The Importance and Significance of Updating the Management Process in the Company - Case Study Example

?Case Study Analysis Background Sydney Water Corporation is a New South Wales owned corporation. In 1997-98, the corporation decided to introduce a customer information billing system (CIBS). For the purpose, tenders were invited and later on the tender was granted to Pricewaterhouse Coopers Consulting (PwC) with an approved project funding of $ 38.2 million. However, in October 2002, the Treasurer requested the New South Wales Auditor General to conduct a review on the CIBS project as the Board identified serious problems regarding the quality of the products, increasing costs, and failure to complete work in time. By the End of October 2002, the project was terminated. However, from the report of the Auditor General, it was found that as against the expected $ 38.2 million expenditure, the new project estimate was $ 135.1 million, out of which $ 61 million was already spent. Auditor General found serious issues regarding the corporate governance in Sydney Water. First of all, the reporting of the management to the Board on important issues was not detailed and timely. In addition, the Board did not oversee the project as it was supposed to do. Thirdly, the issues were not properly disclosed in the Annual Report 2002. 1. Cultural attitude within Sydney Water It is evident from the report of the Auditor General that the cultural attitude within Sydney Waters was not befitting a well-functioning organization. One of the main factors that become evident is the widespread belief in the Sydney Water that outsourcing of major projects will transfer all the risks to the contractor and that there is no need of the user cooperation in the process (Review of Sydney Water’s Customer Information and Billing System, 2003). The GM-Customer Service was of the opinion that by paying a premium to PwC, the fixed price contract would give a strong legal backup to Sydney Water. The same view was expressed by the Audit Committee and the whole Sydney Water management. So, they were not so keen in updating their risk management process, and were not interested in following up the DMR recommendations. Another issue is poor record keeping. Some important documents that were found missing in the Auditor General’s review were final business case, tendering processes, and net present value calculations for the project (ibid). Another point is the totally lethargic attitude exhibited by the Board of Directors. It is a well-known fact that the Board is directly responsible to the stakeholders, and hence is responsible to act in a manner that protects the interests of stakeholders. Hence, it is for the board to deal with challenges and issues relating to corporate governance, corporate social responsibility and corporate ethics. As a part of this, it is the responsibility of the directors to make sure that proper books of account are kept. However, in the case of Sydney Water, it can be seen that the board failed to control the whole procedure in a proper way. Firstly, it initiated the process without a proper architecture framework in place, and then failed to avail and analyze the progress of the project. When its managing director, steering committee, and other responsible ones failed to function as directed, it failed to take necessary actions to ensure compliance with the company strategies. In addition, one can observe that officers ranging from the project manager, the steering committee, and general managers of customer service acted in a lethargic and careless way. They failed to provide adequate reports and to follow the usual procedures of communication in the group. On the one hand, there was lack of common consensus about the responsibilities of each stakeholder, and on the other, they did not care about the interest of the company and its stakeholders. In the words of Schwalbe (2008, p.6), a successful project should meet its scope goal, cost goal, and time goal. It is very evident that the CIBS project failed to meet all the three goals. To meet these ends, the management should show good human resource management, communication management, risk management, and procurement management (ibid). A look into the ‘Information Technology success potential scoring sheet’ provided by Schwalbe (2009) in ‘Information Technology Project Management’ will prove that the project was destined to fail from the very beginning. The chart is provided below: Criteria Relative importance User involvement 19 Executive management support 16 Clear statement of requirements 15 Proper planning 11 Realistic expectations 10 Smaller project milestones 9 Competent staff 8 Ownership 6 Clear vision and objectives 3 Hardworking, focused staff 3 (Source: Schwalbe, 2009, p. 430). Surprisingly, in the case of Sydney Water, all these things were seriously deficient, and it led to the projects eventual failure. First of all, when user involvement is considered, it can be found that there was no early active involvement of Sydney Water in the project CIBS (Review of Sydney Water’s Customer Information and Billing System, 2003). As it was believed by the management of Sydney Water that the risk is entirely to be met by PwC, they did not even insist on having their involvement in the project. The confidence was so strong that there was not even a demonstration of CIBS in the entire period (ibid). In addition, it was found that many of the officers showed a greater degree of reluctance in their commitment to the project. As a result, there was lack of proper communication on the project, and thus, the project failed to achieve its goals. 2. The reporting process to the Sydney Water Board of Directors and the Board’s involvement One can undoubtedly say that the Sydney Water’s Board failed in overseeing the project from the beginning to the end. The first problem is found in the fact that there was the absence of a perfect idea about the scope, goal, expense, and time of the project. For example, it was totally unwise from the part of the Board to approve such a large IT project without a perfect IT architecture for the Sydney Water group already in place. It was totally unwise for them to complete the framework thereafter, and get into conflict with the CIBS for noncompliance. It led to considerable loss of time, effort, and money. The second issue was the carelessness it exhibited in financial issues. Though there were continuous reports on escalating cost, the Board did not engage the GM-finance to look into the financial issues and to act proactively. In addition, it is seen that during the approval stage of the project, the Board did not utilize the service of an external auditor to review the performance of both Sydney Water and PwC. Moreover, though the GM-Customer Services wrote to the Chairman suggesting that an external auditor be engaged to review the performance, this suggestion was not followed up. Yet another considerable flaw was that in 2000 June, PwC offered to conduct a demonstration of CIBS. However, this never took place. Still, the Board did not care to ask for a demonstration thereafter. Furthermore, the Board failed to ensure that adequate numbers of people with enough experience in the field are included in the Steering Committee and the Project Team to ensure proper running of the project. The chairman of the Board reveals that the first serious doubt about the success of CIBS arose in the Board only in October 2002, after already spending $ 61 million against the estimated expenditure of $ 38.2 million. However, it seems that in June 2002, the Board became a bit concerned about the outcome and hence, asked for more detailed reports from management showing the extra expenditure that would be incurred. However, the report the Board received was that the additional funds necessary to complete the project were not estimated as yet (Review of Sydney Water’s Customer Information and Billing System, 2003). The Board received similar reports in July, August and September reports, and by this time, the expected cost was $ 114.5 million. Even though this much of uncertainty existed, one can see the claim of the Board that the project is well in hand (ibid). Furthermore, when the IT architecture framework of Sydney Water was completed, it was found that the CIBS complies only with one among the 20 requirements. The same lack of compliance was evident in the technical Proof concept and also in the DMR Report of February 2001. Still, it is surprising to note the claim of the Board that it did not notice any discrepancy in the project until 2002. Terminating the project at that time could save a lot of money and time. In addition, there was a steering committee, and a general manager along with a project team that does not seem to possess any relevant experience in the field. The role of the Steering committee is very vital in project management. First of all, the Steering committee is responsible to take responsibility for the business issues associated with a project. It is for the Steering Committee to make sure that the projects remains well under control. One can identify five main functions that are performed by the Steering Committee. They are; approval of changes to the project and its supporting documentation, monitoring and review of the project, assistance to the project when required, resolution of conflicts, and acceptance of project deliverables. It is the responsibility of the Steering Committee to assess the benefits of the project, to find out the risks involved, to verify quality, and to ensure timely completion (Module 4 Notes, p. 4). It is for the Steering Committee to approve changes to any project and its supporting documentation. In addition, the budget, schedule, budget constraints, quality assurance, and any major change in the project plan should all be handled by the Steering Committee. Also, it is for the Steering Committee to monitor and review the projects, and, if found necessary, to terminate any project at any phase. There is also provision to stop the project and restart later on. However, in the case of Sydney Water, the Steering Committee was totally ineffective. It did not receive proper reporting from the Managing Director, not did it insist for the same. In addition, the Steering Committee is supposed to conduct regular meetings along with the project manager to assess the progress of the project and to address the issues that arise in the course. However, in the case of Sydney Water, regular meetings were totally absent, and nor was there any documentation. The Managing Director reported directly to the Board and his opinion was not disputed. Though a Project and Quality Management Advisor was not available, later on a Project Director was appointed. However, this Project Director was reporting directly to the Managing Director and hence, many of his findings regarding the uncertainty about the success of the project and the expenditure were not given adequate attention. In addition, he has pointed out lack of expertise on both the sides (Module 4 Notes, p. 16). However, the Managing Director, GM-Finance, and GM-Customer Services did not take the issues seriously before the Board. There were many issues that contributed to the ineffective functioning of the Steering Committee in the CIBS program. The first one is that the Governance Charter was unclear and did not clearly mention its relationship to Sydney Water’s IT governance model. Secondly, the reporting received by the committee was inconsistent and insufficient. Thirdly, the roles and responsibilities were not clearly identified, and hence, there was total chaos in the level of issues put forward to it and the way of handling them. There was almost total absence of financial reporting, clearly mentioning the expenses as against the expected budget (Review of Sydney Water’s Customer Information and Billing System, 2003). 3. Disclosure and reporting during the project It is evident from the Auditor General’s Report to the Parliament 2003 that in the CIBS project, the report to Sydney Water’s Board of Directors was totally deficient (ibid). About reporting, it is pointed out that it is necessary to have regular status and milestone reporting to ensure quality management. The project status reporting is a regular formalized reporting on the progress of the project against the project proposal or project execution plan. It is the responsibility of the project manager to submit this to the Board. It is evident that such a project status report will enable the Board to take appropriate decisions that are necessary for the quality management of the project. In addition, it is evident that such a project status report will provide an ongoing history of the project that helps in tracking progress (Module 4 Notes, p. 15). This report should be provided by the project manager to the steering committee or other key stakeholders. In addition, such a report should contain regular review of progress against budget. In addition, there is provision for a risk management report that is meant to report any new risk that has arisen. Furthermore, issue report can be created that point out the specific areas of concern and any specific action or decision that needs to be taken for the project. At this juncture, a look into the Sydney Water CIBS will prove that the reporting was gravely inadequate. It is mentioned in the report that the progress reports that were submitted to the Board of Directors did not mention any serious doubt about the delivery of CIBS results. In addition, the procedures for reporting to the Board of Directors were incomplete, unclear and brief. This inadequacy in information was evident when the Board meeting was conducted in March 2002. When the Managing Director claims that he reported issues like increasing volume of change costs, doubts regarding the long-term technical viability of CIBS, it is reported by the Auditor General that these issues were not given adequate importance in the report. In addition, there were many more issues involved. At the end of April 2001, the Board had directed the Managing Director to provide regular progress report to the Board. However, between September 2001 and February 2002, no detailed progress report was provided to the Board. In addition, it is pointed out that the budget report was not at all available to the Board during this period. There was no report available to the Board that provided compete information on project costs and their comparison with the budget. In addition, it is found that the project director hired by Sydney Water had prepared notes which included serious doubts about the achievability of the project within the timeframe and also within the expected expenditure. In addition, the report pointed out the evident lack of expertise on both the sides. Also, the project director prepared cost projections that the cost would be between $ 95.4 million and 103.7 million. The matter was duly informed to the managing director, general manager-customer services, and general manager-finance. Though all these officers attended the 2002 Board meeting, none of these issues was discussed. However, the Board cannot evade from its responsibility claiming ignorance as there were many reports submitted during the period that additional funding would be necessary to complete the project. In addition, it was mentioned that additional cost for the completion of the project was not yet calculated, and such reports are seen until September 2002. Still, it is ironic to note that the Board did not take the issues seriously and appoint an external auditor to see what financial situation has arisen. Surprisingly, the Board in 2002 August found that ‘significant critical activities associated with preparing the business for the new CIBS solution are well in hand’. It is seen that the management failed to provide detailed reports. However, it was the responsibility of the Board to enforce the management to provide the stipulated bi-monthly report. Furthermore, though the general manager-customer service commissioned the DMR report of February 2001, the recommendations it made were not implemented until July 2002. In addition, there was the internal audit contract compliance report of March 2002 that made key recommendations to improve the project. Though the Board meeting of March 2002 approved the continuation of the project allowing an increase of budget to $ 60 million, it did not ask for a detailed explanation of the kind of improvements the management was going to implement. Moreover, though the Sydney Water IT, in 2001, pointed out that due to the hybrid nature of technical architecture, it would be difficult to maintain the system, the Board did not seem sufficiently worried to look into this claim. More evident proof of failure comes from April 2001 Quality Assurance Review of PwC. It is pointed out that ‘the Technical Proof of Concept did not match with the architecture that was chosen’. In addition, the Technical Proof of Concept of July 2000 has pointed out that the main system was not as trouble-free as was expected. It seems that the problems were not discussed even when the contract was finalized. Had the Board given adequate importance to these issues, the problem cold be averted or the Board could cancel the project. It is pointed out by Kathy Schwalbe that in large projects, the most important factors are leadership, relevant prior experience, planning, people skills, verbal communication, and team-building skills. In addition, as Schwalbe (2008, p.21) states, when there is uncertainty, risk management, expectation management, and leadership, people skills and planning skills too are important. The comments available in the 2002 Annual Report is as follows: ‘The main CIBS solution involving the core billing engine and the interfaces is due to be implemented during the second half of 2002-03. Delivering of the main CIBS solution will be significantly later and has incurred additional expenditure’ (Review of Sydney Water’s Customer Information and Billing System, 2003). It seems that the annual report did not provide any information about risks, problems, reasons for cost increase, and delays. Thought the Board suggested the management to provide a revised draft, it was not provided. One can see a very poor project planning and specification in the CIBS project. Thus, there arose a number of change requests. As the project planning and project specifications were inadequate, the agreed project specifications were significantly different from the actual needs. Some change requests were as follows: electronic interface with customers for bill payments, facilitating officers to view billing on the computer screen, assessing customer usage using historic data and so on. This flood of change requests led to significant change in the project cost and resulted in considerable delays. However, it is evident that there was no early active involvement of the user that is Sydney Water. In addition, the time and effort in the project analysis was insufficient (Review of Sydney Water’s Customer Information and Billing System, 2003). This led to the omission of many important functional requirements. According to Schwalbe, Strategic planning is the first stage of any project selection. In this stage, the goals and objectives should be clearly identified. The next one is business area analysis that is required to find out the processes that are required to achieve the goals. In the next stage, the project planning comes where managers check the projects’ scope, time, and cost goals, projected benefits, and constraints. However, in the case of Sydney Water, this stage was gravely insufficient. They did not have a clear vision about the scope or projected benefits of the project as is evident from the fact that there were so many change requests after the commencement of the program. In addition, they failed miserably to identify the cost involved as is evident from the fact that the cost rose from $ 38.2 million to $ 135.1 million. In total, it becomes evident that the failure of the CIBS project was not an unexpected singular event. This is an epitome of lack of managerial oversight and strategy. Attitudes were to be changed from top to bottom. The Board had to exhibit more insight and clear vision, management was expected to show more understanding and dedication towards their duties. In addition, there was evident absence of proper documentation and communication. Bibliography ‘Review of Sydney Water’s Customer Information and Billing System 2003’, Auditor General’s Report to Parliament 2003, vol 1, pp. 11-77. Schwalbe, K 2008, Introduction to Project Management, Edition 2, Cengage Learning. Schwalbe, K 2009, Information Technology Project Management, Edition 6, Cengage Learning. Module 4 Notes. Read More