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The Risk/Reward Trade-Off in WA’s new Digital Capability Fund

by Cameron Sinclair •
Free resource

More than $200 million remains unallocated in Western Australia’s Digital Capability Fund (DCF).   

Proposed DCF initiatives will be evaluated against four evaluation criteria, according to the Digital Capability Short Guide , released in September 2021.  

Any proposal coming before Cabinet for funding from the DCF will be assessed against evidence of achievability (20%), risk mitigation (40%), strategic alignment (20%) and evidence of impact on customer and government outcomes (20%), making those criteria pointing to risk worth a total of 60% while those criteria pointing to reward total 40%. 

The risk weighting most likely arises from the McGowan Government’s reluctance to be involved in any repeats of one of Australia’s biggest procurement failures. 

Almost twenty years ago the WA government contracted Oracle Consulting to centralise its HR and payroll systems, to be managed by a new Office of Shared Services (OSS). 

The OSS project was initiated in 2003 with budget funding of $82 million, with aspirations to save WA taxpayers $56 million per year, much of it from reducing duplication of effort across agencies. 

The project quickly fell behind schedule and over budget after coming online in 2005.  OSS was originally expected to provide payroll services for 30 of the 70 different employment awards that operate in the WA public sector but only 3 of the 30 had been integrated by April 2006. 

An inquiry by WA’s Economic Regulation Authority found that the payroll system was not designed to deal with complicated industrial awards and when it was abandoned in 2011, the project had already cost $440 million, more than five times its original price tag. 

Geoff Gallop was both the Premier and Minister for Public Sector Management at the commencement of OSS.  The current WA Premier and Treasurer, Mark McGowan was his Parliamentary Secretary.   McGowan would have been acquainted with the initial phases of the OSS project (from 2003-05) and would almost certainly have been privy to the initial business case. 

Many believe the failure of the platform to underpin the functioning of the OSS cast a long shadow over the WA government’s attitude to ICT as an enabler of policy effectiveness and administrative efficiency.  

A consequence  is that currently the state lags behind the rest of Australia in basic digital transformation enablers and initiatives, according to Intermedium’s Digital Government Readiness Indicator (DGRI) for 2021. Not doing particularly well under the previous Coalition government, WA dropped further in its ranking after the election of the McGowan Labor government. 

In a submission to the 2011 Economic Regulation Authority inquiry, then WA Under Treasurer (Departmental Secretary) Tim Marney, warned that shutting down the OSS “will place the WA public sector back 20 years but will take even longer to recover from the disruption.” 

In 2013, Intermedium observed that the cancellation of the OSS in 2011 had “triggered a small boom in Enterprise Resource Planning software purchases, as agencies begin to transition responsibility for their corporate applications back in-house.” 

The OSS experience also appears to have at least slowed down, if not severely hampered the uptake of shared services across other Australian jurisdictions. In his 2020 review of the Tasmanian State Service, former Secretary of the Commonwealth Department of Prime Minister and Cabinet, Dr Ian Watt, referenced WA,  noting that “shared services arrangements are imperfect and, elsewhere, governments have learned the hard way that a rolling out shared services can be fraught, even where there is an upfront commitment and careful design.” 

However, with its Digital Capability Fund and attendant policies and guidelines, WA is now putting in place the necessary foundation stones for the digitisation of services.  Ironically, one of the first projects of the DCF is a new Human Resources Management Information System (HRMIS) to replace WA Health’s outdated payroll and rostering systems.  

The centrepiece of the new DCF program is a $200 million contract for Deloitte to build the replacement HRMIS on a SAP platform.   

The approval process for the project would have considered the degree to which such large ERP projects are faring elsewhere in the country. Evidence of track record success will count for everything in WA, with the 60% skew to risk criteria in place for the foreseeable future. 

The WA Mid-Year Review noted that there is still $211.9 million in the DCF to be allocated as part of the 2022-23 (or future) Budget, which should return to a regular cycle in May 2022

  • WA
  • IT Services
  • Software
  • PM / Premier & Cabinet
  • Treasury