Budget for software as an operational expense

Unlike bridges or other capital infrastructure projects, custom software is never "done," so it’s important to plan for it to be modified continuously. That way it can serve today’s agency needs, not yesterday’s.

For small systems, this may require adding one or fewer FTEs to the agency’s staff of software developers. For large, flagship systems, this may require procuring a team of developers to continually develop and maintain the software.

Software maintenance is sometimes budgeted for as if it is a different activity than initially building software, but that is a mistake. Maintaining software should mean simply continuing to modify it in response to identified user needs, which change continuously along with laws, regulations, policies, best practices, and technology. This requires the same skill sets, methodology, and tasks as building a system in the first place. A proposal to transition software development into an "operations and maintenance" ("O&M") phase should be seen as a red flag,

Rule of thumb: a "scrum team" of 5–9 developers costs $1–2 million per year, depending on the cost of living in the area where the developers reside. Funding can be ramped up over the course of several budget cycles, as the requesting agency demonstrates that they’re successfully reducing risk, controlling costs, and delivering iteratively to end users.

Ultimately, this can provide agencies with a predictable source of funding for software projects — replacing unpredictable capital expenditures — while simultaneously providing the legislature with a predictable annual cost for all agency software projects.

Checklist

• The agency recognizes that software must be improved continuously as long as it is in use, because "maintenance" is functionally the same as building software in the first place
• The agency plans to procure agile development services
• You have talked with the requesting agency to determine if they would prefer to receive funding over years, as a predictable stream of operational funding, instead of as a lump sum
• This approach has been coordinated with the governor’s office, the budget office, agencies, and the state IT agency — this is likely a radical change that will require trust and cooperation between all parties
• If an agency’s request is at a high risk of failure, you will allocate only a few million dollars in the first year, increasing funding as the project delivers value

Key questions

• Is the requested funding going to be spent within a single budget period?
• Perhaps $50 million is being requested, but what value can be delivered to end users with $2 million? And the next $2 million? And so on?
• If this project is being funded using federal dollars, is the federal agency amenable to taking an operational approach to the funding?