ADMINISTRATIVE REPORT
Date: July 15, 1996
TO: Vancouver City Council
FROM: Director, Operations Support
SUBJECT: Long Term Financing Strategy - Information Technology
Replacement Program
RECOMMENDATION
A. THAT staff continue to work toward implementing the strategy
outlined in the Information Systems Plan approved by Council
in December, 1994, including the replacement of the
mainframe based systems, subject to follow-up reports on
those components of implementation which require Council's
approval.
B. THAT staff continue the software replacement study work
currently underway, and issue RFPs to the qualified vendors,
with the results, costs and staff recommendations to be
reported back to Council.
C. THAT Council approve the financing strategy as outlined in
this report to provide a sustaining source of funds for
information technology implementation and renewal.
GENERAL MANAGER'S COMMENTS
The General Manager of Corporate Services RECOMMENDS approval of A,
B and C.
COUNCIL POLICY
On June 19, 1990, Council established information as one of the City's
corporate priorities, and acknowledged the City Manager's commitment to
"... meet with relevant departments to develop a work plan for
improvements in the City's information systems."
On December 8, 1994, while considering the Next Steps to Better City
Government reports, which included the Information Systems Plan Report,
Council approved the following:
- THAT Council authorize the City Administration to proceed with the
implementation of the strategy outlined in the Information Systems
Plan, as well as Internet connections and on-line systems, subject
to follow-up reports on those components of implementation which
require Council's approval.
-THAT Council direct staff to prepare a detailed infrastructure and
software implementation plan and budget for consideration in the
1997-1999 Capital Budget.
PURPOSE
The purpose of this report is to seek approval to continue with the
implementation of the Information Systems Plan using the financing
strategy outlined in this report. There is a need to fund the
replacement of the City's current mainframe based information technology
and to ensure that replacement and growth of its information systems
can be optimally managed and financed over the long term.
The rapid growth and use of information technology in our operations,
combined with the need to complete the migration to new technology
before a replacement mainframe computer is needed, require a new
approach to funding, a need which cannot be accommodated within the
1997-1999 Capital Plan. The financing strategy proposed in this report
is a system similar to the City's Plant Account, where a life cycle
management approach is used to ensure orderly replacement of worn out
and obsolete systems and equipment, within existing budgets.
BACKGROUND
In 1991, staff initiated a city-wide information systems planning
project, which produced an Information Systems Plan (ISP) dated June
1992. This report was the first step towards a new vision of how
information and technology are to be used and managed in the City. The
ISP was subsequently revised and updated and a new report issued in
September 1994. The 1994 plan provides the strategic framework for
information systems that will support the needs of the City as it moves
into new ways of doing business. The plan also provides a road map for
advancing the overall goals and vision for the City s information
systems.
Council instructed staff to proceed with the Information Systems Plan,
subject to follow-up reports on spending proposals. In order to comply
with Council's directions, studies were completed to define technical
standards and architecture, as well as to set out an overall migration
strategy that would see the City move from the current mainframe
environment to a client-server, network-based environment as described
and approved in the Information Systems Plan. Both the Information
Systems Plan and the Technology Migration strategy were reported to
Council as part of the Better City Government Reports, and are integral
to the success of that program.
In addition to the ISP study work, subsequent work in re-engineering,
best-practices, communications and organization change have validated
the strategy outlined in the ISP, and have increased the urgency of
moving to the goal technology as an essential part of our service
delivery solutions. The City is not alone in this regard, as most major
Cities in North America are experiencing similar change.
As outlined in previous reports to Council, our mainframe based
information systems are in the process of being replaced, and this must
be completed, ideally before the end of this decade. Software and
hardware maintenance will become increasingly expensive or impossible to
obtain, and the current systems cannot deliver the technology based
solutions to support the Better City Government initiatives. Council,
having endorsed the strategy of the ISP, has instructed staff to
prepare a detailed infrastructure and software implementation plan and
budget for consideration in the 1997-1999 Capital Budget. In order to
comply with this instruction, consultant led projects have been
initiated using inter-departmental teams to produce an implementation
plan and budget for migrating hardware, infrastructure and software to
the goal architecture.
DISCUSSION
The hardware and infrastructure study has identified the basic
requirements for migrating the existing systems off the mainframe, and
for accommodating growth and approved expansion such as Intra/Internet,
law automation, and imaging.
The software studies have investigated options and costs for replacing
the core legacy systems such as human resources, payroll, general
ledger, budgeting, costing, fleet management, purchasing, accounts
payable, treasury & tax systems, engineering systems, and a host of
other smaller applications. In the course of this work, other cities
were contacted and industry trends were taken into account. Further, an
RFI was issued to the vendor community to obtain a short list of
candidate software products with estimates on the costs to install. The
preliminary results of that process are reported below.
CAPITAL PLAN SUBMISSION
An estimated total of $44 million of information technology project work
was identified to complete the migration and accommodate new business
systems. Staff recognized that the Capital Plan would not be able to
support this level of funding. Also, even if the total funding were
provided, the work could not be completed within a three year time
frame. In order to arrive at an acceptable level of funding for the
current plan, the I/T (information technology) submission was reduced to
the minimum level of work required to replace the mainframe. This led
to a submission of approximately $28.3 million to the 1997-1999 Capital
Plan, as shown in the following table.
Capital Plan Submission (see Appendix I)
Information Technology Infrastructure $9.5
Software Replacement - Major Systems 14.3
Software Replacement - Misc Systems 2.3
Geographic Information System 2.2
$28.3 million
As outlined in the companion Capital Plan Report, the current approach
to funding computer systems and equipment is ad hoc, and erratic and
does not reflect the magnitude of the City's investment. This was
brought home when the initial estimates for replacement were obtained.
The Capital Plan review group recognized that the $28.3 million
replacement program as submitted could not be accommodated, but at the
same time recognized that there are several issues that increase the
urgency of moving forward and point to the need for a new approach to
funding, as follows:
the need for coordinated migration planning to avoid extra costs
requires a planning horizon beyond the three year capital plan, and
assurance of funding. For example, if software replacement is done
piecemeal, then extra costs will be incurred to build interfaces
between the new components and the remaining system at each stage,
only to be thrown away when the new system is fully installed;
the need for a sustaining funding strategy beyond a three year
plan. As discussed in the Capital Plan report, information systems
implementation and renewal have outgrown our ability to finance
those replacements on a historical basis. Appendix II shows how
the City's investment in information technology has increased and
continues to grow. An investment of this magnitude requires proper
financial planning to ensure orderly replacement of obsolete or
worn out assets;
year 2000 - many systems cannot accommodate dates beyond 1999.
This may seem trivial, but it can require significant modifications
of data bases and software. In the City's case, several costly
upgrades to the Financial Systems would be required, along with
other modifications. This can be avoided by early migration to new
products;
dual systems - it will be very costly to delay the remaining move
off the mainframe, as it will continue to consume resources for
maintenance and licences. Moreover, it would strain staff resources
to maintain two separate platforms during transition, particularly
when the old system is past its normal lifespan; and,
delayed benefits - many of the benefits identified in the Better
City Government projects are contingent on having the goal
technology available.
In order to respond to the funding issue, the Capital Plan staff review
group proposed an alternative funding mechanism, not only for
eliminating the mainframe, but also for providing a stable funding
source into the future. This would be accomplished by appropriating a
mixture of existing funding in the Operating Budget along with an
on-going portion of capital from revenue.
ALTERNATIVE FINANCING STRATEGY
As a part of the financing strategy, the I/T submission to the Capital
Plan was re-cast to show annual expenditures required and the proposed
sources of funding. The program described below will see the City spend
up to an estimated $44 million over the next eight years, starting in
1997, to replace and maintain the current information infrastructure and
aging systems.
A summary of the program (see Appendix I) is as follows:
Project Budget $44.09 M
Increase in operating cost 9.20 M
$53.29 M
Contributions $41.29 M
Estimated Benefits 15.81 M
$57.10 M
Net Benefits $3.81 M
Staff have completed the preliminary review of the requirements of the
program and have prepared the estimates based on the information
available at this time. These figures are being further refined and
confirmed. Council will have the opportunity to review proposed
expenditures through the normal budget and approval processes before any
work commences. Staff will also develop a process to monitor and capture
the operating efficiencies and savings for report back to Council at
later dates.
Funding over the eight year period will be comprised of the following
elements.
1. Capital from revenue - $26.4 million
As discussed in the companion report, the provision for capital from
revenue would be reduced, on a on-going basis, by $10 million over every
three year period. This will free up, within the current operating
budget envelope, sufficient funds to serve as the core funding for the
replacement and upgrade of the information infrastructure and systems.
2. VPL existing funds - $0.89 million
Within the existing Vancouver Public Library capital budget, there is an
uncommitted balance of $.89 million dealing with the telecommunication
upgrade in the library system. These funds and the upgrade will be
incorporated as part of the financing plan.
3. On-going PC replacement allowance - $8 million
As part of the 1996 operating budget, Council has approved an annual
funding level of $1 million to replace existing PCs.
4. Corporate Training and Strategic Initiative Funds - $6.0 million
In 1997, the corporate training budget will have reached the targeted
annual budget level of $1.5 million, after receiving the last increment
of $0.375 million. The Strategic Initiative Fund was set up in 1995 with
a budget of $1.28 million to fund one-time consultant services to deal
with the Better City Government initiatives. As the I/T program requires
significant consultant and training funds, a portion of the funds will
be reallocated to the program for that combined purpose.
5. Estimated Annual Benefits - $15.81 million
The preliminary analysis prepared by consultants and staff indicates
that there is a potential annual benefit of $2.8 million per year,
starting in year 2000, associated with the I/T program. It should be
noted with strong caution that this is a very preliminary estimate, and
some of the benefits may be 'soft' savings rather than 'hard' savings.
During the following stages staff will further refine these estimates
and will develop a process to capture savings.
REQUIREMENT FOR INTERIM FINANCING
A detailed plan for the implementation of the information technology
program described in Appendix I is currently in the early stages of
preparation, but will be based on the work plan proposal submitted to
the Capital Plan review group. One of the first tasks will be to
complete the build-out of the City's core communications infrastructure
involving the following components:
- basic network services to all remote sites;
- replacement of old IBM mainframe terminals;
- citywide E-mail and scheduling facilities; and,
- network management and support tools.
Alongside the network infrastructure project, staff will complete the
RFP process for the replacement of the City's HR/Payroll, Financial and
Fleet Management systems. This step will serve to fine-tune the
preliminary cost estimates (obtained in the RFI
process) shown in report Appendix I for subsequent reports back to
Council for approval to proceed to implementation. Although we believe
that present staff resources will be all but committed over the next
five years to the replacement of these major legacy systems, a reduction
in the preliminary cost estimates of those replacements could permit
advancing other projects on the replacement list to an earlier
implementation date. In other words, there is a degree of flexibility
available in the implementation of the information technology program in
its present form which, subject to the availability of staff and/or
outside resources, will be reflected in changing implementation
schedules as the program is executed over the next eight years.
As the foregoing indicates, the information technology program will
require early heavy expenditures between 1998 and 1999. With the
projected outflow of cash, we expect a deficit position for a number
years which will require bridge financing before the implementation
benefits have been fully captured. Interim financing through
interest-bearing loans can be provided by the Capital Financing Fund for
that purpose.
CONCLUSION
The changing needs of the City and the evolution of information
technology are catalysts for the City's migration to the goal technology outlined in the Information Systems Plan approved by Council. Issues,
such as year 2000 along with supporting and integrating old and new
systems, indicate that once started, the migration effort needs to be
completed as soon as possible. This requires a funding and planning
horizon beyond the current Capital Plan. The long term financing
strategy proposed in this report, along with approval from Council to
proceed with implementation, will allow staff to produce a migration
plan that will minimize costs and maximize results. Council will have
the opportunity to review and approve expenditures through the normal
budgeting, reporting and approval processes along the way.
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