Wanted – a new deal for New Zealand business

Don Christie

I am often asked to comment on the cost of publicly funded IT projects, especially where there is a perception that they are “too expensive”. The problem is that it is always hard to say what is good value for money and what is bad unless you have more detailed information than a general headline figure.

For example, many websites these days are just the public tip of an iceberg of complex business systems. Ignorance of this fact provokes the inevitable reaction - “You paid how much? For that!”. So I usually demur.

That said, there are public and private IT projects that are so badly conceived, governed and managed that it is clear from the start that the risks are high and failure is almost inevitable.

A lot has been written about Deloitte and Auckland Council contriving to blow at least $500 million of taxpayer money on their “new” system from multinational software company SAP. As was said in the film, The Guard, “dat's half a billion dollars, lads”. A lot of money – and rightly raising a lot of concern.

The beginnings of this big spend are lost in a mire of secrecy at the Auckland Transition Agency. But it is clear that a coterie of Deloitte consultants and Auckland Council have managed to construct a massive project. In doing so, they excluded the experienced CIOs (chief information officers) of the former Auckland councils from the ERP implementation steering committee.

This meant that the key advisers to the steering group came from Deloitte. Did that mean that the project was lacking in people with the required experience to review that advice?

Poor governance and massive cost overruns has followed. The “new-build” approach recommended by the consultants and adopted by the council appears to have been at the root of this high expenditure.

John Holley, former CIO of Auckland Regional Council and critic of this project says, “Deloitte quoted approximately $20 million in their proposal to implement SAP, this included items like Asset Management, which at the end of last year was approved at the additional cost of $8.6 million – the ARC/ARTA having recently spent $1.5 million with Deloitte to implement the same Asset Management module".

"The blowout of millions must be seen as a significant failure in governance. Why has Deloitte not been held to their proposal costs? Deloitte can certainly not claim ignorance of how the legacy councils ran.”

Apparently, the region's local government CIOs generally supported an approach that would see a clone of an existing SAP environment used as the basis for the Super City implementation. This approach was successfully used by Auckland Transport at the cost of just $3 million.

But the Auckland Transition Authority decided instead to follow consultants' advice and opt for a “green field” implementation. In doing so, the authority fundamentally failed the ratepayers of Auckland and hobbled them with millions of dollars of needless costs.

These points have been largely aired elsewhere. The reason I really wanted to comment on this story was because of the lost opportunity for Auckland businesses. Auckland is no exception to the desire of councils around the country and the world to strut their digital stuff.

To become a centre of digital innovation, creativity and IT prowess. No doubt they spend thousands of dollars on glossy brochures expressing this grand vision.

Local businesses pay most taxes, rates, create employment and give the opportunity for talent to live in our lovely cities like Auckland. This is not just hyperbole.

Economics New Zealand recently carried out a study for our company, Catalyst IT. Some key findings include:
 

  • Local IT companies are cost effective, with a 25% to 35% cost advantage over Australian companies and larger cost advantages compared to the US or Britain.
     
  • The multiplier and tax revenue effects of local procurement substantially reduce the net cost to the government of local contracts. As an example, the net cost of a $115,000 (GST inclusive) contract reduces to around $67,000.
     
  • Local suppliers have untapped export potential and can also reduce our import bills. We already spend over half a billion dollars a year on imports of computing services, and another $235 million on computing royalties and licence fees.

But when the council had “half a billion dollars, lads” their first and only thought seems to have been to shovel it overseas, fast. The impact of spending that amount of money on IT systems locally would have been significant and long lasting.

Sadly, there was no-one willing to take a strategic view and align the massive spending with the city's digital aspirations. No-one wondering whether this could lead to the next Orion Health or Jade Software.

No-one looking at what NZ system such as Ozone from Origen or whether an open source alternative could be used, extended and generally given the sort of boost that would pay dividends to the council, New Zealand's export potential and our business health.

Investing in missing features in new or open source systems can have big advantages, especially if you are displacing old technology that comes at a huge costs.

Such blinkered thinking in today's era of austerity and global financial crisis has got to stop. The cosy relationship between overrated and overly expensive overseas consultancy firms and taxpayer representatives need to be terminated and a new deal for New Zealand business launched.
 

Don Christie is a director of Catalyst IT and co-chairman of NZRise (nzrise.org.nz)
 


16 · Got a question about this story? Leave it in Comments & Questions below.

This article is tagged with the following keywords. Find out more about MyNBR Tags

Post Comment

16 Comments & Questions

Commenter icon key: Subscriber Verified

I have limited knowledge of the IT project other than what has been reported, but would agree with Don's observation that an investment of this level of funding in the NZ sector could have been a really major booast and one suspects the results would be better.

This at a time that Auckland City is trying to get a IT hub off the ground.

Reply
Share
  • 0
  • 0

Previously as a CEO I have had experience with Deloittes and their industry colleagues with regard to IT projects.

My conclusions from that experience is that those who recommend projects should be held directly accountable for achievement of the project outcomes, within the stated budget. I'd look at witholding a percentage of their fees until completion of the project to cover this.

If this means that project costs are inflated to cover the "risk", then so be it - their clients will soon evaluate the value of the increased cost.

And for all of those who will immediately leap in blaming changes by the client for impact on budget and outcomes, I suggest accountability for ensuring the original outcomes are sufficiently scoped in the first place, and that any changes must be signed off by the CEO (and affirmed the Board (who will usually have had to approve a project of such size in the first place).

Reply
Share
  • 0
  • 0

The Deloitte/Auckland Council IT project is a disgrace and Deloitte should be held accountable. The way in which the contract was scoped in the first place and the following cost over runs is contrary to Deloitte's own pitch to the market for their services - ie they are involved in the insolvency sector and severely cane company directors and company managers for past poor decision making when undertaking receivership work. On a day to day basis they advise their own clients to plan prudently ( with robust business plans ) and to do their homework before making financial commitments.

They have done completely the opposite in this case and have no accountablility. The Auditor General should investigate the Auckland Council and Deloitte's involvement in this project and make them accountable.

Reply
Share
  • 0
  • 0

So an IT integrator takes a 'we like this tech' approach to promoting a solution, and does so in part by excluding a tremendous amount of domain knowledge (the wider CIOs).

This sounds like INCIS all over again, where tech drove the direction while lacking sufficient domain knowledge to make wise decisions.

Reply
Share
  • 0
  • 0

I simply can't believe any IT supplier has the nerve to ask for half a billion for the software to run a council. It's not a project on the scale of finding the Higgs Boson for heaven's sake.

Reply
Share
  • 0
  • 0

Hey isn't deloitte in at IRD looking to replace their perfectly acceptable tax platform for something based on Oracle which will require extensive modification due to NZs unique and complex tax law (fix the law and implementation is easier) for 1.5bil. Sounds like history repeating to me.

Reply
Share
  • 0
  • 0

No that's Cap Gemini. Same suit, different suits.

Reply
Share
  • 0
  • 0

There are two points here; 1. NZ has both the talent and software businesses locally to support the council in managing it's operations. What proportion of contracts go offshore?. 2. Deloitte's is a partnership with only one goal. What are the alternative options considered by the council apart from Deloitte/SAP option?

Reply
Share
  • 0
  • 0

Looking at the state of this project, and knowing someting about what it is surposed to deliver, I cannot beleive that the Auckland Council can allow Deloitte's to get away with the cost overruns that have happened.
If Deloitte's blame the overrun on a changing scope, they did not do their homework on the required outcomes. Both including people who think it should be easy, without understanding, and the exclusion of the people who do understand is poor management from both the Councils and Deloitte's management team.
Being in a Co that had a major project fail, looking at how the project was managed made me cringe. Why is it that we let people who do not understand the way things work try and say they now how.
Most failed projects that I have seen, seem to rely on the wrong people to both make and implement decisions that matter.

Reply
Share
  • 0
  • 0

Incompetence BIG TIME.
But typical NZ........no one is accountable.
The tax payers/ratepayers in this country are being sucked into a huge void.

Reply
Share
  • 0
  • 0

the most corruption free country in the world?... BS

Reply
Share
  • 0
  • 0

Quite disappointing to think that we still have sections of government (local and central) and business that ignore the talent, knowledge and strengths we have in the country and think that only an overseas companies have the ability to achieve.

Instead of sending $$ overseas, we should be using (,developing and strengthening) the talent we have in New Zealand.

Reply
Share
  • 0
  • 0

Implementing large IT projects, especially ones that require innovative thinking, inside the public sector is certainly a challenge. Balancing the demands of multiple stakeholders is a real challenge, but this is, in ways, no different than large private sector companies. What is different, in my experience, is that public sector thinking revolves around going back to the tax payer coffers to get more money whereas the private sector knows that going over budget is a tight rope between profit or failure.

I watched the Ontario provincial government in Canada blow $1B on electronic medical records and no surprise there was a common thread in big consulting with the likes of Deloitte and IBM Global Services involved in massive spending that resulted in nothing being delivered. It seems every large expenditure project involves big consulting will end up with an inevitably scope, budget overruns and results differing greatly from the original pitch. As someone who is currently involved in consulting I can respect the learning process that goes on during project execution but I also wonder what would have come from an equivalent investment in the start-up community to fill the gaps.

Reply
Share
  • 0
  • 0

remember incis

Reply
Share
  • 0
  • 0

My problem is with the whole "replace it all every 7 years" model of thinking.
If businesses/councils actually employed software developers they could be slowly working *continuously* on improving existing systems with constant smaller upgrades. Because the turnaround time for making changes is quick, the end users actually can get a real say and feedback is quickly accepted for further improvements which can be implemented sooner.
When you buy "packages" from "consultants" you get their idea of how things should work, and any changes to turn it into the system you really needed they sting you for extra costs as its not the "original project".

This is the open source model of development -- the customer can make their own changes and be the master of their own destiny. It doesn't mean using open source software -- but that you employ smart software developers and "do it yourself" using existing systems available commercially or open source to start with and building it up.
Not that you do everything yourself, no one is stupid enough to write a custom operating system, but the core part which is "your business" logic should be yours and yours to modify not just theoretically but actually in practice.

For companies like IRD they should have the expectation of employing software developers. Software is a core part of their business (software runs the operation after all) and being able to be flexible without relying on contractors or consultants should not be a hard or strange thing to ask.

When you look at the cost of these projects, "doing it yourself" which used to be shunned because of cost, looks extremely cheap.

Reply
Share
  • 0
  • 0

The quoted $500m is actually the number in Auckland councils long term investment plan for 10 years. This is the proposed value of investment to consolidate the current systems including its rates, regulatory, geospatial, records management and a host of other systems / infrastructure as well as performing life-cycle management over the same period. It's not simply for Sap As its a budget figure for the next ten years it has yet to be spent so there is no cost blow out

Reply
Share
  • 0
  • 0

Post New comment or question

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

NZ Market Snapshot

Forex

Sym Price Change
USD 0.7003 -0.0029 -0.41%
AUD 0.9153 -0.0012 -0.13%
EUR 0.6557 0.0022 0.34%
GBP 0.5615 -0.0037 -0.65%
HKD 5.4414 -0.0217 -0.40%
JPY 78.2820 0.1660 0.21%

Commods

Commodity Price Change Time
Gold Index 1252.9 2.430 2017-03-29T00:
Oil Brent 52.4 1.060 2017-03-29T00:
Oil Nymex 49.5 1.100 2017-03-29T00:
Silver Index 18.2 0.000 2017-03-29T00:

Indices

Symbol Open High Last %
NZX 50 7139.4 7177.7 7133.6 0.50%
NASDAQ 5896.1 5916.8 5897.5 0.28%
DAX 12220.6 12258.4 12203.0 0.44%
DJI 20662.8 20753.8 20659.3 0.33%
FTSE 7373.7 7384.8 7373.7 -0.06%
HKSE 24429.1 24431.1 24392.0 -0.37%
NI225 19150.8 19218.1 19217.5 -0.80%
ASX 5873.5 5899.2 5873.5 0.39%