Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO:

Vancouver City Council

FROM:

City Manager, in consultation with Members of the Corporate
Management Team

SUBJECT:

SAP Computer Software System Implementation Update

 

RECOMMENDATION

POLICY

Consulting contract awards over $30,000 are to be reported to Council for approval.

PURPOSE

The purpose of this report is to provide information on the SAP implementation project status, to request approval of consulting contract services, and to increase the project budget.

BACKGROUND

In June 1990, Council identified information as a corporate priority and directed that work proceed to “...plan for improvements to the City’s information systems.”

Based on that instruction staff brought the Information Systems Plan to Council in December 1994. This plan set the direction for improvements to the City’s information infrastructure and systems. Central to this plan was a proposal to move information systems from the mainframe computer system to networked, client-server infrastructure and to ensure the financial system is Y2K compliant. In approving the plan, Council also directed that a detailed infrastructure and software implementation plan and budget be developed for consideration in the 1997-1999 Capital Plan.

In 1995, Council approved the Better City Government Program - Next Steps report which identified 15 major corporate processes that were to be reviewed and improved upon, including the major corporate systems such as the Budget/Performance Management/Accounting Systems, Revenue Billing and Collection System, Facility and Building Management System, and Payroll/Benefits Administration System.

In July 1996, while considering the 1997 -1999 Capital Plan funding limit, Council approved the Information Systems Replacement Program which included direction to staff to continue the replacement of mainframe based applications and to continue the software replacement work for the core information systems. Council also approved the Information Systems Long Range Financing Plan which was intended to provide financing for this work over three capital plan periods extending out to 2005.

The work to improve systems infrastructure, including network capabilities and communications among diverse City facilities, has been the subject of several reports to Council since 1996.

In September 1997, Council approved a recommendation that Ernst & Young/SAP Canada Consultants be selected as contractors for the replacement of the City’s financial, human resource and payroll systems. The budget for the proposed project was set at $21.147 million, including software and implementation costs but not including post “go live” sustainment costs. Funding was provided from the Information Systems Long Range Financing Plan.

In October, 1997 a team of City staff began work with E&Y/SAP on the implementation project, with “go-live” dates anticipated to be early in 1999. To date, the City has implemented the following modules of SAP:

· Financial Accounting (FI) supports the City’s general ledger accounting, accounts payable, accounts receivable and external financial reporting needs. The system has simplified the processing of accounts payable so that vendors are paid in a more timely fashion allowing the City to take advantage of vendor discounts. Also, faster processing of accounts receivable will lead to more timely collection and better management of outstanding accounts.
· Controlling (CO) which supports project costing and management reporting needs, including the functionality necessary for managers to monitor and control the costs of their projects and programs. CO reflects the structure of the City’s Operating and Capital Budgets and is to provide managers with a set of flexible tools which will improve the management of programs and projects.
· Funds Management (FM) which is closely related to CO, will support the corporate budget process, including an appropriate division between the responsibilities of the departmental managers and the corporate budget office.
· Materials Management (MM) supports the City’s purchasing and inventory management activities. SAP will allow the purchasing process to be decentralized and move from a paper-based system to an automated, online system that ensures managers can order and receive goods in a timely manner and that the costs associated with these purchases are quickly reflected in the program accounts. SAP purchasing will enable the organization to obtain a clearer picture of what is being bought and from which vendors so that more efficient purchasing practices can be developed. The use of reservation functionality will allow storekeepers to better manage their inventories, reducing stock levels and carrying costs.
· Human Resource / Payroll supports the personnel and payroll functions of the organization which must manage and pay almost 8,500 employees governed by 12 separate collective agreements. Translating these agreements into SAP “rules” that ensure employees receive the correct pay represented a significant challenge to the project team and resulted in a delay in the original “go-live” date. However, the system is to ensure that employees are paid according to the specific terms of the collective agreements, something that was not always possible in the less flexible legacy system. On-line time entry will ultimately mean payroll for employees can be completed in a more timely fashion.

The real benefit of SAP comes from the extent to which it integrates information and makes it available to users. Instead of having to input information to a number of systems, staff enter information once, and it is immediately available to users. In the future, it will also allow the City to take advantage of other technologies including the use of the internet for dealing with customers and vendors, workflow for ensuring information processing is not bogged down by the need for paper documents, and barcoding and scanning to manage resources and documents. These improvements will enable the organization to focus on strategic business issues and customer service.

On January 1, 1999, the financial modules, FI/CO/FM/MM of the new system went “live”. On June 4, 1999, the basic components of the HR/Payroll System went “live”. Both the legacy Financial and HR/Payroll systems have been retired. There are approximately 900 system users across the organization performing transactions and relying on the system for the information necessary to manage their financial and human resources.

DISCUSSION

The SAP system software modules planned for implementation are now operational. Goods are being purchased, received and paid for. Accounts are being billed and collected. Expenditures and revenues are being posted to departmental accounts and both departments and the corporate budget office are monitoring the operating and capital budgets. Human resource events including hiring, work assignment, payroll and records information are occurring in the system and employees are being paid.

At the start of the E&Y/SAP contract, it was anticipated that the implementation project would last for 14-16 months, and result in a fully functional system. In the period after “go live” implementation, it has become clear much more work then anticipated is needed to stabilize the system. This, we are informed, is rather typical of system software implementation, and a sustainment strategy needed to be developed.

In our case, staff became more concerned about issues such as data, training, sustainment, staffing levels, morale, audit control, and configuration. Consultants tell us productivity often drops in the first year or so until staff become comfortable with the system.

The SAP implementation is at a major milestone now and adequate resources need to be added to ensure the system is stabilized in a timely manner.

After completion of “go live”, a Sustainment Steering Committee, with representatives from user departments was established to develop a long term plan and to review possible cost savings. The first goal was to establish a comprehensive work plan for the sustainment project team. The workplan was developed with input from all departmental system users, business process owners and the team. The work plan was extensive and therefore, review by an independent consultant was considered advisable. This work was done by Deloitte Consulting. The plan not only identifies the work that is necessary, but establishes priorities and timelines for bringing it to completion. The work falls into several broad categories: business process review, reporting, training, configuration, and technical infrastructure. In general terms, the work includes:

Reporting: - ensure reporting that ensures system users can effectively audit the information going into the system

Training: - review training needs

Configuration and Technical Infrastructure:

The work plan addresses the priority and risks associated with the work that needs to be undertaken to stabilize the system. Highest priority is given to meeting financial reporting requirements, data accuracy and other management reporting issues. Lower priority has been assigned to the “nice to have” items and to those issues that are not critical to the needs of the organization and offer little risk to the performance of the system or its users. The plan calls for all of the highest priority items to be addressed in a phased manner stretching out to the end of March, 2000.

ADDITIONAL RESOURCES

Taking the system through this stabilization period will require resources, both City and consulting.

During the implementation phase of the project, about 35 City staff were seconded from their departmental assignments to support the system. Many of these staff members have since returned to their departments, picking up their previous responsibilities and providing ongoing support to the new corporate system. A small group of City staff have continued to provide support to the system from the project office. The effort that will be required over the next few months will require that the project team be supplemented by additional resources. Funding to provide these resources during the next phase has been allocated from within the original project budget.

In addition to City staff resources, it is recommended that the City engage additional consulting resources to assist in achieving completion of the workplan. Negotiations with Deloitte Consulting, Ernst & Young Consulting and SAP Canada has resulted in a proposal to put the necessary project management, business and technical specialists in place to assist City staff achieve the objectives of the plan. Perhaps more importantly, the proposal will provide for greater transfer of knowledge to City staff to enable the City to become more self-sufficient in managing the new system. Also, a long term sustainment strategy will be developed to ensure the City has a plan to manage the system beyond the stabilization period and, better identify and achieve system efficiency.

Negotiations with all the consultants have led to a team of experts from each to help City staff complete the work program. It is estimated that this will cost approximately $3 million over the next six months.

FUNDING IMPLICATIONS

On September 9, 1997, Council approved the SAP Implementation Project budget of $20.897 million which was subsequently increased to $21.147 million. This budget included hardware, software and implementation consulting costs of $12.4 million and City implementation costs of $6.4 million, including staffing, training and documentation and site office costs and a contingency provision of $2.3 million. It was anticipated that these costs would be incurred over an implementation period of 16 months extending from October 1997 to “go-live” in January/February 1999. Annual costs of software licencing were estimated to be $230,000 in the first year, rising to $690,000 in the third and subsequent years. The General Manager of Corporate Services was to report back on the technical and business resources that would be necessary to sustain SAP after go-live. This will be done early in 2000 in the context of the long term workplan now being developed.

As noted, the financial and materials management modules went into production on January 1, 1999. After delays resulting from the difficult task of translating the City’s many collective agreements into SAP “rules”, the HR/Payroll modules went into production on June 4, 1999. These delays added costs to the project, and in addition, a list of outstanding issues on the project workplan needed to be addressed. These required decisions to be made about project scope in order to remain within the project budget and the steering committee and Corporate Management Team adjusted the workplan accordingly, reallocating funding to these high priority items. Despite the budget reallocations, the SAP project remained within the original budget of $21.147 million.

To date, the project has incurred costs of $19.9 million and there are outstanding commitments of $1.34 million for a total of $21.24 million. However, with recoveries expected from the disposition of computer and other equipment at the end of the project, it is anticipated that these commitments will be fully covered within the original project budget. Moreover, a portion of the commitments noted above are for resources that will be available to the project during this stabilization period.

The resourcing proposal in this report will require additional funding for the project, estimated at $3.0 million. It should be noted that the budget now includes the initial implementation and sustainment efforts for the first year.

Financing for the implementation project and for this additional work should be provided from the Information Systems Long Range Financing Plan (LRFP) approved by Council in July 1996. The LRFP is intended to provide a source of funds from which information systems replacement and upgrading identified as part of Better City Government Program can be provided over the period 1997 to 2005, equivalent to three Capital Plans. At the end of that period, it is anticipated that the annual provision from the operating budget (ranging from $4.5 million to $5.3 million) plus the operating savings realized from improved business practices and information will generate sufficient funding to cover the costs associated with business application expenditures. The additional demands associated with the work proposed in this report will put pressure on financing available in that plan requiring the Corporate Management Team to focus on producing value from the system and/or reallocate funding from other projects.

CONCLUSION

The SAP modules for FI/CO/FM/MM and HR/Payroll are implemented and operational. A comprehensive stabilization work program has been developed, and additional consulting resources are necessary to help staff complete the work program.

The initial program has been adjusted to keep within the original budget, and to continue with sustainment activities to date.

The increase in resources and project scope change, to include the first year of sustainment efforts, will require a budget increase of $3 million.

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