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IVEy Publishing SFU BEEDIE SCHOOL OF BUSINESS SIMON FRASER UNIVERSITY 9B16E003 WATERCO CUSTOMER INFORMATION AND BILLING SYSTEM (A) Professor Michael Parent wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G ON1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Our goal is to publish materials of the highest quality; submit any errata to publishcases@ivey.ca. Copyright @ 2016, Richard Ivey School of Business Foundation Version: 2020-07-07 The current season was the second-longest dry spell ever and the driest since 1978. WaterCo, the country's largest water services provider, was busy dealing with the effects of this drought. However, the utility's directors had a more pressing concern. The new customer information and billing system (CIBS), WaterCo's largest information technology project, was over-time, over-budget and not performing to expectations. The board of directors had asked Jess Kirkwood, WaterCo's chief executive officer (CEO), to present a progress report. The project had been budgeted at $38.2 million two years ago. To date, a little more than two years in, more than $60 million had been spent and project completion had been delayed by at least another three quarters. Management had submitted a proposal to the Board of Directors requesting additional funds and time to complete the project. The board was meeting the following week and had to decide what action, if any, to take on this request. BACKGROUND WaterCo WaterCo was a corporation owned by the government. It was a regulated monopoly charged with providing drinking water to, and managing wastewater and storm water for, over four million residents. It had annual revenues of $1.4 billion and assets in excess of $13 billion. It employed more than 3,000 people and had capital expenditures of about $500 million per year. The corporation was headed by a CEO appointed by the governor, on the advice of WaterCo's board of directors. The CEO reported to, and was also a member of, the board of directors. The board had an additional eight non-executive directors, appointed by the government on rotating three-year terms. The board was headed by a chair, appointed from the non-executive members of the board by the governor.Page 3 931 SEN!!! A report to the board two months afterwards stated that R3 had been delayed by at least three months. R2 was scheduled for implementation four months behind schedule. Nevertheless. the board approved additional funding of $8.9 million $2.1 million against borrowing costs, $300,000 for R2 and two separate contract variations of $3.0 million each for essential business changes and the sharing of costs associated with the delayed implementation of R3. Two months later, a paper report (no presentation) to the board stated that both R2 and R3 were on time. Two more months after that, the CEO reported that R2 had gone live in November as planned and that costs were tracking to the approved budget. Two years after the project launch {the originally scheduled date of completion), the C135 project director raised concerns about the ongoing viability of the project and reported these concerns to the CEO. Nevertheless. that month, the CEO reported to the board that most work streams within R3 were progressing to plan. The following month, the C135 project director presented a forecast cost to completion of $95.2 million to the CEO. noting the project would have a negative net present value (NPV). That month. the CEO's progress report to the board consisted of a paper report and three overhead slides. The report noted that a detailed review of all costs to date and anticipated had been undertaken; that a number of workarounds for the software had been identied; that a number of options had been considered to either complete or terminate the project; that management was opting to continue the project; and that a detailed review was underway to determine if a launch date in three months was feasible. The board accepted management's recommendation to continue the project and approved additional contract variations totaling $7.9 million. The total approved budget now stood at $60 million. At the subsequent board meeting two months afterwards. Kirkwood recommended to the board that the launch date be deferred for an indenite period due to a number of unforeseen and unresolved technical issues. The board accepted this recommendation and asked for a detailed budget and progress report for its next meeting. Next Steps A CIBS executive steering committee meeting concluded that there were [02 critical and significant defects in the C135 system. The vendor expected to clear most of these. WaterCo's management needed to determine when the software could go live and what additional funds, if any, were needed to successfully complete the project. The CEO needed this information to present the requested updates to the board. Pa e 2 931BE003 The board met monthly and had five standing committees: Audit & Risk; Environment; Finance; Public Health & Research; and Remuneration. Each committee was chaired by a non-executive director. WaterCo's Customer Information and Billing System (ClBSl The C138 project was intended to improve service to customers, to fill gaps in existing information systems and to provide operational efficiencies. It required the integration of 12 major business systems and over 60 third-party interfaces. It was the utility's largest information technology (IT) project ever in terms of scope and budget. Four years ago. management had prepared a business case for a new customer information system and issued an expression of interest (E01). Twenty-seven vendors responded to the E01. After a thorough evaluation, six of them were invited to tender for the project. Five tenders were received. Management evaluated these tenders and recommended to the board that the contract be awarded to one of the leading IT integration firms in the country. The board agreed. Total funding for the project was $33.2 million, allocated as $26.3 million to the vendor for fees and $11.9 million to WaterCo to cover staff and capital costs. The contract included a provision for a technical proof of concept (TPOC). a working prototype, before the nal contract was signed. The project was divided into three overlapping phases that were to take two years (24 months) to complete: R1 (Release 1} - a tool to service major customers Months 1-6 R2 - electronic interaction with commercial land developers Months 2-13 0 R3 - integration of all core systems Months 2-24 Project Rollout The project kicked off when an internal CIBS steering committee was established and tasked with evaluating the TPOC. However. the planned demonstration of the TPOC did not occur before the final contract was signed. Five months into the project the TPOC was finalized. It identified a number of issues which could be potential \"show-stoppers." Nevertheless, the rst release of R1 was reached one month behind schedule. The first phase of R2 was then completed two months behind schedule. The first progress report to the board was made one year after inception of the project. and the board's initial approval. At this meeting. the board made the CEO accountable for delivering the CIBS project and required bi-monthly project updates detailing progress and costs incurred against plan and budget. The board also approved additional funding in the amount of $4.8 million to capitalize additional labor costs. Board Reports Two months later, the CEO's report to the board noted that R2 continued to have problems with testing, posing a threat to on-time delivery. Who are the stakeholders in the case? What are the immediate issues problems, challenges or opportunities? Basic issues (think larger and more generic)? Why, the cause of issues, and factors related to the issue? Provide some solutions or alternatives/ recommendations on the issues identified in the case. Preferred alternatives or final recommendation