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MEMORANDUM

DATE: November 8, 2010

TO: Broward County Board of County Commissioners

FROM: Bertha Henry, County Administrator

SUBJECT: Management Response to County Auditor’s Review of the Business Case for ERP, Report No. 10-16

On February 5, 2010, the Broward County Business Case for an ERP was issued to the Board of County Commissioners. On June 4, 2010, the County Auditor provided a Review of the Business Case for ERP (Exhibit 1). Below please find Administration’s response to the Auditor’s Review.

For the past three years, the Administration has analyzed and taken steps to prepare for the challenges and risks that are associated with an ERP initiative. The Auditor concurs with the assessment that many of the existing systems are deficient. Since his review, systems such as that used for transit payroll are without support. We are reaching a critical juncture on many of our systems and we are prepared to move forward. Our approach discontinues disparate software packages, where feasible and appropriate, and opts for an integrated system that can be implemented over time within the budget constraints we now face.

Proposals from the vendor community through a Request for Letters of Interest (RLI) will give us solid answers to questions about what is available to meet our needs and affordability. To further delay seeking proposals from the vendor community causes us to deplete our modernization resources and lock us into our outdated, standalone systems without having an opportunity to explore viable options for improvement.

Management’s response below addresses the Auditor’s two recommendations. We are also taking the opportunity to respond to individual findings.

SECTION I – RECOMMENDATIONS AND MANAGEMENT RESPONSE

Recommendation #1. To ensure the Board members have sufficient information to make an informed decision, we recommend the Board of County Commissioners direct the County Administrator to provide an analysis of potential solutions to address critical unmet business needs and technology issues. The analysis should include priorities, cost estimates, time to implement, risks and returns.

Management Response:

Agree and further believe this obligation has been met. GFOA conducted an extensive assessment of our needs and assessed the advantages and disadvantages of three potential solutions:

Broward County Board of County Commissioners

Management Response to County Auditor’s Review of the Business Case for ERP, Report No. 10-16

November 8, 2010

Page 2 of 8

• Maintain the status quo continuing with the operation of Advantage for financial data and Cyborg for HR/Payroll data;

• Implement a full CGI-AMS suite of HR and Financial activities; and,

• Implement a full Tier I ERP solution through a competitive process.

Given the inefficiencies of our current system and the complexity of our operations, its recommendation was to implement a Tier I ERP solution. Recently, we have embarked upon three operational studies and each identifies technological and data shortcomings. To make an informed decision on a solution, the next major increment of information is needed. This information lies with the vendor community. Any further analysis of potential courses of action should be made following submission of vendor proposals so that we have specific responses and pricing for evaluation and recommendations.

Recommendation #2. To facilitate timely adoption of cost-saving measures, we recommend the Board of County Commissioners direct the County Administrator to begin addressing critical unmet business needs and technology issues identified in the consultant studies that are:

a. Independent of the ERP decision process, such as implementation of a time and attendance system, and

b. Necessary to ensure the success of our future technology strategy and vision, e.g., business process analysis and re-engineering.

Management Response:

While we agree we need to begin to address system deficiencies, we disagree this should be done independent of the ERP solicitation process. We believe to do so would have the effect of:

a. perpetuating the system fragmentation that is at the root of many of our unmet needs,

b. consuming scarce staff resources to revisit GFOA’s assessment of our current systems,

c. consuming staff resources to anticipate decisions that are more appropriately made in the context of a selected software system, and

d. depleting funds that have been reserved for integration to, instead, support existing standalone systems that are not meeting our needs.

The County has been pursuing business process re-engineering for years and has made many incremental improvements. These efforts continue today and are time consuming, but they cannot overcome system-wide shortcomings that cross departments and require enabling technology.

It is essential that we maximize the return on every dollar we spend on technology. We are going to spend money on business technology whether we upgrade our old systems or move to a modern one. We have put a hold on numerous technology projects and enhancements in order to stop the fragmentation and maximize the funds that can be invested in an integrated system.

To preserve our limited dollars for an integrated system, Administration recommends that the Board issue a solicitation for software and implementation services. This is not a decision to implement an ERP; it is a next step that allows staff to analyze available ERP systems and costs so that we can come back to the Board with specific recommendations on:

• which functions will be most appropriate to integrate into an ERP,

Broward County Board of County Commissioners

Management Response to County Auditor’s Review of the Business Case for ERP, Report No. 10-16

November 8, 2010

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• which software and implementation services should be purchased, and

• what implementation schedule we can accommodate and afford.

With this information in hand, then, and only then would we request a Go/No-Go decision on purchasing and implementing an ERP.

SECTION II – AUDITOR FINDINGS AND MANAGEMENT RESPONSE

The Auditor’s report made findings to support its recommendations. We would like to take this opportunity to respond to these findings so as to not leave the reader with the impression that management concurs with findings as outlined.

Finding #1. Many County processes and systems are inefficient, ineffective, and need to be improved.

Management Response:

The County concurs with the full set of system deficiencies and business needs identified by GFOA and the need to improve our processes and systems.

Finding #2. An ERP might solve some of the County’s critical unmet needs, but poses significant risks without assured results and Finding #2a. Independent Business Systems Will Still Be Required, Even With an ERP.

Management Response:

• An ERP is not intended to replace agency-specific operating systems such as the baggage handling, inter-library loans or water system control systems listed in Table 1b. The existence of such standalone systems is not an issue for ERP implementation. The focus of ERP is on integrating or consolidating common ‘back office’ business processes and functions, not ‘front office’ service delivery systems.

• GFOA identified advantages and disadvantages of using Best-of-Breed systems and indicated that the County should assess whether or not to pursue such systems as part of the enterprise system solicitation process. This is why our functional requirements encompass all county business areas that could reasonably be included in the ERP. With vendor responses in hand, we will have a more factual basis for deciding which functions, if any, would be better provided with Third Party systems.

• Performance Management (PM) functions are now available in ERP software, and our module list in Table 6 of the Business Case specifies ‘Performance Scorecard’ in the Decision Support Processes category. Other jurisdictions surveyed by the Auditor may have installed ERP technology when PM modules were less mature, or they may have had effective systems in place that they chose not to replace.

Broward County does not have a robust PM system in place, and the Business Plan and solicitation we have developed seek proposals for a PM module to take maximum advantage of the data and reporting capability that would be available in an ERP. After proposals are received, we can determine whether our needs can be addressed adequately through an ERP.

Broward County Board of County Commissioners

Management Response to County Auditor’s Review of the Business Case for ERP, Report No. 10-16

November 8, 2010

Page 4 of 8

Finding #2b. An ERP Implementation Project Poses Significant Challenges and Risks

Management Response:

Organizational issues and Readiness

Management has acknowledged and recognized that ERP implementation is not without challenges and risk. Early implementation of these systems was not without their problems; but

most of the recent systems implemented around the country have done so without major problems. We have learned from the extensive guidance that is now available in the industry. The Gartner study referenced by the Auditor identifies Five Key Factors for Successful ERP Implementations. From Day One of this project, we embarked on a process that took these factors into account along with other lessons learned to maximize success. The five success factors identified by Gartner in the cited report are:

1. Obtain and maintain executive-level buy-in.

2. Provide an adequate budget that recognizes change management, training, and project management as vital components of ERP success not expensive overheads.

3. Make change management a priority by ensuring that a robust change management program is in place at the project's initiation, and create a quality, ongoing training program that educates end users and IT staff.

4. Commit quality resources to the project team for the life of the project, and hire an experienced, professional project manager who has successfully implemented ERP in a similar environment.

5. Minimize modifications by developing firm guidelines for modification, and build a business case for each required modification.

The County has taken numerous actions to prepare for implementation and mitigate risks on this project. Eighteen such actions are listed in the Business Case section on Implementation Readiness beginning on page 28. Among these are the following:

1. Adopted a strong, enterprise-oriented Governance Model with the County Administrator as Project Champion.

2. Established a Steering Team of nine key department heads/decision makers who are impacted by the implementation and positioned in the organization to make consensus decisions for the County. These include the Deputy County Administrator, the Chief Financial Officer, and the Directors of Aviation, Environmental Protection and Growth Management, Human Services, Management and Budget, Port Everglades, Public Works, and Transportation.

3. Established a Project Office in County Administration reporting directly to the County Administrator.

4. Selected an experienced Independent Advisor/Project Manager (EquaTerra, Inc.) to oversee all work plans and progress, design and manage training and change management functions, manage project risks, and ensure that the County receives the functionality defined for the ERP.

5. Adopted a project organization structure for implementation with detailed roles and responsibilities.

6. Adopted detailed approaches developed by our consultant for Change Management and Training to mitigate the people-centric issues in our implementation

Broward County Board of County Commissioners

Management Response to County Auditor’s Review of the Business Case for ERP, Report No. 10-16

November 8, 2010

Page 5 of 8

Third Party Services

It is critical to recognize that an ERP is not a typical IT implementation, and that the expected level of external implementation services is not a result of shrinking county resources. Considerable external services are common in ERP implementations because extensive, specialized one-time

tasks must be accomplished to build policies and procedures into the software. Also, as the Gartner report emphasizes, change management, training and project management services are

essential to ERP success. This is because an ERP typically drives major changes in how we do business and this affects people. The proportion of project costs associated with external services vs. software costs reflects the difference in what ERP involves compared to a standard IT project.

County Staffing of the Project

Staff agrees that a team of dedicated, knowledgeable county staff will be important for this project. Currently, 40 individuals have been selected to participate on the ERP Proposal Review Team and 7 teams of Subject Matter Experts (SMEs). SME evaluation teams will build knowledge and enthusiasm for what can be accomplished with the ERP. Additional SMES are expected to be included as we move into detailed review of software functionality and user features.

Beyond the direct participation of individuals in project design and implementation, ownership of the project is built in a number of other ways:

• the change management approach that is already documented is specifically designed to build and monitor knowledge, understanding and enthusiasm for the project; and

• the extensive training program that is already defined in detail is designed to build user knowledge, understanding and skill.

Finding #2c. Estimated ERP Costs Are Substantial and Returns Are Not Assured

Management Response:

Cost Estimates

We disagree that costs have escalated to the extent noted because the cost estimates cited in the Auditor’s report are not comparable. GFOA provided low and high 5-year Tier 1 ERP estimates of $13.7 to $28.0 million which represented general differences between products and functionality available in the market. Their costs were “broad estimates for planning purposes only” noting that more specific information related to scope, requirements, conversions, interfaces and staffing would be required if the county chose to go forward.

The County has now developed more of that specific information and has refined cost estimates accordingly. In addition, we were asked to include everything that we thought we could need/want in an ERP. For this reason, Equa Terra’s estimate of $48.5 million, prior to the softening in the market, is based on more specific requirements, a more extensive set of potential functions, a different type and level of implementation services, and different assumptions about staffing. Key differences between the 2007 GFOA estimates and the County’s 2009 Business Case estimate include:

1. Functions to be implemented: GFOA specified Financials, HR/Payroll and Inventory/Work Order systems. The County’s Business Case also specifies Fleet, Utility Billing, Traffic Engineering, and Decision Support modules such as Performance Scorecard, Ad-Hoc Reporting, Portal Management and Data Warehousing.

2. Integration Services: GFOA assumed a 50-50 split between consultants and county staff with backfilling of staff involved with implementation and training. Our Business Case

Broward County Board of County Commissioners

Management Response to County Auditor’s Review of the Business Case for ERP, Report No. 10-16

November 8, 2010

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assumes integration services are all external resources and that training is developed and delivered by external resources. Our approach will be that each area will have a county employee co-leading the effort. The dramatic reduction in staff over the last three years requires this approach.

3. Change Management: GFOA does not specify Change Management; the Business Case includes it.

4. Third Party Assurance Services: GFOA does not assume this level of support and expertise. The County’s estimate does.

We did not rely on EquaTerra to make the determination that we need an ERP. GFOA’s assessment and our own knowledge of our system deficiencies led to that determination. Subsequently, the County made a decision to pursue an ERP and to use services of a Third Party Assurance Provider (3PA) for project management, change management and training. EquaTerra was selected for these roles. Including these services in the project cost estimate is consistent with the County’s direction. The actual level of services would be formally negotiated at such time as a decision is made to purchase software and implementation services.

Management does not view uncertainty about cost as a problem at this point in the process because the solicitation process is designed to learn what pricing is available for a full range of potential systems. We do not have, nor ever had, $48 million for this project. Components will be prioritized to fit within the budget that exists. GFOA pointed out that “responses from the vendor community will provide a more accurate cost estimate.” With vendor proposals in hand, we will have a more factual basis for evaluating which functions can be met effectively with an ERP and how much we can afford to implement over time.

Returns on Investment

We concur with the Auditor that it is difficult to quantify cost savings resulting from an ERP system. However, we have something that many other organizations did not have when they began implementation – a baseline estimate of countywide business process costs. This is an order-of-magnitude estimate that will provide us with a good basis for estimating the change in these process costs following implementation.

The Business Case for ERP also identifies returns on investment that include Critical Business Needs Addressed, Improved Business Operations, and Lower Business Process Costs. These are significant returns that drive the County’s Business Case. Meeting Critical Business Needs, for example, means having the following:

1. A single, modern system with user-friendly features that offers on-line help functions and customized system documentation.

2. Public sector accounting functionality with cost and activity based accounting.

3. Full integration among all modules.

4. Single entry of data and reduction in manual processes

5. Employee self service.

6. User-friendly, user-driven and flexible reporting tools with distributed, securitized access to all users.

7. Thorough, job-specific training on the system and substantial on-line training resources

8. Real-time, immediate update and access to the financial and HR data.

Broward County Board of County Commissioners

Management Response to County Auditor’s Review of the Business Case for ERP, Report No. 10-16

November 8, 2010

Page 7 of 8

9. Elimination of paper-based processes and replacement with automated, online workflows and approvals.

10. Streamlined business processes incorporating established best business practices.

11. Self-service capabilities and other e-procurement and e-government opportunities.

12. Document management so that paper files are not maintained.

Other operational benefits that would be derived from an ERP include:

• Ready access to data

• More data driven decision making and reduced stress on the organization

• Increased adherence to policies and procedures

• More effective interfaces with external parties

• Support for succession planning

Our baseline business process costs in FY2009 were $179,110,493 or 21% of our countywide process costs. Because the County had to eliminate staff positions in order to balance the budget for the past four years, the bottom line cost reductions that may have been realized as FTE reductions have already been taken without providing ERP functionality. However, the cost reduction benefit of ERP implementation still can be assessed relatively by re-calculating business process costs as a percent of total process costs following ERP implementation. The County expects that business costs as a percentage of total operating costs will decline, and that direct services will increase.

Reduced staffing levels make it even more urgent that we begin adding improved systems and tools. We need to get an effective system in place so that when the economy improves, resources for direct services will be the priority. As we undergo a multiplicity of operational reviews, a common theme is the greater use of technology to reduce the administrative burden. If this technology lacks integration, we do not maximize the efficiency that can be achieved.

Management acknowledges the varied risks associated with ERP project implementation and has taken steps to mitigate these risks. In addition to the measures listed previously under Organizational Readiness,

• There is new leadership in the County.

• The approach of this leadership to managing is quite different.

• They embrace change and they expect to use data to manage.

• To succeed, they need modern tools.

I am confident that this management team can balance the use of consultants and staff and manage the timing of implementation in order to best achieve the needs of the county.

Finding #3. There appear to be viable, less costly solutions.

Management Response:

The Auditor recommends using ‘gradual and evolutionary’ as a starting point without the benefit of a competitive solicitation and a more robust and systematic analysis of vendor responses. We disagree with this approach. The County has been advised to seriously consider an ERP to address our needs, and staff has developed a detailed solicitation for software and implementation services so that we can study the responses and learn specifically what options are available to us. Only if the solicitation responses show that an ERP solution is not right for Broward would we

Broward County Board of County Commissioners

Management Response to County Auditor’s Review of the Business Case for ERP, Report No. 10-16

November 8, 2010

Page 8 of 8

step back and explore a more gradual evolutionary process. ‘Gradual and evolutionary’ has been available to us all along and has not produced the results we are seeking.

Finding #3a. Implement what we already own.

Management Response:

The County’s AMS Financial software was selected and acquired in 1988. The current version 3.x Advantage technology/functionality was originally installed in 2004 and has had minor upgrades.

The fact that that some modules and functionality had not been implemented in our current system was noted by GFOA. They reported staff's problems with some of those systems, and they recommended moving to an ERP in order to best address our needs.

Staff has prepared an RLI that lists detailed requirements for an enterprise system that will meet our needs and build an integrated system for the future. The current GCI Advantage vendor offers ERP software and has competed in ERP solicitations around the country. We would expect CGI to respond to our solicitation. There is no reason to exempt them from competing with other vendors of ERP products as they already have the benefit of 22 years working with the County. Evaluation of their ERP software is more appropriately made as part of the systematic evaluation of all proposed software packages against the county’s functional requirements and other available features. This will provide the advantages and disadvantages and costs of alternative systems and a sound basis for an investment decision.

Finding #3b. Take an Incremental Approach to Drive Process Efficiencies

Management Response:

We believe that small, piecemeal approaches to meeting business needs have led to the current fragmented system. We have the option of pacing our investment and implementation to be what we can handle and afford; but would like to do so in the context of an integrated system.

Incremental improvements already are being pursued through initiatives such as the Internal Controls Manual Revision and Sterling Initiatives. FASD, for example, has completed mapping of 23 of its key business processes in connection with their current Sterling process improvement initiative. However, tasks such as assessment of data flows and reporting needs are best done once in connection with the specific system that we will select for the long term.

BWH/jg

Attachment (Exhibit 1: Review of the Business Case for ERP, June 4, 2010, Report No. 10-16)

cc: Evan Lukic, County Auditor

Jeff Newton, County Attorney

Pam Madison, Interim Deputy County Administrator

Pete Corwin, Assistant to the County Administrator

JoAnne Greiser, Director, ERP Project

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