MP(96)42
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Bringing technology to Post Offices
and Benefit Payment
The business case for the automation of Post Offices
Project Sponsors: Richard Dykes
Stuart Sweetman
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1, Summary
This paper seeks MaPEC authority for Post Office Counters Ltd (POCL), in
conjunction with the Benefits Agency (BA), to proceed to the contract award stage of
the counter automation project.
The project includes the automation of all counter positions in all post offices, and the
new card based benefit encashment service. The business case shows that there are
strong strategic and commercial reasons for POCL to automate. The financial case,
based on supplier responses, has a marginally positive net present value over the life of
the contract. Automation provides a secure foundation for POCL to maintain and
attract profitable business, provide opportunities for continued efficiency
improvements, and to help secure the nation-wide network of offices.
Approval is therefore requested to proceed with the programme on the basis that:
the case has a positive net present value,
© the risk to POCL continues to be at an acceptable level.
2. Background
POCL, together with the Benefits Agency (POCL’s largest client), has established a
joint programme to provide automated services to support the end-to-end process of
paying benefits through post offices and support other existing and new POCL
business. It is expected that these services will be procured through the Private
Finance Initiative and will be available in all post offices. Each post office will have an
integrated facility providing the new card based benefit payment service, automated
payment terminal facilities (i.e. bill payment), Electronic Point of Sale (EPOS)
capability, replacing ECCO+, and provide the capability to support other functionality
as required (e.g. electronic scales). The objectives of the programme are summarised
in Appendix 1.
Following BA pressure in late 1992 and early 1993 for mandatory ACT for the ;
payment of benefits, BA and POCL worked together to establish the feasibility of cost
savings through counter automation. In the summer of 1994 an advert was placed
inviting expressions of interest in the automation project. From the eighty who
expressed interest, three were eventually selected in July 1995 to discuss and negotiate
POCL’s and BA’s requirements. An ITT was issued on 29 February 1996 and the
three suppliers responded on 21 March. A number of issues arose from the evaluation
and discussions were held with the suppliers. Suppliers were invited to retender on a
small number of areas. Their responses, received on 22 April, have been incorporated. q
3. Strategic and commercial impacts ?
The programme represents a major opportunity for POCL to modernise its operations i
and position itself as the leading nation-wide provider of automation-based retail }
services. Automation is a key enabler for POCL’s future. It will provide a platform
for POCL’s commercial strategy of growing through gaining new business by
exploiting technology, improving retail design, supporting agents, improving service to i
customers and clients and improving efficiency. It will help POCL to exploit the wider ;
powers it has been given by Government. Automation will help defend its position {
against existing and new competition. In addition automation in post offices will
support Post Office strategic objectives in the communication and distribution markets
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by providing accessible service points for new hybrid products, exploiting customer
databases and exploiting customer footfall to the advantage of all Post Office
businesses.
A majority of the product development opportunities identified in POCL’s business
plan proposals require, or will be enhanced by, automation (35% are considered to be
highly dependent on automation, and a further 45% have a medium level of automation
dependence).
With BA, automation realises two strategic goals. It reduces anticipated volume and
income decline from BA’s encouragement of ACT, and eases pressure on POCL prices
were BA unable to release substantial administrative and fraud savings. Indeed, as part
of the programme, POCL and BA have negotiated a back-to-back deal which provides
for an eight year contract. This includes a floor income level from BA irrespective of
actual volume, a limited efficiency discount of 1% per annum and a sharing of residual
fraud liability risk. The importance of the agreement, and a Memorandum of
Understanding signed in April 1995 with BA, is illustrated by the recent attempt by
Treasury to unpick parts of the deal which they regarded as too beneficial to POCL in
the light of BA’s target to save 25% of its administration costs over two years. An
annually negotiated contract would provide BA with greater leverage for a lower price
or encouragement of ACT.
To protect POCL’s strategic and commercial position POCL defined a number of non-
negotiables to guide the programme and judge the success of the project. These were
endorsed by the Board on November 1995. All of the non-negotiables have been
addressed (see Appendix 2).
Additionally, POCL sees this development as an opportunity to develop a strategic
alliance with the private sector service supplier. POCL expects to benefit from this by
bringing in commercial private sector culture and skills in product development and
marketing as well as the potential for the supplier to bring in products from their own
and associated businesses to use the service. However, in exploring these
opportunities POCL has ensured it maintains control over its key business processes,
and the use made of the services.
The automation programme has a high political profile. The political benefits are a net
gain to the public sector from a reduction on social security spending and fraud; active
support for the nation-wide network of post offices; and a major success for the PFI.
4. Evaluation
The bids were evaluated on both a financial and value basis. A summary of the
evaluation process is at Appendix 3. ;
4.1 Financial evaluation
POCL evaluated a number of options against a base case:
1. Base case: automation based on the strategy of incremental expansion of ECCO+
and APT. Therefore, POCL would not do nothing, but the expansion of
automation would be extremely limited. In this option, POCL would get some
sy retin
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benefit from new business such as bill payment . The base case assumptions were
independently reviewed by Coopers and Lybrand.
2. POCL procurement: full automation funded by the Post Office. In this scenario
greater risks remain with POCL. A key assumption is that BA would go ahead,
either with a separate PFI or funded by the public sector. In either case BA oppose
a POCL funded and owned system, and it is likely that income and volume from BA
would be affected.
3. PFI procurement: full automation funded by the supplier with payment based on a
usage basis with significant risk transferred to the supplier. Under this option three
suppliers proposals were evaluated.
The NPVs (at a 12% discount factor), including an assessment of additional risks, of
the automation options against the base case are as follows: ‘
At best view Including risks
1. Automation funded by the Post Office:
Single capital investment: £124m £ 50m
Investment every four years £ 55m £(19)m
2. Automation funded through the PFI:
Tom £ 47m £ 30m
Dick £ 65m £ 45m
Harry £ 52m £ 35m
A more detailed analysis is at appendix 4.
Although the NPV of automation is positive over the base case, the cash flows are
negative. These were taken account of in POCL’s Business Plan for 1996/97-2000/01
and the target discussions with DTI. However, the suppliers’ bids were higher than
originally indicated, and therefore the impact on the Business Plan is greater than
expected (see Appendix 4, section 2.2). In summary the worst case would be a 1%
worsening of any RUC target and an adverse profit impact of £10m by year 5S. We S
believe that this could be accommodated within the plan as discussed in Appendix 4,
section 2.2. Without automation the overall business position would be significantly
worse. ;
To quantify the strategic importance of automation to POCL, Charterhouse have
prepared an evaluation of POCL with and without automation. This shows that j
automation would, in the view of Charterhouse, increase the worth of POCL.
The nature of the eight year Private Finance Initiative deal with the supplier means that
POCL will only pay for the system as it uses it, reducing revenue/cost risk. The
marginal positive return based on a 12% discount factor is made on a project that has
no significant capital investment by the Post Office. Capital investment would be in j
the order of £150m.
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In March 1995, MaPEC gave authority to spend some £6m for development. Sunk
costs to 31 March 1996 were £5.4m. It is anticipated that additional ongoing
operational costs will be required to manage the implementation of the system and then
to manage the contract, and to develop the partnership relationship with the supplier.
These, based on programme costs to date, are not expected to exceed £5m a year.
Part of the ongoing management costs will be recovered from BA. Approval in
principle is required for the remaining programme costs of 210 over the next two
years. A breakdown is at Appendix 5.
4.2 Value factor evaluation
Each of the three suppliers were assessed also against ten value factors. These
included customer and staff acceptability, fraud free method of payment, credibility,
innovation, flexibility, management capability, reliability and support and stability and
coherence. All three suppliers exceeded the acceptable hurdle, although overall Tom
and Harry had a higher score than Dick. A summary of the value scores is at Appendix
6. No detailed value analysis has been carried out for the PO funded option.
However, areas of significant risk would include credibility of delivery, innovation,
flexibility and management capability and would be likely to score less well than the
PFI suppliers.
4.3 Key Performance Indicators
Overall it is expected to lead to significant improvements in terms of accuracy of
transaction and client perceptions (summarised in Appendix 6). However, major risks
are around customer and staff attitude, especially during roll-out, and the impact on
the quality of service in terms of queuing time. These risks have been addressed in the
training and roll-out plans, as well in the contract clauses (including Remedies) with
the suppliers.
5. Risk management
The aim of the risk management approach is to achieve best value for money, by
balancing the costs and the benefits of reducing risks. A key element of the approach
is the appraisal of alternative options or strategies for managing risks in terms of their
costs and benefits. Risk management is undertaken at a number of levels:
© programme risks: risks associated with the programme fall broadly under three
classifications:
local risks of a specifically defined activity or event,
© pan programme risks likely to impact across the breadth of activities,
© external risks outside the direct control of the programme.
supplier risks: as above but specific to a supplier,
© business specific risks: as above but specific to either BA or POCL.
shies
The approach to managing these risks is based on the following principles:
¢ risk monitoring is supported by an electronic risk register maintained by the
Programme Risk Management Group within the programme team,
¢ risk details are categorised to reflect risk accountability,
¢ risks are reported regularly to senior management within the programme team and
POCL,
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© each risk is prioritised. Out of a total risk complement of 200, some 10 to 20 are
expected to be high priority at any one time,
© ownership of risks resides with the managers accountable for their mitigation.
The programme team were assisted by PA Consultants in setting up the risk
management approach, and POCL used KPMG to undertake the initial risk assessment
from a POCL perspective which was fed into the programme process.
Charterhouse have undertaken a risk evaluation to quantify the risks associated with
each supplier. The risks taken into account in the business case include fraud and
liability, cost of developing additional products, and technical risks .
6. Benefit management
At Appendix 7 is a summary of how the way forward will be managed. A Programme
Delivery Authority is being established which will have responsibility for delivering the
programme. Within POCL, a Development Director has been appointed to oversee
the PDA and be responsible for, inter alia, delivering the key strategic benefits.
The costs and benefits are also included within the commercial and business plans of
POCL, and therefore, the management of delivering the benefits of new business and
realise cost savings have been embedded in the management process of delivering the
business plan targets.
7. Next steps
In parallel with this submission the BA are similarly seeking the necessary authorities
to proceed from their Secretary of State and the Treasury. As this is high profile
procurement the Prime Minister’s office is also involved. The planned timetable once
authorities are granted is:
Announcement by Secretary of State for Social Security 15 May 1996
Contracts signed End May 1996
Operational trials September 1996
Roll out commences Spring 1997
Roll out-complete in post offices Spring 1999
Roll out complete Spring 2000
7. MaPEC approval
MaPEC is asked to:
1. note that authorised sunk costs of £5.4m have been incurred to date,
2. that the case has strategic and commercial benefit to POCL,
3. to note that the case is marginally positive in NPV terms,
4. to approve POCL’s decision to proceed with the programme if the evaluation of
prices and risks of the revised bids shows that:
e the case has a positive net present value,
¢ the risk to POCL continues to be at an acceptable level,
5. give authority in principle for the remaining programme costs of £10m.
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Appendix 1
Objectives
The objectives of the project are:
¢ A fraud-free method of paying benefits at post offices that is automated, has lower
end-to-end costs than the current paper-based process, with continuously reducing
overall administration costs year on year.
¢ Extending automation to POCL’s other client transactions, its products and its
support processes to improve competitiveness, increase efficiency, and to enable .
greater commercial opportunities for POCL.
¢ Full and speedy reconciliation of benefit payments, with accounting arrangements
consistent with recognised accountancy practices.
¢ An improved overall service to the parties’ customers.
‘
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Appendix 2
Non negotiabies
Seven non-negotiables were defined by POCL to provide parameters for negotiations
and for assessing the options. These were agreed by the Post Office Board in
November 1995. Each non-negotiable is a deal breaker in its own right.
Non negotiable Comment
1. Acceptable business case for POCL and The business case shows a positive NPV
Post Office at a 12% discount rate
2. Customers perceive no material The proposed solution's impact on
worsening of service transaction times is within acceptable
bounds
3. No damage to Post Office brand There is no immediate evidence that PO ‘
brand damage will occur
4. POCL retains control of critical Achieved (subject to final AEU clearance
operations and key commercial of contract terms)
relationships
5. Capability for POCL to automate all Achieved
clients and develop new services
6. Automation of all post offices within All post offices should be automated
reasonable time within three years of contract award ;
7. Chosen supplier has financial and Evaluation conclusions are that these :
technical capability to develop and deliver conditions have been met.
the services.
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Appendix 3
Evaluation Process
The procurement and evaluation process has been designed and administered on behalf
of the sponsors by experts drawn from their respective organisations. Additional
external support has been provided by specialist procurement consultants and
commercial lawyers.
The evaluation process has essentially consisted of two elements:
1. Qualitative scoring of a range of factors which are not able to be analysed in
financial terms - The “Value” Factors;
2. Detailed financial analysis of suppliers best prices, including costs borne by
sponsors, attributable costs relating to risks, and differential levels of PFI risk
transfer - The “Financial” Factors;
The evaluation has then been carried out using the following conceptual grid:
Increasing value
Increasing
Cost
soctacie
The final stages of the evaluation have been conducted as follows:
1. Report of evaluation teams drawn from sponsors (and supported as appropriate by
external consultancy expertise) to Evaluation Board;
2. Evaluation Board, chaired by POCL, decision;
3. Endorsement by Programme Steering Committee, co-chaired by Chief Executive
BA and MD POCL, and including representatives from sponsors, DSS, DTI and
Treasury.
ssh ana
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Appendix 4
Financial evaluation results
1. Background
The business case is dependent on three areas:
¢ cost reduction:
This is limited because the main area of cost affected is the network cost and:
in Crown offices ECCO+ has already delivered a number of savings to be
expected from counter automation,
© POCL does not pay specifically for back of office time in the subpostmaster
network where most of the savings are to be gained,
© cash account processing savings are not generated by automation, but by the TIP
project which will exploit further the potential of automation in this area.
¢ new business development:
The automation of counters is expected to lead to additional opportunities for new
business. Indeed, a majority of the development opportunities identified in POCL’s
commercial proposals require, or will be enhanced by, automation (35% are
considered to be highly dependent on automation, and a further 45% have a
medium level of automation dependence).
¢ income maintenance:
Without automation it is expected that there will a fast drift of business away from
POCL, or that there will be greater pressure on prices and contribution. Of
significant importance is benefit volume and price without automation.
All of these require an assessment of what would happen with automation and what
would happen with an alternative. However, for the last three years of business and
commercial planning POCL has worked on the basis of an increase in commercial
powers and counter automation. Therefore, the income, costs and profit under the
automation scenario were an integral part of business as usual.
The options evaluated were:
1. Base case: automation based on the strategy of incremental expansion of ECCO+
and APT. Therefore, POCL would not do nothing, but the expansion of
automation would be extremely limited. In this option, POCL would get some
benefit from new business such as bill payment .
2. POCL procurement: full automation funded by the Post Office. In this scenario
greater risks remain with POCL.
3. PFI procurement: full automation funded by the supplier with payment based ona
usage basis with significant risk transferred to the supplier. Under this option three
suppliers proposals were evaluated.
Sensitivity analysis has been undertaken based on commercial proposal pessimistic and
optimistic forecasts. In the case of supplier related charges pessimistic costs are based
ss abt
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on the most expensive supplier, while optimistic costs are based on taking at face value
what suppliers included in their tenders.
2. Summary of results
The assumptions and results behind each option are included in supporting working
papers. The results are summarised in the annex to this appendix.
2.1 NPV impacts
1. Base case: the base case shows a fall in volume and income, significantly so in the
case of benefit payment transactions over that included in the business plan. This is
caused by clients going elsewhere, lack of new business and pressure on prices for a
lower service standard to clients. This results in a significant negative NPV. This
would significantly worsen profit such that POCL may be forced into a strategy of
managed decline.
The baseline has been reviewed and verified by Coopers and Lybrand. It is our
belief that we have taken a prudent view. The automation case includes only
additional contribution from volume over and above that from an expansion of the
present bill payment network. In the case of BA volumes and income, we have not
revisited the baseline following the imposition on BA of a 25% cost reduction target
over two to three years. We have assumed an RPI-3%, rather than an implied RPI-
7.5% to RPI-12.5% over the relevant years
Following Counter Automation, POCL’s IT strategy concentrated on small
incremental change based on ECCO+ and APTs. Counter Automation i
demonstrated that a more extensive automation programme could not be successful 3
without the support of key clients, such as BA. The base case is therefore based on
POCL’s original strategy of incremental change.
2. PO procurement: under this option volume and income would grow. However,
BA are strongly against POCL funding and owning the system and therefore it is
expected that there would be additional pressure on prices with BA. The cost of
the system would be lower under this option, although this is partly offset by lower
income from BA for the system charges. In addition risk is likely be higher than
under a PFI option, including greater exposure to fraud risk, project failure and
delays and cost overruns.
This option has the highest NPV, although at some £124m over eight years it is still
marginal. After taking account of risks around fraud etc. the NPV worsens
considerably to £50m. If POCL replaced the capital investment after four years in
line with PO policy, the NPVs would be £55m and £(19)m respecitively. However,
there would be risks around BA’s ability to fund their part of the project or to :
proceed with a separate PFI. In the case of the latter, this could pose serious
commercial risks to POCL, in that BA and their supplier may have greater freedom
to use non-POCL outlets.
spac
3. PFI procurement: three suppliers have been evaluated. On reasonable case I
assumptions NPV’s range from £47m to £65m. All three suppliers prices produce
positive NPVs. After taking account of risks the NPVs range from £30m to £45m.
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2.2 P&L impact
The evaluation was not an appraisal of POCL’s entire business plan, rather an
evaluation of the areas where there would be changes between the base case, a public
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procurement and a PFI option.
The Business Plan for 1996/97-2000/01 includes both the benefits and costs relating to
automation. However, since the preparation of the Plan a number of changes have
occurred:
© resolution of negotiations with BA on card issue and back office savings which has
resulted in additional contribution over and above that included in the Plan,
identification of further savings related to existing automated platforms,
e higher than expected supplier charges,
significant VAT impact.
This has had the following impact on the Business Plan:
96/97 I 97/98 I 98/99 I 99/00 I 00/01
Business plan:
© profit 37 35 37 44 46
Base case:
¢ revised profit 30 -17 -27 -32 -33
¢ additional RUC 0.6 46 m2 68 7.0
PO procurement:
Single investment:
© revised profit 33 21 60 78 81
e additional RUC 0.3 13 0 0 0
PO procurement:
Replacement after 4 yrs:
© revised profit 33 21 42 62 66
¢ additional RUC 03 13 0 0 0
PFI procurement:
¢ revised profit 40 37 28 32 38
additional RUC 0 0 08{I 1.11 0.8
However, in managing this shortfall a number of actions are being considered:
¢ VAT: POCL has a low VAT recovery percentage, some 22%. If POCL charged
BA VAT on the main contract this would increase recovery to over 60%. This
would increase recovered VAT by some £7m a year. However, there are a number
of issues to be resolved, including the impact on subpostmasters and other clients,
¢ Contract management costs: these have been estimated at £5m a year based on
current programme costs. However, it is unlikely that ongoing costs will be at this
level,
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¢ Additional products: the system related costs of developing additional products is
included. However, each new product will be appraised on a case by case basis,
and POCL may not proceed with all products, thus reducing development costs,
system charges at the same time as income,
¢ Fraud: fraud liability has been included. Good fraud management should help to
ensure that actual liability does not reach the level included in the business case.
In addition POCL may need to review whether the investment needs to be funded out "
of other measures such as delaying investment, maintaining income levels higher,
through pricing action, than that forecast in the Business Plan.
Against this, there are a number of risks which may worsen the impact, and care needs
to be managed to ensure they do not materialise.
3. Risk assessment
In each case an assessment of risk has been made. These include:
© consumables: cost of till rolls, printer cartridges etc.,
© product development: the development cost of additional products to bring them
onto the scorecard (scorecard costs are already included in supplier charges),
fraud: increase in fraud exposure,
printers: POCL to buy its own printers under Tom,
service levels:
longer opening hours: costs of supporting out of hours opening. Probably higher
under Tom,
¢ additional fraud: increased fraud exposure arising from different solutions etc.. In
the case of PO procured solution, the entire annual fraud risk of £15m would
remain with POCL,
© onus of proof: The cost of proving liability. Under the PO procured option the
onus of proof in fraud cases will rest with POCL as it would be operating as a
supplier. Dick has accepted the onus of proof. Under Tom and Harry the onus of
proof will rest with BA,
¢ kit installation: the cost of installing kit where office are not up to an acceptable
level. In the case of the PO option, these costs have been included in the main
costs,
© powers: loss of contribution if Government refuse an extension of powers.
The risks included are:
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NPV at 12% PO Dick I Tom I Harry
£M I procured
Best view:
Consumables 15.32I 15.32] 15.32] 15.32
Product development 10.10} 10.10] 10.10] 10.10
Fraud 10.56] 10.56I 10.56} 10.56
Printers wa wa} 2.33 wa
Additional risks:
Service levels wa
Longer opening hours support waI 033} 0.33] 0.33
Additional fraud risk 47.00I 10.19I 5.05} 5.34
Onus of proof 27.02
Kit installation waI 7.67} 9.13] 9.13
Powers 2.04] 2.04] 2.04] 2.04
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Separate analysis has been undertaken on quantifying programme risks such as delays
to EPOS functionality, overall slippage etc. Given the nature of the programme, i.e.
PFI and negative cash flows, and that much of the benefits are connected with income
and volume protection, delays of up to six months will not have a significant impact on
the NPV.
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Sheet
INPV Summary Base Options Other PFI options
case Post Office: single & 4 yearly PA = Dick Harry Tom
‘NPV I _NPV_[Difference] NPV [Difference] NPV _ Difference NPV] Diference I __NPV__I Difference
income .
Agency 2.119] 2,089) -50I 2.110) 9 2.119) 2.119)
change 209) 71] 220) Ld 220] 7 bd
change 196] __107I 303] 07] 303 107 07]
[Sub total 7720] 2,253) 533] 2,253] 533 2,303] 583] 2303] $83.00] 2303] 583.00}
Girocheques 325] 325) 0 325] oj 325] 325]
change zi] -188] 167] 188) -167] 188) 188]
2 4 2I I 2 2
Sub total ‘Sof 139] 174 To] a7] 13071, 730] 171.00} 130] 171.00]
office business
‘clients nI 7 7 7 7 id
on automation 40] 40) 40) 40) «0 rs)
total a7 717 77] 7] 117] 777] Ti7] 117.05} 7] ir
fr 2508] ae 2508] a7] 2558] Ex) 2,560] 529.00] 2350] 52000)
Expenditure
[Total operating costs:
-1g8o] 2.112] 223) 2112] 223 2112] 2.112]
Girobank 297] 140) 157] “140} 157] “140 140)
[rime 5 5 15} 48 15] 45
[Card issue/back office savings 73] 73] Lc) 73) Lc) 73]
[Fraining Ee) za 3] 3 3] 3]
costs: sunk 4 3 4 5 4 3] 3
management 25] E) 2 25} Ee) 25]
aud 4 1 4 0) Ql
2
Frotai Zio] 2207] SI __-227 Ea) ETT =] Bz] 36.00] 2229] 36.00}
Giscourted cash How
‘option costs and risks tei] __ 262] «23 202 423I___ 332] 493 332] __ 493.00) 390] __ 49.00]
Option costs
[System charges: 12 191
BES va 14s] 145) 145; 145}
Poct va 20-220 23 236]
Jother “177 an 36 36] 36] 36]
Ivar a a a a
[Sub total of 235] ea 58 as a8} a I aaa] 444 00]
[Assessment of risks Ey) Ey) Ey) 2) 20} 7] 17
[Sub total ‘of 74] EZ) EZ) EZ) a) E) 7] Ei a ci
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Remaining programme costs
Estimate of costs required up to completion of roll out:
1996/97 1997/98
£000’s £000’s
Staff & consultants 3,500 2,000
Goods and services 1,000 500
Accommodation 200 200
IT 300 200
Total 5,000 2,900
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Appendix 6
1998/99 Total
£000’s £000’s
1,500 7,000 ;
200 1,700
200 600
200 700
2,100 10,000
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Appendix 7
Value factor evaluation and KPI impact
Value factors
The value factors against which the three suppliers were assessed are:
1. Customer acceptability: the service provider needs to ensure that the services are
viewed favourably by customers at post offices, and that the benefit payment
services are acceptable to all benefit customers choosing to be paid at post offices,
2. Stafi/agent acceptability: the service provider’s services need to be Post Office and
BA local office staff friendly; for example, by being easy to use, responsive and
supportive of their job functions,
3. Fraud free method of payment: the measures proposed to make the service for
benefit payment fraud free and to maintain the fraud free level, a
a. fraud free systems for POCL: the measures proposed to make the service for
POCL fraud free and to maintain that fraud free level,
4. Credibility of delivery in steady state: the service provider’s designs, procedures,
tools, methods, resources and organisation need to ensure that the steady-state
services will be delivered to time and quality, showing understanding of and
empathy with the BA and POCL requirements and objectives,
5. Start-up: the service provider’s design, development, acceptance and initial
implementation services need to be credible, showing appropriate controls,
management interfaces and capability for managing, controlling and delivering the
start-up of the services,
6. Innovation: the service provider needs to be proactive, change orientated and
demonstrate a genuine “can do” attitude. He should generate creative ideas and
understand how to apply technology profitably building upon his initial services,
complementing rather than competing with POCL’s core competencies. He should
seek to do existing things better and better new things. ’
7. Flexibility: the service provider and his services need the ability to react to external
change and to meet a diverse range of existing and potential needs, thereby
maximising value for money and faster delivery of new products and services,
a gia
8. Management capability: the service provider management needs to be competent,
customer focused, accountable, with evidence of well defined internal controls
enabling a proper external focus. Suitable quality processes must be in place, and
key resources must have skills and experience appropriate to their roles,
9. Reliability and support: the service provider needs to anticipate and prevent
problems, with robust fallback procedures for benefit payments and other customer ;
services in the event of system failure. He should regard his first priority as ,
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maintaining continuity of service rather than referring to the contract in the event of
unforeseen problems,
10.Stability/coherence: the prime service provider and his associated consortium
members and/or main subcontractors need to have a stable relationship from which
to provide the services. The member organisations should balance each others’
skills and resources to match those needed to deliver the services. The prime
service provider should show his competence to successfully lead such a group of
organisations to deliver similar services.
Programme value factors Tom I Dick I Harry
1. Customer acceptability 53 5.3 5.8
2. Staff/agent acceptability 5:0: 5.5 6.0
3. Fraud free payment method 54 I 40 5.5
3a. Fraud free systems for POCL I 5.9 I 5.1 =h .
4. Credibility of delivery 5.5 I 4.1 ys
5. Start-up $i I 44 I SA
6. Innovation 5.8 5.4 5.3
7. Flexibility 42 I 44 47
8. Management capability 4.5 3:7: 47
9. Reliability and support 5.2 I 45 5.3
10. Stability and coherence 6.0 44 6.2
Impact on KPIs and objectives
The effect of introducing the automated service on POCL objectives is summarised in
the following table which also shows which of the non-financial KPIs are supported by
each objective.
i
Objective Impact KPIs Supported 4
QofS [SMART I QPA I Staff [Agents I —
(I customer choice Taintained for benefits, enhanced v }
for other products
(b)__I branding supported v v v
(©)__I maintain customer base supported Vv
(@ _I nation-wide network Supported v v a ie!
(e)__I inall post offices ‘supported v Vv Vv Vv
(©) _ I support commercial and ‘supported Vv V
financial integrity
(g) I cost effective supported subject to satisfactory Vv
outcome of supplier negotiations
(h)__I support agents’ business supported Vv
(i) _ I acceptable to staff and agents I current indications are that agents Vv Vv
will welcome the automation and :
staff will not oppose it I
() _ I facilitate other POCL ‘supported, more so by the generic Vv Vv :
automation solution, less by bespoke ALPS-
like solution
(kK)_I retain and gain new business I supported v Vv v ;
(1) _I flexibility to meet client needs I supported, more so by the generic v j
solution, less by bespoke ALPS-
like solution ]
(m) I stability for POCL network as I supported - 8 year contract Vv Vv v .
payer of benefits
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(n) I flexible, efficient it systems supported, more so by the generic Vv
approach solution, less by bespoke ALPS-
like solution
(0) I retain customers’ trust in supported; preferred contract Vv
POCL integrity structure will maintain POCL’s
role in providing the customer
interface
(p) I facilitate new added value ‘supported, more so by the generic Vv Vv qv Vv
services solution, less by bespoke ALPS-
like
(@ I toimplement without service I this will depend on the design and
quality suffering implementation of the chosen
solution. Increased transaction
times are seen as a significant risk
(1) I future competitiveness and supported Vv Vv Vv
viability
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Appendix 8
Managing the way forward
1. The Programme is being managed jointly whilst it is being delivered. A new
dedicated unit - called the “Programme Delivery Authority” (PDA) - will be set up ’
and empowered to deliver the Programme on behalf of its joint sponsors, POCL
and BA/SSA.
2. The PDA’s key purpose is to provide a single focus for the chosen supplier to
implement the business solution it has put forward in its bid to meet the
requirements catalogue specified by BA and POCL. PDA exists to deliver
effective end-to-end processes, systems and procedures, through the supplier, that
are integrated with the sponsors’ day-to-day management and operation.
3. It will be led by a Programme Director who will run a business unit drawn from
multi-skilled teams from both organisations. Its scope will include the planning
and management of the technical design and architecture, a security authority, a
roll out and implementation plan, service management and contract administration
with the supplier, change control, and customer education during the
implementation period (say, up to 3 years).
4. The PDA will report to a Programme Steering Committee, consisting of lead
directors from each sponsor organisation.
5. For POCL, a new Counters Executive Committee member (a Development
Director) reporting to the POCL MD, will be dedicated to the sponsorship of the i
Programme via the PDA. Within POCL, this director will also take accountability
for managing the key strategic business benefits that are outside the PDA’s scope
(such as the scheduling of more products and services from other POCL clients),
as well as ensuring that POCL’s dependencies and responsibilities are ready in
time to enable the PDA to deliver. This will include any commercial contract
changes between BA and POCL that need to align with supplier contract changes.
6. In addition, this director will take on accountability for developing a new
partnership with the supplier to identify and explore new potential strategic
benefits. These may include, for example, improvements in customer service,
business processes, or development of new business streams internationally or
through new customer relationship strategies. The related benefits are speculative
at present and so have not been included in the business case’s financial impact.
7. The PDA is not intended to be a permanent unit, and so service management
processes and skills will need to be transferred back to the sponsors in an ordered
way. It is intended to conduct regular reviews to ensure this is done optimally.
arate
8. POCL has also widened its Resources Director’s portfolio to add the
accountability of co-ordinating all its major technology projects, through a
transformational approach, to ensure that the main components of its key business
strategies (such as IS, HR and commercial) are aligned and managed together.
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9. Most of the benefits are around income protection and new business development.
The level of benefits have been identified within POCL’s commercial planning and
strategic planning processes. Therefore, they have been reviewed at business
centre and CEC level and are included in the business plan approved by Group.
The benefits have, therefore, been signed up to by the individual account managers
responsible for the detailed proposals, the business centre directors and CEC.
POCL is committed through this process to delivering the business plan forecast
profit of which the automation related benefits are a significant part. In short
delivering the automation benefits is part of “business as usual” in delivering the
business plan forecasts.
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