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ITEM EX6

EXECUTIVE – 15 MARCH 2005

SAP REVITALISATION

Report by Director for Resources

1. The SAP Revitalisation Programme was established following two consultancy reviews delivered to the Authority during 2004. RSM Robson Rhodes concluded a report on financial management and control within the Authority. This report highlighted where the Authority fell short of best practice financial management and control standards and recommended actions to attain this level of control. The second report, a gap analysis review by IBM Consultancy Services, confirmed SAP as a competent choice enterprise level financial and resource management system for Oxfordshire County Council. This review confirmed however that the existing implementation of SAP fell short of expectations. In its then current state SAP would not be able to support organisational change and development and would not be able to underpin effectively the actions to gain financial control recommended in the RSM Robson Rhodes report.
2. In September 2004 the Executive approved proposals for a two phase programme to address shortcomings in the Authority’s implementation of SAP and to enable effective exploitation of the investment made. The Executive agreed a virement of £1m in 2004/05 for Phase One of the Project; Council on 15 February agreed funding of £2m for each of the three financial years 2005/06 to 2007/08 to undertake Phase Two.
3. This report is intended to:

• record the progress made to date;
• confirm the overall approach to the substantive programme of work;
• identify and recommend a programme of work, commencing in April 2005, to maintain project momentum, achieve early identified benefits and provide foundations for future business change; and
• identify the resources required to continue with the immediate programme of work pending consideration of the full set of proposals and Business Case.

4. Following a competitive tender LogicaCMG, having solid SAP and Business credentials, were appointed as the Business Partner to work with an internal team to manage and develop the project.
5. A joint Programme Management Team has been assembled with specialist LogicaCMG consultants for each of the functional areas working alongside Oxfordshire County Council staff in providing lead, direction and focus for each area. Relevant Heads of Service are the business owners for each area. The Authority and LogicaCMG have each appointed a Programme Manager and a Business Change Manager for the programme.
6. Overall programme governance and ownership is focused through the Director for Resources who is the Programme Sponsor. A SAP Programme Board, comprised of senior members and officers of the County Council and senior supplier representatives meets at least monthly to guide and direct the conduct of the SAP Revitalisation Programme.
7. The prime deliverables in the first stage of the project are to:

• define and implement a common chart of accounts for use by all directorates,
• establish a basic operational reporting structure and methodology for future reporting,
• deploy standardised budgeting,
• create sustainable SAP support environment,
• create a focused SAP development authority,
• analyse the options for meeting the needs of Schools and
• study and verify business cases for the deployment of e-Procurement, integrated human resources functionality (including integrated payroll, and Employee and Manager self service) and a shared service approach.

8. There has been specific focus on the work required to address the core requirements to make SAP a reliable and consistent financial system for the Authority. This will be the foundation for further development throughout the 2005/2006 financial year and is consistent with the implementation of the RSM Robson Rhodes recommendations. The project team have worked with a range of staff in order to develop a coherent and workable approach for which internal ownership exists.
9. By 31 March 2005 the SAP Revitalisation Programme will have delivered the following in the Finance Area:

• A revised and significantly reduced chart of accounts, with some 330 fewer non pay general ledger codes used. This is applied in a consistent manner across all Directorates. Further simplification and rationalisation of coding will be achieved progressively through operational business-as-usual activities. There is further scope to significantly reduce employee related codes as part of the work in the HR area.
• An agreed process for the authorisation and management of additions and changes to the Code structure and the standard application of agreed changes across all Directorates.
• Remodelled cost and profit centre hierarchies have been defined and implemented with a consistent and standard structure across Directorates. This is aligned to and reflects the management structure of the organisation and will enable improved budget monitoring and reporting.
• An agreed, documented and mapped standard budget setting process.
• A common timetable and process for the production of budget monitoring reports and associated period end processes.
• An initial training programme to support the changes being made and address remedial requirements to improve overall competency and understanding in SAP.
• A review of all systems that interface with SAP, with prioritised recommendations on the work to be undertaken on each to ensure the auditable and consistent collation of financial information. This may include transfer of the financial functions into SAP. This is based on the principle that SAP is the master source of financial information for the Authority and is to be the sole source of accurate reporting.
• A roadmap of activities for the 2005/6 financial year to build on the initial work and develop financial management, control and reporting derived from SAP to the levels expected from the recommendations in the RSM Robson Rhodes report.

10. Recommendations for the continuation of the programme of work in the finance workstream are included later in this report.
11. It is recognised that accurate financial reporting and commitment accounting can only be achieved by the adoption across the Authority of the consistent use of e-Procurement functionality within the SAP environment. It has been determined that there are three complementary strands of activity.

• To utilise existing SAP procurement processes for defined areas of expenditure where full e-Procurement would not be applicable.
• To include integration of purchasing activity as part of the interface work emanating from the finance workstream for each separate system that supports purchasing.
• As existing SAP processes are not straightforward to use, to examine the adoption of an e-Procurement approach for the majority of users.

12. The investigation into SAP support activities will lead to the bringing forward of a proposal for the development of a SAP Competency Centre as the appropriate means to address the full support requirements for the operation of SAP. This report includes recommendations for activities that will lead to early improvements in the capacity to support SAP which are necessary in respect of the other system changes that are being made.
13. The detailed investigation into the requirements of the schools has been supported by the active engagement within the project of a secondary headteacher and a school bursar. It is expected that proposals will be brought forward in the business case that, if accepted, could lead to a significant improvement in the ability of schools to be able to manage their own activities together with an improved and streamlined interface with the County Council.
14. Business cases are also being prepared for an integrated approach to the use of SAP in support of HRand payroll activity, and for the potential for the adoption of Shared Services arrangements within the Authority.
15. In a complementary piece of work external to the SAP Revitalisation Programme an investigation into the interface between SAP and the Social & Health Care ABACUS system has been undertaken. An initial assessment of the way forward has been presented and a detailed proposal is currently being prepared.

Finance Area work in 2005/2006

16. The work undertaken during this initial period lays the foundations for a stable and consistent approach to financial management and control through a consistent application of SAP. Throughout the next financial year there will need to be continued systems, reporting and business process work to build on these foundations. This will be complementary to and alongside the work to implement the Financial Management Implementation Plan. Benefit and improvement from system and process changes will be progressively obtained throughout the year.
17. The target outcome for the programme is for SAP to be relied upon as the master financial system for the Authority, with all reporting and financial management emanating from the system. Progress towards achieving this is dependant upon the roll out of procurement through SAP to enable accurate commitment accounting. It also depends on the implementation of interfaces with all financial systems external to SAP to gain the desired level of control and financial visibility.
18. The workplan for 2005/2006 will include:

• Progressive inclusion of commitment accounting in line with the deployment of Purchase Order functionality.
• Extending Cost Centre Manager access to SAP.
• Agreed actions in respect of external non-SAP systems through the development of appropriate interfaces or the transfer into SAP as appropriate.
• Adoption of a consistent and auditable approach to grants management.
• Rationalisation of Payroll General Ledger codes.
• Inclusion of Managed Bank Accounts.
• Developments of Management Accounting, Budget Setting and monitoring techniques through the standard use of SAP functionality, forecasting and planning facilities.
• Extended training and support.
• Improvements in period end processes, especially around depreciation, recharges, accruals, settlement and cash flow forecasting.

19. The Business Cases and detailed workplan for the SAP Revitalisation Programme will be considered by the SAP Programme Board at its meetings at the end of March and the end of April. It is planned that these will then be brought forward to the Executive early in the "new" County Council. It will not be feasible to bring these forward at an earlier juncture.
20. An outline three year plan will be proposed for the implementation of system and associated business changes together with benefits realisation.
21. It is important for the Authority that progress and momentum is maintained on the programme during the period while the Business Cases and plan are being finalised and considered. There are a number of activities that are essential to continue, and a number of opportunities have been identified to initiate activity to deliver early benefit that would not be in conflict with any proposals coming forward as part of the Business Cases. It is the intention within the programme to continue with these throughout the period April to June 2005 pending consideration of the full Business Cases and programme plan.

Immediate Workplan

22. The in-house Programme Team that has been established initially on a temporary basis will be confirmed as permanent for the coming year. This will provide the necessary focus and continuity for the planned work. It will also enable the more significant change programme arising from adoption of Business Cases to be effectively defined, commissioned and prosecuted within the Authority. The majority of this team has been established through transfer from other duties. In some instances, duties do not directly translate into programme activity so it is necessary to provide for backfill to ensure operational continuity. This will attract a cost estimated to be £160,000 in 2005/2006. The associated costs with maintaining the LogicaCMG input on Programme and Change Management over the period to June 2005 is estimated to be in the region of £122,000.
23. It is planned in the period between April and June 2005 that the main areas of work in the Finance Workstream will be:

• Complete a blueprint design and prototype processes for Grants Management within SAP.
• Review cost centres to identify the feasibility of simplifying the current cost centre structure by making greater use of internal orders for analysis of costs; implement a trial and initiate some live running of Real and Statistical Internal Orders within SAP to ensure understanding of the scenarios in which internal orders should be used.
• Undertake a technical investigation into the use of Personnel Cost Planner which is part of the HR/Payroll module; this can be used for salary forecasting and forward planning.
• Investigate the application of the use of Planned Assessments for the allocation of internal recharges; instigate a pilot trial.
• Undertake a Training Needs Analysis to support the work initiated through the Financial Management Implementation Plan in relation to the roles and responsibilities of Cost Centre Managers leading to increased financial competency and skill.
• Further refinement and implementation of Standard SAP reporting resulting from the modification to the Chart of Accounts and the re-modelling of Cost and Profit Centre Hierarchies.
• Investigate the possibilities of automatically transferring Statistical Key Figures for output cost reporting from the information systems of other SAP System application components; pilot a trial.
• Improve Period End processes by completing technical investigations and preparing plans for the introduction of monthly depreciation, improvements in the allocation of recharges and the changes necessary to transfer to monthly accruals.
• Investigate the current procedures for forecasting cash flow and produce a blueprint and prototype example for improved Cash Flow forecasting.
• Completion of training in support of initial system changes.

24. It is proposed to implement in this period the existing SAP/R3 purchase functionality for defined spend categories such as utilities and rates. The rationale for selecting these particular expenditure categories is that they involve a significant amount of expenditure; a small and manageable number of users and processes defined now will not be in conflict with any future developments such as e-procurement. The following benefits will be realised: commitments will automatically be generated and updated; control and visibility will be greatly enhanced; knowledge and expertise in the operational use of SAP purchasing will be developed; and there is potential for some efficiency improvements particularly around invoice processing. It is proposed that the in-house team be supplemented with a permanent position whose initial function will be to provide support to the roll out of the existing SAP Procurement process. They will develop procurement expertise and join the support team. This will attract a cost estimated to be £32,000 p.a. Consultancy support required during this period is estimated at £48,000.
25. There exists only a small cohort of SAP training expertise within the Authority. This is insufficient to support the demands that the SAP Revitalisation Programme will generate in future. Nor will it be sufficient to support the sustained, consistent and effective use of SAP across the organisation. The SAP Revitalisation Programme has sought to satisfy immediate training needs through the identification and release of staff from operational duties. This has proved ineffective and will not be sustainable over the longer term. A continuation of this approach is likely to become a significant risk to the Programme. It is intended therefore to appoint an additional 3 full time trainers to the SAP training team to provide organisational capacity for the future. A cost of around £102,000 per year can be anticipated.
26. It is important that some early improvements in the arrangement for SAP support across the organisation are achieved to overcome existing inadequacies and to enable the improvements arising from the SAP Revitalisation Programme to be supported. Five actions are proposed.

• To locate formally the SAP support function as part of the Programme structure to achieve alignment between support and programme activities.
• To initiate process changes to ensure that the support centre is the agreed authority for the management and support of SAP.
• To achieve separation between operational and SAP support duties for those finance related staff currently engaged in both activities.
• If necessary to recruit up to 2 FTE to enable this separation and to recruit an SAP HR specialist to ensure continuity of support on existing SAP HR functionality where this is not provided at present (this will incur an annual cost of up to £102,000 p.a.); and
• to initiate an advanced training programme to raise the competency, understanding and skills levels of those identified to involved in SAP support operations.

27. Additional items of expenditure likely to be incurred are assessed at this stage will amount up to £50,000. These include additional ITNet costs and other incidental expenditure.

Resource Plan

28. A supplementary budget provision of £1m was made available during 2004/2005 to fund the first phase of this programme. A further £6m budget allocation over three years has been agreed to support the programme subject to acceptance of the Business Cases and approval of intended work.
29. Of the initial allocation of £1m it is now forecast that approximately £800,000 will have been used by the end of March. This is anticipated to be £700,000 consultants’ fees with LogicaCMG, £60,000 OCC staff-related expenditure and £40,000 other incidental items (accommodation, ITNet costs, telephony, IT, meeting rooms etc.). This will leave a balance of approximately £200,000 at the end of the year.
30. There is likely to be an outstanding contractual commitment to LogicaCMG of approximately £120,000 for the delivery of Phase One of the Programme.
31. It is proposed to carry the balance forward in support of the immediate work programme.
32. The total cost of the initial work programme outlined in this report is estimated to be some £680,000. It is proposed that the difference between this and the carry forward be met from an allocation of up to £480,000 from the £2m budget allocated to SAP Revitalisation Programme for 2005/2006.

RECOMMENDATIONS

33. The Executive is RECOMMENDED to:-

1. endorse the immediate workplan outlined in the report;
2. approve the carry forward of the unspent Phase One project budget, estimated to be £200,000, to support the identified work;
3. approve the expenditure of an initial £480,000 out of the £2m SAP Revitalisation Budget for 2005/06 in the carrying out of this programme of work.

JOHN JACKSON
Director of Resources

Background papers: Nil

Contact Officer: Mike King. SAP Programme Manager, Tel (01865) 816047

March 2005

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