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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