tit Inland Revenue Te Tan i Taake Inland Revenue report: Update on Inland Revenue's approach to business and systems transformation
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1 tit Inland Revenue Te Tan i Taake Inland Revenue report: Update on Inland Revenue's approach to business and systems transformation Date: 6 April 2011 Priority: Low Security level: In Confidence Report number: IRD 2011/037 Action sought Minister of Revenue Action sought Note recommendations Refer this report to ICT Ministers Deadline 7 April 2011 Contact for telephone discussion (if required) Name Position Telephone Peter Mersi Deputy Commissioner, Business Transformation, Inland Revenue Tim Occleshaw Deputy Commissioner, Information Design and Systems, Inland Revenue Withheld under section 9(2)(a) of the Official Information Act 1982
2 6 April 2011 Minister of Revenue Update on Inland Revenue's approach to business and systems transformation Executive summary This report provides an update on Inland Revenue's approach to business and systems transformation. It gives background information on Inland Revenue's strategic direction, notes the current status of business and systems transformation, and notes our planned next steps. Inland Revenue needs to address some systems issues. The need for change to Inland Revenue's technology system (FIRST) is one of the most pressing issues. To enable systems transformation, we have chosen a "package-plus" approach. This option is one of using commercial-off-the-shelf components, orchestrated through a business process-based, service-oriented architecture. To deploy the systems transformation, Inland Revenue has initially adopted a product-driven, enterprise capability creating approach. The system changes deployed will not only support the particular product, but will also build re-usable capability for other products. However, as noted in the report, we have uncovered a number of issues, which have raised questions about whether assumptions about our planned approach to business and systems transformation still hold. We are working through the various issues and how these impact on the sequencing, scope and approach to our transformation programme. Work being undertaken over the next few months will help us to determine what the next stages of our transformational shift will be. We expect to be able to report back to Ministers by September RD 2011/037: Update on Inland Revenue's approach to business and systems transformation 1
3 Recommended action We recommend that you: a) Note the contents of this report Noted b) Refer this report to ICT Ministers Referred Peter Mersi Deputy Commissioner, Business Transformation, Inland Revenue Tim Occleshaw Deputy Commissioner, Information Design and Systems, Inland Revenue Hon Peter Dunne Minister of Revenue 2
4 Update on Inland Revenue's approach to business and systems transformation Background to Business Transformation 1. In November 2007, Inland Revenue initiated a review to establish whether it had the organisational capabilities required to achieve its strategic direction. The review established that our business infrastructure (policy, systems and processes) was designed for a consistent tax-based, binary and tightly integrated business operating model. However, this was not suitable for the demands of social policy products, which are complex and subject to greater change than tax. Further, tax and social policy products differ in terms of the timeliness, accuracy and agility required of them, and the customer circumstances that determine obligations for payments and entitlements. The review also noted key problems, including: Legislative requirements for business processes and interventions have created complexity and sometimes hinder efficient administration, which could be redressed while retaining underlying policy objectives. Increased complexity and customer contact volumes have severely stretched our capacity to deliver existing services. Our core processes and business systems are not ideally suited to the way in which social policy information is collected, assessed and distributed. Critical maintenance of our processes and systems has been deferred to the point where failure to complete maintenance would reduce our systems reliability below prudent levels. 2. The review found that these problems have impacted on Inland Revenue to the point where our capability to implement new Government tax or social policy initiatives has been eroded. Based on our projections of growth in the volume and complexity of customer contacts, known policy changes and systems ageing, our capacity to deliver services reliably would deteriorate if we do not proceed with a major transformation of our business and supporting ICT systems. 3. We therefore developed a transformation programme, to respond to Government goals of deriving better value from public services (including more integrated cross-government services), internal pressures such as an ageing information technology system and environmental drivers about customer needs. The aim of the transformation programme is to address these issues and deliver benefits, such as the ability to implement policy and legislative changes more quickly, and provide our customers with a range of interactive services and information. The programme as a whole will provide customers with greater certainty, improve speed and compliance, reduce debt, and will do so with a focus on improving public value for money. Approach to systems transformation 4. Inland Revenue needs to address some current issues; the need for change to Inland Revenue's technology system (FIRST) is one of the most pressing issues to be addressed. This is because: 3
5 As functions have been added to FIRST, the system has become increasingly complex, with multiple interfaces to meet changing demands. The scale and scope of the changes and additions impact on supporting functions, and the system's cost and risk has continued to increase. Compounding the issue of system complexity is the fact that FIRST is an old legacy system, running on some of the oldest computing languages, COBOL, and some of the technology has become obsolete. Operational processes and services have also been affected, with cost and risk increasing. Over time, data integrity has been increasingly challenged. FIRST architecture was designed for transaction processing in a batch mode. The cyclic nature of this account type treatment does not adapt easily to a customer centric or online environment, and information cannot be shared easily across Government. 5. Over the past two years, we have embarked on an IT strengthening and stabilisation programme (for example, we have improved the performance and availability of our critical and customer facing systems). Nevertheless, transforming Inland Revenue's IT systems is a critical enabler for the future business transformation, and is also necessary for cost control and system support. 6. We have looked at the transformation efforts of equivalent revenue agencies in Australia and Canada, particularly at how the technology change was achieved. Both agencies took differing approaches, based on their drivers for transformation. For example, the Australian Tax Office purchased an Accenture tax system which, in essence, was a framework within which a system could be built. The cost of changes for each revenue agency was in the order of NZ$1billion each. 7. There are three broad options when deciding on the type of system transformation that we required. The following two were considered but discarded as options: A "Lift and Shift" migration of the current FIRST system to a more modern platform. This option retains the system's current functionality while reducing operating costs. This option reduces dependence on legacy technology and declining skill sets. However, this option assumes that the legacy system is fit for purpose, and cannot provide any improved business functionality. Custom build a new system in parallel, and migrate once. These systems are often built from scratch, to suit the needs of a business or organisation. As they must be individually tailored, they often take longer to develop and can be more expensive than other options. They do allow the creation of new functionality, a more flexible architecture and also allow processes to be automated. However, this requires significant investment while continuing full costs of the legacy environment until migration. Custom built systems also require dedicated maintenance and support capabilities to be established, or the system relevance and usefulness will erode over time. 8. Inland Revenue has chosen a "package plus" approach. This option is one of using commercial-off-the-shelf (COTS) components orchestrated through a business process-based service-oriented architecture (SOA). Essentially, this approach is the purchase of configurable components that are integrated through 4
6 an architecture that is based directly on Inland Revenue's business services. This approach: Enables future operation and change at a lower total cost of ownership over time. Provides a more agile means for the creation of new functionality. Means that changes to one process or service will not require testing of the whole system. Builds the new system based directly on Inland Revenue's business processes, and allows for simpler reconfiguration as these processes evolve over time. Allows the build and deployment of the most critical high volume business services first, depending on the deployment approach taken. Allows adoption or creation of Government shared services. For example, the integration of igovt services as they mature or become available. Allows Inland Revenue options on how it builds its new systems environment, either through investment in product change, by projects or as a discrete investment in its own right. However, this approach also requires significant investment while continuing the costs of the legacy environment, until business processes are removed from the legacy system. This approach also requires varying levels of integration back to the legacy system, depending on the deployment approach taken, which can cause complexities. 9. Inland Revenue has recently adapted its Enterprise Architecture framework to align it with the Government Enterprise Architecture developed by the Department of Internal Affairs (see diagrams at Appendix A). This gives a common framework and language between agencies, but is also tailored specifically to represent some aspects that are important to Inland Revenue. We are also working to ensure that the deployment of ICT and business capabilities within this architecture enable and support cross-government outcomes at both the business process and ICT capability levels. 10. Our service-based approach to transformation, underpinned by our serviceoriented architecture, is designed to ensure that our new business processes and systems will be able to make use of all-of-government services as they become available, and enable the services that we build to be made available to other agencies where appropriate. This approach should also enable Inland Revenue to participate fully in Service Transformation without having to significantly reengineer our processes or systems. Preferred deployment approach 11. Initially, Inland Revenue adopted a product-driven, enterprise capability creating approach to systems deployment. This is when the system changes deployed not only support the particular product but also build reusable capability for other products. Other benefits of this approach include: an incremental build, which should become more cost effective over time as reuse increases opportunities for organisational learning about the changes being deployed, to inform future decision-making and approaches to system and product change. 5
7 However, this approach also often requires the new system to be linked to legacy systems (for example, to extract data or for processes that are still maintained in legacy systems), which increases the risk of reconciliation issues. 12. Using this approach to business transformation, each initiative or project builds on the technology foundation elements, and capabilities delivered in earlier projects will be used again. For example, the current Student Loans Redesign project has acquired Oracle's Enterprise Tax Management Suite, and will implement some of the service-oriented business processes, such as "enrol customer". Subsequent projects would reuse and build on this new capability by adding more business processes and or services. As Inland Revenue moves into the new environment, it will take transaction volumes out of FIRST, which will significantly reduce its running costs. 13. However, as noted in the next section, we have uncovered a number of issues that have raised questions about whether some of the assumptions that have underpinned our deployment approach still hold. We therefore need to re-assess our approach to deployment, including the pace of change, sequencing and the level of integration required to FIRST. Further information on this reassessment is included below. Re-assessment of the approach to Business Transformation 14. A set of implied principles has underpinned our transformation planning and implementation to date, including: Inland Revenue will build, operate and deliver all services and products itself transformation will be achieved through product-driven project deployment the component projects are concurrent and overlapping it is primarily internally resourced and skilled, and externally required skills are readily available the programme is based on a build and learn sequence. 15. More recently, some influences have taken on greater importance. For example: the Government has signalled a stronger focus on economic development and, accordingly, its desire for greater use of the private sector a whole-of-government service provision through Service Transformation Inland Revenue's own strategy and values about working with others to provide services. Although the extent has yet to be determined, it is both likely and desirable that Inland Revenue will make greater use of third parties to deliver services in future. This needs to shape both what we do and how we do it. 16. We have learnt important systemic lessons through the current Student Loans Redesign project. For example: Work is taking longer than expected, partly due to the complexity of the task and the effort required (particularly in areas such as business rules extraction and FIRST integration of a new architecture, consisting of integrated COTS products back into our legacy environment). 6
8 We are experiencing technical and project management skill gaps we had assumed that where we did not have the required skill sets in-house, we could readily access them externally. We had underestimated the extent to which we are at the "leading edge" with our technology solution. The project is now going through a re-planning exercise, which will be completed by the end of April The next planned major initiative for the transformation programme was Simplifying Customer Interactions (SCI). It was intended that SCI would focus on PAYE and would enable employers to file their PAYE schedules electronically through their payroll software. It would also simplify the processes for individuals who squared up at the end of the year (for example, income tax and Working for Families tax credits). 18. Delivering this initiative would require a new Customer Relationship Management (CRM) system to be designed and elements of it to be built, along with an expansion of Inland Revenue's Business to Business (B2B) capability. As detailed design for the stage 2 business case was undertaken, it became apparent that the costs of developing, integrating and deploying the CRM solution were higher than anticipated. 19. It was intended that this initiative would run in parallel with the Student Loans project. Due to the issues uncovered by the Student Loans Redesign project, it was not considered prudent to continue with another large scale project concurrent with the Student Loan project. Accordingly, the scope of the initiative has been scaled back. While the four initiatives which now comprise SCI address some of the original objectives, they make only a modest contribution to the systems transformation. 20. Inland Revenue is working with the Ministry of Social Development, the Department of Internal Affairs and other agencies to find ways of improving efficiency and effectiveness of service delivery by taking opportunities to leverage shared capability, achieve economies of scale, share information more effectively, and streamline customer interactions across boundaries. 21. The next phase of this work includes the formal establishment of the Service Transformation programme, its governance and work-streams. As noted earlier Inland Revenue's system transformation architecture is aligned with the Government Enterprise architecture framework and is therefore designed to enable Service Transformation to occur. 22. In addition to the transformation programme, we also have a number of other major changes coming in the next 12 calendar months, including Frontline Delivery changes, Budget 2011 tax changes, and implementing our Enterprise Desktop project. 23. The collective level of change involved, funding and resources required, and management focus demanded by this set of internal and externally driven change in the next months, means we need to ensure we have the overall organisational capacity to deliver. 24. All this is occurring in an environment where demand for specialist skills and transformation experience is high. Many major public sector organisations in 7
9 New Zealand and Australia are undertaking significant transformation programmes. 25. Not progressing the transformation process is neither a viable nor desirable option. We will continue to face cost pressures, for example, the need to maintain legacy systems means we have forecast transaction volumes that will require an investment in processing capacity in the region of $44 million over the next four to five years. In the light of external and internal changes and the lessons learnt, short term (12 to 24 months) transformation plans will need to change. 26. We are therefore working through the various issues and assumptions and how these impact on the sequencing, scope and approach to Inland Revenue's transformation programme. The work being undertaken over the next six months will help us to determine what the next stages of our transformational change should be. Next steps 27. The Student Loans Redesign project re-planning exercise has almost been concluded. Officials will report back on options and costs to the Minster of Revenue by the end of April The re-assessment of the transformation programme is underway. In the coming months three work-streams will inform what the transition approach and the scope, scale, sequence and pace of our transformation programme could be. These work-streams are: exploring options to maintain elements of the FIRST operating environment for longer than originally anticipated and for the de-coupling and packaging of functions into services further exploring the options for deploying systems change. These options include maintaining our current product-by-product approach, building by functionality, or building a new system isolation using currently licensed enterprise COTS packages obtaining a clearer view of our end-to-end processes and the demands placed on them. 29. It is expected that this work will be concluded by June We will then need to work through the implications and evaluate options. We expect to be able to report back to Ministers in September
10 Appendix A Diagram 1: Inland Revenue's adaptation of the Government Enterprise Architecture (GEA) Framework Inland Revenue has adapted this framework to represent our business model, while maintaining the ability to map to other agencies adoption of the GEA-NZ framework. This gives us a common framework and language between agencies, but which is also tailored specifically to represent some aspects important to Inland Revenue. Individuals, Businesses, Agencies, Intermediaries, Employees and Partners Shared Capabilities Communications Channels and Touchp: nts Information & Data ii Business Processes and Integration Policy and Rules Enterprise Functions & Systems Broker Zone Business and Operational Functions Transaction Processing Core Data (...amarrsissisra Infrastructuoa re Compliance Management Environment Diagram 2: Inland Revenue's Enterprise Architecture Framework: Broker model applied viewpoint The Broker model is a way in which Inland Revenue has depicted its future state vision. It is an enterprise-level architectural vision of what we are seeking to achieve. e*". \ Apply our system checks and balances into external systems to allow 'straight-through.,... processing'. <......, ---.** ,... Create certainty by' providing the right amount of inforniat ion. < Automatically profile transactional and...customer risk data. Payroll Systems Combine/ Enrich / Calculate Graduated range of checking depending on circumstances! source / transaction etc. Government Agencies Workflow < Operational. Accaptei Oka Customer Account Management Individuals Intermediaries Business Partners!*1 5 Channel! User Interface Management -0- -Cr- 2 IR Data, Financial Accounting Product Definition Automatically acknowledge electronic transactions to reassure customers. Core Data Policy / Leg Collections... Identity 4 Location ) D Confirm 95% of Revenue Acco assessments in near to 1 Role Definition real-time having checked for compliance risks. s....." Document / Records Management Business Intelligence / Data Warehouse Reporting Financials ( Human Resources ) Supply Chain IAMS Desktop Cloud & Platform (Operations Management Security 9
11 10
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