HomeMy WebLinkAboutStaff Report 1521City of Palo Alto (ID # 1521)
Finance Committee Staff Report
Report Type:Meeting Date: 4/19/2011
April 19, 2011 Page 1 of 8
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Summary Title: SAP Enterprise Resource Planning Assessment
Title: Post-Implementation SAP Enterprise Resource Planning (ERP) Assessment
From:City Manager
Lead Department: Utilities
Recommendation
Staff recommends that the Finance Committee recommend to the City Council approval of
release of the previously-budgeted 2011 funds for SAP-related Capital Improvement Projects
(CIP). Per Council’s request, staff is providing the "Post-Implementation SAP Enterprise
Resource Planning (ERP) System Assessment”.
Executive Summary
Council requested that staff prepare an assessment of the SAP system before releasing the
2011 CIP funding for SAP improvements. Staff completed the tasks described below and
requests that Council release the SAP CIP funding for the 2011 fiscal year.
The City of Palo Alto (City) recently participated in a benchmark survey conducted by the SAP
Value Engineering Group. The survey focused on benchmarking SAP operation performance
with similar industry peers. Over 240 organizations participated in the survey, of which 22 were
Utilities-related and 15 were in the public sector. When compared with similar organizations,
initial results indicate City staff is supporting a more complex SAP system landscape efficiently
from both an operations and financial perspective.
To steer SAP investment direction as well as to provide overall guidance of SAP
implementation, the City established a SAP Program Management Office (PMO) and a Steering
Committee. These teams are comprised of staff from the Administrative Services, Utilities and
Public Works departments. They review key operations indices and prioritize projects within
budget and resource constraints.
The City issued a request for proposal (RFP) for a review of its SAP software installation. The
primary goals of the assessment are to evaluate the value that was delivered to the City
through the implementation of the software, compared to other ERP system costs, and to
identify recognized industry best practices. The assessment will also describe process
improvements achieved through the implementation of SAP, identify risks to the continued
operation of the system, and provide recommendations on how to mitigate the risks.
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Background
On July 19, 2010, Council approved a three year software consulting services contract with
Sierra Infosys Inc. in the amount of $250,000 per year ($750,000 over three years) for the
support and maintenance of the SAP Utilities and Financial systems, on an as needed basis.
Along with the approval, Council required that staff return with a study session on SAP cost
benchmarking, cost benefit analyses on SAP related projects, and long-term strategic plan.
Discussion
In July 2002, the City selected SAP as its ERP system to address the challenge of disparate
business systems in the City. The SAP system replaced the City’s aging financial, personnel and
payroll systems and allowed the City to implement new functionality such as project
management, work order and service order systems. In May 2009, the City completed an
upgrade of the SAP system to ERP Central Component (ECC 6.0) and the implementation of the
SAP Utilities Module called SAP’s Industry Specific Solution for Utilities Customer Care and
Services (IS-U CCS). The IS-U CCS module replaced the Utilities Department’s 10 year-old
Customer Information System that was designed to create and manage customer accounts,
generate bills for the City’s seven utility services, and collect customer revenue. The IS-U CCS
software is used to process over 30,000 utility accounts, generate approximately 370,000 utility
bills and invoice an estimated $220.8 million annually. In January 2010, the City activated the
on-line e-bill and payment feature, My Utilities Account (MUA), for all utility accounts. To date,
the City’s SAP system installation and upgrade costs total approximately $15 million. The City’s
annual cost to maintain SAP is approximately $3.0 million, which is comprised of staffing
($2.2M), hardware and software licensing ($0.5M), and consulting ($0.25M).
Between September and December 2010, the City participated in a Total Cost of Ownership
survey to exchange benchmark metrics and best practices across various organizations that use
SAP. There were 40 questions geared towards key performance indicators and another 39
based on best practices. Overall, the results of the survey showed that the City has a highly
complex system, provides similar IT efficiency levels, and invests less on SAP technology than
other organizations.
The City has five separate SAP server systems whereas the industry average is below two. Five
production systems are required at the City in order to support the required business
functionality, complexity that is driven by the addition of the City’s utilities. The City maintains
an ERP system which supports the core functions including accounting, finance, human
resources, service orders, projects, and utility billing, Customer Relationship Management
(CRM) for Utilities Customer Service to provide services for customers, Business Intelligence (BI)
for internal and external reporting, Utility Customer E-Services (UCES) for online utility
customers to view and pay electronic bills, and Employee Self-Service/Manager Self-Service
(ESS/MSS) for staff to enter time, request time off, and view personal information. In addition,
for each production instance the City manages two additional clients for development and
quality assurance testing to maintain security and data integrity.
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For IT efficiency, staff spends approximately 4.9 staff hours per each SAP incident, which is
slightly above the 4.4 hours average. An incident can vary by hours to days, depending on the
complexity of the issue. As stated previously, the City has a more complex system due to the
number of production systems it supports for the City and its seven utilities. The IT Helpdesk
also supports SAP and closes approximately 40% of the work orders, which is above the
benchmark average of 32.5%. Based on benchmark results, the City’s IT and SAP staff are
supporting the system in an effective manner.
The City invests about 21.3% or $2.8 million of its total IT budget in SAP, which is below the
survey average of 34.3%. The SAP support cost per active user is $3,962 which is 12% below
the average. The City has been able to keep costs relatively low in comparison to other
organizations by avoiding program customizations and implementing standardized solutions to
support City’s business strategies.
Category Metric City Avg.
Complexity Number of Production Systems 5.0 1.65
% of Critical Interfaces 64.4 49.2
Efficiency Total Labor Hours per SAP Incident 4.9 4.4
% of Incidents Resolved by Help Desk 40.0 32.5
IT Investments SAP Budget as % of Total IT Budget 21.3 34.3
SAP Support Cost per User 3,962 4,447
To provide guidance on SAP Governance and Control, the SAP Program Management Office
(PMO), consisting of Assistant Directors and managers from Administrative Services, Utilities,
Public Works and IT, and the SAP Steering Committee comprising the Directors from Utilities,
Public Works, Human Resources and IT were put into place in September 2009. The PMO office
management team meets weekly to discuss project status and subjects related to operations
while the Steering Committee meets on a bi-monthly basis to review key operations indices,
project priorities, and resource and budget status. As a result of the SAP investment planning
process, where business drivers and enabling IT/SAP technologies are aligned, the PMO
developed a five-year road map from 2009 to 2013 to provide short-, medium-, and long-term
views of SAP Investment. Each investment will be associated with key business drivers and
enabling IT technology. These investment roadmaps are to guide the deployment of enabling
information technology to reduce risk and ensure maximum return on SAP investments.
In the five-year roadmap, the SAP Steering Committee and PMO prioritized projects in order to
achieve maximum return on SAP investments with limited resources in an increasingly complex
and changing technological environment. The PMO has identified a multitude of business
drivers including Council priorities, customer service, regulatory compliance, operating costs
reduction, improvements in service delivery and efficiency, and revenue enhancements. One of
the challenges in aligning business goals with enabling information technology is finding the
optimal balance between IT costs and business benefit, which involves identifying the business
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impact of every IT solution and understanding the complete life-cycle issues. In the roadmap
there is an alignment of business drivers and enabling technologies with the scheduled projects.
In October 2009, staff committed to have a post-implementation review of the SAP system.
The City issued a Request for Proposal (RFP) in February 2011 for a post-implementation review
of the SAP system to provide a high level analysis of the overall investment in ERP technology
and its benefit to the City. The scope of work will include a comparison of the costs of ERP
system implementations and maintenance in other organizations of similar scope, size, and
complexity; an assessment of the system’s ability to support key business processes; a
comparison of City’s business processes to industry best practices; identification of ongoing
risks in the system, and recommendations on how to mitigate risks and potential
improvements. The RFP closed on March 15, 2011. A summary of RFP responses follow:
ICA Consulting $48,720
Phoenix Business Consulting $77,000
Government Finance Officers Association Consulting $59,880
Pacific Technologies Incorporated $49,935
Plante Moran $98,000
KPMG $337,340
Pandit View Software No total Cost Provided
SAP Techies $45,000
Staff is seeking direction to continue that total cost estimates for the assessment are higher
than expected.
SAP related -Capital Improvement Projects (CIP)
There are six CIPs in FY 2011 that provide funding to enhance the City’s SAP system. Each CIP
performs a specific function and provides a value and benefit. The following is a high level
scope of each FY 2011 project and includes general estimated costs, benefits, and timelines.
Although budgeted CIP amounts for FY 2011 remain unchanged, please note that certain CIP
funding requirements are expected to carry forward to FY 2012, as a continuance request to
complete the projects:
1.TE-07000 -Enterprise Application Infrastructure Upgrade –$75,000
o Scope:
§Additional hardware storage is required to ensure the backup of the
Customer Relationship Management (CRM) web application server,
which ensures Utilities Customer Service interface (i.e. processing
customer move-ins) is properly developed.
§New, dedicated back-up servers are required for both the CRM and UCES
(Utilities Customer Electronic Services) systems.
o Benefits:
§Ensures business continuity of mission critical systems
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§Ensures promptness of recovery (if required)
o Completion:End of FY 2011
o Funding Requirement:$75,000
2.TE-10000 -Enterprise Collection Software -$32,000
o Scope:
§Implement non-utility related Accounts Receivable and Collection
processes in the SAP system.
§Automated tracking of late and unpaid receivables
§Automatic creation of delinquent (Dunning) and late fee notices
o Create additional notices and types (i.e. 30, 60, and 90 days)
§Reporting –additional Collection reports to be created
o Benefits:
§Automation of the Collection process which increases staff productivity
§Reduces non-utility AR aging
§Improves reporting capabilities
o Completion:Beginning of FY 2012
o Funding Requirement:$79,000 in FY 2010 and $32,000 in FY 2011
3.TE-10001 -Utilities Customer Billing Continuous Improvements -$350,000
o Scope:
§SAP system enhancements related to legislative and regulatory
mandates.
·Assembly Bills 531 and 1103 –Non-Residential Building Energy
Data Consumption -Environmental Protection Agency (EPA)
Benchmarking.
·Senate Bill 120 -Requires that Utilities offer the utilities account
currently paid by the landlord to the residential occupants, when
service is scheduled to be disconnected for non-payment.
Requires programming to capture tenant-occupied residential
dwellings.
·Print Ten-Day, 48-Hour and Disconnection Notices in specified
languages required by the California Public Utilities Code.
§Optimize critical Customer Service Rep business process screens
§Enhancements to online services (My Utilities Account)
§Improved data capture of customer payment arrangements
§Automate tracking of consumption for high bill complaints
§Increase the security of customer sensitive data
§Automation of specific business processes
o Benefits:
§Fulfills legislative and regulatory requirements
§Improvements to the CSR Screens –increases operational efficiency and
productivity of business process (i.e. new account creation). Reduces
customer hold and call times.
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§Continuous improvement of security of customer-sensitive data –
increases the protection of customer-sensitive data through added
masking, encryption, or authorizations.
§Enhancements to My Utilities Account –increased ease of usability,
decrease number of user clicks, and add functionality.
§Continue to automate specific business processes –reduce manual
processes to increase efficiency.
o Completion: FY2011 and FY2012
o Funding Requirements: FY 2011 -$350,000. Due to a shift in SAP priorities and
staff’s ability to perform regulatory related enhancements, a large percentage of
the $350,000 is not expected to be utilized in FY 2011. Staff is anticipating the
need for a continuance of FY 2011 funding into FY 2012, which is reflected by a
reduction in the original FY2012 budget from $367,000 to $150,000. This is a
reduction in the amount of $217,000.
4.TE-11003 -Recurring Credit Card Payments -$150,000
o Scope:
§SAP system and My Utilities Account web application enhancements are
required to provide online customers with the ability to set up the
recurring payment of their Utilities invoice using a Credit Card.
(Currently, only offering recurring ACH or auto debit from the customer’s
bank account.)
o Benefits:
§Encourages the use of online e-services, which reduces operational
expenses
§Increase in Customer satisfaction
§Increase in Customer convenience
o Completion:mid-FY 2012 (estimate)
o Funding Requirements: FY 2011 -$150,000. A request for continuance of FY
2011 funding into FY 2012 is expected with no additional funding requested for
FY 2012.
5.TE-11004 –Utilities Customer Bill Redesign –$750,000
(formerly: “Utility Bill Information Enhancements”)
o Scope:
§Utilities bill printing software (current third-party vendor support is from
Pitney Bowes) and SAP system changes are required to perform a
complete overhaul of the current Utilities invoice design and format.
o Benefits:
§Display information to encourage conservation of usage
·New graphs and helpful consumption comparisons
·Rate information
·Water and Energy Efficiency Program Participation
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§Improved transparency of the invoices for each of the seven regular
utilities services, plus added detail for “miscellaneous” charges.
§Display of customer Deposit amounts held by CPAU
§Display of “On-Bill Financing” loan and payment amounts
§Display of customer “Payment Arrangement” terms, invoices and
payments
§Additional billing information in tabular form
·Improved meter data, average daily and monthly consumption,
usage analysis, greenhouse gas equivalents, and Palo Alto
temperature data (heating and cooling degree days)
§Enhances the Customer’s satisfaction and experience
o Completion:end of FY2012 (estimate)
o Funding Requirements:In order to focus on higher priority SAP maintenance
items, this project was postponed to begin in late FY 2011. Please note that a
large portion of the budgeted $750,000 is not expected to be utilized in FY 2011.
However, the remaining balance at the end of fiscal year is expected to carry
over into FY 2012. The continuance will be in addition to the $150,000
requested for FY 2012. Business requirements gathering will occur in FY 2011
with the Blue Printing phase starting in July 2012.
6.TE-11005 -Implementation of New Utility Rate Structures -$100,000
(formerly: “Implementation of New Utility Rates”)
o Scope:
§SAP system changes required to accommodate new Utilities rate
structures including Residential Time-of-Use, Electric Vehicles, and
potential tier adjustments to existing rate schedules. This may include
new configuration development, testing of the calculation algorithm, and
changes to the invoice.
o Benefits:
§Ability to implement new rates as required in SAP
§Enables customers to view new rate details on the invoice
§Transparency of information
o Completion Date:FY 2012 (estimate)
o Funding Requirements: FY 2011 -$100,000. Due to the postponement of the
Utilities Smart Grid project, funding requirements for FY 2012 have been
reduced by $900,000.
A comprehensive view of estimated funding for each SAP-related CIP in FY 2011 and beyond is
provided in the table below. Dollar amounts in parentheses indicate an adjustment to reflect a
reduction in the original funding amount (in $000’s):
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CIP Description
FY
2011
FY
2012
FY
2013
FY
2014
FY
2015
FY
2016
TE-07000 Infrastructure Improve $75 0 0 0 0 0
TE-10000 Collection Software $32 0 0 0 0 0
TE-10001 Utl Billing Cont Improve $350 150 250 250 250 250
TE-11003 Recurring Credit Card $150 0 0 0 0 0
TE-11004 Utl Bill Redesign $750 $150 0 0 0 0
TE-11005 New Utility Rate Struct.$100 100 0 0 0 0
Total $1,457 $400 $250 $250 250 250
Timeline
The RFP closed on March 15, 2011. City received 8 proposals for the RFP. The consultant will
develop and present for City approval a complete project work plan, including a description of
major tasks and subtasks, along with a proposed timeline for completing the milestones.
Resource Impact
Funding for all SAP-related CIP projects in the amount of $1,457,000 was placed on hold in FY
2011 except for work involving legal requirements until an assessment was completed. Staff
requests authorization to release FY 2011 funding for the six CIP projects described in this
report. In the FY 2012 budget process, staff plans to request an additional $400,000 for
continuance of three Utility-related projects.
Prepared By:David Yuan, Sr. Management Analyst
Department Head:Valerie Fong, Director
City Manager Approval: James Keene, City Manager