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OUTLINE BUSINESS CASE

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									11/03/2010                                                               Appendix A

Outline Business           15 January 2009
Case
Name of Project:           Shared Services (Finance and Procurement)

1. Recommendation and Key Points Summary

        Recommendation
 1.1.   This paper sets out proposals for changes to the current finance and procurement
        systems and the outsourcing of financial and procurement services, which could
        produce both cashable and non-cashable benefits. It is recommended that:

           The GLA and TfL enter into an arrangement for the provision by TfL of
            accountancy and procurement services to the GLA, as permitted by section 52 of
            the Greater London Authority Act 2007.

 1.2.    Summary of Key Points
         TfL, through their SAP software currently provide accountancy and other
           services to 9 companies;
         The GLA proposes to transfer mainly transactional and system accounting to
           TfL, thereby gaining the benefits of access to a powerful suite of programmes
           already used by both TfL and MPA;
         In order to maximise the benefits derived from transferring the Purchase Ledger
           element of the accounting system to TfL through SAP, the technical
           procurement functions must be considered also;
         GLA would benefit from access to framework agreements centrally procured by
           TfL and simplified ordering processes where viable.

2. Where Are We? Context and Drivers for Change

 2.1.    Current accounts system and processes
         There are separate systems for finance and procurement. Human resources and
           payroll are currently outsourced;
         The current Cedar Open Accounts system (COA) was installed in April 2004 at a
           cost of £420k;
         A COA upgrade is available;
         Non-finance officers predominantly use eBIS, the user interface with COA, to
           raise Purchase Orders and/or to view Financial Management Information;
         There is highly devolved procurement, with over 500 staff on the system as
           purchasers or authorisers;
         There are 16 users of the core system.

        Issues to be addressed
 2.2.    There are a number of systems issues that require addressing:

           Rigid functionality; users can only use one function at a time;
           Capacity/processing power and speed; large reports are run one part at a time,
            sometimes requiring manual intervention and resulting in system crashes;
           Budget Holders are given only basic reports, which can take days to produce;
           Users find eBIS to be cumbersome and slow;


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           Inefficiencies arise from managing the system’s shortcomings, e.g. production of
            local spreadsheet reporting;
           The combination of the above issues leads to the involvement of relatively higher
            numbers of technical and transactional accounting staff than would normally be
            expected.

 2.3.   Processes supporting the system need to be improved and to be applied
        consistently. The issues with the processes include:

           Widely-devolved procurement with a large number of authorised users means
            that opportunities for economies of scale and maximising the benefits of
            framework contracts are not being realised;
           Large number of suppliers on system; there is further scope for developing
            framework contracts to maximise efficiency of procurement;
           Organisational dissatisfaction with efficiency and operation of the current
            arrangements;
           The GLA did not meet the 30-day target for processing invoices last year
            (former national BVPI 8). Although performance has since improved, the Mayor
            has recently made a commitment to ensure that the GLA pays invoices to Small
            and Medium Enterprises within 10 days and current processes will make this
            difficult to achieve;
           The GLA needs to improve the quality of information produced for performance
            and budget management to meet internal needs and external inspection
            requirements for continuous improvement. If the GLA does not respond to the
            Audit Commission’s recommendations on procurement then it is likely to face
            challenge and limited scores on future assessments.

        Drivers for change
 2.4.   Given the extent of the issues set out above, change is essential in order to ensure
        that the GLA’s finance and procurement system is sufficiently robust to meet
        external inspection and internal requirements. A number of factors have combined
        to make this an appropriate time for change:

        Organising for Delivery
           Organising for Delivery is a programme looking at how we can run a more
            effective organisation for Londoners and the taxpayer by reviewing the
            organisational structure. It is seeking opportunities for simplification, reduction
            of duplication, and working more effectively across the GLA group;
           Organising for Delivery gives a platform to improve the finance and
            procurement systems and to ensure that the optimal structure is developed from
            the outset.

        Working with the Functional Bodies
           The GLA does not operate in isolation; it has four functional bodies; MPA
            LFEPA, TfL and LDA;
           The need to deliver and measure efficiencies was emphasised in the Group
            Budget Guidance;
           The Delivering More Together programme has established a framework for
            greater convergence between the GLA, and its functional bodies;



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               Section 401Aof the GLA Act 1999 allows the functional bodies to share
                arrangements for the provision of administrative, professional or technical
                services;
               Work is already underway through the Technology Group to work more closely
                with TfL, with innovations, such as a high-speed link and moves to improve the
                value of using a platform such as Oracle, in progress.

3. Where do we need to be?

 3.1.    The ultimate goal is to ensure that the finance and procurement systems and
         supporting processes are fit for purpose, and maximise the benefits of any software
         used. Objectives to deliver this include:

        (i)        Improving efficiency in finance and procurement support services by moving
                   to a single system;
        (ii)       Eliminating duplication of effort with reliable systems and best practice
                   processes that are fully implemented;
        (iii)      Rationalising user numbers while retaining flexibility for the organisation;
        (iv)       Integrating the financial management system and performance management
                   framework;
        (v)        A robust system that allows data to be manipulated and which provides
                   timely and useful management information to meet:
                  the needs of managers;
                  the Mayor’s and the Assembly’s requirements for transparency and
                   accountability; and
                  the requirements of inspection and regulation.
        (vi)       Delivering the above improvements while capitalising on ongoing change
                   within the GLA, other projects in the organisation and opportunities from
                   working across the GLA Group;
        (vii)      Positioning the organisation for future developments/improvements

4. How are we going to get there?

 4.1.    The upgrade of the current system has been explored as a potential solution but
         would not resolve all issues set out above and would not facilitate any significant
         improvement in reporting capability. Upgrading would mean the organisation
         would still have to invest in the management, communication and implementation
         of a change programme to improve processes.

 4.2.    There is a range of potential options that could be implemented which broadly
         consist of a software upgrade, entirely new software or working in partnership.
         These are dealt with in Section 5 and the preferred option is to move to use SAP
         through TfL, using their Financial Services Centre (FSC).

 4.3.    Implementing an integrated software system (e.g. SAP - an integrated Enterprise
         Resource Planning System) would provide a solution to many of the identified
         issues. However, it is unlikely that the GLA could justify the cost of the high
         functionality provided by SAP in isolation. The delegation of transactional and


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        technical accounting functions to TfL as part of the overall process will enable and
        facilitate a restructure of Strategic Finance/Financial Services. TfL has an already
        established Financial Services Centre, operating SAP, which delivers services across
        the entirety of its organisation, thus enabling economies of scale to be achieved.
        They have shared services expertise and will, for example, shortly established
        shared services for Crossrail and are in the process of integrating Metronet into
        their structure. Joint working with TfL would also capitalise on progress being
        made between GLA’s Technology Group and TfL on other projects.

 4.4.   The Preferred Option

         “The core proposal is for the delegation to TfL of the GLA’s financial and
         procurement services which will utilise its SAP platform and business processes.

         The objective is to deliver service improvements and economies of scale in the provision
         of shared services.”




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 4.5.   The recommendation means that, under s52 of the GLA Act 2007, the service would be delegated to TfL and would cover the
        following areas:

        Theme                                Activity Remit                                 Objectives    Benefits
                                                                                            (Section 3)
        Changing software - transfer of       This covers the GLA’s:                       (i), (v)       Improved process controls and reduced financial (risk)
        the financial system from COA to        Accounts Payable - processing invoices;                    management activities through significantly upgraded
        SAP.                                    Purchase Order Processing - placing                        functionalities.
                                                  orders for goods and services;                           Improved financial service delivery especially in the area of data
                                                Accounts Receivable - generating                           capture, flexibility of manipulation and reporting.
                                                  invoices;                                                Provision of useful and timely management data that meets
                                                General Ledger;                                            needs of managers.
                                                Fixed Assets register;                                    As well as TfL, MPA/MPS use SAP (LDA currently use same
                                                Cash Book;                                                 system as GLA). This would allow better connectivity between
                                                Technical Accounting;                                      the systems and create potential for this to be built on in the
                                                Payroll interface with COA;                                future.
                                                Management Reporting.                                     Low-cost access to SAP.
        Transport for London (TfL)            One member of the FSC processes 25,000       (iii), (vi)    Reduction in staffing cost of financial services to the GLA
        delivering the services covered by     invoices per annum. The GLA processed                        through reducing the in-house capacity for managing financial
        the system requiring:                  18,000 last year (one member of FSC                          services.
         the deletion of up to 7              staff).                                                     Economies of scale as this will be a small incremental increase in
             finance and 4 procurement        In addition to the key element of purchase                   the volume of transactions carried out by TfL.
             posts by a combination of         invoice processing, the above functions
             TUPE transfer of staff to         would all be undertaken by TfL.
             TfL and redundancy;              There will need to be someone based at
         the establishment of a client        the GLA to perform the ‘client-side’ role
             function in the GLA to act as     of managing the contract and day-to-day
             liaison for the arrangement.      liaison.     TfL’s Helpdesk will handle
                                               systems management issues.




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      A review and streamlining of          New approval processes supported by           (ii), (iv), (v),      Making non-finance staff more efficient by streamlining and
      finance and procurement and            training.                                     (vi)                   improving the processes for staff to manage and administer
      associated business processes         Improvements will result in efficiencies                             budgets and payments.
      throughout the GLA to ensure           elsewhere in the organisation, which will                           Standardised processes resulting in measurable changes (both
      efficiency in and effectiveness of     be explored by the Business Support                                  financial and non-financial), including:
      the finance system and that the        review, which has been established under                               increased internal controls;
      potential savings are realised as      Organising for Delivery.                                               lower operating costs;
      part of the Organising for            The processes requiring review include:                                added service value; and
      Delivery programme.
                                              restructuring of the Chart of Accounts;                              integration with performance management.
                                              transaction processing and ensuring                               Better management reports, allowing budget managers more
                                                suppliers are registered and purchase                             time for strategic focus.
                                                order requests are appropriately raised;                         Meeting the requirements of inspection, regulation and audit
                                              Training and development to ensure                                 through improved reporting.
                                                robust application of GLA processes;                             Meeting the Mayor’s requirements for transparency and
                                              Monitoring to ensure processes are                                 accountability.
                                                applied properly;                                                Smooth transition from one system to another, with the ability
                                              Improved reporting capability;                                     to interrogate historical financial data.
                                              Timely payment of invoices (in 10 days
                                                                                                                 More stringent internal controls which will improve the
                                                for SMEs);
                                                                                                                  probity of transactions, therefore improving audit,
                                              Transfer of procurement activity to TfL,                           accountability and transparency and reduction in audit fees.
                                                with staff there raising orders through
                                                their framework contracts.                                       Improved communications (MPA/MPS also use SAP) and
                                                                                                                  opportunity for us to share experience with LDA in the future.
                                                                                                                 Standardised purchasing through a central procurement
                                                                                                                  system with framework contracts and associated benefits, e.g.
                                                                                                                  ability to self-bill for temporary staff.
                                                                                                                 Reduced end-user time spent on ordering goods and services.
      Building a platform for future co-    SAP can also be used for HR, payroll and      (vi), (vii)           Potential platform for other applications such as HR, payroll,
      ordination across the group.           other applications.                                                  etc. (NB: Procurement is effectively inextricably linked to
                                                                                                                  accounts for maximum benefit to accrue).
      NB:     This business case does not include:
                Management consolidation for the Group;
                HR Module and payroll, which have potential for inclusion in ‘Phase 2’;
                Workflow;
                Organisational Chart;
                Property Management.




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5. Financial Evaluation

 5.1.   This is an opportunity to invest to save; the implementation costs should be seen in
        the context of replacing a system that serves a single purpose (processing financial
        transactions) with a system that is an integrated Enterprise Resource Planning
        system requiring fewer staff. Given the disparate nature of current contracts and
        activities (for example, the payroll is currently outsourced to Northgate and expires
        on 31 March 2009, with an option to extend for a further 12 months) it is not
        practicable to proceed with all elements at this stage but the ground can be
        prepared for roll-out at a later stage.

 5.2.   The benefits are expected to be:

           Transfer of current staffing/costs to TfL – saving £0.6m p.a;
           7 finance and 4 procurement GLA staff in scope – redundancy costs not included;
           Savings on Supply Chain costs (currently £41m p.a.) assumed to be £0.5m p.a.
            (1.25%);
           Savings on other costs estimated at £0.25m p.a., including ICT support, audit
            and administrative costs relating to purchasing by operating divisions;
           Other non-cashable benefits in improved invoice payment, reporting and data
            analysis capability and a reduction in users, aligned with Organising for
            Delivery;
           Ordering process simplified as supplier need not be identified;
           Protection from future software upgrade costs.

 5.3.   Further benefits will accrue in terms of the consequent, wider restructuring of the
        Strategic Finance and Financial Services functions, which will be addressed under
        Organising for Delivery. In addition, it is anticipated that Organising for Delivery
        will facilitate the reduction in non-finance users from the current 500+ to
        approximately 150 and costings have been based on this number.

 5.4.   Annual running costs are estimated at £0.6m. These exclude £64k for network
        support costs and an Oracle Enterprise licence, which would be required for the
        development of further Shared Services. Also excluded is an overhead recovery
        charge of £69k to be charged by TfL, as this would not represent a real cost to the
        GLA group.

 5.5.   The costs are based on the broad assumption that the GLA will adopt existing TfL
        practices and financial controls and would include moving to 13 accounting periods,
        from our current 12. It is envisaged that there would be substantial input into this
        by key system users and budget holders.

 5.6.   Implementation costs, including all software, project management and process re-
        engineering, are not expected to exceed £1.9m. The actual cost of implementation
        will be subject to an ‘open book’ arrangement and savings may be achieved on this
        figure.

 5.7.   Implementation costs exclude network and Oracle set up costs of £193k, which
        would be required for the development of further Shared Services.




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 5.8.   Implementation costs also exclude services that it is considered can be provided
        internally by the GLA at no additional cost, including:

           Project Team;
           Accommodation in City Hall for Implementation Team;
           Cleaning of financial data for transfer to TfL;
           Training of users by ‘super-users’.

 5.9.   Redundancy costs have not been included in the figures. Of the 11 posts likely to be
        affected, 6 are occupied by temporary staff and it is anticipated that a further 4 could
        transfer to TfL (there may be further capacity at TfL, given other work such as
        Crossrail, that TfL is undertaking).

 5.10. Based upon the above assumptions, payback can be expected in within 3 years:

            Costing Model (£000)                                   FTEs    Implementation   Operating
            Effect on current costs
            Reduction in Financial Services Staff                    (7)                       (343)
            Reduction in Procurement Staff                           (4)                       (232)
            Other costs, including reduced admin and ICT support                               (250)
            Anticipated procurement savings                                                    (500)
            Total cost reductions                                                            (1,325)

            Shared Services
            TfL annual running costs                                 4                         538
            Third party annual running costs                                                    31
            Total annual cost of shared services                                               569

            Implementation & Process Re-engineering
            SAP Supplier costs                                                     650
            Third party change management & communications                         232
            costs
            TfL project management & process re-engineering                        743
            costs
            Infrastructure & Licensing                                              207
            Post Go-live Support                                                    106
            Totals                                                  (7)           1,939       (756)

 5.11. Actual implementation costs will be determined once the GLA has decided on the
       optimum solution for implementation. These costs can be funded from Reserves
       (although before any drawing on the reserves was agreed, the scope to re-direct
       existing base budgets would be examined first).

       Alternative Options
 5.12. The current system could be upgraded but this would not enable significant change,
       in particular:

           Inefficiencies would continue;
           No significant savings would be achieved;
           Incremental costs would be incurred in adapting Chart of Accounts to
            accommodate Organising for Delivery.

 5.13. Alternatives to SAP and working with TfL could be considered. Although accurate
       costs cannot be obtained without a tendering exercise, when COA was installed 4


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        years ago, the implementation cost was £420k. This was for a far less powerful
        tool than SAP that cannot deliver the economies of scale and operation benefits
        associated with Shared Services within the GLA group.




6. Timescale and Phasing

 6.1.   A full project plan will be developed and the attached table includes some of the Key
        Milestones for the implementation of the proposal:

        Activity                                                                   Date
        Business Case developed                                                    November 2008
        Project planning                                                           December/January
        Business case signed off                                                   January 2009
        Report to BMAC                                                             January
        Project commences                                                          February
        Change management and process design, including communications             February-March
        Change management and process implementation, including                    March-September
        communications
        TUPE transfer – GLA staff to TfL, including consultation                   April-July
        Implementation of process                                                  April-August
        System testing                                                             July-September
        Training                                                                   August-September
        Go live                                                                    October
        Post-go live support                                                       October/November
        Stage 2 – integration of other potential systems                           From November

7. Risks

 7.1.   A full risk register will be developed. Key issues include:

        Risk                         Impact   Mitigation
        Staff will not engage with   High     Communications and training plan to be developed and
        the roll-out of the new               implemented covering:
        system and will render it              training in systems and procedures across all
        unworkable.                                directorates;
                                               Key contacts to be identified in all directorates to
                                                   cascade information to keep all users involved at
                                                   each stage and up-to-date about new developments;
                                               Development of ‘super-users’ as first point of
                                                   contact for resolving problems.
        The project exceeds the      High     The costs of the project have been considered in this
        planned costs and                     business case and careful implementation and
        becomes unaffordable.                 monitoring will be required to ensure that the benefits
                                              are realised.
        There will be costly         High     The current system is costly to maintain and alternative
        inefficiencies of current             means of meeting demands for information and services
        finance system if don’t               in a timely and effective manner and improving low staff
        proceed.                              morale is required.
        Delays are caused as the     High     Careful consideration to be given to project timescales
        timescale for project not             before project commences
        achievable.                           Project manager to identify and monitor key milestones
                                              to ensure on track.
        Lack of clarity of scope.    Medium   The scope of the project would need to be clearly defined
                                              and connected to Organising for Delivery.



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8. How will we know when we are there?

 8.1.   A range of performance indicators will need to be identified to measure the delivery
        of the project. These could include:

           the new system is installed and functioning with a reducing number of calls to
            the helpdesk for support, over time;
           Invoices from SMEs are being paid in 10 or fewer days;
           Relevant staff have all been trained in the use of the new system;
           There is a reduction in the number of staff working in the finance team;
           There are fewer suppliers registered on the system;
           There are fewer staff across the GLA on the finance system;
           Savings are achieved through use of framework contracts.



Prepared by:

Lesley Rennie
Project Manager
Business Development
Greater London Authority

Doug Wilson
Budget Development Manager
Strategic Finance
Greater London Authority




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