Published on the 04/05/2012 | Written by Chris Bell
After persistent rumours questioning the IT decisions inside the Super City, iStart embarked on a wide ranging investigation into council IT systems, and whether amalgamation works. Auckland’s CEO, CFO and CIO fronted – here is the full interview…by Chris Bell
iStart: What improvements can ratepayers expect to see from the new IT systems?
Mike Foley, CIO, Auckland Council (MF): “The ability to interact with council through multiple channels. In the long-term we’re looking to do online processing of resource consents, dog licences, pay online, more interaction through the call centre if you need it. Better information about the customer, from our perspective, major service improvement that we need to make collectively.”
iStart: The IS Capital Plan presentation, May 2011, shows a $230 million correction to the “Enterprise Capability Development” figure between 2011 and 2015. This must have been a surprise to all – how did it come about?
Andrew McKenzie, chief financial officer, Auckland Council (AMK): “The previous Councils’ budgets were all much lower because the Councils had stopped investing in their systems. They also had systems that were scaled to their own particular needs and investment programmes that aligned with that – if there was an investment programme. When we came in, the proposed investment levels were well under $20 million a year for the eight councils. If you think about three of them using SAP, divide 20 by 8 and you get about $2.5 million each whether they were getting anything out of it, so they weren’t realistic.”
iStart: So ‘Current’ refers to the previous councils?
AMK: “That’s right.”
Doug McKay, chief executive, Auckland Council (DM): “That wasn’t an overspend, that additional money. From our perspective, it’s not; that’s transparently what we believe we’ve got to do over the next three to four years and we’ve just been very honest and very transparent about that.”
AMK: “That was the previous councils. Papakura [District Council] had stopped investing in their systems at least three years ago.”
DM: “And those are 10-year plan numbers. If you look at those bar charts, from memory, they’re a pretty flat line across the board for 10 years. Whereas we’ve tried to reflect the actual work that’s needed to be done and the investment required to migrate to the new systems that we need to get to.”
AMK: “We’ve just done a long-term plan and we’ve flattened out our investment profile. We’re still refining it at the moment but it won’t be as peaked as we’ve suggested for 2012, 2013, 2014. The number of things that need to be done and the ability to do them all in a very short period of time, we’ll still have an initial peak but it will be more spread out over the following 10 years.”
iStart: What is the total cost of the SAP implementation expected to be?
AMK: “That’s kind of like ‘How long’s a piece of string?’, because we don’t know how much SAP will be used across Council. At the moment we’ve got it used for our ERP system, including HR and IS, and we’re looking at how it expands from there and if it’s the right system to use. With the way technology’s developing you don’t need to just have one brand, you can have a number. But SAP at the moment is the pivotal financial system but we’re seeing how much extra we want to put onto it, as opposed to other technologies.
iStart: How much is being spent on top of SAP on council-specific functions (i.e. those managing consents, field services, licensing, property records etc)?
MF: “At the present we’re working through a programme of work, as part of a wider organisational transformation, to look at what solutions would be appropriate to run those functions. We’re in the process of migrating what are known as the southern systems, which is Papakura and Franklin, from a rates perspective onto the old Auckland City Council rates system, which is Pathway. October time, we’ll probably move the regulatory systems across. Dog licensing, just from a timing perspective it interacts with their current schedule to get dog licences out and confirmed. Longer-term we have to look at what is the appropriate solution to use. We’ve yet to get to that point, we’ve got to work through the interactions with that and that has a direct impact on our property information. It also has a huge impact on how we manage customers from a ratepayers’ perspective. There’s a tripartite piece of work that we need to do, in how we bring these three things together as one – whether it’s in one solution or three, we haven’t decided yet and we haven’t decided the brands.”
AMK: “We don’t really ‘do SAP’. We’re looking at the actual business need and that’s what we’re doing a project based on.”
MF: “If you look at our footprint there’s over 3500 applications, probably more towards 5000, that we’ve got to bring down. At a minimum we’ve got eight of each one, up to a maximum of 297 in the asset management space. We’ve got to bring those down to one answer at some point. How we do it, in what sequence we do it, we have to work that through. We’ve already started in the back office, we’re now doing some of the asset work. Obviously we’ve done the email system because obviously that’s a core one for the whole council but as we rationalise the back office stuff and the footprint they have, we can then start to look at how we bring the customer solutions together. We’re still running the old eight – we have to – and even when we do merge we still have to maintain the usual legislative requirements around financial history for seven years. In some instances around property it may go out to 40 years history that we have to keep, which is significant.
AMK: “We have some obligations in the property records area where we must provide people with information on their property. That adds a lot of complexity because whoever’s accessing our information, first of all it was converting paper-based systems into digital, now it’s about merging the digital together so we can access easily those records right across the region.”
iStart: Can you explain briefly what SAP will do for the council that an application designed for council use can’t do?
AMK: “With SAP currently we have a footprint across the core finance, procurement, HR and asset management. Beyond that, like all of the major brands – whether it’s SAP or Oracle – they have industry specific verticals, and one component they have is around what they call public sector. They have a set of templates built around the functions and processes used in national and local government to deal at a customer level or an activity level interactions with those authorities. Whether it’s SAP, Oracle, Pathway or whatever else, we haven’t chosen a brand for the areas of licensing, compliance, regulatory and rating. We have to look at what we have in the current footprints, whether they’re appropriate or not to scale up to what we want to do in the future and whether we can actually migrate to whichever one we choose and how they all interrelate to one another. A key component from a technical aspect is can things actually talk to each other, and nowadays most of them can but there are some constraints in some of the footprints that we have now.”
iStart: Transport had SAP manage its data migration at a fixed price. Why did ATA recommend not doing that at Auckland Council?
MF: “If you look at Transport from where it came to where it went, it was almost a mirror copy. So Auckland Regional Transport Authority became Auckland Transport, so what they did before 1 November 2010 they did on 1 November 2010, where we had to take eight legacy environments from different structures and processes into a completely new environment. We were merging eight separate businesses, basically, into a new entity. All of the processes they did in Transport were held on other systems and they just flipped over and changed the brand name, basically. All their road asset maintenance was done in a completely different system.”
AMK: “And all councils had to use the same system because of NZTA requirements. You didn’t have the diversity that you do in the financial area. For example, we have five different systems – you’ve seen the multiplicity of brands that we have, FinanceOne, all the rest of it.”
MF: “Because it was felt better to put it under the umbrella of the overall programme and do the data migration within that programme itself.”
iStart: Which parts of the new council systems are already live?
MF: “Email, which is now merged completely; SAP we have core finance, accounts payable, asset register, procurement, HR, payroll, Hyperion from a budgetary planning point of view – monthly, yearly and 10-year plans, a number of the telephony systems are now merged, so we’re using a common platform across a large proportion of the ex-councils. The website is an overlay – we still have to operate the ex-council, local ones for various reasons because some of them had payments online to the back office, others didn’t. The common standards we have are mainly in the back office around infrastructure but we’ve still got a lot of work to do there. We run now 12 different data centres of every size and flavour you can think of, so there’s a large consolidation we’ve still got to do. Our network’s consolidated, we have a full network across all regions and every location. Mobile provisioning is all through one vendor, telco provisioning is through two main vendors, in assets we’ve done property–”
AMK: “and parks next and storm water the following year.”
MF: “They’re the big ones we’ve done so far.”
iStart: Why was neither the existing Auckland City Council nor the Auckland Regional Council SAP system suitable?
MF: “It was an option we looked at. It wasn’t feasible, for a number of reasons. They were way behind in terms of support and the versions they sat on and didn’t have some of the modules we needed. So we’d have had to do significant upgrades. Starting from scratch gave us a more robust platform. It gave us the version compatibility that we wanted so we don’t now have to do another significant upgrade for another 12 or 18 months, which is a huge task to undertake. You always want to go back to a vanilla implementation, which is where we started from. The other systems had some kind of customisation buried somewhere and the majority wouldn’t have worked.”
iStart: How big is your project team?
MF: “We’re running 94 or 95 projects at the moment. The number of people working on projects is close to 200 or 250, including internal resources. There’s a mix, obviously you bring in specialists where you need them. There are people we bring in on a short contract, but we swap in and out where we need to. A lot of the IP we want to keep inhouse, so it’s staffed mainly where appropriate by internal resources. It’s probably 35 percent contractors, 65 percent inhouse. But it depends on the project – where there’s a real specialist we have to bring in a specialist because we don’t do this every day, we don’t merge systems every day. We maintain them and keep them up to date but when you’re trying to merge a minimum of eight into one, you have to bring in the people who understand those systems, and when you start to merge them into one brand, then you bring in the specialists because they’ve done it before.”
iStart: How many other New Zealand councils use SAP?
MF: “In New Zealand alone there’s Christchurch City Council, Greater Wellington Regional Council, two of the large CCOs – both Transport and Watercare use SAP – ourselves, obviously. If you look around the wider government footprint, Defence, Police, Corrections, IRD, Kiwirail, Conservation. If you go across the ditch, all of the state-level entities use SAP in some form or another, and at a local level you’ve got Bankstown [City Council], Gold Coast… so we’re not alone. I have ongoing discussions with Christchurch and Gold Coast and some of the local authorities in Australia, as well, around what they’re doing and whether we can leverage what they’ve done because we’re all doing kind of the same thing at the moment.”
iStart: How do you ensure effective governance of SAP projects?
MF: “We go through the normal project frameworks using the industry standards where we have defined scope, cost appropriately, once it gets into business case – depending on the level – it either goes to Andrew, Doug, or in most cases it goes up to Council for ratification. But also, even when it’s below the threshold we go to council and FYI them, anyway, so they understand what we’re doing. There are two internal checkpoints for every project, an IS governance review that makes sure it technically fits with what we want, and then it goes up to what’s known as the executive prioritisation group, to ratify the solution and in terms of the investment whether the business case stacks up. Once we get into an inflight project there are the usual committee meetings around scope, budget, quality, timelines, milestones, just as a standard structure.”
DM: “I’m sensitive around the governance aspect, given my responsibility. But in a council environment, as well, just to give a bit of context, we’ve got to put up a 10-year plan for our IT investment, which we’ve done, but we don’t consider that to be an approved budget. As Mike and Andrew have said, we make a habit of, every single project within that overall 10-year timeframe, which is the number that’s captured a lot of the media interest over the last few months, we break that down into projects of $2 or $3 or $8 or $9 million and we put them all in front of the politicians, either for an approval, as Mike said, or an FYI. So I imagine they’ll have somewhere between 80 and 100 opportunities, over that 10 years, to make comment on any of those particular investment proposals.”
MF: “This week we’ve got two that are presented to Council around HR, compensation management and performance management, and then two that we’re in the process of presenting to council that’ll lead to some kind of competitive tender in the marketplace, around IT infrastructure and standardisation of the back office, from my perspective.”
iStart: What about summarising very complex projects to people who are not technology savvy?
DM: “It is an ongoing challenge, given the technical overlays here, and that’s why we present a $2 million or a $3 million case and we keep going over the basic strategy behind it. That document you referred to in May 2011, we ran all the councillors through that and they found that extremely helpful to orient themselves. Of course, we do use some external consultants to give us best practice feedback. It’s not an easy one, but it has been portrayed as if the Council signed off on a $500 million budget. In theory that’s true but in practice it’s nothing like that. It’s broken down into all these individual projects and we give them the opportunity to debate it with us. We have a lot of people, clearly, talking to the media and others about our IT strategy. It’s quite an opinionated area, is what I’m finding. I’ve met with a number of our critics over the past few weeks and I’ve got a better idea of where they’re coming from. But in a lot of cases they’re just not across the latest thinking and they’re out of date on their information. They’re still poring over the ATA investment cases and in many of these situations we’ve moved on.”
iStart: What’s your total annual IT operating budget and how does it compare with earlier forecasts?
DM: “For the current financial year we’re running a budget of roughly $112 million, which is where we knew it would sit, given we were bringing on the old legacy investments, all the contractual arrangements they had. We’re actually running nine councils now instead of eight because as we merge systems we stand things up and then we turn things off. Where we can turn things off we reduce our costs completely. So it’s a bit of a peak and then it drops off significantly.”
AMK: “It’s a little bit hard to compare with the previous councils because some councils didn’t allocate depreciation directly to different IT groups. So Mike’s given you $112, which includes depreciation–”
MF: “But it also includes… in my group I ran the mail and courier services, the print shops. Other councils may have given them to another organisation. I have a consolidated view of services that before you probably couldn’t link together. But compared to where we should be we’re where we should be.”
iStart: Will the Supercity deliver on its promise of a more efficient council for Auckland?
DM: “For sure. I see three key areas: enabling people to do their jobs better. Currently people are working across, in some cases, nine systems. In their legacy environments they were working in outdated systems, in some cases with systems that weren’t supported any more. I get good feedback from our staff who’ve made a migration, they’re finding they can do their jobs a lot better. Secondly, customer service. Building control, becoming an accredited building authority, which meant in October last year we had to disband the eight previous councils’ authorities. They weren’t enacted any more, and we wouldn’t have been operating, issuing building consents. So we had to devise a completely new business process right across the system and Mike had supported that. I haven’t had a complaint on a building consent for three-and-a-half months, since we’ve put that system in place. And thirdly, we’re getting efficiency and reduced cost. We’ve made it public that we saved $81 million in our first eight months – not all of it was related to IT but a lot of it was enabled by new processes and systems – and that $81 million in savings could not have been achieved under the legacy councils and it meant it was the equivalent of 6 percent of rates that we didn’t have to ask the people of Auckland for. Every 1 percent of rates is about $14-16 million. So there’s been significant benefits already and it doesn’t take much to understand that if you’ve got 3500 going on 5000 separate, dedicated systems, Mike’s talked about the hundreds of people that we’ve got in the IT function, we know by any benchmarking best practice that that’s way over the top, but that’s about managing the complexity we’ve got at the moment. As we progress our way through that, I see some significant further savings comings.”
iStart: So it is possible to keep rates down?
iStart: But even having great systems doesn’t automatically translate into low rates rises, right?
DM: “Yes, but there’s a key reason for that: politicians make the rating decision. We make the cost and savings decisions. There’s a political overlay there that we don’t control. Our new LTP that we’ve just put out has 3.6 percent rates [increase] for the next year, and then between 4.5 and 4.9 percent for the next nine years. The average rate increase for the legacy councils for the last 10 years was 6.9, and that ranged between 5.4 and 8.1. So we are significantly below and my view is that we’ll probably do better than what our LTP says.”
AMK: “If you look at what’s driving rates, in the technology area you’re talking about a $0.5 billion investment and about $300 million of that is in new IT infrastructure and systems. Across Council we’ll spend about $13.5 billion, ignoring the IT, on transport, wastewater, storm water, new buildings, libraries, et cetera, and of that $13.5 billion around $9 billion is on buying new assets. Every time you buy something new you’ve obviously got to pay the interest on it and the other associated costs. In spite of that massive investment in the city, as Doug said, we’ve got rates increases of 4.9, 4.5, 3.6 percent over the next 10 years. The IT investment is a very small drop in the bucket of money that we’re going to spend, and it’s not driving rates increases, it’s reducing costs.”