Business Case Review of the
"Works Best Practices Program"
(City Council on October 1 and 2, 1998, deferred consideration of this Clause to the next
regular meeting of Council scheduled to be held on October 28, 1998.)
--------
(Clause No. 14 of Report No. 18 of The Strategic Policies and Priorities Committee)
The Strategic Policies and Priorities Committee recommends the adoption of the
recommendations of the Budget Committee embodied in the following transmittal letter
(September 16, 1998) from the City Clerk:
Recommendations:
The Budget Committee on September 15, 1998 recommended to the Strategic Policies and
Priorities Committee, and Council:
(1)the adoption of the supplementary joint report (September 9, 1998) from the Chief
Administrative Officer, the Chief Financial Officer and Treasurer and the Commissioner of
Works and Emergency Services, wherein it recommended that:
(a)Toronto Council endorse continuance of the Works Best Practices Program, described
herein, and with the additional control and reporting methodologies;
(b)funding in the amount of $1.908 million (in Water Supply Appropriation WS026) be
approved from the Water Supply Capital Financing Reserve;
(c)subject to recommendation (b) above, authority be granted for an expenditure of $1.908
million after the Municipal Goods and Services Tax Rebate, to continue implementation of
the Best Practices Program;
(d)the costs associated with staff downsizing and retraining, along with computer hardware
and software replacement, be financed from the reduction in expenditures in the Works Best
Practices Program. The annual cost avoidance will be identified separately in the Water
Supply Capital Financing Stabilization Reserve and the Water Pollution Control Measures
Reserve Fund; and
(e)the appropriate City officials be directed to take the necessary action to give effect thereto;
(2)that a benefits tracking program be developed and upon completion, the Commissioner of
Works and Emergency Services report back to the Works and Utilities Committee as to the
final form being accepted; and
(3)the Commissioner of Works and Emergency Services provide a report to the Works and
Utilities Committee every six months on the benefits tracking program, and a copy be
provided to the Budget Committee for information.
The Budget Committee reports having received the joint report (July 23, 1998) from the Chief
Administrative Officer, the Chief Financial Officer and Treasurer and the Commissioner of
Works and Emergency Services.
Background:
The Budget Committee on September 15, 1998, had before it the following:
(a)joint report (July 23, 1998) from the Chief Administrative Officer, the Chief Financial
Officer and Treasurer and the Commissioner of Works and Emergency Services;
(b)communication (August 5, 1998) from Mr. Bob Toop, National Representative, Toronto
Civic Employees' Union, C.U.P.E., Local 416;
(c)supplementary joint report (September 9, 1998) from the Chief Administrative Officer, the
Chief Financial Officer and Treasurer and the Commissioner of Works and Emergency
Services; and
(d)communication (September 11, 1998) from Ms. Anne Dubas, President, Local 79,
Canadian Union of Public Employees, forwarding a brief regarding the Business Case Review
of the "Works Best Practices Program", a copy of which is on file in the Clerk's Department.
The following persons appeared before the Budget Committee in connection with the
foregoing matter:
-Mr. Peter Leiss, Vice-President, Toronto Civic Employees' Union, Local 416,
-Mr. John Murdock from the Water Division and the Toronto Civic Employees' Union
Local 416.
-Mr. Allister Reid from the Water Pollution Control Division and the Toronto Civic
Employees' Union Local 416.
--------
(Joint report dated July 23, 1998 addressed to the
Budget Committee from the Chief Administrative Officer,
the Chief Financial Officer and Treasurer and
the Commissioner of Works and Emergency Services)
Purpose:
To report on the review of the Business Case for the Works Best Practices Program (WBPP),
currently underway in the Water and Wastewater Services Division of Works and Emergency
Services, and to seek funding in the amount of $19,433,000.00 for continuation of WBPP in
1998.
Funding Sources, Financial Implications and Impact Statement:
At its meeting of April 29, 1998, Toronto Council approved the 1998-2002 Capital Works
Program, which includes provision for continuing expenditure on the Works Best Practices
Program (WBPP) in the Water and Wastewater Services Division of Works and Emergency
Services.
The Works Best Practices Program is a four and one-half year plan, with an estimated capital
cost of $101,905,000.00. The two major outcomes of this Program are the substantial
replacement of obsolete and aging plant instrumentation, equipment and control systems, and
the modernization of work and management practices and procedures, enabled by new
information systems, in all areas of operations and maintenance. The operating cost reductions
produced by WBPP implementation in Water and Wastewater Services will increase through
the implementation period to $37,076,000.00 per year in 2002, the first full year following
completion of the project and will continue at that level thereafter. WBPP is presently on
schedule with regard to the overall planned capital expenditure and the achievement of
operating cost reductions.
In approving the 1998-2002 Capital Works Program, Council withheld funding approval of
expenditures pending a review of the WBPP business case by the Chief Administrator's
Office. Of the planned total WBPP cost of $101,905,000.00, prior financing has been
approved totalling $25,377,000.00 to complete Phase 1 activities.
Of the amount approved, the total spent and/or committed to date is $22,840,000.00 leaving
an uncommitted balance of $2,537,000.00, which is, however, earmarked for remaining Phase
1 planned activities.
Additional financing in the amount of $19,433,000.00 is now required for continuation of
planned implementation work in 1998, with some expenditures extending into 1999 as major
contracted plant detailed design work, under Phase 2 of the Program. Details to the Costing
Unit level are shown in Appendix 1.
The Treasurer has advised that funding can be made available from the Water Pollution
Control Measures Reserve Fund and the Water Supply Capital Financing Reserve.
The financial impact of implementing WBPP in the former Metro Water Supply and Water
Pollution Control functions was analyzed by the Finance Department in 1997. The results of
that analysis indicated that the WBPP can be financed through the water rate without adverse
impact to the existing rate projections. The consequences of not completing WBPP are
significantly higher future water rates as a result of foregoing planned operating cost
reductions estimated at $37,076,000.00 per year.
It should be noted that this program will contribute significantly to resolution of the Year
2000 (Y2K) problem in Water and Wastewater Services. The estimated twelve-to-fifteen
million dollar cost of replacing aging, non-Y2K compliant SCADA (Supervisory Control and
Data Acquisition) equipment and systems in the water and wastewater treatment plants and in
the collection and transmission systems is already contained in the WBPP capital estimates.
Further, all new information systems and technologies deployed under WBPP will be certified
Y2K compliant as per corporate standards, avoiding the need to repair or replace a host of
older, non-compliant systems.
Recommendations:
It is recommended that:
(1)Toronto Council endorse continuance of the Works Best Practices Program, described
herein;
(2)funding in the amount of $19,433,000.00 ($3,063,000.00 in Water Supply
Appropriation WS026 and $16,370,000.00 in Water Pollution Control Appropriation
WPC001) be approved from the Water Supply Capital Financing Reserve and the Water
Pollution Control Measures Reserve Fund;
(3)subject to recommendation No. (2) above authority be granted for an expenditure of
$19,433,000.00, after the Municipal Goods and Services Tax Rebate, to continue
implementation of the Best Practices Program; and
(4)the appropriate City officials be directed to take the necessary action to give effect
thereto.
Council Reference/ Background/ History:
At its meeting of July 2 and 3, 1997, by adoption of Clause No. 3 of Report No. 13 of
Financial Priorities, Metropolitan Council endorsed continuance of the WBPP. The program
had been previously established by Metropolitan Council on September 25 and 26, 1996
through adoption of Clause No. 2 of Report No. 14 of the Environmental and Public Space
Committee with the objective of implementing the best practices in the utility industry in the
areas of work management, technology and organization, to maximize operating effectiveness
and efficiency across the Department. The WBPP arose through expanding the structure and
scope of the previously existing Process Equipment Replacement and Strategic Information
Systems Plan (SISP) project for the former Metro Works Water Pollution Control Division
(reference Clause No. 1 of Report No. 15 of Environment and Public Space Committee,
adopted by Metropolitan Council at its meeting of September 27 and 28, 1995) to encompass
all business functions of the former Metro Works Department.
Comments and/or Discussion and/or Justification:
At its meeting of September 25 and 26, 1996, Metropolitan Council, by approval of Clause
No. 2 of Report No. 14 of the Environment and Public Space Committee, endorsed
commencement of the Works Best Practices Program in the Works Department. At its
meeting of July 2-3, 1997, Council, by approval without amendment of Clause No. 3 of
Report No. 13 of the Financial Priorities Committee, authorized expenditures to perform
Phase 1 implementation of the Works Best Practices Program (WBPP). In each of these
instances, a presentation of the business case for WBPP, in the context of the
recommendations being requested at the time, was presented to the Committee. Further, the
business case had been reviewed and endorsed by the Metro Chief Administrative Officer,
Commissioner of Finance, and Commissioner of Corporate Services.
On May 26, 1998, the Chief Administrative Officer met with staff of the Water and
Wastewater Division of Works and Emergency Services, including the Project Manager for
WBPP, to review key elements of the Works Best Practices Program business case. In the
light of previous business case reviews having been performed by senior Metro officials, and
because this Program is both broad in scope and diverse in nature, involving substantial
equipment upgrades in seven major water/wastewater operating facilities, the commissioning
of a number of strategic information management systems, and the redesign of
operations/maintenance work and management practices, the review focused on three key
perspectives.
The first perspective is the financial component of the Program, including costs over time,
operating cost savings over time, and the implication of the program on water and sewer user
rates - related to this would be the impacts on overall service delivery in terms of quality and
effectiveness.
The second perspective is the implication on organization and staff, both bargaining unit and
management, and the relationship between WBPP and the City of Toronto Amalgamation
processes.
The third perspective is the implementation methodology being used to govern the wide range
of tasks and activities involved in implementing the Program.
Financial Aspects.
The fundamental objective of the Works Best Practices Program is to ensure business
operations continue to be performed to degrees of efficiency and effectiveness that are
consistent with modern practices and supporting technologies. One of the first steps in the
initiation of the Program was the establishment of a "competitiveness assessment". This
exercise utilizes an efficiency benchmarking technique which is essentially identical to those
used by the multinational private operators in developing operating contract proposals for
major water and wastewater utilities. It is the results of this exercise, backed up by similar
conclusions produced in a totally independent, internal "simulated competition", that led to
the establishment of a thirty-seven million dollar per year operating cost reduction target for
the Works Best Practices Program.
The total cost of the Program, to be implemented over a four and one-half year period, is
stated to be $101,905,000.00. Of the total cost figure, approximately $65,000,000.00
represents previously planned expenditures for the necessary ongoing replacement and
upgrading of existing equipment and control systems in water and wastewater plants and in
the collection and transmission systems (these facilities have a combined infrastructure value
estimated at $7,500,000,000.00). It is in fact the remaining investment component of
approximately $37,000,000.00, aimed at new and improved operations and maintenance work
practice and organizational redesign, underlying technology development and process control
improvements, that generates the bulk of the $37,076,000.00 in annual operating cost
reductions. The $65,000,000.00 has been effectively "bundled" into the Best Practices budget
in order to leverage opportunities for efficiencies through operational improvements and to
ensure those investments are coordinated within the broad standards and technology
development strategies of the core Best Practices initiative.
In 1997, the full WBPP costs and schedule of planned operating cost reductions were included
by Metro Finance in Water Rate Model calculations and it was determined that no rate
increase would be required. The Program, even including the bundled $65,000,000.00
component, is effectively self-funding in that the accumulated operating cost reductions
generated exceed the capital costs within the life of the Program implementation. As the table
below shows by the year 2002, the program breaks even and is producing savings of
$37,076,000.00 per year. If the Program does not proceed to completion, there will be an
increasing effect on water rates.
The table below summarizes the business case figures. Capital costs are year-by-year, inflated
to year of expenditure and after the Municipal Goods and Services Tax Rebate. Operating
savings are net, year-by-year, in constant 1997 dollars. FTE reductions are approximate,
year-by-year. The Program is presently on target to deliver the planned operating cost
reductions within the planned Program cost.
|
1996 |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
Totals |
1998 Capital
Works Program |
6,273 |
12,845 |
15,230 |
28,952 |
23,921 |
14,684 |
0 |
101,905 |
Net Operating
Savings |
0 |
2,898 |
3,183 |
9,892 |
19,880 |
30,066 |
37,076 |
102,995 |
FTE Reductions
(est) |
0 |
38 |
38 |
110 |
157 |
120 |
80 |
543 |
The effects of implementing Works Best Practices on service delivery and product quality are
favourable. Present quality levels for potable water production and wastewater effluent
production will be maintained, with improved flexibility and cost management relating to
legislated or otherwise directed improvement strategies. Service levels will be maintained,
providing for better responsiveness and better access to more relevant and timely information.
Other benefits include improved asset management and long-range performance, increased
facility/infrastructure lifetime, and opportunities for improved receiving water quality.
As a result of delay in proceeding with implementation of certain works, the projected cash
flow for the project has been revised from the 1998 Capital Works Program submission as
noted below.
|
Pre-1998 |
1998 |
1999 |
2000 |
2001 |
2002 |
Total |
per 1998
Capital Works
Program |
19,118 |
15,230 |
28,952 |
23,921 |
14,684 |
0 |
101,905 |
Revised |
14,811 |
17,339 |
31,150 |
23,921 |
14,684 |
0 |
101,905 |
Appropriate amendments will be reflected in the 1999 Capital Works Program.
Staffing and Organization.
The findings of the competitiveness assessment, confirmed in the simulated competition,
pointed to reductions in operations and maintenance labour costs as the primary source of
available cost savings. The "best practices" that have been identified under this Program as
most relevant to former Metro water and wastewater operations stress the following as the
most significant areas of opportunity:
(i)more efficiently planned, managed and executed work practices;
(ii)"total productive operations" (TPO), which focuses on maximizing the productive time of
human resources; and,
(iii)workforce flexibility, which tackles the issue of separated skills and crafts and its
associated inefficiencies.
WBPP therefore emphasizes a broad transition of the workforce, including management, in
terms of the jobs people do, the way people are organized, and the work practices they
employ. This transition must be orchestrated in conjunction with the replacement and
upgrading of process control equipment and systems and the implementation of key computer
systems aimed at organizing and managing resources, automating tasks, and managing the
performance of the business, its resources and assets.
Activities under WBPP to-date have identified and confirmed a clear need to reduce on a
phased basis the size of the overall workforce needed to perform the work and business
processes that characterize the present workload. This was evidenced by the competitiveness
assessment, and by work done under the Program to-date, particularly in business
re-engineering exercises. This should not be surprising, given the rapid pace of change in the
industry over the past decade at the global level and the lesser degree of organizational change
that has taken place in North America. At the same time, change of this magnitude, regardless
of the underlying business and financial logic, cannot be instituted without consideration for
its impact on staff at all levels. Included under Works Best Practices are a range of work
redesign components, affecting the jobs, responsibilities and skills of front-line staff in
operations, maintenance, and general labour areas, as well as the change management skills at
the supervisory level. Within that process, some job descriptions need to be revised, and new
ones created. WBPP incorporates costs to support staff transition. This includes funds to
finance voluntary exit packages and staff training, including training for staff needing new
skills to perform new types of work and training for staff who wish to leave, but who require
certain skills to assist them in finding new jobs. Both these funding mechanisms are financed
out of accruing savings during the implementation period, and have already been netted out of
the planned cost reductions.
Senior staff in the areas of Finance, Human Resources and Corporate Services are to be
involved in this process to assist in policy areas and to ensure that developed policies are
followed. In the area of Labour Relations specifically, senior staff have been involved in this
Program from the outset, and continue to play an active role in the process.
At this stage, C.U.P.E. Local 79 continues to support the Works Best Practices Program, and
has for the past year maintained an active role in the Program. Local 416 formally "stepped
back" from active WBPP participation earlier this year. At this point, formal discussions are
under way at the senior level to develop an appropriate working relationship aimed primarily
at addressing areas of concern relating to the impact of WBPP on its members. It is a stated
goal of the Works Best Practices Program to achieve planned reductions in the workforce
through attrition, voluntary exit packages, and an active process of redeployment on a
City-wide basis, with layoffs to be considered only on a last-resort basis. Intensive discussions
are planned to take place in August for purposes of arriving at a firm set of principles and
protocols to govern the implementation of WBPP.
With regard to the relative implications of WBPP and amalgamation, it is clear that this
Program is actively performing Phase 3 restructuring work, and will help provide a solid
operational foundation for the emerging Works and Emergency Services management
structure. Appropriate linkages between the two activities are presently under development.
Implementation Methodology.
The third area of focus is the implementation methodology of the Program - the standards and
procedures and methods being applied to enable and achieve the planned results. This is a
complex area, and it is evident that much expertise has been applied to the WBPP
methodology. The initial design phase utilized external consultants from a wide range of
disciplines. This was needed for a number of reasons: the volume of work to be done; the
transitional nature of much of that work; the need to apply techniques that are very current
and very specific to water and wastewater operations and management; the need for assistance
in project management activities relating to several major disciplines including engineering
and process control technologies and practices, information systems design and development,
and "total productive operations" work practices redesign; and, importantly, the need to apply
specially-skilled resources to the Program on a full-time basis through the critical design
stages. As the Program moves into its second phase of work this year, new roles are planned
for development in Works and Emergency Services to effect the transition of sustaining
aspects of the new operation into the hands of staff. The need for consulting support will
reduce substantially as key implementations are rolled out in operational work areas, in major
process control systems and their networks of equipment and devices, and in underlying
information technology applications.
From a project management standpoint, the methodology being applied is well suited to the
Program. There is a strong Quality Control and Quality Assurance component, which is
separated from the main project body to ensure objectivity. There is a review and approval
process for project deliverables which brings to bear the expertise of both consultants and
staff and also provides effective knowledge transfer to staff to maximize self-sufficiency in
the future.
A benefits tracking program is under development, with the assistance of Finance staff, to
capture and report direct WBPP benefits in the areas of energy, chemicals, parts and materials,
and savings in labor costs. This system will operate until completion of the Program, and can
be adapted to support continuous improvement initiatives on an ongoing basis.
The Performance Management component of WBPP is a computerized business tool which
will be used for monitoring business performance, for establishing improvement targets and
for tracking the achievement of those targets. This capability is in keeping with emerging
corporate strategies for benchmarking and tracking of key business improvements.
Conclusion:
The Works Best Practices Program is an important strategic initiative. It emphasizes the
establishment of a continuous improvement business and work environment in a climate of
fiscal restraint, public accountability and openness, and global competition. The business case
for WBPP is strong - the achievement of ongoing cost reductions in the range of
$37,076,000.00 per year for an investment of $101,950,000.00, a large part of which is an
operational necessity to maintain the operational viability of approximately
$7,500,000,000.00 in infrastructure. The resulting payback ratio of 35 percent represents a
solid cost-benefit. WBPP effectively pays for itself within the lifetime of the project.
While the Program will have a significant impact on both management and bargaining unit
staff, funding has been built in for transition and training. Communications and staff
involvement are firmly entrenched principles of the Program. Corporate labour
relations/human resources staff have been involved in our ongoing discussion with the Union
and are providing input with respect to transition and training initiatives. The project
methodology is well-suited to the needs of this large and complex undertaking. Performance
management and benefits tracking are integral to the design of technologies, practices and
organization.
This review process concluded that the Works Best Practices Program Business Case is
complete and appropriate. The Commissioner of Finance and the Executive Director of
Information Technology for the City of Toronto have reviewed the Program and are in
concurrence. It is recommended that funding for the Program be provided as set out in
Appendix 1 to this report.
Contact Names and Telephone Numbers:
William G. Crowther
Director, Management and Technical Services
Toronto Works and Emergency Services Department
Phone: (416) 392-8256
Fax: (416) 392-2974
E-Mail: william_g._crowther@metrodesk.metrotor.on.ca
Jim Coe
Manager, Works Best Practices Program
Toronto Works and Emergency Services Department
Phone: (416) 392-3141
Fax: (416) 392-8817
E-Mail: jim_coe@metrodesk.metrotor.on.ca
--------
Business Case Review of the "Works Best Practices Program"
Appendix 1: Capital Accounts
(in $000's, including GST after Rebate)
CWP001 - Works Best Practices Program, Water Pollution Control |
Total
Funding
Requirement |
Year of
Expenditure* |
|
1998 |
1999 |
Management, Planning and Design: |
|
|
S20508 |
Project Management |
218 |
218 |
|
S20509 |
Office/Track Support |
646 |
646 |
|
Operating Business Programs and Systems: |
|
|
S20002 |
Work Management System |
258 |
258 |
|
S20465 |
Practices Implementation |
130 |
130 |
|
S20466 |
Laboratory Information Management
System |
171 |
171 |
|
S20510 |
Performance & Operations
Management System |
201 |
201 |
|
S20511 |
Financial/Administrative Systems
Integration |
15 |
15 |
|
S20512 |
Workflow & Document Management
System |
47 |
47 |
|
S20477 |
Technology Infrastructure |
325 |
325 |
|
S20483 |
Industrial Waste Management System |
73 |
73 |
|
Process Control Systems Upgrade and Improvement |
|
|
S20467 |
Highland Creek Treatment Plant -
Detailed Design |
3,717 |
558 |
3,159 |
S20468 |
Main Treatment Plant - Detailed
Design |
7,338 |
1,101 |
6,237 |
S20470 |
Humber Treatment Plant - Detailed
Design |
3,231 |
485 |
2,746 |
|
|
|
|
|
Total CWP001
|
16,370 |
4,228 |
12,142 |
CWS026 - Works Best Practices Program, Water Supply |
|
|
Management, Planning and Design: |
|
|
T20313 |
Project Management |
432 |
432 |
|
T20314 |
Office/Track Support |
246 |
246 |
|
T20315 |
Information Technology Architecture |
250 |
250
|
|
Operating Business Programs and Systems: |
|
|
T20317 |
Work Management System |
392 |
392 |
|
T20318 |
Practices Implementation |
150 |
150 |
|
T20319 |
Laboratory Information Management
System |
182 |
182 |
|
T20320 |
Performance & Operations
Management System |
200 |
200 |
|
T20321 |
Financial/Administrative Systems
Integration |
74 |
74 |
|
T20322 |
Workflow & Document Management
System |
100 |
100 |
|
Process Control Systems Upgrade and Improvement |
|
|
T20340 |
Distribution Optimization |
1,037 |
519 |
518 |
|
|
|
|
Total CWS026 |
3,063 |
2,545 |
518 |
Program Total |
19433 |
6773 |
12660 |
* The cash flow indicated in this table reflects that required for new work to be initiated in
1998 and for which funding is now required. The cash flow for certain elements extends into
1999 because the contracts to be awarded in 1998 will not be completed in 1998.
--------
(Communication dated August 5, 1998 addressed to the
Chair, Budget Committee from the
National Representative, Toronto Civic Employees' Union, C.U.P.E. Local 416)
Please be advised that the Toronto Civic Employees' Union, Local 416 would like to make a
presentation to the Budget Committee meeting which I understand is scheduled for September
15th, 1998.
We would like very much to be placed on the agenda in order that we may discuss the Works
Best Practices program.
Should you have any questions or concerns, please do not hesitate to contact either Brian
Cochrane or myself at (416) 968-7721.
--------
(Supplementary joint report dated September 9, 1998 addressed to the
Budget Committee from the Chief Administrative Officer,
the Chief Financial Officer and Treasurer and
the Commissioner of Works and Emergency Services)
Purpose:
To provide financial and informational updates to the report titled "Business Case Review of
the Works Best Practices Program", consideration of which was deferred by the Budget
Committee at its meeting of July 28, 1998 (Item No. 14) to its meeting of September 15,
1998. Recommendations contained in that report are reproduced in this report in their updated
form.
Funding Sources, Financial Implications and Impact Statement:
Refer to the accompanying report, "Business Case Review of the Works Best Practices
Program", to which this report is an addendum. This section contains updates to that report.
Funding is sought herein in the revised amount of $1.908 million for continuation of Works
Best Practices Program (WBPP) in 1998, this has been reduced from $19.433 million in the
original report due primarily to the revised scheduling of planned expenditures as a result of
delays. Funding already approved for 1998 plus this proposed amount will cover planned
work to the end of 1998. Future funding requests will be covered as part of the 1999 capital
budget process.
Financing in the amount of $1.908 million is required for continuation of planned
implementation work in the Water Supply area to the end of 1998. One expenditure extends
into 1999 as a contracted activity commencing in 1998 and finishing during 1999. Details to
the Costing Unit level are shown in Appendix 1. The revised cash flow analysis is contained
in this report.
Recommendations:
Refer to the accompanying report, "Business Case Review of the Works Best Practices
Program", to which this report is an addendum. This section restates and revises the
"Recommendations" contained in that report.
It is recommended that:
(1)Toronto Council endorse continuance of the Works Best Practices Program, described
herein, and with the additional control and reporting methodologies;
(2)funding in the amount of $1.908 million (in Water Supply Appropriation WS026) be
approved from the Water Supply Capital Financing Reserve;
(3)subject to recommendation no. (2) above, authority be granted for an expenditure of
$1.908 million after the Municipal Goods and Services Tax Rebate, to continue
implementation of the Best Practices Program;
(4)the costs associated with staff downsizing and retraining, along with computer hardware
and software replacement, be financed from the reduction in expenditures in the Works Best
Practices Program. The annual cost avoidance will be identified separately in the Water
Supply Capital Financing Stabilization Reserve and the Water Pollution Control Measures
Reserve Fund; and
(5)the appropriate City officials be directed to take the necessary action to give effect
thereto.
Council Reference/ Background/ History:
Refer to the accompanying report, "Business Case Review of the Works Best Practices
Program", to which this report is an addendum.
Comments and/or Discussion and/or Justification:
Refer to the accompanying report, "Business Case Review of the Works Best Practices
Program", to which this report is an addendum. This section contains updates to that report.
Revised Financial Aspects of Works Best Practices Program (WBPP)
Phase 1 of WBPP, now near completion, has included a wide range of activities which have
set the foundation for full-scale implementation of modernized process control systems and
equipment, plus management practices designed to enable long-term continuous
improvement. This Phase 1 work has in some areas identified better solutions than originally
envisaged and in some cases higher costs than originally estimated, for example, completion
of Preliminary Design for the three major wastewater treatment plants has identified a wider
need for process control components than was estimated in 1991. The total increased cost to
implement the whole program is $8.477 million. This increase in the budget estimates, as a
result of the preliminary design and eight years of inflation, represents an increase of 8.3
percent over the original estimates.
The selection and acquisition of a comprehensive "work management system" to improve
asset and human resource management across the Water and Wastewater business is designed
to be compatible with the SAP systems now selected for City finance and payroll.
Full documentation of these revised capital costs will be provided in the 1999 Capital Works
Program submission later this year. The revised cash flow projection is contained in this
report. In order to address the year 2000 problem, we are currently assessing the need to
advance the installation of some process control equipment into 1999. Unless this
advancement is required to address Y2K then the revised cash flow is valid to the end of the
project.
General Manager's Review of the Program
The WBPP is a 4½ year project that has a revised total program cost of $110.382 million. The
program started in 1997 and has received funding approval of $25.377 million to date. Based
on the expenditures to date in 1998 we can only anticipate spending, or committing, a further
$1.908 million in the balance of 1998. The cash flow projections for the remaining years in
the program have been revisited and we do not anticipate revising them at this time unless to
address Y2K issues.
Contained within the total program costs are expenditures of $65 million that were identified
in the previous Metro Capital Programs as ongoing replacement of existing equipment and
control systems in the water and wastewater plants plus in the collection and transmission
system. In effect these normal replacement costs have been bundled into the WBPP capital
appropriation. Assuming these expenditures would have taken place regardless of the WBPP,
then the remaining $45 million more appropriately represents the investment of new money to
achieve the savings identified. These savings would be more accurately described as future
cost avoidance and therefore enable Council to maintain, or even lower, the water rate which
has historically risen gradually due to the normal inflation factors.
The projected reduction in annual operating costs upon full implementation of the WBPP is
$36 million per year for the Water and Wastewater Division. This would indicate that the
program would pay for itself within the lifetime of the project. The water rate charge per cubic
metre could be expected to start declining in the year 2000, hit 3 percent reduction in 2003
and keep falling at 3 percent for the next 3 years. Alternatively, the rate could remain constant
and allow Council to invest the additional revenue in new or enhanced programs. This clearly
demonstrates that the WBPP is worth investing in.
To date 20 percent of the total program expenditures have been spent, which are
predominately associated with process control preliminary design, integration technologies
and implementation of the work management system. In order to control future expenditures
and track the benefits of the complete program, we are proposing a staff secondment from the
corporation for at least the next three years and possibly to the end of the project. This
position will report directly to the General Manager and be responsible for implementing cost
control measures and reporting mechanisms. We are currently seeking applications for this
secondment and will be looking for someone with a background in financial planning and cost
control technology.
Staffing and Organization
Refer to the accompanying report, "Business Case Review of the Works Best Practices
Program", to which this report is an addendum. This section contains updates to that report.
To date, a series of meetings have taken place between representatives of C.U.P.E. Local 416
and management of the Works and Emergency Services Department. Corporate Human
Resources and Labour Relations have actively participated in these meetings and in the
preparations leading up to them.
Management had placed on hold all new implementation activities relating to the roll out of
WBPP work areas in the operating facilities since June to allow these discussions to take
place without the hindrance of ongoing implementation issues.
In addition to discussing matters of an immediate nature, formal proposals from both parties
have been presented for consideration as a "framework" for joint administration of the Works
Best Practices Program plus the broader context of all Continuous Improvement initiatives in
the Department. It is the stated intention of management that, while the targets for operating
cost reductions and associated reductions in the overall workforce, including both
management and unionized staff in approximately equal proportions, must be preserved as a
commitment to the citizens and ratepayers of the City of Toronto, every reasonable effort is to
be made to ensure that the transition of the workforce is implemented in a fair and equitable
manner.
To this point, the position of Local 416 has been that job security is a mandatory component
in any process they would agree to participate in. In effect, there must be a "no layoff" clause
in any agreement that they are party to. Management has indicated its inability to guarantee
there will be no layoffs because of inherent uncertainties around the degree of response to
offered early exit packages and the extent of employment available elsewhere in the City to
surplus staff. Layoffs is the stated "last resort".
C.U.P.E. Local 79 continues to actively support and participate in the process.
The use of specifically reserved funds for voluntary separation packages and training
programs, as well as the exploration of any opportunity for redeployment in the City, not
solely within Works and Emergency Services, is part of the proposal under WBPP. Within the
program we have estimated $5.5 million for staff buy-outs, plus $1.5 million for
training/retraining. There is a need to clarify the fact that exit incentives under the WBPP are
not part of the corporate amalgamation budget but have been incorporated as part of the
Division's total WBPP program costs. A new recommendation dealing with this issue has
been included as no. 4 in the revised recommendations.
Timing of the Project
The project is approximately four months behind schedule, due primarily to the delays
associated with discussions around staff impacts with Local 416. This delay was largely
accommodated into the WBPP work plan. However, the capacity to absorb further delays
without seriously jeopardizing the Program schedule has, for all intents and purposes, been
exhausted. Further delay will be translated into late achievement of promised operating cost
reductions.
The table below provides a revised summary of the business case taking into account the
delays so far. Capital costs are year-by-year, inflated to year of expenditure and after the
Municipal Goods and Services Tax Rebate. Operating savings are net, year-by-year, in
constant 1997 dollars. FTE reductions are approximate, year-by-year, and occur by year end.
|
To End of
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
Totals |
*Preliminary 1999
Capital Works
Program |
24,778 |
26,877 |
35,291 |
21,423 |
2,013 |
0 |
110,382 |
*Net Operating
Cost Reductions |
6,884 |
7,940 |
16,964 |
26,827 |
34,901 |
36,226 |
129,742 |
FTE Reductions
(est) during the year |
60 |
98 |
142 |
134 |
106 |
0 |
540 |
(* in $000's)
As a result of delays in proceeding with implementation of certain works, the projected cash
flow for the project has been revised from the 1998 Capital Works Program submission as
noted below.
|
Pre-1998 |
1998 |
1999 |
2000 |
2001 |
2002 |
Total |
*Per 1998 Capital
Works Program |
19,118 |
15,230 |
28,952 |
23,921 |
14,684 |
0 |
101,905 |
*Revised |
14,644 |
10,134 |
26,877 |
35,291 |
21,423 |
2,013 |
110,382 |
(*in $000's)
Appropriate amendments will be reflected in the 1999 Capital Works Program to be submitted
later this year.
Conclusion:
The Works Best Practices Program is an important strategic initiative. It emphasizes the
establishment of a continuous improvement of business and work environment in a climate of
fiscal restraint, public accountability, openness and global competition.
The business case for WBPP is strong. While the current program has bundled normal
ongoing upgrades and maintenance costs of $65 million into the overall costs, the
achievement of ongoing cost reductions in the range of $36 million per year for an investment
of $45 million of new money represents a solid cost-benefit.
The earlier report substantiated the need for the WBPP to continue and the new General
Manager's review supports this position and went on to address the cash flow and funding
requirements. This supplemental report has now reduced the funding approvals required in
1998 from $19.433 million to $1.908 million. Further, it is proposed that a senior financial
staff person be seconded to the General Manager's office to provide control and reporting
functions.
While the Program will have a significant impact on both management and bargaining unit
staff, funding has been built in for transition and training. Communications and staff
involvement are firmly entrenched principles of the Department.
Contact Names and Telephone Numbers:
Jim Coe
Manager, Works Best Practices Program
Toronto Works and Emergency Services Department
Phone: (416) 392-3141
Fax: (416) 392-8817
E-Mail: jim_coe@metrodesk.metrotor.on.ca
--------
Business Case Review of the "Works Best Practices Program"
APPENDIX 1: Capital Accounts
(in $000's, including GST after Rebate)
CWS026 - Works Best Practices Program, Water Supply |
Total |
1998 |
1999 |
Management, Planning and Design: |
|
|
T20313 |
Project Management |
151 |
151 |
|
T20314 |
Office/Track Support |
94 |
94 |
|
T20315 |
Information Technology Architecture |
52 |
52
|
|
Operating Business Programs and Systems: |
|
|
T20317 |
Work Management System |
274 |
274 |
|
T20319 |
Laboratory Information Management
System |
47 |
47 |
|
T20320 |
Performance & Operations Management
System |
100 |
100 |
|
T20321 |
CAWP (Financial/Administrative Systems
Integration) |
30 |
30 |
|
T20322 |
Workflow & Document Management
System |
49 |
49 |
|
T20323 |
Technical Infrastructure |
73 |
73 |
|
Process Control Systems Upgrade and Improvement |
|
|
T20340 |
Distribution Optimization Study |
1,038 |
144 |
894 |
|
|
|
|
Total CWS026 |
1,908 |
1,014 |
894
|
* The cash flow indicated in this table reflects that required for new work to be initiated in
1998 and for which funding is now required. The cash flow for one element extends into 1999
because the contract to be awarded in 1998 will not be completed in 1998.
--------
(Communication dated September 11, 1998, addressed to the
Chair and Members of the Budget Committee from the
President, Canadian Union of Public Employees, Local 79)
This report reviews the Business Case for the Works Best Practices Program and seeks
funding for its continuation in 1998.
Through this project, the operation of the Water and Waste Water Services Division will be
redesigned. The goal is to continue to provide public sector environmental services to
taxpayers, while becoming more cost-effective.
CUPE Local 79 representatives have participated in the Best Practices Program because we
are committed to ensuring that Works and Emergency Services continues to offer the best
possible services to the public and remains a public sector utility.
The report identifies plans to reduce overall staffing levels during the period from 1996 to
2002. CUPE Local 79 representatives have been working to develop a fair and achievable
program for the staff transition which is in keeping with our Collective Agreements and City
policies. Retraining and educational opportunities must be provided so that staff can develop
the skills needed to succeed. It is important to ensure that sufficient funding has been included
in the budget for transition and training. Improved retirement packages and exit incentive
programs should be made available to all employees on a voluntary basis. There may be
opportunities to contract-in work from other areas outside of the new City.
CUPE Local 79 is opposed to the privatization of our water and waste water and solid waste
assets. In 1996, a public attitude survey was carried out with industry and the public--it found
that two-thirds of those polled unequivocally wanted water and waste water services to remain
in the public sector.
Our resources are too valuable for us to give up. We urge the Budget Committee to support
programs which ensure that these assets remain in the public domain, delivered by public
sector employees who are accountable to publicly elected officials.
|