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HomeMy WebLinkAbout6.a. Review draft PP to authorize GM to execute agreemetn with EMTEC for ERP Page 1 of 9 Item 6.a. CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER DRAFT MEETING DATE: MAY 14, 2019 SUBJECT: REVIEW DRAFT POSITION PAPER TO AUTHORIZE THE GENERAL MANAGER TO EXECUTE: (1)A PROFESSIONAL CONSULTING SERVICES AGREEMENT WITH EMTEC CONSULTING SERVICES LLC ("EMTEC")WITH COST CEILING OF $2,300,000 FOR IMPLEMENTATION OF A NEW ORACLE CLOUD ENTERPRISE RESOURCE PLANNING (ERP), DISTRICT PROJECT 8250;AND (2)A CONTRACT WITH DLT INC.AS A RESELLER OF ORACLE SOFTWARE FOR ORACLE CLOUD ERP SOFTWARE FORA FIVE-YEAR TERM AT COST OF $300,000 ANNUALLY, FOR ATOTAL OF $1,500,000 SUBMITTED BY: INITIATING DEPARTMENT: JOHN HUIE, INFORMATION TECHNOLOGY ADMINISTRATION DEPARTMENT- IT MANAGER REVIEWED BY: PHILIP LEIBER, DIRECTOR OF FINANCE &ADMINISTRATION ANN SASAKI, DEPUTY GENERAL MANAGER ISSUE Board authorization is required for the General Manager to execute a professional consulting services agreement in an amount greater than $100,000. BACKGROUND The SunGard HTE Enterprise Resource Planning (ERP)system has been used by Central San since 1993. This system manages the business data and processes for Central San's human resources, procurement, accounting, billing and related subsystems. Every area of Central San's operations depends upon the ERP as a foundational technology. Replacement of the ERP system was identified as a task in the IT Master Plan presented to the Board on January 29, 2015. However, upon further investigation, it was decided to implement targeted improvements to the current SunGard system to further extend its life. During implementation of these improvements for the Purchasing and Materials Services Division, it was found that staff repeatedly ran into limitations of the system that proved to have no apparent solution. Because of this, staff decided to suspend the targeted improvements and begin the effort to select a replacement system. In July 2017, staff contracted with the Government Finance Officer's Association (GFOA)to analyze and document current business processes, look for opportunities to optimize those processes, assess organizational readiness, assist with the preparation of a Request for Proposal (RFP, and assist with RFP response evaluations, vendor selection, and preparation for implementation. May 14, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 4 of 25 Page 2 of 9 Selection Process In June 2018, staff issued an RFP for software and implementation services to acquire and implement a replacement ERP. Central San specifically notified hundreds of vendors on the BidSync bidding platform to inform them of the ERP replacement opportunity. Staff received five timely responsive proposals that were evaluated by a cross-departmental selection team. Of these responses, two were advanced for further consideration. Each of the two finalists were invited back for comprehensive three-day presentations that included demonstrations of system functionality as well as in-depth team and implementation process discussions. Staff from across multiple departments and at various levels were included in the presentations so that they could provide feedback to the evaluation team. Both the feedback from staff and the scoring from the evaluation team were strongly in favor of the Emtec/Oracle combination of software and implementation presentations. Upon completion of the presentations, and after further discovery processes including checking references from other agencies and a site visit to the City of Atlanta to evaluate their recent Oracle implementation, staff selected Emtec to implement the Oracle Cloud product. Attachment 1 shows the RFP evaluation criteria considered in this solicitation. Attachment 2 contains a listing of features staff believed were distinguishing in the selection of the Oracle Cloud ERP. Implementation Timeline The planned implementation schedule covers a 20-month period with an anticipated start date of mid-June, 2019.A detailed implementation schedule has been developed, with the high-level plan outlined below: Module Start Completion Human Resources— Core System, Onboarding, June 2019 March 2020 Goals/Performance, Learning Management System Financial Systems—Core Finance, Cash Management, June 2019 June 2020 Fixed Assets, General Ledger, Payables, Project Financials, Receivables, Procurement, Inventory, P-Card, Travel Human Resources Phase I I — Payroll, Benefits,Absence May 2020 January Management, Safety 2021 Budgeting and Planning August 2020 January 2021 Risk factors considered and addressed in planning for the implementation are outlined in Attachment 3. 1 n addition to the above modules, staff plans to return to the Board at a later date with a contract to implement a new Community Development/ Permitting module that is also a part of the same Oracle Cloud platform. Because this is a new system that Oracle recently developed, they are recommending that we use Oracle resources to implement that system. For this reason, staff intends to seek Board approval for this contract once Oracle provides the finalized proposal, cost and project schedule. The costs for this work are not included in the cost estimate of the contracts covered in this Position Paper. Other integration and future needs are outlined in Attachment 4. Contract negotiations between Central San and Emtec/DLT Solutions/Oracle are ongoing. Most key terms have been agreed to, however some open points remain. Some of these are due to changes in project scope that have been reassessed by Central San, including a plan to proceed with replacement of the I ntellitime system with an Oracle module. Cost changes from such matters will be resolved prior to the scheduled Board approval on June 6, and would be reflected in revised contractual agreement amounts and taken from the available project contingency. ALTERNATIVES/CONSIDERATIONS Continue using the SunGard ERP system for Central San's business needs. This alternative would continue to minimally meet District needs. However, the technology is outdated and nearing end of life support. Delaying this further could put Central San in a position of being forced to move to a new system under an emergency situation rather than using careful planning and consideration as is being done now. Delaying implementation of new technology also precludes staff from implementing many process improvements and optimizations that will be possible with newer May 14, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 5 of 25 Page 3 of 9 tecnnoiogy. i nis is not recommenuea. FINANCIAL IMPACTS Over a five-year period, the third-party implementation and software/support contracts for the new ERP system total $3.8 million, while capitalizable Central San staff costs are another$0.8 million, as shown in the following table. Four million dollars of the costs will be capitalizable and funded from the Sewer Construction Budget, and $1,380,000 will be funded from the O&M budget, as shown in the table below: (A►) (B) (A)+(B)=(C) (D) (C)+(D)=(E) Ava table (E)+(F)=(G) Cost Summary DLT Emtec Third- Party Central San Total Project DP 8250 Solutions/ Consulting Costs Staff Time Estimated Level Project Oracle Services Cost Budget Contingency Capitalizable Cost $300,000 $2,120,000 $2,420,000 $820,000 $3,200,000 $760,000 $4,000,000 (See Table Below) O&M during 180,000 180,000 1 mplementation O&M after 1,200,000 0 1,200,000 implementation Total 5 Years $1,500,000 $2,300,000 $3,800,000 Implementation costs payable to Emtec totaling $2.3 million will be incurred primarily during FY 2019-20 (with some extending into FY 2020-21). These implementation costs include $2.1 million for professional services, and $0.2 million for travel and expenses. Most of these costs are capitalizable,while a small portion is not. Ongoing software subscription and support costs of$0.3 million per year(payable to DLT Solutions Inc. as a software reseller for Oracle)continue over the five-year term, and will be required for as long as the system is in use. These costs total $1.5 million over the five-year period,with annual costs guaranteed for five years. A provision in the contract will also specify costs for a second five-year period (years 6-10), with terms under negotiation at the time of the publication of this paper. No change to the project budget per the draft FY 2019-20 Capital Improvement Budget is required. The work proposed here can be accommodated within the multi-year project budget for District Project 8250, ERP Replacement. This Project will span four fiscal years (2018-19 and 2021-22)and is being funded by the Project 8250 in the following table.A transfer of$500,000 from Contingency was effectuated in Q4 of FY 2018-19 and presented in the draft budget. The transfer will be classified as "New Project" in the ongoing Cl B transfers analysis. FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 Total Project Project Budget Budget Budget Budget Budget ERP Replacement, $500,000 $2,000,000 $1,200,000 $300,000 $4,000,000 DP 8250 Further information and analysis of the ERP Replacement project costs follows: • Central San Staff Costs: In addition to the third-party costs, Central San staff working on the implementation will charge time to the capital project. Staff who are identified as subject matter experts and the dedicated project manager for the effort will be charging their time to the project, and such costs are to be capitalized as part of the implementation. These costs are estimated at 6.5 annual full-time equivalents (FTEs)over the project life (which spans 20 months, equating to an average of 3.4 FTEs per month during the project and as high as 5.5 FTEs immediately before go-live in July 2020)from June 2019 to January 2021,with a capitalizable cost of$0.8 million (based on an average annual salary of$150,000 with a modified 101% overhead factor applicable to software development projects under Governmental Accounting Standards Board (GAS B) regulations). May 14, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 6 of 25 Page 4 of 9 • Capitalizable vs. O&M Costs: Over the project life, capitalizable third-party costs are expected to total $2.4 million, and with Central San staff costs adding another$0.8 million for total capitalized costs of$3.2 million. Non-capitalizable O&M costs during implementation from Emtec are $0.2 million (which includes training and data conversion costs). The GAS has been issuing preliminary guidance on the treatment of cloud software costs; Central San's assessment and classification of costs is based on this preliminary guidance. • Contingency: The proposed FY 2019-20 Cl B for Project 8250 ERP Replacement includes $3.7 million for ERP implementation and an additional $0.3 million for planning and design for a total of$4 million. With capitalizable project costs estimated at$3.2 million, a project contingency of approximately$0.8 million is available. This is appropriate given the nature of ERP projects. • Comparison to Current ERP costs. Central San's HTE system was implemented from the early to mid-1990s. The completed cost of the system was $1.62 million (Project#7082, closed in 1996),which in 2019 dollars would be $2.6 million. Central San presently pays approximately$104,000 annually for support of the existing HTE system, primarily consisting of software support fees to Central Square (SunGard's successor company). • Comparison to Typical ERP Costs for Organizations: ERP systems have a wide range in cost, from the low six-digit figures for small companies, to billions of dollars for large utilities. A 2015 study(https://www.panorama- consulting.com/key-findings-from-the-2015-erp-report/)indicates that the average company spends 5.9% of their annual revenue on an ERP implementation. Based on Central San's estimated FY 2019-20 revenue of$157.8 million, the implementation would be expected to cost about$9.3 million. The projected capitalizable costs of $3.2 million are about$6.1 million below that benchmark. The costs above do not include functionality for the Community Development/ Permitting module or necessary billing requirements. Additional funds may be transferred from Project 8240, IT Development, or other capital projects to address such scope additions, or other changes agreed to during implementation. COMMITTEE RECOMMENDATION The Administration Committee reviewed this matter at its meeting on May 16, 2019 [and recommended that the Board approve agreements with Emtec Consulting Services LLC and DLT Inc.] RECOMMENDED BOARD ACTION Authorize the General Manager to execute: (1)a professional consulting services agreement with Emtec Consulting Services LLC ("Emtec")with a cost ceiling of$2,300,000 for implementation of a new Oracle Cloud Enterprise Resource Planning (ERP), District Project 8250; and (2)a contract with DLT Inc. as a reseller of Oracle software for Oracle Cloud ERP software for a five-year term at cost of$300,000 annually,for a total of$1,500,000. Strateggc Plan Tie-In GOAL FIVE:Maintain a Reliable Infrastructure Strategy 2-Facilitate long-term capital renewal and replacement GOAL SIX.Embrace Technology, Innovation and Environmental Sustainability Strategy 3-Encourage the review and testing of technology to optimize and modernize business operations ATTACHMENTS: 1. ERP Solicitation Criteria 2. Oracle Fusion Cloud ERP Considerations 3. ERP Risk Factors and Mitigation Measures 4. Integration and Future Needs May 14, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 7 of 25 Page 5 of 9 ATTACHMENT 1 Attachment 1 - ERP Solicitation Criteria Criteria Weight Compliance with Technical and Functional 30% Requirements: a)Technical Compatibility b) Response to functional requirements c) Proposed Integration to Other Modules/Systems d Software Demos-finalists only Project Management and Implementation Approach 30% a)Team's qualifications and experience b) Implementation approach c) Project Management approach d) Overall understanding of needs and project risk mitigation Support 15% a) Ongoing system support b) Proposed hosting services c) Service level guarantees Cost 15% Past Experience with Similar Organizations and 5% References Compliance w/RFP Requirements&Contract T&C's 5% Total 100% Page 1 of 1 May 14, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 8 of 25 Page 6 of 9 ATTACHMENT 2 Attachment 2 - Oracle Fusion Cloud ERP considerations Distinguishing factors supporting the selection of the Oracle Cloud included: Factor Relevance Functionality of modules outside of the Staff believed modules such as Purchasing and HR core financials had features that better met Central San's needs. Staff believes that the investment in the Oracle Prediction of product's future usability Cloud product will continue, bringing dominance of 10+years out the platform that will make it a safe choice well into the future. Related to the above, the likely dominance of the Likelihood of future integration with Oracle Cloud product means that continued integration broader world/technology with other vendors and software offerings will be an advantage. Ability to ultimately move to one stop Oracle offers a suite of modules that may be of future shop for Enterprise Applications use to Central San including asset management, customer care&billing, project management etc. Page 1 of 1 May 14, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 9 of 25 Page 7 of 9 ATTACHMENT 3 Attachment 3 - ERP Risk Factors and Mitigation Measures ERP replacement projects are inherently risky endeavors. Widely cited statistics indicate that 75% of ERP projects can be designated failures based on not meeting expectations for budget, timeline, or functionality. A 2015 Panorama Consulting study of ERP implementations found: • 61 .1% of ERP implementations take longer than expected • 74.1% of ERP projects exceed budget • 21% of ERP implementations fail to deliver significant business benefits • 40% of ERP implementations cause major operational disruptions after go-live Knowing these risks and the factors that contribute to them is of benefit to an agency that wants to mitigate such risks to the greatest extent possible. Central San has considered the following risks and developed corresponding responses as follows: Risk Response Budget and timeline related Under-estimating resources . A detailed schedule of resources to be provided by required the implementer and Central San has been developed. • Central San staff have been appointed to fill the roles. • Temporary/backfill staff will be appointed as needed if Central San staff are unable to meet the commitments. Over-reliance on consultants 0 The project plan is balanced and provides for significant involvement by Central San staff. Underestimating extent of data 0 The initial plan is for little data to be migrated; open mitigation required purchase orders, and account balances. A data mitigation plan will be developed as part of the implementation. Go-Live date delayed 0 This is a common risk for ERP implementation projects. Timeline developed with Emtec should be sufficient, but it is possible delays could take place. Vendor software changes mid- 0 This is a known issue regarding quarterly Oracle stream during implementation Cloud updates and is being planned for. Functionality related Software does not provide 0 Thorough requirements definition and matching of expected functionality requirements through vendor RFP response, demonstrations, statement of work, and inclusion of requirements checklist in the implementation contract Customization 0 Central San intends to use the Oracle Cloud product without"customization"; needed functionality is believed to be available through configuration of the product to our needs. Lack of training 0 The contract provides for on-site training by Emtec Page 1 of 2 May 14, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 10 of 25 Page 8 of 9 Risk Response for the modules. General Ineffective system implementer 0 Central San has conducted reference checks on Emtec. Decision to proceed with a new 0 Central San has explored and invested in ERP when modifications of an modifications to HTE; this approach was not existing system would have sufficient to meet our needs. been more optimal Part time project management 0 Dedicated project managers for both the implementer and Central San have been designated. Insufficient testing 0 The contract provides for substantial testing of each module. Milestone payments are based on acceptance of the modules by Central San after testing to our satisfaction. Lack of consensus or 0 Staff from Finance, HR, Purchasing, Permit management support for the Counter/Engineering are aligned on the decision to project proceed with a new ERP, and on the proposed solution. The General Manager is the executive sponsor of the project. Missing expertise on the project 0 IT staff has significant major software team implementation experience. • Director of Finance&Administration has Oracle ERP implementation experience • Subject matter experts in each module to be implemented have been appointed to the project team Lack of Communications and 0 Project Steering Committee consisting of the Structure for resolution of executives will meet regularly to resolve issues as projects they arise. Resistance to need for change 0 There is widespread support for a new ERP system; in business practices HTE does not have internal champions at Central San who advocate for maintaining the status quo. Significant Changes to Chart of 0 Staff has worked with a consultant to review the Accounts cause delays and existing chart of accounts,which serves as the unforeseen consequences foundation of how financial information is stored in an ERP. This work is anticipated to be finalized in June 2019. Page 2 of 2 May 14, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 11 of 25 Page 9 of 9 ATTACHMENT 4 Attachment 4 - Integration and Future Needs Implementation issues requiring further study, which will continue over the course of the implementation, include: • Program Management Software-EBuilder EBuilder is Central San's program management software used to track and manage the sizable and expanding CIP. The system has been developed with limited (one-way) integration with the HTE system. The initial plan is to provide similar integration with the new ERP. However, as the capabilities of the Oracle modules are better understood, alternatives include stronger(two-way) integration or potentially, replacing EBuilder with Oracle modules. • Billing Central San's customer billing approach is significantly less complex than most other utilities given that most customers (residential) are billed a fixed amount (rather than volumetric) and the charge appears on the customer's property tax bill rather than monthly bills. Accordingly, a complex (and typically expensive) dedicated customer billing system is not viewed as necessary for Central San. Therefore, the ERP RFP provided for customer billing functionality as an option for the bidders to offer. Emtec/Oracle did not propose on that function. As a result, the following are alternatives for Central San to procure a necessary billing functionality: 1. Continue to use HTE for the limited billing functionality that is needed, until another option is developed. 2. Develop a custom-built tool for the limited functionality that is required. 3. Procure a simple, third-party billing solution. Staff will return during the project term with a recommended solution on necessary billing functionality. Page 1 of 1 May 14, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 12 of 25