1. Quarterly Report - Efficiency Savings Program Rapport trimestriel - Programme sur les
économies d’efficience |
Committee
Recommendation
That Council receive this report for
information.
Recommandation
du Comité
Que le Conseil prenne connaissance
de ce rapport.
Documentation
1. City Manager’s report dated 12 May 2008
(ACS2008-CMR-OCM-0004).
2. Extract of Draft Minutes, 20 May 2008.
Report to/Rapport
au :
Corporate Services and
Economic Development Committee
Comité des services organisationnels et du développement économique
and Council / et au Conseil
Kent Kirkpatrick, City Manager/Directeur des
services municipaux
Contact Person/Personne ressource : Stephen Finnamore,
Executive Director/Directeur exécutif, Business Transformation
Services/Services de transformation des activités apporteront des changements
(613)
580-2424 x28859, Stephen.Finnamore@ottawa.ca
SUBJECT:
|
Quarterly Report - Efficiency Savings Program |
|
|
OBJET :
|
Rapport trimestriel -
Programme sur les économies d’efficience |
That the Corporate Services and
Economic Development Committee and Council receive this report for information.
Que le Comité des services
organisationnels et du développement économique et le Conseil prennent
connaissance du présent rapport.
In August 2007, the Long Range Financial
Planning Sub-Committee approved potential management efficiency targets
totalling $100 million over three years. These targets were subsequently
approved by City Council in September 2007 and became part of the directions
for building the 2008 tax-supported operating budget estimates, and were
approved by Council as part of the 2008 budget. During the 2008 budget
deliberations, Council passed a motion to reduce budget pressures for 2008 by
advancing $2.5 million from 2009 and $2.5 million from 2010.
The efficiency targets were allocated as follows: $25 million in 2008, $29.5 million in 2009 and $45.5 million in 2010 (refer to table 1 for additional details), and are to be realized through productivity improvements, investments in technology, asset rationalization and procurement savings. As defined as follows:
Productivity Improvements – achieved through continuous process improvement initiatives to administration and service delivery operations.
Investment in Technology – the investment in technology, premised upon the completion of a business case analysis and approval of funding. Savings would be realized as a return on the investment over a period of time, normally within four to five years.
Asset
Rationalization – efficiencies realized through facility closures or consolidation, which would require investment in
some instances. These initiatives would be brought before Council for
consideration prior to implementation (savings would be realized over time).
Procurement – modifications (subject to Council approval if required) to the way in which the City procures goods and services. Identification of savings potential to be established through a consultant facilitated analysis of corporate spending and associated procurement strategies.
Table 1 - Council Directed
Efficiency Targets 2008 - 2010
($000)
|
||||
|
2008 |
2009 |
2010 |
Total |
Productivity |
10,500 |
10,750 |
13,750 |
35,000 |
Technology |
- |
5,000 |
10,000 |
15,000 |
Asset Rationalization |
2,000 |
5,000 |
8,000 |
15,000 |
Procurement |
12,500 |
8,750 |
13,750 |
35,000 |
Total |
25,000 |
29,500 |
45,500 |
100,000 |
Impact of Savings Targets ($000) |
||||
Net
Budget Increase |
2008 |
2009 |
2010 |
Total |
Before
Savings |
91,021 |
114,686 |
119,495 |
325,202 |
After Savings |
66,021 |
85,186 |
73,995 |
225,202 |
The Business Transformation Services department has been tasked with coordinating and reporting on the efficiency targets related to Technology Investment, Asset Rationalization (Leveraging Assets) and the Productivity efficiencies, while Financial Services will coordinate and report on savings from Procurement initiatives. As per Council’s direction, progress against all of the efficiency targets will be reported to Council through: quarterly status reports; presentation of business cases for asset rationalization; and the reporting of amendments to the purchasing by-law, required to implement changes to procurement practices.
1.
Productivity Improvements
The Productivity improvements have been
incorporated into the 2008 operating budgets reducing the net budgets of these
branches. The dollar amounts have been removed from the 2008 budget as
described in supporting documentation attachment 1.
All Branch Management Teams have been directed
to identify potential savings opportunities and complete multi-year plans to
realize these savings. Department heads and the Executive Management Committee
(EMC) are and will continue to review the achievements of these plans.
Measures
to realize these efficiencies fall within three main categories: decreased
expenditures, increased revenues and cost avoidance.
Decreased
expenditures realized through reductions to input costs.
These involve revisions to processes and service delivery procedures that
result in a reduction in staffing levels and/or compensation expenditures (e.g.
reducing overtime and/or shift premiums, restructuring etc.) and operating
expenses (e.g. renegotiating savings through service agreements with external
vendors, materials and supplies etc.). Some examples include: reducing the
number of fleet vehicles and spares; or purchasing more efficient multi-purpose
vehicles; or savings through the Water Loss Control program.
Increased
revenues realized through volume and not price. This will be achieved through initiatives
that optimize program capacity and by enhancing communications to connect more
effectively with citizen’s clients and customers. For example, increasing
revenues in the areas of Right of Way permits and in the Large Water Meter
Change Out program (e.g. increase sale of permits or registrations for
recreation programs).
Cost
avoidance measures that decrease future expenditures. This
will be achieved through initiatives that optimize the efficiency of existing
and future staffing levels. This involves a review of current staff deployment
models as well as branch program and service reviews.
Actions
to Date
As
per Council’s direction, the productivity targets have been adjusted (refer to
attachment 1) and all branches have commenced the identification of potential
initiatives that will contribute to meeting productivity targets over the next
three years. These plans have been reviewed by department heads and where
necessary are undergoing revision to ensure that the initiatives are viable and
do not affect programs or service levels. In support of this work several
departments are using the Branch Process Review Program (BPRP) methodology or
have developed efficiency review programs built upon that methodology. Several
departments will be requiring all branches to complete a branch process review
within the next three years.
This
methodology will consists of five key deliverables: scope definition; internal
organizational overview including information on mission, mandate,
organizational structure and history, legislative framework, budget, human
resources, core resources, Centres of Expertise (COE) relationships, and
service delivery model; external benchmarking and best practices review;
identification of areas of opportunity for improvement; and high-level business
cases to support the implementation of the opportunity.
Activities
for the Next Quarter
Subsequent to a final review by
department heads, a detailed list of initiatives identified and/or being
implemented to realize the 2008 productivity targets will be monitored through
the will be provided to Council in the next quarterly status report. Subsequent
status reports will be updated to include additional viable initiatives as they
arise. The Executive Management Committee will be monitoring achievements
against established branch productivity plans.
2. Investments in Technology
To enable efficiencies through the
investment in technology, Council approved $5 million as part of the 2008
budget, with recognition that additional funds will be required in subsequent
years to achieve the efficiency target of $15 million in this area. The IT
Investment Fund is administered by IT Services branch, based on a framework
approved by EMC. The primary objective
is to leverage the fund to achieve the maximum possible permanent savings over
the shortest possible time.
Technology-enabled savings may be achieved from:
The Fund is to be used for direct investment costs (hardware, software,
implementation services).
Information Technology Investment Fund Framework
Since the Information Technology (IT) investment fund was designed to focus strictly on bottom line savings starting in 2009, the Value Management tools were enhanced to make a clear distinction between realizable budget savings and re-deployable savings.
The IT Services branch, based on a framework approved by EMC, administers the IT investment fund. The primary objective is to leverage the fund to achieve optimize permanent savings over the shortest realizable time.
Technology-enabled savings may be achieved from:
The IT investment fund is to be used for direct investment costs (hardware, software, implementation services). Permanent savings that are confirmed through the Value Management process will be identified in the appropriate budget year as an expenditure reduction within the office of the branch Director. Planned savings not achieved in the target year will be carried forward to the next year. Savings initiated in the current year, but not realized until future years, will be credited when realized.
Since 2004, Information Technology Services (ITS) has used an industry best-practice process called Value Management to assess potentially significant technology investment opportunities and ensure that information technology is aligned with business objectives and strategies. Value Management also ensures that discretionary technology investments are transparent, equitable, and based on a sound business case that respects a triple-bottom line perspective and is aligned with the City’s priorities and strategic directions.
A full range of business benefits, including cost savings, cost avoidance, new revenues, improved productivity and/or enhanced services, form a baseline against which the success of the investment can be measured and reported. The Integrated Business Solutions (IBS) project, for example, enabled to the City to realize sustainable, annual efficiencies of approximately $8 million when it was completed in 2005/06. Between 2005 and 2007, 23 other projects delivered over $3 million of bottom line efficiencies, cost avoidance savings, and additional revenues and indications are that more efficiency could be achieved by expanding the IT investment fund.
The Value Management process was updated in 2007, with process changes and evaluation criteria approved by EMC in November 2007. The revised process expands the assessment to include all new technology projects. To ensure transparency and accountability for the costs and any benefits, a panel of Directors representing every City department evaluates project proposals. This Value Assessment Panel (VAP) identifies which projects should proceed and their relative priority, ensures that risks are identified and managed as appropriate, and that the sponsoring department is accountable for the resulting benefits. The value assessment is based on a 5-year analysis of both non-financial and financial measures (e.g., Net Present Value, payback, etcetera), as well as future operating budget impacts, to assist in decision-making.
The VAP will be utilized to review and select projects and their priority, and ensure that all feasible cross-Branch and Departmental opportunities to realize savings and other benefits are assessed. Subsequent to the detailed planning and design of any new technology funded through the IT investment fund, and immediately prior to implementation, the projected costs and benefits will be reviewed and the decision to fund the investment confirmed by the VAP.
Actions to Date
A communications and marketing plan was developed to inform clients about the IT investment fund. . A conscious effort was made to rapidly disseminate information regarding the program throughout the corporation. Specifically this included:
The ITS branch has received four viable applications (two of which are proceeding at this time) to the IT investment fund. These include:
1. Automated Invoice Payments (Financial Services): Replacement of the current manual processing of invoices across the City with an automated solution that will streamline the authorization process, manage payments to vendors in a timely and cost effective manner, enhance internal controls, and ensure that the delegated spending authority levels for each employee are observed.
2. Council Agenda Building Tool (City Clerk's Office): Replacement of the current manual preparation of agendas for standing committees and Council meetings with an automated solution that will result in less effort and time to create, publish and distribute agendas.
3. RPA/OPCA automation (Employee Services): Automation of the existing Request for Personnel Action (RPA) and Organization and Position Change Approval (OPCA) forms and processes to enable direct entry into SAP via Ozone, resulting in less data entry, reduction in errors, faster processing of transactions and the realization of other administrative efficiencies.
4. Transit Fleet Tire Tracking (Fleet Services): Implement a solution to monitor pressure and temperature on tires on over 900 Transit buses that is expected to reduce vehicle operating costs, increase success of tire warranty claims and improve vehicle performance and reliability.
At the time of this report, the RPA/OPCA automation and Transit Fleet Tire Tracking projects have been able to identify substantive bottom line budget savings. While other projects did identify significant benefits (productivity improvements, service improvements, etc.), they did not contribute to achieving the fund objectives.
Results were compiled and reviewed on April 30, 2008 by the Value Assessment Panel (VAP).
Table
2 - New Technology Investment
Initiatives Summary |
|||
Project |
Department/Branch |
Capital
Requirement |
Net Base Budget
Savings |
RPA/OPCA Automation |
BTS/Employee Services |
$1,260,000 |
$380,000 |
Transit Fleet Tire Tracking |
PWS/Fleet Services |
$1,700,000 |
$495,000 |
The number of submissions received was moderate due to a number of factors including: a tight submission deadline; the challenge of meeting the eligibility criteria; the short timeframe to realize the payback; and, the immediate priority for branches to meet 2008 productivity targets. It is anticipated that the number of submissions will increase as this new initiative becomes more established.
The VAP has recommended that $1.26 million from the IT investment fund be reserved for RPA/OPCA Automation, resulting in net base budget savings of $190,000 in 2009 and an additional $190,000 in 2010 with a pay back over four (4) years. This work will be merged with Time/Leave Automation, a related project approved by Council in 2008. Together, these initiatives will deliver substantial savings, productivity improvements, and cost avoidance benefits within a 3-year timeframe. Detailed planning work is underway to launch these projects as quickly as possible.
The VAP has also assessed the Transit Fleet Tire Tracking project, and recommended that it not proceed at this time, pending completion of a pilot project currently underway in Fleet Services branch to confirm the reliability of the technology. A final decision is expected in the third quarter of this year (2008).
Activities for the Next
Quarter
Although it is relatively early in the IT investment fund program, there have been several other promising opportunities identified to leverage technology that could result in further bottom-line efficiency savings. Despite the moderate number of proposals received to date, ITS will continue to encourage and seek proposals from branches for the fund. A second call for submissions will be announced by the ITS branch, in preparation for a second project evaluation cycle to be held in the fourth quarter of 2008.
The identified IT investment fund projects will continue in 2008. The work underway will contribute to the identified savings targets for 2009 and 2010. Although it is probable that the IT investment fund will be substantially committed to approved projects this year, there will likely be a carry-over of unspent funds to 2009 as part of the Works in Progress (WIP) budget, to enable projects identified in the later part of 2008 to be completed in 2009.
Other Initiatives and Activities
Through the normal business planning cycle, other IT initiatives are in-progress or are being planned that will result in further efficiencies, some of which will be used to meet departmental efficiency targets, and others that may be able to leverage IT investment fund to help reach the corporate technology efficiency target.
The Mayor’s e-Government Task Force will be reporting shortly on its findings and recommendations. The ITS branch has worked actively and collaboratively with the Mayor’s e-Government Task Force since February, and is awaiting the report recommendations that could result in new projects financed through the IT investment fund.
By the end of the second quarter of 2008 the ITS branch will have completed a review of opportunities to further expand or leverage the City’s significant SAP investment. There is a strong probability that further automation of manual processes will be identified with commensurate opportunities for further permanent cost savings.
3. Asset Rationalization
The Leveraging Assets Initiative is
focused on ensuring that the buildings, facilities and capital infrastructure
deployed by various branches in support of client department programs and
services are put to optimum use. It is also focused on examining how City
property holdings and vacant lands may be re-deployed to generate permanent
revenues and cost reductions. Real Property & Asset Management (RPAM) has
been tasked to lead and pursue this initiative in recognition of its role in
conducting strategic asset management, asset rationalization exercises and
property disposition in addition to condition reviews and capital re-investment
forecasting.
Subsequent to a review by EMC the
Direct to Disposition strategy has been adopted for the Leveraging Assets
initiative as described below.
Direct To Disposition
This strategy recognizes that one
option to achieve permanent cost savings is to reduce the asset and property
inventory and dispose of assets that have exceeded or are approaching the end
of their life, have a poor condition rating, are limited in their capacity to
support program delivery (especially in relation to contemporary service
requirements), and/or may present an unacceptable level of economic or
operational risk. The candidate facilities are not typically considered
suitable for re-development or alternative use.
In addition to direct operating cost
savings, it is recognized that the disposition of aged infrastructure will lead
to a reduced requirement for deferred lifecycle investment. Any proposed
disposition of developed property and the potential accompanying program
delivery adjustments will be brought before Council for consideration and
approval prior to implementation.
The Direct to Disposition
strategy also recognizes efforts by the municipality to sell vacant,
undeveloped property as a means of generating permanent revenues. Since 2001,
RPAM has successfully rationalized and disposed of a significant volume of
property, which, in turn, has generated tax revenue that would have otherwise
likely been unrealized.
Although the bulk of vacant
property has been affected by this effort, this strategy proposes a detailed
review of current vacant property holdings with the intent of seeking further
tax revenue possibilities. Based on a preliminary analysis a significant number
of vacant properties in the inventory are being held for future program
purposes. Under this strategy, RPAM will host discussions with client
departments to confirm if the property hold should remain in the City’s
inventory. Vacant properties that are deemed to be surplus to the City’s
requirements are being marketed for sale.
The Direct to Disposition
strategy is expected to demonstrate new permanent tax revenues associated with
the sale of vacant property. A report on tax revenues earned in 2008 from
vacant land dispositions is forthcoming in the third quarter of this year. The
savings opportunities to be accessed from the Direct to Disposition strategy
are also premised on the City’s commitment toward a reduction in the size of
the asset inventory. Effective program rationalization may identify co-location
options that lead to permanent operational cost savings; however, care will be
applied to limit the requirement for major capital funding requirements to
achieve this enhanced asset deployment.
It should be noted that,
based on a building operating cost average of $7.80/square foot (in 2007
dollars), the City will need to reduce the size of its building inventory by
approximately 11 % in order to achieve a $10 M reduction in operating costs.
Clearly not all of the three-year $15 million target can be achieved through
the elimination of inventory. The remaining savings will be realized by a
corresponding reduction in pay-as-you-go contributions to capital and through
incremental tax revenue increases.
Actions
to Date
The Comprehensive Asset Management (CAM)
division has undertaken the following work during the first quarter:
· An Asset Profile and Leveraging Assessment summary sheet has been developed. This summary sheet succinctly captures all of the primary facility details, financial and condition data. The eligible annual savings estimates as well as the 5-year cost avoidance figures are highlighted in the data. Service impact statements as well as mitigation strategies are tendered by the client department(s) and RPAM. A risk assessment profile is included. CAM will include the depreciated value of the asset in future releases of this summary sheet as part of the Tangible Capital Asset reporting obligation.
Activities for the Next Quarter
A)
Populate
the Asset Profile and Leveraging Assessment sheets for the recommended list of
candidate facilities and continue to do so for buildings above 10,000 square
feet.
B)
Host
meetings with affected client departments to assess the potential disposition
of aged facilities and held properties and complete impact statements and
mitigation strategies. Preliminary estimate of potential savings, tax revenues
and cost avoidance to be described.
C)
Discussions
with those branches that may be affected will be hosted during the next
quarter. Discussions will center on the potential opportunities and impacts
related to a disposition alternatives for an existing City asset or vacant
property. Once completed staff input will be communicated to the Ward
Councillor(s). Subject to the results of this initial assessment, public
consultation may be required.
D)
RPAM
is researching additional energy conservation opportunities and intends to
submit a detailed report to Council this fall that will examine the operating
cost savings achievable via a more aggressive energy conservation program.
4. Procurement Savings
As per Council direction, a spend
analysis has been undertaken by an independent consultant and the findings are
coming back to Corporate Services and Economic Development Committee (CSEDC)
and Council for consideration under a separate report.
CONSULTATION
The purpose of this report is for information only therefore no public consultation is required. All Departments were consulted in the preparation of this report.
As per Council direction, the 2008 branch operating budgets have been reduced by the productivity target amounts identified in the 2008 draft budget estimates. The status of the achievement of the efficiency targets will be ongoing and included as part of the regular reporting on the financial status of the operating and capital budgets.
DOCUMENT 1 - $35 million Productivity Allocation by
Branch 2008, 2009 and 2010.
Subsequent to City Council’s review
of this status report, staff will pursue each of the three strategies as
described herein, with special emphasis on the Direct to Disposition strategy.
DOCUMENT 1
Breakdown of 2008 - 2010 Operating
Budget Productivity Assignments |
REVISED PRODUCTIVITY ASSIGNMENT |
|||
|
2008 |
2009 |
2010 |
Total |
Department / Branches |
$ 000 |
$ 000 |
$ 000 |
$ 000 |
|
|
|
|
|
Elected Officials |
- |
- |
- |
- |
|
|
|
|
|
City Manager |
|
|
|
|
City Manager's Office |
70 |
55 |
- |
125 |
Financial Services |
220 |
160 |
- |
380 |
City Clerk's Branch |
370 |
285 |
- |
655 |
Legal Services |
30 |
35 |
- |
65 |
City Manager Total |
690 |
535 |
- |
1,225 |
|
|
|
|
|
Office of the Auditor General |
- |
- |
- |
- |
|
|
|
|
|
Community and Protective Services |
|
|
|
|
CPS DCM |
- |
- |
- |
- |
Paramedic Service |
146 |
155 |
219 |
520 |
Fire Services |
1,017 |
1,070 |
1,553 |
3,640 |
By-law Services |
75 |
86 |
119 |
280 |
Office of Emergency Management |
13 |
17 |
25 |
55 |
Housing |
219 |
233 |
343 |
795 |
Public Health |
109 |
112 |
154 |
375 |
Employment & Financial Assistance |
170 |
181 |
269 |
620 |
Parks & Recreation |
341 |
362 |
522 |
1,225 |
Child Care |
255 |
267 |
393 |
915 |
Long Term Care |
122 |
129 |
199 |
450 |
Cultural Services & Community
Funding |
62 |
69 |
99 |
230 |
CPS Total |
2,529 |
2,681 |
3,895 |
9,105 |
|
|
|
|
|
Library |
242 |
250 |
368 |
860 |
|
|
|
|
|
Public Works and Services |
|
|
|
|
PWS DCM |
- |
- |
- |
- |
Solid Waste - Tax |
269 |
283 |
413 |
964 |
Solid Waste - Rate and Non Dept |
323 |
339 |
495 |
1,157 |
Surface Operations |
1,009 |
1,061 |
1,547 |
3,617 |
Traffic & Parking Operations |
416
|
437 |
638 |
1,490 |
Infrastructure Services |
85 |
90 |
131 |
306 |
Fleet Services (Expenditures) |
1,595
|
1,679 |
2,449 |
5,724 |
Fleet Fuels |
464 |
487 |
711 |
1,662 |
Fleet Services (Recoveries) |
(2,059) |
(2,167) |
(3,160) |
(7,386) |
PWS Total |
2,102 |
2,209 |
3,223 |
7,534 |
|
|
|
|
|
Planning, Transit and the
Environment |
|
|
|
|
PTE DCM |
- |
- |
- |
- |
Transit Services |
3,290 |
3,466 |
5,053 |
11,810 |
Building Code Services - Ontario
Building Code |
127 |
134 |
196 |
457 |
Building Code Services - Other Permits |
5 |
5 |
8 |
18 |
Planning Branch |
88 |
92 |
134 |
314 |
Economic & Environmental
Sustainability |
23 |
25 |
36 |
84 |
PTE Total |
3,533 |
3,722 |
5,427 |
12,683 |
|
|
|
|
|
Business Transformation Services |
|
|
|
|
BTS Exec Director's Office |
- |
- |
- |
- |
Real Property Asset Management |
120 |
121 |
179 |
420 |
RPAM Facility Cost |
267 |
285 |
413 |
965 |
RPAM Hydro and Heating |
146 |
155 |
229 |
530 |
Information Technology |
520 |
380 |
- |
900 |
Employee Services |
100 |
85 |
- |
185 |
Corporate Planning & Performance
Reporting |
20 |
5 |
- |
25 |
Corporate Communications |
20 |
10 |
- |
30 |
Client Services & Public Information |
220
|
165 |
- |
385 |
BTS Total |
1,413 |
1,206 |
821 |
3,440 |
|
|
|
|
|
Total |
10,509 |
10,604 |
13,733 |
34,847 |
Quarterly Report - Efficiency
Savings Program
Rapport trimestriel - Programme sur les économies
d’efficience
ACS2008-CMR-OCM-0004 city-wide / À l’Échelle de la ville
Responding to questions from Councillor Wilkinson, Mr. S. Finnamore, Executive Director of Business Transformation Services, explained this was the first quarterly report, which was intended to give Council a notion of the direction being taken with the efficiency savings program; the productivity targets themselves and what has been done in terms of allocating the targets amongst the various departments and branches. He noted that in order to achieve their targets, some of the branches would be undertaking program reviews. He submitted that by the second and third quarterly reports, Council should have a good idea of how and where the efficiencies would be achieved and he was confident that they would be on target.
In response to a request from Councillor El-Chantiry, Mr. Finnamore confirmed that, in order to give members of Council the ability to make comparisons and to see the progression from one quarter to the next, future reports could include, as an annex, a summary of previous reports.
Following these exchanges, Committee voted to receive the report.
That
the Corporate Services and Economic Development Committee and Council receive
this report for information.
RECEIVED