13/107 NHS BLOOD AND TRANSPLANT. 26 September Implementation of shared services across the Department of Health and its ALBs.

Transcription

1 13/107 NHS BLOOD AND TRANSPLANT 26 September 2013 Title Implementation of shared services across the Department of Health and its ALBs. A business case has been generated that proposes the implementation of shared services across the DH and its ALBs, The proposed shared service incorporates finance, procurement, HR and payroll and would be provided by the Integrated Shared Services Centre 1 (ISSC1), a government procured shared service, operated by using an Agresso system platform and based on the Department for Transport (DfT) shared services centre. Over the period to 2020/2021 the project generates savings to the DH overall of 2.2m. The addition of DH /ALB transaction volumes to ISSC1, reduces prices and brings benefits of 14.6m to the DfT over the period. Additional indirect savings of a further 12.1 are assumed as a result of procurement benefits arising from more comprehensive information across the in scope bodies, ease of reporting across a single platform and the benefits of having a single solution across finance, HR and payroll. Total benefits of 28.9m are therefore assumed over the period to 2020/2021. The direct costs charged to NHSBT, however, would see a net increase of 0.6m pa but it is suggested that an increase in subsidy will be provided by DH to offset the adverse impact on NHSBT. Executive Summary At the present time the live system is not available. NHSBT is being asked to commit to entry into the proposed shared service arrangements without being able to gain formal assurance that the ISSC1 service can adequately support the supply chain processes (both existing and planned) that are fundamental to our service safety and effectiveness. A set of acceptance criteria has therefore been developed that will support a go/no go decision prior to any implementation. This includes the need for a full impact assessment, an adequately detailed and appropriately resourced transition plan and effective governance arrangements, during and post implementation. Aside from the operational risk the key risk for NHSBT is that this is a major activity that will occupy resources otherwise focused on NHSBT s change programme. This will put our flow of planned benefits at risk of delay and hence the cost savings that support maintaining flat prices to NHS hospitals. 1

2 Action requested from Board Strategic Priority, Regulatory Requirement or Corporate Risk that this item relates to The purpose of this paper is to update the Board and provide an opportunity for review and discussion of the impact of the shared services proposals on NHSBT. The Board is then asked to: agree in principle to enter into the shared service arrangements described by the business case with a suggested cut over date of April 2016 understand the proposed contracting / approval processes and provide guidance on any further approval steps that it requires review and approve the proposed assurance processes that would be undertaken prior to entry into any formal cut over process.. Cabinet Office strategy for shared services. Organisational forums where the paper (or equivalent paper) has been considered Consultation and Review Equality and Diversity Impact Assessment Sustainability Impact Assessment Executive Team. Informal sub group of the Board. Full consultation will be completed prior to any implementation decision within NHSBT. Is a full assessment required: To be conducted by DH as necessary. Is a full assessment required: To be conducted by DH as necessary. Author Responsible Director Rob Bradburn, Finance Director Lynda Hamlyn, Chief Executive NED Reviewers Jeremy Monroe, Andrew Blakeman (via Board sub group). 2

3 IMPLEMENTATION OF SHARED SERVICES ACROSS THE DEPARTMENT OF HEALTH AND ITS ALBs EXECUTIVE SUMMARY A business case has been generated that proposes the implementation of shared services across the DH and its ALBs, The proposed shared service incorporates finance, procurement, HR and payroll and would be provided by the Integrated Shared Services Centre 1 (ISSC1), a government procured shared service, operated by using an Agresso system platform and based on the Department for Transport (DfT) shared services centre. Over the period to 2020/2021 the project generates savings to the DH overall of 2.2m. The addition of DH /ALB transaction volumes to ISSC1, reduces prices and brings benefits of 14.6m to the DfT over the period. Additional indirect savings of a further 12.1 are assumed as a result of procurement benefits arising from more comprehensive information across the in scope bodies, ease of reporting across a single platform and the benefits of having a single solution across finance, HR and payroll. Total benefits of 28.9m are therefore assumed over the period to 2020/2021. The direct costs charged to NHSBT, however, would see a net increase of 0.6m pa but it is suggested that an increase in subsidy will be provided by DH to offset the adverse impact on NHSBT. At the present time the live system is not available. NHSBT is being asked to commit to entry into the proposed shared service arrangements without being able to gain formal assurance that the ISSC1 service can adequately support the supply chain processes (both existing and planned) that are fundamental to our service safety and effectiveness. A set of acceptance criteria has therefore been developed that will support a go/no go decision prior to any implementation. This includes the need for a full impact assessment, an adequately detailed and appropriately resourced transition plan and effective governance arrangements during and post implementation. Aside from the operational risk the key risk for NHSBT is that this is a major activity that will occupy resources otherwise focused on NHSBT s change programme. This will put our flow of planned benefits at risk of delay and hence the cost savings that support maintaining flat prices to NHS hospitals. RECOMMENDATION The purpose of this paper is to update the Board and provide an opportunity for review and discussion of the impact of the shared services proposals on NHSBT. The Board is then asked to: agree in principle to enter into the shared service arrangements described by the business case with a suggested cut over date of April 2016 understand the proposed contracting / approval processes and provide guidance on any further approval steps that it requires review and approve the proposed assurance processes that would be undertaken prior to entry into any formal cut over process. GOVERNENT STRATEGY NEXT GENERATION SHARED SERVICES (NGSS) The Cabinet Office issued the NGSS strategy in December The key actions in the strategy are: 1 3

4 To create and operate a Crown Oversight Function that works with departments to deliver improvements in the quality of service and reduction in the operating costs of shared services and drive the strategy forward. To create two Independent Shared Service Centres (ISSCs) with targeted departments transitioning current services to one of these two centres. To provide oversight, sharing of best practice and benchmarking facilities to the three departments that can remain standalone (Ministry of Defence, HM Revenue and Customs and the Ministry of Justice). To ensure that a lower cost Enterprise Resource Planning (ERP) solution is available as part of the ISSC solutions, to reduce the cost of the current ERP solutions, and to remove the barriers to entry for smaller departments and ALBs 2. To complete the majority of migrations and transformational activity by the end of In furtherance of the plan an ISSC1 has been established through the outsourcing of the management of the Department for Transport (DfT) Shared Service Centre in Swansea to (a division of Bertelsmann). This service will then be migrated by onto a low cost ERP platform (Agresso) by October It is expected that an ISSC2 will be established, built on the Department of Work and Pensions shared service centre, probably using Oracle as a single ERP platform. ISSC1 is intended for smaller departments (<10,000 staff) with ISSC2 intended for larger departments (>10,000 staff). It was initially anticipated that the DH (and NHS) would build on the presence of an existing shared services provider, NHS Shared Business Services (NHS-SBS) and hence would not be part of either ISSC1 or ISSC2. The DH, in conjunction with its ALBs, has since identified ISSC1 as being the preferred solution for shared services and alternative proposals from NHS-SBS have been rejected. Although NHSBT has endorsed this choice ISSC2 represents a suitable alternative as Oracle is potentially more relevant to NHSBT s manufacturing and logistical supply chains than Agresso. NHSBT has, however, been discouraged from this option in order to be part of the DH/ALB group business case. THE DH SHARED SERVICES BUSINESS CASE A business case for the DH shared services solution was issued at the end of July along with a supporting letter to the NHSBT Chief Executive (the latter embedded below). Q:\$data\DH\ISSC1\ Wheeler Dillon re SSP 24 July.pdf Although there were originally two separate streams of work for finance and HR shared services the business case represents one consolidated business case that proposes that ISCC1 shared services are called off by DH, on behalf of itself and its ALBs, for finance, procurement, HR and payroll. The incorporation of payroll represents a major and recent extension in scope implying that NHSBT, for example, would migrate from the existing NHS ESR payroll system to an Agresso based system. Alongside the implied migration from our existing Oracle system to the Agresso platform the overall IT transition and change management challenge for NHSBT that is implied by the shared services project should not be underestimated. To add to the challenge the DH expectation is that individual ALBs migrate in one big bang move with transitions starting to commence after October The strategy noted that Without the provision of single ERP systems and therefore single processes the Government will struggle to reach its upper quartile efficiency targets and therefore testing this will be an early part of the programme. 4

5 The business case identifies direct cashable savings over the period to 2020/2021 of 2.2m and reflects input from DH and ALBs regarding their existing costs and the costs that would be shed on the transfer of activities to ISSC1. The savings are therefore modest although the DH perspective is that savings are underestimated. NHSBT would not concur with this view, not least due to our recent experience of transferring payroll to NHS-SBS. NHSBT also believes that transition/implementation costs have been underestimated as the complexity represented by the inclusion of payroll into an extended scope has not been fully recognised. The addition of DH / ALB transaction volumes to ISSC1, however, reduces prices and brings benefits of 14.6m to the DfT over the period taking total direct cashable savings to government of 16.8m. Additional indirect savings of a further 12.1m have been assumed as a result of procurement benefits arising from more comprehensive information across the in scope bodies, ease of reporting across a single platform and the benefits of having a single solution across finance, HR and payroll. Total net benefits of 28.9m are therefore assumed over the period to 2020/2021. The impact on NHSBT, however, would be a net increase of 0.6m pa. It is suggested that an increase in subsidy will be provided by DH to offset the adverse impact on NHSBT, subject to due diligence. The mechanism and time scale for how this offset would work has not yet been described. NHSBT IMPACT AND RESPONSE NHSBT is supportive of all opportunities that will enable it to reduce its costs in support of ensuring that the prices of it the products and services supplied to NHS hospitals are reduced as far as possible. NHSBT also recognises that it can make a valuable contribution to reducing the costs of wider public services to the taxpayer. In support of this NHSBT has undergone extensive changes over the last 5 years and continues to manage an extensive forward change programme that will contribute significant cost savings (in the order of 3% pa / 9m pa on average). This involves, for example, major changes within blood donation which, by itself, is the most significant change process that NHSBT has ever undertaken and with the greatest propensity for risk to the safe and secure supply of critical products to the NHS. The shared services project would not, therefore, feature as an immediate NHSBT priority because: it involves major organisational and process change for no direct NHSBT benefit it conversely presents a major distraction from the execution of our existing change programme and risk to the much greater cost savings for our business that it will deliver. Planned benefits are likely to be delayed with a risk that blood prices would need to increase. This is further exacerbated by the current impact of red cell demand decline which is creating even greater pressure on prices, and a need for NHSBT to rapidly implement additional cost savings over and above the existing transition programme the NHSBT transition programme includes, and depends upon, significant plans to introduce modern IT applications. In this context the introduction of entirely new back office systems is not a priority. In addition Agresso, as a people / services based Enterprise Resource Planning (ERP) system, would not be one of the industry standard options for providing the manufacturing supply functionalities that we require. At the very least it would introduce a less than ideal system architecture. NHSBT, however, recognises the wider Government imperative and the need to comply with Cabinet Office strategy. As we are a manufacturing and logistics operation, providing life saving products and services to the NHS, often at times of critical patient need, our business processes are fundamentally different from those of the DH and its other ALBs (and also of the DfT). 5

6 Given that the Agresso system is not yet fully available, and are unwilling to release their detailed process maps prior to contracting, NHSBT cannot conduct any detailed diligence at this time. As such the ISSC1 project is being progressed on the basis that NHSBT (as well as DH/other ALBS) will only be able to validate the solution and conduct a full and complete due diligence after call off contracts with have been signed. This is an unusual situation that is inconsistent with normal change management initiatives of this magnitude and scope. As a result it is proposed that NHSBT agree, in principle, to enter the ISSC1 shared services arrangements. In order to ensure a successful transition with minimal risk of disruption to NHSBT s critical supply chains, a set of decision criteria has been generated (Appendix 1). The ISSC1 solution, and the transition process, will be formally tested against these decision criteria to provide sufficient assurance to the Board that transition can and should be commenced. NHSBT would not enter a formal cut over process unless the criteria have been adequately satisfied. CONTRACTING, APPROVAL AND TIMING The ISSC1 shared service has been procured by Cabinet Office. To enter the ISSC1 service DH will sign a call off for services from the contract on behalf of DH and its ALBs. As part of this the DH and each of its ALBs will be asked to develop individual call off schedules. These have been described as being relatively high level documents confirming the services (core and optional) that will be taken along with a confirmation of the relevant transaction volumes. are due to spend two weeks with each of DH and its ALBs to develop a set of individual call off schedules during October. The call off schedules will be included within the overall contractual call off that DH then make with. As part of this process DH is asking that, by end September, ALBs agree, in principle, to enter the ISSC1 shared services arrangements as described in the business case. NHSBT will then be expected to approve/sign off the call off schedule to be developed during October (probably late October in our case). At this point NHSBT is then committing to DH that it will enter into the shared service and this will, in turn, be confirmed by DH in the call off contract that it signs with in November (ie prior to the next Board meeting). As described above, prior to this point, NHBST (and others) will not have had access to a live system, or exposure to s detailed process maps. The process therefore assumes that due diligence will only be conducted after the commitment has been made. In this regard the steps taken in October will not materially add to any assurance that the Board might require prior to entering a formal commitment. As such agreement in principle should be seen as effectively a commitment to entering into the ISSC1 arrangements. As described above NHSBT has generated a draft set of acceptance criteria (Appendix1). These are the suggested criteria that will need to be satisfied during the due diligence process, post commitment, but before entering into any formal implementation phase. It is technically possible, therefore, that the criteria may not be satisfied and NHSBT is unable to implement. It is not entirely clear what would then transpire. The expected consequence is that, as NHSBT s transaction volumes would not go into ISSC1, the forward costs for all other bodies serviced by ISSC1 would either increase or, more likely, not decrease to the anticipated extent. DH has been unable to model and describe the scale of the impact that might be involved. It will not be trivial, as NHSBT s volumes are significant to ISCC1, but an indication was provided that the impact could be maximum +/- 5%. 6

7 We have also been asked by DH to indicate our preferred go live date with a number of quarterly slots being identified post January As NHSBT has only recently transferred its payroll services to NSH-SBS, and is contracted under this service until March 2016, the natural go live date for HR/payroll would be April 2016 (with NHSBT entering a formal cut over process some 11 months beforehand). Cabinet Office and DH expectation is that organisations would implement all functions on a big bang basis. Given our size, national footprint and the critical nature of our products and services we are concerned that a big bang approach would represent too great a risk (and for no benefit). Although closely connected, with probable resource demands on some of our same staff, finance / procurement and HR / payroll represent two significant projects in their own right. It is therefore suggested that the Board agree, in principle, to an April 2016 implementation date at the earliest as one implementation. The due diligence process will later confirm whether splitting the implementation is technically feasible and, if so, and subject to balancing risk and resource, whether it would be better to split the implementation dates for finance/procurement and HR/payroll. RISKS AND OPORTUNITIES During September NHSBT has met with and DH in order to provide with an initial understanding of NHSBT s processes. The responses from Aravto were positive and we have been impressed by their professionalism. Although NHSBT s core business processes (manufacturing/logistics) are very different from DH/ALBs (and the DfT), our supporting Oracle system is highly standardised with very little customisation. Agresso should therefore be capable of providing the existing functionality that we need and have stated categorically that it will. Indeed it is not unreasonable to imagine that / Agresso can deliver welcome improvement to our basic back office processes. The shared service initiative as designed, however, does not allow this to be validated prior to a contractual commitment being made. Our greater concern is that Agresso cannot adequately support the functionalities that our strategies demand, especially with regard to the planned introduction of integrated stock management (VMI), supply chain planning/control and support for a more focused commercial strategy. These initiatives, also including an eventual Pulse replacement, require an ERP like application that is capable of supporting integrated manufacturing/supply chains. have indicated that they already have much of the data that they need to prepare the call off schedule for NHSBT. As a result it is intended that, during the time set aside for development of the call off schedule in October, NHSBT and will instead review our IT /supply chain plans and identify opportunities for implementing the back office processes in a way that can fit effectively and well with our broader plans. Subject to the above the key risks of the project are: 1. The project will be a significant organisational distraction and presents a risk that our existing transformation activities will be delayed, along with the associated cost savings that they generate for NHSBT, with the consequence that the prices of our products and services to hospitals will increase. This already significant impact is exacerbated by the current decline in red cell demand and the impact on prices that this is already having (ie NHSBT having to find further cost improvements, in addition to those already included within the transformation programme). Our existing transformation plan is forecasting 11.5m of benefits in 2015/16 (during which the major transition/implementation effort is likely to occur). If 50% of the programme was delayed or deferred this would represent an opportunity loss, and pressure on red cell pricing, of approximately 3/unit. 2. During the period from now until implementation NHSBT is unable to invest in its existing IT platforms on the basis that ISSC1 may provide the functionality in future. Again this would introduce delay to plans and a potential delay to benefits 7

8 realisation (including revenue generation/cost savings) and a consequent impact on prices. 3. The business case implies that the introduction of ISSC1 will result in increased costs of 0.6m pa for NHSBT (as well as to two other ALBs). A mechanism to negate this impact is proposed but with no description yet of how it would work or commitment yet made. 4. Service standards not sufficiently high with little incentivisation to improve. This should be seen in respect of the more unique supply chain functionalities that NHSBT require and that we will be one of many with limited voice and opportunity to resolve specifc service issues that others within ISSC1 do not share. 5. Ineffective governance structures, lack of identified SROs to provide an adequate and effective pathway for resolving service (and process development) issues. 6. The time between agreement to proceed (now) and April 2016 represents a lengthy period of stress and concern to the staff that will be directly impacted. It may be difficult to retain staff and maintain knowledgeable service headcount over the period. 7. Similarly it may be difficult to incentivise the existing payroll shared services provider and ensure that recent service improvements are maintained following a difficult first year. Rob Bradburn Finance Director 26 September

9 APPENDIX 1 - CRITERIA FOR GO/NO GO ON ISSC1 TRANSITION START UP (draft) Decision Criteria Evidence Accountability Functionality existing Agresso scope/modules capable of supporting NHSBT s existing business processes Purchase to pay Accounts receivable Record to report Stock management materials / consumables (integration of accounting, i-procurement and stock management) Payroll ( functionality to meet national NHS as well as local organisational requirements) Expenses via payroll Live system demonstration Detailed process maps System testing / test scripts Functionality planned Agresso scope/modules capable of supporting NHSBT s planned business processes as identified within its strategic plan ecommerce/customer Ordering Order management Billing CRM / Sales Stock management manufactured products Future NHSBT To Be architecture Live system demonstration Technical descriptions / API data (if interfaced) NHSBT / BTS Interfaces - existing Expenses (inbound and outbound) Absence / Attendance / Time Recording Travel and accommodation booking NHS pensions RTI Identity and authentication NHSBT s business processes that are supported by NHSBT IT platforms/applications can be appropriately interfaced with Agresso Technical descriptions / API data 9

10 Interfaces - future ecommerce/customer Ordering Solution to Order Management Customer Test Requesting with Order Management Manufacturing/Lab to Stock Management Order Management to Transport Management Planning and Control to Stock Management Hematos to Stock Management Data management Product Customer Supplier GL / cost centre Central Reporting (ONS & ASHE) Transition plan / Cost Exit plan / Cost NHSBT s business processes that are supported by planned NHSBT IT platforms/applications can be appropriately interfaced with Agresso Technical descriptions / API data Processes and accountabilities for the maintenance and control of NHSBT standing data, and any mapping to group data, are defined/agreed Future NHSBT To Be architecture Detailed process maps Technical descriptions / API data (if interfaced) Comprehensive transition plan developed which fully captures the impact on NHSBT and the required resource planning and costs necessary for successful implementation Impact assessment Transition Plan (including extensive UAT) Project Governance / Manager Communications Plan Risk management Detailed Roles and responsibilities for resources Comprehensive exit plan developed which fully captures the impact on NHSBT and the required resource planning and costs necessary for successful exit from contract Impact assessment Exit Plan NHSBT / BTS NHSBT 10

11 Infrastucture Service Level Agreement Continuity / Recovery Data Asset Ownership Risk management Detailed Roles and responsibilities for resources ISSC1 infrastructure supports the ability of all relevant NHSBT sites to access services and transactions to the appropriate standard of performance and availability. Technical specifications Bulk data testing Detailed SLA available that specifies service performance and costs. Draft SLA (including satisfactory performance metrics and performance penalties) DH multi year subsidy agreement to offset increased costs Detailed, verifiable procedures in place that provide assurance with regard to back up and recovery processes in case of service outage Technical specifications Process descriptions Test data Roles and Responsibilities broken down for loss of 1) site, 2) people, and 3) IT Copy of ISAE report DH Avarto 11