Arthur Andersen Report
Shared Services Business Case
SECTION 2: KEY IMPLEMENTATION DECISIONS
The purpose of this cost-benefit analysis is to identify whether or not an SSC is economically feasible for the P&D functions at SIUC and SIUE as well as the Disbursement function at the SOM. The analysis compares the cost of operating the existing P&D functions to the cost of providing the same functions in a shared service environment. It also includes a review of implementation costs, which include one-time costs required to establish operations, train employees, and implement appropriate information technology support.
As illustrated below, the P&D function, not including General Stores, currently costs the two campuses about $2.2 million per year to operate. The Purchasing function accounts for 66 percent, or $1.4 million of this cost, while the Disbursements function accounts for 34 percent, or $0.7 million. Salaries account for 79 percent of the total P&D costs. The total P&D costs for SIUC, SIUE, and SOM (Disbursements) are $1.3 million (60 percent), $0.8 million (37 percent) and $70,000 (3 percent), respectively.
Notes:
a) Source of figures: FY99 budgets. All numbers rounded.
b) Salaries figures are inclusive of both salaries and wages.
c) Operational costs represent total department expenses less salaries, wages,
and facilities costs.
d) Purchasing figures include Purchasing, Surplus Property, and Central Receiving
budgets. General Stores and the SOM purchasing function are excluded.
e) Only salaries and wages attributable to Disbursements are used in calculations
for Springfield.
The chart below outlines the expected benefits of the SSC presuming that it is fully implemented over the next five years. As a result of the proposed changes, the University should expect to save $277,000 next year, $585,000 in the project's second year, and $600,000 when the project is implemented. This money will be available for other uses within the University. The figure grows over time as a function of current operating costs and operating costs under a SSC solution.
The net present value of the investment required to achieve these savings is approximately $350,000. This calculation reflects the investment required to implement an SSC and the savings resulting from the changed operations. If the net present value of the project is positive, an SSC is desirable because the cost savings achieved from the operating changes are greater than the implementation costs. If the net present value of the project is negative, the costs outweigh the benefits. This calculation focuses only on operating costs. It does not account for the expected increases in the level of service provided by the SSC to the SIU community.
Notes:
a) All numbers rounded to nearest $1,000. All following years assume 3% growth
in budget.
b) FY00 and FY01 based on SSC efficiency gains detailed in Breakdown of SSC
Recurring Costs Changes.
c) Refer to Schedule of Estimated SSC Implementation Costs. 25% of costs assumed
to be incurred in FY99, 37.5% in FY00, and remaining 37.5% in FY01.
d) Discount rate based on average rate of return on daily cash flow and interest
rate for SIU bond issues.
In order to achieve the efficiencies generated by an SSC, the University will incur significant implementation costs. These costs will be recovered once the SSC is operational. As outlined below, the costs include estimates for severance, project management, training, transition, consulting, information technology, furnishing, and contingency.
Notes:
a) See Breakdown of People-related Implementation costs for calculations of
each expense. All numbers rounded to the nearest $1,000. Costs are allocated
25% FY99, 37.5% FY00, and 37.5% FY01.
b) Consulting fees are estimated.
c) SIU Project Management expense includes addition of 3 FTEs at Director salary
during Design and Implementation phase (3.25 years).
d) Information technology costs are estimated assuming the Oracle system has
been implemented.
e) Facility costs are calculated as $4,000 per average SSC staffing level.
f) Contingency allowance represents 25% of other estimated implementation costs
in each year.
The costs and projections in the charts above imply that the implementation of an SSC for SIU's P&D functions would be economically beneficial to SIU. In addition, the economies of scale which should be realized by incorporating the P&D processes into a shared service environment may also be increased by incorporating additional financial processes into this environment.
There are a number of factors that SIU must consider before implementing an SSC. There are factors that are critical to the SSC's success and risks that can prevent an SSC from being created or that can cause the SSC to fail.
1. Shared Service Center Success Factors
Factors that will contribute to the overall success of the SSC include:
- Alignment of the SSC's strategy with SIU's overall strategy and goals
- Commitment from senior management to support change and provide appropriate resources
- Communication of change throughout the University and buy-in to the urgency of change by management at all levels
- Allowing P&D personnel to have a substantive role in determining both service standards and measurements
- Creation of joint implementation project teams led by university personnel
- Extensive coordination and well-executed project management
- Coordinated notification of management, which will avoid third hand communication and perceived favoritism
- Retention of key management personnel in special project roles to avoid a lack of qualified personnel to perform critical work
2. Shared Service Center Risk Factors
Issues that could prevent SIU from creating an SSC or that could cause it to fail include:
- Cultural issues and challenges: three separate campuses, people, culture
- Job loss - certain personnel may feel threatened and/or become resistant
- Accessibility of the SSC, especially in emergencies
- Customers may not have homogenous needs
- Resistance to change by P&D personnel
- Lack of senior executive attention or a part time attitude
- Underestimate of the degree of complexity
- Unrealistic expectations regarding technology, cost, quality, and time improvements
From a technology standpoint, there are several issues that should be considered when deciding on an SSC.
- The success of an SSC is linked to the supporting technology and computing environment. The Oracle system must be sized accordingly, configured properly, and implemented correctly.
- The Oracle system must be supported by adequate technical network and server infrastructure. Insufficient hardware and/or lack of available bandwidth are potential risks. The system should account for specific time periods when usage rates are high and data transfer is intensive.
- Consolidating users into a single location places an increased importance on system fault-tolerance. System downtime due to network connectivity failures will need to be minimized. A system that provides for backup communication lines is recommended. Disaster recovery planning will also be critical.
- A heterogeneous computing environment exists at SIU. User desktop standards and connectivity mechanisms vary widely. Given the lack of standardization, providing technology support to the end-user is may be more difficult. Unless SIU standardizes on a single desktop configuration, much of the success of the NCA concept will rest on Oracle's ability to provide desktop solutions to a wide variety of workstation types.
To the extent that these risk factors are managed, SIU should be able to successfully implement an SSC.
A detailed design of the shared services operation should be prepared if SIU agrees with the findings of this business case. The detailed design will provide SIU with information on how the SSC will operate, where it should be located, how it will be organized, what systems will be used, and what performance measures will be put into place in order to measure the success of the operation. Once the detailed design is complete, the shared services operation should be implemented.
The major tasks in the detailed design phase are:
- Identify project team members
- Create project timeline and detailed project workplan
2. Develop Change Management Plan
- Identify initial and ongoing communication to be provided to stakeholders
- Facilitate meetings (interviews, focus groups) to discuss changes
- Obtain consensus on detailed design plan
3. Select and Prepare Location
- Select campus or off-site location
- Select and design office space
- Build required infrastructure
4. Redesign Policies, Procedures, and Workflows
- Develop new policies and procedures which reflect and enhance the Oracle system capabilities
- Create position descriptions reflective of new policies, procedures, and workflows
- Create new approval matrix
- Develop mission, process flows, and SSC organizational structure
5. Design Technical Infrastructure
- Develop system for inter-campus connectivity
- Design plan for beta testing of SSC
- Design back-up plans for system outages
6. Address Human Resources Issues
- Receive SIU approval for new position descriptions
- Assess capabilities of current personnel for possible transfer
- Determine requirements for new hires
7. Develop SSC Implementation Workplan
Consensus should be reached among all parties regarding the best approach for the implementation phase of the SSC during the design phase. The implementation phase consists of the execution of work created in the design phase. While the full-scale implementation will be addressed during the design phase, some of the key tasks are:
- Creation of the SSC
- Identification of departments at each campus to beta-test
- Execution of beta test
- Refinement of plan based on beta test results
- Transition of campus operations to SSC
- Continuous improvement of SSC processes
Copyright © 1998, Board of Trustees, Southern
Illinois University
Last updated: 07 December 1998