Peter Close GDFO

Gas Distribution is committed to customer service excellence, prioritising it alongside safety and financial performance.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

Remaining investments are primarily driven by regulatory requirements or IS asset health upgrades.
d) £26m of Opex costs are required for archiving and decommissioning, incremental IS running costs that cannot be capitalised and activities required to implement business change.

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value under ...

These include:
a) Contact Centre Strategy – Contact Centre rationalisation project, value circa £2m/year operating efficiencies and circa £6M/year property rationalisation.
b) Customer Services Incentive – estimated +/- £12m.

8.

The options are summarised in the table below:
5.6

Remaining investments are primarily driven by regulatory requirements or IS asset health upgrades.
d) £26m of Opex costs are required for archiving and decommissioning, incremental IS running costs that cannot be capitalised and activities required to implement business change.

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analysis

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

To deliver the full scope and benefits will require an additional investment of £21m Capex and £3.6m of severance.

The deployment window is limited to a 7-month period from April and October to avoid peak Emergency and Repair workload during the winter.

Marked reduction in customer handoffs and increased first call resolution as a result of improved and timely access to information (central customer database, asset register, GIS).
b) To be kept informed – Automated process steps that ensure customers are informed on progress and changes to work.

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

The GDFO deployment will be integrated with the changes associated with the introduction of the new operating model to ensure a clear and consistent message is articulated.
8.3

The programme also seeks to deliver more effective controls, these are essential to ensure that business process performance is maximised, risks to business objectives are minimised and compliance obligations are met.

Other improvements include:
a) automation and reduction of labour intensive and inconsistently operated manual processes;
b) a step change in the ease of field data capture through improved scripting and workflow on mobile devices;
c) Improved data quality through system driven data cleanse prior to load into new systems suite.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

The programme has worked to reduce the impact of these increases and minimise the risk of future cost increases.

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

Therefore the following functionality would not be delivered:
 Mobile geographical information system for the field force, this will result in the continued use of CD maps.

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

Release 2 and 3 will have a phased deployment that mitigates the risk associated to big bang implementation events.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

It will support work planning, scenario analysis and project management.
b) A Customer Relationship Management system (SAP CRM) coupled with leading Contact Centre technologies (Telephony, IVR, Voice recording, Workforce management).

This will require manual paper based processes to address the lost of automation these solutions will deliver.
b) Cost impact – Capex cost remain within existing £184m sanction, however this option would require utilisation of bulk of the contingency budget to deliver core scope, leaving £5m available to cover unexpected risk.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

A worst case scenario would see benefits delayed by 1-2 years, if the bulk of the headcount reduction cannot be achieved through normal turnover.

Release 1 was delivered as planned in October 2010, with Release 2 and 3 on schedule for deployment in through summer 2011 and autumn 2011 respectively.
2.1

Benefit realisation and people risk
The bulk of the Opex savings associated to the programme will be realised through improved effectiveness and efficiency of end to end processes, therefore less operational support, industrial and management staff will be required.

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

 Customer web portal, proactive customer communications and correspondence letters, leading to the consequent loss of customer service improvements.

The current Electricity Distribution price control review includes proposals for a customer service incentive that is likely to follow into the next Gas Distribution price control.

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

Mitigations
A strong risk reward and fixed fee elements will be included as part of the R2 and R3 supplier delivery contracts.

The expenditure and savings associated with the programme will, subject to approval, be incorporated into the final version of the 2010 Gas Distribution business plan.
1.6

The total investment required to deliver the Gas Distribution Front Office programme has been updated from the forecast in the November 2009 National Grid Board paper now that we know the cost and value of the second and third releases.

The Gas Distribution Front Office programme has successfully implemented the first of three releases to refresh and replace the existing UK Gas Distribution front office systems.

The GDFO deployment will be integrated with the changes associated with the introduction of the new operating model to ensure a clear and consistent message is articulated.
8.3

Investment Return
a) The return from this investment is based on pre-tax cash flows and includes regulatory impacts of the investments, severance and all Capex including Capex invested prior to March 2009.

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

The programme is implementing Graphical design tools which will facilitate this standardisation, delivering £0.2m of Opex savings.
e) The ability to schedule teams efficiently between operating units and networks will drive further improvements in productivity.

To deliver the full scope and benefits will require an additional investment of £21m Capex and £3.6m of severance.

The principles, developed using market research, feedback from customers and their representatives set out our customers’ expectations.

The total investment required to deliver the Gas Distribution Front Office programme has been updated from the forecast in the November 2009 National Grid Board paper now that we know the cost and value of the second and third releases.

The Gas Distribution Front Office programme has successfully implemented the first of three releases to refresh and replace the existing UK Gas Distribution front office systems.

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

This change will drive an increased focus on the efficient delivery of end to end processes, in order to better meet the needs and demands of customers and stakeholders.
4.3

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

The table below sumarises the latest forecast of costs to deliver the scope that underpins the efficiency, customer and complaince benefits as described in the November Board paper (See appendix D).

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

It should also be recognised that the new systems will offer the capability to configure additional work including alternative income earning work such as Smart metering unlike the restrictions with existing systems.
21.3

The existing systems have reached the end of their supportable life.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

The table below sumarises the latest forecast of costs to deliver the scope that underpins the efficiency, customer and complaince benefits as described in the November Board paper (See appendix D).

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Additionally, it is widely recognised that the successful transformation of systems and processes is critically dependant on the level of acceptance by those impacted by it.

The programme has worked to reduce the impact of these increases and minimise the risk of future cost increases.

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

Core scope and programme completion options
5.1

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

Regulatory risk
There is a risk that the measures that define success from a regulatory perspective will change as a result of GDPCR2.

The Gas Distribution Front Office programme has successfully implemented the first of three releases to refresh and replace the existing UK Gas Distribution front office systems.

The Gas Distribution Front Office programme schedule remains unchanged from the November 2009 Board paper.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

Option 1: Reduce scope and continue with existing budget
a) Description – Reduce the scope of Release 2 and 3 to ensure no cost overrun.

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

Maintaining the scope will also enable the delivery of an additional £2.7m of Opex savings compared to November 2009 values.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would require...

Maintaining the scope will also enable the delivery of an additional £2.7m of Opex savings compared to November 2009 values.

Option 1: Reduce scope and continue with existing budget
a) Description – Reduce the scope of Release 2 and 3 to ensure no cost overrun.

On a risk score alone this investment would be deemed a priority project, scoring 45 out of a possible 49 using the National Grid’s risk scoring methodology on the basis that a critical IT system could fail for more than 24 hours in the next 3 years.
2.2

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

SAP, Click, ESRI and Syclo have been deployed to the field and back office for the whole of the Maintenance process and an Emergency pilot area.
2.2

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

To deliver the full scope and benefits will require an additional investment of £21m Capex and £3.6m of severance.

To get best value from the investment and leverage additional value Gas Distribution has recently redesigned its operating model.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

To get best value from the investment and leverage additional value Gas Distribution has recently redesigned its operating model.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

The Gas Distribution Front Office programme has successfully implemented the first of three releases to refresh and replace the existing UK Gas Distribution front office systems.

Release 2 and 3 core scope within the existing budget includes:
a) Release 2 - Full emergency roll out, contact centre telephony refresh and SAP Customer Relationship Management system delivery to contact centre.
b) Release 3 – Replacement of TEAR, Storms (work management system for Constuction and Repair activities), AQS and QS (Quotation systems for connections activities).

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

Sustainable execution risk
There is a risk that it is not possible to execute the required business changes to deliver Opex savings in a sustainable manner because the organisation is not equipped to deliver the level of change envisaged in the business case.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analys...

As shown Capex costs are set to exceed sanction, Opex costs are forecast to remain unchanged with Severance increases required to facilitate the delivery of expected benefits.

3.2

The expenditure and savings associated with the programme will, subject to approval, be incorporated into the final version of the 2010 Gas Distribution business plan.
1.6

The scope of the IT systems to be replaced and enhanced through the Gas Distribution Front Office programme is described in Appendix A. This scope was signed off by the Programme Steering Group on the 9th June 2009.
3.2

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

Maintaining and upgrading an “evergreen” integrated system is cheaper when compared with replacing multiple separate systems over a similar period because of economies of scale and the avoidance of bespoke integration between systems.
3.5

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

The Gas Distribution Front Office programme has successfully implemented the first of three releases to refresh and replace the existing UK Gas Distribution front office systems.

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

Executive Summary
1.1

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

Business scope has been protected through design, build, test, and go live dates remain unchanged and additional benefits have been identified.
2.5

Consequential Opex savings of circa £1m are expected this financial year.
2.4

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

Marked reduction in customer handoffs and increased first call resolution as a result of improved and timely access to information (central customer database, asset register, GIS).
b) To be kept informed – Automated process steps that ensure customers are informed on progress and changes to work.

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

This is particularly important for Gas Distribution as it prepares for the incentive/penalty regime associated to customer satisfaction performance that is likely to be introduced as part of the next price control.


6.

Our customers expect:
a) National Grid to do a great job – Improved capture of customer information including their needs, leading to improved job scheduling and work allocation.

The Gas Distribution Front Office programme has successfully implemented the first of three releases to refresh and replace the existing UK Gas Distribution front office systems.

The new scheduling and dispatch capability and improved management information and reductions in wasted travel time are likely to have a positive impact on safety and environmental performance.
23.

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

The programme is implementing Graphical design tools which will facilitate this standardisation, delivering £0.2m of Opex savings.
e) The ability to schedule teams efficiently between operating units and networks will drive further improvements in productivity.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

The Capex sanction was subsequently increased by £6m to £48m to allow for early procurement of licences for the work scheduling and mobile device applications.
2.5

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

The creation of a single integrated suite of systems where data is stored in one place and is available as appropriate across all systems and to all users authorised to use it, will transform the work environment of employees.

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

A delay of between 5 and 6 months is likely to cost £15m to £20m even after actions to mitigate costs have been taken.

On this basis it is anticipated that Ofgem will deem this investment efficient and therefore it will be incorporated into our RAV. It is only if our total Capex investment exceeds our allowance, which is not forecast to occur, that the licence indicates that the over spend will be subject to the IQI incentive, effectively reducing the Capex overspend incorporated into the RAV by 36%.
23.4

Validation has continued with the latest view being incorporated in the latest Gas Distribution Business plan.

Robust data quality management processes to ensure the best information is used in decision making; and
d) Constraints on user access, limited to appropriate and authorised functions.
6.3

Business scope has been protected through design, build, test, and go live dates remain unchanged and additional benefits have been identified.
2.5

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analys...

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multiple team...

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

As a consequence, there will be a reduction in the utilisation of the Emergency FCO’s because of the need to maintain minimum staffing levels to discharge licence obligations.

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

In particular the objective to “become more efficient through transforming our operating model and increasingly aligning our processes.”
4.2

Changes in the Metering market risk
There is a risk that the current forecast of metering workload over the life of the business plan/case is too high because smart metering roll out occurs more rapidly than expected.

This will be achieved using functionality within the Click Scheduling software, delivering a further £0.5m of savings.

Additional benefits provide an additional £2.7m of Opex benefit and deliver an IRR of 15% and an incremental IRR of 22%.
c) Delivery Risk – Major suppliers have validated costs based on the scope of option 2, and will accept fixed price agreements for Release 2 and 3.

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

 Document management system and the Integration with the existing ETON (Street works notice system) and GBNA (Network Analysis Systems).

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

They are prone to failure, are considered inadequate to support future business requirements.

Sustainable execution risk
There is a risk that it is not possible to execute the required business changes to deliver Opex savings in a sustainable manner because the organisation is not equipped to deliver the level of change envisaged in the business case.

 Investment Management solution, this will necessitate the continued use of multiple off line databases and spreadsheets to manage the investment plan and track delivery.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisation to...

Maintaining the scope will also enable the delivery of an additional £2.7m of Opex savings compared to November 2009 values.

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

SAP, Click, ESRI and Syclo have been deployed to the field and back office for the whole of the Maintenance process and an Emergency pilot area.
2.2

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

Benefit realisation and people risk
The bulk of the Opex savings associated to the programme will be realised through improved effectiveness and efficiency of end to end processes, therefore less operational support, industrial and management staff will be required.

These include:
a) Contact Centre Strategy – Contact Centre rationalisation project, value circa £2m/year operating efficiencies and circa £6M/year property rationalisation.
b) Customer Services Incentive – estimated +/- £12m.

8.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

A contingency of £7m is included within the forecast.
d) NOTE that John Pettigrew is the Programme Sponsor, and that Pete Massey, Director of Transformation, has the approved financial delegation to deliver the Programme.

2.

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

 Investment Management solution, this will necessitate the continued use of multiple off line databases and spreadsheets to manage the investment plan and track delivery.

Initial estimates indicate that this would be in the range of £4-£6m of Capex.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

 Investment Management solution, this will necessitate the continued use of multiple off line databases and spreadsheets to manage the investment plan and track delivery.

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

Business scope has been protected through design, build, test, and go live dates remain unchanged and additional benefits have been identified.
2.5

They are prone to failure, are considered inadequate to support future business requirements.

 Investment Management solution, this will necessitate the continued use of multiple off line databases and spreadsheets to manage the investment plan and track delivery.

The deployment window is limited to a 7-month period from April and October to avoid peak Emergency and Repair workload during the winter.

At that time a like for like replacement was envisaged would which would comprise £65m Capex and £14m Opex investment in tactical improvements to keep the ageing infrastructure operational.

This will eliminate manual processing associated with time sheeting and product ordering, data will be loaded directly into our core systems through the handheld device reducing errors allowing our field engineers to focus on job execution and customer service.
e) A best of breed geospatial information system (ESRI) to display a single accurate geographic view of asset and work information to the business in the field, operational support and customer services.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

To get best value from the investment and leverage additional value Gas Distribution has recently redesigned its operating model.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

National Grid recognises the importance of customer satisfaction in its vision and in its line of sight objectives.

The scope of the IT systems to be replaced and enhanced through the Gas Distribution Front Office programme is described in Appendix A. This scope was signed off by the Programme Steering Group on the 9th June 2009.
3.2

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

Additionally, it is widely recognised that the successful transformation of systems and processes is critically dependant on the level of acceptance by those impacted by it.

To get best value from the investment and leverage additional value Gas Distribution has recently redesigned its operating model.

Other improvements include:
a) automation and reduction of labour intensive and inconsistently operated manual processes;
b) a step change in the ease of field data capture through improved scripting and workflow on mobile devices;
c) Improved data quality through system driven data cleanse prior to load into new systems suite.

SAP, Click, ESRI and Syclo have been deployed to the field and back office for the whole of the Maintenance process and an Emergency pilot area.
2.2

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value under ...

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

There is a risk that poor employee engagement and trade union relationships will compromise the delivery of the required business changes adversely impacting the forecast savings.

To deliver the full scope and benefits will require an additional investment of £21m Capex and £3.6m of severance.

The principles, developed using market research, feedback from customers and their representatives set out our customers’ expectations.

Opex Summary
a) The following table summarises the proposed change in the phasing of Opex expenditure relative to the current sanction:

6.4

Option 1: Reduce scope and continue with existing budget
a) Description – Reduce the scope of Release 2 and 3 to ensure no cost overrun.

The solution proposed comprises an integrated suite of IT systems centred on SAP and best of breed applications.

This analysis will be repeated as part of each planning cycle to ensure benefits remain appropriately valued and aligned with coincidental initiatives and changes to the organisation.
7.2

As detailed in the previous Board paper, programme capability has been designed to best support the business to:
a) Delight customers.
b) Make life simpler for our people.
c) Make us more productive.
d) Provide a robust process and data control framework.
4.2

The Gas Distribution Front Office programme has successfully implemented the first of three releases to refresh and replace the existing UK Gas Distribution front office systems.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

Remaining investments are primarily driven by regulatory requirements or IS asset health upgrades.
d) £26m of Opex costs are required for archiving and decommissioning, incremental IS running costs that cannot be capitalised and activities required to implement business change.

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

The pre-tax IRR continues to exceed the anticipated 15% hurdle rate for IS projects and remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.

Design work has already been undertaken for the components described in 1a), and consequently the cost of this element of the work will need to be written off, at a cost of between £4 and £6m.
c) Business benefit and return - £5 to £6m/annum of Opex benefits would be lost reducing the IRR to 14%.

 Automation of the management of work impacting consumers during major incidents, this will require continued use of the current manual paper based system.

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

It will support work planning, scenario analysis, project management improvements and drive consistency and data quality.

7.

The creation of a single integrated suite of systems where data is stored in one place and is available as appropriate across all systems and to all users authorised to use it, will transform the work environment of employees.

This will be optimised through the use of the Click resource management tool being implemented for Repair in Release 3, and delivers a £0.6m benefit.
d) The creation of a standard set of planning tools to optimise designs will not only improve their quality but also significantly reduce rework.

This will eliminate manual processing associated with time sheeting and product ordering, data will be loaded directly into our core systems through the handheld device reducing errors allowing our field engineers to focus on job execution and customer service.
e) A best of breed geospatial information system (ESRI) to display a single accurate geographic view of asset and work information to the business in the field, operational support and customer services.

Maintaining the scope will also enable the delivery of an additional £2.7m of Opex savings compared to November 2009 values.

In particular, Release 3 which has only just moved into detailed design; resulting in an increase of £7m.
3.3

Release 2 and 3 core scope within the existing budget includes:
a) Release 2 - Full emergency roll out, contact centre telephony refresh and SAP Customer Relationship Management system delivery to contact centre.
b) Release 3 – Replacement of TEAR, Storms (work management system for Constuction and Repair activities), AQS and QS (Quotation systems for connections activities).

Additionally, it is widely recognised that the successful transformation of systems and processes is critically dependant on the level of acceptance by those impacted by it.

Design work has already been undertaken for the components described in 1a), and consequently the cost of this element of the work will need to be written off, at a cost of between £4 and £6m.
c) Business benefit and return - £5 to £6m/annum of Opex benefits would be lost reducing the IRR to 14%.

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

Given the budgetary constraints documented in section 3 there are two clear options for completing Release 2 and 3 of the programme.
5.3

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

The high level assumption is that a significant proportion of all reductions in industrial staff, and operational support staff can be achieved through displacement of contractors/agency or retirement.

Release 2 and 3 will have a phased deployment that mitigates the risk associated to big bang implementation events.

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

As such planned benefits may be at risk because it may not be possible to implement all planned business changes due to constraints on performance.

A contingency of £7m is included within the forecast.
d) NOTE that John Pettigrew is the Programme Sponsor, and that Pete Massey, Director of Transformation, has the approved financial delegation to deliver the Programme.

2.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

The pre-tax IRR continues to exceed the anticipated 15% hurdle rate for IS projects and remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.

The high level assumption is that a significant proportion of all reductions in industrial staff, and operational support staff can be achieved through displacement of contractors/agency or retirement.

Release 1 was delivered as planned in October 2010, with Release 2 and 3 on schedule for deployment in through summer 2011 and autumn 2011 respectively.
2.1

The new systems will create for the first time a single and complete asset repository that integrates asset information and the work required to maintain those assets.

Work on the programme was initially sanctioned in October 2008 at the Distribution Project Sanctioning Committee, and then subsequently approved by the Executive in April 2009.
a) The Executive paper estimated that the total investment required to deliver the programme was £145m Capex, £19m Opex and £24m of severance.
b) In this paper the Executive sanctioned a further investment, £23.5m

Maintaining the scope will also enable the delivery of an additional £2.7m of Opex savings compared to November 2009 values.

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment in in...

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

This will be optimised through the use of the Click resource management tool being implemented for Repair in Release 3, and delivers a £0.6m benefit.
d) The creation of a standard set of planning tools to optimise designs will not only improve their quality but also significantly reduce rework.

The total investment required to deliver the Gas Distribution Front Office programme has been updated from the forecast in the November 2009 National Grid Board paper now that we know the cost and value of the second and third releases.

Work on the programme was initially sanctioned in October 2008 at the Distribution Project Sanctioning Committee, and then subsequently approved by the Executive in April 2009.
a) The Executive paper estimated that the total investment required to deliver the programme was £145m Capex, £19m Opex and £24m of severance.
b) In this paper the Executive sanctioned a further investment, £23.5m

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

Benefits have been phased to minimise severance costs.
b) Business benefits are net of any increased operating costs, increased IS running costs are separately identified in the benefits table in 3.1.

26.3

There is a risk that poor employee engagement and trade union relationships will compromise the delivery of the required business changes adversely impacting the forecast savings.

Given the budgetary constraints documented in section 3 there are two clear options for completing Release 2 and 3 of the programme.
5.3

The Gas Distribution Front Office programme schedule remains unchanged from the November 2009 Board paper.

 Automation of the management of work impacting consumers during major incidents, this will require continued use of the current manual paper based system.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Vendors have already reviewed the scope and have confirmed they can deliver in accordance with the current plan.

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

The pre-tax IRR continues to exceed the anticipated 15% hurdle rate for IS projects and remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.

Benefit realisation and people risk
The bulk of the Opex savings associated to the programme will be realised through improved effectiveness and efficiency of end to end processes, therefore less operational support, industrial and management staff will be required.

This will require manual paper based processes to address the lost of automation these solutions will deliver.
b) Cost impact – Capex cost remain within existing £184m sanction, however this option would require utilisation of bulk of the contingency budget to deliver core scope, leaving £5m available to cover unexpected risk.

Consequential Opex savings of circa £1m are expected this financial year.
2.4

Other improvements include:
a) automation and reduction of labour intensive and inconsistently operated manual processes;
b) a step change in the ease of field data capture through improved scripting and workflow on mobile devices;
c) Improved data quality through system driven data cleanse prior to load into new systems suite.

Real data is being used in testing at an early stage to enable fixes to be implemented when the impact on the deployment date can be minimised.
8.2

A contingency of £7m is included within the forecast.
d) NOTE that John Pettigrew is the Programme Sponsor, and that Pete Massey, Director of Transformation, has the approved financial delegation to deliver the Programme.

2.

On a risk score alone this investment would be deemed a priority project, scoring 45 out of a possible 49 using the National Grid’s risk scoring methodology on the basis that a critical IT system could fail for more than 24 hours in the next 3 years.
2.2

The additional Opex benefits are described below:
a) Automation of the handover of Emergency work between First Call Operatives and Repair teams, eliminating duplication of work.

These providers were selected through a procurement exercise involving selection boards chaired by David Lister and Peter Massey including representatives from across the business.
3.4

The following graph shows the annual pre-tax cash flows over the life of the front office systems which have been used to calculate the IRR for the investment.


28.2

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

The programme is implementing Graphical design tools which will facilitate this standardisation, delivering £0.2m of Opex savings.
e) The ability to schedule teams efficiently between operating units and networks will drive further improvements in productivity.

The current suite of front office systems supporting Maintenance, Emergency, Repair, Construction processes within UK Gas Distribution are becoming obsolete.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Gas Distribution is committed to customer service excellence, prioritising it alongside safety and financial performance.

The additional Opex benefits are described below:
a) Automation of the handover of Emergency work between First Call Operatives and Repair teams, eliminating duplication of work.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

Release 1 was delivered as planned in October 2010, with Release 2 and 3 on schedule for deployment in through summer 2011 and autumn 2011 respectively.
2.1

The total investment required to deliver the Gas Distribution Front Office programme has been updated from the forecast in the November 2009 National Grid Board paper now that we know the cost and value of the second and third releases.

As detailed in the previous Board paper, programme capability has been designed to best support the business to:
a) Delight customers.
b) Make life simpler for our people.
c) Make us more productive.
d) Provide a robust process and data control framework.
4.2

This will be optimised through the use of the Click resource management tool being implemented for Repair in Release 3, and delivers a £0.6m benefit.
d) The creation of a standard set of planning tools to optimise designs will not only improve their quality but also significantly reduce rework.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

Benefit realisation and people risk
The bulk of the Opex savings associated to the programme will be realised through improved effectiveness and efficiency of end to end processes, therefore less operational support, industrial and management staff will be required.

Additionally, it is widely recognised that the successful transformation of systems and processes is critically dependant on the level of acceptance by those impacted by it.

This analysis will be repeated as part of each planning cycle to ensure benefits remain appropriately valued and aligned with coincidental initiatives and changes to the organisation.
7.2

There is a risk that poor employee engagement and trade union relationships will compromise the delivery of the required business changes adversely impacting the forecast savings.

Safety, Environmental and Planning Issues
22.1

Marked reduction in customer handoffs and increased first call resolution as a result of improved and timely access to information (central customer database, asset register, GIS).
b) To be kept informed – Automated process steps that ensure customers are informed on progress and changes to work.

The table below sumarises the latest forecast of costs to deliver the scope that underpins the efficiency, customer and complaince benefits as described in the November Board paper (See appendix D).

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

This change will drive an increased focus on the efficient delivery of end to end processes, in order to better meet the needs and demands of customers and stakeholders.
4.3

The programme has trained more that 1000 people across 150 new procedures.
2.3

A contingency of £7m is included within the forecast.
d) NOTE that John Pettigrew is the Programme Sponsor, and that Pete Massey, Director of Transformation, has the approved financial delegation to deliver the Programme.

2.

It is for this reason that the Gas Distribution Front Office Programme has made user engagement a key focus.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

The pre-tax IRR continues to exceed the anticipated 15% hurdle rate for IS projects and remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

The table below sumarises the latest forecast of costs to deliver the scope that underpins the efficiency, customer and complaince benefits as described in the November Board paper (See appendix D).

There would be no operational performance benefits.
b) This solution would not deliver improvements in customer service.
c) Although the initial investment is lower than the proposed investment, it gave a negative return of -1%.
d) The disparate nature of the infrastructure would not be addressed and therefore more frequent and complex upgrades would continue to be required in future price controls.

The Capex sanction was subsequently increased by £6m to £48m to allow for early procurement of licences for the work scheduling and mobile device applications.
2.5

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment i...

Throughout the redesign business processes were critically examined and additional opportunities to leverage the GDFO systems were identified.

Release 2 and 3 core scope within the existing budget includes:
a) Release 2 - Full emergency roll out, contact centre telephony refresh and SAP Customer Relationship Management system delivery to contact centre.
b) Release 3 – Replacement of TEAR, Storms (work management system for Constuction and Repair activities), AQS and QS (Quotation systems for connections activities).

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analys...

 Automation of the management of work impacting consumers during major incidents, this will require continued use of the current manual paper based system.

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

The programme supports the Common Operating Model through its alignment with National Grid’s objectives.

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

The GDFO deployment will be integrated with the changes associated with the introduction of the new operating model to ensure a clear and consistent message is articulated.
8.3

The Gas Distribution Front Office programme has successfully implemented the first of three releases to refresh and replace the existing UK Gas Distribution front office systems.

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

The solution proposed comprises an integrated suite of IT systems centred on SAP and best of breed applications.

The aggregate value of the recurring end state Opex benefits is 18.5% higher than the £27m base case (8/9 prices) in the April 2009 paper.

Capex Summary
a) The following table summarises the proposed increase in Capex expenditure relative to the current sanction:

6.3

Systems will support close coupling of complaint and feedback information with intelligence drawn from MI to help drive process improvements.

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment i...

The deployment window is limited to a 7-month period from April and October to avoid peak Emergency and Repair workload during the winter.

A contingency of £7m is included within the forecast.
d) NOTE that John Pettigrew is the Programme Sponsor, and that Pete Massey, Director of Transformation, has the approved financial delegation to deliver the Programme.

2.

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

It is recommended that option 2 is pursued because it ensures that the programme delivers its full scope and:
a) Delivers an IRR of 15% and an incremental IRR of 22%.
b) Secures the existing plus £2.7m of new value.
c) Better supports the operating model as well as customer and compliance strategies.
6.

This is higher than the price control submission because of the incorporation of costs associated with aged servers which came to light afterwards.
19.

Mitigations:
Submission of a Board Paper requesting additional funding to complete the programme based on Option 2.
8.5

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value under ...

As detailed in the previous Board paper, programme capability has been designed to best support the business to:
a) Delight customers.
b) Make life simpler for our people.
c) Make us more productive.
d) Provide a robust process and data control framework.
4.2

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment in integ...

 Customer web portal, proactive customer communications and correspondence letters, leading to the consequent loss of customer service improvements.

A further £2.7m of annual Opex benefits dependent on Release 2 and 3 GDFO capabilities were identified.

A worst case scenario would see benefits delayed by 1-2 years, if the bulk of the headcount reduction cannot be achieved through normal turnover.

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value under ...

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

They are prone to failure, are considered inadequate to support future business requirements.

This investment will mitigate the risk of system failure and address the increased cost of maintaining and modifying systems currently running beyond the end of their supportable life.

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

Appendix C: Risks and Issues
8.1

The best of breed systems chosen are “ESRI” for geographical information systems, “Click” for work scheduling and dispatch, and “Syclo” for field mobile devices.
3.3

The new configuration of IT systems to be delivered through the programme is illustrated below:
13.

Release 1 was delivered as planned in October 2010, with Release 2 and 3 on schedule for deployment in through summer 2011 and autumn 2011 respectively.
2.1

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

Costs to Achieve
a) Costs to achieve are predominantly severance and have been calculated based on analysis of the workforce’s age profile, and agency and contractor levels at a company level.

SAP, Click, ESRI and Syclo have been deployed to the field and back office for the whole of the Maintenance process and an Emergency pilot area.
2.2

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

This change will drive an increased focus on the efficient delivery of end to end processes, in order to better meet the needs and demands of customers and stakeholders.
4.3

The productivity improvements enabled by the delivery of new Front Office systems were originally developed and subsequently valued through a series of workshops undertaken as part of the high-level design of the Gas Transformation Programme.

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

The GDFO deployment will be integrated with the changes associated with the introduction of the new operating model to ensure a clear and consistent message is articulated.
8.3

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

As a consequence, there will be a reduction in the utilisation of the Emergency FCO’s because of the need to maintain minimum staffing levels to discharge licence obligations.

The diagrams below summarises the existing applications to be replaced:


15.

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

The table below sumarises the latest forecast of costs to deliver the scope that underpins the efficiency, customer and complaince benefits as described in the November Board paper (See appendix D).

This analysis has only incorporated benefits directly attributable to the introduction of the new front office systems.

Given the budgetary constraints documented in section 3 there are two clear options for completing Release 2 and 3 of the programme.
5.3

Including items listed in section 5.3 a).
a) Cost impact – an additional investment of £21m Capex and £3m of severance costs (to cover additional efficiency benefits).
b) Business benefit and return – Secures existing benefits plus supports the new operating model, customer and compliance strategies.

Dependant on the workforce strategy adopted, the cost of severance will have a significant impact on the returns delivered by the programme.

Mitigations:
The programme continues to invest heavily in its comprehensive approach to TU and employee engagement preparing the employees for the impact of the new systems.

These providers were selected through a procurement exercise involving selection boards chaired by David Lister and Peter Massey including representatives from across the business.
3.4

Change activities include: employee and TU engagement, location strategy, business readiness, changes to the safety case, post implementation support and training delivery.
e) The reason for the £19m increase in severance costs from the previous estimate of £24m is primarily because of severance associated with an additional reduction of 89 managers and senior staff not included in the April 2009 estimate.
f) Although all non-critical work on Gas Distribution UK systems has been ...

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

Release 2 and 3 core scope within the existing budget includes:
a) Release 2 - Full emergency roll out, contact centre telephony refresh and SAP Customer Relationship Management system delivery to contact centre.
b) Release 3 – Replacement of TEAR, Storms (work management system for Constuction and Repair activities), AQS and QS (Quotation systems for connections activities).

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

This is higher than the price control submission because of the incorporation of costs associated with aged servers which came to light afterwards.
19.

The high level assumption is that a significant proportion of all reductions in industrial staff, and operational support staff can be achieved through displacement of contractors/agency or retirement.

One example of this is creative workshops, known as ‘Design Theatres’, to help employees shape the design, ‘see the future’, and become advocates of the solution back in their part of the business.

5.

Initial estimates indicate that this would be in the range of £4-£6m of Capex.

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

The table below includes a breakdown of expenditure relative to the current sanction, and a forecast of the remaining expenditure to complete the programme.
1.4

It is estimated that a 6 month delay could increase the cost of the programme by approximately £15 to £20m.

Maintaining the scope will also enable the delivery of an additional £2.7m of Opex savings compared to November 2009 values.

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

 Customer web portal, proactive customer communications and correspondence letters, leading to the consequent loss of customer service improvements.

This change will drive an increased focus on the efficient delivery of end to end processes, in order to better meet the needs and demands of customers and stakeholders.
4.3

Therefore the following functionality would not be delivered:
 Mobile geographical information system for the field force, this will result in the continued use of CD maps.

Overrun risk
There is a risk that Release 3 could slip 5 months into 2012 if there are any delays in either release 2 or 3 design build or test phases.

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analys...

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

A further £2.7m of annual Opex benefits dependent on Release 2 and 3 GDFO capabilities were identified.

They are prone to failure, are considered inadequate to support future business requirements.

As shown Capex costs are set to exceed sanction, Opex costs are forecast to remain unchanged with Severance increases required to facilitate the delivery of expected benefits.

3.2

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

In particular, Release 3 which has only just moved into detailed design; resulting in an increase of £7m.
3.3

A proportion of the £7m contingency is also available to be used at the discretion of the Steering Group for critical functionality.
8.4

 Customer web portal, proactive customer communications and correspondence letters, leading to the consequent loss of customer service improvements.

These additional benefits, the operating model blueprint, customer, compliance strategies are dependent on the programme delivering the full scope.
5.

Mitigations:
It is assumed that the current price control settlement will include arrangements to address the loss of meter work and the requirements for minimum staffing levels.

Maintaining and upgrading an “evergreen” integrated system is cheaper when compared with replacing multiple separate systems over a similar period because of economies of scale and the avoidance of bespoke integration between systems.
3.5

 Customer web portal, proactive customer communications and correspondence letters, leading to the consequent loss of customer service improvements.

This is higher than the price control submission because of the incorporation of costs associated with aged servers which came to light afterwards.
19.

In addition a number of adjustments have been made which have increased confidence in the delivery of the value enabled by the programme.

Working with inconsistent data across multiple systems is a constant frustration and inefficiency.
6.2

The GDFO deployment will be integrated with the changes associated with the introduction of the new operating model to ensure a clear and consistent message is articulated.
8.3

Core scope and programme completion options
5.1

Benefit realisation and people risk
The bulk of the Opex savings associated to the programme will be realised through improved effectiveness and efficiency of end to end processes, therefore less operational support, industrial and management staff will be required.

The main reasons for the movement in Capex costs are summarised below:
a) The April 2009 initial cost estimate was based on assumptions made at the time about deployment phasing and the level product specific expertise required to deliver the programme.

This approach was taken because it is planned to decommission these systems as part of a wider rationalisation programme which will be managed separately from the Gas Distribution Front Office programme.

Maintaining and upgrading an “evergreen” integrated system is cheaper when compared with replacing multiple separate systems over a similar period because of economies of scale and the avoidance of bespoke integration between systems.
3.5

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value under ...

The pre-tax IRR continues to exceed the anticipated 15% hurdle rate for IS projects and remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Business Case Model Assumptions
a) RAV effective asset life = 45 years
b) Financial depreciation on 20% reducing balance
c) Pre-tax PCR return = 5.99%
d) Post-tax PCR return = 4.94%
e) IQI factor = 36%

Release 2 and 3 core scope within the existing budget includes:
a) Release 2 - Full emergency roll out, contact centre telephony refresh and SAP Customer Relationship Management system delivery to contact centre.
b) Release 3 – Replacement of TEAR, Storms (work management system for Constuction and Repair activities), AQS and QS (Quotation systems for connections activities).

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

They are prone to failure, are considered inadequate to support future business requirements.

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

This will require manual paper based processes to address the lost of automation these solutions will deliver.
b) Cost impact – Capex cost remain within existing £184m sanction, however this option would require utilisation of bulk of the contingency budget to deliver core scope, leaving £5m available to cover unexpected risk.

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

In particular the objective to “become more efficient through transforming our operating model and increasingly aligning our processes.”
4.2

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

Marked reduction in customer handoffs and increased first call resolution as a result of improved and timely access to information (central customer database, asset register, GIS).
b) To be kept informed – Automated process steps that ensure customers are informed on progress and changes to work.

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

The scope of the IT systems to be replaced and enhanced through the Gas Distribution Front Office programme is described in Appendix A. This scope was signed off by the Programme Steering Group on the 9th June 2009.
3.2

Mitigations:
It is assumed that the current price control settlement will include arrangements to address the loss of meter work and the requirements for minimum staffing levels.

Mitigations:
The programme continues to invest heavily in its comprehensive approach to TU and employee engagement preparing the employees for the impact of the new systems.

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

The new systems will create for the first time a single and complete asset repository that integrates asset information and the work required to maintain those assets.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would require...

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analysis; aut...

An integrated and sustainable risk control framework will be implemented that:
a) links agreed control objectives to the key controls embedded in business process designs, reducing the risk of control gaps and excessive controls;
b) where possible, will drive efficiency and effectiveness through intelligent control design and use of systems based controls;
c) can be communicated to interested stakeholders, for example assurance providers, and enable the impact of any new controls t...

Costs to Achieve
a) Costs to achieve are predominantly severance and have been calculated based on analysis of the workforce’s age profile, and agency and contractor levels at a company level.

The Gas Distribution Front Office Programme Steering Group, chaired by Mark Fairbairn, oversees the programme; this group is accountable to the National Grid Executive.


3.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

The high level assumption is that a significant proportion of all reductions in industrial staff, and operational support staff can be achieved through displacement of contractors/agency or retirement.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

Pre-tax Cash Flows
28.1

An integrated and sustainable risk control framework will be implemented that:
a) links agreed control objectives to the key controls embedded in business process designs, reducing the risk of control gaps and excessive controls;
b) where possible, will drive efficiency and effectiveness through intelligent control design and use of systems based controls;
c) can be communicated to interested stakeholders, for example assurance providers, and enable the impact of any new controls they rec...

(This estimate has been recently updated, Appendix B, para. 3).

Regulatory risk
There is a risk that the measures that define success from a regulatory perspective will change as a result of GDPCR2.

The programme has trained more that 1000 people across 150 new procedures.
2.3

An integrated and sustainable risk control framework will be implemented that:
a) links agreed control objectives to the key controls embedded in business process designs, reducing the risk of control gaps and excessive controls;
b) where possible, will drive efficiency and effectiveness through intelligent control design and use of systems based controls;
c) can be communicated to interested stakeholders, for example assurance providers, and enable the impact of any new controls t...

Sustainable execution risk
There is a risk that it is not possible to execute the required business changes to deliver Opex savings in a sustainable manner because the organisation is not equipped to deliver the level of change envisaged in the business case.

Design and build risk
There is a risk that during the remaining design, build and test activities for Release 2 and 3 that more complex solutions will be required compared to current assumptions.

The deployment window is limited to a 7-month period from April and October to avoid peak Emergency and Repair workload during the winter.

This appendix summarises the scope of Gas Distribution Front Office by defining the systems to be replaced, and the new application landscape to be delivered.

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

The Gas Distribution Front Office programme has been initiated to refresh and replace the existing UK Gas Distribution front office processes and systems.

The existing systems have reached the end of their supportable life.

The productivity improvements enabled by the delivery of new Front Office systems were originally developed and subsequently valued through a series of workshops undertaken as part of the high-level design of the Gas Transformation Programme.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment in integ...

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

The Gas Distribution Front Office Programme Steering Group, chaired by Mark Fairbairn, oversees the programme; this group is accountable to the National Grid Executive.


3.

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value under ...

Mitigations:
The new Operating Model with its focus on end to end processes includes as part of its remit to underpin the savings delivered through new systems such as the Gas Distribution Front Office programme.

The remaining expenditure covers completion of detailed design, systems build, testing, training and deployment of each release plus technical infrastructure costs.
2.6

National Grid plc
Executive Committee
UK Gas Distribution Front Office Update
A paper by Mark Fairbairn, Executive Director, Gas Distribution
1.

As a consequence, there will be a reduction in the utilisation of the Emergency FCO’s because of the need to maintain minimum staffing levels to discharge licence obligations.

This analysis will be repeated as part of each planning cycle to ensure benefits remain appropriately valued and aligned with coincidental initiatives and changes to the organisation.
7.2

Release 1 was delivered as planned in October 2010, with Release 2 and 3 on schedule for deployment in through summer 2011 and autumn 2011 respectively.
2.1

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

Other improvements include:
a) automation and reduction of labour intensive and inconsistently operated manual processes;
b) a step change in the ease of field data capture through improved scripting and workflow on mobile devices;
c) Improved data quality through system driven data cleanse prior to load into new systems suite.

This will eliminate manual processing associated with time sheeting and product ordering, data will be loaded directly into our core systems through the handheld device reducing errors allowing our field engineers to focus on job execution and customer service.
e) A best of breed geospatial information system (ESRI) to display a single accurate geographic view of asset and work information to the business in the field, operational support and customer services.

The programme is implementing Graphical design tools which will facilitate this standardisation, delivering £0.2m of Opex savings.
e) The ability to schedule teams efficiently between operating units and networks will drive further improvements in productivity.

They are prone to failure, are considered inadequate to support future business requirements.

Our customers expect:
a) National Grid to do a great job – Improved capture of customer information including their needs, leading to improved job scheduling and work allocation.

Overrun risk
There is a risk that Release 3 could slip 5 months into 2012 if there are any delays in either release 2 or 3 design build or test phases.

Investment Return
a) The return from this investment is based on pre-tax cash flows and includes regulatory impacts of the investments, severance and all Capex including Capex invested prior to March 2009.

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

National Grid recognises the importance of customer satisfaction in its vision and in its line of sight objectives.

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

Recommendation
6.1

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analys...

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

The aggregate value of the recurring end state Opex benefits is 18.5% higher than the £27m base case (8/9 prices) in the April 2009 paper.

Consequential Opex savings of circa £1m are expected this financial year.
2.4

Work on the programme was initially sanctioned in October 2008 at the Distribution Project Sanctioning Committee, and then subsequently approved by the Executive in April 2009.
a) The Executive paper estimated that the total investment required to deliver the programme was £145m Capex, £19m Opex and £24m of severance.
b) In this paper the Executive sanctioned a further investment, £23.5m

As detailed in the previous Board paper, programme capability has been designed to best support the business to:
a) Delight customers.
b) Make life simpler for our people.
c) Make us more productive.
d) Provide a robust process and data control framework.
4.2

Change activities include: employee and TU engagement, location strategy, business readiness, changes to the safety case, post implementation support and training delivery.
e) The reason for the £19m increase in severance costs from the previous estimate of £24m is primarily because of severance associated with an additional reduction of 89 managers and senior staff not included in the April 2009 estimate.
f) Although all non-critical work on Gas Distribution UK systems has been ...

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

There is a risk that poor employee engagement and trade union relationships will compromise the delivery of the required business changes adversely impacting the forecast savings.

 Customer web portal, proactive customer communications and correspondence letters, leading to the consequent loss of customer service improvements.

The programme has trained more that 1000 people across 150 new procedures.
2.3

Work on the programme was initially sanctioned in October 2008 at the Distribution Project Sanctioning Committee, and then subsequently approved by the Executive in April 2009.
a) The Executive paper estimated that the total investment required to deliver the programme was £145m Capex, £19m Opex and £24m of severance.
b) In this paper the Executive sanctioned a further investment, £23.5m

Design work has already been undertaken for the components described in 1a), and consequently the cost of this element of the work will need to be written off, at a cost of between £4 and £6m.
c) Business benefit and return - £5 to £6m/annum of Opex benefits would be lost reducing the IRR to 14%.

On this basis it is anticipated that Ofgem will deem this investment efficient and therefore it will be incorporated into our RAV. It is only if our total Capex investment exceeds our allowance, which is not forecast to occur, that the licence indicates that the over spend will be subject to the IQI incentive, effectively reducing the Capex overspend incorporated into the RAV by 36%.
23.4

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value...

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

An integrated and sustainable risk control framework will be implemented that:
a) links agreed control objectives to the key controls embedded in business process designs, reducing the risk of control gaps and excessive controls;
b) where possible, will drive efficiency and effectiveness through intelligent control design and use of systems based controls;
c) can be communicated to interested stakeholders, for example assurance providers, and enable the impact of any new controls they rec...

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

A further £2.7m of annual Opex benefits dependent on Release 2 and 3 GDFO capabilities were identified.

Sustainable execution risk
There is a risk that it is not possible to execute the required business changes to deliver Opex savings in a sustainable manner because the organisation is not equipped to deliver the level of change envisaged in the business case.

Maintaining and upgrading an “evergreen” integrated system is cheaper when compared with replacing multiple separate systems over a similar period because of economies of scale and the avoidance of bespoke integration between systems.
3.5

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multiple team...

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

Vendors have already reviewed the scope and have confirmed they can deliver in accordance with the current plan.

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

The capital investment of £157m exceeds the £79m allowance submitted at the time of the price control.

Benefit realisation and people risk
The bulk of the Opex savings associated to the programme will be realised through improved effectiveness and efficiency of end to end processes, therefore less operational support, industrial and management staff will be required.

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value...

Release 2 and 3 core scope within the existing budget includes:
a) Release 2 - Full emergency roll out, contact centre telephony refresh and SAP Customer Relationship Management system delivery to contact centre.
b) Release 3 – Replacement of TEAR, Storms (work management system for Constuction and Repair activities), AQS and QS (Quotation systems for connections activities).

Maintaining and upgrading an “evergreen” integrated system is cheaper when compared with replacing multiple separate systems over a similar period because of economies of scale and the avoidance of bespoke integration between systems.
3.5

To ensure the programme delivers the expected transformation three key criterion are being applied to all elements of the process and system solution:
a) Will it delight our customers?
b) Will it make life simpler for our people?
c) Will it make us more productive?

4.3

The National Grid Board is invited to:
a) APPROVE the remaining investment of £112m Capex, £24m Opex, and £43m of severance costs in the range +/- 10% to deliver the Gas Front Office Programme.
b) DELEGATE authority to the National Grid Executive Committee for the programme including changes to scope and expenditure that would require the use of the 10% risk margin.
c) NOTE that Mark Fairbairn is the Programme Sponsor, and that Pete Massey, Director of Transformation, has the appro...

The current suite of front office systems supporting Maintenance, Emergency, Repair, Construction processes within UK Gas Distribution are becoming obsolete.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Maintaining and upgrading an “evergreen” integrated system is cheaper when compared with replacing multiple separate systems over a similar period because of economies of scale and the avoidance of bespoke integration between systems.
3.5

The incremental IRR, the IRR of the difference in cash flows between the recommended solution and the like for like solution, is 24%.
c) A 10% reduction in benefits plus a 10% increase in Capex costs would reduce the IRR to 13% and reduce the incremental IRR to 20%.
d) The limited Opex benefits delivered by the like for like option would result in a negative return of -1%.

Other improvements include:
a) automation and reduction of labour intensive and inconsistently operated manual processes;
b) a step change in the ease of field data capture through improved scripting and workflow on mobile devices;
c) Improved data quality through system driven data cleanse prior to load into new systems suite.

This investment will mitigate the risk of system failure and address the increased cost of maintaining and modifying systems currently running beyond the end of their supportable life.

The best of breed systems, built on the foundations of SAP capability and data, are critical to enabling the programme Opex benefits.

The cost of delivering de-scoped capability at a later date is likely to be higher than the cost of delivering through existing GDFO programme given set up costs and overheads.

Design work has already been undertaken for the components described in 1a), and consequently the cost of this element of the work will need to be written off, at a cost of between £4 and £6m.
c) Business benefit and return - £5 to £6m/annum of Opex benefits would be lost reducing the IRR to 14%.

In particular, Release 3 which has only just moved into detailed design; resulting in an increase of £7m.
3.3

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Investment Return
a) The return from this investment is based on pre-tax cash flows and includes regulatory impacts of the investments, severance and all Capex including Capex invested prior to March 2009.

A contingency of £7m is included within the forecast.
d) NOTE that John Pettigrew is the Programme Sponsor, and that Pete Massey, Director of Transformation, has the approved financial delegation to deliver the Programme.

2.

The existing systems have reached the end of their supportable life.

The programme has trained more that 1000 people across 150 new procedures.
2.3

The GDFO deployment will be integrated with the changes associated with the introduction of the new operating model to ensure a clear and consistent message is articulated.
8.3

Working with inconsistent data across multiple systems is a constant frustration and inefficiency.
6.2

Vendors have already reviewed the scope and have confirmed they can deliver in accordance with the current plan.

Consequently a delay in the design, build or testing phases will put at risk the deployment and potentially result in the programme slipping 6 months with consequent cost implications.

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

Given the budgetary constraints documented in section 3 there are two clear options for completing Release 2 and 3 of the programme.
5.3

Robust data quality management processes to ensure the best information is used in decision making; and
d) Constraints on user access, limited to appropriate and authorised functions.
6.3

The Capex sanction was subsequently increased by £6m to £48m to allow for early procurement of licences for the work scheduling and mobile device applications.
2.5

Consequential Opex savings of circa £1m are expected this financial year.
2.4

The creation of a single integrated suite of systems where data is stored in one place and is available as appropriate across all systems and to all users authorised to use it, will transform the work environment of employees.

A further £2.7m of annual Opex benefits dependent on Release 2 and 3 GDFO capabilities were identified.

The creation of a single integrated suite of systems where data is stored in one place and is available as appropriate across all systems and to all users authorised to use it, will transform the work environment of employees.

It will support work planning, scenario analysis and project management.
b) A Customer Relationship Management system (SAP CRM) coupled with leading Contact Centre technologies (Telephony, IVR, Voice recording, Workforce management).

A simple like for like replacement was envisaged at the time and £65m Capex and £14m Opex (nominal) was included in Gas Distribution’s submission.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

It should also be recognised that the new systems will offer the capability to configure additional work including alternative income earning work such as Smart metering unlike the restrictions with existing systems.
21.3

Writing off design costs
There is a risk that any reduction in the scope of Release 2 and 3 will necessitate the writing down of design costs for functionality that does not form part of the next two Releases.

The Gas Distribution Front Office programme has successfully implemented the first of three releases to refresh and replace the existing UK Gas Distribution front office systems.

Marked reduction in customer handoffs and increased first call resolution as a result of improved and timely access to information (central customer database, asset register, GIS).
b) To be kept informed – Automated process steps that ensure customers are informed on progress and changes to work.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

As a consequence, there will be a reduction in the utilisation of the Emergency FCO’s because of the need to maintain minimum staffing levels to discharge licence obligations.

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

It will support work planning, scenario analysis, project management improvements and drive consistency and data quality.

7.

On a risk score alone this investment would be deemed a priority project, scoring 45 out of a possible 49 using the National Grid’s risk scoring methodology on the basis that a critical IT system could fail for more than 24 hours in the next 3 years.
2.2

The current suite of front office systems supporting Maintenance, Emergency, Repair, Construction processes within UK Gas Distribution are becoming obsolete.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

Specific process and control issues arising from the Project Nelson investigation are actively being used to inform the design.
4.4

Specific process and control issues arising from the Project Nelson investigation are actively being used to inform the design.
4.4

Integrated end state design is complete covering all processes and systems, key vendors have been engaged, licences for all major systems have been procured and programme methodology developed with supporting tools in place.

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

Option 2: Increase Capex investment by £21m to deliver complete scope
a) Description - Retain full business scope in Release 2 and 3.

This will be achieved using functionality within the Click Scheduling software, delivering a further £0.5m of savings.

Aggregating and distributing accurate management information to support more effective and informed decision making.

A proportion of the £7m contingency is also available to be used at the discretion of the Steering Group for critical functionality.
8.4

The purpose of this paper is to update the Group Executive on progress of the Gas Distribution Front Office programme since the November 2009 Board paper and to gain approval for an increase in the investment required to complete the full business scope of the programme.
1.2

Release 1 was delivered as planned in October 2010, with Release 2 and 3 on schedule for deployment in through summer 2011 and autumn 2011 respectively.
2.1

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

Therefore the following functionality would not be delivered:
 Mobile geographical information system for the field force, this will result in the continued use of CD maps.

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

Specific process and control issues arising from the Project Nelson investigation are actively being used to inform the design.
4.4

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value under ...

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

Design work has already been undertaken for the components described in 1a), and consequently the cost of this element of the work will need to be written off, at a cost of between £4 and £6m.
c) Business benefit and return - £5 to £6m/annum of Opex benefits would be lost reducing the IRR to 14%.

Including items listed in section 5.3 a).
a) Cost impact – an additional investment of £21m Capex and £3m of severance costs (to cover additional efficiency benefits).
b) Business benefit and return – Secures existing benefits plus supports the new operating model, customer and compliance strategies.

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

 Customer web portal, proactive customer communications and correspondence letters, leading to the consequent loss of customer service improvements.

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analysis; aut...

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

Marked reduction in customer handoffs and increased first call resolution as a result of improved and timely access to information (central customer database, asset register, GIS).
b) To be kept informed – Automated process steps that ensure customers are informed on progress and changes to work.

The systems design and process refresh have been guided by Gas Distribution’s customer strategy and its 5 guiding principles.

On a risk score alone this investment would be deemed a priority project, scoring 45 out of a possible 49 using the National Grid’s risk scoring methodology on the basis that a critical IT system could fail for more than 24 hours in the next 3 years.
2.2

Mitigations
A strong risk reward and fixed fee elements will be included as part of the R2 and R3 supplier delivery contracts.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analysis; aut...

This is particularly important for Gas Distribution as it prepares for the incentive/penalty regime associated to customer satisfaction performance that is likely to be introduced as part of the next price control.


6.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

This would also adversly impact customer service, and the level of streetworks and compensation payments.
d) Delivery Risk – This option includes a contingency of £5m which is tight for a programme of this size.

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

Working with inconsistent data across multiple systems is a constant frustration and inefficiency.
6.2

The deployment window is limited to a 7-month period from April and October to avoid peak Emergency and Repair workload during the winter.

Initial estimates indicate that this would be in the range of £4-£6m of Capex.

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment i...

Consequently a delay in the design, build or testing phases will put at risk the deployment and potentially result in the programme slipping 6 months with consequent cost implications.

Therefore the following functionality would not be delivered:
 Mobile geographical information system for the field force, this will result in the continued use of CD maps.

This performance improvement is described by three clear objectives:
a) Delighting customers
b) Making life simpler for our people
c) Making us more productive
This performance improvement will be underpinned by a robust process and data control framework.
2.4

The programme has trained more that 1000 people across 150 new procedures.
2.3

The new scheduling and dispatch capability and improved management information and reductions in wasted travel time are likely to have a positive impact on safety and environmental performance.
23.

Mitigations:
The fixed price risk reward framework being negotiated with suppliers will share this risk with suppliers who will be required to absorb any overruns.

On a risk score alone this investment would be deemed a priority project, scoring 45 out of a possible 49 using the National Grid’s risk scoring methodology on the basis that a critical IT system could fail for more than 24 hours in the next 3 years.
2.2

In particular, Release 3 which has only just moved into detailed design; resulting in an increase of £7m.
3.3

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment i...

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Design work has already been undertaken for the components described in 1a), and consequently the cost of this element of the work will need to be written off, at a cost of between £4 and £6m.
c) Business benefit and return - £5 to £6m/annum of Opex benefits would be lost reducing the IRR to 14%.

 Investment Management solution, this will necessitate the continued use of multiple off line databases and spreadsheets to manage the investment plan and track delivery.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

This will be optimised through the use of the Click resource management tool being implemented for Repair in Release 3, and delivers a £0.6m benefit.
d) The creation of a standard set of planning tools to optimise designs will not only improve their quality but also significantly reduce rework.

The use of an integrated SAP solution is expected to deliver lower IS Capex in future years.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

This will be optimised through the use of the Click resource management tool being implemented for Repair in Release 3, and delivers a £0.6m benefit.
d) The creation of a standard set of planning tools to optimise designs will not only improve their quality but also significantly reduce rework.

The requirement to replace these systems was identified at the time of the last price control, and £65m Capex and £14m Opex (adjusted for inflation) was included in National Grid’s submission.

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

Mitigations:
The programme continues to invest heavily in its comprehensive approach to TU and employee engagement preparing the employees for the impact of the new systems.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

On a risk score alone this investment would be deemed a priority project, scoring 45 out of a possible 49 using the National Grid’s risk scoring methodology on the basis that a critical IT system could fail for more than 24 hours in the next 3 years.
2.2

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

An integrated and sustainable risk control framework will be implemented that:
a) links agreed control objectives to the key controls embedded in business process designs, reducing the risk of control gaps and excessive controls;
b) where possible, will drive efficiency and effectiveness through intelligent control design and use of systems based controls;
c) can be communicated to interested stakeholders, for example assurance providers, and enable the impact of any new controls t...

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

Regulatory risk
There is a risk that the measures that define success from a regulatory perspective will change as a result of GDPCR2.

Other improvements include:
a) automation and reduction of labour intensive and inconsistently operated manual processes;
b) a step change in the ease of field data capture through improved scripting and workflow on mobile devices;
c) Improved data quality through system driven data cleanse prior to load into new systems suite.

The best of breed systems, built on the foundations of SAP capability and data, are critical to enabling the programme Opex benefits.

Maintaining the scope will also enable the delivery of an additional £2.7m of Opex savings compared to November 2009 values.

This option was explored in more detail in the April 2009 paper and is summarised in Appendix B.
2.3

An integrated and sustainable risk control framework will be implemented that:
a) links agreed control objectives to the key controls embedded in business process designs, reducing the risk of control gaps and excessive controls;
b) where possible, will drive efficiency and effectiveness through intelligent control design and use of systems based controls;
c) can be communicated to interested stakeholders, for example assurance providers, and enable the impact of any new controls t...

The aggregate value of the recurring end state Opex benefits is 18.5% higher than the £27m base case (8/9 prices) in the April 2009 paper.

This would also adversly impact customer service, and the level of streetworks and compensation payments.
d) Delivery Risk – This option includes a contingency of £5m which is tight for a programme of this size.

In addition, customer information pertinent to a job will be passed to field engineers via their handheld device to improve customer interactions.
e) To see improvement actions as a result of feedback – The solution will facilitate proactive feedback, capture inputs from customers which will be held centrally and processed in a system driven and standardised fashion.

To deliver further savings the replacment of one or more core systems would have to be defered.
5.4

New front office systems in conjunction with the customer strategy will place Gas Distribution in a strong position to respond to any regulatory incentives.
23.3

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multiple team...

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

Detailed design for each release will dictate the precise extent to which this functionality will actually be delivered and consequently the benefits realised.
27.3

As detailed in the previous Board paper, programme capability has been designed to best support the business to:
a) Delight customers.
b) Make life simpler for our people.
c) Make us more productive.
d) Provide a robust process and data control framework.
4.2

Release 1 was delivered as planned in October 2010, with Release 2 and 3 on schedule for deployment in through summer 2011 and autumn 2011 respectively.
2.1

The requirement to replace front office IT systems has created the opportunity for Gas Distribution in the UK to progress the Common Operating Model by automating business processes to deliver a sustained improvement in performance.

This will eliminate manual processing associated with time sheeting and product ordering, data will be loaded directly into our core systems through the handheld device reducing errors allowing our field engineers to focus on job execution and customer service.
e) A best of breed geospatial information system (ESRI) to display a single accurate geographic view of asset and work information to the business in the field, operational support and customer services.

Design theatres, acceleration weeks, and on and offshore design hubs have been used to improve the quality and efficiency of design work.
3.

On this basis it is anticipated that Ofgem will deem this investment efficient and therefore it will be incorporated into our RAV. It is only if our total Capex investment exceeds our allowance, which is not forecast to occur, that the licence indicates that the over spend will be subject to the IQI incentive, effectively reducing the Capex overspend incorporated into the RAV by 36%.
23.4

Robust data quality management processes to ensure the best information is used in decision making; and
d) Constraints on user access, limited to appropriate and authorised functions.
6.3

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value...

Mitigations
A strong risk reward and fixed fee elements will be included as part of the R2 and R3 supplier delivery contracts.

Costs to Achieve
a) Costs to achieve are predominantly severance and have been calculated based on analysis of the workforce’s age profile, and agency and contractor levels at a company level.

Consequently a delay in the design, build or testing phases will put at risk the deployment and potentially result in the programme slipping 6 months with consequent cost implications.

The purpose of this paper is to seek approval for the remaining expenditure to complete the construction and implementation of the new organisation, processes and IT systems required to deliver programme scope.

Given the budgetary constraints documented in section 3 there are two clear options for completing Release 2 and 3 of the programme.
5.3

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

This together with greater confidence in the accuracy of the forecast expenditure has increased total Capex by approximately £20m.
b) Scope of the programme has expanded to include additional projects such as Smart Travel and additional process and data controls work.

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

Business scope has been protected through design, build, test, and go live dates remain unchanged and additional benefits have been identified.
2.5

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the...

Cost Summary
a) The table below provides the cost summary for the Gas Distribution Front Office Programme.

b) The future projected Capex costs of £112m cover all work to deliver all three releases of the Gas Distribution Front Office programme summarised in 3.5.
c) The Gas Distribution Front Office Capex represents bulk of planned UK Gas Distribution IS Capex investment during the life of the programme.

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

Business Opex
a) Includes the following activities:
a) Incremental IS running costs during the programme that cannot be capitalised.
b) Archiving and decommissioning costs.
c) Organisation design, HR strategy, employee/TU consultation and engagement.
d) Training of 4,500 employees.
e) Changes to safety case, polices and procedures.
f) Business readiness, post implementation support and testing.

26.2

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

It will support work planning, scenario analysis and project management.
b) A Customer Relationship Management system (SAP CRM) coupled with leading Contact Centre technologies (Telephony, IVR, Voice recording, Workforce management).

This option also includes an acceptable level of contingency required given risk associated with the remiander of the programme.
5.5

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

These adjustments are summarised below with a more detailed breakdown of the benefits by process in Appendix D:
a) The value of Opex benefits are more balanced across the processes than before, reflecting updated forecasts of lower meter workload within the Emergency process and additional value identified in other processes.
b) A small number of additional Repex benefits have been identified; however these have a limited effect because it is only possible to retain 36% of the value...

They are prone to failure, are considered inadequate to support future business requirements.

The scope of the IT systems to be replaced and enhanced through the Gas Distribution Front Office programme is described in Appendix A. This scope was signed off by the Programme Steering Group on the 9th June 2009.
3.2

Release 2 and 3 core scope within the existing budget includes:
a) Release 2 - Full emergency roll out, contact centre telephony refresh and SAP Customer Relationship Management system delivery to contact centre.
b) Release 3 – Replacement of TEAR, Storms (work management system for Constuction and Repair activities), AQS and QS (Quotation systems for connections activities).

This number has been updated to reflect a lower overall costs during the programme and a change to the treatment of the expenditure; The impact is a reduction in Capex of £10m and an increase in Opex of £5m.
25.2

This analysis will be repeated as part of each planning cycle to ensure benefits remain appropriately valued and aligned with coincidental initiatives and changes to the organisation.
7.2

This analysis will be repeated as part of each planning cycle to ensure benefits remain appropriately valued and aligned with coincidental initiatives and changes to the organisation.
7.2

Apollo upgrade (infrastructure that manages the interface between core systems and field devices) and the stabilisation of the existing TEAR system, which holds Gas Distribution pipeline records, to extend its life until it is replaced as part of Release 3.
c) Increased complexity, this increase results from higher levels of systems integration and new control requirements following the Nelson investigation that were not apparent until Release 2 and 3 design.

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would require...

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

The Gas Distribution Front Office programme is currently scheduled to run from March 2009 until January 2012.

 Customer web portal, proactive customer communications and correspondence letters, leading to the consequent loss of customer service improvements.

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment i...

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analysis; aut...

Throughout the redesign business processes were critically examined and additional opportunities to leverage the GDFO systems were identified.

To ensure the programme delivers the expected transformation three key criterion are being applied to all elements of the process and system solution:
a) Will it delight our customers?
b) Will it make life simpler for our people?
c) Will it make us more productive?

4.3

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

This together with greater confidence in the accuracy of the forecast expenditure has increased total Capex by approximately £20m.
b) Scope of the programme has expanded to include additional projects such as Smart Travel and additional process and data controls work.

There would be no operational performance benefits.
b) This solution would not deliver improvements in customer service.
c) Although the initial investment is lower than the proposed investment, it gave a negative return of -1%.
d) The disparate nature of the infrastructure would not be addressed and therefore more frequent and complex upgrades would continue to be required in future price controls.

Change activities include: employee and TU engagement, location strategy, business readiness, changes to the safety case, post implementation support and training delivery.
e) The reason for the £19m increase in severance costs from the previous estimate of £24m is primarily because of severance associated with an additional reduction of 89 managers and senior staff not included in the April 2009 estimate.
f) Although all non-critical work on Gas Distribution UK systems has been ...

When the Opex benefits are combined with the increased Capex and Opex costs, the IRR is 16% (down 1%).

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment in integ...

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

Automation of the handover of Emergency work between First Call Operatives and Repair teams (compliance), the ability to automate the management of work impacting consumers during major incidents (customer and business case)
b) Tactical investments, these investments have been needed to core IS legacy systems to either extend their life, or upgrade a company system to make it compatible with GDFO systems; resulting in an increase of £2m. e.g.

They are prone to failure, are considered inadequate to support future business requirements.

One example of this is creative workshops, known as ‘Design Theatres’, to help employees shape the design, ‘see the future’, and become advocates of the solution back in their part of the business.

5.

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment i...

Release 2 and 3 core scope within the existing budget includes:
a) Release 2 - Full emergency roll out, contact centre telephony refresh and SAP Customer Relationship Management system delivery to contact centre.
b) Release 3 – Replacement of TEAR, Storms (work management system for Constuction and Repair activities), AQS and QS (Quotation systems for connections activities).

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

This solution was not recommended in April 2009 because
a) The improvement in cost efficiency would be limited to savings in some centre and operational support savings where manual handling of the data would be eliminated (£1m/year).

The new configuration of IT systems to be delivered through the programme is illustrated below:
13.

Benefits across all processes have been pitched at mid case level, and along with a better balance across Gas Distribution, this risk is now reduced.

Execution Risk
a) The plan to complete the Gas Distribution Front Office programme in two and half years is particularly stretching because the deployment window is very tight, limited to a 6-month period between April and September, if we avoid the peak operational workload months.

These systems will manage all inbound and outbound customer communications; capture, manage and provide access to customer data; manage customer handoffs across end to end processes; track and manage adherence to customer standards of service.
c) A best of breed work scheduling and dispatch application (Click) to provide improvements in centre, operational support and field productivity through; more accurate forecasting of work using historical data, external input and trend analys...

This would also adversly impact customer service, and the level of streetworks and compensation payments.
d) Delivery Risk – This option includes a contingency of £5m which is tight for a programme of this size.

This investment will mitigate the risk of system failure and address the increased cost of maintaining and modifying systems currently running beyond the end of their supportable life.

Severance Assumptions
a) Operations and Distribution Customer Support – A significant proportion of reductions will be achieved through retirement, displacement of contractors/agency staff and transfers to alternative work.
b) Senior staff and managers – 100% of the reduction would require severance.
c) Costs based on severance paid in previous 12 months.
d) The following table shows the current assumed breakdown of FTE’s in the severance calculation.


27.

The objective of the programme continues to be to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.3

It should also be recognised that the new systems will offer the capability to configure additional work including alternative income earning work such as Smart metering unlike the restrictions with existing systems.
21.3

A proportion of the £7m contingency is also available to be used at the discretion of the Steering Group for critical functionality.
8.4

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

Consequential Opex savings of circa £1m are expected this financial year.
2.4

Including items listed in section 5.3 a).
a) Cost impact – an additional investment of £21m Capex and £3m of severance costs (to cover additional efficiency benefits).
b) Business benefit and return – Secures existing benefits plus supports the new operating model, customer and compliance strategies.

Additionally, it is widely recognised that the successful transformation of systems and processes is critically dependant on the level of acceptance by those impacted by it.

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Release 1 was delivered as planned in October 2010, with Release 2 and 3 on schedule for deployment in through summer 2011 and autumn 2011 respectively.
2.1

Multiple customer communication channels that can be tailored to their preferences, such as enhanced web capability to support customer enquiries and complaints.
c) National Grid to minimise disruptions – Improvements in and automation of the handoffs between teams and communications from field to customer service and support, coupled with increased efficiency in the scheduling and dispatch of work, will help to minimise disruption to customers for whom work is undertaken by multip...

Detailed design for each release will dictate the precise extent to which this functionality will actually be delivered and consequently the benefits realised.
27.3

A worst case scenario would see benefits delayed by 1-2 years, if the bulk of the headcount reduction cannot be achieved through normal turnover.

An integrated and sustainable risk control framework will be implemented that:
a) links agreed control objectives to the key controls embedded in business process designs, reducing the risk of control gaps and excessive controls;
b) where possible, will drive efficiency and effectiveness through intelligent control design and use of systems based controls;
c) can be communicated to interested stakeholders, for example assurance providers, and enable the impact of any new controls t...

This automation is made possible by the capture and transfer between teams, of On-Site Gas Emergency Management information and delivers £0.6m of value.
b) Operations are developing new flexible work patterns, (e.g. annual hours, Winter/Summer) that GDFO will optimise and enable through the Click Scheduling solution, realising an additional £0.8m.
c) Optimisation of the Repair teams allowing them to undertake increased levels of Repex, in place of Opex work.

Gas Distribution is committed to customer service excellence, prioritising it alongside safety and financial performance.

This like for like solution would exclude the following functionality compared with the full solution proposed in this paper:
a) Extended SAP functionality including Strategic Enterprise Management, Customer Relationship Management, and Business Warehouse.
b) Best of breed scheduling, GIS and mobile technology.
c) Extension of the geographic information system to integrate with the key components of the solution.
d) Data stewardship, readiness and governance including investment i...

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Maintaining the scope will also enable the delivery of an additional £2.7m of Opex savings compared to November 2009 values.

The programme approach has been recognised externally as industry leading, it has been carefully constructed, leveraging the best of methods and techniques from various support partners, E&Y, SAP, and Wipro.

One example of this is creative workshops, known as ‘Design Theatres’, to help employees shape the design, ‘see the future’, and become advocates of the solution back in their part of the business.

5.

The cost of delivering de-scoped capability at a later date is likely to be higher than the cost of delivering through existing GDFO programme given set up costs and overheads.

Marked reduction in customer handoffs and increased first call resolution as a result of improved and timely access to information (central customer database, asset register, GIS).
b) To be kept informed – Automated process steps that ensure customers are informed on progress and changes to work.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

Other improvements include:
a) automation and reduction of labour intensive and inconsistently operated manual processes;
b) a step change in the ease of field data capture through improved scripting and workflow on mobile devices;
c) Improved data quality through system driven data cleanse prior to load into new systems suite.

The systems design and process refresh have been guided by Gas Distribution’s customer strategy and its 5 guiding principles.

To get best value from the investment and leverage additional value Gas Distribution has recently redesigned its operating model.

Release 2 and 3 core scope within the existing budget includes:
a) Release 2 - Full emergency roll out, contact centre telephony refresh and SAP Customer Relationship Management system delivery to contact centre.
b) Release 3 – Replacement of TEAR, Storms (work management system for Constuction and Repair activities), AQS and QS (Quotation systems for connections activities).

Option 1: Reduce scope and continue with existing budget
a) Description – Reduce the scope of Release 2 and 3 to ensure no cost overrun.

This investment will mitigate the risk of system failure and address the increased cost of maintaining and modifying systems currently running beyond the end of their supportable life.

Improved management information will support continuous process improvements helping the business achieve leading cost efficiency, customer satisfaction and safety performance.
14.

Each deployment takes between 4 and 5 months to implement.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

In particular the objective to “become more efficient through transforming our operating model and increasingly aligning our processes.”
4.2

An integrated and sustainable risk control framework will be implemented that:
a) links agreed control objectives to the key controls embedded in business process designs, reducing the risk of control gaps and excessive controls;
b) where possible, will drive efficiency and effectiveness through intelligent control design and use of systems based controls;
c) can be communicated to interested stakeholders, for example assurance providers, and enable the impact of any new controls t...

Release 2 and 3 will have a phased deployment that mitigates the risk associated to big bang implementation events.

Actions include:
a) Strong commercial controls with key suppliers, including productivity improvements, reduced unit prices, fixed price contracts, fees at risk, removal of hourly charging.
b) Reduced scope of mobile device replacement.
c) Re-using design components and reduction in solution customisation.
d) Increased off-shoring of design, build and test activities to Wipro India to benefit from labour arbitrage compared to other IT suppliers.
e) Effective and early prioritisa...

As such planned benefits may be at risk because it may not be possible to implement all planned business changes due to constraints on performance.

Integrated end state design is complete covering all processes and systems, key vendors have been engaged, licences for all major systems have been procured and programme methodology developed with supporting tools in place.

The implementation plan for the new Operating model will be integrated with the deployment of Gas Distribution Front Office programme with the objective of ensuring the new organisation achieves the savings described in this paper.
8.6

This will eliminate manual processing associated with time sheeting and product ordering, data will be loaded directly into our core systems through the handheld device reducing errors allowing our field engineers to focus on job execution and customer service.
e) A best of breed geospatial information system (ESRI) to display a single accurate geographic view of asset and work information to the business in the field, operational support and customer services.

Sustainable execution risk
There is a risk that it is not possible to execute the required business changes to deliver Opex savings in a sustainable manner because the organisation is not equipped to deliver the level of change envisaged in the business case.

The current Electricity Distribution price control review includes proposals for a customer service incentive that is likely to follow into the next Gas Distribution price control.

Additionally, it is widely recognised that the successful transformation of systems and processes is critically dependant on the level of acceptance by those impacted by it.

These include:
a) Contact Centre Strategy – Contact Centre rationalisation project, value circa £2m/year operating efficiencies and circa £6M/year property rationalisation.
b) Customer Services Incentive – estimated +/- £12m.

8.

Gas Distribution is committed to customer service excellence, prioritising it alongside safety and financial performance.

Marked reduction in customer handoffs and increased first call resolution as a result of improved and timely access to information (central customer database, asset register, GIS).
b) To be kept informed – Automated process steps that ensure customers are informed on progress and changes to work.

The diagrams below summarises the to be applications architecture:



Appendix B – Like for like replacement option

16.

Writing off design costs
There is a risk that any reduction in the scope of Release 2 and 3 will necessitate the writing down of design costs for functionality that does not form part of the next two Releases.

Systems will support close coupling of complaint and feedback information with intelligence drawn from MI to help drive process improvements.

Given the budgetary constraints documented in section 3 there are two clear options for completing Release 2 and 3 of the programme.
5.3

The deployment window is limited to a 7-month period from April and October to avoid peak Emergency and Repair workload during the winter.

This change will drive an increased focus on the efficient delivery of end to end processes, in order to better meet the needs and demands of customers and stakeholders.
4.3

Therefore the following functionality would not be delivered:
 Mobile geographical information system for the field force, this will result in the continued use of CD maps.

Mitigations:
Submission of a Board Paper requesting additional funding to complete the programme based on Option 2.
8.5

The requirement to replace these systems was identified at the time of the last price control, and £65m Capex and £14m Opex (adjusted for inflation) was included in National Grid’s submission.

Given the budgetary constraints documented in section 3 there are two clear options for completing Release 2 and 3 of the programme.
5.3

Marked reduction in customer handoffs and increased first call resolution as a result of improved and timely access to information (central customer database, asset register, GIS).
b) To be kept informed – Automated process steps that ensure customers are informed on progress and changes to work.

This analysis has only incorporated benefits directly attributable to the introduction of the new front office systems.

As such planned benefits may be at risk because it may not be possible to implement all planned business changes due to constraints on performance.

The new scheduling and dispatch capability and improved management information and reductions in wasted travel time are likely to have a positive impact on safety and environmental performance.
23.

The systems design and process refresh have been guided by Gas Distribution’s customer strategy and its 5 guiding principles.

These providers were selected through a procurement exercise involving selection boards chaired by David Lister and Peter Massey including representatives from across the business.
3.4

The remaining expenditure covers completion of detailed design, systems build, testing, training and deployment of each release plus technical infrastructure costs.
2.6

These providers were selected through a procurement exercise involving selection boards chaired by David Lister and Peter Massey including representatives from across the business.
3.4

These providers were selected through a procurement exercise involving selection boards chaired by David Lister and Peter Massey including representatives from across the business.
3.4

The National Grid Group Executive is invited to:
a) APPROVE the increase in the total investment to £179m Capex, £26m Opex, and £46m of severance costs required to complete the programme.
b) NOTE that subject to approval by National Grid Group Executive this paper will be submitted for final approval at the National Grid Board meeting on 15th December 2010.
c) DELEGATE authority to the GDFO Steering Committee for the programme including changes to scope and expenditure that would ...

As a consequence of these changes, the IRR of the total programme will reduce from 16% to 15% but the incremental IRR of 22% still remains significantly better than the like for like replacement envisaged at the time of the Price Control submission of -1%.
1.5

Integrated end state design is complete covering all processes and systems, key vendors have been engaged, licences for all major systems have been procured and programme methodology developed with supporting tools in place.

The implementation of new front office systems is an enabler that offers the potential for a step reduction in Opex costs for National Grid.

This will be optimised through the use of the Click resource management tool being implemented for Repair in Release 3, and delivers a £0.6m benefit.
d) The creation of a standard set of planning tools to optimise designs will not only improve their quality but also significantly reduce rework.

Sustainable execution risk
There is a risk that it is not possible to execute the required business changes to deliver Opex savings in a sustainable manner because the organisation is not equipped to deliver the level of change envisaged in the business case.

Overrun risk
There is a risk that Release 3 could slip 5 months into 2012 if there are any delays in either release 2 or 3 design build or test phases.

Mitigations:
Submission of a Board Paper requesting additional funding to complete the programme based on Option 2.
8.5

The requirement to replace front office IT systems has created the opportunity for Gas Distribution in the UK to progress the Common Operating Model by automating business processes to deliver a sustained improvement in performance.

Approval is now requested to invest the remaining £112m of Capex, £24m of Opex and £43m of severance costs to complete the programme.

This is particularly important for Gas Distribution as it prepares for the incentive/penalty regime associated to customer satisfaction performance that is likely to be introduced as part of the next price control.


6.

An integrated and sustainable risk control framework will be implemented that:
a) links agreed control objectives to the key controls embedded in business process designs, reducing the risk of control gaps and excessive controls;
b) where possible, will drive efficiency and effectiveness through intelligent control design and use of systems based controls;
c) can be communicated to interested stakeholders, for example assurance providers, and enable the impact of any new controls t...

The requirement to replace these systems was identified at the time of the last price control, and £65m Capex and £14m Opex (adjusted for inflation) was included in National Grid’s submission.

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

This is particularly important for Gas Distribution as it prepares for the incentive/penalty regime associated to customer satisfaction performance that is likely to be introduced as part of the next price control.


6.

The benefits associated with the introduction of this system will be retained until it is replaced in 2020/21.

The scope of the IT systems to be replaced and enhanced through the Gas Distribution Front Office programme is described in Appendix A. This scope was signed off by the Programme Steering Group on the 9th June 2009.
3.2

Through Release 1 the programme has successfully built, tested and deployed a range of capabilities to the business including a smart travel, GPS solution to field force vehicles.

This has lead to a 12% increase in custom components which has resulted in 11% increase in the cost of R2 and R3.
d) Change in resource mix, the increased level of third party resources was required to address the non-availability of NG staff with specialist skills and capabilities compared with the assumptions used at the time of the November Board paper; resulting in an increase of £8m.
e) Contingency, this is required to manage the complexity and uncertainty associated with the delive...

The Capex costs increases since the November 09 Board paper are driven by a number of factors:
a) New scope, this covers functionality that was not in scope at the time of the November 2009 Board paper but has subsequently been demonstrated to be essential to support delivery of the business case, compliance and customer strategies; resulting in an increase of £5M. e.g.

This is particularly important for Gas Distribution as it prepares for the incentive/penalty regime associated to customer satisfaction performance that is likely to be introduced as part of the next price control.


6.

Costs to Achieve
a) Costs to achieve are predominantly severance and have been calculated based on analysis of the workforce’s age profile, and agency and contractor levels at a company level.

In addition a number of adjustments have been made which have increased confidence in the delivery of the value enabled by the programme.

The Gas Distribution Front Office programme is currently scheduled to run from March 2009 until January 2012.

The programme will seek to deliver a systems and process transformation that delights customers, makes life simpler for our people, makes us more productive and enhances our process and data controls.
1.2

Specific process and control issues arising from the Project Nelson investigation are actively being used to inform the design.
4.4

Where possible standard “out of the box” functionality continues to be the preferred solution, which minimises the risk of expensive customisation.

The deployment window is limited to a 7-month period from April and October to avoid peak Emergency and Repair workload during the winter.

To ensure the programme delivers the expected transformation three key criterion are being applied to all elements of the process and system solution:
a) Will it delight our customers?
b) Will it make life simpler for our people?
c) Will it make us more productive?

4.3

These providers were selected through a procurement exercise involving selection boards chaired by David Lister and Peter Massey including representatives from across the business.
3.4

This is particularly important for Gas Distribution as it prepares for the incentive/penalty regime associated to customer satisfaction performance that is likely to be introduced as part of the next price control.


6.

There is a risk that poor employee engagement and trade union relationships will compromise the delivery of the required business changes adversely impacting the forecast savings.

Given the budgetary constraints documented in section 3 there are two clear options for completing Release 2 and 3 of the programme.
5.3

Business Case Model Assumptions
a) RAV effective asset life = 45 years
b) Financial depreciation on 20% reducing balance
c) Pre-tax PCR return = 5.99%
d) Post-tax PCR return = 4.94%
e) IQI factor = 36%

A delay of between 5 and 6 months is likely to cost £15m to £20m even after actions to mitigate costs have been taken.

Appendix D: November 2009 Board Paper
National Grid Board
Gas Distribution Front Office Programme
A paper by Peter Massey for Mark Fairbairn, Executive Director, Gas Distribution

1.