Federal ERP Spending On the Rise

Federal-government spending on Enterprise Resource Planning (ERP) is expected to grow 33 percent to more than $7.7 billion by 2010, according to Reston, Va.-based researcher Input's latest Federal ERP MarketView report.

Chris Campbell, senior market analyst, federal market analysis at Input, says the majority of ERP spending will be driven by business-process reengineering efforts. With a new focus on the Office of Management and Budget's Line of Business initiatives, Campbell sees ERP spending especially concentrated around financial management and human-resources management.

"Agencies have definitely made steps toward consolidating systems under those lines of business and looking for cost savings, which will push spending up a bit," Campbell says. Overall, Campbell says the ERP investments in government cover the areas of financial, accounting, acquisition-management, human-resources, supply-chain and logistics systems.

According to the Input MarketView, spending on ERP hardware is expected to reach $832 million in fiscal year 2005, increasing to $1.1 billion in FY 2010. The ERP software market is expected to increase from $1.2 billion in 2005 to $1.6 billion in 2010. Input also expects professional services relating to ERP implementation to make up more than half of all ERP-related spending.

Campbell says that cost cutting and improving the way agencies deliver on their core mission areas will continue to drive ERP spending.

"Agencies have to spend to consolidate systems with the long-term goal, though, being to cut costs," Campbell says. "Financial-management, supply-chain and human-resources management are all areas that agencies are able to improve their processes, which should result in the cost savings they're looking for."

So, who will be tapped for this growing ERP work?

"For the most part, agencies will be looking for all-encompassing contracts that touch on a little bit of everything," Campbell says, adding that while the larger systems integrators might be most likely get those "all-encompassing contracts," they will be looking to smaller integrators through teaming arrangements to round out their expertise.

"They'll be looking for one integrator for the overall solution and leaving it to the contractor to put the teams together and make the bids with those teams."