The causes, impacts, and ￡100m cost of a failure to effectively deliver complex change : Birmingham City Council Oracle Cloud ERP Programme

Birmingham City Council ("BCC") has recently announced that is is effectively bankrupt. Shocking though this is, and BCC is not the only Council to be in (or very nearly in) this situation, the mis-management of critical programmes often leads to the substantial and unnecessary waste of? funds which are critical to the an organisation's ability to fulfil its objectives (i.e. BCC's ability to deliver public services).

I've previously written about the reasons that some ERP programmes fail and many of the points that I made then seem relevant to the root causes of the failure of BCC's Oracle ERP programme. My previous article can be found here : https://www.dhirubhai.net/pulse/5-4-3-2-1-boom-why-some-erp-launches-fail-how-ensure-success-watkins

Extracts from BCC's published report, along with my observations and recommendations, are set out later in this Article but what can you do to avoid these disruptive, embarrassing and costly mistakes ?

Here are some key considerations and guidance :

• ERP programmes are always complex. They come with significant risks.

• Start with Standard. Modern ERP systems have already been developed to include dedicated (but still integrated) modules for commonplace business functions.

• Modify Modestly. ERP systems do tend to be tailored to suit the client organisation but the scale of the customisation, and the potential downsides, needs to be borne in mind.

• Beware Bespoke. Best-of breed solutions (even those using 'native plug-n-play' APIs which suppliers will assure you will work flawlessly) have additional considerations, and unique solutions should be evaluated with extreme caution.

• Business Process Improvement and Design should be a mandatory activity as part of the blueprinting stage, if not before. Simply systemising existing processes is unlikely to create efficiencies or value. You may be surprised how few people in your organisation really understand the end-to-end processes which operate in their departments (and across departments), why these processes operate in their current state, and how much they could be improved if they were designed from a proverbial clean sheet.

• "Must have previous [sector] experience" is a common requirement stated for key roles, but it can create a false sense of security. Do not close yourselves to extremely valuable cross-sector (public; private; multi-industry) experience. Bring key skills into the programme from outside the organisation. Few companies already employ all the resources and experience required to ensure success, especially when it comes to best practice and best of breed solutions.

• Select the ERP platform and the System Integrator using rigorous Business Requirements and evaluation processes, led by the appropriate Business Process Owners. Making the right decisions, early in the programme, is vital.

• Calculate the budget according to the total, and realistic, requirements of the programme. "Buy Cheap, Buy Twice" is especially true for high complexity programmes. BCC looks set to "Buy Cheap; Buy Thrice (and some)".

• Ensure that robust governance and change control processes are? in place, and stick to them. A change of strategy and scope creep can put fitness for purpose, timelines, and cost at risk.

If you are planning, or are experiencing problems with, an ERP programme DM me if you would like to have an initial conversation to see how I can help.

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Birmingham City Council issued a "Report to Cabinet" dated 27 June 2023 with the subject "Oracle Implementation"

The following text are extracts (quoted text) from that report, along with my commentary and questions (in bold).

"In April 2022, the Council went live with a new Enterprise Resource Planning (ERP) IT system, Oracle Cloud, to improve its internal functions relating to financial management and human resources. " The ERP solution comprises just two core modules, and was initially launched in April 2022.

"The switch to Oracle was the first major change in system that the Council had undertaken since 1999." We could infer from this that Birmingham City Council had/has limited in-house resources in terms of recent experience of ERP Programme leadership and delivery.

"...some critical elements of Oracle are not functioning adequately and this failure has impacted primarily upon the day-to-day operations of Finance and HR." What is the cost, directly / indirectly / consequentially, of the disruption to these critical business functions ? They will be substantial. Indirect and consequential costs are not set out in the Report.

"...significant resources will be required to arrive at a position where the system can be fully implemented. " Sixteen months after launch, the Oracle ERP solution hasn't been fully implemented with the functionality at a level of operation which is fit for purpose.

"This report seeks approval and delegated authority to spend up to ￡46.53m to fix urgent issues, and to develop a plan that will deliver the Council’s vision for an optimised Oracle. The expectation is that this funding will be required during FY2023/24, although there is a chance that some of this could slip into FY2024/25. " There are several very important points of note here :

"￡46.53m" of additional funding requested (see also my commentary later in this document) - this is a substantial cost of failure.

"fix", i.e. remedial works to rectify flaws in the solution developed thus far which could have been avoided if the initial business requirements, blueprint, development and implementation had been completed correctly.?

"urgent issues" , i.e. not all of the issues, only the most critical.

The total cost of rectifying the issues is expected to be in the region of ￡100m (source : John Cotton, Birmingham City Council / reported by BBC News).

The ERP implementation timeline looks likely to slip by around two years.

"Recommendations...That Cabinet delegates authority to the Director of Adult Social Care (as Oracle SRO (Senior Responsible Officer)) or their delegate, in consultation with the Cabinet Member for Finance and Resources, the City Solicitor or their delegate, and the Chief Finance Officer or their delegate, to spend the ￡46.53m (as per 2.1) to fix urgent issues, and to develop a plan that will deliver the Council’s vision for an optimised Oracle system."

Why is the Director of Adult Social Care being tasked with the rectification of this critical business programme comprising Finance and HR modules ?

Is this person suitably experienced to be the Oracle SRO ?

It's interesting to note that the CFO and Procurement are nominated as having delegated authority to "approve" new procurement arrangements and to "approve the selection of successful bidder(s)" rather than being nominated as Business Process Owners for relevant key aspects of the ERP solution.

Involvement of?HR leadership is not mentioned.

"The Council had planned to adopt the Oracle system, changing its existing business processes and upskilling staff to support its implementation. This is what Members gave Officers approval for through Cabinet papers in July 2019 and March 2021. However, Officers evolved the approach towards adapting the system - meaning that Oracle was customised to meet the Council’s existing business processes. This shift in emphasis (from adoption to adaptation) has severely impacted upon the Council’s ability to properly implement the Oracle system. "

Surprisingly the original strategy, and perhaps the current strategy, was for the up-skilling in-house staff rather than sourcing the vital skills and experience required for these complex programmes. Up-skilling of key resources during ERP programmes can be fundamentally compromised approach, and one that I'd avoid.

Developing a bespoke Oracle solution to fit existing business processes, rather than adopting rigorous Business Process Improvement to design and adopt lean, efficient and low-customisation workflows, suggests a significant lack of understanding (or, disregard) of the need for thorough evaluation of the potential effect on the programme in terms of design, development, testing, training, implementation, programme, risks (scale, impact, and probability), and cost versus budget.

"From a finance perspective, a key issue relates to the Council’s Bank Reconciliation System. This has meant that a significant number of transactions (payments to and from the organisation) are having to be manually allocated to accounts rather than automatically via the Oracle system. This is creating a backlog. Whilst this is a serious administrative issue, it is not impacting upon the level of cash available to the Council to make payments. However, it is impacting upon the Council’s ability to formally ‘close’ its accounts for the year 2022/23." Clearly BCC is now having to rely on manual processes as workarounds to what should have been efficient/systemised/automated processes. Significant aspects of efficiency savings in the original Business Case are currently void (note - I've made the assumption that a Business Case accompanied the original budget request, and that reduced operations costs through efficiency savings were included in the Business Case). There is no mention of the implications to supplier cashflow and client-supplier relations.

"From the HR side there have been issues identified related to recruitment, data management and monitoring processes to update renewals of DBS checks. Manual processes have been put in place to work towards resolving these issues, with the priority being staff working with Children & Vulnerable Adults." There is further reliance on manual workarounds, and further loss of efficiencies. There could also be potential risk to children and vulnerable adults if existing resources (people) become over-stretched and safety checks become compromised. If the ERP programme included data cleansing prior to transfer of master data to the new Oracle Cloud platform, there is significant risk of data degradation due to over-stretched resources creating data manually and/or via shortcut ways of working.

"Significant resources will be required to arrive at a position where the system can be fully implemented, and we estimate that the final costs of this will be in the region of ￡100m." There are further figures and commentary later in this article, however, it's worth noting that the original approval was for a budget of ￡39.97m.

"Given the need to address a number of areas of immediate concern with the current operation alongside developing a longer-term plan, only one option is considered to be viable. That is a twin track option, where there is a focus on addressing the urgent issues (for example, the closure of the FY2022/23 financial accounts, and putting in place enhanced processes to update renewals of Disclosure and Barring Service (DBS) checks to meet statutory and policy obligations), whilst also refreshing the vision for Oracle and developing a plan that delivers it."

The Report goes on to state...

"There is a risk with the recommended twin track option, that some of the effort expended in fixing immediate issues could be ‘wasted’ if the final design takes the solution in a different direction. For example, immediate work to fix an existing interface to support the FY2022/23 year end close could be ‘wasted’ if that interface is not then a component of the final solution design."

There are several points of note here :

1) the current design is not fit for purpose;

2) the final design is not yet known;

3) critical issues have to be fixed, but with a technical solution which may not be compatible with the final design;

4) once the final design has been signed-off some/several/all of the solutions for the critical? issues may need to be further amended, at yet more cost.

This is an inherent failing in the ERP programme, that is, configuring and implementing a system which is not fit for purpose, recognising that interim workarounds are likely to be scrapped, and being faced with the redesign / reconfiguration / relaunch of an ERP system which has only recently been brought into service. It is a nightmare scenario.

"The current Oracle solution has been heavily customised, which is out of line with the original vision for Oracle that Cabinet and CLT originally approved in July 2019."

This points very strongly towards a lack of, or adherence, to rigorous governance.

Which individuals / leadership teams / workstreams were involved with the decision to depart from the approved vision ?

Did this decision involve Cabinet and the CLT in order to obtain their approval to move away from the vision which they approved in 2019 ?

Were programme change control processes adhered to ?

Was a risk evaluation submitted as part of the change request ?

There are many "If not, why not ? " questions here.

"The aim is to get back to a situation where the Council adopts rather than adapts Oracle. This will mean changes to the Oracle system (for example turning off many of the existing customisations and extensions) and a significant investment in business change, including providing support and training to staff." In simple terms the outputs of significant paid works will be scrapped, with no ultimate value created. Redesign and rectification will require further time, resources, and money to achieve.

"A key input into the Solution Design work will be examples of best practice from other organisations (including, but not limited to Local Authorities)." My interpretation is that only after the ERP programme has, effectively, failed will BCC consider and learn from existing best practice in private companies as well as public organisations. Developing a Solution Design, a.k.a. system blueprint, using in-house resources in inherently closed-minded as carries significant risk at a formative stage of an ERP programme.

The "previously approved budget (March 2021)" was ￡39.97M

The "New funding request" is for ￡46.53M

The initial direct cost of failure of the Oracle ERP programme is currently 116.5% of the original budget. Phrasing this a different way, the cost of rectifying the most important mistakes (the "urgent issues") exceeds the total initial budget.

We have to remember that this figure of ￡46.59M does not include indirect costs, consequential costs (and these may not be able to be calculated, i.e. the cost of damage to supplier relationships; the human cost of a failure to protect vulnerable people from harm), nor does it include the total cost of rectifying ALL issues (i.e. urgent and non-urgent).

Within the ￡46.59M the General Programme Costs (the approved/requested budgets) have increased from ￡345,500 (an absurdly low total for an ERP programme) to ￡5,542,163 (or around 1,500%). It is extremely likely that under-funding of the core programme team, therefore not sourcing sufficient expertise from the specialist market, was a root cause of the failure of this ERP programme.

The total cost of rectifying the ERP programme, including a fundamental change of solution design, is anticipated to be in the order of ￡100m. This would increase the total budget from ￡39.97m to ￡139.97m, an increase of approximately 250%.

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Bio : Ian Watkins; Interim Procurement Executive

During the past 30 years Ian has worked with forward-thinking blue-chip organisations which have successfully implemented leading business management capabilities and has led complex change including establishing greenfield Procurement operations, organisation-wide savings delivery, international ERP projects and specialist Procurement technology solutions. He operates as an independent consultant and Interim CPO working with company Boards and CXOs to evaluate problems and opportunities and to deliver comprehensive Procurement modernisation strategies and programmes.