DCC Business Case for DCC activities during the Transitional Phase of the Switching Programme

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1 DCC Business Case for DCC activities during the Transitional Phase of the Switching Programme Version: V3.0 Date: 29 March 2017 Author: Classification: Aimi Hayman and Bryn Coles DCC Public

2 Document Control Heading Revision History Revision Date Summary of Changes Changes Marked Version Number 10/08/2016 First draft incorporating sections drafted separately No /08/2016 Updated draft for internal DCC Switching team review No /08/2016 Updated draft following internal DCC Switching team review, incorporating No 0.3 additional diagrams 03/09/2016 Updated draft following wider DCC review No /09/2016 Final draft for Ofgem scrutiny No /10/2016 Updated following Ofgem feedback No /11/2016 Baselined at DCC Switching Programme Board No /03/2017 Updated following DLS joint planning and consultation Yes /03/2017 Updates to Materiality Threshold and RAIDO sections, updates through relating to Yes 2.3 materiality threshold 17/03/2017 Updates based on Ofgem comments, updates to roles (Solution and Costs Yes 2.4 sections), cost and resource tables updated, 22/03/2017 Updates based on Ofgem comments Yes /03/2017 Minor updates based on Ofgem comments Yes 3.0 Approvals Name Signature Title / Responsibility Release Date Version Number Helen Fleming Matt Roderick Jane Eccles Policy Director 08/09/ Programme Sponsor Chair of DCC Switching Programme Board Acting Chair of DCC Switching Programme Board 03/11/ /03/ DCC Switching Business Case DCC Public Page 2 of 110

3 Contents 1 Executive Summary The Switching Programme DCC Switching Business Case Requirements Activity and resourcing plan Costs Margin and incentives Monitoring and updating the DCC Switching Business Case Introduction and background The Switching Programme DCC s role in the Switching Programme Ex post plus approach Baselining the DCC Switching Business Case Purpose Scope of the DCC Switching Business Case Objectives Ofgem Programme Objectives DCC Objectives Requirements Summary of requirements Outputs and deliverables Ways of working: Outcomes and non-functional requirements of DCC input Scope Scenarios Overview Drivers of uncertainty Scope scenarios Solution: Delivery and resourcing approach Overview DCC Switching Programme Plan Summary of key activities Roles Sourcing approach Costs Summary of cost to industry DCC Switching Business Case DCC Public Page 3 of 110

4 9.2 Recovering switching costs in the Transitional Phase Cost drivers Staff costs Non-staff resource costs Corporate overhead Costs of scope scenarios RAIDO Risks and opportunities Assumptions Issues Dependencies Materiality threshold Definitions Overview Principles Form and level of the materiality threshold Reviewing the materiality threshold Applying the materiality threshold Monitoring and updating the DCC Switching Business Case Monitoring and reporting Programme delivery reporting Ex post plus financial reporting Annual ex post financial reporting Updating the DCC Switching Business Case Appendix A Requirements Traceability Matrix Appendix B Product Breakdown Structure Appendix C DCC Switching Programme plan Appendix D Cost model Appendix E RAIDO DCC Switching Business Case DCC Public Page 4 of 110

5 1 Executive Summary 1.1 The Switching Programme 1. Ofgem has established the Switching Programme to improve consumers' experience of switching between energy suppliers, leading to greater engagement in the retail energy market. This will be achieved by designing and implementing a new faster and more reliable switching process, underpinned by a Centralised Registration Service (CRS) to be procured by Smart DCC Ltd (DCC). 2. DCC is a key delivery partner in Ofgem s programme. Conditions have been introduced to the Smart Meter Communication Licence ( the licence ) that require DCC to contribute to the design of the CRS and the broader switching arrangements and to procure the CRS. 1.2 DCC Switching Business Case 3. Ofgem has applied an ex post plus price control approach to all of DCC s Switching Programme costs during the period from 1 April 2016 up to the point of contract signature for Fundamental Registration Service Capability to deliver the CRS. This period is referred to as the Transitional Phase of the Switching Programme. Under the ex post plus arrangements, DCC is required to set out its planned activities and costs upfront in a published business case and report its actual and forecast costs to Ofgem on a regular basis throughout each regulatory year. DCC is also required to justify its expenditure on the Switching Programme through its annual ex post price control reporting. 4. This DCC Switching Business Case for DCC activities during the Transitional Phase of the Switching Programme ( the DCC Switching Business Case ) sets out DCC s forecast activities and costs relating to its role in supporting Ofgem s Switching Programme during the Transitional Phase. The DCC Switching Business Case was baselined in March 2017 following scrutiny by Ofgem and consultation with industry. 5. The DCC Switching Business Case is based on the information available at the time of writing, following joint planning undertaken by DCC and Ofgem in relation to the Detailed Level Specification (DLS) Phase, and is aligned with Reform Package 2 as set out in Ofgem s Design Baseline 1 1. Where information is not yet available in relation to key activities then assumptions have been made, validated where possible, and documented. The DCC Switching Business Case will be revised and updated at key points in the programme to take account of the increasing level of certainty about activities, timelines, resource requirements and costs. 6. Ofgem is developing a wider Business Case for the introduction of new switching arrangements. The content of the DCC Switching Business Case will inform elements of the cost benefit analysis within the Ofgem Business Case. 1 Ofgem, Moving to reliable and fast switching: Switching Programme business case including Design Baseline 1, 19 January 2017: DCC Switching Business Case DCC Public Page 5 of 110

6 1.3 Requirements 7. During the Transitional Phase, DCC is required to: support the development of the Ofgem and DCC Business Cases fully participate in Ofgem-led design teams (Business Process Design, Delivery Strategy, Commercial and Regulatory Design) by leading and contributing to the development of products prepare for and deliver the procurement of the CRS and other supporting services as required (on the assumption that there will be five procurement projects). 8. In conjunction with Ofgem, DCC has identified specific products to deliver these requirements and traced these to Licence Conditions, decision documents and Ofgem instructions. Note that this includes impact assessment of any Data Services Provider (DSP) changes required to DCC s smart metering communication service. 9. DCC and Ofgem have worked jointly to agree the scope of DCC s responsibilities in the DLS Phase. All DCC products are captured in the Product Breakdown Structure included in Appendix B and each product is, or will be, underpinned by a product description. All products in Blueprint and DLS phases have at least a draft product description. This has provided greater certainty in the scope of DCC s role in the DLS phase. 10. The outcome of this joint planning is reflected in DCC s programme plan (Appendix C), which allows us to generate an indicative budget for our involvement in the Switching Programme. The planning assumptions that underpin the DCC Switching Business Case and plan are captured in the RAIDO (Appendix E). 11. There are some areas of uncertainty in the scope of DCC s role that DCC and Ofgem will continue to refine, but these are largely now confined to the latter part of the Transitional Phase (the Enactment Phase). This is largely due to the fact that there are a number of key design and delivery decisions to be made by Ofgem later in the Switching Programme. 12. In recognition of the uncertainty faced, DCC has developed four high level scenarios that illustrate how key areas of uncertainty relating to the scope of DCC activities and the design of the CRS solution may affect DCC s activities and the associated costs: a baseline scenario, a high scenario and a low scenario each aligned with Ofgem s published Reform Package 2, and an alternative scenario aligned to Reform Package 3 to illustrate the potential impact of Ofgem deciding to proceed with a different CRS solution. This approach is intended to provide transparency to Ofgem and stakeholders about the potential cost impacts of changes to the baseline assumptions. 13. The delivery activities and resourcing approach set out in Section 8, the DCC Switching Programme Plan and DCC s forecast costs reflect the baseline scope scenario aligned with Reform Package 2 in accordance with the programme s planning assumption. We will update the DCC Switching Business Case as appropriate to take account of decisions taken by Ofgem about the actual preferred solution. DCC Switching Business Case DCC Public Page 6 of 110

7 1.4 Activity and resourcing plan 14. DCC has planned the activities required to deliver the requirements associated with the baseline scope scenario aligned to Reform Package 2. DCC has developed a programme plan that identifies the duration of activities and the effort and roles required to deliver them, in order to develop a costed resource plan. The DCC Switching Programme Plan reflects our best estimates of activities based on the current scope, key programme phases and deliverables, following joint planning with Ofgem. Assumptions underpinning the plan are captured in Appendix E. DCC s planned activities during the Transitional Phase are summarised in Figure The DCC Switching Programme Plan is a non-contingent plan and includes ambitious, yet achievable activity durations. The reduction in timescales since the Draft DCC Switching Business Case was published by Ofgem for consultation mainly results from increased certainty over activities and from challenge by Ofgem to reduce durations to the minimum possible given what is known about the activities. In order for DCC to reduce durations and overlap activities, a number of risks are included in the RAIDO (Appendix E) that capture the likelihood and impact of those durations being exceeded if specific risks materialise. Note that the results of the joint planning exercise have created a DCC Switching Programme Plan that does not align with the timescales set out in Ofgem s Strategic Outline Case 2. Ofgem has published an updated programme plan based on joint work with DCC and the plan presented in this DCC Switching Business Case aligns with that newly published plan. 16. Whilst there is much greater certainty in the scope of DCC s role following joint planning with Ofgem, it will only be possible to determine the end date of the Transitional Phase with any certainty once the solution design and delivery strategy have been decided and a joint DCC and Ofgem delivery plan has been confirmed to be achievable following independent external assurance. 2 Ofgem, Moving to reliable and fast switching: Switching Programme business case including Design Baseline 1, 19 January 2017: DCC Switching Business Case DCC Public Page 7 of 110

8 Figure 1 High level DCC programme timeline DCC Switching Business Case DCC Public Page 8 of 110

9 17. The key activities to deliver the requirements set out in Section 6 are organised within the following workstreams: Design Security Delivery and transition Regulatory design Procurement Programme management. 18. Based on the planned activities within the DCC Switching Programme Plan, we have identified the resource roles required to successfully deliver each activity and the estimated level of resource effort required. The mapping of roles against the programme workstreams to which they primarily contribute is set out in Section DCC has developed a resource model that generates a resourcing profile for delivery of the products. This is based on business conditions within the cost model that automatically determine which roles would be more economically and efficiently fulfilled by permanent resource or by temporary resource. The resource profile is summarised below in Figure 2. Figure 2 - DCC FTE profile 20. DCC has also identified non-staff resources that are required to deliver its activities. Non-staff resources are driven by the number of staff, such as office space, tools and IT equipment, or by specific delivery activities, for example proving of the design and other professional services that may be required. DCC Switching Business Case DCC Public Page 9 of 110

10 21. DCC has identified risks, assumptions, issues, dependencies and opportunities associated with the delivery of these activities. These are captured in the RAIDO included in Appendix E. 1.5 Costs Total cost to industry 22. The total estimated cost to industry associated with delivering the baseline scenario is summarised in Table 1. These costs represent DCC s forecast of the likely costs it will incur in the Transitional Phase of the Switching Programme based on the information currently available. DCC has forecast these costs for the purpose of generating a realistic budget and to feed into the overall Ofgem-owned Switching business case. These figures include actual costs DCC has incurred since the start of the programme, i.e. the period from April 2016 to February Further to its business case, DCC will provide a full and thorough justification of all of its costs incurred in support of the Switching Programme as part of its annual ex post price control submission to Ofgem. 24. Staff costs include an allowance for annual pay reviews for permanent staff. All other costs detailed in this business case are stated in real terms i.e. they exclude any allowance for inflation. 25. Approximately 40% of this cost to industry is related to providing resource to support Ofgemled activity to define the design, delivery, commercial and regulatory arrangements for switching. The remaining 60% is related to the cost of DCC specifying and procuring the CRS elements as part of the overall switching arrangements. Note that this distinction relates to cost only and is not directly related to the level of margin that is at risk based on DCC s delivery of incentivised milestones. ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Cost To Industry 3,095 9,829 9,406 1,750 24,079 Total Base Costs 2,289 5,933 5,665 1,043 14,930 Staff Costs (excludes consultancy) 793 2,849 2, ,500 Non-Staff Costs (includes consultancy) 1,496 3,084 3, ,430 Materiality Threshold 199 2,005 1, ,461 Contingency 199 2,005 1, ,461 Overhead ,823 Margin 371 1,155 1, ,866 Table 1 - DCC baseline scenario costs DCC Switching Business Case DCC Public Page 10 of 110

11 1.5.2 Staff costs 26. The annual staff cost of each programme workstream is summarised in Table 2 (a full breakdown of the roles mapped to the programme workstream to which they primarily contribute is included in Table 17 in Section 9.4). Note that this excludes consultancy resource, which is categorised as non-staff cost. Table 3 sets out the cost by workstream when consultancy costs are included. Staff Costs ( k) - excludes consultancy RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total staff costs 793 2,849 2, ,500 Delivery and Transition Design 400 1, ,358 Procurement Programme Management 359 1,089 1, ,969 Regulatory Design Security Table 2 - DCC staff costs Staff Costs ( k) - includes consultancy RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total staff costs 2,031 4,961 5,263 1,000 13,255 Delivery and Transition ,327 Design 1,005 1, ,251 Procurement , ,811 Programme Management 718 1,608 1, ,550 Regulatory Design Security , Corporate overhead charge Table 3 - DCC staff and consultancy costs 27. The Capita overhead charge is levied at 9.5% of DCC s Internal Costs. The corporate overhead charge enables Capita to function as a business, covering Group corporate management activity including Head Office and executive oversight. It also covers the contribution to the central Capita services that underpin all Capita contracts including DCC, e.g. payroll and insurance. DCC benefits from services and support provided by Capita and consequently incurs costs in relation to those services and support. We will justify those costs DCC Switching Business Case DCC Public Page 11 of 110

12 in respect of the Switching Programme in a similar manner through our ex post price control submissions, as requested by Ofgem in its DCC: Price Control Decision 2015/16 document Materiality threshold 28. The materiality threshold sets the tolerance level for variance from the baseline DCC costs. Subject to certain criteria, if this materiality threshold is exceeded, DCC will be required to update and publish a revised DCC Switching Business Case. The materiality threshold is equivalent to the total amount of contingency, which comprises an allowance for scope change, and allowance for known quantified and weighted risks, and an allowance for unforeseen change. Given that changes will arise as part of any programme, DCC considers that it is prudent to expect that some additional costs will be incurred. 29. The total materiality threshold is 4,461k, which is equivalent to 19% of the total cost to industry (including staff and non-staff resource costs, corporate overhead charge and margin) associated with the baseline scenario Comparison of scope scenario costs 30. The costs associated with the baseline scenario, high scenario, low scenario which are each aligned to Reform Package 2, and the costs associated with the Reform Package 3 scenario are summarised in Table 4. Note that this comparison is based on resource and non-staff resource costs only and does not include the corporate overhead charge, contingency or margin. Scenario Base Costs - Staff and Non-Staff Costs ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Variance From Base Scenario Baseline Scenario Base Cost 2,289 5,933 5,665 1,043 14,930 0% Low Scenario Base Cost 2,289 5,708 4,276 1,028 13,301-11% High Scenario Base Cost 2,310 6,638 6,338 1,247 16,534 11% Reform Package 3 Scenario Base Cost 2,310 6,370 6,011 1,136 15,827 6% Table 4 - Scope scenario cost comparison 3 Ofgem, DCC Price Control Decision: Regulatory Year 2015/16, 28 February 2017: DCC Switching Business Case DCC Public Page 12 of 110

13 1.6 Margin and incentives 31. Following consultation, Ofgem has issued a direction regarding DCC s margin and incentives relating to its activities in the Transitional Phase of the Switching Programme. 4 The DCC Switching Business Case reflects this direction. 32. Based on the directed margin of 12% and the forecast costs associated with the baseline scope scenario, the forecast value of the margin to be recovered compared to the forecast DCC costs are set out in Table 5. ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Costs (Including Materiality Threshold) 2,724 8,673 8,277 1,540 21,214 Margin 371 1,155 1, ,866 Table 5 - Margin values (based on forecast costs) 33. The time-based incentive places DCC margin at risk based on whether DCC delivers specific milestones by agreed dates. The level of margin at risk is proportionate to the percentage of the cost base for DCC activities relating to delivery of the incentivised milestones. Based on the current forecast costs this equates to 25% of DCC margin at risk. 1.7 Monitoring and updating the DCC Switching Business Case 34. Monitoring and reporting of DCC s involvement in the Switching Programme will be delivered through three reporting mechanisms: Programme delivery reporting DCC Switching Programme delivery progress reporting will be provided to the Ofgem Programme and Industry through Ofgem s programme governance framework. This reporting primarily focuses on time and quality, but also provides a summary update on financial progress against the baseline budget set out in the DCC Switching Business Case Ex post plus quarterly price control reporting Under the ex post plus arrangement for the Switching Programme, DCC will report quarterly to Ofgem s Price Control team on its incurred costs by workstream for the Transitional Phase. There is no approved baseline to report variance against until DCC submits its forecasts of costs through its annual price control. Therefore reporting will not be against the DCC Switching Business Case baseline budget because this is not being approved by Ofgem as being economic and efficient. Ex post annual price control reporting DCC is required to justify its expenditure on the Switching Programme against a price control baseline through its existing annual ex 4 Ofgem, Decision on margin and incentives for DCC's role within the Transitional Phase of the Switching Programme, 16 March 2017: DCC Switching Business Case DCC Public Page 13 of 110

14 post price control reporting framework. This information is assessed by Ofgem s Price Control team only. 35. DCC plans to update the DCC Switching Business Case at key milestones in Ofgem s Switching Programme plan. DCC will also update the DCC Switching Business Case by exception if the materiality threshold has been exceeded and Ofgem subsequently instructs DCC to re-baseline the DCC Switching Business Case. DCC Switching Business Case DCC Public Page 14 of 110

15 2 Introduction and background 36. The DCC Switching Business Case sets out DCC s forecast activities and costs relating to its role in supporting Ofgem s Switching Programme for the Transitional Phase of the Programme. It covers all of DCC s activities during the period from 1 April 2016 up to the point of contract signature for Fundamental Registration Service Capability to deliver the CRS. This Business Case forms the basis for the application of an ex post plus price control approach to DCC s involvement in the Switching Programme. 37. The DCC Switching Business Case is based on the information available at the time of writing and where information is not yet available about key activities then assumptions have been made, validated where possible, and documented. The DCC Switching Business Case will be revised and updated at key points in the programme to take account of the increasing level of certainty about design and delivery decisions and planned activities, timelines, resource requirements and costs. In particular, planned timescales will be subject to independent external assurance to confirm that the plan is realistic and achievable. 2.1 The Switching Programme 38. Ofgem s Switching Programme aims to improve consumers experience of switching energy suppliers, leading to greater engagement in the retail energy market, by designing and implementing a new switching process that is reliable, fast and cost-effective. In turn this will build consumer confidence and facilitate competition, delivering better outcomes for consumers Ofgem s programme will be delivered over five phases, illustrated in Figure 3 below: Figure 3 - Switching Programme phases 40. This DCC Switching Business Case covers DCC s activities during the Transitional Phase (from 1 April 2016), which consists of the Blueprint, Detailed Level Specification and Enactment phases. 41. Ofgem is developing a wider Business Case for switching which will include a cost benefit analysis. The development stages of the Ofgem Business Case have defined the activity required in each phase within the Transitional Phase of the programme. 5 Ofgem, Switching Programme: strategic outline case, 19 January 2017: DCC Switching Business Case DCC Public Page 15 of 110

16 42. The Blueprint phase defines the new market arrangements and delivery strategy in a Target Operating Model. As part of the Blueprint phase, Ofgem has issued a Request for Information (RFI) to industry (January 2017), to consult on the preferred solution and anticipates publishing a decision on the solution to be adopted in early The DLS phase will define in detail how the reforms will work. Licence and code modifications will start to be developed during this phase. 44. During the Enactment phase, code modifications will be developed and Ofgem will consult on draft licence and code modifications before publishing decisions on these changes. During this phase, DCC will also procure one or more Service Providers to deliver the CRS. 45. Ofgem will define a series of six design baselines through the Transitional Phase of the Switching Programme. Each design baseline will reflect a consolidated view of all of the design products at a particular time as a point of reference The timescales of the Switching Programme phases and their relationship to the design baselines are illustrated in Figure 4 below. DCC have used the following assumptions to underpin the timescales of the Switching Programme phases and their relationship to the design baselines are illustrated in Figure 4 below. Figure 4 - Ofgem Switching Programme phases and design baselines 6 Ofgem, Moving to reliable and fast switching: Target Operating Model and Delivery Approach v2, 17 November 2015: DCC Switching Business Case DCC Public Page 16 of 110

17 2.2 DCC s role in the Switching Programme 47. DCC is a key delivery partner in Ofgem s programme, and is responsible for contributing to the design of the CRS and broader switching arrangements. DCC is also responsible for procuring the CRS. The regulatory changes defining DCC s role are summarised below. 48. In February 2015 Ofgem published their decision document 7 which initiated the Switching Programme. In this document Ofgem concluded that the new switching arrangements would be underpinned by a new CRS, which will be procured and operated by DCC. 49. In December 2015 Ofgem published a Statutory Consultation 8 and subsequently concluded 9 on new obligations for DCC to play a contributory role in Ofgem s Switching Programme and changes to the price control framework in DCC s licence to allow it to recover the economic and efficient costs it incurs for participating in the Switching Programme. Ofgem also decided to apply an ex post plus price control approach for all of DCC s Switching Programme costs during the Transitional Phase, from 1 April These conditions came into effect on 14 July Ex post plus approach 50. Under the ex post plus arrangements, DCC is required to set out its planned activities and costs up front in a published DCC Switching Business Case and report its actual and forecast costs to Ofgem on a regular basis throughout each Regulatory Year. DCC is also required to justify its expenditure on the Switching Programme through its existing annual ex post price control reporting (on 31 July of each relevant year). These arrangements are set out in Ofgem s Decision on DCC's role in developing a Centralised Registration Service 10 and are described in Section 12. The DCC Switching Business Case does not form a baseline for price control purposes. 51. The price control arrangements have not yet been defined for the Design, Build and Test (DBT) and Live Operations phases. These will be defined and consulted on through a wider piece of work considering DCC s role in future phases and will be led by Ofgem as part of the Transitional Phase. 2.4 Baselining the DCC Switching Business Case 52. The key activities leading to the baselining of this DCC Switching Business Case are shown in Figure 5 below. 7 Ofgem, Decision: Moving to reliable next-day switching, 10 February 2015: 8 Ofgem, Final Proposals on DCC s role in developing a Centralised Registration Service and penalty interest proposals, 17 December 2015: 9 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: 10 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: DCC Switching Business Case DCC Public Page 17 of 110

18 Figure 5 - Activities leading to baselining of DCC Switching Business Case DCC Switching Business Case DCC Public Page 18 of 110

19 3 Purpose 53. The purpose of this baselined version of the DCC Switching Business Case is: to enable earlier scrutiny by Ofgem and stakeholders of DCC s proposed and actual costs and activities under the ex post plus price control approach as set out in Ofgem s decision on DCC s role in developing a CRS 11 to form a baseline scope of work and plan against which Ofgem and stakeholders can monitor DCC s delivery progress during the Transitional Phase, via Switching Programme governance to form a baseline budget against which Ofgem and stakeholders can monitor DCC s incurred and forecast costs during the regulatory year. 11 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: and Ofgem, Notice of licence modification of the conditions of the smart meter communication licence, 17 May 2016: DCC Switching Business Case DCC Public Page 19 of 110

20 4 Scope of the DCC Switching Business Case 54. This DCC Switching Business Case sets out DCC s forecast activities and costs relating to the support it will provide during the Transitional Phase of the Switching Programme. The DCC Switching Business Case covers the period from 1 April 2016 up to the point of contract signature for Fundamental Registration Service Capability to deliver the CRS. It also sets out actuals available at the time of publication for activities already undertaken. Activities and the associated costs, margin and incentives during the DBT and Monitor and Evaluate (operational) phases are not included within the scope of this DCC Switching Business Case. 55. Within these parameters, the DCC Switching Business Case covers all DCC activities in support of the Switching Programme, including: contributing to the design of the new registration and switching arrangements contributing to the identification of requirements for the CRS procuring the Fundamental Registration Service Capability to deliver the CRS. 56. DCC s costs include: staff costs for permanent DCC staff staff costs for contractor staff contracted consultancy support costs for professional services (e.g. design proving, legal) non-staff resource costs (e.g. software, tools) central DCC resource costs (e.g. finance, HR, IT) Capita s corporate overhead charge. 57. The DCC Switching Business Case also reflects Ofgem s direction relating to DCC s margin and performance incentives during the Transitional Phase Ofgem, Decision on margin and incentives for DCC's role within the Transitional Phase of the Switching Programme, 16 March 2017: DCC Switching Business Case DCC Public Page 20 of 110

21 5 Objectives 5.1 Ofgem Programme Objectives 58. The objectives of the Ofgem Switching Programme are set out in the Ofgem Switching Programme Strategic Outline Case (SOC) 13 and the relevant parts are set out below: Our [Ofgem s] overarching programme objective is to improve consumers experience of switching, leading to greater engagement in the retail energy market, by designing and implementing a new switching process that is reliable, fast and costeffective. In turn this will build consumer confidence and facilitate competition, delivering better outcomes for consumers During the Blueprint phase of the programme, we have developed a set of subsidiary objectives summarising what we aim to achieve through the Switching Programme. These are used both to communicate our aims to stakeholders and as a means of assessing the relative strength of different reforms we have considered during our Blueprint phase work. The subsidiary objectives are: 1. To improve consumer experiences and perceptions of changing supplier, leading to increased engagement in the market, by delivering a switching service that: a. Is more reliable, thereby reducing the instances of consumers being let down by delayed, unsuccessful or unwanted switches. b. Offers consumers control over when they switch, including providing the capability of doing so as fast as possible, and by no later than the end of the following day after a consumer has entered into a contract. c. Minimises any differences in consumer experiences of the switching process, to the extent that is possible, taking into account any physical constraints imposed by metering and issues relating to consumers indebtedness. 2. To deliver a simple and robust system architecture design that harmonises business processes across the gas and electricity markets where possible, and is capable of efficiently adapting to future requirements. 3. To encourage more effective competition by minimising barriers to entry for new entrants to the market, including the extent to which a successful switch may rely on the actions of an incumbent, and by having appropriate safeguards in place where this is not possible. 59. We do not believe there is any material change to these objectives. 13 Ofgem, Switching Programme: strategic outline case, 19 January 2016: DCC Switching Business Case DCC Public Page 21 of 110

22 5.2 DCC Objectives 60. DCC s overarching objective for the Switching Programme is to fulfil the obligations established in DCC s licence and in the guidance set out in the Ofgem s Decision: DCC's role in developing a Centralised Registration Service Paragraph 15.4 of the licence requires that DCC must comply with the Interim Centralised Registration Service Objective by: (a) contributing to the achievement of a full and timely design for an efficient, economical and secure Centralised Registration Service that would, if implemented, provide a platform for fast and reliable switching for all Supply Points in the GB market; (b) making all relevant preparations for the procurement of Relevant Service Capability to deliver and operate a Centralised Registration Service; and (c) procuring Relevant Service Capability to deliver and operate a Centralised Registration Service that: (i) reflects the design of a Centralised Registration Service which has been designated by the Authority for this purpose (including any amendments to that designated design); and (ii) would, if executed, in all likelihood, give effect to an efficient, economical and secure Centralised Registration Service that would provide a platform for fast and reliable switching for all Supply Points in the GB market. 62. Paragraph 15.5 states that For the purposes of paragraph 15.4(a), the Interim Centralised Registration Service Objective includes, but is not limited to, a duty to contribute to the development and documentation of the design of the Centralised Registration Service. 63. In addition, 15.6 requires that DCC must comply with any direction issued to it by the Authority for the purposes of meeting the Interim Centralised Registration Service Objective in respect of the Licensee s obligations in this condition. 64. The general objectives for DCC are set out in Licence Condition 5 and apply to the preparation for the Centralised Registration Service as this is now defined as a Mandatory Business Service. These are paraphrased below: First General Objective - Development, operation and maintenance of an efficient, economical, coordinated, and secure system for the provision of Mandatory Business Services Second General Objective - Deliver Mandatory Business in a manner that is most likely to facilitate: 14 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: DCC Switching Business Case DCC Public Page 22 of 110

23 effective competition between persons engaged in, or commercial activities connected with, the Supply of Energy innovation in the design and operation of Energy Networks reduction (by virtue of benefits arising from the provision of Value Added Services) of the charges payable for Mandatory Business Services. 65. Paragraph 15.3 makes it clear that The Transition Objective and/or General Objectives of the Licensee shall prevail in the event of a conflict between their provisions and the requirements imposed on the Licensee by the Interim Centralised Registration Service Objective. DCC Switching Business Case DCC Public Page 23 of 110

24 6 Requirements 66. This section sets out the requirements for DCC s involvement in the Transitional Phase of Ofgem s Switching Programme. These requirements determine the scope of DCC s activity, which in turn determines the products that DCC will produce to meet the requirements. 67. All DCC products are captured in the Product Breakdown Structure included in Appendix B and each product will be underpinned by a product description. At the time of writing all products in Blueprint and DLS phases have at least a draft product description. 68. The Requirements Traceability Matrix included in Appendix A defines the relationship between the requirements and the products that DCC will deliver. The activities required to deliver the products are set out in the DCC Switching Programme Plan included in Appendix C and this in turn underpins the costs contained within this DCC Switching Business Case and the cost model included in Appendix D. There are some areas of uncertainty in the scope of DCC s role that DCC and Ofgem will continue to refine, but these are largely now confined to the Enactment Phase. This is largely due to the fact that there are a number of key design and delivery decisions to be made by Ofgem later in the Switching Programme. 69. The relationship between the requirements, Product Breakdown Structure, Requirements Traceability Matrix, DCC Switching Programme Plan and Cost Model is illustrated in Figure 6. DCC Switching Business Case DCC Public Page 24 of 110

25 Figure 6 Relationship between requirements, Product Breakdown Structure, Requirements Traceability Matrix, DCC Switching Programme Plan and Cost Model DCC Switching Business Case DCC Public Page 25 of 110

26 70. The scope of DCC s role is determined primarily by its overarching regulatory obligations; however, these typically need elaborating into more detailed requirements to provide clearer instruction. This has been provided by specific work instructions from Ofgem and supporting product descriptions for the Blueprint Phase, a jointly developed Product Breakdown Structure for the DLS Phase supported by product descriptions, and a set of planning assumptions jointly agreed by DCC and Ofgem, which will continue to be refined and maintained throughout the programme. This has resulted in a set of products underpinned by descriptions which clearly define what is required and the associated acceptance criteria to measure whether this has been delivered to the required quality standard. 71. The requirements reflect the outcome of the joint planning for the DLS Phase that DCC and Ofgem have undertaken to date, including clarifications to DCC s role in relation to design, delivery strategy, security and service management. The scope of DCC s role and activities in the Blueprint and DLS phases is currently more clearly defined than in the Enactment phase. This reflects the focus of the joint planning that DCC and Ofgem have undertaken to date and this is consistent with standard programme planning; there is typically a greater level of uncertainty associated with activities planned to take place further in the future. 72. There are also a number of key design and delivery decisions still to be taken by the Ofgem Switching Programme that will determine DCC s activities during the remainder of the Transitional Phase. Where product descriptions are not yet available for products planned to be delivered later in the programme, we have used our judgement to plan for products and associated activities based on assumptions that we deem to be reasonable and have recorded in the RAIDO in Appendix E. 6.1 Summary of requirements 73. The key requirements of DCC during the Transitional Phase of the Switching Programme relate to design, delivery, security, procurement, regulatory design and programme management, including price control. These requirements are summarised below. The full detail is available in the Requirements Traceability Matrix and Product Breakdown Structure, which are introduced below and are included in Appendices A and B. 74. In order to meet the requirements, DCC undertakes two broad types of activities: Advisory activities to support Ofgem-led designing and planning for the delivery of endto-end switching arrangements, of which the Centralised Registration Service is just one part. This includes leading the development of Ofgem-owned products as well as providing substantial contribution to products that are both Ofgem-owned and Ofgem-led Activities to deliver the DCC-led procurement of the CRS, including developing the CRS detailed design and planning and executing the procurement of the CRS solution and other supporting services as required (on the assumption that there will be five procurement projects). 75. Where requirements are not yet clear, we have made a number of planning assumptions, which are captured in the RAIDO (Appendix E) and represent the assumed activities in DCC s programme plan (Appendix C), to allow DCC to generate an indicative budget for our involvement in the Switching Programme. DCC Switching Business Case DCC Public Page 26 of 110

27 76. The key requirements for DCC s contribution to the Switching Programme are summarised below and included in full in the Requirements Traceability Matrix included in Appendix A Blueprint phase 77. During the Blueprint Phase, DCC is required to: support the development of the Ofgem and DCC Business Cases, through: developing and reporting against the DCC Switching Business Case supporting Ofgem in preparing content for the RFI and Blueprint consultation responding to the Ofgem RFI and Blueprint consultation provide external input to challenge and assure design products, especially in relation to business processes and policy papers fully participate in Ofgem-led design teams (Business Process Design, Delivery Strategy, Commercial and Regulatory Design), including: producing Blueprint products and activities, under Ofgem leadership, according to the product descriptions that are already in place contributing to Blueprint design products through Design Team, User Group and External Design Advisory Group (EDAG) Detailed Level Specification phase 78. During the DLS phase, DCC will be required to: support the development of the Ofgem and DCC Business Cases, through: maintaining and reporting against the DCC Switching Business Case providing input to Ofgem Business Case as required fully participate in Ofgem-led design teams (Business Process Design, Delivery Strategy, Commercial and Regulatory Design), including: supporting Ofgem in the design and delivery planning of the new end-to-end switching arrangements supporting Ofgem in the detailed definition of the functional and non-functional requirements for the CRS leading on the development of the design of the CRS preparing for procurement of the CRS and other supporting services as required (on the assumption that there will be five procurement projects). DCC Switching Business Case DCC Public Page 27 of 110

28 6.1.3 Enactment phase 79. During the Enactment phase, DCC will be required to: support the development of the Ofgem and DCC Business Cases, through: maintaining and reporting against the DCC Switching Business Case responding to Ofgem consultations providing input to Ofgem Business Case as required deliver the CRS procurement, including all associated products mobilise for DBT (subject to licence amendments). 6.2 Outputs and deliverables Requirements traceability matrix 80. In order to provide transparency to industry of DCC s involvement in the Switching Programme and the rationale for that involvement, a Requirements Traceability Matrix is included in Appendix A. The purpose of this matrix is to trace every element of DCC s costed solution underpinning this DCC Switching Business Case back to an agreed product and clearly relate this to the source of each requirement. This is a key piece of due diligence DCC has undertaken to provide traceability that DCC s activities relating to the Switching Programme are justified by clear requirements. 81. Most of DCC s source requirements stem from Ofgem s Final Proposals for DCC s role in developing a Centralised Registration Service and penalty interest proposals published on 17 December This resulted in a decision document 16 and the publication of amendments to DCC s licence 17 on 17 May 2016, primarily to Licence Condition In addition to these regulatory requirements, elements of DCC s solution can also be traced back to the Switching Commercial Workstream Design Team Decision Log (Feb present). 83. In addition to the Decision Log itself, DCC has been working collaboratively with Ofgem in the Commercial Workstream Design Team forum and subsequently through joint DLS planning sessions to define DCC s scope and activities during the Transitional Phase of the Switching Programme in greater detail. The output from this activity is also reflected in this DCC Switching Business Case. 15 Ofgem, Proposals for DCC s role in developing a Centralised Registration Service and penalty interest proposals, 17 December 2015: 16 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: 17 Ofgem, Notice of licence modification of the conditions of the smart meter communication licence, 17 May 2016: DCC Switching Business Case DCC Public Page 28 of 110

29 6.2.2 Product breakdown 84. All products documented in the Requirements Traceability Matrix are presented in diagrammatic form in the Product Breakdown Structure, included in Appendix B. This lays out products according to the phase in which they will be delivered and within the functional area of ownership. 85. Products in the Product Breakdown Structure are typically deliverables for which DCC has been assigned clear ownership and will be underpinned by a detailed product description. Product descriptions are created using a template consistent with that being used by Ofgem and other parties contributing to the Switching Programme. Key elements defined in the product descriptions include: title and format composition inbound and outbound dependencies ownership, governance process and approvals, including any requirement for assurance acceptance criteria. 86. Product descriptions are developed by the Ofgem workstream leads with input from DCC. Once the description is fit for purpose, it is approved by the Ofgem Programme Senior Responsible Officer (SRO) or delegated authority. 87. DCC and Ofgem have worked together to develop product descriptions for products in the Blueprint and DLS phases and to forecast the products that are likely to be required during the Enactment Phase based on what both parties can reasonably foresee at present. 88. DCC expects that the level of certainty relating to Ofgem s requirements of DCC s role will increase throughout the Transitional Phase as the Switching Programme takes key decisions on the solution design and delivery strategy and undertakes further detailed planning. When updating the DCC Switching Business Case at planned review points or in response to specific triggers as set out in Section 12, DCC will review and revise the Product Breakdown Structure and Requirements Traceability Matrix to reflect this increased level of certainty relating to requirements. The updating and republishing process, associated governance and communication with industry is explained in more detail in Section All products in the Product Breakdown Structure and Requirements Traceability Matrix are captured in the DCC Switching Programme Plan for the Transitional Phase, which is summarised in the Section 8 and included in full in Appendix C. DCC Switching Business Case DCC Public Page 29 of 110

30 6.3 Ways of working: Outcomes and non-functional requirements of DCC input 90. In addition to the functional requirements for DCC captured in the product descriptions, Ofgem has specified some overarching programme principles it expects DCC to comply with and some types of behaviour it expects DCC to exhibit during its participation in the Switching Programme. Examples of this include being economic and efficient; providing timely input; working to design principles; and planning activities with the target implementation date in mind. 91. These overarching requirements for DCC are designed to ensure that DCC participates in the Programme in a manner that supports the best possible chance of delivering the Programme s intended outcomes. These requirements originate from regulatory sources (primarily the DCC Licence) and are captured under ways of working in the Requirements Traceability Matrix. 92. DCC will rely on Ofgem and stakeholder feedback to gauge its performance against these requirements and will agree key checkpoints with Ofgem to review performance and agree any actions to further improve ways of working. In addition, DCC will use regular stakeholder surveys to capture feedback that can then be used to inform the way DCC s engages with the Switching Programme. DCC Switching Business Case DCC Public Page 30 of 110

31 7 Scope Scenarios 7.1 Overview 93. This section identifies the key areas of scope uncertainty that are likely to affect DCC costs in relation to its activities during the Transitional Phase of the Switching Programme. This is intended to provide transparency to Ofgem and stakeholders about the potential cost impacts of changes to the baseline planning assumptions relating to DCC s role in the programme. 7.2 Drivers of uncertainty 94. There are two overarching areas of scope uncertainty relating to DCC s involvement in Ofgem s Switching Programme. These are CRS solution uncertainty and the scope of DCC activities. 95. Note that these areas of uncertainty are not the only potential drivers of changes to DCC costs. DCC has identified foreseeable risks which, if they materialise, could impact DCC s activities and associated costs. These risks are captured and the potential cost impact assessed in the RAIDO included in Appendix E. The cost impact of risks that are not related to scope or solution uncertainty are not reflected in the costs of the scenarios outlined in this section CRS solution uncertainty 96. Uncertainty relating to the CRS solution is due to that fact that the design and delivery strategy for the CRS is still under development and will be subject to formal consultation with industry by Ofgem. Decisions relating to the solution design and delivery strategy will determine the complexity and volume of DCC s activities during the remainder of the Transitional Phase and the level of effort required to deliver those activities. 97. Following Ofgem s publication of the reform packages, DCC has aligned its baseline planning assumptions to reflect the requirements associated with Reform Package 2. These assumptions reflect the potential solution that DCC has outlined to inform its response to Ofgem s Blueprint RFI. 98. To illustrate the potential impact of Ofgem deciding to proceed with a different CRS solution, DCC has also assessed the implications of designing and procuring an alternative potential solution aligned with Reform Package 3. The potential solutions to support our assessment of both reform packages are summarised below. 99. Should Ofgem decide to proceed with Reform Package 1 the implications for the DCC Switching Business Case are significant and DCC s role would be significantly reduced or cease altogether. There may be cost implications of winding down the DCC programme. Given the potential scale of the impact, we have not developed a specific scenario based on Reform Package 1. DCC Switching Business Case DCC Public Page 31 of 110

32 Reform package 2: solution assumptions 100. The high level view of DCC s assumed solution to support Reform Package 2 is illustrated in Figure 7. The diagram illustrates the databases, application layer, orchestration and interfaces (including their direction). This is a potential solution that is consistent with the assumptions that underpin DCC s response to the Ofgem Request for Information. Note that these are DCC assumptions relating to a potential solution for Reform Package 2; they do not necessarily reflect Ofgem assumptions or decisions. This potential solution is part of the assumptions that form the basis of the baseline scenario aligned to Reform Package Note that while DCC has assumed it will run five procurement projects to procure the CRS and other supporting services as required, the plan and costs for those projects are not based on the specific solution components illustrated in Figure 7; these components are neither included nor excluded from the current plan. Instead, the five planned procurement projects are based on complexity characteristics consistent with the Reform Package 2 solution assumptions. Figure 7 Reform package 2: high level view of assumed solution DCC Switching Business Case DCC Public Page 32 of 110

33 Reform package 3: solution assumptions 102. The high level view of a potential solution to support Reform Package 3 is illustrated in Figure 8. The diagram illustrates the databases, application layer, orchestration and interfaces (including their direction). Note that these are DCC assumptions relating to a potential solution for Reform Package 3; they do not necessarily reflect Ofgem assumptions or decisions. This potential solution is part of the assumptions that form the basis of the baseline scenario aligned to Reform Package Scope of DCC activities Figure 8 Reform package 3: high level view of assumed solution 103. In the draft DCC Switching Business Case, which Ofgem published for consultation in November 2016, there was significant uncertainty relating to the number and scope of DCCowned deliverables and the level of DCC contribution into Ofgem-owned deliverables. Following joint planning undertaken by DCC and Ofgem, there is now increased certainty on the scope of DCC s products and activities The few remaining areas of scope uncertainty and the mapping of DCC s role to each of the baseline, high and low scenarios are summarised in Table 6. The baseline scenario is consistent with Reform Package 2 as described above. Reform package 3 is not reflected in either the baseline, high or low scenario. DCC Switching Business Case DCC Public Page 33 of 110

34 Area Proposed DCC approach for baseline scenario Rationale DCC approach for high scenario DCC approach for low scenario Technical specifications not relating to the CRS i.e. specifications that may be required for system and service elements of the switching process that need to change but that do not interface directly with the new CRS solution Review industry interface specifications not relating to the CRS only as part of the User Group Current expectation set by Ofgem Lead development of industry interface specifications not relating to the CRS Review industry interface specifications not relating to the CRS only as part of the User Group Role in Regulatory Design workstream DCC required to provide only limited input to Ofgem-led regulatory changes as part of the User Group Current expectation set by Ofgem DCC required to actively contribute to the Regulatory Design workstream Design Team As per baseline scenario Number of procurements projects required by Ofgem Five procurement projects with complexity characteristics consistent with Reform Package 2 solution assumptions Provides an appropriate balance of competition, allowance for natural splits in the market and a level of integration complexity Many procurements i.e. seven A single procurement Table 6 - Areas of scope uncertainty DCC Switching Business Case DCC Public Page 34 of 110

35 7.3 Scope scenarios 105. To illustrate the potential impact of these areas of uncertainty, DCC has developed four high level scope scenarios. Three scenarios are aligned with Reform Package 2 and one additional scenario is aligned with Reform Package 3. The estimated cost of each scenario is included in Section 9. The relationship of these scenarios to the drivers of uncertainty is illustrated in Figure 9. Figure 9 Relationship of scenarios to drivers of uncertainty 106. The three scenarios aligned with Reform Package 2 illustrate how scope uncertainty may affect DCC s activities and the associated costs: a baseline scenario this models the cost forecast of DCC s current assumptions relating to its scope and activities during the Transitional Phase and is based on the assumed solution for Reform Package 2 illustrated in Figure 7 a high scenario this models the cost forecast of the aggregate impact of the most costly requirements coming to fruition based on the identified areas of uncertainty a low scenario this models the cost forecast of aggregate impact of the least costly requirements coming to fruition on the identified areas of uncertainty These three scenarios aligned with Reform Package 2 are illustrated in Figure 10. This illustration is only intended to provide a basic view of how each scenario relates to the others DCC has also developed an alternative scenario aligned with Reform Package 3 to illustrate the potential impact of Ofgem deciding to proceed with a different CRS solution The delivery activities and resourcing approach set out in Section 8 and DCC Switching Programme Plan reflect the baseline scenario aligned with Reform Package 2. DCC s forecast costs are therefore predicated on the baseline scenario. The estimated costs associated with high and low scenarios and Reform Package 3 scenario are calculated in the cost model and DCC Switching Business Case DCC Public Page 35 of 110

36 the high scenario informs an element of contingency that contributes to the materiality threshold, which is explained in more detail in Section 11. The number and scale of opportunities are limited as the DCC Switching Programme Plan and baseline scope scenario are based on the most optimistic position. Figure 10 - Three solution scenarios aligned with Reform Package 2 DCC Switching Business Case DCC Public Page 36 of 110

37 8 Solution: Delivery and resourcing approach 8.1 Overview 110. This section sets out DCC s planned approach to delivering the requirements set out in Section 6, based on the baseline scope scenario defined in Section The purpose of outlining delivery plans as part of the DCC Switching Business Case is to establish a baseline set of activities, timescales and costs which DCC will report against during the Transitional Phase. It is intended to set an initial programme budget for delivery of Ofgem s requirements by DCC and to provide transparency on the drivers of DCC costs, based on currently available information and documented assumptions. Note that this forms a baseline for the purposes of programme reporting but not for DCC s price control reporting Together, these elements determine the forecast costs of DCC s activities during the Transitional Phase. This section explains the process we have used to generate each element of the approach DCC s delivery approach is underpinned by three key artefacts: DCC Switching Programme Plan an MS Project plan that sets out the delivery activities, associated timescales and the resource types assigned to each activity. The plan is based on the baseline scope scenario defined in Section 7. The DCC Switching Programme Plan is included in Appendix C Cost model an MS Excel workbook that uses the output of the DCC Switching Programme Plan to generate a full-time equivalent (FTE) resource profile and a set of forecasts that show the monthly costs associated with tasks and resources. The model also generates the costs associated with the high and low scope scenarios. The total financial forecast includes the base costs, contingency, overhead and margin. The total financial forecast associated with the baseline scenario forms the baseline against which DCC will report. The cost model is included in Appendix D RAIDO within the cost model, a series of worksheets set out the risks, assumptions, issues, dependencies and opportunities that underpin the DCC Switching Programme Plan, including the weighted costs of the high and low scenarios. The weighted costs of the high scenario together with other identified risks inform the level of contingency applied to the base costs, as set out in Section 11. The RAIDO is explained in more detail in Section 10 and is included in Appendix E. 8.2 DCC Switching Programme Plan 114. DCC s plan to deliver the requirements defined by Ofgem is set out in the DCC Switching Programme Plan included in Appendix C. The DCC Switching Programme Plan has been updated based on the joint planning undertaken by DCC and Ofgem. It has been tested with Ofgem workstream leads during its development and has continued to evolve during the period of Ofgem s consultation on the DCC Switching Business Case. It has been updated based on the joint planning undertaken by DCC and Ofgem and the feedback received through the consultation process. It reflects our best estimates of activities based on the DCC Switching Business Case DCC Public Page 37 of 110

38 current scope, key programme phases and deliverables. The DCC Switching Programme Plan allows DCC to generate a costed resource plan Whilst there is much greater certainty in the scope of DCC s role following DLS joint planning with Ofgem, it will only be possible to determine the timescales of the Transitional Phase with certainty once the solution design and delivery strategy have been decided and the plan is confirmed to be achievable following independent external assurance The DCC Switching Programme Plan includes DCC s incentivised milestones. The target delivery dates for the incentivised milestones will be agreed with Ofgem following the independent external assurance of the plan. The principles and conditions under which the target delivery dates of the incentivised milestones can be changed will be set out in a Policy on Incentivised Milestone Management (PIMM). DCC anticipates that this will include impact to the critical path from scope change, delay outside of DCC's control and materialisation of risks which have been identified as being outside of DCC ownership. The completion of incentivised milestones will be assessed based on achievement of the acceptance criteria, including completion of any stakeholder engagement specified in the product description (as referenced in Ofgem s direction on DCC margin and incentives) Through joint planning, DCC and Ofgem have identified inbound and outbound dependencies between the activities of both parties. Delays to inbound dependencies will have an impact on DCC s delivery timescales. In accordance with the PIMM, a documented delay process will establish which party is accountable for any delay and the actual amount of delay to DCC s delivery timescales. A potential outcome of a delay is a change to the target delivery date to one or more of DCC s incentivised milestones. Any change to the target delivery date for incentivised milestones would be enacted through the documented change process, regardless of whether the change originated in delay, scope change or a risk materialising The DCC Switching Programme Plan sets out activities organised into a five tier hierarchy at increasing levels of detail the Work Breakdown Structure (WBS). The five levels are: Level 1 Programme Level 2 Workstream Level 3 Control Account Level 4 Work Package Level 5 Activity The DCC Switching Programme Plan sets out: the phasing of the planned activities DCC delivery activities associated with the products included in the Product Breakdown Structure the anticipated duration of each activity DCC Switching Business Case DCC Public Page 38 of 110

39 the estimated level of resource effort required to deliver each work package the roles assigned to each work package (explained in Section 8.4 below) A high level timeline is included in Figure 11. Assumptions underpinning the timeline and the Microsoft Project Programme Plan underpinning it, are captured and managed and are available alongside the plan in Appendix E. DCC Switching Business Case DCC Public Page 39 of 110

40 Figure 11 - High level DCC programme timeline DCC Switching Business Case DCC Public Page 40 of 110

41 8.3 Summary of key activities 121. DCC s contribution to the Switching Programme has two purposes: to provide advisory services to support the Ofgem-led definition of the end-to-end switching arrangements, of which the Centralised Registration Service is just one part to ensure that the procured CRS will meet the requirements defined by the programme The key activities to deliver the requirements set out in Section 6 are organised within the following workstreams: Design Security Delivery and transition Regulatory design Procurement Programme management Programme management comprises activities that are required to manage DCC s input to the Switching Programme. This includes ongoing programme management, including planning, reporting and managing changes in scope, resourcing of the programme and industry engagement activity, as well as the DCC Switching Business Case and DCC s input into Ofgem s programme-level management documents and activities, such as the Ofgem Business Case, consultations and Gateway Reviews, and price control activity A description of the key activities during each phase of the overall Transitional Phase is included below. Blueprint phase 125. Key DCC activities within the Blueprint phase relate to leading and contributing to the development of high level products which will form part of Design Baseline 1. DCC will review and update these Blueprint products based on industry feedback following the Blueprint RFI and consultation on Design Baseline 2. DCC will also develop, baseline and commence reporting against the DCC Switching Business Case during the Blueprint phase DCC will seek a degree of input from its SMIP resource as part of its response to the RFI and to review key design documents. The DCC Switching Programme team will ensure that there is no impact on the delivery of SMIP as a result of the resource requirements associated with these activities. Our approach to using existing DCC resource is described in more detail in Section 9.4. DCC Switching Business Case DCC Public Page 41 of 110

42 127. Following Design Baseline 1, DCC s focus will shift to the more detailed design work as part of the DLS phase which overlaps significantly with the Blueprint phase. DCC expects that the parallel activities relating to the Blueprint RFI and consultation on Design Baseline 2 will be relatively light-touch. Detailed Level Specification phase 128. Within the DLS phase, the Ofgem Switching Programme will define the detailed design of the new switching arrangements. Within this activity, DCC will lead and contribute to the development of detailed products which will be aligned with Design Baselines 2 and 3. Wherever DCC leads on the development of a product within the design of the end-to-end switching arrangements, the product remains under Ofgem ownership The detailed design products developed by DCC and other programme participants, under Ofgem s oversight, will define clear and unambiguous requirements for the operation of the end-to-end switching arrangements, including: detailed business processes that will underpin the switching arrangements in line with policy decisions in the Blueprint phase detailed data architecture model to underpin the end to end detailed business processes the required solution architecture, with detailed interactions between components operational requirements and non-functional requirements (e.g. security, performance, acceptance criteria, business continuity and disaster recovery) Once Ofgem has confirmed that the design of the end-to-end switching arrangements is complete, the design will be handed to DCC to extract the relevant areas of design relating to the CRS and to produce any additional artefacts to complete the design and requirements for the CRS. Note that the design includes requirements relating to the delivery of the CRS as well as the detailed design requirements. All design artefacts for use by the DCC and Ofgem programmes will be created and managed in a single architecture tool hosted by DCC As part of designing the CRS during DLS, DCC will define all of the CRS interfaces that are required to support the procurement of the solution and / or are required by industry in order to pursue changes to industry systems that will interact with the CRS. We will work in collaboration with industry to make decisions regarding whether existing interfaces and connections (such as the DCC User Interface and Registration Data Interface) will be used and/or impacted. As part of its design work, DCC will define the data items and attributes that it will process under the Ofgem switching data model and define, to the extent appropriate, artefacts such as message schemas and error conditions Following the completion of the design for the end-to-end switching arrangements, DCC will not be responsible for defining the detailed processes, interactions, data models, or system components to be used within any other industry party s boundary i.e. beyond the CRS interface. DCC Switching Business Case DCC Public Page 42 of 110

43 133. DCC has allowed for an impact assessment to be carried out by its existing DSP to identify any impact of the design on the smart meter communication service, such as the Transitional and Enduring Change of Supplier architecture To support the detailed end-to-end design work and development of the CRS design, DCC will commission design proving projects. This activity is intended to test the completeness and effectiveness of the design by identifying any issues or areas for improvement within the design so that they can be resolved at an early stage, and so that industry can participate in the proving process. This will reduce the risk of fundamental design issues emerging later in the programme, when they are more costly to fix. The proving projects will provide the programme with increased confidence that the design will operate as intended, based on firm evidence DCC currently intends to commission three design proving projects. Each of the projects will take the design at that point in time and will model how data flows through the end-toend design. The first design proving project will take the design as at Design Baseline 1 and use interaction sequence diagrams within the programme architecture tool to prove the design. The second project will be led by an external development team and will take the initial outputs from the DLS phase and start to develop it as an external system to prove the design. The third project is intended to create an end-to-end design proving tool that can be maintained and kept aligned to the design as it develops The design proving tool is intended for use by both DCC and Ofgem as part of industry engagement activities in order to provide early validation of the end-to-end switching arrangements. The tool will enable industry participants to test their own systems against the CRS interfaces in advance of formal testing and will provide greater clarity and insight for potential service providers during the procurement of the CRS During DLS, as part of the end-to-end switching arrangements, DCC will also lead and contribute to the development of delivery plan products and lead the development of security products on behalf of Ofgem DCC will complete the Procurement Plan for the CRS and other supporting services as required (on the assumption that there will be five procurement projects). We will undertake two stages of market engagement based on the requirements and design during the DLS phase, prior to commencing the procurement projects. This will comprise a high level market engagement at the beginning of the DLS phase, followed by a more detailed market engagement later in the DLS phase as the design is more fully developed. Enactment phase 139. During the Enactment phase, DCC will execute the procurement and contracting of the CRS and mobilise for the DBT phase, which will follow the Enactment phase. The governance arrangements relating to procurement are set out in the Switching Programme Procurement Framework. 18 The governance arrangements relating to procurement 18 Ofgem and DCC, Switching Programme Procurement Framework, 18 January 2017: DCC Switching Business Case DCC Public Page 43 of 110

44 products, including stakeholder engagement, are also set out in the relevant Product Descriptions DCC has made a number of assumptions for the Enactment phase as it is not yet known the specifics of what should be procured and how it should be procured. Based on joint planning with Ofgem, DCC is assuming that five procurement projects of medium complexity will be required during the Enactment phase, and that procurement activities should be overlapped wherever possible in order to minimise the timescales for Enactment DCC will complete Sourcing Strategies for the procurement and will produce a Statement of Requirements which will underpin the procurement of the CRS and other supporting services as required (on the assumption that there will be five procurement projects). DCC will produce the tender packs and contract schedules before carrying out the tender process, evaluation and contract negotiation prior to contract signature DCC will mobilise for the DBT phase, which will follow the Enactment phase Industry engagement 143. DCC recognises the importance and value of engaging with industry throughout the Transitional Phase. To date we have primarily been engaging with industry through Ofgem s Switching Programme governance. We have also discussed DCC s role in the Switching Programme at the October 2016 DCC Industry Day We intend to extend our engagement with industry in relation to the Switching Programme. Learning from our experience of engaging with industry through the SMIP, we intend to engage with industry stakeholders through individual meetings with the DCC Programme Director, through DCC Industry Days and through DCC s Industry Partnership Managers DCC is also considering establishing a Switching Advisory Group with industry, which would provide industry oversight of DCC s Switching Programme on areas such as scope, timescales and risks. During the development of the CRS design, DCC may run Design Forums with industry similar to the Design Forums run with industry during the SMIP DCC will also be subject to a non-financial incentive relating to stakeholder satisfaction. This arrangement is set out in Ofgem s consultation and decision document on margin and incentives Duration 147. The DCC Switching Programme Plan reflects the key programme-level milestones and design baselines as shared by Ofgem during the joint planning activities which ran in parallel with Ofgem s consultation on the DCC Switching Business Case. DCC s approach to planning the duration of activities leading to the design baselines is therefore aligned with the time available between key milestones in Ofgem s overall programme plan We have worked closely with Ofgem to develop a non-contingent plan. We have used our experience to plan activities bottom-up, particularly where the products are under DCC s control, such as the procurement activities during the Enactment phase. This is based on DCC Switching Business Case DCC Public Page 44 of 110

45 our understanding of the scope and complexity of the products and the experience of DCC staff of delivering similar products, both within DCC and within other programmes and organisations The validity of planned activities and their durations have been tested with DCC colleagues and Ofgem Switching Programme workstream leads as part of the joint DLS planning activities The reduction in the DCC Switching Programme Plan timescales since the Draft DCC Switching Business Case was published by Ofgem for consultation is mainly a result of increased certainty over activities and challenge by Ofgem to reduce durations to the minimum possible given what is known about the activities. In order for DCC to reduce durations and overlap activities, a number of risks are included in the RAIDO (Appendix E) that capture the likelihood and impact of those durations being exceeded if specific risks materialise Note that the results of the joint planning exercise have created a DCC Switching Programme Plan that does not align with the timescales set out in Ofgem s Strategic Outline Case Effort 152. DCC has estimated the level of resource effort that will be required to deliver each of its activities, based on our current understanding of the requirements for those activities. These estimates are based on our experience of delivering similar activities and have been tested with DCC colleagues and with Ofgem Switching Programme workstream leads where appropriate. As described in previous sections, there is inherent uncertainty in estimating the level of effort that is required to deliver planned activities, therefore estimating risk has been included in the RAIDO (Appendix E) and cost and time provisioned in Contingency to acknowledge this risk. 8.4 Roles 153. Based on the planned activities, we have considered the skills and knowledge that will be required to successfully deliver these activities and identified a set of resource roles as a result The roles required and their key areas of responsibility within DCC s planned activities are summarised in Table 7 below. Roles are mapped against the programme workstreams to which they primarily contribute. 19 Ofgem, Moving to reliable and fast switching: Switching Programme business case including Design Baseline 1, 19 January 2017: DCC Switching Business Case DCC Public Page 45 of 110

46 Role Focus areas Programme workstream Programme Director Programme Manager Project Manager Programme Management Office (PMO Analyst, Project Support Officer, Programme Controls Lead) Programme Advisory Business Architect Price Control Lead Recruitment Manager Finance Analyst Finance Business Partner Lead the DCC Switching Programme Interfacing with Ofgem and industry Programme and project management of DCC activities Project management oversight of proving activities Planning and mobilisation for all phases Define and deliver projects within the programme against time, quality and budget Implement and embed programme controls Planning and reporting of DCC activities, including regular reporting to Ofgem Change control and scope management Maintenance of programme management artefacts Provision of advisory services, specifically bringing deep industry expertise to the DCC Switching Programme Develop and maintain DCC Switching Business Case for activities during the Transitional Phase Reporting against DCC Switching Business Case Develop DCC Switching Business Case for subsequent phase(s) Contribute to development of price control and charging arrangements for the DBT and Live Operations phases Manage recruitment of permanent and contractor resource Recruitment administration Day-to-day HR support for management of permanent resource Develop DCC Switching Business Case Cost Model for activities during the Transitional Phase Maintain DCC Switching Business Case Cost Model for activities during the Transitional Phase Develop and maintain reporting against DCC Switching Business Case DCC Switching Business Case DCC Public Page 46 of 110

47 Role Industry Liaison Focus areas Engagement with programme governance and industry stakeholders Design workstream Technical Lead Architecture Development Lead Solution Architect Lead the Design workstream Member of Ofgem Technical Design Authority Develop solution architecture, data architecture and governance, non-functional requirements, technology and communications standards, service management design for end-to-end switching arrangements Define and maintain CRS design, non-functional requirements and service management approach Support CRS procurement from a technical requirements perspective Contribute to development of detailed design models for end-to-end switching arrangements Develop solution architecture, data architecture and governance for the end-to-end switching arrangements Develop technology and communications standards for the end-to-end switching arrangements Define CRS design Manage the programme architecture tool hosted by DCC, including training new users, acting as a super user, and ensuring content in the tool is captured consistently Develop solution architecture and non-functional requirements for the end-to-end switching arrangements Define CRS design and non-functional requirements Contribute to design proving projects Support CRS procurement from an interfaces and messaging perspective DCC Switching Business Case DCC Public Page 47 of 110

48 Role Business Analyst Data Architect Senior Service Architect/Service Architect User Experience / Interface Designer Focus areas Develop solution architecture, data architecture and governance and non-functional requirements for the end-to-end switching arrangements Contribute to development of detailed design models Capture the design in the programme architecture tool Conduct regular analysis on content of programme architecture tool, including identifying gaps or inconsistencies in the design and following up on findings as appropriate Support design proving from a business model and data architecture perspective produce artefacts for CRS design and non-functional requirements Support delivery of design proving as required Support CRS procurement from a business model and business process perspective Contribute to development of Blueprint business model and data model for the end-to-end switching arrangements Develop solution architecture, data architecture and governance and technology and communications standards for the end-to-end switching arrangements Define CRS design and non-functional requirements Support design proving from a data architecture perspective Support CRS procurement from a data architecture perspective Develop service management design for the end-toend switching arrangements Define service management approach and requirements for the CRS Support CRS procurement from a service management perspective Define and maintain design approach for the CRS web interface(s), usability testing approach, example wireframes for the CRS Service Provider(s) Support CRS procurement from a user experience perspective Security workstream DCC Switching Business Case DCC Public Page 48 of 110

49 Role Security Architect Security Consultants Focus areas Manage Security workstream Assure outputs of Security Consultants Work across all DCC and Ofgem workstreams during DLS to ensure that security is appropriately taken into account during the development of the design and delivery approaches Define CRS security approach and requirements Support CRS procurement from a security perspective Participate in industry security forums relating to security of new Switching arrangements Develop of security risk management strategy for end-to-end switching arrangements Develop security architecture and security requirements for the end-to-end switching arrangements Develop and update Privacy Impact Assessment Develop and update Information Risk Assessment Participate in industry security forums relating to security of new Switching arrangements Delivery and transition workstream Delivery Lead Integration Architect Manage Delivery and transition workstream Support the Ofgem Delivery workstream lead Contribute to development of Blueprint delivery strategy Develop design and build plan and postimplementation plan for the end-to-end switching arrangements Define CRS delivery plans Support CRS procurement from a delivery and transition perspective Develop Integration Plan for the end-to-end switching arrangements Define and maintain integration requirements for the CRS Define CRS delivery plans Support CRS procurement from an integration perspective DCC Switching Business Case DCC Public Page 49 of 110

50 Role Test Lead Test Manager Test Analyst Operations Lead Environment Manager Release Manager Configuration Manager Change Manager Service Owner Focus areas Develop Testing Strategy and Plan for the end-to-end switching arrangements Define and maintain testing requirements for the CRS Design the detailed CRS test strategy and test planning Support CRS procurement from a testing perspective Set up of test and integration environments (DBT) Set up of test and integration environments (DBT) Ensure that the service requirements of Central Registration System Users are delivered through the DCC Switching Programme and the service is integrated into the DCC infrastructure Lead the development of the operations strategy and requirements Support CRS procurement from an operational requirements perspective Set up of test and integration environments (DBT) Develop release management approach (DBT) Develop and implement configuration management approach (DBT) Develop and implement appropriate DBT PMO controls, including DBT reports Support DCC mobilisation and planning for DBT phase Develop and implement service management methods and approaches (DBT) Regulatory design workstream Regulation Lead Contribute to development of regulatory arrangements Procurement workstream DCC Switching Business Case DCC Public Page 50 of 110

51 Role Procurement Lead Procurement Consultant Commercial (internal function) Legal (internal function) Focus areas Manage the Procurement workstream Develop Procurement Framework, Procurement Plan and Sourcing Strategies Develop Statement of Requirements, Evaluation Methodology, Contract Schedules and Tender Packs Lead market engagement on CRS design and requirements Lead procurement of CRS Support preparation for CRS procurement, including supporting market engagement as required Support procurement of CRS execute a procurement project Support procurement of CRS, including drafting contract schedules and contract close-out Support procurement of other capabilities (e.g. design proving projects) as required Support draft and review of contract schedules Support commercial negotiations with CRS providers Provide ad hoc legal advice as required Table 7 - Capabilities and key focus areas DCC Switching Programme team structure 155. Based on the capabilities required to carry out each activity and the level of effort required for each activity, we have generated a resource profile that shows the FTE requirement per role, which generates the number of roles that DCC will recruit. The types of role and level of effort identified are based on experience of delivering similar programmes and DCC s understanding of the scope of the deliverables it is required to produce or support The DCC programme team structure during each of the Blueprint, DLS and Enactment phases are shown in Figure 12, Figure 13 and Figure 14 respectively In each figure, the structure includes both permanent and temporary (i.e. contractor and consultant) roles and represents the peak resource requirement during that phase. DCC Switching Business Case DCC Public Page 51 of 110

52 Programme Director Programme Management workstream Design workstream Security workstream Delivery and Transition workstream Regulatory Design workstream Procurement workstream Programme Manager Programme Advisor Solution Architect Consultant Data Architect Security Architect Consultant Delivery Lead Regulation Lead (20% utilisation) Procurement Lead PMO Business Analyst Data Analyst Consultant Business Analyst Consultant Commercial Function Legal Function Programme Controls Lead Service Architect Consultant Industry Liaison Price Control Lead (20% utilisation) Business Architect (1) Business Architect (2) Finance Analyst Figure 12 DCC Switching Programme team structure maximum planned resource requirement in Blueprint phase (September-October 2016) DCC Switching Business Case DCC Public Page 52 of 110

53 Programme Director Programme Management workstream Design workstream Security workstream Delivery and Transition workstream Regulatory Design workstream Procurement workstream Programme Manager Programme Advisor Industry Liaison Business Architect (2) (Workstream Lead) Technical Lead (Worksteam Lead) Security Architect (1) (20% utilisation) Security Architect (2) Delivery Lead (Workstream Lead) Operations Lead Regulation Lead (20% utilisation) Procurement Lead (Workstream Lead) PMO Analyst (Planning) Project Manager (Design Proving) Business Architect (1) Price Control Lead (20% utilisation) Solution Architect Business Analyst Security Risk Management Consultant Integration Architect Test Lead (50% utilisation) Procurement Consultant (1) Commercial Function Programme Controls Lead Recruitment Manager (50% utilisation) Finance Business Partner Reporting Project Manager Business Analyst (CRS Drafter) User Experience / Interface Designer E2E Security Team Legal Function PMO Business Analyst Finance Analyst Architecture Development Lead Senior Service Architect (50% utilisation) Project Support Officer Data Architect Service Architect (50% utilisation) Business Analyst (ABACUS) Busines Analyst (ABACUS + Design) Figure 13 DCC Switching Programme team structure maximum planned resource requirement in Detailed Level Specification phase (October 2017) DCC Switching Business Case DCC Public Page 53 of 110

54 Programme Director Programme Management workstream Design workstream Security workstream Delivery and Transition workstream Regulatory Design workstream Procurement workstream Programme Manager Programme Advisor Industry Liaison Business Architect (2) (Workstream Lead) Technical Lead (Worksteam Lead) Security Architect (1) (20% utilisation) Delivery Lead (Workstream Lead) Operations Lead Regulation Lead (20% utilisation) Procurement Lead (Workstream Lead) PMO Analyst (Planning) Recruitment Manager (50% utilisation) Business Architect (1) Price Control Lead (20% utilisation) Solution Architect Business Analyst Security Architect (2) Integration Architect Test Lead- DBT Release Manager - DBT Service Owner - DBT Procurement Consultant (1) Procurement Consultant (2) PMO Business Analyst Change Manager - DBT Finance Business Partner Data Architect Senior Service Architect (50% utilisation) Test Manager - DBT Enviornment Manager - DBT Procurement Consultant (3) Procurement Consultant (4) Project Support Officer Service Architect (50% utilisation) Test Analsyst (2) -DBT Configuration Manager - DBT Procurement Consultant (5) Commercial Function Legal Function Figure 14 - DCC Switching Programme team structure maximum planned resource requirement in Enactment phase (April 2018), including mobilisation for DBT DCC Switching Business Case DCC Public Page 54 of 110

55 8.5 Sourcing approach Options assessment 158. DCC has considered four options to resourcing its delivery activities during the Transitional Phase: Option 1 Use existing resource Option 2 Recruit Permanent Employees Option 3 Use contractors/consultants Option 4 Mixed model: combination of permanent employees, contractors and professional services 159. The key criteria DCC has taken into account when assessing the options are: ensuring costs are economic and efficient, in relation to the duration for which capability is required avoiding impact on implementation and operation of the smart meter communication service ability to retain knowledge and ensure continuity of resource where this is beneficial access to relevant skills flexibility to adapt to changes in requirements. Option 1 Use existing resource 160. The first option is to use existing resource from within DCC to deliver all roles. Advantages 161. This would minimise the additional cost of recruitment and on-boarding of new staff to deliver activities as part of the DCC Switching Programme. It would ensure that knowledge and experience gained through DCC s initial years of operation are transferred into the DCC Switching Programme. Disadvantages 162. The vast majority of existing DCC resources are focused on delivery of the core SMETS2 Programme. Using existing DCC resources, particularly during the first half of the Transitional Phase, will impact delivery of the smart meter implementation programme. DCC Switching Business Case DCC Public Page 55 of 110

56 Conclusion 163. DCC considers that this option is not appropriate due to the potential impact on the delivery of the smart meter implementation programme. DCC will establish a separate team to deliver its activities as part of the Switching Programme but may use resource from existing central support functions (e.g. finance, commercial) where it is certain that there will be no impact on the delivery of the smart meter communication service. Option 2 Recruit Permanent Employees 164. The second option is to recruit permanent staff to deliver all roles. Advantages 165. This would potentially increase continuity and retention of knowledge throughout the Transitional Phase and potentially into implementation of the procured CRS solution. It would be lower cost than using contractors to fill all roles. Disadvantages 166. Some roles are associated with short-term activities. In these instances, the use of permanent staff would be an inefficient use of resource if there is not a sustained resource requirement Some specialist skills are more readily accessed through contractor or consultancy resource so DCC may be unable to recruit permanent resources in the timescales required. DCC s experience in recruiting roles to SMIP has demonstrated that for particular specialist or technical roles, it is not possible to recruit on a permanent basis over any timescale In the event that requirements change at short notice, the lead time associated with recruiting permanent employees is likely to cause delays. DCC would also incur permanent recruitment costs and liability for exit costs, e.g. redundancy, compared to filling the roles using contractors. Cost 169. Recruiting permanent staff to deliver the DCC activities is forecast to cost 18,403k. Conclusion 170. Due to the programmatic nature of the deliverables, recruitment of permanent employees to fill all roles is unlikely to be an efficient and economic approach to meeting the requirements. DCC s experience to date also shows that it is very challenging and time consuming to recruit sufficient high calibre individuals to fill all permanent vacancies. However, recruiting permanent employees to fill some individual roles is a highly desirable and viable approach where there is a consistent resource requirement and benefits associated with continuity and knowledge retention. DCC Switching Business Case DCC Public Page 56 of 110

57 Option 3 Use contractors/consultants 171. The third option is to use externally sourced consultants or contractors to deliver all roles. This could include: using contractors to deliver all roles using a combination of contractors and consultants using one or more consultancies to deliver all roles If DCC chose to use consultancy resource, this could be procured on the basis of: individual work packages multiple work packages all work packages. Advantages 173. Using either consultancy or contractor resource would enable DCC to access the resources and specialist skills required, without incurring the longer term cost liability of a permanent recruitment. This approach would also allow DCC the flexibility to adapt to potential changes to requirements, subject to a suitable change control process for consultancy contracts Letting multiple work packages to a consultancy provides a single point of accountability for multiple projects, which is more straightforward to manage than many individual contractors or many different consultancies Using consultancy services also allows for contractual enforcement to support timely delivery of outputs to defined quality criteria. There is also a natural incentive for consultancies to deliver to a high quality in order to win further work in future, Disadvantages 176. The daily cost of consultant and contractor resource will be higher than equivalent permanent resource. Using contractors or consultants to fill all roles runs the risk of knowledge being lost upon exit, particularly in the transition from the Transitional Phase to commencing implementation The cost of consultancy resource will be higher than the cost of contractor resource. In addition, running a tender process for consultancy services, particularly for multiple work packages, is likely to be more time consuming than sourcing contractor resource It may not be possible to source appropriately skilled resource for all work packages or multiple work packages from a single consultancy. DCC Switching Business Case DCC Public Page 57 of 110

58 179. The interests of consultancies are likely to be different to those of the Switching Programme as they will naturally seek to expand their scope of work. This can be mitigated through close monitoring and scope management. Cost 180. Recruiting contractor and consultancy staff to deliver the DCC activities is forecast to cost between 22,397k and 23,663k, depending on the blend of contractor and consultancy staff used. Conclusion 181. Using contractors and/or consultants to fill all roles is unlikely to be an economic and efficient approach to meeting the requirements, due to the increased costs and risks relating to lack of continuity and knowledge retention. However, the use of contractors or contractors to fill some roles is a viable approach where the duration of the requirement is not sufficient to justify a permanent resource, where there is a requirement for specialist skills, or where the requirement is urgent. Option 4 Mixed model 182. The fourth option is to adopt a mixed model, filling roles with a combination of permanent staff, contractors and consultancy services. Advantages 183. Recruiting permanent employees for roles where there is a consistent resource requirement and where suitable candidates are identified provides continuity through the Transitional Phase and as the Switching Programme moves into implementation Using contractors for roles would allow DCC to fill medium term resource requirements, access specialist skills and allow the flexibility to adapt to any changes in requirements Using consultancy services for short term or intermittent requirements will allow DCC to access specialist skills and allow the flexibility to adapt to any changes in requirements None Disadvantages Cost 187. By deploying a mixed staffing model, the forecast staff costs are 14,930k. Conclusion 188. Following the option appraisal, option 4 represents the best balance of cost, knowledge retention and flexibility. DCC Switching Business Case DCC Public Page 58 of 110

59 8.5.2 Selected approach: mixed model 189. DCC will use a dedicated, discrete programme team to support the Switching Programme to ensure that there is no impact on the delivery of the smart metering communication service. However, some activities will require input from central DCC functions, such as finance and communications. Where this input cannot be accommodated by existing resources, we will recruit additional dedicated resources to ensure there is no detrimental impact on the smart metering communication service. This approach to reflecting the costs of central DCC functions is set out in Figure 16 (points 1 and 2) and fully explained in Section 9.4. DCC will be required to justify any additional central resource through its annual price control reporting. Identifying generic vs specific roles 190. The DCC Switching Programme Plan sets out the activities relating to the products DCC is required to deliver in the Transitional Phase of the Switching Programme. Against these planned activities, a resource role is allocated together with the effort required by the resource to complete the activity Two role categories have been used in planning and costing the DCC resource model for the programme: generic roles roles not currently filled where roles are not currently filled or the effort required in any month exceeds the specified role capacity, generic roles are allocated in the cost model which use generic benchmarked rates. These generic roles are detailed in Table 7. specific roles roles that are filled as DCC has been part of the programme for a year and has already undertaken recruitment to deliver its activities, specific roles have been incorporated into the programme plan and mapped against the specific rates for the individual fulfilling each role. This applies to permanent, contractor and consultancy resource. Planning in these specific roles provides more transparency around individual responsibilities and creates a more accurate programme budget An example of the role hierarchy that has been implemented is shown in Figure 15. This illustrates that the cost of filled roles with named individuals is based on specific rates, whereas the cost of unfilled roles is based on generic benchmarked rates. Test Analyst Role type Test Analyst - Jim (specific) Test Analyst - Jane (specific) Test Analyst (generic) Role category Figure 15 - Example role hierarchy DCC Switching Business Case DCC Public Page 59 of 110

60 Identifying permanent and temporary resource 193. The activities and associated resource effort set out in the DCC Switching Programme Plan generate a monthly FTE resource profile for each role in MS Excel format, which is imported to the cost model In order to identify which roles should be filled by permanent staff and which by temporary staff (contractors or consultants), the cost model applies a set of business conditions. These conditions drive calculations that automatically determine which roles would be more economically and efficiently fulfilled by permanent resource or by temporary resource, and whether that temporary resource would be provided through direct contractors or a consultancy service. These conditions are outlined in Figure 16 (points 1, 3 and 4). Rules to Allocate Resource to Temporary or Permanent Headcount and Rates 1 3 Can existing DCC team meet new switching FTE demand for the capability? No Is requirement >18 months and >50% of the required months at >0.5 FTE? Yes Round up to whole FTE for required period and apply permanent day rate Yes No 2 Is average FTE >0.25 over life time of programme? 4 Is requirement (where first and last month are >0.5FTE) >3 months and >0.5 FTE for >50% of the required Period? Yes Round up to whole FTE for the required period and apply contractor day rate Yes No Allocate % FTE as permanent resource at permanent day rate, but do not round up Allocate % FTE as permanent resource, but apply no cost No Apply consultancy day rate Figure 16 - Rules to allocate resource to temporary or permanent headcount 195. The business conditions are primarily based on whether there is a consistent resource requirement. Within the model this takes the form of a calculation that checks whether the FTE profile for each resource type meets both of the two following conditions: the resource type is required for at least 18 months the resource type is required for at least 50% of the months within the required period at a level equal to or greater than 0.5 FTE. DCC Switching Business Case DCC Public Page 60 of 110

61 196. If both of these conditions are true, the resource requirement will be rounded to the nearest whole number and treated as permanent resource. Any remaining resource requirement will be treated as temporary resource To determine whether the temporary resource requirement should be fulfilled through direct contractors or consultancy services, the model checks whether the role is required for at least three months, starting at a level equal to or greater than 0.5 FTE for at least 50% of the required period. This required period is defined as the range between the first and last month where the resource type is required at greater than 0.5 FTE This approach provides transparency and consistency across the calculation of the programme budget. Automating the calculation of FTE requirements reduces the need for DCC to manually review the resource budget every time an element of the plan changes. Given the uncertainty surrounding the programme plan, DCC considers this to be an economic and efficient approach to modelling the anticipated resource profile during the Transitional Phase As many roles are now filled, the cost model applies the specific costs of these individuals to the generated FTE profile for as long as the specific role is allocated. Where any roles are filled with a contract type that differs from the contract type that the model determines to be appropriate (e.g. DCC has employed a contractor whereas the cost model identifies a permanent employee), DCC will be required to explain this variance in the monthly financial variance reporting and action may be required by DCC (e.g. to employ a permanent employee to replace the contractor). Some of the key drivers for potential variance in resourcing approach are summarised in section The monthly FTE profile for DCC s involvement in Switching, generated using these business conditions is outlined, in Figure 17. Figure 17 - FTE profile by source DCC Switching Business Case DCC Public Page 61 of 110

62 201. An overview of the split of staff numbers and costs across the different sources of resource is provided in Figure 18. Figure 18 - Staff sourcing breakdown 202. A detailed breakdown of the resource types required by DCC by source, shown as FTE months, is provided in Table 8, Table 9 and Table 10. Please note that the Programme Management category includes resource to develop DCC s business case and design the Price Control and Charging arrangements for Switching. Perm Staff (FTE Months) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Delivery and Transition Design Procurement Programme Management Regulatory Design Security Table 8 - Permanent resource breakdown DCC Switching Business Case DCC Public Page 62 of 110

63 Contractor Staff (FTE Months) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Delivery and Transition Design Procurement Programme Management Regulatory Design Security Table 9 - Contractor resource breakdown Consultancy resource (FTE Months) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Delivery and Transition Design Procurement Programme Management Regulatory Design Security Drivers for potential variance Table 10 - Consultancy resource breakdown 203. When DCC recruits for specific roles, there may be instances where we vary from the forecast profile of permanent and temporary resource and choose to recruit temporary resource rather than permanent resource, or vice versa. This may be due to the following considerations: specialist skills where activities require specialist skills or knowledge, we will consider whether these skills are more likely to be accessible via permanent staff or via specialist contractors or consultancies challenges in recruiting permanent roles where DCC has been unable to attract suitable candidates for a permanent role, DCC may recruit contractor or consultancy resource in order to meet the required timescales. This is a genuine risk based on DCC s experience of recruiting resource to support SMIP urgency where new requirements emerge at short notice, or where directed by Ofgem in order to meet compressed timescales, DCC may recruit contractor or DCC Switching Business Case DCC Public Page 63 of 110

64 consultancy resource in order to meet the required timescales, due to the shorter lead time compared to recruiting permanent resource SMIP resource availability suitable resource may become available to DCC as SMIP reaches key milestones, which may provide a pool of energy sector knowledge and experience that it would be economic and efficient to redeploy onto the Switching programme judgement relating to tactical resourcing approach DCC may vary from the resource forecast generated by the cost model in order to better suit the circumstances at that particular point in time. For example, where the resource forecast suggests that a small proportion of an additional FTE is required for a short period of time, DCC may be able to use existing resource to meet the additional demand, for example through overtime or using spare capacity DCC has an internal change control process through which all new recruitment activity has to be justified to a Change Control Board prior to making offers to staff. DCC decisions relating to the resourcing approach for individual roles will be justified through DCC s annual ex post price control reporting. DCC Switching Business Case DCC Public Page 64 of 110

65 9 Costs 205. This section explains our approach to calculating costs and provides an overview of the cost model, which is included in full at Appendix D. A diagram of the business view of the cost model is included within the cost model to help navigation between the various worksheets The DCC cost model has been quality assured internally by cost modelling resource outside of the DCC Switching team, has been reviewed by Ofgem and has been audited externally by PA Consulting. 9.1 Summary of cost to industry 207. The total estimated cost to industry associated with delivering the baseline scenario is summarised in Table 11. These costs represent DCC s forecast of the likely costs it will incur in the Transitional Phase of the Switching Programme for the purpose of generating a realistic budget and to feed into the overall Ofgem-owned Switching business case. These figures include actual costs DCC has incurred since the start of the programme i.e. April 2016 to February Further to its business case, DCC will provide a full and thorough justification of all of its costs incurred in support of the Switching Programme as part of its annual ex-post price control submission to Ofgem. The business case does not authorise DCC to incur specific costs in advance of its annual price control submission. However, the costs forecast provide a level of transparency that helps to set industry expectations and provides the opportunity for Ofgem to identify at an early stage where it believes DCC has not fully understood its requirements and is either over or under estimating the likely effort involved Approximately 40% of this cost to industry is related to providing resource to support Ofgem programme activity to define the design, delivery, commercial and regulatory arrangements for Switching as a whole. The other 60% is related to the cost of DCC specifying and procuring the CRS elements to the overall Switching arrangements. ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Cost To Industry 3,095 9,829 9,406 1,750 24,079 Total Base Costs 2,289 5,933 5,665 1,043 14,930 Staff Costs (excludes consultancy) 793 2,849 2, ,500 Non-Staff Costs (includes consultancy) 1,496 3,084 3, ,430 Materiality Threshold 199 2,005 1, ,461 Contingency 199 2,005 1, ,461 Overhead ,823 Margin 371 1,155 1, ,866 Table 11 - DCC baseline scenario costs DCC Switching Business Case DCC Public Page 65 of 110

66 210. Staff costs are described in Section 9.4, non-staff resource costs are described in Section 9.5 and corporate overhead is described in Section 9.6. Contingency is explained in Section 11 and margin is set out in Ofgem s direction on DCC s margin and performance incentives during the Transitional Phase of the Switching Programme All costs detailed in this business case are stated in real terms i.e. they exclude any allowance for inflation. 9.2 Recovering switching costs in the Transitional Phase 212. All of the costs set out in Table 11, relating to the Transitional Phase of the Switching Programme have been, or will be, recovered through the Fixed Charge, as set out in DCC s Charging Methodology 20. However, DCC s allowed revenue will ultimately only be confirmed following the annual ex-post price control review by Ofgem The Fixed Charge is calculated by dividing a prudent estimate of DCC s allowed revenue (except costs which relate to: the provision of Communications Hubs; Elective Services; Alternative HAN; or services which attract an Explicit Charge) by all metering systems which are to be (but may not yet be) installed or enrolled to the DCC system. Note that DCC recovers a prudent estimate of costs through its charges. The intent of the prudent estimate is to ensure that DCC remains cash positive and is able to meet its financial commitments during each month. DCC will return any surplus in the prudent estimate to SEC Parties by way of the correction factor as explained below. In the Indicative Charging Statement for RY2017/18 21, some costs relating to DCC s role in the Switching Programme are included in the calculation of the prudent estimate The Fixed Charge is payable by five charging groups, each of which are weighted according to our estimated demand of each group s usage of the DCC service. Those groups and the corresponding weightings are set out in Table 12 below. Charging group Weighting Import electricity suppliers 49% Export electricity suppliers 8% Gas suppliers 37% Electricity distributors 6% Gas transporters 0% Table 12 - Charging group and weighting 215. The Fixed Charge is set out in the Charging Statement which is published in April of each year. The Charging Statement sets all charges, ex ante, for that Regulatory Year. The RY 2016/17 Charging Statement (published on 1 April 2016) included forecast efficient costs associated with the Switching Programme which were forecast to be incurred during RY DCC, Indicative Charging Statement for RY ending 31 March 2018 Issue 4.0, 9 January 2017: DCC Switching Business Case DCC Public Page 66 of 110

67 2016/17. The efficient costs forecast to be incurred in RY 2017/18 will be included in the Charging Statement to be published on 1 April 2017 and so on Concurrently we publish Indicative Charging Statements each quarter which set out an up to date view of charges for the following Regulatory Year. This is published to provide early notice to Parties of potential changes to charges. The indicative statements will be used to communicate any forecast changes in allowed revenue due to inflation. We also publish indicative budgets each quarter which provide a longer term, but high-level, forecast of allowed revenue. The efficient costs forecast to be incurred in RY 2017/18 are included in the Indicative Charging Statement DCC published on 9 Jan 2017 ( 4m Internal Costs, plus contingency, allowance for unforeseen change (referred to as management reserve) and margin). This amount varies from the 2017/18 costs included in the draft DCC Switching Business Case due to a number of central staff and non-staff costs being allocated under the SMETS2 Programme budget in the Indicative Charging Statement Where costs in a given Regulatory Year is under or over recovered (that is to say that the charges collected are greater or less than actual allowed revenue in that year), then the difference is returned or collected from Parties through the correction factor adjustment, which is estimated in the subsequent Regulatory Year and applied in the next Regulatory Year after that. Where there is an over-recovery that is greater than 10% of allowed revenue, and is not sufficiently justified by DCC, then Ofgem has the power to direct a penalty interest to apply to any or all of that over-recovery Staff costs will be charged to industry based on actual rates paid by DCC, not those from the generic role rate card included within the cost model, where this is used for forecasting purposes only For the avoidance of doubt, contingency will be included within the charging statement, as DCC considers it to be prudent programme budgeting to acknowledge that some risks will materialise during a programme and to provision for a small amount of unforeseen change. It is DCC s view that the programme should expect that some additional costs will be incurred by DCC due to risk and unforeseen change. There will be formal controls on the use of contingency and the definition of these items and the associated controls surrounding them are detailed in Sections 11 and 12. The actual amount of draw down from contingency in response to specific risks or change will be determined on a case-by-case basis. 9.3 Cost drivers 220. Staff costs are primarily driven by the duration of activities, the amount of resource effort required to deliver the activities and the cost of resource to deliver the activities. The DCC Switching Programme Plan generates a monthly FTE resource profile for each role type, based on the duration, effort and capabilities required to deliver each activity. The cost model applies business conditions to generate a profile of permanent and temporary resource by resource type. The generation of this profile is explained in Section Where an individual is current fulfilling one of these DCC roles (i.e. a specific role), their specific staff costs have been forecast for as long as the specific role is allocated For unfilled roles (i.e. generic roles) the permanent rate card is applied to the permanent resource profile, the contractor rate card is applied to the contractor resource profile, and a DCC Switching Business Case DCC Public Page 67 of 110

68 blended consultancy day rate to the consultancy resource profile, in order to generate a base resource cost for the baseline scenario. This includes recruitment costs and on-costs for all permanent roles recruited. The approach to the cost of resource provided by central DCC functions is explained in Section 9.4 below Non-staff resource costs are summarised in Section 9.4. Some cost items are driven by the number of staff, such as office space, tools and IT equipment. As part of the staff cost calculation, consultancy costs are identified. Other non-staff resource costs relate to delivery activities, for example design proving services and other professional services that may be required The materiality threshold is driven by the post-mitigation probability weighted cost associated with the high scenario, quantified risks not directly related to the high scenario, and an allowance for unforeseen change. This is explained in more detail in Section The rationale for the corporate overhead charge is explained in Section 9.6 below. 9.4 Staff costs 226. The annual cost of each programme workstream is summarised in Table 13. A mapping of resource roles against the programme workstream to which they primarily contribute is provided in Table 17. Note that this table excludes consultancy resource, which is categorised as non-staff cost. DCC Switching Business Case DCC Public Page 68 of 110

69 Staff Costs ( k) - includes consultancy Resources within workstream RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total staff costs All 2,031 4,961 5,263 1,000 13,255 Delivery and Transition Delivery planning, Testing, DBT ,327 mobilisation Design Architecture, Business Analysis, Data, Service 1,005 1, ,251 Management Procurement Procurement Lead, Procurement , ,811 consultancy, Commercial, Legal Programme Management Programme Director, Programme Manager, PMO, Business Case, Price Control, 718 1,608 1, ,550 Finance, Reporting, Recruitment, Industry Liaison Regulatory Design Regulation Lead Security Security Architect, Security Consultancy ,118 Table 13 - DCC staff costs 227. The cost by permanent, contractor or consultancy resource for each programme workstream is summarised in Table 14, Table 15 and Table 16. Note that some roles may be assigned to activities across multiple workstreams and so the cost of these roles may be split across multiple workstream in these tables. DCC Switching Business Case DCC Public Page 69 of 110

70 Permanent Resource Costs ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total 327 2,083 2, ,815 Delivery and Transition Design ,265 Procurement Programme Management 277 1,043 1, ,499 Regulatory Design Security Table 14 - Permanent resource costs Contractor Resource Costs ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total ,685 Delivery and Transition Design ,093 Procurement Programme Management Regulatory Design Security Table 15 - Contractor resource costs Consultancy Resource Costs ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total 1,238 2,113 2, ,755 Delivery and Transition Design Procurement , ,538 Programme Management ,581 Regulatory Design Security Table 16 - Consultancy resource costs DCC Switching Business Case DCC Public Page 70 of 110

71 Primary workstream Delivery and Transition Design Procurement Programme Regulation Security Resource roles Change Manager Configuration Manager Delivery Lead Environment Manager Integration Architect Operations Lead Release Manager Service Owner Test Analyst Test Lead Test Manager Architecture Development Lead Business Analyst Data Architect Service Architect Senior Service Architect Solution Architect Technical Lead User Experience Designer Commercial function Legal function Procurement Lead Procurement Consultant Business Architect Finance Analyst Finance Business Partner Industry Liaison Price Control Lead PMO Analyst Programme Advisory Programme Controls Lead Programme Director Programme Manager Project Manager Project Support Officer Recruitment Manager Regulation Lead Security Architect Security Consultant Table 17 - Role categorisation DCC Switching Business Case DCC Public Page 71 of 110

72 9.4.1 Resource rate card 228. In order to forecast the costs associated with the planned resource profile, DCC has developed a rate card that includes both permanent and contractor rates for each identified role, using benchmark rates for generic roles and actual rates for specific roles. The purpose of the resource rate card is to enable DCC to establish a realistic programme budget for the Transitional Phase of the Switching programme at an early stage. However, all actual resource costs incurred by DCC will be reported and justified through our annual ex-post price control submission. Permanent resource 229. For permanent roles, on-costs have been added to base salaries before being converted into a permanent staff day rate for cost modelling purposes. A summary of the items included in on-costs, central DCC costs and the corporate overhead is included in Table 18. For the avoidance of doubt, no item contained within the on-costs for permanent staff is accounted for within the corporate overhead charge (Section 9.6) or central DCC costs (Section 9.4.2). On-costs Central DCC costs Corporate overhead National Insurance Pension Bonus Travel/car allowance Expenses Training Phone Health insurance Desk space Meeting rooms Facilities management IT helpdesk DCC HR and recruitment resource DCC commercial resource DCC legal resource DCC finance resource DCC regulation resource Pre-existing DCC SMIP design and delivery staff Central Capita services which underpin all Capita contracts including DCC. Services provided through the overhead charge include: payroll accounts payable/accounts receivable tax and treasury services insurance internal audit public relations HR policy and oversight IT policy and oversight policy monitoring corporate travel portal Group corporate management costs Head Office and executive oversight Table 18 Summary of items included in on-costs, central DCC costs and corporate overhead 230. These on-costs have been calculated based on the actual on-costs for specific roles or, where generic roles are applied, the on-costs currently being incurred by DCC for similar roles. The level of on-cost varies slightly depending on the seniority of role. The on-cost DCC Switching Business Case DCC Public Page 72 of 110

73 multiplier being applied for each role is included within the rate card in the cost model (Appendix D) Permanent recruitment costs are also reflected in the cost model, based on an assumed level of staff turnover. Agency fees for contractors (at 15%) are also included in reality this fee will vary by source and role level DCC has benchmarked staff costs based on: similar roles in the Hays Paynet database the cost of similar roles previously recruited by DCC the cost of similar roles previously recruited by the DCC Switching Programme team in previous roles The base salaries included in DCC s budget for permanent resource capabilities are detailed in Table 19. This is supported by benchmarking data from Hays PayNet, which maps similar job roles based on actual payroll data supplied by organisations. This approach to benchmarking permanent salaries is consistent with DCC s annual price control submission A salary range is provided against each role to reflect the spread in the resource market. The forecast for salaries is based on pay levels within the 50 th and 90 th centile values as they are most aligned to the market in which DCC operates in for the Switching Programme. The programme is based in central London to ensure access to DCC management and central resources and to make use of any existing office space; salaries reflect this location. Based on experience of delivering similar programmes, DCC considers that the programme requires experienced professionals, typically with advanced technical skillsets and energy experience. Recruits also need to possess the ability to deliver in a fast-paced, high pressure programme environment on national scale across a complex multi-party stakeholder landscape. Given that these skills and requirements are comparable with those required by high-calibre professional IT transformation services, DCC considers that these roles are likely to be consistent with salaries in the upper range of the salary benchmarks provided For some roles, no comparable role was found in the PayNet database, so DCC has made a judgement on the appropriate level for the role to provide a salary range for benchmarking, based on the cost of similar roles previously recruited by DCC and the cost of similar roles previously recruited by the DCC staff in previous roles. The roles where no comparable role was found are indicated by n/a in the job role column in Table Table 19 also details the permanent salaries converted to a fully loaded day rate and the day rate where the same resource type is sourced through a temporary contract. 22 Following a review of the market for the provision of benchmarking services DCC identified two suppliers that met its requirements, who were then invited to provide a demonstration and quotes. Following this process, DCC has concluded that the use of the Hay Group methodology and PayNet tool provides the most useful benchmarking information, in the most cost-effective and practical-to-use tool DCC Switching Business Case DCC Public Page 73 of 110

74 Temporary resource 237. Contractor rates in the cost model allow for contractor margin (i.e. the rates allow for a 15% agency fee). However, no DCC margin is included in Table 19 for either permanent or contractor resource this is only applied to the overall cost base Within the lifetime of the programme, where a Capita business can supply temporary resource to fulfil a DCC resourcing requirement, it must demonstrate value for money through a competitive sourcing process. Where DCC chooses to use resource from a Capita businesses internal rates are used (i.e. rates that do not include margin) to ensure that Capita does not secure additional margin over and above that agreed for DCC Unlike permanent resource, the contractor rates are not benchmarked against a formal database. DCC takes advice on likely rates from recruitment agencies when vacancies are identified and also benchmarks against historical contractor rates at DCC. Candidates selected for interview are typically based on a representative spread around the anticipated rate so that a value for money assessment of candidates can be made The day rates of some resource types sits outside of this table. This includes: Consultancy resource where consultancy resource is not already contracted, a blended day rate is applied, based on the average rate for a Level 4 consultant from DCC s framework contract for consultancy services. Where consultancy resource is already contracted, the specific rates have been forecast to the end of their planned period Legal resource a standard day rate is applied for all legal requirements based on previously incurred costs PWC resource specific day rates have been used to align with the total cost agreed for the procured design services during the Blueprint phase. PWC resource was competitively procured and is managed by DCC on behalf of Ofgem, in order to provide some additional resource into the design of the end-to-end switching arrangements. DCC Switching Business Case DCC Public Page 74 of 110

75 [Table redacted] Table 19 - Permanent employee salary benchmarking 241. All permanent and temporary DCC roles will be advertised in the open market to ensure an economic and efficient resourcing approach. All consultancy resource will be sourced through DCC s existing consultancy services framework, in line within the DCC procurement strategy. Where Capita wishes to provide contractor or consulting resource to the Switching programme, it will be required to follow this approach Central DCC resources 242. Central DCC resources are primarily defined as the support functions required to enable daily operation of DCC activity across all of its programmes and operations. This resource is dedicated to DCC activity. Key central DCC resources include: people resources IT helpdesk, HR, recruitment, commercial, legal, finance, regulation non-people resources desk space, meeting rooms, facilities management In addition to the support functions, central DCC resources also include any pre-existing SMIP design and delivery staff, whose input will be required intermittently in the programme. There will be some impact on existing deliverables that DCC will need to update based on our involvement in the Switching Programme, such as the Business Handover Plan As a principle, the Switching Programme will use existing DCC resources where either: there is a requirement to validate the alignment of proposed switching arrangements with delivery of the smart meter communication service or any other DCC programme, for example Enrolment and Adoption of SMETS1 meters. This will be captured in the product and activity descriptions and reflected in DCC s resource plan it is the most economic and efficient use of resource whilst ensuring that there is no impact on SMIP delivery DCC proposes that where the additional demands of the Switching Programme cannot be serviced through existing central DCC resource, additional capacity will be sourced as required and will be allocated to the DCC Switching Programme. Where additional resource is required due to new demands on DCC SMIP at the same time as the Switching Programme, the cost apportionment will be set accordingly Where any of the new demands of the Switching Programme can be absorbed by existing central DCC resource, no costs will be allocated to the DCC Switching Programme unless over 25% of a specific resource is required. For example, where a resource is forecast to be used for 60% of the time on Switching, 60% of the resource cost will be allocated to Switching and 40% to SMIP. This will ensure that the cost of these resources is not doublecounted This may mean that the true cost of DCC s involvement in the Switching Programme is slightly underestimated or overestimated. However, DCC considers that this is proportionate DCC Switching Business Case DCC Public Page 75 of 110

76 approach given the cost required to establish and monitor an internal cross-charging arrangement that does not currently exist across DCC. All material contributions to the Switching programme (i.e. those of more than half day blocks) will be time sheeted, whether the costs meet the cross charging conditions or not. This will allow DCC to monitor the efficiency of its resource and whether the demands on resource is increasing or reducing relative to the baseline plan % of each resource s time will be included in the final annual DCC ex post price control submission regardless of which programme cost centre they are reported under. Resource costs split in this way will be made explicit. 9.5 Non-staff resource costs 249. The majority of the DCC costs are staff-related; however, some non-staff costs are included within the programme budget as detailed in Table The categories included within non-staff costs are: Consultancy Office space Software and laptops Costs associated with staff turnover Communications and training Assurance and Design Design Proving Non-staff resource costs ( k) RY /17 RY /18 RY /19 RY /20 Total Total 1,496 3,084 3, ,430 Table 20 - Non-staff resource costs 251. A budget for additional office space has been included where the capacity of current DCC premises is exceeded 23 (currently any resource requirement above 8 FTE). 23 DCC continues to regularly assess and analyse its current and longer term requirements for office space. The methodology used seeks to balance: over-investment in capacity, resulting in low utilisation and thus an inefficient ongoing and future accommodation cost; and under-investment in capacity, which would result in accommodation that cannot deliver requirements such as collaboration between DCC and its Service Users and Partners. The review and report provided by Capita s Real Estate business supports the DCC s space management strategy and states that DCC is unable to do anything further to improve its use of the space within the constraints of the headcount and collaborative model. DCC Switching Business Case DCC Public Page 76 of 110

77 252. Costs for the professional services effort to establish a solution for time sheeting, forecasting and reporting to underpin the ex post plus financial reporting process has been provisioned. No software costs to support this solution are included in the cost forecast as DCC is planning to use MS Project, SAP and BPC, which are already provisioned with existing DCC charges. In addition, a budget for other software tools is included to ensure that the programme management and design functions can operate to required levels (ABACUS enterprise architecture tool is being used to support the end to end design and CRS design activity and Confluence is being considered) At the request of Ofgem, provision as also been made for six-monthly satisfaction surveys to support the stakeholder satisfaction incentive mechanism and independent external assurance of: the DCC delivery plan at DB2 DCC achievement of incentivised milestones (three milestones in scope) 254. Professional audit and compliance services currently sourced by DCC are not included within the budget for Switching as it is assumed that the switching programme can be delivered within the existing DCC budget for this area DCC considers proving of the design as an essential part of the design phase and has provisioned costs for sourcing a proving service DCC has included an allowance for its existing DSP to carry out an impact assessment on the design on the smart meter communication service, for example, relating to the impact on the Transitional and Enduring Change of Supplier architecture. 9.6 Corporate overhead 257. A corporate overhead charge is included within DCC s Switching costs and is defined as DCC s contribution to: the central Capita services which underpin all Capita contracts including DCC. Services provided through the overhead charge include: payroll accounts payable/accounts receivable tax and treasury services insurance internal audit public relations HR policy and oversight DCC Switching Business Case DCC Public Page 77 of 110

78 IT policy and oversight policy monitoring corporate travel portal Group corporate management costs Head Office and executive oversight The payment of the overhead charge is included within the intercompany trading agreement between Smart DCC Limited and Capita Business Services Limited (a Capita Group Company that is also DCC s parent company) The corporate overhead charge enables Capita to function as a business and all of its businesses are required to make a contribution to its underpinning corporate services and management oversight DCC and its parent company do not have a formal cost allocation policy. The overhead charge, defined as 9.5% of cost, was itemised in the successful Capita bid to operate DCC, and as such, has been validated through a competitive tender process DCC acknowledges that Ofgem would welcome greater insight into the overhead charge, and the benefits that accrue to DCC through being able to access Capita Group services. As a result, DCC has provided a more detailed justification for its corporate overhead charge through its recent annual 2015/16 ex post price control submission. The overhead charge for the Switching Programme will be justified in a similar manner through our ex post price control submissions, as requested by Ofgem in its DCC: Price Control Decision 2015/16 document 24, published 28 February Using an overhead charge to recover these costs from each business unit is a common business practice for this type of operation. The nature of an overhead charge is that: it simplifies the recovery of costs for providing common services, e.g. payroll, where demand is likely to be variable, and hence cost would be incurred in monitoring and charging for usage. it allows central costs to be covered, which due to their intangible nature are difficult to value objectively e.g. executive management oversight Taking account of both the benefits obtained from our parent company and the need to make a contribution to central costs, DCC considers that the overhead charge represents value for money to the consumer. This is further supported when the alternative costs of DCC establishing and operating these functions as a standalone entity are taken into consideration Within the annual ex post price control reporting, the corporate overhead charge is allocated against a shared services category, even though it also includes group corporate 24 Ofgem, DCC Price Control Decision: Regulatory Year 2015/16, 28 February 2017: DCC Switching Business Case DCC Public Page 78 of 110

79 management costs. This is done for reasons of simplicity and will continue to be the case for reporting the Switching Programme s contribution to the corporate overhead. The Switching Programme s contribution to corporate overhead can be reported separately from the wider DCC contribution, if required. Reporting on the corporate overhead charge will be in accordance with the Regulatory Instructions and Guidance (RIGs) 25 as summarised in Section For the avoidance of doubt, where some functions are listed under both DCC central costs and corporate overhead e.g. IT and HR services, this is complementary resource not a duplication of resource. The DCC services are dedicated to DCC delivery, whereas the corporate overhead resources provide strategic oversight and support. 9.7 Costs of scope scenarios 266. The costs associated with the high scenario, baseline scenario, low scenario and Reform Package 3 scenario are summarised in Table 21. Note that this comparison is based on staff and non-staff resource costs only and does not include the corporate overhead charge, contingency or margin. These costs are indicative only. 25 Ofgem, DCC: Regulatory Instructions and Guidance 2015, 29 May 2015: DCC Switching Business Case DCC Public Page 79 of 110

80 Scenario Base Costs - Staff and Non-Staff Costs ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Variance From Base Scenario Baseline Scenario Base Cost 2,289 5,933 5,665 1,043 14,930 0% Staff & Consultancy Costs 2,031 4,961 5,263 1,000 13,255 0% Delivery and Transition ,327 0% Design 1,005 1, ,251 0% Procurement , ,811 0% Programme Management 718 1,608 1, ,550 0% Regulatory Design % Security ,118 0% Other Non-Staff Costs ,674 0% Low Scenario Base Cost 2,289 5,708 4,276 1,028 13,301-11% Staff & Consultancy Costs 2,031 4,737 3, ,627-12% Delivery and Transition ,315-1% Design 1,005 1, ,180-2% Procurement ,265-55% Programme Management 718 1,608 1, ,550 0% Regulatory Design % Security ,118 0% Other Non-Staff Costs ,674 0% High Scenario Base Cost 2,310 6,638 6,338 1,247 16,534 11% Staff & Consultancy Costs 2,053 5,667 5,937 1,204 14,860 12% Delivery and Transition ,372 3% Design 1,005 1, ,452 6% Procurement , ,625 29% Programme Management 718 1,608 1, ,550 0% Regulatory Design % Security 243 1, ,463 31% Other Non-Staff Costs ,674 0% Reform Package 3 Scenario Base Cost 2,310 6,370 6,011 1,136 15,827 6% Reform Package 3 incremental cost Table 21 - Scope scenario cost comparison DCC Switching Business Case DCC Public Page 80 of 110

81 10 RAIDO 267. The RAIDO log sets out the risks, assumptions, issues, dependencies and opportunities that underpin the DCC Switching Business Case for its activities during the Transitional Phase Risks and opportunities 268. The Risks and Opportunities sheets identify and estimate the impact of foreseeable risks and opportunities. There are two categories of risks: risks associated with requirements associated with the high scope scenario and risks not directly related to the scope scenarios, which are labelled as non-scenario risks in the Risks sheet. Opportunities reflect the requirements associated with the low scope scenario. For each risk and opportunity, the RAIDO identifies: DCC s assessment of the probability that the risk or opportunity will materialise the estimated cost impact if the risk or opportunity materialises for the majority of risks and opportunities, the cost impact is calculated based on the estimated impact on the tasks directly affected by the risk or opportunity. Where this is not possible, the cost impact is based on a proportion of either the average monthly resource run rate for all DCC resources deployed on the programme, the average monthly resource run rate for a single workstream, or other bespoke calculations (e.g. calculation of the cost impact of needing to recruit temporary resource instead of permanent resource). These calculations are included in the Impact on Effort % Lookup Tables - Risks & Opportunities sheet of the cost model a mitigation plan DCC s assessment of the post-mitigation probability that the risk or opportunity will materialise the estimated cost impact weighted according to the post-mitigation probability that the risk or opportunity will materialise the estimated post-mitigation time impact The RAIDO also identifies the cost of the contingency allowance that forms the materiality threshold, which is explained in Section 11. This is based on the total estimated postmitigation cost impact of identified risks and an allowance for unforeseen change. This consists of three components: the total estimated cost impact of each of the variations in scope associated with the high scenario materialising, weighted according to the post-mitigation probability that each variation will materialise the total estimated cost impact associated with additional quantified risks not directly related to the scope scenarios, weighted according to the post-mitigation probability that each risk will arise DCC Switching Business Case DCC Public Page 81 of 110

82 an allowance for the cost impact of unforeseen change that cannot reasonably be anticipated at this stage of the Programme, based on a proportion of the cost base to reflect the remaining level of uncertainty in the DLS and Enactment phases Pre- and post-mitigation probability ratings are based on DCC s current judgement and have been reviewed by Ofgem. The RAIDO log will be maintained as a live programme management tool and ratings will be updated as required Opportunities recorded in the RAIDO do not affect DCC s baseline cost forecast i.e. they do not offset the risk allowance that make up the contingency sum. Opportunities solely provide transparency of potential cost savings to stakeholders. In DCC s experience, there is often a tendency to plan programmes optimistically so whilst providing early transparency to stakeholders of potential cost savings associated with opportunities is valuable, we do not consider reducing the overall cost forecast appropriate The number and scale of opportunities have reduced as a result of greater certainty on DCC s scope and requirements following joint planning between Ofgem and DCC. In addition, the DCC Switching Programme Plan and baseline scope scenario are based on the most optimistic position, which limits the level of further opportunities that can be identified at this time. We will continue to keep opportunities under review When updating the DCC Switching Business Case under the process set out in Section 12.5 we will reflect the status of the RAIDO log at that time in considering whether any change to the materiality threshold is required DCC has summarised the top risks to the DCC Switching Programme in the extract from the RAIDO in Table 22 and the key opportunities in the extract from the RAIDO in Table Assumptions 275. The Assumptions sheet identifies the key planning assumptions that underpin DCC s delivery approach, DCC Switching Programme Plan and forecast costs associated with delivery against the DCC Switching Business Case. These assumptions have been developed and reviewed with Ofgem as part of the joint planning for the DLS phase. Assumptions will play an important role in the change process, including supporting identification of whether a scope change impacts DCC s planning assumptions Issues 276. The Issues sheet identifies any risks that have materialised and other issues that impact DCC s activities as part of the Switching Programme. The issues log will be used to identify the impact of issues that arise and to identify and manage actions required to resolve the issue Dependencies 277. The Dependencies sheet identifies the key inbound dependencies that underpin DCC s delivery approach, DCC Switching Programme Plan and forecast costs associated with delivery against the DCC Switching Business Case. Through joint planning, DCC and Ofgem DCC Switching Business Case DCC Public Page 82 of 110

83 have identified inbound and outbound dependencies between the activities of both parties. Delays to inbound dependencies will have an impact on DCC s delivery timescales. As explained in Section 8.2, a documented delay process will establish which party is at fault for any delay and the actual amount of delay to DCC s delivery timescales. Any change to DCC s delivery timescales would be enacted through the documented change process. DCC Switching Business Case DCC Public Page 83 of 110

84 Risk ID Category Risk Description Potential Impact R029 R006 Nonscenario risk Nonscenario risk Increased use of temporary resource Ofgem reviews and Programme governance does not result in timely, quality outputs In order to deliver the activities requested by Ofgem and detailed in the DCC Switching Programme Plan, DCC plans to recruit individuals into a number of permanent roles. Due to a competitive resource market where specialist skills are in high demand... This could result in; - Gaps in the resource required to deliver the DCC element of work, potentially resulting in delays to the completion of DCC activities - Increased use of temporary resource as an interim measure, leading to increased DCC staff costs There is a risk that the permanent resource targets cannot be met in time to support delivery within planned timescales Due to the fact that the DCC Switching Programme Plan is based This could result in; on the assumption that the Ofgem review of Products will take - Delay to completion of products increasing DCC time no longer than 15 days and that SRO sign off will take 'zero' days and effort as DCC would be required to keep resources and that in the past reviews have taken more than 15 days... in place for longer than planned There is a risk that the Ofgem review of DCC DLS Products takes longer than the planned 15 days, or 'zero' days for SRO acceptance. Premitigation Scoring 4 - Likely (50% to <70%) 3 - Possible (20% to <50%) Mitigation Approach Treat Transfer Mitigation Plan Mitigate the likelihood by undertaking recruitment as early as possibe in 3 waves. Mitigate the impact by hiring temporary resource only on a short term basis to limit the gap. DCC can help to mitigate the probability by engaging with Ofgem regularly prior to the review. Risk Owner DCC Ofgem Post Mitigation Scoring - Probability 3 - Possible (20% to <50%) 3 - Possible (20% to <50%) Post Mitigation Cost Impact Post Mitigation Cost Impact x Probability 2,096, ,669 1,366, ,179 R030 R001 R032 Nonscenario risk Nonscenario risk Nonscenario risk Contract closure timescales Complexity of CRS solution Plan estimates are optimistic Due to the fact that CRS procurement negotiations outlined in the DCC Switching Programme Plan are based on a minimum scenario of 3 months and that the timescales will be dictated by reaching agreement between two parties in order to provide the best outcome for the Switching Programme... There is a risk that the commercial negotiations with CRS provider/s will take longer than 3 months. Due to the fact that the DCC Switching Programme Plan for the CRS Solution is based on the baseline scenario aligned with Reform Package 2 as defined in Appendix F - DCC Switching Target Solution Architecture, and that the actual target CRS Solution is yet to be defined... There is a risk that the CRS solution that Ofgem decide to proceed with is more complex than assumed in the baseline scenario. Due to the fact that the DCC Switching Programme Plan is built on single point estimates with no uncertainty factored in and that behavioural psychology proves we are more likely to be optimistic than pessimistic in our estimates... There is a risk that the durations within the plan are optimistic This could lead to; - Increased duration for contract closure activities - Increased DCC time and effort to support negotiations - Requirement to keep DCC resources on board for longer period until DBT phase begins, resulting in run rate costs being incurred This could result in; - Increased time and effort for the design of the CRS solution - Impacting on the delivery of the CRS Design activity - Additional procurement engagement and tender exercise time and/or effort leading to increased DCC procurement costs during the Transitional phase, and/or additional procurement projects resulting in increased time and/or effort - Impacting on the delivery of Tender Packs and Contracts This could result in; - Activities taking longer or requiring more effort than planned - The forecast completion date being unrealistic - Ofgem and DCC incurring reputational damage as a result of being unable to deliver in accordance with the planned timescales 4 - Likely (50% to <70%) 3 - Possible (20% to <50%) 3 - Possible (20% to <50%) Treat Transfer Transfer Reduce the probability by engaging in high level market engagement ensuring clear unambiguous statement of requirements, translated into clear tender documentation DCC cannot determine the level of complexity for the CRS Design Undertake schedule risk analysis to understand the impact of uncertainty and risk within the programme to inform the contingency amoun and highlighting areas to focus management attention DCC Ofgem DCC 3 - Possible (20% to <50%) 3 - Possible (20% to <50%) 3 - Possible (20% to <50%) 956, , , , , ,090 Balancing line for additional risks 4,597,366 1,259,995 Total 10,428,700 3,300,962 Table 22 - Key risks DCC Switching Business Case DCC Public Page 84 of 110

85 Opportunity ID OP013 OP009 OP014 Category Opportunity Description Potential Impact Non-scenario opportunity Non-scenario opportunity Non-scenario opportunity Simple CRS solution Procurement approach to be adopted for the CRS solution Fewer procurement projects Due to the fact that the DCC DLS Plan for the CRS Solution is based on the baseline scenario aligned with Reform Package 2 as defined in Appendix F - DCC Switching Target Solution Architecture. There is an opportunity that the CRS solution is less complex than originally foreseen. Due to the fact that the CRS design is not yet known and the DCC DLS Plan for procurement is based on a competitive tender (not restricted). There is an opporunity that, once more detail of the individual procurement projects and the market appetite is known, it is not appropriate to follow a competitive tender but more appropriate to follow a competitive tender (restricted) process Due to the fact that the DCC DLS Plan for the CRS Procurement is based on the assumption that there will be 5 procurement projects to procure the CRS Solution, and that the components of the CRS solution is not yet known. There is an opportunity that it is possible to procure the CRS in less than 5 procurement projects. This could result in; - Reduced time and effort for the design of the CRS solution - Impacting the delivery of the CRS Design activity - Reduced procurement engagement and tender exercise time and/or effort leading to lower DCC procurement costs during the Transitional phase, and/or fewer procurement projects resulting in reduced time and/or effort - Impacting on the delivery of Tender Packs and Contracts This could result in; - A change in procurement approach resulting in less time and effort, leading to reduced DCC costs and the tender process taking less time - Impacting on the contracts being ready for signature This could result in; - Less procurement engagement and tender exercise time and/or effort leading to redcued DCC procurement costs during the Transitional phase - Impacting on the delivery of procurement activity leading up to tender packs being approved and contract signature Premitigation Scoring 2 - Unlikely (5% to <20%) 3 - Possible (20% to <50%) 2 - Unlikely (5% to <20%) Cost Impact Cost Impact x Probability - 1,105, , ,215-77, ,780-37,598 Total - 1,628, ,524 Table 23 Key opportunities DCC Switching Business Case DCC Public Page 85 of 110

86 11 Materiality threshold 11.1 Definitions Original baseline DCC s core costed solution set out in the version of the DCC Business Case that is updated following consultation (v3.0) (baselined March 2017). Revised baseline DCC s updated core costed solution set out in a subsequent version of the DCC Business Case (version controlled, i.e. v4.0, v5.0 against the original baseline) Overview 278. This section sets out the purpose, form and level of the materiality thresholds relating to DCC costs and the conditions for the publication of a revised version of the DCC Switching Business Case DCC is responsible for ensuring that its costs in relation to the Transitional Phase of the Switching Programme are economic and efficient. This applies to the costs associated with the baseline scenario and any additional costs, regardless of whether or not these exceed the materiality threshold defined in this section. DCC is required to justify its expenditure on the Switching Programme through its annual ex post price control reporting The additional controls set out in this section support the ongoing monitoring of DCC actual and forecast costs as part of the ex post plus price control arrangements for DCC s activities during the Transitional Phase. The controls provide transparency to stakeholders on changes to DCC costs relating to the Switching Programme, while also providing an appropriate cost tolerance within which DCC can manage risk and scope change. The arrangements for monitoring and reporting are set out in Section The materiality threshold sets the tolerance level for variance from the baseline DCC costs. DCC will be required to update and publish a revised DCC Switching Business Case if this materiality threshold is exceeded or in response to other conditions as set out in Section 12. In the regular reporting set out in Section 12, DCC will then report actual and forecast costs against the revised baseline (whilst also not losing reference to the original baseline) It is reasonable to expect that changes will arise as part of the Switching Programme. The materiality threshold is intended to reflect a realistic cost allowance both for known and quantified risks and for unforeseen change. DCC considers that it is prudent to expect that some additional costs will be incurred. DCC Switching Business Case DCC Public Page 86 of 110

87 11.3 Principles 283. In determining the materiality threshold for updating and republishing the DCC Switching Business Case, DCC has considered the following factors: Proportionality DCC considers that the materiality threshold should be proportionate to the size of the cost base to which it is applied, in order to ensure that the cost incurred by all parties in administering any change is not higher than the cost of change itself Uncertainty notwithstanding the joint DLS planning undertaken by DCC and Ofgem, there are a number of uncertainties that remain relating to the scope of DCC s activities, some of which are known and some of which are currently unknown, and there are a number of key design and delivery decisions still to be taken by the Ofgem Switching Programme. These areas of uncertainty are likely to result in changes to DCC costs. DCC considers that the materiality threshold should provide flexibility for DCC to manage change within an appropriate tolerance Transparency the arrangements relating to materiality thresholds should provide industry stakeholders with transparency on material changes to DCC costs and provide clarity on how and when stakeholders will be engaged if costs exceed the materiality threshold. Where possible, the materiality thresholds should be based on quantified risks in order to provide traceability to specific areas of uncertainty Simplicity the arrangements relating to materiality thresholds should operate and be reported in a way that can be easily understood by all parties DCC has considered whether materiality thresholds should be set for each of the solution scenarios. Since DCC will monitor and report variances against the forecast costs associated with the baseline scenario, we consider that the most appropriate approach is to set materiality thresholds for the baseline scenario only, rather than for each of the solution scenarios. We consider that this will provide an appropriate level of transparency to industry stakeholders on changes to DCC s costs. As described below, the materiality threshold will be reviewed each time there is an update to the baseline. DCC Switching Business Case DCC Public Page 87 of 110

88 11.4 Form and level of the materiality threshold 285. The materiality threshold is a tolerance band over and above DCC s baseline costs. It is consistent with the contingency allowance, which reflects the potential impact of both known uncertainties and unknown uncertainties on DCC costs. This approach is illustrated in Figure Definitions Figure 19 - Materiality threshold (for illustrative purposes only) 286. As outlined in Section 10, contingency consists of three components: a weighted allowance for the cost impact associated with the high scope scenario. This could include, for example, the impact of Ofgem requiring DCC to lead on an area of activity to which DCC was previously expecting only to contribute. This excludes major scope changes that were not considered as part of the high scenario a weighted allowance for the cost impact associated with identified and quantified risks that are not directly related to the scope scenarios. Given that the contingency reflects the weighted probability that a range of different risks will materialise, it is realistic to expect that these costs will be incurred an allowance for the cost impact of unforeseen change that cannot reasonably be anticipated at this stage of the Programme. It is realistic to expect that some unforeseen changes will emerge during the period of the Transitional Phase and so DCC considers that it is prudent to expect that some additional costs will be incurred. DCC Switching Business Case DCC Public Page 88 of 110

89 Level of the materiality threshold 287. The calculation of each element of the contingency allowance is explained below. Allowance for the cost impact associated with the high scope scenario 288. This allowance is calculated based on the total estimated cost impact of each of the scope variations associated with the high scenario materialising, weighted according to the likelihood of each variation materialising. The weighted cost of each scope variation is timebound based on the timing of planned activities associated with the high scenario. The estimated cost and post-mitigation likelihood of each scope variation arising is included in the Risks sheet of the cost model For example, if the additional estimated cost associated with a scope variation is 100k and there is an estimated 20% post-mitigation likelihood of the scope change materialising, this would result in 20k being included within the contingency allowance during the time period when the affected activities are currently planned The total probability-weighted allowance for the impact of the high scope scenario is 205k. This is equivalent to 1% of the total cost to industry associated with the baseline scenario. Allowance for the cost impact associated with non-scenario risks 291. This allowance is calculated based on the total estimated cost impact of additional identified and quantified areas of risk that are not directly related to the scope scenarios, weighted according to the likelihood of each risk materialising. The post-mitigation cost impacts are calculated in the same way as the high scope scenario variations in the Risks sheet of the cost model and are labelled as non-scenario risks The likelihood percentages assigned to both scope variations and risks have been defined based on judgement by the DCC Switching team based on exposure to the Switching Programme to date, and wider professional programme experience. In addition the Ofgem Switching team has reviewed these scope variations and risks based on its judgement and what can be reasonably foreseen. The total allowance for the impact of non-scenario risks is 3,086k. This is equivalent to 13% of the total cost to industry associated with the baseline scenario. Allowance for unforeseen change 293. This allowance is calculated based on a proportion of the cost base to reflect the remaining level of uncertainty in the each of the DLS and Enactment phases This comprises: 0% of the Blueprint baseline costs 5% of the DLS baseline costs, which equals 159k 10% of the Enactment baseline costs, which equals 1,001k. DCC Switching Business Case DCC Public Page 89 of 110

90 295. The total allowance for unforeseen change is 1,160k, which is equivalent to 5% of the total cost to industry associated with the baseline scenario This reflects the increased certainty in the requirements of DCC s contribution following joint DLS planning with Ofgem but reflects that a relatively low level of uncertainty remains relating to the requirements during the DLS and Enactment phases. In particular, there are a number of key design and delivery decisions still to be taken by the Ofgem Switching Programme which will influence DCC s activities during the Enactment phase. DCC anticipates that as certainty increases for later phases, the percentage allowance for unforeseen change will lower to reflect this Where there is overlap between programme phases, the level of allowance associated with the later phase will take precedence. Total materiality threshold 298. The total materiality threshold is equivalent to the total level of contingency, which is equal to 4,461k or 19% of the total cost to industry associated with the baseline scenario (see Figure 20). Figure 20 materiality threshold profile DCC Switching Business Case DCC Public Page 90 of 110

91 11.5 Reviewing the materiality threshold 299. When updating the DCC Switching Business Case under the process set out in Section 12.5, we will review the materiality thresholds associated with DCC costs, based on the latest information relating to DCC s scope and activities and the residual level of risk and uncertainty. This may include retiring contingency over time (contingency will not be retired on a month by month basis) DCC considers that it would be appropriate to allow flexibility to review and update the methodology for calculating the materiality thresholds as part of the planned updates to the DCC Switching Business Case Any change to the materiality threshold (whether the amount or the methodology for calculating the amount) due to a reactive update to the DCC Switching Business Case or at planned review point will be raised within Programme governance and agreed by Ofgem Applying the materiality threshold 302. We anticipate that Ofgem programme decisions will be the primary driver of changes to costs and that Ofgem will communicate changes in DCC s role and scope to industry through programme governance. The arrangements for providing transparency on these decisions are described in Section 12. DCC is responsible for assessing the impact of decisions that affect the scope of DCC s activities in the Programme. Changes to costs may also result from changes to DCC activities due to risks that materialise, delays to programme timescales or other unforeseen changes that affect DCC s activities DCC may draw down costs up to the materiality threshold for additional spend relating to both known uncertainties and unforeseen change. Draw down of contingency will be approved through the process set out in the documented change process. In particular, the drawdown or allocated contingency will be reviewed and approved by the DCC Switching Programme Board and drawdown from unallocated contingency will be approved by the Ofgem Switching Programme Board. DCC must explain any actual and forecast variance from the costs associated with the relevant baseline scenario through the monitoring and reporting arrangements set out in Section 12. This reporting will include details of any contingency drawdown. Note that DCC will also report on any realised opportunities which result in lower costs DCC is responsible for ensuring that any additional costs are economic and efficient, regardless of whether the costs are within the materiality threshold, and is required to justify that this is the case through its annual ex post price control reporting If the materiality threshold is exceeded, DCC will be required to update and republish the DCC Switching Business Case, which will include a revised baseline whilst keeping reference to the original baseline. DCC Switching Business Case DCC Public Page 91 of 110

92 12 Monitoring and updating the DCC Switching Business Case 306. This section explains the planned approach to monitoring DCC s delivery against the DCC Switching Business Case and describes the triggers for updating and re-baselining the DCC Switching Business Case. It sets out how stakeholders will be engaged as part of DCC s reporting and during the process of re-baselining the DCC Switching Business Case Monitoring and reporting 307. The external recipients for DCC programme reporting information are: Ofgem Programme overall owner of the Switching programme, responsible for the delivery of the programme to the agreed time, budget and quality Ofgem Price Control responsible for assessing whether DCC s costs have been economically and efficiently incurred Industry requires programme updates on physical progress to assist planning for DBT and financially, to assist with industry budgeting 308. Monitoring and reporting of DCC s involvement in the Switching Programme will be delivered through three reporting mechanisms: Programme delivery reporting DCC Switching Programme delivery progress reporting will be provided through programme governance. This reporting primarily focuses on time and quality, but also provides a summary update on financial progress against the baseline budget set out in the DCC Switching Business Case. Ofgem Programme and Industry are the recipients of this information. Ex post plus quarterly price control reporting - DCC will report quarterly on its incurred costs for the Switching Programme by workstream for the Transitional Phase. There is no approved baseline to report variance against until DCC submits its forecasts of costs through its annual price control. Therefore reporting will not be against the DCC Switching Business Case baseline budget because this is not being approved by Ofgem as being economic and efficient. Ofgem Price Control is the recipient of this information. Ex post annual price control reporting DCC is required to justify its expenditure on the Switching Programme against a price control baseline through its existing annual ex post price control reporting framework. Ofgem Price Control is the recipient of this information These reporting mechanisms, the key reports that DCC will provide and their recipients are outlined in Figure 21. All of the reports shown in Figure 21 are defined in the subsequent sections of this document and elaborated diagrammatically in Figure 22 and Figure 23. The relationships between different reports are also highlighted. DCC Switching Business Case DCC Public Page 92 of 110

93 Figure 21 - Switching Programme Reporting overview DCC Switching Business Case DCC Public Page 93 of 110

94 12.2 Programme delivery reporting Purpose 310. DCC will report on its delivery progress to Ofgem Programme through Ofgem s programme governance framework. All reports defined within this document are drawn from the same data set, but are tailored to the needs of the different stakeholders within the programme In addition to providing DCC with the appropriate internal controls to manage its programme effectively, the purpose of the programme delivery reporting information is to provide Ofgem Programme, on a regular basis, with: an overview of DCC physical progress against the original (i.e. March 2017) and current (based on any subsequent updates) DCC programme plans and the latest forecast of plan activities each reporting period an update on DCC product approvals and rejections an overview of the key risks and issues on the programme an overview of DCC financial performance against the original and current DCC Switching Business Case baseline budget (with contingency separated out from the baseline cost base) a summary explanation of any actual or forecast variances from baseline costs an overview of the drawdown of contingency information to help decide whether to trigger an update to the DCC Switching Business Case based on the conditions as defined in Section 12 of the DCC Switching Business Case visibility of progress against incentivised milestones an opportunity for Ofgem to share with DCC its views about DCC priorities and activities Reports 312. The programme delivery reports that DCC will produce in support of the DCC Switching Programme are defined in Figure 22 and summarised below 26 : Detailed Delivery Report - the DCC Switching Programme team will report internally at a granular (Work Package and Control Account) level of detail on a weekly basis. This will involve reporting on team progress against the programme plan and reporting on key RAID items and changes which may impact the plan. 26 Levels of reporting detail are aligned to the WBS levels explained in section 8.2 DCC Switching Business Case DCC Public Page 94 of 110

95 Summary Delivery Report - the Detailed Delivery Report information will be summarised at Workstream and Programme level and reported monthly to the DCC Executive Board and Ofgem Programme. This will focus on areas that require escalation for decision making or areas that are of particular significance to stakeholders such as the status of inbound dependencies or incentivised milestones. Product Quality Report - product quality will be reported within the DCC Switching Programme team only on a monthly basis. This will provide detail of the current status of all products and will also be an opportunity to report quality or technical issues for resolution. Detailed Financial Report the DCC Switching Programme team will produce granular (Control Account or Work Package) level financial information on a monthly basis to provide itself with appropriate financial monitoring and control. This report will not be issued outside of the DCC Switching Programme team. Programme Overview Report a Programme Level extract from the Summary Delivery Report and the Product Quality Report will be produced on a monthly basis, for Ofgem Programme and the Smart DCC Ltd Board focusing only on key delivery performance headlines. The Programme Overview Report also includes headline financial progress on the programme summarised from the Detailed Financial Report. Industry Programme Overview Report a significantly consolidated version of the Programme Overview report will be fed into Ofgem s Switching Programme Delivery Group (SPDG) report for Industry on a bimonthly basis. DCC Switching Business Case DCC Public Page 95 of 110

96 Figure 22 Programme delivery reports DCC Switching Business Case DCC Public Page 96 of 110

97 12.3 Ex post plus financial reporting Purpose 313. Under the ex post plus arrangement for the Switching Programme, DCC is required to regularly report to Ofgem s DCC Price Control team on the costs it has incurred for the Transitional Phase. 27 Normally, DCC must demonstrate that costs which are a material variance against a baseline approved as economic and efficient were incurred economically and efficiently as well. Forecasts which are submitted in a current year, and are approved as economic and efficient, become the baseline for following year. This is determined through the annual ex post price control process DCC did not submit forecasted costs in the RY2015/16 Price Control submission, as we did not have sufficient certainty as to what the costs would be in light of development of the DCC Switching Business Case. For the same reason, DCC is not planning to submit forecasts for Switching Programme costs in the RY2016/17 Price Control submission. Therefore the price control baseline is zero for costs incurred between 1 April 2017 and 31 March Quarterly ex post plus reporting will report against incurred costs and not on variance We believe that sufficient certainty will exist upon completion of Design Baseline 3, which is currently set to conclude in Q1 of Therefore, DCC will submit forecasts of the remaining Transitional Phase costs as part of the RY2017/18 submission. Due to the timeframes for approving price control, a decision on whether costs are economic and efficient is not made until the end of February 2019, which is only several months before the end of the Transitional Phase We considered potentially changing the reporting process at that point and moving to the same method as the annual price control reporting, which is to justify only material variances. Considering that we will have settled into a reporting process and have only several months left in the phase, we will instead continue to report in the same manner even though we will have an approved baseline. For ex post plus reporting purposes, therefore, we will not be justifying material variance against a baseline, but will always justify all incurred costs throughout the duration of the Transition Phase The purpose of the ex post plus price control reporting information is to provide Ofgem s DCC Price Control team on a quarterly basis with: context around DCC s performance against the original and current DCC Switching Business Case an explanation of actual and forecast cost variances from the price control baseline to enable Ofgem s DCC Price Control team to raise any concerns around potential uneconomic and inefficient expenditure as they emerge through the regulatory year (this will not be an approval of expenditures, as the Licence dictates approval of costs falls within the annual price control submission) 27 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: DCC Switching Business Case DCC Public Page 97 of 110

98 an opportunity to highlight where evidence would be expected in DCC s annual ex post price control justification information in a format that is consistent with the annual ex post price control submission Reports 318. The Switching Programme price control reports, the recipients of the reports and their frequency can be summarised as: Ex Post Annual Price Control Submission - the DCC Price Control team will submit incurred costs for approval by Ofgem as part of the annual submission. Ex Post Plus Price Control Report - DCC will provide a pre-agreed set of selected graphs and charts from the Detailed Financial Report aggregated up to the Workstream level plus an accompanying narrative that explains these costs to Ofgem s Price Control team on a quarterly basis. This level of granularity is appropriate as it ensures that the time available will be spent focusing on key financial successes or challenges. Additional extracts from the Detailed Financial Report can be provided to support discussions with Ofgem Price Control where required or requested to support explanations of variances at Workstream level DCC and Ofgem have agreed that a quarterly frequency for the Ex Post Plus Price Control Report is appropriate for the Switching Programme as it provides additional transparency on DCC s financial performance during the regulatory year proportional to the additional reporting burden. This frequency recognises the additional burden on the Ofgem Price Control team of reviewing the ex post plus financial reports throughout the regulatory year and that the existing financial governance process within DCC, operates on a quarterly basis To align with wider DCC reporting defined in the RIGs 28, DCC will report its annual Switching Programme costs to match the RIGs general ledger (GL) codes through the following price control categories (other existing categories may be included if later deemed appropriate): Payroll (including a breakdown by workstream and split into permanent and contractor) Non-Payroll External services Other. 28 Ofgem, DCC: Regulatory Instructions and Guidance 2015, 29 May 2015: DCC Switching Business Case DCC Public Page 98 of 110

99 321. This view provides Ofgem Price Control with cost information in a format comparable to existing reporting structures and therefore applies a common approach for flagging whether DCC expenditure is economic and efficient Report data will be supported with narrative to explain the work completed in the reporting period by work stream, referencing any approved products. The narrative will also summarise why the costs incurred are economic and efficient, referencing the approaches adopted or processes followed. Analysis of resources deployed and contract type compared to the baseline will be provided to support the explanation of staff costs. Figure 23 Relationship of information reporting across different financial and price control reports DCC Switching Business Case DCC Public Page 99 of 110

100 12.4 Annual ex post financial reporting Purpose 323. DCC is required to justify that expenditure on the Switching Programme has been economically and efficiently incurred through its annual ex post price control submission (due 31 July of each regulatory year). This information is assessed by Ofgem s Price Control team only (i.e. not Ofgem Programme) and in a separate process that encompasses all of DCC s smart metering programme material cost variance The purpose of the ex post price control submission information is, on an annual basis, to provide Ofgem Price Control with an explanation of material variances between DCC s incurred costs overall as a business and: the costs set out in the Licence Application Business Plan (which did not include any DCC costs related to the Switching Programme) and the costs set out in DCC s latest approved forecast for that regulatory year (current price control baseline) This will ensure that DCC costs relating to the Transitional Phase of the Switching Programme are formally submitted to scrutiny and industry consultation and justified under the same price control reporting arrangements as DCC s smart metering costs This approach is illustrated in in Figure 24 below. 29 These arrangements are set out in Condition 37 of the Smart Meter Communication Licence DCC Switching Business Case DCC Public Page 100 of 110

101 Reports Figure 24 Time periods for reporting variance through price control 327. As the DCC Switching Programme is outside of the original scope of the LABP, it is proposed that costs be reported within the RIGs as a separate Switching Programme cost centre and follows the same structure as existing cost centre reporting, with costs split out by the same GL codes which all DCC cost centres report against. This proposed addition to the RIGs will require industry consultation DCC s price control submission will reference information included in the DCC Switching Business Case and in DCC reports provided to Ofgem to support quarterly ex post plus price control reporting meetings In the 2015/16 price control submission, DCC included costs incurred for the Switching programme corresponding to that regulatory year (< 200k). These costs have been reviewed by Ofgem. 30 No cost forecast for the Switching Programme for 2016/17 was included in the 2015/16 price control submission, as it did not meet the certainty criteria for inclusion in acknowledgement of this business case Reporting to industry stakeholders 330. We expect that Ofgem programme decisions will be the primary driver of changes to costs and that Ofgem will communicate changes in DCC s role and scope to industry through programme governance. Changes to costs may also result from changes to DCC activities 30 Ofgem, DCC Price Control Decision: Regulatory Year 2015/16, 28 February 2017: DCC Switching Business Case DCC Public Page 101 of 110

102 due to risks or opportunities that materialise, delays to programme timescales or other unforeseen changes that affect DCC s activities DCC will provide regular updates to industry stakeholders on its delivery against the DCC Switching Business Case via regular programme governance forums, for example the SPDG). These updates will cover: physical progress against the programme plan explanation of any variance from baseline costs within the materiality threshold explanation of any costs exceeding the materiality threshold notification if Ofgem has instructed DCC to update and republish the DCC Switching Business Case This will be provided through sharing the Programme Overview Report (Figure 22) with Industry. This will provide a Programme level update on programme delivery, product quality and financial progress. Whilst this report is produced monthly, the financial content will be shared on a quarterly basis to align with DCC and Ofgem financial governance DCC will also provide updates to industry through DCC s quarterly finance webinars and through other DCC forums as appropriate Updating the DCC Switching Business Case Purpose 334. DCC may occasionally be required to update and re-publish the DCC Switching Business Case. The purpose of re-baselining the DCC Switching Business Case is to reflect material changes in the scope, activities or assumptions that underpin the original baseline DCC Switching Business Case. Re-baselining the DCC Switching Business Case results in a revised set of forecast DCC costs and associated materiality thresholds during the Transitional Phase Triggers 335. The triggers for DCC to re-baseline the DCC Switching Business Case may be either: planned DCC will update the DCC Switching Business Case at key milestones with Ofgem s Switching Programme plan. These are anticipated to be following Design Baseline 2 (currently planned for September 2017) and Design Baseline 5 (currently planned for July 2018). These planned updates are intended to reflect the increased certainty relating to DCC scope and activities that is expected at these points reactive DCC will update the DCC Switching Business Case by exception if: the materiality threshold has been exceeded and Ofgem subsequently instructs DCC to re-baseline the DCC Switching Business Case DCC Switching Business Case DCC Public Page 102 of 110

103 Ofgem instruct DCC to re-baseline the DCC Switching Business Case on an ad hoc basis, for example following a major unforeseen scope change or a major change to programme timescales Any decision to update and re-publish the DCC Switching Business Case will be discussed by joint DCC and Ofgem governance as part of the regular financial reporting meetings. Ofgem will be responsible for instructing DCC to update and re-publish the DCC Switching Business Case. Conditions for reactive update to the DCC Switching Business Case 337. Given the early stage of the Programme, DCC considers that it would be reasonable to allow some flexibility for this joint governance to judge when the DCC Switching Business Case should be updated and republished, based on evolving experience. However, DCC considers that the following factors should be taken into account: whether total forecast costs are expected to exceed the total materiality threshold whether this continues to be the case over several reporting periods whether incurred costs repeatedly exceed baseline costs DCC does not propose that strict conditions should be in place relating to these factors in order to trigger an update and republication of the DCC Switching Business Case In line with the principle of proportionality and to mitigate the risk of DCC being required to update and republish the DCC Switching Business Case as a result of short-term increases in cost, DCC considers that the total forecast costs should exceed the total materiality threshold and should be forecast to do so in several reporting periods in order to trigger an update and republication of the DCC Switching Business Case. This situation is illustrated in Figure To mitigate the risk of DCC providing optimistic reforecasts, where costs incurred in that reporting period regularly exceed the materiality threshold for that period, but the total cost is not forecast to exceed the total materiality threshold, Ofgem may request that the DCC Switching Business Case is republished. DCC Switching Business Case DCC Public Page 103 of 110

104 Figure 25 Example: forecast to exceed the total materiality threshold in x reporting instances Timing of reactive updates to the DCC Switching Business Case 341. In line with the principle of proportionality, DCC considers that it would not be economic and efficient to re-publish the DCC Switching Business Case as a result of exceeding the materiality threshold when either: less than 6 months remain until the end of the Transitional Phase less than 3 months remain until the next planned update of the DCC Switching Business Case, as described below Within these time windows, any breach of the materiality threshold would be reported to industry through programme governance as set out above. DCC Switching Business Case DCC Public Page 104 of 110

105 Process for updating the DCC Switching Business Case 343. The process for updating the DCC Switching Business Case is summarised in Figure 26. There will not be a formal consultation on any update to the DCC Switching Business Case, other than in exceptional circumstances. Any requirement for formal consultation would be instructed by Ofgem. Figure 26 Process for updating the DCC Switching Business Case DCC Switching Business Case DCC Public Page 105 of 110

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