Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO:

City Services and Budgets Committee

FROM:

City Manager, in consultation with the Corporate Management Team

SUBJECT:

SAP Sustainment Plan

RECOMMENDATION

CITY MANAGER COMMENTS

COUNCIL POLICY

On June 19, 1990 Council established information as a corporate priority, and directed that work proceed to "...plan for improvements in the City's information systems."

On December 8, 1994, Council approved the Information Systems Plan which set the direction for improvements to the City's information infrastructure and systems and directed that a detailed infrastructure and software implementation plan and budget be developed for consideration in the 1997-1999 Capital Plan.

On May 18, 1995, Council approved the Better City Government - Next Steps report. This report directed attention to improvements in major corporate systems such as Budgets/Performance Management/Accounting system, Revenue Billing and Collection systems, Facility and Building Management systems, and Payroll/Benefits Administration systems that were core to supporting improvement in the City’s business processes.
On July 23, 1996, Council approved a long term funding strategy for the City’s information technology initiatives. This strategy included investment of funds from the City’s capital program and from existing information technology funding sources on an ongoing basis to finance the upgrade of technology infrastructure and systems that were core to the City’s operations. The expectations were that these funds would be levered with operating savings from new systems to provide for the costs of implementation and ongoing operations of new core information technology.

PURPOSE

The purpose of this report is to request Council approval to allocate funding from the Information Technology Long Term Financing Plan to establish an SAP Sustainment initiative that will support the technical and business requirements of the SAP application at the City and continue the realization of benefits from the system.

BACKGROUND

In 1997, Council approved the budget for the Corporate Information Systems Replacement Project at $21.1 million to install SAP software to replace the City’s financial, materials management, human resources and payroll systems. Funding for this implementation project was provided from the Information Technology Long Term Financing Plan.

On November 2, 1999, Council approved an increase in the SAP project scope to include stabilization and post "go live" implementation work at a cost of $3.0 million, with funding from the Information Systems Long Term Financing Plan. At the time Council approved this additional expenditure, staff undertook to report back in early 2000 on the long term plan to sustain the SAP system and initiatives to achieve cost savings from the system.

DISCUSSION

The City of Vancouver implemented the following SAP modules: Financial Accounting (FI), Controlling (CO), Materials Management (MM), and Human Resources/Payroll (HR).

FI/CO/MM functionality was implemented January 1, 1999 and HR/Payroll was implemented June 4, 1999. Since “go live”, the project implementation team, with assistance from our consulting partners, have provided application and end-user support. There are currently 950 end-users across nine service groups at the City using SAP for activities such as managing budgets, processing accounts payable transactions, financial reporting, purchasing and payment of goods and services, allocating labour and materials costs, entering time and running payroll.

Deloitte Consulting, SAP Canada, and Ernst and Young were contracted to assist the Cityto stabilize the SAP application. Deloitte Consulting has also assisted in an evaluation of the ongoing work effort and cost of supporting SAP; and to evaluate the options available to upgrade SAP from the version implemented at the City (3.1h) to a more current version.

During their engagement with the City, the consultants have brought expertise to assist the City to stabilize the SAP application, to improve our management reporting and to develop the skills of our employees and managers in the use of the system. That assignment is nearing completion and the City will soon take full responsibility for maintaining and sustaining the system.

1. Sustainment Organization

As noted above, Deloitte Consulting was asked to assist the City’s SAP Team to identify the ongoing sustainment and support needs of our SAP application. This evaluation included:

· a discussion of the factors influencing SAP support;
· a review of sustainment activities and work effort required to provide ongoing support to the application and to SAP users;
· a comparison of the recommended sustainment team size to other organizations using SAP;
· an evaluation of outsourcing this work versus performing the work in-house; and,
· a recommendation for forming the sustainment organization and the ongoing funding required.

This review indicated that there are a variety of factors which influence the resources necessary in a sustainment team, including:

· the number of end-users and their expectations and requirements for ongoing support;
· the availability of "super-users" or department coaches to support end users;
· PC and SAP skill level of end-users;
· the anticipated volume of help desk questions;
· the amount of enhancement work required; and,
· the knowledge base of the SAP support team.

The research suggested that SAP sites typically organize their sustainment activities around six major categories of work:

    1. Hardware & software network
    (Infrastructure)

    ¦ hardware and maintenance
    ¦ software license
    ¦ network hardware and operating costs

2. Support for hardware & software, servers & networks

    (Infrastructure Support)

    ¦ application of patches (fixes)
    ¦ system back-ups & operations
    ¦ production scheduling
    ¦ GUI installations to end-user workstations

    3 System administration and database management
    (Basis & DB2 Support)

    ¦ data transports
    ¦ system performance monitoring
    ¦ database management activities
    ¦ monitoring error logs

    4 ABAP services

    ¦ interface development and support
    ¦ custom modifications & report development

5. Functional support

    (SAP Configuration)

    ¦ configuration of SAP modules to meet business needs
    ¦ resolution of business problems through SAP module expertise
    ¦ development of business specifications for ABAP developers

6. Business Analysis

    ¦ end-user support
    ¦ development of business cases for enhancements or new functionality
    ¦ facilitation of Steering/sponsor committees
    ¦ development of training material updates
    ¦ delivery of end-user training

A detailed analysis of the work activity and work effort was also completed. This activity translates into the equivalent of 19 full-time employees allocated as follows:

In order to validate this finding, a comparison of the resources recommended for the City to other corporate SAP sustainment team structures showed that the team recommended for the City was generally within the range of other comparable SAP implementations.

Also considered were three possible models for staffing the sustainment team, as well as the pros and cons of each model together with annual costs of supporting the initiative. These options were:

In addition to staffing costs, it is estimated that during the first year of the sustainment effort, there will be additional costs, including those associated with validating and capturing the benefits from the system through reviews of work processes and organization; consulting support; and training of the Sustainment Team. Utilizing the most cost effective option, the year 2000 cost to sustain SAP is $1.9 million with cost distributed as follows:

These costs are expected to decline to approximately $1.4 million on an ongoing basis after the first year, with further reductions possible as the City becomes more familiar with the system and system functionality improves.

The SAP Sustainment group will be working to a detailed work plan with clear goals and target dates and regular progress reports to the Corporate Management Team.

An important component of the sustainment strategy is the confirmation of benefit from the SAP implementation. A team of departmental representatives has been formed to deal specifically with the capture of benefits from SAP. The team will define the framework for continuous benefits capture, identify and quantify, where possible, tangible benefits achieved to date and prioritize areas of focus for configuration or process change that will eliminate non value-added work and improve service levels. The initial phase of this work began on February 23 and should be completed in eight to ten weeks.

The team reviewed proposals from Deloitte Consulting; SAP Canada and KPMG to assist the City in the benefits capture work. Deloitte Consulting is proposed to assist with this initiative at an estimated cost of $175,000 for Phase I of the review. Subsequent phases of this work may require additional consulting assistance up to a total proposed expenditure of $300,000.

The cost of the sustainment initiative can be provided in part from existing resources that formerly supported the legacy financial, human resource and payroll systems or performed “sustainment” type tasks in departments. The proposed team is comprised of nine positions ($537,000) that are to be reassigned at no additional cost. The balance of the staffing requirement requested is 10 new positions with funding of $873,000 from the Information Technology Long Term Financing Plan. The balance of consulting and training funds are provided for in the long term financing plan.

2. Version Upgrade

Like all software vendors, SAP provides regular upgrades to its software to accommodate the needs of users and to improve its functionality. Once in production, these versions are generally supported for up to three years. As is the case with all of the City’s information systems, our SAP application must be periodically upgraded.

A second component of the work undertaken by Deloitte Consulting in conjunction with City staff was to review the need to upgrade our SAP application from the version implemented (Version 3.1h) to a more current version (likely Version 4.6c). A version upgrade is being considered for the following reasons:

· packaged software is normally purchased to take advantage of new developments in functionality provided by software vendors on a regular basis;
· it is important to remain current with the technology so that vendor support is continuous, even if the new functionality is not implemented;
· Legal Change Packages (LCP’s) are regularly provided by SAP to fix problems, and adjust for regulatory changes and must in turn be applied and tested;
· SAP releases new versions with increased functionality each year;
· expansion of the SAP functionality used by the City and the configuring and testing of additions will allow the City to make better use of its SAP investment.

Version upgrades become standard procedure when systems such as SAP are implemented in an organization. The City must decide on the frequency of SAP version upgrades and incorporate them into its standard operating procedures. In the short term, however, SAP support for our current version of SAP ends in October 2000. As a result, a decision to upgrade must be made soon. While further analysis on the timing and scope of this upgrade is required, it is important for Council to recognize that this expenditure will be required during the next few months.

Staffing, consulting and hardware costs related to an upgrade are expected to cost approximately $800,000, including hardware upgrades of $300,000 and consulting services of $500,000.

Funding for the hardware upgrades is available in the Computer Replacement Reserve which is intended for technology hardware upgrading purposes. The balance of the funding is accounted for in the Information Technology Long Term Financing Plan.

CONCLUSION

Staff , with the support of Deloitte Consulting have spent the last 6 months working to stabilize the SAP modules for FI/CO/MM and HR/Payroll implemented in 1999. With that effort now being completed, the City must put in place a structure to provide ongoing support to the SAP application and the end-user community, and must integrate version upgrades into its standard business practices.

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