ERP-driven budgeting approach

State moves to scrap ¿performance-based' methodology; lawsuit continues against SAP over initial software rollout

Editor's note: This is an updated version of a story that was originally published in Computerworld's Feb. 7 issue with inaccurate information.

The state of Arkansas is on the verge of stopping its use of software functionality that supports an advanced budgeting technique, a move that comes as the state continues to pursue litigation against SAP AG over an earlier implementation of budgeting software.

The lawsuit, filed in the Circuit Court of Pulaski County, Ark., four years ago, alleges that an initial budgeting application delivered by SAP failed to work as promised and that the state's core IT system based on SAP's R/3 software didn't meet specifications for accessibility by handicapped users.

A spokesman for Arkansas Gov. Mike Huckabee confirmed that the state's so-called performance-based budgeting methodology will be dropped at an as yet undetermined time. The Arkansas legislature first needs to pass a bill that would scrap a law requiring state agencies to use the performance-based approach, which now is supported by software written by a third-party vendor.

Performance-based budgeting tools were supposed to be a key part of the state's ERP backbone, known as the Arkansas Administrative Statewide Information System. AASIS went live in July 2001 and is built primarily around R/3. Two state officials agreed that other than the issues outlined in the lawsuit against SAP, the AASIS implementation has been successful, despite significant cost overruns.

The state currently puts the cost of AASIS at $60 million, twice the estimated budget at the project's start. It contracted with SAP for the system, including the company's budgeting applications, in February 2000.

Arkansas officials said that after the initial installation of SAP's budgeting applications failed, the state spent $2 million on software from Protech Solutions Inc. in Little Rock, Ark. They added that the government will continue to use Protech's budgeting application, which was designed to accommodate both conventional line-item budgeting and the performance-based approach.

Keith Leathers, AASIS director for the state, said that the Protech software has performed well and that the state's move to stop the use of performance-based processes has nothing to do with the quality of the applications. "We've been very happy with Protech," Leathers said. "The Protech application is the backbone of our budgeting system."

He added that if the proposed legislation passes, the functionality supporting the presentation of budgets in a performance-based format will remain in place in case the state makes future changes in the way that budgeting is done.

Arkansas Attorney General Mike Beebe, who is representing the state in its lawsuit against SAP, said the adoption of performance-based budgeting as part of the AASIS project was originally designed to provide individual agencies with more budgeting freedom while ensuring that they hit operational targets.

"The business model of budgeting traditionally uses line items," said Beebe. "This grants more flexibility to agencies but has a risk and rewards system [that's] dependent on meeting goals and mission compliance."

The most recent version of the lawsuit, filed last February, states that "SAP's first attempt to deliver a budgeting system within AASIS as required by the contract wasn't complete when SAP unilaterally changed course. SAP's second attempt to provide a budget system 'outside' the integrated system on a business warehouse platform also failed."

Other woes

In addition, because AASIS didn't comply with handicap-accessibility requirements, a court shut down some nonessential portions of the system last July, Beebe said.

SAP insists that AASIS is a success overall and claims that the system has the support of the governor. "We delivered a tool for budgeting for the state, and they chose not to use it early on," said William Wohl, a spokesman for SAP America Inc. As for the litigation, he added, "the position the state took is not SAP's."

Arkansas officials say the state's ERP system has been largely successful, but performance-based budgeting remains a sore spot.
Arkansas officials say the state's ERP system has been largely successful, but performance-based budgeting remains a sore spot.

At times in the past several years, Beebe said, some legislators have discussed unplugging the entire AASIS system, though that rhetoric has died down lately.

"We could end up with another vendor if [SAP] can't provide the software to our satisfaction," Beebe speculated. "My personal opinion is that AASIS should provide what was contracted for."

He added that if SAP can't fix the budgeting application and meet the handicap-accessibility requirements, "they should pay the amount necessary for another vendor."

Beebe said the state is still preparing for a trial in its lawsuit against SAP. No trial date has yet been set, he added, while declining to disclose the amount of damages that the state is seeking from SAP.

Beebe noted that in general, SAP blames the problems on a lack of adequate training and resources from the state, while Arkansas blames the performance of SAP's software.

Nagaraj Garimalla, Protech's president, said his company began developing a replacement budgeting system for the state in January 2004 and delivered the software last June. He said Protech used a combination of extreme programming and iterative development methodologies to meet the state's deadlines for rolling out the software, which is based on Microsoft Corp.'s .Net technology and provides end users with browser-based views of budget data.

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The SAP-Arkansas Saga

The SAP-Arkansas Saga

Copyright © 2005 IDG Communications, Inc.

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