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Oregon Department of Revenue

Core System Replacement Business Case Analysis April 12, 2010


Revised, November 18, 2010

Developed by the Oregon Department of Revenue with Revenue Solutions, Inc.

Executive Summary ............................................................................................................ 4 1.1 Mission ....................................................................................................................... 4 1.2 Current State .............................................................................................................. 4 1.3 Proposed Solution ...................................................................................................... 6 1.4 Proposed Implementation Approach........................................................................... 6 1.5 Estimated Costs and Benefits..................................................................................... 7 2 Background and Purpose...................................................................................................10 2.1 Background ...............................................................................................................10 2.2 Business Case Proposal............................................................................................15 2.3 Purpose .....................................................................................................................16 2.4 Scope ........................................................................................................................16 2.5 Problem Statement....................................................................................................16 3 Alternatives Analysis ..........................................................................................................18 3.1 Methodology..............................................................................................................18 3.2 Alternatives................................................................................................................20 3.3 Alternative Evaluation ................................................................................................23 3.4 Preferred Alternative..................................................................................................27 4 Industry Leading Solutions.................................................................................................28 4.1 Current Technology Solution Options ........................................................................28 4.2 Industry Landscape for Integrated Tax System Solutions ..........................................31 5 Suggested Implementation Approach ................................................................................35 5.1 Phase 1 - Agency Readiness.....................................................................................36 5.2 Phase 2 Procurement .............................................................................................36 5.3 Phase 3 Compliance...............................................................................................36 5.4 Phase 4 Property Valuation System .......................................................................37 5.5 Phase 5 Integrated Tax System..............................................................................37 6 Estimated Costs & Benefits................................................................................................39 6.1 Costs .........................................................................................................................40 6.2 Benefits .....................................................................................................................44 7 Critical Success Metrics and Factors .................................................................................54 7.1 Critical Success Metrics.............................................................................................54 7.2 Critical Success Factors ............................................................................................62 8 Risk Assessment and Impact Analysis...............................................................................63 8.1 Risks, Impacts and Mitigation Strategies ...................................................................63 8.2 Consequences of Failure to Act.................................................................................70 9 Funding Alternatives ..........................................................................................................73 9.1 Traditional Direct Appropriations................................................................................73 9.2 Productivity Gains......................................................................................................74 9.3 Fees for Service ........................................................................................................74 9.4 Benefits-Based ..........................................................................................................74 9.5 Other Funding Alternatives ........................................................................................75 Appendix A: Status of State Tax Agency Modernization Efforts ................................................76 Appendix B: Core System Replacement Cost Details ...............................................................80 Appendix C: Benefit Methodology, Opportunities, and Assessments ........................................87 Appendix D: Metrics Trees ........................................................................................................91 Appendix E: Glossary of Terms.................................................................................................95 Appendix F: Bibliography .........................................................................................................96

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Version Control

V# 1 2 3 4 4.1 4.2 5.0

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5.4 5.5 5.6 5.7

Major Edit First Version Revised with Steering Committee Comments Revised with Management Team Comments Revised to correlate to changes in the budget narrative; also fixed some spelling & grammar Minor corrections Final editing and formatting Begin work on QA feedback. Add cost breakdown for each phase; expand Appendix B (explanation of costs with add'l breakouts); add section #'s in 6.1; correct cost breakdown for procurement (6.1.2); move table 19 to "Cost" after table 20 & renumber (swap #19 & #20); add alternative for cost/benefit chart p 30, replace cover sheet; adjust maintenance to end at end of each project phase Move property tax to 13-15 biennium; other changes to correspond with budget narrative 5.1 and 5.2 changes Added property tax input (Vera and Jim B) Begin work on LFO feedback. Reword scope, add Problem Statement; rework Alternative Assessment; add Consequence of failure to act Minor corrections Add verbiage and diagrams to section 5, rework section 7, add Appendix D (Metrics Trees) and Appendix F (Bibliography) Expand information on funding alternatives (section 9) Rewrite section 7.1 on Metrics

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Developed by the Oregon Department of Revenue with Revenue Solutions, Inc., 2010

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

1 Executive Summary
The Oregon Department of Revenue (DOR) is undergoing a Technology and Process Reengineering initiative to: Invest in process and technology solutions with significant value to the State of Oregon and its taxpayers Replace the myriads of aging systems that are currently charged with supporting DORs core functions Align DOR business processes to support the Agencys goals This business case proposes to replace the majority of DORs systems with industry best practice solutions that will maintain DORs ability to collect and administer Oregon taxes. It provides a rationale for this change, suggested implementation approach, and the estimated costs and benefits to the State of Oregon.

1.1 Mission
DOR is responsible for administering over 30 tax programs for the State of Oregon. Each year, DOR processes over two million tax returns and collects approximately $7 billion amounting to 94% of the States General Fund revenue. Additionally, DORs property valuation program appraises over $30 billion in property values resulting We make revenue systems in $400 million in property tax revenue for 1,450 local work to fund the public governments. Our mission is critical to the health of Oregon. During challenging economic times, when the quality of life for some is threatened, we are responding to the dual challenge of reducing costs and generating additional revenue from taxpayers not paying their fair share.

services that preserve and enhance the quality of life for all citizens.

1.2 Current State


Oregon tax and revenue administration is supported by a technical architecture designed in the 1980s. Our core processes rely on a myriad of disparate, aging software applications and databases. As an example, our Integrated Tax Accounting (ITA) system, on which all of the other core systems depend, is nearing 18 years old. We process $7 billion a year and 94% of the States General Fund revenue through this aging system. The average age of our core systems is about 12 years (see Figure 1 below). Each year DOR manages the risks associated with this aging technology while also working to get as much out of it as it can. DOR has now harvested most of the efficiency gains from its core systems, and the applications are obstacles to increasing productivity and enhancing efficiency.

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Figure 1: DOR Core System Ages in Years

18 16 14 12 10 8 6 4 2 0 ITA Accounting BIS Business Registration PIP Individual Registration ITX Individual Return Suspense CAT Corporate Return Suspense ACT Collections IPR Industrial Property Returns UAR - Utility Assessment Returns PTR - Payroll ACES - Audit Tax

At the same time, tax administration across the country is undergoing a sweeping transformation. Taxpayers are demanding ways of doing business at times that are convenient to their schedules using tools that are commonplace in the private sector. Businesses are changing, and more are using complex and sophisticated practices to reduce or avoid paying taxes. State agencies must adopt enterprise-wide strategies for partnering and addressing issues that affect citizens. Solutions do not lie simply in adding more staff doing more of the same. What is needed is transformation. DOR must prepare now to reengineer its processes and replace its core technology, or the issues below will continue to worsen and create additional risk to the States ability to collect revenue. The Department of Revenue is currently experiencing many of the same challenges recently faced by other state tax agencies. An assessment of DORs current state identified the following: Core information technology solutions within the department are primarily based upon obsolete and/or aging applications, and the risk of system failure to the agency is becoming critical. Many business processes work around technology barriers and thus are inefficient and redundant. DOR does not have the necessary data and tools available to support analytical decision making. New IT solutions are needed for DOR to attack the tax gap by improving taxpayer compliance. Too many processes and technologies are dependent on one individual for operations. This presents a significant risk to business continuity should these critical individuals leave DOR. Taxpayers and Stakeholders are demanding modern services, such as webbased self-service, that DOR cannot offer with its current technology.

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

DOR leadership recognizes that the agency must change to reduce risk, improve compliance and to provide the services its stakeholders and taxpayers demand. DOR is looking to the experience of other state tax agencies for direction and industry best practice solutions.

1.3 Proposed Solution


DOR proposes to transform its business processes and technology by replacing existing core tax processing, property valuation, and compliance systems with industry best practice solutions. This systems replacement project is an enabler for business process improvements and provides the critical technology foundation for DOR to continuously improve. Key to the systems replacement is the integration of data and DORs ability to use data to make smarter decisions, manage staff better, improve taxpayer compliance and improve revenue administration. This proposed solution will: Expand DORs ability to improve taxpayer compliance and capture additional tax revenue Provide a technology platform that integrates data across business processes providing consistent and accurate information to facilitate quality business results Reduce the significant risks and cost of obsolete and aging technology Improve the ability of the agency to evolve as legislation changes and taxpayers demand new services Enable DOR to leverage information contained in our data resulting in more effective tax administration Leverage industry proven practices and solutions thus reducing implementation time and risk Lower ongoing maintenance costs of technology at DOR

1.4 Proposed Implementation Approach


DOR seeks to implement the proposed solution beginning in the next biennium and continuing through the end of the 2015-2017 biennium. The proposed implementation approach is comprised of five phases each scheduled to address critical technology issues and to maximize the return on this investment. Figure 2 below presents the proposed timeline of the five phases. Roadmap The core systems replacement will be divided into a series of phases. The primary reasons for taking this approach are to: 1. Break it down into more manageable pieces of work 2. Generate early wins and increased general fund revenue sooner than later 3. Align key pieces of the program into a logical sequence 4. Mitigate the risk of attempting to perform one large implementation

The proposed Implementation Roadmap provides the Department of Revenue with the foundation to meet its technology and process reengineering needs.

In addition, by approaching the implementation in phases, future decisions to change the


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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

sequencing of components of the program can be managed more efficiently. The five suggested phases of the core systems replacement are: Agency Readiness Process documentation, data cleansing, organizational change Procurement Requirements definition, request for proposals, proposal evaluation, contracting Compliance Tax data warehouse, data mining for discovery, audit selection, collections scoring, case management Property Valuation System Industrial property returns, utility property appraisals Integrated Tax System Core revenue administration functionality to support 32 tax programs Figure 2: Core Systems Replacement Proposed Implementation Roadmap

1.5 Estimated Costs and Benefits


The core systems replacement is an investment in DOR staff, processes, and technology that must provide a significantly positive return on investment to the Oregon taxpayer. This transformation will provide value through reduced agency risk, increased revenue to Oregon, a more productive and responsive workforce, and a lower total cost of ownership for DOR systems. As indicated in Figure 3, DOR forecasts a significant return on investment. Important non-financial benefits include improved taxpayer self-service and more effective revenue forecasts and legislative reports.

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Figure 3: Core Systems Replacement Cumulative Cost and Benefit Summary With Return on Investment
t n n u e m t f e s n e e v B n e I v i t n a l o 5 u 1 n m r u n u C u J t e R e v i t t s a l o C u 3 e v m i 1 t u n a l C

As DOR leverages the lessons learned and leading practices from the dozens of states that have transformed tax agencies, DOR should expect to see similar benefits. Figure 4 below provides a summary of the estimated annual and total costs of the core systems replacement. Costs include internal state resource salaries, vendor fees, hardware, software, and maintenance for all aspects of the transformation. Direct financial benefits are derived from cost savings and revenue associated with improved compliance. As indicated in the table below, the investment will pay for itself after the first four years, and it will continue to provide additional revenue to the State well beyond completion. Additionally, Figure 5 presents a breakout of costs by phase and source (i.e. System, Quality Assurance, Maintenance, and Internal). Figure 4: Cost and Benefit Summary by Biennium
2009-11 $ 2011-13 2013-15 2015-17 $ 17,500,000 $ 2017-19 TOTAL $ 67,650,000 Estimated System Purchase Cost: $ 10,650,000 $ 39,500,000 Estimated DOR Base Budget: Internal Cost (Preparation and Implementation): $ 1,999,000 $ $ 158,000 $ 2,300,000 $ 6,900,000 $ $ 671,000 $ 2,438,000 $ 2,340,000 $ 4,000,000 $ 1,210,000 $ 2,700,000 $ $ $ $ $ $ 15,199,000 $ $ 4,477,000 5,040,000 Project Oversight (QA): Ongoing Costs (Hardware and Software Maintenance): Base Budget Sub-Total: $ 2,157,000 Total Cost: $ 2,157,000 $ 13,621,000 $ 51,178,000 $ 25,410,000 $122,000,000 $ 92,366,000 $315,000,000
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$ 2,971,000 $ 11,678,000

$ 7,910,000

$ 24,716,000

Estimated Enhanced Revenue: $ $ 2,500,000 $ 54,500,000

$136,000,000

Developed by the Oregon Department of Revenue with Revenue Solutions, Inc., 2010

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Figure 5: Estimated Cost of Each Phase


System Agency Readiness Procurement Compliance Property System Integrated Tax System Costs $ Internal $ 1,999,000 $ $ 1,500,000 $ QA 158,000 100,000 Maintenance $ $ $ $ 765,000 225,000 Total $ 2,157,000 $ 1,600,000 $ 23,745,000 $ 4,961,000 $ 59,903,000 $ 92,366,000

$19,650,000 $ 2,200,000 $ 1,130,000 $ 3,000,000 $ 1,500,000 $ 236,000

$45,000,000 $ 8,000,000 $ 2,853,000 $67,650,000 $15,199,000 $ 4,477,000

$ 4,050,000 $ 5,040,000

Developed by the Oregon Department of Revenue with Revenue Solutions, Inc., 2010

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

2 Background and Purpose


2.1 Background
Responding to the growing expectations of Oregon taxpayers as well as the inability for aging computer systems to economically support modern tax services, in 2008, the Oregon Department of Revenue set a new strategic vision for itself spanning the next five to seven years. DORs strategic vision is to be a model of 21st century tax administration through the strength of our people, technology, innovation and service. Figure 6 below illustrates the external and internal factors that converged to cause DOR to focus on achieving this vision. Figure 6: Contributing Factors

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

DOR started the transformation to move toward this vision by defining seven specific strategic goals: Create a Culture of Constant Improvement Partner with Others to Achieve Our Mission Become a More Customer-Focused Organization Maintain and Enhance a Talented, Forward-Looking Workforce Deliver High Quality Business Results Enhance Voluntary Compliance and Increase Collection of Taxes Due Under the Law Preserve and Enhance Public Confidence

One of the first steps of this initiative was the Technology and Process Reengineering (TAPR) program with individual projects aimed at further understanding DORs current environment and how a new approach to enterprise business processes and technology could be used to transform the agency and lead DOR toward its vision. In late 2008 and 2009, DOR hired external experts to conduct internal assessments related to technology and service delivery. DOR also gathered best-practices and lessons-learned from several of the top tax administration modernization experts. The TAPR program focused on two outcomes from these recommendations: 1) development of an Enterprise Architecture and 2) this Business Case for transforming DOR. Figure 7: Strategic Path

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

DOR hired Revenue Solutions, Inc (RSI) to: Develop a high-level target Enterprise Architecture, including a current state assessment and a vision for future business processes and supporting technology Develop a Core Systems Replacement Business Case for DORs transformation Develop a Policy Option Package, based on the Business Case, for presentation to and approval by the 2011 Oregon Legislature RSI employed its business transformation methodology, represented in Figure 8 below, along with the results of the previously conducted studies,1 to: assess DORs current needs, assist in developing a future vision, provide an Enterprise Architecture upon which to base future decisions, and finally, develop this business case. Figure 8: Business Transformation Methodology

2.1.1 Current State Analysis


Oregon tax and revenue administration is supported by a technical architecture designed in the 1980s. The Integrated Tax Accounting (ITA) system, on which all of the other core systems depend, is nearing 18 years old. DOR processes $7 billion a year and 94% of the States General Fund revenue through this aging system. DOR has harvested most of the efficiency gains from its core systems, and the applications are now obstacles to increasing productivity and enhancing efficiency.

See Bibliography, Appendix F, for complete listing of these studies.


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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Figure 9: DOR Core System Ages in Years


18 16 14 12 10 8 6 4 2 0 ITA Accounting BIS Business Registration PIP Individual Registration ITX Individual Return Suspense CAT Corporate Return Suspense ACT Collections IPR Industrial Property Returns UAR - Utility Assessment Returns PTR - Payroll Tax ACES - Audit

In late 2009, the RSI team toured work areas, observed staff on the job, studied documents, and reviewed technology to assess DORs current state. DOR staff spent many hours demonstrating current technology system functions, answering questions about current and desired business processes, and providing detailed metrics on agency performance. Next, RSI held a series of workshops and one-on-one meetings involving functional and technical areas. The resulting study, the "Current State Assessment and Preliminary Future Vision," provided the basis for DOR's "Target Enterprise Architecture." Both of those documents were used as the basis for this business case. RSIs six major findings2 were as follows:
Findings The Agency uses and maintains over 300 systems to support current operations, nearly 100 of which provide core support. These range from midrange systems to web applications to Excel worksheets. Many of the business functions provided by these systems are redundant, and significant costs savings and efficiencies can occur by reducing the number of systems, which will in turn reduce system maintenance, training and coordination. DOR has developed many workarounds (both business and technical) to support the shortcomings of aging software applications. As a result, technical staff and business staff have a deep understanding of the processes and procedures. This knowledge, however, is fleeting as staff leaves or retires. Recommendations Examine and assess the functionality of modern Integrated Tax Systems (ITS) and Compliance Data Warehousing solutions currently in the marketplace. The marketplace has developed best practice systems over the past 15-20 years, and the Agency can benefit greatly from these industry innovations.

The Agency does not have a common electronic document management system to support its program areas. Staff must use multiple systems to
2

When exploring options for new integrated tax and compliance systems, the Agency should learn from industry best practices. There should be a conscious effort to move away from driving future process design and requirements based on the current workaround-influenced and custom environment. The Agency should analyze each system from a functionality standpoint to determine whether it should be maintained, replaced or modified to fit within the future state environment, The Agency should implement an agency-wide content management system that meets the needs of the program areas and is scalable to allow for

See the document "Current State Assessment and Preliminary Future Vision" (RSI, 12/15/2009) for the complete assessment and recommendations.
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Oregon Department of Revenue Core Systems Replacement Business Case

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Findings access images of returns and other information, and is not able to access taxpayer information in a timely manner. 4 Security across the Agency is inconsistent for both business and technical processes. While the Agency has recently passed Internal Revenue Service (IRS) and annual third party independent review assessments successfully, RSI identified some potential security risks during the Current State Assessment. Compliance efforts, particularly Discovery, Collections and Audit, are hindered due to the significant amount of manual processing required. The Agency could benefit significantly from a compliance data warehouse, automated workflow, improved compliance functionality components (selection, case management and field audit), and tighter integration with taxpayer accounting. Decisions on business and technical initiatives are not always aligned with a consistent Agency strategy, and they do not always incorporate a holistic view of the Agencys needs.

Recommendations future growth of the Agency. If possible, the Agency should leverage existing statewide electronic data management system software and licensing for this effort. The Agency should conduct an agency-wide security risk assessment to strengthen and integrate its security efforts as part of the overall integrated tax planning and implementation process. New system requirements should contain industry best practice security functions and should be specified when reviewing or building new systems. The Agency should examine industry-leading compliance tools to improve automation in this area. This will be particularly important as the revenue lift and benefits from new compliance programs can be expected to drive much of the integrated tax system funding.

The Agency should implement a robust program management function, based upon a sound enterprise architecture and governance, to vet and prioritize agency initiatives. DOR should aggressively pursue becoming a data driven organization that uses data and analytical tools to enhance decision making and improve taxpayer compliance.

2.1.2 Future Vision


RSI then worked with DOR to envision a future environment influenced by industry common practices and solutions, yet able to address the specific requirements of Oregon taxpayers and tax legislation. Figure 10 below represents the conceptual view for the next generation of Oregon tax processes and systems.3 It presents the interaction between DOR stakeholders and the core DOR processes, and demonstrates how enterprise processes and technology can be used to support DORs core mission. This view is a departure from the current stovepipe environment, and its use of industry common practices provides DOR with a strong set of process and technology solutions to achieve success. The "Target Enterprise Architecture," document and related artifacts contain detailed descriptions of DOR's future vision and the steps that DOR will need to take to arrive at the target architecture in support of its strategic goals.

See the "Current State Assessment and Preliminary Future Vision" (RSI, 12/15/2009), as well as the "Target Enterprise Architecture" (RSI, 2/25/2010) documents for the complete assessment and recommendations. Both documents were prepared by RSI in partnership with the Department of Revenue.
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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Figure 10: Vision for DOR Future Environment

Achieving this vision for the DOR future environment will require a transformation of processes, technology and, to a degree, the DOR organization. DOR is poised to make this transformation, and is now prepared with a specific course of action to recommend to the State of Oregon Legislature.

2.2 Business Case Proposal


The Department of Revenue is proposing an agency-wide transformation to occur over the next 5-7 years. This is a very significant effort for DOR that will shape how DOR provides tax administration services for decades to come. This initiative will be an investment in the alignment of business processes to agency goals and the replacement of its existing core information technologies. The goals of the transformation are: Invest in process and technology solutions that create significant value for the State of Oregon and its taxpayers. The investment will leverage the experience of many states that have preceded DOR down a modernization path, and it will draw on the solutions that have provided the greatest return on investment to these other states. DOR leadership has made valuable and conservative investments in new technology and process solutions in the past and this transformation will continue with this proven level of value and results. Replace the myriads of aging systems that are currently charged with supporting DORs core functions. DORs systems are aging and must be replaced to reduce the risk of
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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

obsolescence and drain of system knowledge expected as experienced staff retires. These core systems will be replaced by a new industry standard Integrated Tax System, a new Property Valuation System, and new Compliance Systems. These technology improvements will replace the dozen core systems used by DOR on a daily basis and more than 80 other systems that have been developed over time as either workarounds or to support core system shortfalls. Align DOR business processes to support the agencys goals. DOR will use industry leading practices to refine and improve its current processes. Many of the current processes have expanded to support taxpayer needs where technology has not, and the proposed transformation will realign process and technology for greater efficiencies and responsiveness to Oregons taxpayers.

2.3 Purpose
The purpose of this document is to present the business case for DORs technology and process reengineering effort. This document follows State of Oregon and DOR standards in presenting the alternatives considered by DOR, the preferred solution, financial and nonfinancial costs and benefits, and the risks and potential impacts of the core systems replacement. Additionally, this document presents a recommended project roadmap for success designed to minimize DOR risk and maximize the benefits to the State.

2.4 Scope
This business case addresses DOR's core systems replacement and the re-engineering of the surrounding business processes (see Figure 10, previous page). Core systems and processes include: Tax processing for all tax programs (including property tax and small tax programs). Revenue and taxpayer accounting Data analytic processes and technology Discovery, audit and collections processes and technology Data and information exchange (internal and external) The following systems and processes, while significantly impacted by the core process and system changes, are outside the scope of this initiative: Human Resources and Facilities Payroll, Finance (other than revenue accounting) and Procurement IT operations and governance processes Graphical Information Systems (Cartography and ORMAP)

2.5 Problem Statement


The "Current State Assessment and Preliminary Future Vision," contains a detailed assessment of the issues that DOR faces as it attempts to provide services to support its strategic goals. For the most part, these problems are summarized as follows: Core information technology solutions within the department are primarily based upon obsolete and/or aging applications, and the risk of system failure to the agency is becoming critical. Discussion: Over the past several years, IT staff made numerous enhancements and additions to DOR's core systems. Non-technical staff also developed a number of Access databases and spreadsheets to handle functions where the primary and supporting systems are not meeting business needs. IT staff spends the majority of its
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Oregon Department of Revenue Core Systems Replacement Business Case

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time fixing and enhancing systems and interfaces, leaving very little time for supporting new DOR strategic initiatives. Audit and collections staff spend too much time working around system limitations and trying to resolve issues with the data, time that could be spent focusing on actual collection or audit activity. The 80+ systems work now against the effort rather than supporting it. Many business processes work around technology barriers and thus are inefficient and redundant. Discussion: DOR staff have become proficient at developing workarounds (both business and technical) to support the shortcomings of aging applications. Some of these are manual processes (e.g., additional handoffs and manual data entry are required to complete processes), and some consist of excel spreadsheets or other userdeveloped applications (e.g., spreadsheets for tallying processing statistics because data is unavailable). DOR does not have the necessary data and tools available to support analytical decision making. New IT solutions are needed for DOR to attack the tax gap by improving taxpayer compliance. Discussion: There are two critical components of this problem: 1. Disparate, duplicate and "dirty" data - Over time, numerous applications have been created to supplement the core systems, including user-created databases and spreadsheets. Design decisions have been made within a siloed business architecture, resulting in disparate systems with duplicate and often conflicting data. Attempts to "soften" the data specifications to allow interaction between disparate systems has resulted in "dirty" data (e.g., alphabet characters in numeric fields). 2. Non-standard data and lack of analytic tools - Clean, integrated data, along with decision-making tools, are at the heart of the compliance (audit, discovery, and collections) process. However, as decisions have been made and solutions development or acquired for specific business needs over the years, there has been little control and standard enforced regarding databases. This has left DOR with not only several varieties of database applications, but several versions of the same databases due to system-specific limitations. Taxpayers and Stakeholders are demanding modern services, such as webbased self-service, that DOR cannot offer with its current technology. DOR does provide some online taxpayer services. For example, for several years the department has partnered with the Internal Revenue Service (IRS) to offer online income tax filing to individuals and businesses. Taxpayers are able to file both their state and federal taxes in the same transaction, and can pay their taxes online or through thirdparty providers. Additional services can be added using existing technology, but the risk of failure is high, and the limitations in existing systems, platforms, as well as the data issues cited above will result in expensive "workarounds" rather than industry-standard solutions. In addition, some services, such as full 24-hour access to systems, will be limited.

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Oregon Department of Revenue Core Systems Replacement Business Case

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3 Alternatives Analysis
The Current State Assessment and Future Vision4 provided the impetus for the DORs core systems replacement. Based upon this need, DOR assessed alternative approaches to achieving its future vision. The alternatives considered included: Maintain Maintain existing processes and systems Upgrade/Enhance Upgrade or enhance existing legacy systems and update business processes as needed Replace with an Integrated Tax Solution Replace existing systems over a period of five years with industry best practice solutions

This section presents a description of each alternative and an assessment of each using common, industry-recognized criteria. Assumptions: DOR requires a stable system which: Provides state-of-the-art business functionality Is built on modern, industry-standard technology that provides maximum flexibility going forward Allows IT staff to focus on developing new services and support increased data analytics Is fully integrated between functions (i.e., Audit, Collections, Tax Processing, and Tax Accounting) Can push customer interfaces out to the web to reduce processing time, reduce taxpayer phone calls, and increase voluntary compliance Can replace manual selection processes for audit and collections staff by automated scoring, selection, and integrated (therefore complete) data Can provide complete information to field staff Offers streamlined centralized services to stakeholders and customers while improving internal processes

3.1 Methodology
This Business Case follows a standard approach for evaluating the options available to DOR to meet its business goals and objectives. The methodology used first identifies these options and provides a brief description, including advantages and disadvantages. This is then followed by the evaluation of each alternative against criteria defined below. To provide a thorough comparison of the alternatives, DOR employed six criteria. The tables below present six standard criteria commonly used to evaluate a business case and their definition for assessing each alternative. For each criteria, there are a set of requirements to more precisely assess the alternatives against DORs goals and objectives.
4

"Current State Assessment and Preliminary Future Vision", prepared for the Oregon Department of Revenue by RSI, Inc., December 15, 2009
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Oregon Department of Revenue Core Systems Replacement Business Case

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Criteria 1 - Business Value


How effectively the approach will enable DOR to Transform toward its Future Vision Meet functional requirements of 12+ core systems and 80+ supporting applications Support industry-leading business processes Support an integrated view of the taxpayer Improve DOR overall productivity

Criteria 2 - Total Cost of Ownership


Using a holistic view the sum of initial and ongoing total costs of process and systems. One-time costs must be returned within 5 years Reduce the TCO of DOR core applications

Criteria 3 - Return on Investment


From both business and financial perspective, this is the high-level estimate of the cost/benefit analysis of the proposed alternative. Improve DOR's ability to collect a wide-range of tax revenues Support enhanced compliance efforts Allow for early access to revenue generating capabilities

Criteria 4 - Stakeholder Value


How effectively the approach will meet or exceed Stakeholder expectations. Provide for alternative ways of purchasing/funding (e.g. benefit-based procurement) Increase taxpayer self-service functions Implement solution within 1-2 biennia for Legislative oversight and management

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Criteria 5 - Risk
A high-level assessment of the financial, technical, organizational, and operational risks associated with adopting the proposed alternative. Replace aging software and hardware Minimize the impact on current operations (DOR's ability to administer taxes) Reduce agency risks Meet DOR, state, and federal security standards

Criteria 6 - Supportability and Flexibility


How quickly the processes and technology can adapt to external changes such as new legislation, emerging technology trends, taxpayer needs, etc. Reduce the number of support staff necessary to maintain and operate the application software Solution based upon a Service Oriented Architecture Decrease the amount of time necessary to implement legislative changes Consistent with DOR's Enterprise Architecture

3.2

Alternatives
3.2.1 Alternative 1 Maintain
This is the do nothing alternative. It assumes that DOR will continue to use the existing systems and operate under the existing practices and procedures without major changes. Under this alternative, DOR stakeholders are expected to interact with DOR in the same manner as in the past, and DOR is not expected to see any significant change in taxpayer behavior. Any systems nearing end of life would either be rewritten internally or modified to minimize risk failure. Benefits: Risks: Existing IT systems and processes do not effectively meet taxpayer and stakeholder expectations and this will become a more significant issue over time DOR systems are approaching the end of their useful life. Reliability, maintenance
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Minimal initial cost DOR is currently able to maintain systems with in-house staff and process returns and payments Minimal disruption of DOR organization

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Oregon Department of Revenue Core Systems Replacement Business Case

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costs, etc. will become more problematic and exponentially more costly in the future An aging workforce will be retiring and taking process and technology knowledge with them Rigidity of the existing systems requires significant resources (staff and technology) to add tax programs or change existing ones Increasing maintenance demands of existing systems will decrease DORs ability to respond to new legislation or other changes in the external environment DOR falls further behind taxpayer expectations and commonly used technology

3.2.2 Alternative 2 Upgrade or enhance existing legacy systems


This alternative consists of upgrading or enhancing the current legacy systems over the next six to eight years. This approach typically integrates data across these multiple systems, standardizes business processes, and rehosts existing systems to new technology platforms. Several state tax agencies have taken this approach with mixed results. This alternative has only been successful in situations where the tax agency or revenue department has a fairly advanced degree of integration and standardization already in place. DOR does not have such foundational integration of its legacy systems. The existing legacy systems at DOR are piecemeal, not integrated, and cross multiple platforms. Simply upgrading them one at a time will add to the problem, and it cant be done quickly enough to really effect change. In essence, DOR has been taking this approach for the past ten years and it has neither resolved the problems nor met stakeholder demands. Based on the current DOR legacy environment, this alternative is either prohibitively expensive or too technically complicated to complete. Benefits: Risks: Difficult to implement given the current redundancy of data in DOR systems and the vast number of ad hoc systems used in the end, this alternative is a rewrite rather than an 'upgrade' System rewrites of this type typically take 10-15 years resulting in high total cost of ownership An aging workforce will be retiring and taking process and technology knowledge with them. DOR may not be able to modernize quickly enough to capture this knowledge before it is gone DOR will need to increase staff to support the modernization rather than directing staff to compliance efforts The massive effort to modernize existing systems will decrease DORs ability to respond to new legislation and may be too lengthy to keep up with emerging technology trends Constrains opportunities for DOR to expand compliance efforts
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Familiar processes and technology Manageable risk as DOR evaluates functionality of existing systems to support operations and the individual cost of replacing each and every system Minimal disruption of DOR organization Obtains some new technology and integration of some data

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Oregon Department of Revenue Core Systems Replacement Business Case

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3.2.3 Alternative 3 Replace with integrated tax and compliance solution


The third alternative is to transform DORs business process and technology to meet its Future Vision. Under this option, DOR would replace existing tax processing, property valuation, and compliance systems with industry best practice solutions. The replacement would be based upon business process improvements and would be the catalyst for DOR to continuously improve. Key to the replacement would be the integration of data and DORs ability to use data to make smarter decisions, improve taxpayer compliance and improve revenue administration. Benefits: Leverages industry proven practices and solutions Improves the ability of the agency to evolve as legislation changes and taxpayers demand new services Lowers ongoing maintenance costs of technology at DOR by replacing hundreds of existing systems on varied, and often obsolete, technology with a few core systems on common and modern technology Integrates data providing consistent and accurate information across DOR Enables DOR to leverage information effectively Expands DORs ability to improve taxpayer compliance and capture additional revenue

Risks:

Risks associated with large-scale projects (see Section 8 Risks) Organization and operations are interrupted during the length of the replacement and this may negatively impact customer service Requires agency-wide training on new systems, and staff will need to adjust to the new technology and processes Short-term costs are higher than the Maintain alternative and potentially higher than the Modernize alternative.

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Oregon Department of Revenue Core Systems Replacement Business Case

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3.3 Alternative Evaluation


Assessment Criteria
To provide a thorough comparison of the alternatives, DOR employed six criteria. Figure 11 below presents six standard criteria commonly used to evaluate a business case and their definition for assessing each alternative. Figure 11: Alternatives Assessment Criteria Criteria Business Value Definition How effectively the approach will enable DOR to Transform toward its Future Vision Using a holistic view the sum of initial and ongoing total costs of process and systems. From both business and financial perspective, this is the high-level estimate of the cost/benefit analysis of the proposed alternative. How effectively the approach will meet or exceed Stakeholder expectations. A high-level assessment of the financial, technical, organizational, and operational risks associated with adopting the proposed alternative. How quickly the processes and technology can adapt to external changes such as new legislation, emerging technology trends, taxpayer needs, etc.

Total Cost of Ownership

Return on Investment

Stakeholder Value Risk

Supportability and Flexibility

The tables below assess each of the alternative's ability to meet the above criteria based on DOR's requirements.

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Business Value: how effectively the approach will enable DOR to transform toward its future vision. Requirement Maintain Upgrade Replace Meet functional requirements of 12+ core systems and 80+ supporting applications Support industry-leading business processes Support an integrated view of the taxpayer Improve DOR overall productivity Score 1 2 4

Total Cost of Ownership: the holistic sum of initial and ongoing total costs of process and systems for the alternative. Requirement Maintain Upgrade Replace One-time costs must be returned within 5 years Reduce the TCO of DOR core applications

Score

Return on Investment: the high-level estimate of the cost/benefit analysis of the proposed alternative, from both business and financial perspective. Requirement Maintain Upgrade Replace Improve DOR's ability to collect a wide-range of tax revenues Support enhanced compliance efforts Allow for early access to revenue generating capabilities Score 0 1 3

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Oregon Department of Revenue Core Systems Replacement Business Case

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Stakeholder Value: how effectively the approach will meet or exceed Stakeholder expectations. Requirement Maintain Upgrade Replace Provide for alternative ways of purchasing/ funding (e.g. benefit-based procurement) Increase taxpayer self-service functions Implement solution within 1-2 biennia for Legislative oversight and management Score 0 1 3

Risk: high-level assessment of the financial, technical, organizational, and operational risks associated with adopting the proposed alternative. Requirement Maintain Upgrade Replace Replace aging software and hardware Minimize the impact on current operations (DOR's ability to administer taxes) Reduce agency risks Meet DOR, state, and federal security standards Score 1 3 3

Supportability and Flexibility: how quickly the processes and technology can adapt to external changes such as new legislation, emerging technology trends, and taxpayer needs. Requirement Maintain Upgrade Replace Reduce the number of support staff necessary to maintain and operate the application software Solution based upon a Service Oriented Architecture Decrease the amount of time necessary to implement legislative changes Consistent with DOR's Enterprise Architecture Score 0 0 4

Figure 12 below summarizes the above findings, with a description of the level to which each alternative meets the evaluation criteria, and the resulting score.
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Criteria Business Value


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Alternative 1 - Maintain Does not meet taxpayer and stakeholder expectations. Process redundancies and system workarounds create inefficiencies

Score Alternative 2 Upgrade DOR could be upgraded to meet taxpayer and some stakeholder expectations; however, the length of time and the level of effort required could undermine value. Modernizing DORs 12 core systems and 80+ ad hoc systems would make total cost of ownership significantly high.

Score Alternative 3 Replace Replacement is designed specifically to deliver DORs Future Vision using industry leading practices

Score
Oregon Department of Revenue Core Systems Replacement Business Case

Total Cost of This alternative will have low near-term cost, but very high Ownership long-term cost because of the need for ongoing system maintenance and eventual replacement. Return on Investment Increasing maintenance investment, and virtually no return other than status quo

Initial costs will be high, however, long-term costs will be lower as the agency reduces the number of systems it must support and begins to use more common technology. Replacement enables significant opportunities to capture additional revenue and reduce DOR costs. Similar states have found that the ROI is significantly positive on nearly all replacements. New business processes, services, and technology will meet current and future stakeholder needs

2
Figure 12: Alternatives Evaluation

Due to the high total cost of ownership and the lack of innovation to capture new revenue sources, ROI would be very low, if not negative. Current stakeholder value would be met, but this would become increasing difficult as taxpayers needs mature and new legislation is passed. Risk is fairly neutral as some technical risks are minimized, but operational and financial risks increase as the agency focuses more of its staff on the modernization effort. The intent of the modernization is to increase the flexibility and supportability of the existing processes and model through the use of new technology. Alternative 2 Upgrade:

Stakeholder Value

DOR will not be able to meet taxpayer, legislature, or business partners expectations.

Version: Final (5.7) Date: November 18, 2010

Risk

Failure of a key processing system could significantly impair DORs ability to process returns and deposit state revenue.

Large scale systems and transformation projects carry significant risks. New processes, new systems, and data driven DOR will ultimately reduce long-term agency risk. Industry leading solutions are crafted to adapt quickly to new trends in revenue administration and technology.

Supportability & Flexibility

Legislation will continue to be supported, but the level of effort will increase, and integration with new technology will become more difficult. Alternative 1 Maintain:

Total Score

Alternative 3 Replace:

19

Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

3.4 Preferred Alternative


The evaluation criteria clearly identify alternative 3, "Replace with integrated tax and compliance solution" as the most beneficial to DOR. This alternative will: meet DORs needs and those of its stakeholders, reduce the risks to revenue administration, enable the agency to drive new and additional revenue through improved taxpayer compliance, and bring DOR technology up to date through the use of industry best practice solutions. The other alternatives simply do not provide the required value or results. Therefore, the subsequent sections of this Business Case provide an assessment of market solutions, a plan for DOR to implement the core systems replacement, and the costs, benefits, and risk associated with such an endeavor.

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4 Industry Leading Solutions


4.1 Current Technology Solution Options
Current technology solution options will be key to the success of the core systems replacement, as the ultimate solution selected by DOR needs to support the agencys full set of business processes. This section provides an overview of current market offerings and options for DOR to consider, and it provides the basis upon which core systems replacement costs are based. DOR understands there are many integrated tax solution options available to support its business needs. These solutions come in many forms but in general, they can be categorized into the following options: Replace the system(s) with a new custom developed solution; Replace the system(s) with a transfer solution; or Replace the system(s) with COTS (commercial off the shelf) solution.

4.1.1 Custom Developed Systems


Custom development involves the execution of a modernization effort from the ground up with little or no use of existing software assets. Typically, the agency and the vendor will start with collaboration on requirements definition, and then execute a system development lifecycle approach to building a custom application from the requirements. The main justification for a custom solution is when a state has very specific business rules, highly specialized business processes or legislative restrictions that force a custom solution. Additionally, when an agency has both strong business and technical staff who can work in a project-based environment, there is a shift towards custom work. The advantages and disadvantages of a custom solution are described below. Figure 13: Advantages & Disadvantages Custom Approach
Advantages Methodology can be dictated by DOR Allows DOR to own/maintain application (i.e., source code) Meets the specific requirements of the DOR DOR can go at a pace that is consistent with resource availability and money available Lower software license fees and lower upfront costs for the project Client does not pay for modules or functionality that might not be utilized Disadvantages Longer project duration and therefore slower realization of Return on Investment (ROI) Higher risk than other approaches Tendency to keep existing business processes rather than reengineer Typically a substantial amount of rework in subsequent phases due to lack of a holistic approach Can be higher cost in the long run due to more resources required and longer development lifecycle Tendency for scope creep as business units begin to ask for more once they see what the solution has to offer Require significantly higher resource
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Advantages

Disadvantages requirements from both agency and vendor Can result in a re-inventing of components that have been successfully deployed or marketed by outside vendors Requires DOR to maintain systems or contract out maintenance which may result in problematic response to changing requirements

4.1.2 Framework or Transfer Approach


A framework or transfer solution provides a set of templates, prototypes, models, and code that provides a foundation for building a customized or semi-customized application. Typically the solution comprises a robust set of artifacts, including code and process descriptions, to expedite design and development and customize a solution to meet the unique needs of a tax department. Agencies will often request a framework or transfer solution when they feel their requirements or business rules are truly unique or they want a customized solution built using best practices and lessons learned from other agencies. Framework and transfer solutions fall within a broad spectrum between truly custom development and COTS, and have no on-going maintenance fees since the agency owns the customized source code. The advantages and disadvantages of a transfer solution are described in Figure 14. Figure 14: Advantages & Disadvantages Framework/Transfer Approach
Advantages Based on proven methodology; other states have implemented the product Most likely allows DOR to own/maintain application (i.e., source code) Lower cost than custom solutions because of reusable components (e.g. use cases, user interface standards, rules engine, correspondence engine, security, underlying architecture) Allows an agency to maintain current business processes if desired Methodology can be dictated by DOR Disadvantages More risky than COTS, but not as much as custom Completely new system training and maybe organizational change required May require integration of additional components to meet future vision Code or components often contain residual nature of transfer site (e.g. business rules embedded that do not apply) Specific skill sets needed for tools the framework dictates May require customizations to extend use of application to site-specific data source loads and compliance programs Total Cost of Ownership may be higher to maintain and enhance the system with internal DOR staff or contracted development which may also result in problematic response to changing requirements

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4.1.3 COTS Approach


Commercial-Off-The-Shelf (COTS) is a term for software or hardware products that are readymade and available for sale to the general public. A COTS product is one that is used as-is or with moderate configuration and plug-in customization. COTS products are designed to be easily installed and to interoperate with existing system components. The use of COTS is successful in many government and business programs because they can offer significant savings in time to implement and total cost of ownership. There are many flavors of COTS solutions. When assessing different COTS solutions, the following factors must be taken into account: Accessibility does the vendor give the client access to modify the code or is the code off-limits and can only be modified by the vendor? Extendibility does the product offer an integrated suite of products in addition to the tax system, including a data warehouse, and collections and audit functionality? Integration how easily can ancillary systems integrate, such as interactive voice response and payment solutions? Customization will the vendor customize/configure the product to meet the Agencys needs, or will the Agency have to adapt to the products functionality? Does the vendor use technology that allows for easily integrated custom functionality? Upgradeability does the vendor offer periodic upgrades to enhance the product, or will the Agency be responsible for any future upgrades?

The advantages and disadvantages of a COTS solution are described in Figure 15. Figure 15: Advantages & Disadvantages COTS Approach
Advantages Based on proven methodology Lower risk due to proven implementation Includes system upgrades and support in maintenance agreement Allows for faster implementation schedule Agencies typically require smaller IT support staff after implementation if vendor supplies maintenance support Vendor typically has pre-screened available tools and components and down-selected to a limited number that are embedded into their product and relevant for tax/revenue implementations Disadvantages Limited COTS providers Reliance on vendor to support and enhance (proprietary source code) Requires organization and business processes to adapt to model May require integration of additional components to meet future vision Potential issues with release upgrades if the baseline is modified IT staff typically do not maintain systems, nor are they allowed access to source code which affects custom extensions of the software unless vendor provides custom integration points that allow DOR to add custom functionality without compromising the maintainability of the core product

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4.2 Industry Landscape for Integrated Tax System Solutions


With an understanding of the different integrated tax system (ITS) solutions that can be undertaken by DOR when implementing an ITS, the next step was to review the types of solutions that have been implemented across the United States by other revenue agencies. This information is not intended to identify that best solution for DOR, but will provide an understanding of the integrated tax environment over the past decade.

4.2.1 Overview of ITS Solutions by State


The vendor market today for ITS solutions is broken into several groupings: COTS software products like SAPs Tax and Revenue Management, Oracles ETM (Enterprise Taxation Management), RSIs REMS (Revenue Enterprise Management System) and Fast Enterprises GenTax (General Tax Administration). Some of these products, such as SAP and ETM, are implemented by system integrators (Deloitte Consulting, Accenture, EDS, and CGI) who are not part of the companies that built the products (SAP and Oracle). GenTax is built by and is implemented solely by FAST Enterprises. REMS is built by and implemented solely by RSI. Transfer software products such as TAS (Accenture) and Advantage Revenue (CGI). Custom solution providers include CGI, RSI, Unisys and Accenture; however, most IT service providers would respond to an RFP that requests a custom-developed system. A single Legacy System Modernization (LSM) solution is currently being implemented by RSI.

Figure 16: Integrated Tax System Landscape February 2010 provides a breakdown of the different products in place by state. Note that California has two separate state agencies, and in one of those agencies (Franchise Tax Board), two systems are in place across business and individual tax types:

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Figure 16: Integrated Tax System Landscape February 2010

4.2.2 Current Implementations & Upcoming RFPs for ITS Solutions


Tax agencies are in various stages of modernization across the country. As of February, 2010, two ITS procurements are active (Massachusetts and Pennsylvania), with several others being planned. There has been a marked increase in the number of vendors responding to ITS RFPs, with collaboration between vendors in providing complimentary products together as an integrated solution being the norm. A focus on the end solution must be a priority during the migration from current state to future state. It takes time to fully implement an ITS that supports all taxes, and DOR must design and build to more than just the current release. For this reason, proven solutions that have been successfully implemented in a previous state are now the norm. These solutions are classified as transfer or COTS solutions, and represent 26 of the 30 (87%) modernization efforts that have started or been completed in the last 7 years. With the advent of transfer and COTS solutions for state revenue agencies, there has been a gradual move away from custom or home grown solutions. Figure 17 presents the trends in legacy system modernization over the last seven years, and the primary system integrator of those solutions. Modernization efforts over the last seven years have primarily focused on implementing COTS or Service Oriented Architecture COTS solutions.

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Figure 17: Summary of Modernization Efforts over the Last 7 Years


Type of ITS Short Description Primary System Integrator Started/Completed Modernizations in Last 7 Years # of Projects Custom Built ITS Integrated tax system developed by vendor and/or client staff using little to no predeveloped software. Non-integrated tax system developed by vendor and/or client staff using little to no pre-developed software. This approach is common within tax agencies, but not utilized for full modernization efforts. Provides a base of reusable code, typically for core reusable components or shared services. Requires significant custom development. Commercial-off-the-shelf application that is built on a proprietary or SOA architecture. It is configured to meet the requirements of a tax agency. Minimal custom development is required. Modernization of the system architecture while preserving all business functionality in a legacy system. Minimal custom development is required Accenture, RSI, Unisys, CGI and In House n/a 3 % of Projects 10%

Custom Built Non ITS

0%

Transfer/ Framework

Accenture, CGI

20%

COTS

Deloitte, Accenture, EDS, CGI, Oracle, SAP, RSI, FAST RSI

20

67%

Legacy System Modernization Total

3%

30

100%

Figure 18 below shows the current status of modernization efforts across tax agencies in the states that are most comparable to Oregon in size and tax processing volumes. Note that the final column in the table includes a Cost of Modernization value for some of the tax systems modernized in the last seven years. These costs were obtained from a November 2009 survey5 done by the Federation of Tax Administrators (FTA), and augmented by additional research. However, the cost for an ITS project can vary based on many factors, among them the number of components or ITS add-ons (e.g. collections, imaging, data warehouse, etc.) included in the contract price, the number of tax types covered, the value of the initial contract price before any contract revisions, the timeframe assigned to the project, the amount of hardware included in the contract price, etc. Additionally, the costs below do not include internal staffing costs or hardware and software maintenance. With that in mind, these costs should be used as a rough guide only, and should not be used to compare projects against each other, or to provide DOR with an exact cost for its modernization efforts. See Appendix A for complete list of all modernization efforts across the United States.
5

"State Integrated Tax Systems, updated November 23, 2009", FTA Briefing Paper
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Figure 18: Recent, Comparable State Modernization Efforts State 2008 Revenue Processed (Billions) $7.2 $13.7 $9.6 $18.1 $5.5 $14.9 $10.1 $16.6 $18.3 $22.7 $8.5 Type of System Year Completed System Contract Price $64,650,000
(Estimate for 6 comparison )

Scope

Oregon Arizona Colorado Georgia Hawaii Indiana Kentucky Maryland Minnesota North Carolina South Carolina

ITS Compliance ITS Compliance ITS ITS Compliance ITS Compliance ITS ITS ITS ITS ITS Compliance ITS Compliance

Transfer COTS COTS Transfer Transfer COTS COTS COTS COTS Custom

2007 Current Current 2004 2005 Current Current Current Current Current

$122,000,000 $54,000,000 $42,000,000 $53,000,000 $54,000,000 $33,200,000 $74,698,500 $39,000,000 $58,900,000 $40,000,000

Does not include maintenance, internal costs, or the property valuation system
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5 Suggested Implementation Approach


The State of Oregon is facing a dire fiscal crisis due to lower than expected recent tax collections and a similar forecast for the coming years. Therefore, a critical objective of the core systems replacement is to provide DOR with the tools to improve tax collections and to reduce the current tax gap. DOR staff and systems are continually striving to improve collections, but it is apparent, as reported in a recent Secretary of State audit, that the Agency does not have the tools to effectively identify and pursue non-compliant taxpayers. The need to improve compliance and the cost of replacing core systems are significant drivers in the suggested implementation approach in this section. The roadmap in Figure 19 illustrates a suggested high-level implementation roadmap for the core systems replacement. The implementation roadmap below provides the business case with the timing of costs and benefits associated with the core system replacement activities. This timeline meets DORs objective to implement revenue-generating initiatives first, which creates a revenue stream and begins the return on investment at the earliest point possible in the implementation. This plan can be reordered if DOR changes priorities. Figure 19: Suggested Implementation Roadmap

The core systems replacement will be divided into a series of phases. The primary reason for taking this approach is to break the effort down into more manageable pieces of work and to align key pieces of the Program into a logical sequence. By breaking it down into phases, DOR mitigates the risk of attempting to perform one large implementation. In addition, by modularizing the implementation into phases, future decisions to change the sequencing of components of the Program can be managed in a more efficient manner. The five suggested phases of the core systems replacement are: Agency Readiness Procurement Compliance Property Valuation System Integrated Tax System The following sections describe each of these phases in detail.
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5.1 Phase 1 - Agency Readiness


DOR Leadership recognizes the level of effort and complexity associated with a transformation of this nature. To be best equipped for the program challenges, the Agency will be making organizational, process, and infrastructure changes. During this phase, DOR staff will conduct the following activities: Conduct and document a business case assessment for the core systems replacement Complete business process documentation, evaluation, and begin making improvements Adopt an Agency Enterprise Architecture to guide decision-making for business and technology initiatives with the agency transformation as the vision Align the organizational structure with the future vision Prepare the technical infrastructure, including agreements with the State Data Center, Department of Administrative Services Enhance communications activities to inform Agency stakeholders of the forthcoming changes Begin data cleansing and preparation for conversion to new systems Develop baseline metrics for comparison and tracking Prepare and secure benefits-based procurement legislation if this procurement approach is selected (see Section 9)

5.2 Phase 2 Procurement


The overall goal of the Procurement Phase is to select the right solution to meet DORs future vision for tax administration. This phase may require more than one procurement effort, depending on how DOR ultimately decides to procure the integrated tax, property valuation and compliance systems. During this phase, DOR staff will conduct the following activities: Create and issue a Request for Information to further understand current vendor solutions Define business, technical, and project requirements Create and issue a Request for Proposals for solutions Review and evaluate responses in accordance with State procurement guidelines Select vendor(s) and solution(s), and complete the appropriate contract(s)

5.3 Phase 3 Compliance


Improved compliance tools will facilitate the use of taxpayer data to reduce the current tax gap in two primary ways: 1) Greater access to, and analysis of taxpayer data assists the agency in identifying noncompliant taxpayers. Less time is spent pursuing false leads, and audit and collections staff is enabled to bring taxpayers into compliance; staff works with taxpayers to resolve non-compliance rather than disturbing and upsetting compliant taxpayers. 2) DOR staff increases productivity through the use of automated tools (e.g. liens, levies, correspondence audits, etc.) and applying a more effective treatment strategy (e.g. risky taxpayers are pursued more aggressively and less risky taxpayer are allowed to selfcure) During the Compliance Phase, DOR will acquire and implement three major tools to enhance
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the effectiveness of compliance activities: data warehouse, audit selection, collections case management. In addition, during this phase new detailed business processes will be developed to manage the collection of delinquent tax debts. Figure 20: Future Vision, Phase 3

Compliance activities are the first to be addressed by the Agency due to their high return on investment. The Compliance programs are expected to reduce the States current tax gap by identifying and collecting additional revenue. This will result in revenue that can be used to fund this and subsequent phases of the project or for other State services. The three components to be implemented are: Discovery Data Warehouse to identify and assess non-filers Audit selection and management to improve the audit change rate Collections case scoring and management to apply the most effective treatment strategies to collection cases

5.4 Phase 4 Property Valuation System


DOR will replace its two aging property valuation systems enabling DOR to provide improved appraisal services to tax jurisdictions. This replacement system is a priority due to the nearing technology obsolescence of the existing systems and the risks this presents to DOR and its dependent tax jurisdictions. During this phase, DOR staff will conduct the following activities: Along with the selected vendor, implement a property valuation system to support Industrial and Utility appraisals Work closely and communicate with Counties to transform business processes and improve service

5.5 Phase 5 Integrated Tax System


This phase will focus on the implementation of a new integrated tax system. The Integrated Tax System Phase will be the largest component of the overall project, will require the most effort to implement, and has the highest overall risk due to the number of systems being replaced and the systems importance to DORs business.

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Figure 21: Future Vision, Phase 5

The result of this phase will be a fully implemented new integrated tax system with increased automation, the ability to more easily integrate with other applications, improved data quality, and better ability to respond to changes in the future including the modification and addition of new tax programs. The capabilities of the integrated tax system will include taxpayer services, returns processing, entity registration, account management, taxpayer accounting, revenue accounting, distribution processing, and overpayment processing. The Agency will attempt to minimize risk and interruptions to operations by implementing the system in three phases. Core System Functionality and Business Taxes. The first implementation will include the core processes of Entity Identification, Returns Processing, Taxpayer Accounting, and Revenue Accounting. Common support processes (e.g. imaging and data capture, content management, workflow engines, etc.) will also be released with this implementation, and the business taxes will begin to be processed in the new system. This implementation will occur in a month where business tax volume is not excessive (i.e., a month when quarterly returns are not due). Personal Income Tax. Building on the success of the first implementation, the second will be focused on moving individual income tax into the new integrated tax system. This implementation will also include other tax types related to individual income such as fiduciary income. This implementation will be planned to occur in a window from August to October when individual income volume is lighter. By implementing at least two months before the beginning of a new filing season, DOR will be able to address any potential implementation problems before a new filing season begins, thus reducing overall program risk. Miscellaneous Business Taxes. Convert remaining miscellaneous tax types into the Integrated Tax System, replacing the many ad hoc systems scattered throughout the agency. Along with the conversion of these tax types, the Agency will streamline the business processes to follow the standards established in earlier phases.

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6 Estimated Costs & Benefits


The transformation is an investment in DOR staff, processes, and technology that must provide a significantly positive return on investment to the Oregon taxpayer. The transformation will provide value through reduced agency risk, increased revenue to Oregon, a more productive and responsive workforce, and a lower total cost of ownership for DOR systems. As DOR leverages the lessons learned and leading practices from the dozens of states that have transformed tax agencies, DOR should expect to see similar benefits. Figure 20 below provides a summary of the annual and total costs of the core systems replacement and the anticipated return on investment. The estimates for each biennium assume a project start date of June 2012. Costs include internal state resource salaries, vendor fees, hardware, and software for all aspects of the transformation. Benefits are derived from cost savings, redirection of state staff, and revenue associated with improved compliance (see Appendix C, Benefit Methodology, Opportunities and Assessments). As indicated in the table below, the investment will pay for itself after the first four years, and it will continue to provide additional revenue to the State well beyond completion. This section further describes core system replacement costs and benefits, and Appendix B contains the detailed worksheets used to calculate these summary estimates. Figure 20: Cost and Benefit Summary by Biennium
2009-11 $ 2011-13 2013-15 2015-17 $ 17,500,000 $ 2017-19 TOTAL $ 67,650,000 Estimated System Purchase Cost: $ 10,650,000 $ 39,500,000 Estimated DOR Base Budget: Internal Cost (Preparation and Implementation): $ 1,999,000 $ 2,300,000 $ 6,900,000 Project Oversight (QA): $ $ 158,000 $ $ 671,000 $ 2,438,000 $ 2,340,000 $ 1,210,000 $ 2,700,000 $ $ $ $ $ $ 4,477,000 5,040,000 Ongoing Costs (Hardware and Software Maintenance): Base Budget Sub-Total: $ 2,157,000 $ 2,971,000 $ 11,678,000 Total Cost: $ 2,157,000 $ 13,621,000 $ 51,178,000 Estimated Enhanced Revenue: $ $ 2,500,000 $ 54,500,000 $ 25,410,000 $122,000,000 $ 92,366,000 $315,000,000 $ 7,910,000 $ 24,716,000 $ 4,000,000 $ $ 15,199,000

$136,000,000

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6.1 Costs
Each phase presented in the implementation approach has a cost to the State. This section provides an estimate for each of these components. These estimates are based on the actual costs to other states for process and technology reengineering projects of similar size and scope. At such time DOR procures solutions, actual costs may vary with the scope requested and the vendor proposals. These costs are intended to provide DOR with an estimate for budgeting purposes. Figure 22 is a summary of the costs by phase, and this section provides a description of the phase and its cost. Figure 21: Core System Replacement Summary Costs Phase Agency Readiness Procurement Compliance Discovery Compliance Audit Compliance Collections Property Valuation System Integrated Tax System Total Estimated Cost $2,157,000 $1,600,000 $6,641,000 $5,843,000 $11,261,000 $4,961,000 $59,903,000 $92,366,000

Figure 22: Cost Summary by Phase


SYSTEM Software Agency Readiness Procurement Discovery Audit Collections Property System Integrated Tax System Costs $ $ Hardware $ $ $ $ Vendor Services 499,000 $ $ Total System QA QA MAINTENANCE Software Hardware $ $ INTERNAL DOR Staff TOTAL

499,000 $ 158,000 $ $ 100,000 $

$ 1,500,000 $ 2,157,000 $ 1,500,000 $ 1,600,000 $ $ 400,000 $ 6,641,000 300,000 $ 5,843,000

$ 500,000 $ 750,000 $ 4,500,000 $ 5,750,000 $ 316,000 $ 100,000 $ 500,000 $ 150,000 $ 4,500,000 $ 5,150,000 $ 278,000 $ 100,000 $2,000,000 $ 750,000 $ 6,000,000 $ 8,750,000 $ 536,000 $ 400,000 $ 750,000 $ 750,000 $ 1,500,000 $ 3,000,000 $ 236,000 $ 150,000 $6,000,000 $1,500,000 $37,500,000 $45,000,000 $2,853,000 $3,600,000

$ 75,000 $ 15,000 $ 75,000 $ 75,000 $ 450,000

$ 1,500,000 $11,261,000 $ 1,500,000 $ 4,961,000 $ 8,000,000 $59,903,000

$9,750,000 $3,900,000 $54,499,000 $68,149,000 $4,477,000

$4,350,000

$ 690,000 $14,700,000 $92,366,000

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6.1.1 Agency Readiness


The Agency Readiness component of the core systems replacement represents the activities necessary to prepare DOR for the organizational, process, and technical changes. These include activities such as business process documentation, initiation of the Enterprise Architecture, communication efforts, and organizational change management. Similar activities beyond the 2009-11 biennium are included in the estimates of the other components. Agency Readiness Estimated Cost
Resource DOR Staff Contractor Quality Assurance 2009-2011 $ 1,500,000 $ $ 499,000 158,000 2011-2013 $ $ $ $ 2013-2015 $ $ $ $ 2015-2017 $ $ $ $ 2017-2019 $ $ $ $ Total $ 1,500,000 $ $ 499,000 158,000

$ 2,157,000

$ 2,157,000

6.1.2 Procurement
The Procurement activities include requirements definition and the development and evaluation of Requests for Proposals. Additional readiness activities are also included in the costs below. Procurement Estimated Cost
Resource DOR Staff Quality Assurance 2009-2011 $ $ $ 2011-2013 $ 1,500,000 $ 100,000 $ 1,600,000 2013-2015 $ $ $ 2015-2017 $ $ $ 2017-2019 $ $ $ Total $ 1,500,000 $ 100,000 $ 1,600,000

6.1.3 Compliance Discovery


The Discovery component begins with the implementation of data warehouse and taxpayer data modeling technology and processes. The data warehouse is then expanded by compliance program type to identify non-compliant individuals and businesses. Compliance Discovery Estimated Cost (Also see Appendix B, Cost Detail)
Resource Software Hardware Vendor DOR Staff Quality Assurance Maintenance 2009-2011 $ $ $ $ $ $ $ 2011-2013 $ $ $ $ $ 500,000 750,000 200,000 197,000 2013-2015 $ $ $ $ $ 200,000 119,000 175,000 2015-2017 $ $ $ $ $ $ $ 2017-2019 $ $ $ $ $ $ $ Total $ $ $ $ $ 500,000 750,000 400,000 316,000 175,000

$ 2,500,000

$ 2,000,000

$ 4,500,000

$ 4,147,000

$ 2,494,000

$ 6,641,000
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6.1.4 Compliance Audit


The Audit component is an extension of the Discovery component, first assisting DOR with more effective audit selection, desk audits, and automated audit functions. Additional audit tools such as case management and field audit support are also introduced during this phase. Compliance Audit Estimated Cost (Also see Appendix B, Cost Detail)
Resource Software Hardware Vendor DOR Staff Quality Assurance Maintenance 2009-2011 $ $ $ $ $ $ $ 2011-2013 $ $ $ $ $ 500,000 150,000 100,000 112,000 2013-2015 $ $ $ $ $ 200,000 166,000 115,000 2015-2017 $ $ $ $ $ $ $ 2017-2019 $ $ $ $ $ $ $ Total $ $ $ $ $ 500,000 150,000 300,000 278,000 115,000

$ 1,500,000

$ 3,000,000

$ 4,500,000

$ 2,362,000

$ 3,481,000

$ 5,843,000

6.1.5 Compliance Collections


The Collections component rounds out the core systems investment in compliance initiatives with the expectation that they will generate additional revenue and a positive return on investment. The costs in this component are for collections case scoring and case management. The scoring directs DOR compliance treatments more effectively, and the case management enables DOR staff to be more efficient in their collection activities. Compliance Collections Estimated Cost (Also see Appendix B, Cost Detail)
Resource Software Hardware Vendor DOR Staff Quality Assurance Maintenance 2009-2011 $ $ $ $ $ $ $ 2011-2013 $ 2,000,000 $ $ $ $ 750,000 500,000 262,000 $ 2,000,000 2013-2015 $ $ 2015-2017 $ $ $ $ $ $ $ 2017-2019 $ $ $ $ $ $ $ Total $ 2,000,000 $ 750,000 $ 6,000,000 $ 1,500,000 $ $ 536,000 475,000

$ 4,000,000 $ 1,000,000 $ $ 274,000 475,000

$ 5,512,000

$ 5,749,000

$11,261,000

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6.1.6 Property Valuation


The Property Valuation component of the core systems replacement is a step in combining redundant functionality from multiple systems into one, more efficient process, support by one system. This system will enable DOR to provide more accurate property assessments more quickly and more reliably to counties throughout Oregon by the following: Processing - Support for the filing and processing of returns electronically Entity Identification - Support for the creation/deletion of taxpayers and coordination of taxpayers to other tax types. Taxpayer Accounting - Support for the calculation of value electronically using 3rd party tools Communication Ability to communicate electronically with business partners and taxpayers.

Property Valuation Estimated Cost (Also see Appendix B, Cost Detail)


Resource Software Hardware Vendor DOR Staff Quality Assurance Maintenance 2009-2011 $ $ $ $ $ $ $ 2011-2013 $ $ $ $ $ $ $ 2013-2015 $ $ 750,000 750,000 2015-2017 $ $ $ $ $ $ $ 2017-2019 $ $ $ $ $ $ $ Total $ $ 750,000 750,000

$ 1,500,000 $ 1,500,000 $ $ 236,000 225,000

$ 1,500,000 $ 1,500,000 $ $ 236,000 225,000

$ 4,961,000

$ 4,961,000

6.1.7 Integrated Tax System


The Integrated Tax System is both the largest phase and the one which will have the single largest direct impact on the DORs success. This is due to the number of systems that will be replaced and the importance of these systems to processing returns and payments; these systems are responsible for processing 94% of the States General Fund revenue. The Integrated Tax System will provide DOR with many of the features of the Future Vision, including the following: Processing - Support for the filing and processing of returns Entity Identification - Support for the creation of new taxpayers, including the automated registration for tax types which do not require a registration form Taxpayer Accounting - Support for the calculation of returns, payments, and other financial transactions for the taxpayer Revenue Accounting - Support for the global accounting of revenue received for the State and the external transmission of that information

In addition, the Integrated Tax System will include many enterprise level features such as correspondence, workflow, security, data management, and enterprise reporting.
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Integrated Tax System Estimated Cost (Also see Appendix B, Cost Detail)
Resource Software Hardware Vendor DOR Staff Quality Assurance Maintenance 2009-2011 $ $ $ $ $ $ $ 2011-2013 $ $ $ $ $ $ $ 2013-2015 2015-2017 2017-2019 $ $ $ $ $ $ $ Total $ 6,000,000 $ 1,500,000 $ 37,500,000 $ 8,000,000 $ 2,853,000 $ 4,050,000 $ 59,903,000

$ 6,000,000 $ $ 1,500,000 $

$ 20,000,000 $17,500,000 $ 4,000,000 $ 4,000,000 $ 1,643,000 $ 1,210,000 $ 1,350,000 $ 2,700,000 $ 34,493,000 $ 25,410,000

6.2 Benefits7
The estimated total cost for the core systems replacement is approximately $92 million over seven years, which is significant given the economic climate and the budget concerns of the State. However, recent experiences from other state tax agencies implementing large scale system improvements have resulted in significant ROI. Recent presentations by states at conferences hosted by the Federation of Tax Administrators included the following information when discussing major systems modernization efforts: New Mexico Taxation & Revenue Department The benefits of converting to an ITS included a single integrated view of taxpayer (consolidated views of financial history, correspondence, complete history of activity), automated identification of overdue receivables, automated assessments and statements, automated offsets, better reporting and data analysis, improved staff efficiency, centralized data for audit selection, increased customer service, and positioning for web presence. Illinois Department of Revenue The Department's i-STAR Project resulted in increased collections of $38 million in FY07. Collected $54M in FY09 from a New Pass Through Program Hawaii Department of Taxation In five years, the new Integrated Tax Information Management System project has more than paid for itself resulting in $250 Million in new revenues, achieving a 475% return on investment for Hawaii. Figure 23: Examples of benefits experienced by other states
Year Completed OREGON Arizona DOR Hawaii DOR Kansas DOR New York DTF South Carolina Virginia DOR
7
8

Estimated Investment $91M (projected) $122M $53M $45M $140M $40M $153M

Return $315M (projected) 8 $122M $250M $120M $1B $135M $350M

Return on Investment Ratio 3:1 1:1 5:1 3:1 7:1 3:1 2:1

Period (years) 8 4 8 5 5 4 6

2008 2007 2000 Ongoing 2010 2006

See Appendix C, Benefit Methodology, Opportunities and Assessments.


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One way to project benefits from system and process improvement is using an overall efficiency projection. This provides a very broad estimate of the increased revenue that will be collected from making large scale improvements to tax administration and collection. The January 30, 2009 report, Individual Taxpayer Compliance in the State of Oregon, concluded that there is a net tax gap of about 18.5 percent. For 2006, this indicates that roughly $1,247,700,000 was not reported or paid. Since new systems and processes will significantly improve compliance, and reduce non-compliance, a broad estimate of new revenues can be calculated by applying an improvement factor to the $1.2 billion non-compliance estimate. A reduction in non-compliance of just 2% would result in $ 24 million (2% X $1.2 billion) per year in new collections. The result is similar using a 10% increase in overall enforcement collections. These are conservative, achievable targets that are based on results achieved by states of similar size and context. These rough estimates show that for personal income tax alone the new systems and processes would be paid for in approximately four years using the conclusions and information provided above for Illinois and Hawaii. To categorize and more specifically quantify the projected benefits from systems and process improvements, a detailed analysis was prepared to estimate benefits based on known improvements that will occur as a result of the transformation. The following pages describe the benefits ascribed to areas of impact: Integrated Tax System (Revenue Administration) Processing of returns and related activities including revenue accounting, correction and exception processing and initial billing Audit Identify and bill unreported tax (including non-filers) Collection Pursuit of open liabilities (bills) Property Valuation Valuation (appraisal) of industrial and utility property

6.2.1 Integrated Tax System Benefits


Integrated Tax System 09-11 11-13 13-15 15-17 17-19 Total

$6,000,000 $28,000,000 $40,000,000 $74,000,000

The following are the basis for the Integrated Tax System benefits: One Efficient System for All Tax Types Several tax types such as Tobacco and Timber do not currently have robust tax processing systems, and other tax types do not have formal systems. The benefits include: All tax types will be moved onto a single system, allowing for economies of scale that make it cost-effective to process the tax types in the single system.
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A standardization of processes and a reduction in manual effort in the administration of these tax types and contributed benefits in terms of operational efficiency and resource utilization.

New and Improved Self-Service by Taxpayers All taxpayer data in one database makes it easier to present information in a logical manner and provide access needed. The benefits include: Self-service functionality that may have been difficult or not cost-effective to provide with legacy tax-based and functional tax processing systems will now be available. Taxpayers are able to perform routine account maintenance and find information instead of making a phone call or submitting a form. Additional functionality including Internet business registration, taxpayer created deferred payment agreements, and a reduction of effort needed by the Taxpayer Assistance group, both in terms of service calls and manual activities.

Tax Processing Efficiency Numerous efficiencies will be seen as a result of reduced manual activities, the timeliness of data availability, enhanced functionality relative to legacy systems and a reduction of interfaces between disparate systems. The benefits include: Payment transfers across tax types will be simplified, transfers of money across taxpayers, tax periods or tax types completed in one system is more efficient and a strong audit trail will be maintained, increasing security on dollar transfers. Easy access to available data will result in the ability to perform automated checks in real-time rather than performing manual checks within multiple systems to verify information. This is especially true for return processing validation checks as well as requests for information that could come from other agency systems. Real-time automated validation and verification are much more efficient than manual research. Online adjustment capabilities will result in the immediate processing of changes instead of waiting for the nightly batch process to determine the impact. Having all data within one system will provide all users with the appropriate security access with immediate visibility to data as it is changed. Efficiency benefits due to the reduction of interfaces. From a general usability perspective, third-party tools, such as an Image Viewer, can be integrated with the systems to facilitate information retrieval. Due to fewer interfaces, fewer systems to train users on, resulting in lower training costs.

Use of Business Rules and Improved Exception Processing New systems will promote the use of business rules to reduce errors and exceptions, and facilitate their systematic correction. The benefits include: Business rules within a business rules engine to allow users to participate in the process of configuring the system. This transparency will give a larger audience the visibility to see how DOR does its business and will reduce DORs reliance on scarce IT staff. A combination of real-time checks and a pre-certification process will also reduce the volume of common exceptions and allow manual review on a smaller pool of cases for follow-up.

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Enhanced Electronic Filing Promotion - Similar to taxpayer self-service, enhanced electronic filing promotion will result in greater numbers of businesses filing electronically and less paper to manually process. The benefits include: The overall error rate due to data capture errors will be reduced. New systems will also facilitate the creation of electronic filing capabilities for more tax types than are currently available.

Imaging (OCR/ICR) Enhancement - Transformation is an opportunity to assess not only how new systems and technology can result in cost savings and benefits, but how existing applications of technology can be changed to provide benefits. The benefits include: The current use of Optical Character Recognition (OCR) and Intelligent Character Recognition (ICR) doesn't take advantage of all available capabilities. More can be done to reduce the amount of manual data entry. Capturing additional data, or improved data, will support Audit and Compliance efforts. More details on the use of additional data can be found in the Audit and Collection sections. There is currently no use of OCR/ICR for Personal Income Tax returns so all paper returns that are not 2D bar-coded must be manually keyed. Increased use of automated data capture will further reduce the headcount of temporary data entry personnel during tax processing seasons.

Internal and External Offsets While DOR currently participates in the Treasury Offset Program, there are additional opportunities to automate offset processes. The benefits include: With data for all tax types within a single database, internal refund offsets can be performed in a straightforward manner and a notice or explanation indicating why a refund was reduced can be sent to the taxpayer. Centralizing debt for offset will enable automated data matching against external debt as part of the regular refund process. Refund offsets reduce overall collection activities, reduce the volume of bills to generate and reduce collection case workloads. More revenue will be collected with fewer staff.

Improved Compliance from Taxpayer Education - The transformation will result in improved tax collection through better taxpayer education. The benefits include: Having all data in a single database, and using improved analysis tools, allowing analysis to take place on specific taxpayer groups. Patterns that emerge can allow DOR to target specific educational programs for those segments of the taxpayer population that are having difficulty with compliance. While actual benefits related to Improved Taxpayer Education have not been listed in Appendix B, there will be a revenue generation impact by increasing voluntary compliance related to this education effort.

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6.2.2 Audit and Discovery Benefits


Audit and Discovery 09-11 11-13 13-15 15-17 17-19 Total $1,500,000 $26,500,000 $54,000,000 $56,000,000 $138,000,000

Although there is some overlap of benefits already discussed in the previous section, Integrated Tax System, the benefits for Audit and Collection processes are significant. Audit benefits include the following: Common Access to Aggregated Internal/External Data New system capabilities will assist in effectively leveraging data and information available, providing access to all who need it for good decision making, assisting in allocating resources, and driving programs and treatment of taxpayers using as much automation as possible. The benefits include: Using additional data to select and drive audit programs including development of new programs for non-filers and under reporters and a reduction in unchanged audits, Enhanced refund processing by having timely and automated access to information needed for decision making. Complete, aggregated data will provide for the enhanced review of individual income tax refunds and assist in automating review steps. One option is to change from the current resource-intensive process to an automated pre-validation process (to confirm identities, likely withholding tax thresholds, and eligibility for credits/refunds in advance based on existing information). Resource savings from working cases in less time and eliminating working unchanged audit cases that can be used to work selections of highly productive, correspondence audits including tax payer preparer cases, lifestyle program cases and non-resident cases.

Improved Case Management Capabilities - Industry proven solutions use data not currently used by DOR to drive case management and compliance actions. The benefits include: Using the ITS and data warehouse, DOR can implement a solution utilizing the data warehouse to facilitate the passing of audit information from the IRS to DOR and have a business process in place to: 1) automate the creation of the case, 2) verify if the taxpayer has reported the change 3) if not, compute the OR tax impact/adjustment, 4) support assignment and case tracking, 5) create notification to the taxpayer, and 6) post the bill to the ITS. Many of these activities are currently manual, and new systems will automate them. This process will also provide visibility to all necessary information by DOR staff to respond to phone calls or correspondence and quickly resolve any issues. Even though Revenue Agent Reports (RARs) will require a manual review and adjustment calculation, significant benefits will be achieved by automating the data load
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process, checking to see if the change was reported, automating the case creation process, and posting the bill to the ITS Information Returns Master File (IRMF) Non-filer cases can be done referencing any filing information contained in the ITS. Using the IRMF file provided by the IRS to identify income that was not reported by the non-filers allows DOR to issue accurate estimated bills rather than inquiry letters.

Decision Analytics - Decision Analytics (DA) is most effective when it uses all financial data from returns (all that is captured) to develop models. Since an ITS contains this data, DOR can more easily access and use the necessary data when it is in a single system. Experience from other states demonstrates that assessments-per-auditor-hour may increase twenty percent or more when DA is applied DA to audit selection.

6.2.3 Collection Benefits


Collections 09-11 11-13 13-15 15-17 17-19 Total $1,000,000 $22,000,000 $40,000,000 $40,000,000 $103,000,000

New systems will provide collections case management integration between core revenue (e.g. Entity Identification, Taxpayer Accounting) and the Data Warehouse resulting in benefits in the following areas: Consolidation of Receivables - Significant gains can be made when consolidating receivables under a single collection case and automating enforced collection actions and inventory monitoring to apply the next best action. The benefits include: Automated processes including consolidated taxpayer information and system initiated activities. Examples include risk-based scoring, case creation and assignment, automated bank or wage levies, and alerts. As a result, compliance activities are proactive and DOR staff is able to focus on compliance rather than managing the case through a circuitous process. The system can review existing inventories for account updates such as payments or changes in demographic information. Once identified, the case would either be moved to a work list for a collector to work or assigned to the appropriate collector based on DOR case assignment rules. This approach removes the need for management to continually view reports or manually review existing inventories and provides the collector with the information they need when they need it.

Risk-Based Scoring of Receivables Maximum benefits from scoring occurs when cases are scored early in the collections process (i.e. during the initial billing stage) and supports a more segment-based approach for focused initiatives. The benefits include:

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Focused initiatives could include special compliance projects or expediting receivables to outside collection agencies based on the taxpayers risk-score. Scoring could also include an inventory management mechanism to distributed cases across collection inventories, as well as assess the inventory of receivables that have been deemed as uncollectable. Managing inventory throughput by user driven parameters and a mechanism to insure that, as compliance programs or season fluctuations generate new receivables, that inventory levels are not too high or too low for a given inventory or collector assignment.

User Experience and System Maintenance - DOR staff work in one system providing them with a full view of the taxpayer. The benefits include: Time spent researching information or traversing several systems can now be spent on direct collection activities which generate increased revenue. A common framework is utilized across case management features within the solution. This includes one system utility to manage security, case types, correspondence templates, case assignment, approvals, and workflow. Having a consolidated system also allows for common case management functions to be leveraged across the solution. This means the case structure that is employed is used to manage any work item (suspended return, a refund request, a billing case, or a collections case requiring automated or manual action).

Inventory Monitoring - Cases can be driven through automation of enforcement actions and DOR staff can be alerted to take effective collection action when changes occur to the taxpayer assigned to their inventory. The benefits include: For supporting enforced collections, Entity Identification provides address, asset, and relationship information which are necessary to enforcing the best possible treatment strategy. The manual review of reports or ad hoc analysis is automated and those accounts requiring work move to the top of a work list so that enforced collection action can occur timely.

Automation of Responsible Party Billing - The process of billing and collecting from responsible individuals could be significantly improved by building a repository of responsible party information using sources such as registration, secretary of state, and existing known responsible party cases to provide DOR staff with a list of potential candidates upon assignment of the case. The benefits include: Combined with risk-score, this would provide information to the collector to begin the responsible party process sooner. The ITS will also provide the ability for a receivable to be associated with multiple debtors and collection actions to occur within the system in order to track from where the payments are coming Billing to the responsible party should occur on that receivable providing a way to see who has been billed and when. An ITS should provide an easier process for billing, payment allocation, and crediting payments to the receivable shared by multiple debtors.

Non-Filed Returns and Estimated Assessments - Knowing when returns should be filed based on the account type and filing frequency is not enough. Additional data sources such as
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wage or third-party data (e.g. Dun & Bradstreet) are necessary to support estimated assessments where recent return information is not available. The benefits include: DOR staff know potential Failure-to-File situations as well as the revenue at risk as soon as the taxpayer has missed their return due date. Additional data is used to estimate the assessment which provides a more accurate receivable for the system or collector to manage. Fewer adjustments to assessments mean that time is spent on collections activities as opposed to data purification activities. The

Returned Mail Automate the process of identifying correct address for returned mail. benefits include:

A single system using a repository of address information across existing systems and third-party data sources to automatically skip-trace returned mail or allow for manual review of returned mail to ensure that mail does not continue to go out, after the legal assessment notice, on addresses that DOR knows are bad. A 3-D barcode could be printed on outgoing mail and scanned upon return to either stop additional mail from being sent or to look for a better address. Additional payments from having access to better address information, as well as the cost savings (both resource and postage) associated with scanning and stopping mail that will be returned.

6.2.4 Property Valuation Benefits


Oregon Revised Statutes require DOR to value all industrial property with a value greater than $1 million in addition to all utilities, telecommunications companies, railroads and airlines. Every property taxpayer in these categories sends us a return (non-electronic) describing their asset base. Each return is manually entered into a database type system. A significant amount of our work to calculate values, send values to the counties, track and respond to appeals is all manual work. Over the years the property tax system has become more complex and businesses are more complex. The resource to value these businesses has essentially remained the same. The replacement of the core valuation systems for property tax will create cost efficiency internally to DOR as well efficiency and benefits to the taxpayers and counties we service. These property tax valuation systems support DOR in valuing industrial and utility property throughout the State. In turn, these property values are used by Oregons thirty-six counties to assess and collect property taxes to fund critical local government services. Without replacement of these aging systems the State runs the risk of continual decline in service level, and with the replacement, the State will more efficiently and effectively enable counties to fund their critical services. Benefits will be seen specifically in the following areas: Electronic Filing - Similar to taxpayer self-service, electronic filing will result in less paper to manually process. The benefits include: The overall error rate due to data capture errors will be reduced. Much of the error rate
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is due to manual transferring of data and increased time pressure with more complex work to be accomplished. Elimination of keying data will save time. The taxpayer can have more guarantee of receipt of return timely. Taxpayers will be able to supply us data required for filing more efficiently (currently they must submit paper returns).

Electronic Communication Currently values are submitted to the county through paper mailings. Enhanced systems will allow for counties to retrieve value information through electronic means. New and Improved Self-Service by Taxpayers All taxpayer data in one database makes it easier to present information in a logical manner, consistently and provide access needed. The benefits include: Self-service functionality that may have been difficult or not cost-effective to provide with legacy tax-based and functional tax processing systems will now be available. Taxpayers are able to perform routine account maintenance and find information instead of making a phone call or submitting a form.

Tax Processing Efficiency Numerous efficiencies will be seen as a result of reduced manual activities, the timeliness of data availability, enhanced functionality relative to legacy systems and a reduction of interfaces between disparate systems. The benefits include: Easy access to available data will result in the ability to perform automated checks in real-time rather than performing manual checks within multiple systems to verify information. This is especially true for return processing validation checks as well as requests for information that could come from counties or other external parties. Real-time automated validation and verification are much more efficient than manual research. Having all data within one system will provide all users with the appropriate security access with immediate visibility to data as it is changed. Efficiency benefits due to the reduction of interfaces and elimination of separate systems. From a general usability perspective, third-party tools, such as an Image Viewer, can be integrated with the systems to facilitate information retrieval. Use of Business Rules and Improved Exception Processing New systems will promote the use of business rules to reduce errors and exceptions, and facilitate their systematic correction. The benefits include: Business rules within a business rules engine to allow users to participate in the process of configuring the system. This transparency will give a larger audience the visibility to see how DOR does its business and will reduce DORs reliance on scarce IT staff.

Common Access to Aggregated Internal/External Data New system capabilities will assist in effectively leveraging data and information available, providing access to all who need it for good decision making, assisting in allocating resources, and driving programs and treatment of taxpayers using as much automation as possible. The benefits include: Using additional data to select and drive appraisal programs including development of
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new programs for omitted property. Complete, aggregated data will provide for the enhanced review of property taxpayers and assist in automating review steps. One option is to change from the current resource-intensive process to an automated pre-validation process (to confirm identities, likely errors in asset reporting, and greatest potential for valuation change. Resource savings from working accounts in less time that can be used to appraise property needed to derive current fair market value.

Decision Analytics - Decision Analytics (DA) is most effective when it uses all data from returns (all that is captured) to develop models. Since a Computer Assisted Mass Appraisal (CAMA) solution would include this data, DOR can more easily access and use the necessary data when it is in a single system. Applying DA to appraisal selection can result in more accurate values and ability to defend values in appeal.

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7 Critical Success Metrics and Factors


A successful transformation will be measured by how well it achieves DORs strategic goals and the efficiency with which it does that. This section provides critical success metrics used to assess the value of the project to DOR. These metrics will be evaluated at significant milestones in the project as a gauge for possible realignment of the roadmap and project priorities. Also presented below are critical success factors that should be in place to help mitigate project risks and support a successful project.

7.1 Critical Success Metrics


Because the desired project outcomes are both complex and interrelated, DOR chose to use a "Metrics Tree" to show how various goals and objectives, and the operational measures that support them, inform and drive desired strategic outcomes. Critical Success Metrics for the project are: 1. Enhanced revenues attributable to the project must meet annual targets for general fund contributions and project funding. 2. Cost to collect revenue Expected reduction in cost to collect current and delinquent revenue. 3. Response time for implementing changes in tax law Expected reduction as the new system delivers greater flexibility. 4. Number of unexpected changes to scope Targeted to be low based on percentage of time and financial budget. 5. Taxpayer accessibility to tax information Targeted to be 24x7. From these critical measures, DOR has developed three metrics models to structure and illustrate the value stream from operational measures through to strategic outcomes. These models inform on both the modernization initiative and the overall transformation. The three metrics models are graphically represented in Appendix D: 1. Compliance Process (Metrics Tree 1) 2. Taxpayer Self-Sufficiency (Metrics Tree 2) 3. Fiscal Responsibility/Accountability (Metrics Tree 3) The elements of the metrics models are described on the following pages. The metrics have been mapped to the agency's seven specific strategic goals (see Section 2.1, "Background"):

These metrics will be tracked using appropriate baselines and targets, and reported throughout the Core Systems Replacement project.
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Compliance Process (Metrics Tree 1) High Level Outcome: Level the playing field through increasing voluntary tax compliance. Measure 1.1 Strategic Goals: Percent Of Total Revenue That Is Paid Voluntarily Expected outcome: Maximize revenue through voluntary compliance Why is it important? The goal of this measure is to reinforce and highlight the rate of voluntary compliance (i.e. the number of taxpayers who file and pay without active intervention). How will we measure it? Percentage of payments made 'voluntarily' divided by total revenue. Voluntary payments are those payments received where the account is not in collections (i.e. the Automated Collection Tracking system). Total revenue includes both voluntary and involuntary payments and refunds. Which tax programs? Personal income tax, including withholding, and Corporate tax programs Measure 1.2 Strategic Goals: Percent of Property Taxes Collected (KPM # 2) Expected outcome: Maximize revenue through voluntary compliance Why is it important? This measure is used to show the degree to which counties are able to timely collect identified property taxes, and is expressed as: Percent of Property Taxes Collected. How will we measure it? This is a Key Performance Measure (KPM) reported to the Legislature as part of the Agency Request Budget (ARB) document. Which tax programs? Property tax Measure 1.3 Strategic Goals: Percent Of Identified Non-Filers Acted Upon Expected outcome: Increased filing compliance rates Why is it important? The goal of this measure is to provide an indicator for the effectiveness of our non-filer program by comparing the number of non-filers that we identify to the number that we act on. Non-filers are
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Compliance Process (Metrics Tree 1) High Level Outcome: Level the playing field through increasing voluntary tax compliance. persons who have failed to file an Oregon return for a particular tax year. They are identified through data matching (e.g., comparing IRS files to internal files), casual "tips" (leads), and other collection activities. "Working" a non-filer account means gathering information to determine whether a return may be due and, if so, contacting the taxpayer to pursue filing and payment. How will we measure it? Data for this measure is currently under construction. As we gain experience with this measure, the methodology may change. The measure captures the number of non-filer leads as a total and the number of leads worked as a percentage of that total. Which tax programs? Personal income tax, including withholding, and Corporate tax programs

Taxpayer Self-Sufficiency (Metrics Tree 2) High Level Outcome Maximize Taxpayer Self-Sufficiency Measure 2.1 Strategic Goals: Percentage Increase in the Use of Electronic Payment Methods Expected outcome Increased taxpayer access to information and processes for managing their tax obligations. Why is it important? Increasing taxpayer self-sufficiency is directly tied to making key tax services easily available and attractive to users. Electronic transactions are available on a continuous (24x7) basis; they are faster and less prone to human error than their manual counterparts. External business trends parallel the DOR objective of moving increasingly to electronic transactions for similar reasons to those detailed above. How will we measure it? Compare manually processed payments against electronic; determine relative percentage of electronic to total processing to determine percentage. Compare actuals to targets (+/-5%). o Part One: Percentage of electronic payments processed vs. manually processed payments o Part Two: Percentage of dollars received: electronically versus manually
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Taxpayer Self-Sufficiency (Metrics Tree 2) High Level Outcome Maximize Taxpayer Self-Sufficiency Which tax programs? Personal income tax, including withholding, and Corporate tax programs Measure 2.2 Strategic Goals: Percent of Taxpayers Reporting Correct Tax Expected outcome Tax returns are filed error free and on time Why is it important? This measure attempts to quantify the number of taxpayers who correctly report income and deductions thereby reducing the need to review (audit) returns. Eventually the goal is to measure all returns where taxpayers are reporting information correctly and calculating tax correctly. How will we measure it? The measure will quantify as a percentage the number of processing verifications (i.e. taxpayer identity, return completeness, math, etc) divided by the total returns processed. Which tax programs? Personal income tax, including withholding, and Corporate tax programs

Fiscal Responsibility/Accountability (Metrics Tree 3) High Level Outcome Enhanced fiscal responsibility and accountability Measure 3.1 Strategic Goals: Actual Core System Replacement (CSR) Project Completion Date Compared to Projected Completion Date Expected outcome Efficient and effective project management as demonstrated by completing the CSR project on time Why is it important? The CSR Program will have multiple phases (projects). Each phase will be measured against the targeted completion date for that phase. How will we measure it? This measure will report on each phase individually, along with an overall project completion date.
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Fiscal Responsibility/Accountability (Metrics Tree 3) High Level Outcome Enhanced fiscal responsibility and accountability o o o Actual completion date compared to projected completion date Acceptable variance is within 10% of the target completion date Tracking will begin once a vendor has been selected and a contract signed

Measure 3.2 Strategic Goals:

Variance Between Budget and Actuals for Core System Replacement (CSR) Project Expected outcome Efficient and effective project management as demonstrated by completing the CSR project within budget Why is it important? The goal is to have a minimal variance between budgeted and actual project costs. Once a vendor is selected, and a contract approved, projected costs will be established. This measure will determine the difference between the budgeted and actual cost. How will we measure it? Variance between budgeted and actual project costs. Typically, this is expressed as the total actual cost compared to final estimated costs (not including previously approved change orders). This measure will be reflected as number of dollars over/under the budgeted amount for each phase. Standard accounting practices will be used to represent the data.

Measure 3.3 Strategic Goals:

Total Number of Significant Scope Changes for Core System Replacement (CSR) Project Expected outcome Efficient and effective project management as demonstrated by minimizing changes to the CSR project scope Why is it important? There are always change orders in complex projects and always some time slip because of this (and other factors). Not everything can be anticipated, and conditions can change during the lifetime of a complex project. The goal is to minimize the number of significant unexpected changes to CSR project scope. How will we measure it? Variance between anticipated number of change orders and actuals

Measure 3.4

[Placeholder - This Measure to be Negotiated With Selected Vendor]


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Fiscal Responsibility/Accountability (Metrics Tree 3) High Level Outcome Enhanced fiscal responsibility and accountability Strategic Goals: Expected outcome Enhanced revenues attributable to the CSR project Why is it important? The goal is to meet annual targets for general fund contribution. If DOR proceeds with a benefits-based approach, DOR will work with the vendor to determine appropriate measurements for CSR Project success. How will we measure it? To be negotiated with vendor upon award of contract. Which tax programs? Personal income tax (unless otherwise negotiated) Measure 3.5 Strategic Goals: Dollars Collected Per Revenue Agent Per Month (KPM #1) Expected outcome Enhanced revenues attributable to the CSR project Why is it important? The goal is to meet annual targets for general fund contribution. This measure is used to show the productivity of collection staff, based on dollars collected per position and is expressed as: Dollars collected per revenue agent per month. How will we measure it? This is a Key Performance Measure (KPM # 1) reported to the Legislature as part of the Agency Request Budget (ARB) document. Which tax programs? Personal income tax Measure 3.6 Strategic Goals: Adjusted Gross Income (AGI) Gap Expected outcome Improved rate of voluntary compliance Why is it important? The goal is to improve voluntary compliance through operational effectiveness and efficiency as indicated by reducing the AGI gap. DOR is trying to determine the difference between what income should be reported vs. what is actually reported. How will we measure it? Compare the difference between what should be reported and what is actually reported (AGI gap) using
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Fiscal Responsibility/Accountability (Metrics Tree 3) High Level Outcome Enhanced fiscal responsibility and accountability o o Bureau of Economic Analysis (BEA) data on an annual basis Oregon personal income tax returns

Which tax programs? Personal income tax, including withholding Measure 3.7 Strategic Goals: Percent of Reduction in Cost of Non-Voluntary Collection Expected outcome Reduced cost to collect current and delinquent revenue Why is it important? This measures how efficient our collection activities are by comparing the cost to collect to the dollars collected. DOR will compare over time the impact of tools and changes to collection procedures to maximize efficient collection of tax debt. How will we measure it? Percentage of reduction in cost of non-voluntary collection using current cost to collect data for 2009 as baseline. Data will come from time charge reporting costs. These costs will be compared to collected dollars to create a ratio of dollars collected per dollar spent. Which tax programs? Personal income tax, including withholding, and Corporate tax programs

Measure 3.8 Strategic Goals:

Percent of Liabilities Resolved Within 90 Days of Becoming Liquidated and Delinquent Expected outcome Reduced cost to collect current and delinquent revenue Why is it important? The goal of this measure is to highlight timely resolution of collection accounts. It attempts to quantify the percentage of new accounts that are resolved within 90 days of becoming liquidated and delinquent (31 days). This is a best practice used by other states and is predicated on the theory that the sooner the taxpayer is contacted, the more likely they are to resolve the account. How will we measure it? Data for this measure is currently under construction in the PTAC/Business Divisions. As we gain experience with this measure, the methodology may change. This measure looks at the accounts

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Fiscal Responsibility/Accountability (Metrics Tree 3) High Level Outcome Enhanced fiscal responsibility and accountability that are resolved within 90 days. Criteria for setting a baseline have not yet been developed. Which tax programs? Personal income tax, including withholding, and Corporate tax programs Measure 3.9 Strategic Goals: Efficiency of Tax Processing Season Preparation Expected outcome Timely implementation of tax law changes Why is it important? The goal is to reduce the response time to implement tax law changes. The core systems replacement will provide the tools to easily make system adjustments, such as those required in preparing for each tax season. How will we measure it? Analyze the efficiency of tax processing season preparation: o o Timeliness: the date system was available to process taxpayer returns Resources: measure of number of hours spent preparing for tax processing season

Which tax programs? Personal income tax and Corporate tax programs

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7.2 Critical Success Factors


Critical success factors are those elements of the core systems replacement initiative that are necessary for DOR to achieve its strategic goals. By learning from the many states that have undertaken similar transformations, DOR has a good understanding of what is needed for success. The following are an initial set of critical success factors for this initiative. Establish Measurable Business Goals Always tie process and system improvements to the value added from achieving business goals. Align Business and IT Operations Core systems replacement will require coordination and collaboration among business and technology interests Establish and Maintain Executive Support Lead the initiative instead of letting it happen to you. Learn from the Experience of Others Forty-nine other states and several other jurisdictions provide a similar service to their taxpayers and stakeholders, and many of them have great, proven ideas. Actively Involve DOR Staff in Solution Design and Acceptance End users are the closest contact to the taxpayers, and they have some of the best ideas. Invest in Training to Empower DOR Staff Efficiency and effectiveness come from knowing how best to use the processes and technologies. Use a Phased Rollout Schedule Use milestones to measure success, keep the level of effort manageable, and continually assess value Measure, Monitor, and Track Core systems replacement project will last five to seven years and will involve multiple teams and activities. Stay on top of the effort through the use of project management standards and tools.

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8 Risk Assessment and Impact Analysis


DOR Leadership understands that projects of this scale have inherent risks around new business processes, organizational change, and most notably large IT systems implementations. Over the last decade, twenty-five state revenue agencies have undergone transformations; most have gone very smooth, but some have struggled. DOR Leadership is well-aware of these efforts and has already begun to learn from these experiences and implement new processes and systems using industry leading practices where possible to mitigate risks and minimize the impact on DOR, its stakeholders, and taxpayers

8.1 Risks, Impacts and Mitigation Strategies


DOR will follow accepted project management standards when quantifying risks. Risks are quantified based on two factors: the probability of occurrence and the severity of the consequences. The probability of occurrence for a given risk falls into three categories: High Without mitigation, it will almost certainly occur Medium Without mitigation, it is likely to occur Low Without mitigation, it may occur

The severity of the consequences for a given risk falls into three categories: High Without mitigation, it will have significant negative impact on the project Medium Without mitigation, it will have some negative impact on the project Low Without mitigation, it will have little or no significant impact on the project

With scoring based on the factors described above, DOR examined twenty-four commonly encountered risks that may occur during a software implementation project in a tax agency. Note that these risks reflect what has been encountered by other state revenue agencies and do not necessarily reflect what may be encountered on every project, nor do they reflect every risk that may be encountered. However, DOR Leadership is confident that this list provides a good cross-section of the risks that should be mitigated as the Project proceeds. The Core Systems Replacement Risk Matrix below provides an overview of the twenty-four commonly encountered risks when comparing probability of occurrence against the severity of the consequences. For those risks that fall in the red boxes, which are almost certain to occur if action is not taken, DOR will establish and implement mitigation strategies long before the Project begins. For those risks that fall in the yellow boxes, DOR will have mitigation strategies established and will implement those strategies as the Project begins. For those risks that fall in the green boxes, it is less likely that those risks will occur, but DOR will be ready with mitigation strategies if and when they are needed. DOR will periodically assess the effectiveness of the mitigation strategies as the Project progresses. DOR will assess the mitigation effectiveness by using the following scale: 1/Green: Mitigation is not needed or is working successfully 2/Yellow: Mitigation is in place, but needs monitoring 3/Red: No mitigation in place, or mitigation strategy is not working

With this assessment, DOR will adjust its efforts so that the mitigation effectiveness is moving towards Green for all risks that the Agency is facing.
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Figure 24: Core Systems Replacement Initiative Risk Matrix

The following table, Common Risks on Integrated Tax Projects, provides a detailed overview of each risk shown above, and the mitigation strategies that the Agency can undertake to address each risk. These risks fall under a number of categories including Solution, Scheduling, Staffing and Environment. Figure 25: Common Risks on Integrated Tax Projects
Probability H

# 1

Risk and Impacts Poorly defined requirements. Requirements can be insufficiently defined, too narrowly defined, unclear, and/or based on current processes instead of more efficient ones. This can result in difficulties selecting a vendor, inability to hold vendors responsible for system functionality, and a system not providing stakeholders needs.

Category Solution Risk

Severity

Mitigation Identify business owners who will be responsible for driving the requirements. Define requirements in appropriate detail and map requirements to key business objectives. Leverage experiences from other states. Clearly establish expectations within the Agency, with Vendors and with Users.
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# 2

Risk and Impacts Dedicated DOR Project staff is not identified. This includes staff not being identified up front, or staff not being dedicated to the project full-time and being distracted by their day jobs. The Project schedule can be severely delayed if the staff is not available to perform their roles. Project staff is not performing at a level of productivity expected and assumed in the work estimates. This applies to both DOR staff and the staff supplied by the Vendor. The Project schedule can be also severely delayed if the staff is unable to perform their roles. Note that this risk needs to be addressed at different stages of the Project, when different skill sets are needed

Category Staffing Issue

Probability H

Severity

Mitigation Specific dedicated staff identified AND committed for all roles of project. The Project can be too big for the Agency to handle, so it is essential to break the Project up into manageable phases and scale it to a level such that the Agency can provide the appropriate staff. Robust training programs should be implemented to help staff develop the appropriate skill sets. Make sure to include just-in-time training to address needs as the Project evolves (for example, design skills may be needed earlier in the project, testing skills later). Hire contractors if necessary to address specific Project needs that may not be required long term Implement productivity tools to improve communication and increase re-use of existing materials. Use earned value management tools (measure work on three dimensions: effort expended, schedule completed, work product completed if the percentage values are not in synch, address the issue immediately). Impact of changes to planned scope should be assessed and quantified with a view on the conversion effort. Employ a rigorous change control process, including the appropriate deferment of nonessential scope. Expect change to happen and plan for a reasonable contingency. Use an iterative development approach. Plan and deliver the application
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Staffing Issue

Scope creep. While every Project will require some changes over the course of design and development, the risk is that too many changes are made, impacting product integrity, conversion, testing and overall delivery.

Solution Risk

Project implementation milestones are too big, too complex, and too far apart on

Schedule Risk

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Risk and Impacts the schedule. This allows the project to proceed too far and potentially in the wrong direction, without confirmation.

Category

Probability M

Severity

Mitigation and processes in a logical order and building from foundation upward. Encourage a phased approach to the overall project. Establish early "quick win" initiatives to deliver early benefits and get some successes associated with the project. Invoke the established change control process with a firm business need criteria. Even if the changes are agreed to by the stakeholders, project management must make and deliver a clear assessment of the impact. Ensure commitment of outside experts, even if on a part-time basis. Do not skimp on project support staff (to reduce time wasted on administrative tasks). Write caveats into the contract to discourage changes in key staff members. Define and adhere to a scope control and change process. Actively manage risks, and add mitigation actions to the plan. Act on lessons from proof of concept and early iterations of new components. Minimize the "overlap" of phases in the project Schedule is dependent on having certain software/hardware in place at certain times. Ensure project plan identifies early on infrastructure requirements for development, test and production. Establish the infrastructure early, including project communication channels, work repositories (on a platform such as SharePoint), configuration management, etc.
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System Design changes not tied to a specific business need. This risk can result in expansion of scope and a system that no longer aligns with the state business needs and processes. These changes can unnecessarily derail a project timeline. Vendor Project roles are staffed with junior staff, while the subject matter experts are parttime or unavailable. This may also impact on the Project schedule.

Schedule Risk

Staffing Issue

Project work plan becomes out of date after project launch. This may cause substantial rework in the Project timeframe, impacting scheduling, staff and infrastructure.

Schedule Risk

9 Project readiness. This risk is that DOR is not prepared to manage the Project from procurement through development and implementation. Appropriate resources, including staffing and infrastructure needed for the Project are not in place according to the schedule Schedule Risk H M

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# 10

Risk and Impacts Project Financials. The risk is that Project benefits are insufficient to fund the Project.

Category Staffing Issue

Probability M

Severity

Mitigation The contract should have frequent checkpoints/milestones that not only look at the success of project activities but also assess whether the financial benefits are sufficient to continue with additional phases. Have a contingency in place to allow for staff to be shifted to benefits generating activities if and when needed. Coordinate scheduling around the processing season. Pay particular attention to staff assignments, system demands, and external stakeholder demands.

11

Schedule impacts on operations. Poorly coordinated schedules or schedule slippage may cause the key target dates of the Project to run into the high volume processing windows of the Agency. This could negatively impact tax return processing and decrease agency responsiveness to taxpayer needs. Performance of application is inadequate to meet the processing needs of DORs approximately two million taxpayers. Testing limitations. The plan for testing is inadequate for the scale of the Project and complexity of the solution. The test plan does not include thorough testing on integration points with other systems, both internal and external to the Agency. If the testing plan is insufficient, the Agency will be dealing with the undiscovered defects late in Development, or well into Production. Lack of/change in executive sponsors. This includes changes in leadership and changes in Agency priorities, which may cause a lack of decision-making at the Project level.

Schedule Risk

12

Solution Risk

Plan for growth in the data and in user demands on the application. Invest in adequate hardware and third party components. Carry out performance testing early and often. Involve testing early in the process. Schedule interface testing earlier in the process to shake out some of the defects. Allow for appropriate testing times during each phase of the Project.

13

Solution Risk

14

Staffing Issue

On initiation of the project, conduct workshop on the role of sponsors and champions in leading the effort. Steering committee involvement in all stages of the Project is required. Any changes in executive
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Risk and Impacts

Category

Probability

Severity

Mitigation sponsorship will have an adequate transition period. Explicit checkpoints should be included to reconfirm the Project business case. Confirm conversion approach very early in project. Convert a summary level of data that has reference points to search for additional elements. Start early, clean data up front rather than leaving conversion issues later in project. Include designs and testing for performance in the technical architecture. Actively engage key staff to foster understanding and partnership, with a common goal of project success. Define success criteria and measures of quality. Assess organizational and operational readiness for project implementation early in the project. For each stage of the Project, carry out a kickoff meeting where key staff is given the opportunity to understand Project (or phase) objectives, and their associated roles and responsibilities. Conduct a thorough proof of concept as part of the project. Establish key checkpoints to assess status. Leverage industry leading practices and proven technologies Create and communicate the architecture clearly in the relevant dimensions of technology (business components, network, application, database, data model, etc). Ensure committed time and attention from a technical architect
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15

Level and approach to conversion addressed late in Project. The risk is that data issues that should have been addressed early in a Project are not addressed or discovered until the Project end stages, causing unnecessary delays.

Solution Risk

16

Dedicated staff does not understand their roles or responsibilities clearly. They may also fail to understand the impact of their role on the success of the project.

Staffing Issue

17

New technology is not proven in the proposed environment. This can result in unexpected issues when the technology is executed, in terms of performance, infrastructure, usability and delivery. Project proceeds without a Technical Architect. Without someone who owns the technical architecture, decisions may be made that can impact the Agency later after implementation

Solution Risk

18

Staffing Issue

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# 19

Risk and Impacts Organizational Change Readiness is not aligned with the process and systems changes associated with the project. This can result in delays in system and process acceptance and an initial decrease in operational efficiencies Conflicting cultures between DOR and the Vendor

Category Environmental Issue

Probability L

Severity

Mitigation DOR has already taken steps to mitigate this risk, including change readiness surveys, large-scale staff involvement in the effort, open and frequent communications, and organizational design efforts. Build the Project teams with a mix of organizations, and have the teams mixed together on site. Encourage Project activities among DOR/Vendor teams. Bring in third party groups to initiate training/group activities. Pay attention to staff motivation & morale (keep the project fun). As part of Change Management Communication work stream, develop and deliver a Communications Plan, both internally within Agency, and externally to outside stakeholders and the tax public.

20

Staffing Issue

21 Lack of honest and timely communications. This can include how Project information is disseminated internally within the Agency. It also includes communicating effectively to key external stakeholders like the Legislature so that there are no surprises or miscommunication. Architectural complexity is not appropriate for the solution. This could cause cost overruns and additional training and staffing requirements. Environmental Issue M L

22

Solution Risk

23 Unions not accepting change, causing staffing issues as the Project progresses. Integration of infrastructure with State data center. This could impact not only project scheduling, but also implementations occurring at other state agencies. Environmental Issue Environmental Issue M L

Use best practices and experience from previous implementations. Engage a proven team that has implemented architectures with similar complexity. Make sure architecture is not a goal in and of itself. Work with leaders to address Union concerns early in process as part of Stakeholder Management Ensure open communication channels with groups external to the Agency that may need to coordinate similar development efforts (DAS). Ensure that any state mandates with respect to technology are incorporated into design and development.
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8.2 Consequences of Failure to Act


Failure to act means that DOR accepts the status quo, and continues to expend resources maintaining aging systems that lack integrated data and decision-making tools, and the inability to cost-effectively provide taxpayers with automated, streamlined services. Further, failure to act means a significant loss of potential revenue. This business case has clearly demonstrated the significant revenue increases in other states, in spite of similar economic conditions. While some of this revenue could be realized by adding staff and enhancing selected systems, the overall long-term revenue lift would be postponed or unrealized. Following is a list of the key problems that were identified and a discussion of the impact of failing to address these key issues.

Potentially, the biggest risk is to not proceed with the core technology and process changes that are required to provide 21st century tax administration while increasing revenue and taxpayer compliance for the State of Oregon.

Core information technology solutions within the department are primarily based upon obsolete and/or aging applications, and the risk of system failure to the agency is becoming critical. Over the past several years, IT staff made numerous enhancements and additions to DOR's core systems. The obsolete technology places limits on these enhancements, so additional supporting applications have been added. Non-technical staff also developed a number of Access databases and spreadsheets to handle functions where the primary and supporting systems are not meeting business needs. Discussion: IT staff will continue to spend the majority of its time fixing and enhancing systems and interfaces, leaving very little time for supporting new DOR strategic initiatives. Audit and collections staff will continue to build workarounds using time that could be spent focusing on actual collection or audit activity. Many business processes work around technology barriers and are inefficient and redundant. DOR staff have become proficient at developing workarounds (both business and technical) to support the shortcomings of aging applications. Some of these are manual processes (e.g., additional handoffs and manual data entry are required to complete processes), and some consist of excel spreadsheets or other user-developed applications (e.g., spreadsheets for tallying processing statistics because data is unavailable). Discussion: DOR staff will continue to have to build technical and process workarounds, not only using up valuable staff time, but also further exacerbating the problems with disparate and duplicated data, documents, and systems.

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

DOR does not have the necessary data and tools available to support analytical decision making. New IT solutions are needed for DOR to attack the tax gap by improving taxpayer compliance. There are two critical components of this problem: 1. Disparate, duplicate and "dirty" data - Over time, numerous applications have been created to supplement the core systems, including user-created databases and spreadsheets. Design decisions have been made within a siloed business architecture, resulting in disparate systems with duplicate and often conflicting data. Attempts to "soften" the data specifications to allow interaction between disparate systems has resulted in "dirty" data (e.g., alphabet characters in numeric fields). Discussion: Data cleanup efforts help, but only to a degree. The deeper issue is that the lack of integrated, standardized data continues to plague efforts to get work done. For example, if a collector is talking to a taxpayer trying to collect delinquent debt, the system doesnt provide the collector with all of the necessary information. He/she doesnt have the history of taxpayer contact, may not have complete access to the tax return data, or may not know that someone else in the department is working with the taxpayer on the same or another issue. The data isnt the problem; its how that data is used and accessed during the process that is the problem. This is compounded by the fact that the collector may have to go to several systems to piece together the story, and the whole time the taxpayer is making his case and getting frustrated at the lack of information the Agency has. Furthermore, accurate data managed in an integrated and reliable system would allow taxpayer self-service, which is so terribly limited by the existing mix of data across platforms and systems. 2. Non-standard data and lack of analytic tools - Clean, integrated data, along with decision-making tools, are at the heart of the compliance (audit, discovery, and collections) process. However, as decisions have been made and solutions development or acquired for specific business needs over the years, there has been little control and standard enforced regarding databases. This has left DOR with not only several varieties of database applications, but several versions of the same databases due to system-specific limitations. Discussion: Adding industry-standard analytic tools without dealing with the disparate, non-standard data will prevent DOR from taking full advantage of the data mining tool capabilities, and create the need for additional workarounds as compliance (audit, collections, and discovery) staff attempt to do their work. Conversely, these tools, along with access to an increasing pool of complex electronic data, will improve our ability to enforce tax compliance for the small percent of our customers who do not want to pay taxes. Increased tracking and enforcement will enable us to not only collect delinquent tax dollars, but also encourage at least some of these taxpayers to begin to comply with Oregon tax laws.

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Taxpayers and Stakeholders are demanding modern services, such as webbased self-service, that DOR cannot offer with its current technology. DOR does provide some online taxpayer services. For example, for several years the department has partnered with the Internal Revenue Service (IRS) to offer online income tax filing to individuals and businesses. Taxpayers are able to file both their state and federal taxes in the same transaction, and can pay their taxes online or through thirdparty providers. Discussion: IT staff will continue to struggle against the limitations of the current platforms, databases and infrastructure to provide the additional services that customers and stakeholders require. The risk of failure will continue to be high. The costs associated with limitations in existing systems, platforms, as well as the data issues cited above will result in expensive "workarounds" rather than industry-standard solutions. In addition, some services, such as around the clock access to accounts, will be limited.

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

9 Funding Alternatives
Funding large scale process and technology transformations is always a challenge for state governments, and in the current economic environment the challenge is exacerbated by a severe budget crisis. In the face of this crisis, it is important to emphasize that a primary goal of the core systems replacement is to reduce the States tax gap by increasing revenue and creating efficiencies. The core systems replacement proposed by DOR leadership is designed to maximize the value to Oregon taxpayers and minimize the risk to the Department and the State. To fund similarly sized efforts, other states have used several funding alternatives. This section presents four of the funding alternatives considered by DOR leadership. If the Legislature agrees with the need for and value of the core systems replacement, one or more alternative can be used. The funding alternatives that DOR has researched to date include: Traditional Direct Appropriations Productivity Gains Fees for Service Benefits-Based

Each of these, as well as a variety of other options, has been used successfully by states to fund full process and technology transformations. Details of each are presented below.

9.1 Traditional Direct Appropriations


Traditionally, state tax and revenue agencies have used direct appropriations for funding the majority of the transformations in the last ten years. This is the approach with which most states are comfortable. With this approach, DOR would budget for the cost of the project each biennium, and the Legislature would be responsible for evaluating the request and appropriating funds accordingly. The following are common advantages and disadvantages of Traditional Direct Appropriations: Advantages Familiar process for DOR and the Legislature State has more control over the scheduling of the project and the financial outlays; costs can be managed according to States ability to pay Phased priorities are aligned with State priorities Disadvantages Significant, upfront cash outlay for the State Standard risks borne by the State Legislature could choose to stop funding in the middle of the project resulting in an incomplete system

Traditional Direct Appropriations is best suited for states that: are experienced with large-scale technology implementations
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Version: Final (5.7) Date: November 18, 2010

have funds available to appropriate as needed want independence and direct control over the project

9.2 Productivity Gains


The Productivity Gains approach to project funding is a derivation of Traditional Direct Appropriations. Under this funding mechanism, DOR would fund the project from DORs base budget. The Legislature would appropriate the typical operating funds, and DOR would be able to reinvest any productivity savings into the project. The following are common advantages and disadvantages of Productivity Gains funding: Advantages No additional appropriations from the Legislature. Incentive for DOR leadership to drive productivity gains Additional revenue resulting from new processes and technology would be available as general fund revenue Disadvantages Risk that external forces (e.g. new legislation, failing technology, etc.) could eliminate productivity gains and leave no funding Scope of the project would be dependent upon the funding availability

9.3 Fees for Service


In this procurement approach, fees for service are attached to compliance actions and other taxpayer services as deemed by DOR. These fees are allocated to a special fund with the direct purpose of funding the project. The following are common advantages and disadvantages of Fees for Service funding: Advantages General fund revenue is not used to fund the project Additional revenue resulting from closing the tax gap would be available as general fund revenue Disadvantages Fees may not cover annual project costs Fees on compliance actions may have adverse impact on DORs ability to collect Requires significant infrastructure and policy work to support

9.4 Benefits-Based
Performance-based procurement, also known as benefits-based funding, is another funding approach. Under this method, some portion of the modernization cost is paid for out of the benefits realized from the implemented solution. Typically, the selected services provider agrees to invest in the process and technology solutions with the promise of payment when benefits from the transformation are observed and tracked. Under this method, DOR is not required to make an upfront investment in hardware, software, and services. DORs investment includes the staff necessary to support the transformation. Thus, the majority of the project risk is place upon the services provider. If the project is not successful in adding value and producing tangible benefits from which to fund the project, the service provider or DOR can end the project. This creates a unique partnership between DOR and the services provider as they
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Version: Final (5.7) Date: November 18, 2010

both share in the incremental successes of the project and the value resulting from these measurable successes. Given the risk taken on by the service provider, they often add a risk premium to the cost of the project. This can sometimes add more than 10% to the cost of the project in addition to higher carrying costs for the funding. This is the trade off several states have made, but they agree that the benefits of lower initial outlay and minimal risk outweigh this cost. The following are common advantages and disadvantages of Benefits-Based funding: Advantages Additional revenue for State general fund Project is results oriented, based on the outcomes and benefits to the State Minimal risk to the State No direct cash outlay by the State Disadvantages Implementation decisions based on the need for benefits may contradict other DOR priorities Additional cost due to risk premium May require legislation to create the funding mechanism Requires additional oversight to monitor and approve revenues attributable to the effort

When considering a benefits-based funding, the type of project to be undertaken is a key factor in determining if this approach is appropriate. "The types of project that lend themselves well to a performance-based procurement are: Projects that provide direct, measurable revenue, such as in Audit and Collections compliance programs Projects that provide indirect revenue, such as Integrated Tax Systems with compliance components that can "carry" the rest of the program Projects that generate a cost savings (labor, equipment, floor space, maintenance)"9

Kansas, Virginia, Hawaii, and South Carolina are examples of states that have successfully used Benefits-Based procurement to fund large scale transformation projects.

9.5 Other Funding Alternatives


DOR is continuing to research other funding alternatives, and will compare the advantages and disadvantages of each prior to deciding what combination of funding mechanisms is the best fit.

Benefits-Based Contracting: Funding New IT initiatives with little to no budget, 2009 FTA Technology Conference
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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Appendix A: Status of State Tax Agency Modernization Efforts


The table below shows the current status of modernization efforts across tax agencies in the United States. States that are most comparable to Oregon in size and tax processing volumes are bolded. Cost of Modernization value is shown for tax systems that were modernized in the last seven years. These costs do not include internal staffing costs or hardware and software maintenance. In addition, costs vary widely based on many factors, such as the number of components included in the contract price, the number of tax types covered, the timeframe assigned to the project, the amount of hardware included in the contract price, etc. These costs provide a rough guide only, and should not be used to compare projects against each other, or to provide DOR with an exact cost for its modernization efforts.
Modernized in Last 7 Years X Modernized 7+ Years Ago (ITS)

Tax Agency Alabama Department of Revenue Alaska Department of Revenue Arizona Department of Revenue Arkansas Department of Revenue California Board of Equalization California Franchise Tax Board Colorado Department of Revenue Connecticut Department of Revenue Delaware Division of Revenue District of Columbia Office of Tax and Revenue Florida Department of Revenue

Current System GenTax

Type of System COTS

Cost of Modernization* $24,000,000

In House TAS

Custom Built Non-ITS Transfer X

n/a $122,000,000

GenTax

COTS

$22,000,000

In House TAS (Business) In House (Personal) GenTax

Custom Built Non-ITS Transfer Custom Built Non-ITS COTS X

X X

n/a n/a

$54,000,000

TAS

Transfer

$63,000,000

In House TAS

Custom Built ITS Transfer

X X

n/a n/a

SAP

COTS

$90,000,000
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Version: Final (5.7) Date: November 18, 2010

Tax Agency Georgia Department of Revenue Hawaii Department of Taxation Idaho State Tax Commission Illinois Department of Revenue Indiana Department of Revenue Iowa Department of Revenue Kansas Department of Revenue Kentucky Department of Revenue Louisiana Department of Revenue Maine Revenue Services Maryland Comptroller of Maryland Massachusetts Department of Revenue Michigan Department of Treasury Minnesota Department of Revenue Mississippi Tax Commission Missouri Department of Revenue Montana Department of Revenue

Current System GenTax

Type of System COTS

Modernized in Last 7 Years X

Modernized 7+ Years Ago (ITS)

Cost of Modernization* $42,000,000

Advantage Revenue GenTax GenTax TAS In House Advantage Revenue ETM

Transfer COTS COTS Transfer Custom Built Non-ITS Custom Built ITS COTS

X X X X X X X

$53,000,000 n/a $45,000,000 $54,000,000 n/a $45,000,000 $33,200,000

GenTax

COTS

$15,000,000

Modernized TAS SAP

LSM COTS

X X

$10,000,000 $74,698,500

TAS

Transfer

n/a

SAP

COTS

$15,000,000

GenTax

COTS

$39,000,000

In House In House GenTax

Custom Built ITS Custom Built Non-ITS COTS X

X X

n/a n/a $8,000,000

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Tax Agency Nebraska Department of Revenue Nevada Department of Taxation New Hampshire Department of Revenue Administration New Jersey Division of Revenue New Mexico Taxation and Revenue Department New York State Department of Tax and Finance North Carolina Department of Revenue North Dakota State Tax Commissioner Ohio Department of Taxation Oklahoma Tax Commission Oregon Department of Revenue Pennsylvania Department of Revenue Puerto Rico Hacienda Department Rhode Island Division of Taxation South Carolina Department of Revenue South Dakota Department of Revenue

Current System In House

Type of System Custom Built Non-ITS Transfer Custom Built Non-ITS

Modernized in Last 7 Years

Modernized 7+ Years Ago (ITS) X

Cost of Modernization* n/a

TAS In House

X X

$28,000,000 n/a

TAS GenTax

Transfer COTS X

n/a $13,180,000

In House

Custom Built ITS COTS

$140,000,000

ETM

$58,900,000

GenTax ETM In House In House TAS

COTS COTS Custom Built Non-ITS Custom Built Non-ITS Transfer

X X X X X

$14,000,000 $48,738,000 n/a n/a n/a

TAS

Transfer

n/a

In House Revenue Premier In House

Custom Built Non-ITS Custom Built ITS Custom Built ITS X

n/a $40,000,000

Unknown

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Tax Agency Tennessee Department of Revenue Texas Comptroller of Public Accounts Utah State Tax Commission Vermont Department of Taxes Virginia Department of Taxation Washington Department of Revenue West Virginia Department of Revenue Wisconsin Department of Revenue Wyoming Department of Revenue Total

Current System TAS

Type of System Transfer

Modernized in Last 7 Years

Modernized 7+ Years Ago (ITS) X

Cost of Modernization* n/a

In House GenTax ETM Advantage Revenue In House

Custom Built ITS COTS COTS Transfer Custom Built Non-ITS COTS X X X X

n/a $24,500,000 $8,300,000 $153,000,000

n/a

GenTax

$22,500,000

GenTax

COTS

$15,000,000

In House

Custom Built Non-ITS 30

n/a

23

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Oregon Department of Revenue Core Systems Replacement Business Case

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Appendix B: Core System Replacement Cost Details


The following tables show the estimated cost detail for each phase of the core system replacement. Costs are estimated for the following activities in each of the major phases: Design Development Hardware and Software Testing Training Implementation Hardware and software purchase and vendor costs are based on information gathered from similar tax and compliance solutions implemented in other states in recent years. Both internal (Agency staff) and professional services (Vendor) are shown for each activity. Internal costs are based on a flat $50 per hour for 2000 hours (one year for one person). Estimates were derived by calculating the anticipated number of hours required for agency staff to spend on each activity/phase using the above rate. The number of hours estimated for each activity is based on similar experiences in other states. Project Oversight (QA) Quality Assurance oversight estimates are based on industry best practice of four to six percent of total project cost. Costs below are estimated at five percent (5%). Ongoing Maintenance Maintenance is shown separately from project costs in the tables below. Estimates are based on industry practice, which generally is 10% per year for hardware, and 20% per year for software. Ongoing costs are shown using current value and are not adjusted for inflation.

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Cost detail for Compliance - Discovery (Phase 3, Part 1):


Also see Compliance Discovery Costs, 6.1.3 Activity Resource 2009-11 Design DOR Staff Vendor Total Development DOR Staff Vendor Total HW/SW Hardware Software Total Testing DOR Staff Vendor Total Training DOR Staff Vendor Total Implementation DOR Staff Vendor Total Total $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2011-13 40,000 $ $ 500,000 $ 540,000 $ 80,000 $1,000,000 $1,080,000 $ 750,000 $ 500,000 $1,250,000 $ 40,000 $ 500,000 $ 540,000 $ 20,000 $ 250,000 $ 270,000 $ 20,000 $ 250,000 $ 270,000 $3,950,000 2013-15 40,000 $ 400,000 $ 440,000 $ 80,000 $ 800,000 $ 880,000 $ $ $ $ 40,000 2015-17 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2017-19 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total 80,000 $ 900,000 $ 980,000 $ 160,000 $1,800,000 $1,960,000 $ 750,000 $ 500,000 $1,250,000 $ 80,000 $ 900,000 $ 980,000 $ 40,000 $ 450,000 $ 490,000 $ 40,000 $ 450,000 $ 490,000 $6,150,000

$ 400,000 $ 440,000 $ 20,000 $ 200,000 $ 220,000 $ 20,000 $ 200,000 $ 220,000 $2,200,000

Project Oversight (QA)


Quality Assurance $ $ 197,000 $ 119,000 $ $ $ 316,000

Ongoing Costs:
Maintenance $ $ $ 175,000 $ $ $ 175,000

Total Cost (through 2019):


$ $4,147,000 $2,494,000 $ $ $6,641,000

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Cost detail for Compliance - Audit (Phase 3, Part 2):


Also see Compliance Audit Costs, 6.1.4 Activity Design Resource DOR Staff Vendor Total Development DOR Staff Vendor Total HW/SW Hardware Software Total Testing DOR Staff Vendor Total Training DOR Staff Vendor Total Implementation DOR Staff Vendor Total Total 2009-11 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2011-13 20,000 $ $ 300,000 $ 320,000 $ 40,000 $ 600,000 $ 640,000 $ 150,000 $ 500,000 $ 650,000 $ 20,000 $ 300,000 $ 320,000 $ 10,000 $ 150,000 $ 160,000 $ 10,000 $ 150,000 $ 160,000 $2,250,000 2013-15 40,000 $ 600,000 $ 640,000 $ 80,000 $1,200,000 $1,280,000 $ $ $ $ 40,000 2015-17 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2017-19 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total 60,000 $ 900,000 $ 960,000 $ 120,000 $1,800,000 $1,920,000 $ 150,000 $ 500,000 $ 650,000 $ 60,000 $ 900,000 $ 960,000 $ 30,000 $ 450,000 $ 480,000 $ 30,000 $ 450,000 $ 480,000 $5,450,000

$ 600,000 $ 640,000 $ 20,000 $ 300,000 $ 320,000 $ 20,000 $ 300,000 $ 320,000 $3,200,000

Project Oversight (QA)


Quality Assurance $ $ 112,000 $ 166,000 $ $ $ 278,000

Ongoing Costs:
Maintenance $ $ $ 115,000 $ $ $ 115,000

Total Cost (through 2019):


$ $2,362,000 $3,481,000 $ $ $5,843,000

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Oregon Department of Revenue Core Systems Replacement Business Case

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Cost detail for Compliance - Collection (Phase 3, Part 3):


Also see Compliance Collection Costs, 6.1.5 Activity Design Resource DOR Staff Vendor Total Development DOR Staff Vendor Total HW/SW Hardware Software Total Testing DOR Staff Vendor Total Training DOR Staff Vendor Total Implementation DOR Staff Vendor Total Total 2009-11 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2011-13 $ 100,000 $ 400,000 $ 500,000 $ 200,000 $ 800,000 $1,000,000 $ 750,000 $2,000,000 $2,750,000 $ 100,000 $ 400,000 $ 500,000 $ 50,000 $ 200,000 $ 250,000 $ 50,000 $ 200,000 $ 250,000 $5,250,000 2013-15 $ 200,000 $ 800,000 $1,000,000 $ 400,000 $1,600,000 $2,000,000 $ $ $ 2015-17 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2017-19 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total 300,000 $ 1,200,000 $ 1,500,000 $ 600,000 $ 2,400,000 $ 3,000,000 $ 750,000 $ 2,000,000 $ 2,750,000 $ 300,000 $ 1,200,000 $ 1,500,000 $ $ $ $ $ $ 150,000 600,000 750,000 150,000 600,000 750,000

$ 200,000 $ 800,000 $1,000,000 $ 100,000 $ 400,000 $ 500,000 $ 100,000 $ 400,000 $ 500,000 $5,000,000

$10,250,000

Project Oversight (QA)


Quality Assurance $ $ 262,000 $ 274,000 $ $ $ 536,000

Ongoing Costs:
Maintenance $ $ $ 475,000 $ $ $ 475,000

Total Cost (through 2019):


$ $5,512,000 $5,749,000 $ $ $11,261,000

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Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Cost detail for Property Valuation (Phase 4):


Also see Property Valuation Costs, 6.1.6 Activity Design Resource DOR Staff Vendor Total Development DOR Staff Vendor Total HW/SW Hardware Software Total Testing DOR Staff Vendor Total Training DOR Staff Vendor Total Implementation DOR Staff Vendor Total Total 2009-11 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2011-13 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2013-15 $ 300,000 $ 300,000 $ 600,000 $ 600,000 $ 600,000 $1,200,000 $ 750,000 $ 750,000 $1,500,000 $ 300,000 $ 300,000 $ 600,000 $ 150,000 $ 150,000 $ 300,000 $ 150,000 $ 150,000 $ 300,000 $4,500,000 2015-17 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2017-19 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total $ 300,000 $ 300,000 $ 600,000 $ 600,000 $ 600,000 $1,200,000 $ 750,000 $ 750,000 $1,500,000 $ 300,000 $ 300,000 $ 600,000 $ 150,000 $ 150,000 $ 300,000 $ 150,000 $ 150,000 $ 300,000 $4,500,000

Project Oversight (QA)


Quality Assurance $ $ $ 236,000 $ $ $ 236,000

Ongoing Costs:
Maintenance $ $ $ 225,000 $ $ $ 225,000

Total Cost (through 2019):


$ $ $4,961,000 $ $ $4,961,000

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Cost detail for Integrated Tax System (Phase 5, Parts 1 through 3):
Also see Integrated Tax System Costs, 6.1.7 Activity Design Resource DOR Staff Vendor Total Development DOR Staff Vendor Total HW/SW Hardware Software Total Testing DOR Staff Vendor Total Training DOR Staff Vendor Total Implementation DOR Staff Vendor Total Total 2009-11 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2011-13 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2013-15 800,000 $ 2015-17 800,000 2017-19 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total $ 1,600,000 $ 7,500,000 $ 9,100,000 $ 3,200,000 $15,000,000 $18,200,000 $ 1,500,000 $ 6,000,000 $ 7,500,000 $ 1,600,000 $ 7,500,000 $ 9,100,000 $ 800,000 $ 3,750,000 $ 4,550,000 $ 800,000 $ 3,750,000 $ 4,550,000 $53,000,000

$ 4,000,000 $ 3,500,000 $ 4,800,000 $ 4,300,000 $ 1,600,000 $ 1,600,000 $ 8,000,000 $ 7,000,000 $ 9,600,000 $ 8,600,000 $ 1,500,000 $ $ 6,000,000 $ $ 7,500,000 $ $ 800,000 $ 800,000

$ 4,000,000 $ 3,500,000 $ 4,800,000 $ 4,300,000 $ 400,000 $ 400,000 $ 2,000,000 $ 1,750,000 $ 2,400,000 $ 2,150,000 $ 400,000 $ 400,000 $ 2,000,000 $ 1,750,000 $ 2,400,000 $ 2,150,000 $31,500,000 $21,500,000

Project Oversight (QA)


Quality Assurance $ $ $ 1,643,000 $ 1,210,000 $ $2,853,000

Ongoing Costs:
Maintenance $ $ $ 1,350,000 $ 2,700,000 $ $4,050,000

Total Cost (through 2019):


$ $ $34,493,000 $25,410,000 $ $59,903,000

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Sum of Cost Phase Agency Readiness

Biennium 2009-2011 Process Mapping $ 300,000 Conversion $ 500,000 Strategy $1,199,000 Quality Assurance $ 158,000 Agency Readiness Total $2,157,000 Procurement Conversion $ Strategy $ Procurement $ Quality Assurance $ Procurement Total Discovery Design $ Development $ HW/SW $ Testing $ Training $ Implementation $ Maintenance $ Quality Assurance $ Discovery Total $ Audit Design $ Development $ HW/SW $ Testing $ Training $ Implementation $ Maintenance $ Quality Assurance $ Audit Total $ Collections Design $ Development $ HW/SW $ Testing $ Training $ Implementation $ Maintenance $ Quality Assurance $ Collections Total $ Property Valuation Design $ Development $ HW/SW $ Testing $ Training $ Implementation $ Maintenance $ Quality Assurance $ Property Valuation Total $ Integrated Tax System Design $ Development $ HW/SW $ Testing $ Training $ Implementation $ Maintenance $ Quality Assurance $ Integrated Tax System Total $ Activity Grand Total

2011-2013 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 500,000 200,000 800,000 100,000 1,600,000 540,000 1,080,000 1,250,000 540,000 270,000 270,000 197,000 4,147,000 320,000 640,000 650,000 320,000 160,000 160,000 112,000 2,362,000 500,000 1,000,000 2,750,000 500,000 250,000 250,000 262,000 5,512,000 -

2013-2015 $ $ $ $ $ $ $ $ $ $ $ 440,000 $ 880,000 $ $ 440,000 $ 220,000 $ 220,000 $ 175,000 $ 119,000 $ 2,494,000 $ 640,000 $ 1,280,000 $ $ 640,000 $ 320,000 $ 320,000 $ 115,000 $ 166,000 $ 3,481,000 $ 1,000,000 $ 2,000,000 $ $ 1,000,000 $ 500,000 $ 500,000 $ 475,000 $ 274,000 $ 5,749,000 $ 600,000 $ 1,200,000 $ 1,500,000 $ 600,000 $ 300,000 $ 300,000 $ 225,000 $ 236,000 $ 4,961,000 $ 4,800,000 $ 9,600,000 $ 7,500,000 $ 4,800,000 $ 2,400,000 $ 2,400,000 $ 1,350,000 $ 1,643,000 $34,493,000

2015-2017 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4,300,000 $ 8,600,000 $ $ 4,300,000 $ 2,150,000 $ 2,150,000 $ 2,700,000 $ 1,210,000 $25,410,000

2017-2019 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ -

Grand Total $ 300,000 $ 500,000 $ 1,199,000 $ 158,000 $ 2,157,000 $ 500,000 $ 200,000 $ 800,000 $ 100,000 $ 1,600,000 $ 980,000 $ 1,960,000 $ 1,250,000 $ 980,000 $ 490,000 $ 490,000 $ 175,000 $ 316,000 $ 6,641,000 $ 960,000 $ 1,920,000 $ 650,000 $ 960,000 $ 480,000 $ 480,000 $ 115,000 $ 278,000 $ 5,843,000 $ 1,500,000 $ 3,000,000 $ 2,750,000 $ 1,500,000 $ 750,000 $ 750,000 $ 475,000 $ 536,000 $11,261,000 $ 600,000 $ 1,200,000 $ 1,500,000 $ 600,000 $ 300,000 $ 300,000 $ 225,000 $ 236,000 $ 4,961,000 $ 9,100,000 $18,200,000 $ 7,500,000 $ 9,100,000 $ 4,550,000 $ 4,550,000 $ 4,050,000 $ 2,853,000 $59,903,000 $92,366,000

$2,157,000 $13,621,000 $51,178,000 $25,410,000 $

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Version: Final (5.7) Date: November 18, 2010

Appendix C: Benefit Methodology, Opportunities, and Assessments


In estimating the benefits attributable to a new integrated tax system, the Business Case Study included a Revenue Generation Study conducted by Revenue Solutions Inc (RSI). RSI tax administration and compliance experts met with key DOR personnel over a three day period. During these meetings, RSI interviewed staff regarding key performance indicators, asking a set of industry-standard performance measurement questions. The interviews focused on three areas of tax administration: 1. Integrated Tax System (ITS) RSI examined business processes related to returns processing, taxpayer accounting, suspensions, revenue accounting, and taxpayer identification. Typically, and evident at DOR, the benefits associated with these program areas are cost savings from improved efficiency and effectiveness. While some cost savings were estimated, the benefits estimated in these areas were kept at the level of descriptions, rather than financial benefits included in the overall cost/benefit analysis. This is due to the fact that these financial benefits include sensitive cost and resource savings estimates. Furthermore, the estimated benefits from the compliance programs are more than sufficient to make the case for the core systems replacement. 2. Audit and Discovery (AD) RSI met with DOR representatives from both the personal income tax and business tax audit program areas. For these areas, RSI collected detailed audit data such as total assessments, total recovered from assessments, total number of audits, dollars per audit collected, and dollars per auditor assessed and collected. RSI compared these figures to industry standards and states of similar size and tax structure. RSI then developed the list of audit and discovery programs in the table below and the associated benefit expected. 3. Collections (CL) RSI took a similar approach to estimating financial benefits from system and process improvements in the Collections program. For this effort, RSI interviewed staff responsible for personal income tax and business tax collections, as well as managers of the Other Agency Accounts program area and Outside Collection Agencies. DOR provided accounts receivable and collected financial reports for these areas, and RSI again compared these to industry standards and states of similar size and tax structure. Several states have seen collections lifts resulting from new systems and processes, and RSI used an average lift of 10% applied to current accounts receivable in concert with other factors. Additionally, for each benefit area, the estimates are ramped up from initial implementation of the improvement to full production and efficiency. The table below provides a description of the system, process, or program areas within the ITS, AD, and CL categories and an explanation of the benefits expected. Financial benefit estimates are included in the core document.

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ITS = Integrated Tax System AD = Audit CL = Collections


Impact ITS System, Process, Program One Efficient System, combine systems ACT and ICA, NETS and ACES, ICS, ITX and CAT, ITA, FITS, OPUS (new system) Incorporate OPUS (new system) functionality as part of Enforcement Case Management Reduced System Maintenance and Footprint Simpler technical environment means fewer staff are required, reduced training, reduced infrastructure costs Self-service will reduce DOR time to provide basic information and services, taxpayers will be more likely to comply using 24 hour service. Routine account maintenance could be self-service. Payments, payment agreements, balance look-up. Currently starts looking on ITA (or Charge Out for paper returns) but could require looking on six systems. ITA not always used and not in format to provide easy look-up. Most audit correspondence calls now go to auditors could be handled by TSU. Improved security, resource savings using single system, Use single system for viewing, working and clearing cases. Automate manual steps including $2,400 unemployment discrepancies reporting unemployment income (data required), taking standard deduction when a dependent, taking standard deduction for Federal and Itemized for OR Reduced errors and exceptions, better targeting of cases results in resource savings. User access to adjust rules and tolerances to throttle cases. Reconciliation assists TP to get payments corrected prior to filling and resulting in exceptions. Common errors (Income = posted to wrong year, Corp = posted to affiliate) could be self corrected by TP. Fewer data entry staff, reduced error correction, improved billing Multiple image systems are being used. Returns are not stored or viewed consistently across the Agency. Overall operational efficiency, improved data for audit and collection activities More offsets identified, more efficiently processed Providing targeted education results in improved compliance Leverage all available data to select best cases, reduce false positives and more effectively make decisions Page 88 of 96 Explanation of Benefit Less IT support required, less interfaces, staff generally more efficient using one system, reduced training

ITS ITS

ITS

New and Improved Self-Service by Taxpayers Develop infrastructure and processes to support self service

ITS

Single system provides TSU one place to go to answer TP inquiries

ITS ITS

Tax Processing Efficiencies payment transfers across tax types Automate process to work and resolve Exception and Suspense cases

ITS

Use of Business Rules and Improved Exception Processing Mail Estimated Tax Payment Reconciliation in early January

ITS

ITS ITS

Enhanced Electronic Filing OCR/ICR Enhancement

ITS, CL ITS, AD, CL AD

Internal and External Offsets improved targeting and processing Improved Compliance from Taxpayer Education Common Access to Aggregated Internal/External Data -

Developed by the Oregon Department of Revenue with Revenue Solutions, Inc., 2010

Oregon Department of Revenue Core Systems Replacement Business Case Impact AD System, Process, Program Link data and provide data driven selection and data driven decisions (automated & manual)

Version: Final (5.7) Date: November 18, 2010 Explanation of Benefit Consolidation of appropriate data improves selection and automates decisions and processes (BMF/BRTF, Affiliate File, Payroll, SOS, Motor Vehicle (license, registration), State Licensing Board, Leads from Employment, OR Liquor Commission, Contractors Board, etc. Single case management provides single system efficiencies and single view of all audit (enforcement) activity. Consistent recording of taxpayer contacts. Improved Appeals tracking. Combine BCIU and similar unit leads in DW to better select and determine action including leads from Employment (DCBS?), Contractors Board, OR Liquor Commission, Select better cases using more data and multi-year data. This includes Non-resident programs (high OR rate and proximity to WA provides significant incentive), Problem Preparer program (significant problem in all states). Need to secure MV files as key selection data. Develop match of withholding (individual returns/employee to business/employer) These more targeted initiatives will require specific data. Construction Industry (Dodge Reports), Flow Though Entities (State K-1 data), General Business filing and reporting (Dun & Bradstreet, BMF/BRTF) Using NETS. Single threaded inquiries. More complex queries using additional data (BMF/BRTF, Affiliate File) will provide improved results more good cases, fewer false positives. Higher Min Corp Tax makes program more effective. Case Management of business refunds to use data to drive decisions and processes Automate process, used data to drive decisions, use single case management, reduce resource requirements Develop improved selection and Case Management to identify and efficiently work more cases. Automate processes and create data driven letters and decisions. (Option Pre-validation) Select more WFC cases having incorrect or fraudulent claims, work more efficiently through automation and data driven decisions Use more complex queries to identify higher $ cases and lower false positives Automate manual processes, provide case management, work more cases in less time, data driven computations. Automate manual processes, provide case management, work more cases in less time Page 89 of 96

AD, CL

Single Audit (Enforcement) Case Management develop and use common repository (DW) for all audit (enforcement) cases including under reporters, non-filers and non-registrant leads including those now done in Collection

AD AD

Improve Case 2 Program selection Implement cost effective, highly productive correspondence programs

AD, ITS AD

Develop Withholding Match (individual returns/employee to business/employer) Develop Programs to address Industries or Special Initiatives, Hobby Losses, Lifestyle Non-Filers

AD

Improve Business (Corporate) Non-filer (nonregistrant) identification. Subs not on system for Corp queries.

AD, ITS AD

Automate and Data Driven decisions on Business Refund Processes Automate Energy Conservation Credit verification, (Small Business Credit (Kicker Credit) reviews) Enhanced Personal Income Refund Processing Consider Pre-validation list

AD, ITS

AD, ITS AD AD

Automate review and adjustment of Working Family Childcare Credit (WFC). Add review rules for EITC Improve Filing Enforcement Automate CP2000

AD

Automate RARs

Developed by the Oregon Department of Revenue with Revenue Solutions, Inc., 2010

Oregon Department of Revenue Core Systems Replacement Business Case Impact AD System, Process, Program Automate IRMF Non-filer Program

Version: Final (5.7) Date: November 18, 2010 Explanation of Benefit Automate tax computation and issuance of bills rather than inquiry letters, provide case management, work more cases in less time Use all available data to build statistical models to improve selection and reduce false positives. Consolidated view and billing eliminate delay in income tax billing. Reduce or eliminate need to navigate multiple screens. Do not companionate across separate units (Tobacco). Use all available data to define treatment strategies, most effective collection assignment and action, and optimum OCA assignment. Drive letters and process for License suspension based on Licensing Board data, Liable Entity Request (when data not available) One Case Management system for all bills. Automate processes using data to eliminate or reduce resource requirements. Have access to certain data but not used to drive decision making and automate next-steps (Motor Vehicle data, First Data). Have Summary/Last step screen to allow quick decision making. Reporting driven by Case Management Asset screen is a notepad and cannot be used to drive action, alert collector or move case to different unit/action. Single screen for look-up and action (License Suspension) Automated and manual data driven approach, more revenue with fewer staff One system saves time and makes collectors more efficient Should not use a one-size-fits-all assignment to OCAs. Use system data to determine most effective OCAs and assign cases when DOR will realize the most benefit. More effective use of responsible person billing, more revenue, fewer staff. Data driven (not questionnaire), capture defined relationships from DOR data, automated if data available (reduce manager approval process), use prior billing to establish additional responsible person billing Will improve timeliness and effectiveness of liens and levies

AD CL

Decision Analytics Consolidation of Receivables

CL

Improve data driven collection action (automated, manual)

CL

Develop Case Management to automate processes and drive letters, assignments and actions

CL

Improve access and information on asset screen

CL CL CL

Risk-Based Scoring of Receivables User Experience and System Maintenance Use Scoring to determine the optimum time to assign cases to Private Collection Agencies (PCAs)

CL

Automation of Responsible Person Billing

CL

Use Case Management, additional data and improved business processes to father automate wage, financial institution, and third-party garnishments Improve the Issuance of bills and collection for delinquent returns (With registrants who skip file) Use System to Account for Collection fees when assigned to PCAs

CL CL, ITS

Use additional information to estimate liability and more quickly determine out of business cases. Improved accounting may result in needed documentation to support increased budget revenue for DOR Page 90 of 96

Developed by the Oregon Department of Revenue with Revenue Solutions, Inc., 2010

Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Appendix D: Metrics Trees

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Oregon Department of Revenue Core Systems Replacement Business Case

Fiscal Responsibility/Accountability Metrics Tree (3)


Enterprise Level Outcome
We are a model of 21st century tax administration through the strength of our people, technology, innovation, and service.

Outcome Measures
Efficient and effective project management

Goal
CSR Project completed on time Minimal variance between budgeted and actual CSR costs Minimal number of significant unexpected changes to CSR scope

Operational Measures
Actual completion date compared to projected completion date Variance between budget and actuals for CSR Total number of significant scope changes for CSR

Reference*
Measure 3.1

Measure 3.2

Measure 3.3

High Level Outcome


Enhanced Fiscal Responsibility Accountability

Enhanced revenues attributable to the project

Meet annual method for general fund contribution

TO BE NEGOTIATED WITH VENDOR

Measure 3.4

Dollars collected per revenue agent per month Improved ratio of agency cost to total revenue Reduced cost to collect current & delinquent revenue
Improved operational effectiveness and efficiency

Measure 3.5 Version: Final (5.7) Date: November 18, 2010

Adjusted Gross Income (AGI) Gap

Measure 3.6

More efficient collections

% of reduction in cost of non-voluntary collection


% of liabilities resolved within 90 days from being liquidated & delinquent.

Measure 3.7

Measure 3.8

Timely implementation of tax law changes

Reduced response time to implement tax law changes

Efficiency of tax processing season preparation

Measure 3.9

Oregon Department of Revenue Core Systems Replacement Business Case

Version: Final (5.7) Date: November 18, 2010

Developed by the Oregon Department of Revenue with Revenue Solutions, Inc., 2010

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Appendix E: Glossary of Terms


Automated Offsets/Refund Offsets - see Treasury Offset Program Compliance - The behavior of reporting and paying Oregon personal income tax voluntarily and on time. Inventory - For purposes of this business case, "inventory" refers to a set or grouping of taxpayer accounts (cases), that either have been or will be assigned to staff for audit or collection. IRMF - The Information Returns Master File (IRMF) is a database containing data from Information Returns, also called payer documents or third party returns. It contains data about both the payer (filer) and the payee (recipient of income). OCR/ICR - Optical Character Recognition (OCR) and Intelligent Character Recognition are OCR and ICR are used in conjunction with imaging systems to "read" the characters (data) from a printed document for storage in an electronic format (i.e., a database). Risk-Based Scoring - A method of ranking (scoring) incoming tax returns to match potentially improperly filed returns to the most appropriate treatment and to identify those returns (cases) that can be handled through less burdensome and lower-cost activities. Revenue Agent Reports (RARs) - Changes to an assessment after examination by an IRS agent. The changes are recorded on form 4549. The IRS sends these reports to state revenue agencies electronically. Tax Gap - Tax gap is defined by the IRS as the difference between what taxpayers should pay (what they owe) and what they actually pay on a timely basis. DOR defines it as " the amount of personal income tax due, but unreported and uncollected by the Department of Revenue for any given year." Treasury Offset Program - The Department of Treasury's Financial Management Service (FMS), which issues IRS tax refunds, has been authorized by Congress to conduct the Treasury Offset Program. Through this program, a personal income tax refund or overpayment may be reduced and offset to pay certain debts.

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Appendix F: Bibliography
ieSolutions. (2007), IT Services Future Staffing Model. Study conducted for the Oregon Department of Revenue (DOR), July-September 2007. Virtual Information Executives, LLC aka VIE. (2008). IT Services Transition Plan. Plan developed for DOR, February-June 2008. Virtual Information Executives, LLC aka VIE. (2008). Service Delivery Assessment Report. Study conducted for DOR, June 2008. CGI Technologies and Solutions, Inc. aka CGI. (2008). Tax Processing Automation (TPA) and FedState Review. Assessment conducted for DOR, June 2008. CGI Technologies and Solutions, Inc. aka CGI. (2008). Oregon Department of Revenue Collection Enhancement Opportunities. Plan developed for DOR, July 2008. Oregon Department of Revenue. (2008). Building the Technology Foundation for 21st Century Tax Administration [Business Case]. Developed internally, December 2008. Revenue Solutions, Inc. aka RSI. (2009). Current State Assessment and Preliminary Future Vision. Assessment and plan developed for DOR, 12/15/2009. Revenue Solutions, Inc. aka RSI. (2010). Target Enterprise Architecture. Architecture developed for DOR, 12/15/2009.

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