By Matthew Hendley
By Monica Alonzo
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By Jason P. Woodbury
By Dulce Paloma Baltazar Pedraza
By Ray Stern
Although the county had paid outright for much of the hardware and software, the IBM 3090 mainframe was on a lease-purchase program, and the county still owed more than $1 million for it.
Ditching the fledgling data center after $12 million had already gone out the door required some justification. That, the cynics say, is what consultants are for.
Shortly after taking over the agency, Williams ordered work on the system to stop, citing the need to reduce a budget shortfall estimated at about $30 million.
S.K. Ching & Associates, a small, San Francisco-based consulting firm, was brought in to study the full range of the Health Care Agency's financial woes. After a 45-day, fire-drill review of the agency, Ching & Associates turned in a host of recommendations, including walking away from the computer system.
The report did not question the need for the computer or the system's ability to do its job. In fact, the report praised the system--in a backhanded fashion.
"Certainly, it is a nice-to-have system and it can be justified in an up-market," the report concluded. "But in a down-market and given these economic times that require health delivery institutions to do much more with much less, some of the nice-to-haves may just have to go by the wayside."
The Ching report makes a reasonable point, but, critics contend, it ignores one rather salient fact: The IBM/IBAX system was already all but paid for.
The report, hotly disputed by a wide range of planners and county employees who actually helped design and implement the system, went on to estimate that the county could save $41 million over five years by scrapping the system.
Insiders say the report merely affirmed what Williams and other county administrators had already decided.
"The Ching report was the vehicle they used to go away from the centralized system," says one county insider. "They had already made their minds up."
Williams disputes the significance of the Ching report in the decision. With no cash to continue putting into the system, he says, the eventual cost of finishing or not finishing the system is meaningless. Whatever the cost, the agency does not have the money to pay it.
"It [the Ching report] has no relevance to the decision," Williams says. "Everybody's trying to make too much of a clear issue. I don't have the budget to put into the computer. It is difficult to go out and buy a new car if you don't have money in the bank."
Despite Williams' protestations, the Ching report's findings have fueled widespread perceptions that ditching the system will save the county more than $40 million, and helped convince the Board of Supervisors to affirm the decision.
Among the witches' brew of numbers and cost estimates now swirling about, Ching's $41 million figure has come to hold sway, parroted with little challenge in virtually every news account of the computer system's demise.
"We call it the 'I Ching Report,'" says former county computer planner Wilson. "It turned into a religious document. Nobody questioned it. At least the board didn't."
The savings predicted over five years by Ching is wildly inflated, say many of those involved in the project.
Right off the bat, they point out, the entire budget for the agency's computer operations was only about $7 million per year before the project was halted, including everything from salaries to copying machines and newspaper subscriptions. That means that wiping out every dime of money for information services could only save $35 million over five years.
"That right there tells you that the Ching numbers are bogus," says one county insider.
Further, critics point out, the Ching report recommended abandoning one system without providing any specific estimates of what it will cost the county to buy another one to replace it.
In a seeming contradiction of logic, the report contends that the county can throw away $12 million of investment, buy another completely new, unspecified system and still save $41 million.
That assertion boggles minds throughout the hierarchy of planners and employees who have invested years trying to put the IBM/IBAX system in place.
"It hasn't made any sense to me from the beginning," says Tom Rowan, the agency's technical support manager. "They [Ching] had specific dollar figures, but we have no idea how they were arrived at. We don't even have a replacement system specified."
(S.K. Ching & Associates referred questions about its report to Ted Williams at the Health Care Agency.)
In response to the Ching report, IBAX and several county employees proffered their own assessments. Most estimated that finishing the system would cost somewhere between $1 million and $3 million--depending on how many bells and whistles were included in the final product--and after that, the county would actually start to save money.
For instance, just by reducing the agency's accounts receivable--that is, billing people and getting them to pay in a more timely fashion--IBAX and county employees estimated that the new system could net the county $10 million over four years.
Overall, IBAX reported, finishing the system would ultimately save the county $18.4 million over four years. IBM also offered to help the county through its cash crunch by extending the lease terms for the system's hardware so the payments could be lowered.