I HAD a great chance to have an exchange of ideas recently with Ernie del Rosario, the former Information Technology (IT) director of the Commission on Elections (Comelec), regarding opportunity cost in the last 2016 national and local elections. His financial analysis is impressive and quite acceptable in the realm of business. Any business student will find his computation quite impressive. Mr. del Rosario is a seasoned IT expert whose experiences could be traced in the banking sector.
Let me share his computations showing two options in the table below. Option A, which was the original plan of Comelec, shows the combination of refurbishing the old precinct count optical scan (PCOS) machines and lease of the new vote counting machines (VCMs) for the additional precincts needed in the 2016 elections. To recall, the PCOS machines leased in 2010 were later acquired in 2012 through the option to purchase (OTP) scheme stipulated in “a very disadvantageous to the government” contract between the Comelec and Smartmatic. Option B, which was actually the choice of Comelec, shows the lease of VCMs used in the 2016 elections.
The comparative analysis of Options A and B is summarized below.
1. The difference without considering the opportunity cost is P4.4 billion: (y – x) or 8 – 3.6.
2. The difference with opportunity cost is P14.5 billion: (z – x) or 18.1 – 3.6.
3. Ratio of x over y is 2.2 times: (3.6/8). It appears that Option B is only 2.2 times higher than Option A without considering the opportunity cost of not using the old PCOS machines.
4. Ratio of x over z is 5.03 times: (3.6/18.1). This is a more realistic evaluation of Options A and B as the opportunity cost of not refurbishing the old PCOS machines have a greater impact in terms of financial losses.
Upon calculating that Option B was essentially 5.03 times higher than Option A, Mr. del Rosario merely reacted with an expression, “OMG!”I could only interpret his astonishment as an overwhelming surprise knowing him as a manager who judiciously spent his department’s budget during his time. He exhausted so much time then just to ensure that his recommendations were supported by technical feasibility studies coupled with economic considerations. I just wonder why he resigned as an officer of Comelec when Smartmatic came into the picture. I could only sense that Mr. del Rosario had the “delicadeza” to do so.
Further, other costs not factored in the above computations are the warehousing cost and depreciation. In accounting practice, the maximum economic useful life of IT equipment is only five years. And for small value IT equipment like laptops, the practice is to depreciate it in three years’ time.
We can all then remember that Comelec had the idea before of selling the old PCOS machines. That could have been the Option C. But Comelec had no marketing capability to sell the machines. Even Smartmatic wasn’t able to help them sell it as they were pressed for time. Above and beyond, selling it to other countries would need a lot of time, marketing and political effort.
However, Smartmatic would have needed to work hard to cleanse its image in the Philippines with regard to the use of PCOS machines. Their real expertise is in direct recording electronic (DRE) technology and not PCOS. Hence, that option was far beyond reality.
If Comelec is thinking of reviving the idea of selling the PCOS machines to recover even a part of the P9.3 billion spent on them, that would be next to impossible. Seven years after, the salvage value of these units today is already “zero.” By 2019, the salvage value will be triple negative “zeroes” (-000). Refurbishing the PCOS machines for the 2019 elections would definitely be more costly than considering other cost-effective technologies.
The most interesting question arising from the lease of 93,977 VCMs is the capability of Comelec in coming up with informed management decisions. They were not able to make a thorough financial analysis just like what Mr. del Rosario shared with me and published herein. AES Watch, therefore, has countless doubts about Comelec’s ability to make really informed decisions. Even the recommendations of the Comelec Advisory Council in the past didn’t matter to them, like, not to use the Smartmatic PCOS machines in 2013 and to use the digital signing infrastructure of the Department of Science and Technology in 2013 and 2016.
(To be continued)