The United States Internal Revenue Service (IRS) serves more people in the United States than any other public or private institution. Each year it processes over 200 million tax returns from more than 180 million individuals and more than 45 million businesses.

The IRS itself employs more than 100,000 people in over 1,000 different sites. In a typical year, it adapts to more than 200 tax law changes and services more than 23 million telephone calls. Amazingly, the IRS accomplishes this work using information systems that were designed and developed in the 1960s. In fact, some of the computer programs that process tax returns were first written in 1962.

In the mid-1990s, the IRS set out on a Business System Modernization (BSM) project that would replace this antiquated system with modern technology and capabilities. However, by 2003 it was clear that this project was a disaster. Billions of dollars had been spent on the project, and all major components of the new system were months or years behind schedule. In 2003, newly appointed IRS commissioner Mark W. Everson called for an independent review of all BSM projects.

Systems development experts from the Software Engineering Institute at Carnegie Mellon University and the Mitre Corporation and managers from the IRS examined the project and made a list of factors that contributed to the failure and recommendations for solutions. In their report, the first two causes of failure cited were:

• "There was inadequate business unit ownership and sponsorship of projects. This resulted in unrealistic business cases and continuous project scope ‘creep' (gradual expansion of the original scope of the project)."

• "The much desired environment of trust, confidence, and teamwork between the IRS business units, the BSM organization [the team of IRS employees established to manage the BSM project], the Information Technology Services (ITS) [the internal IRS organization that operates and maintains the current information systems], and the Prime [the prime contractor, Computer Sciences Corporation] did not exist.

In fact, the opposite was true, resulting in an inefficient working environment and, at times, finger pointing when problems arose." The BSM team developed the new system in a vacuum. The team did not have the acceptance, understanding, or support for the new system from either the existing IRS business units (the future users of the system) or from the existing ITS staff.

Consequently, the BSM team poorly understood the system needs, and that misunderstanding resulted in continual changes in project requirements, changes that occurred after systems components had been designed and developed. Such requirements creep is a sure sign of a mismanaged project and always results in schedule delays and wasted money. In this case, the delays were measured in years and the waste in billions of dollars. In response to the problems that it identified, the IRS Oversight Board recommended the following two actions:7

• "The IRS business units must take direct leadership and ownership of the Modernization program and each of its projects. In particular, this must include defining the scope of each project, preparing realistic and attainable business cases, and controlling scope changes throughout each project's life cycle. . . ."

• "Create an environment of trust, confidence, and teamwork between the business units, the BSM and ITS organizations, and the Prime. . . ." In 2004, the IRS hired Richard Spires to take over and manage the BSM project. Spires, who had been president of the consulting firm Mantas Inc., facilitated a turnaround in the BSM project and was subsequently appointed Chief Information Officer, the senior IT person at the IRS.

Spires left the IRS in 2008. In his departure email he stated, "Through March 7, 2008, CADE (a key component of the BSM project) processed 15.1 million individual tax returns out of the more than 59 million received." Spires must have been effective. In 2009, Homeland Security Secretary Janet Napolitano appointed him the CIO of the Department of Homeland Security.

Unfortunately, it is not publicly known what specific steps Spires took to affect this turnaround. What is known, however, is that because of the initial mistake of not involving users in the specification of requirements and the feasibility of potential solutions, the IRS endured a 10-year delay and billions of dollars of cost overruns.

Questions

1. Why did the Oversight Board place leadership and ownership of the Modernization program on the business units? Why did it not place these responsibilities on the ITS organization?

2. Why did the Oversight Board place the responsibility for controlling scope changes on the business units? Why was this responsibility not given to the BSM? To ITS? To Computer Sciences Corporation?

3. The second recommendation is a difficult assignment, especially considering the size of the IRS and the complexity of the project. How does one go about creating "an environment of trust, confidence, and teamwork"? To make this recommendation more comprehensible, translate it to your local university.

Suppose, for example, that your College of Business embarked on a program to modernize its computing facilities, including computer labs, and the computer network facilities used for teaching, including Internet-based distance learning. Suppose that the Business School dean created a committee like the BSM that hired a vendor to create the new computing facilities for the college.

Suppose, further, that the committee proceeded without any involvement of the faculty, staff, students, or the existing computer support department. Finally, suppose that the project was 1 year late, had spent $400,000, was not nearly finished, and that the vendor complained that the requirements kept changing. Now, assume that you have been given the responsibility of creating "an environment of trust, confidence, and teamwork" among the faculty, staff, other users, the computer support department, and the vendor. How would you proceed?

4. The problem in question 3 involves at most a few hundred people and a few sites. The IRS problem involves 100,000 people and over 1,000 sites. How would you modify your answer to question 3 for a project as large as the IRS's?

5. If the existing system works (which apparently it does), why is the BSM needed? Why fix a system that works?