How the skills gap is increasing Australian government spend on IT services

Australian government agencies are expected to spend more than $6 billion on IT services in 2021, and that spending will continue to grow in 2022.

The Australian government—federal, state, and local—is projected to spend $6 billion on IT services alone in 2021, with a 7.2% growth expected for 2022, or more than $6.4 billion, according to research firm Gartner. (Gartner does not include the education sector in its government spending forecast.)

IT services includes infrastructure as a service, managed services, implementation, and consulting costs. The spending growth on IT services isn’t the largest but the amount spent is. And some of the increase could, ironically, be connected to a lack of resources, including funding and digital skills.

Some of the increase is due to the acceleration of digital transformation and the concurrent move to the cloud. “As the adoption of cloud continues, it is not surprising to see more expenditure in this [IT services] space,” Gartner’s senior director government digital transformation and innovation, Dean Lacheca, told Computerworld Australia.

How the skills gap raises IT costs

But the widely accepted skills gap, which was exacerbated by borders closure during the COVID-19 pandemic, has raised salaries and increased the use of costlier consultants. “Resourcing and digital skills has been identified in our research as one of the barriers to digital transformation in governments around the world,” Lachecha said. He cited a recent Gartner report that found several main barriers to digital government programs, including siloed decision making (23%), insufficient funding (16%), insufficient IT-business resources (10%), and insufficient digital skills (7%).

“In the Australian market, there is a definite anecdotal perception of a lack of available resources both internally and externally to support the programs,” Lacheca said. And one thing leads to another: When an agency does not have the right people to understand the project and manage it, things often get out of hand—which raises costs.

For example, in mid-August 2021, the Australian National Audit Office released a report on the effectiveness of the Department of Defence’s administration of the Enterprise Resource Planning (ERP) program. Despite the program being deemed as “largely effective”, the audit concluded that “program and contract governance has been undermined by conflicts of interest embedded in decision-making arrangements, with contractors involved in decision-making relating to their contracts”.

Another example is Transport for New South Wales’s delayed hybrid cloud migration that has already amounted to a budget blowout of close to $50 million, as reported by ITnews.

The country’s federal and state governments have been increasingly investing in training programs to improve digital skills, and a possible reform on skilled visas could be under way. But these alone won’t solve everything. Outdated and complicated procurement processes may also work against many government agencies by slowing projects and adding cost—as well as by making it harder for smaller providers which may be less expensive to get into the process.

What other IT the Australian government is investing in

Gartner predicts Australian government sector’s IT spending to exceed $15.5 billion in 2022, an increase of 8.8% from 2021, which is expected to close at $14.2 billion.

This growth trend is expected to continue driven by key programs to progress the digital economy, strengthen national cybersecurity response, adopt emerging technologies, and address gaps in regulation to cover technology. “Consultation papers on AI, ethics, technology and human rights, blockchain, and other emerging technologies are now firmly on the government’s radar,” said Brian Ferreira, Gartner’s vice president for executive programs.

Spending on software is expected to grow from $3.9 billion in 2021 to $4.7 billion in 2022, or a 19.2% growth. Internal services—salaries and benefits paid to the information system staff, which includes all employees who plan, develop, implement, and maintain information systems—will grow 3.8% to $2.7 billion in 2022, and speeding on data centres is expected to increase by 4.1% in 2022 to $425 million.

Not all segments will see an increase, though. Spending on both telecommunications services and devices is expected to fall 1% and 5% respectively in 2022. Gartner expects telcos to start experiencing this decline in 2021; also by 1%. But spending on devices is still benefiting from the pandemic and is expected to see 15% growth in 2021.

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