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

12 May 2008 / le 12 mai 2008

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

City Wide/à l'échelle de la Ville

Ref N°: ACS2008-CMR-OCM-0004

SUBJECT:

Quarterly Report - Efficiency Savings Program

OBJET :

Rapport trimestriel - Programme sur les économies d’efficience

REPORT RECOMMENDATION

That the Corporate Services and Economic Development Committee and Council receive this report for information.

RECOMMANDATION DU RAPPORT

Que le Comité des services organisationnels et du développement économique et le Conseil prennent connaissance du présent rapport.

BACKGROUND

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
The table below shows the savings targets by year and their impact on the net City budget:
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.

DISCUSSION

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:

Permanent decreases to expenditures (realizable savings)
Decreasing future expenditures (cost avoidance) that have been included in the pressure list for future years
Increasing revenues through volume but not price

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:

Permanent decreases to expenditures (realizable savings)
Cost avoidance by decreasing future expenditures that are anticipated and included in the pressures list for 2009 and/or 2010.
Increasing revenues through volume but not price

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:

A Technology Showcase in January to demonstrate how technology was already being used to support service delivery;

An announcement from the Chief Information Officer (Director of ITS) in February to EMC and branch Directors that explained the fund and the efficiency framework for technology savings;

Information was posted on Ozone (the City’s intranet site), to highlight the fund and provide branches with information on the process, timelines, and frequently asked questions; and

ITS branch staff communicated the availability of the funds to branches directly at branch meetings and other events.

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.

A preliminary list of twenty-six (26) facilities to be assessed under this strategy has been developed and is being circulated to client departments for their review.

A detailed search of SAP, MAP and other data sources has been initiated in order to populate the individual Asset Profile and Leveraging Assessment sheets referred to earlier for the initial 26 facilities and for properties above 10,000 square feet.

Additional technical assessments have been commissioned as follow-up to the Arena Divergence Analysis report prepared by CAM.

A Pool Divergence Analysis exercise has been launched with the active support of Parks & Recreation staff.

Efforts to conclude the asset rationalization of works yards with Surface Operations and Fleet Services staff are on-going. Selected environmental studies were commissioned in that regard.

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.

FINANCIAL IMPLICATIONS

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.

SUPPORTING DOCUMENTATION

DOCUMENT 1 - $35 million Productivity Allocation by Branch 2008, 2009 and 2010.

DISPOSITION

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

SUBJECT:

OBJET :

REPORT RECOMMENDATION

RECOMMANDATION DU RAPPORT

BACKGROUND

Table 1 - Council Directed Efficiency Targets 2008 - 2010 ($000)

DISCUSSION

FINANCIAL IMPLICATIONS

SUPPORTING DOCUMENTATION

DISPOSITION