DCC Business Case for DCC activities during the Transitional Phase of the Switching Programme. Design Baseline 2 Update

Transcription

1 DCC Business Case for DCC activities during the Transitional Phase of the Switching Programme Design Baseline 2 Update Version: V3.1.3 Date: 8 February 2018 Author: Classification: Freddie Akompi DCC Public

2 Document Control Heading Revision History Revision Date Summary of Changes Changes Marked Version Number 09/10/ /10/2017 First draft incorporating sections drafted separately Updated draft for internal DCC Switching team review No No /10/2017 Updated Costs following baselined plan No /11/2017 Final DRAFT for Internal Review No /11/2017 Submitted Final DRAFT to Ofgem No /12/2017 Updated draft following Ofgem review No /01/2018 Updated following internal DCC review No /02/2018 Updated draft following Ofgem review Yes Approvals Name Signature Title / Responsibility Release Date Version Number Helen Fleming Jane Eccles Policy Director Switching Programme Director 09/02/ DCC Switching Business Case DCC Public Page 2 of 99

3 Contents 1 Executive Summary The Switching Programme DCC Switching Business Case Summary of Key Changes since March 17 Baseline 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 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 99

4 9.2 Recovering switching costs in the Transitional Phase Cost drivers Staff costs Non-staff resource costs Corporate overhead 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 ARequirements Traceability Matrix Appendix B Product Breakdown Structure Appendix C DCC Switching Programme plan Appendix D Cost model Appendix E RAIDO Appendix F Role and Product Changes DCC Switching Business Case DCC Public Page 4 of 99

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 Central Switching Service (CSS) 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 Centralised Registration Service (CRS) and the broader switching arrangements. 3. The CRS is used in the context of the DCC s licence only; it covers all of the services that DCC may be required to procure which includes the Central Switching Service (CSS); encompassing the (Registration Service, Address Service, Switching Network(s), Service Management and CSS Operations) and the Consumer Enquiry Service (CES). 1.2 DCC Switching Business Case 4. 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. 5. 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. The February 2018 baseline provides an update to costs and resource based on the published DB2 Preferred Solution and DB3 Certainty. 6. 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 2a as set out in Ofgem s Design Baseline 2 1. Where information is not yet available in relation to key activities then assumptions have been made, validated where possible, and documented. We will continue to revise and update the Switching Business Case at key points in the programme to take 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 99

6 account of the increasing level of certainty about activities, timelines, resource requirements and costs. 7. Ofgem has 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. 1.3 Summary of Key Changes since March 17 Baseline 8. A number of changes have been introduced to both the Programme Plan and supporting cost model resulting in an overall reduction in forecast costs from m to m and movement of the Incentivised Milestone (IM) dates and Programme end date by one working day). All the activity within this publication is based on the DB2 Preferred Solution timeline. 9. The changes are summarised below i. A number of products have been added to the plan, mostly to mitigate operational risks or to accommodate new scope consulted upon by Ofgem at DB2 (e.g. inclusion of a Consumer Enquiry Service 2 ) ii. iii. A number of new roles have been added to the plan and a number of roles included in the March Baseline have been removed and activities accommodated in existing roles. These changes are included in the organisation chart in Appendix F The rate card has been modified (downwards) to reflect actual rates achieved when appointing permanent and contract resources iv. The number of working days per month has been reduced from 22 to The Programme Plan, which remains non-contingent, has been subject to an independent review which concluded that it is achievable but challenging. 2 Ofgem is considering whether procurement by DCC is the best way of delivering a CES. Ofgem have directed DCC to include provision of a CES within this business case in order to keep that option open DCC Switching Business Case DCC Public Page 6 of 99

7 1.4 Requirements 11. 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/or contributing to the development of products Prepare for and deliver the procurement of the Central Switching Service (CSS) and other supporting services as required (on the assumption that there will be five procurement projects). 12. 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. 13. DCC and Ofgem have worked jointly to agree the scope of DCC s responsibilities in the Transitional Phase of the programme. 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. 14. The outcome of this joint planning is reflected in DCC s programme plan (Appendix C ). The planning assumptions that underpin the DCC Switching Business Case and plan are captured in the RAIDO (Appendix E). 15. 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) and those aspects of the design that have been consulted on at DB2. 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 (e.g. requirements for a Customer Enquiry Service) 16. The delivery activities and resourcing approach are set out in Section 8. The DCC Switching Programme Plan and DCC s forecast costs reflect the baseline scope scenario aligned with Reform Package 2a in accordance with the programme s planning assumption. DCC has updated the DCC Switching Business Case as appropriate to take account of decisions taken by Ofgem about the preferred solution. The baseline scope also accounts for the planned procurement activity for the Customer Enquiry Service, Delivery Assurance and SI. DCC Switching Business Case DCC Public Page 7 of 99

8 1.5 Activity and resourcing plan 17. DCC has developed a programme plan that identifies the duration of activities and the effort and roles required to deliver RP2a. 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, as confirmed by the external plan assurance exercise. 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. DCC Switching Business Case DCC Public Page 8 of 99

9 Figure 1 High level DCC programme timeline 3 3 The timeline within this plan represents the DB2 Plan assured by PA Consulting in October 2017 when the business case was written. DCC are working with Ofgem to revise the plan to reflect DB3. DCC Switching Business Case DCC Public Page 9 of 99

10 19. 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 Operations. 20. Based on the planned activities within the DCC Switching Programme Plan, DCC 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 generated a resourcing profile for delivery of the products based on the actual performance to date and has determined which roles will be more economically and efficiently fulfilled by permanent resource or by temporary resource. While this was previously automatically generated by the Cost Model, a more thorough planning exercise has now yielded the optimum resource profile as summarised below in Figure 2. Figure 2 - DCC FTE profile DCC Switching Business Case DCC Public Page 10 of 99

11 22. 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. 23. 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 1.6 Costs Total cost to industry 24. The total estimated cost to industry associated with delivering the baseline scenario (RP 2a) 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 September 2017(DB2 Preferred Solution).The remaining months (October 2017 January 2018) will be updated using actual data in line with the Price Control regime to reflect consistency of allowed or disallowed costs. 25. 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 quarterly ex post plus and annual ex post price control submission to Ofgem. 26. 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. 27. Approximately 60% of this cost to industry is related to providing resource to support Ofgemled activity to programme manage, define the design, delivery, commercial and regulatory arrangements for switching. The remaining 40% is related to the cost of DCC specifying and procuring the CSS 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 RY RY RY 16/17 17/18 18/19 19/20 Total Total Cost To Industry 2,360 6,982 7, ,266 Total Base Costs 1,902 4,257 4, ,828 Staff Costs (excludes consultancy) 814 2,576 2, ,528 Non-Staff Costs (includes consultancy) 1,088 1,680 1, ,300 Materiality Threshold - 1,472 1, ,174 Contingency - 1,472 1, ,174 Overhead ,274 Margin ,991 DCC Switching Business Case DCC Public Page 11 of 99

12 Table 1 - DCC baseline scenario costs Staff costs 28. 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 16 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 814 2,576 2, ,528 Commercial (Procurement) Commercial (Regulatory) Design Delivery and Transition Design ,720 Operations Programme Management , ,917 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 1,730 3,233 3, ,172 Commercial (Procurement) , ,826 Commercial (Regulatory) Design Delivery and Transition ,581 Design ,782 Operations Programme Management 592 1,121 1, ,259 Security Corporate overhead charge Table 3 - DCC staff and consultancy costs 29. 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 DCC Switching Business Case DCC Public Page 12 of 99

13 consequently incurs costs in relation to those services and support. DCC submitted justifications for these costs in respect of the Switching Programme through our ex post price control submissions, DCC: Price Control Decision 2016/17 document 4 ; this was rejected by Ofgem in their consultation document. DCC is therefore working on an alternative approach to providing sufficient justification which is hoped will pass Ofgem's threshold of economic and efficient spend for its 17/18 submission Materiality threshold 30. 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 on 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. 31. The total materiality threshold from the September 17 Baseline is 3,174 this is a reduction from 4,467 initially provided in the March 2017 forecast.this reduction is a result of a number of risks being closed, no contingency being drawn down in RY16/17 and is underpinned by the reduction in the overall cost. The current Materiality Threshold is equivalent to 18.4% of the total cost to industry (including staff and non-staff resource costs, corporate overhead charge and margin) associated with the baseline scenario (RP 2a). 1.7 Margin and incentives 32. 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. 5 The DCC Switching Business Case reflects this direction. 33. 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 4. ( k) Total Costs (Including Materiality Threshold) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total 2,082 6,217 6, ,275 Margin ,991 Table 4 - Margin values (based on forecast costs) 34. 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 4 Ofgem, DCC Price Control Decision: Regulatory Year 2015/16, 28 February 2017: 5 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 99

14 the cost base for DCC activities relating to delivery of the incentivised milestones. Based on the current forecast costs this equates to approximately 23% of DCC margin at risk. 1.8 Monitoring and updating the DCC Switching Business Case 35. 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. This is reported monthly with commentary. 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 post price control reporting framework. This information is assessed by Ofgem s Price Control team only. 36. 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 99

15 2 Introduction and background 37. 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. 38. 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 39. 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 41. 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. 42. 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. 43. The Blueprint phase defines the new market arrangements and delivery strategy in a Target Operating Model. As part of the Blueprint phase, Ofgem issued a Request for Information 6 Ofgem, Switching Programme: strategic outline case, 19 January 2017: DCC Switching Business Case DCC Public Page 15 of 99

16 (RFI) to industry (January 2017), a consultation on the preferred solution and published for RP2a (21st September 2017) 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. 45. 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 CSS. 46. Ofgem will define a series of four 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 7 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 99

17 2.2 DCC s role in the Switching Programme 48. 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 CSS. The regulatory changes defining DCC s role are summarised below. 49. In February 2015 Ofgem published their decision document 8 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. 50. In December 2015 Ofgem published a Statutory Consultation 9 and subsequently concluded 10 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 51. 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 11 and are described in Section 12. The DCC Switching Business Case does not form a baseline for price control purposes. 52. 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 53. The key activities leading to the baselining of this DCC Switching Business Case, follows the March 17 baseline with the Addition on the Design Baseline 2 (preferred solution). Figure 5 below shows the history of baselining. 8 Ofgem, Decision: Moving to reliable next-day switching, 10 February 2015: 9 Ofgem, Final Proposals on DCC s role in developing a Centralised Registration Service and penalty interest proposals, 17 December 2015: 10 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: 11 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: DCC Switching Business Case DCC Public Page 17 of 99

18 Figure 5 - Activities leading to DB2 baselining of DCC Switching Business Case DCC Switching Business Case DCC Public Page 18 of 99

19 3 Purpose 54. 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 12 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. 12 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 99

20 4 Scope of the DCC Switching Business Case 55. 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. 56. 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 CSS and procuring the Fundamental Registration Service Capability to deliver the CSS. 57. 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. 58. 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 99

21 5 Objectives 5.1 Ofgem Programme Objectives 59. The objectives of the Ofgem Switching Programme are set out in the Ofgem Switching Programme Strategic Outline Case (SOC) 14 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. 60. We remain very confident there are no material changes to these objectives. 14 Ofgem, Switching Programme: strategic outline case, 19 January 2016: DCC Switching Business Case DCC Public Page 21 of 99

22 5.2 DCC Objectives 61. 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. 63. 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. 64. 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. 65. 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: 15 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: DCC Switching Business Case DCC Public Page 22 of 99

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. 66. 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 99

24 6 Requirements 67. 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. 68. All DCC products are captured in the Product Breakdown Structure included in Appendix B and each product is underpinned by a product description. At the time of writing all products in Blueprint are completed and DLS product descriptions are completed with most of the products in development. 69. 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. 70. 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 99

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 99

26 71. 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. 72. 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. 73. 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 74. 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. 75. 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 Central Switching 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 CSS, including developing the CRS detailed design (CSS User Requirements) and planning and executing the procurement of the CSS solution and other supporting services as required (on the assumption that there will be five procurement projects). 76. 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 99

27 77. 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 78. 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 79. 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 CSS leading on the development of the design of the CSS preparing for procurement of the CSS 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 99

28 6.1.3 Enactment phase 80. 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 CSS procurement, including all associated products mobilise for DBT (subject to licence amendments). 6.2 Outputs and deliverables Requirements traceability matrix 81. 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. 82. 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 17 and the publication of amendments to DCC s licence 18 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). 84. 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. 16 Ofgem, Proposals for DCC s role in developing a Centralised Registration Service and penalty interest proposals, 17 December 2015: 17 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: 18 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 99

29 6.2.2 Product breakdown 85. 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. Since the March 17 Baseline, we have included new approved products in the breakdown. 86. 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. 87. 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. 88. 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. 89. 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 99

30 6.3 Ways of working: Outcomes and non-functional requirements of DCC input 91. 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. 92. 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. 93. 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 99

31 7 Scope Scenarios 7.1 Overview 94. 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 95. There are two overarching areas of scope uncertainty relating to DCC s involvement in Ofgem s Switching Programme. These are CSS solution uncertainty and the scope of DCC activities. Based on the Ofgem publication from 21 st September 2017 on Design Baseline 2 (Preferred Solution), we are closer in certainty in the scope of design activities relating to the CSS solution and will revisit should the consultation result in change. 96. 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. The risks have been revisited in line with the baseline and reflects the current understanding of uncertainty CSS solution uncertainty 97. Following Ofgem s publication of the preferred solution, DCC has aligned its baseline planning assumptions to reflect the requirements associated with Reform Package 2a. While the confirmation of the Ofgem preferred solution provides a greater degree of certainty, the outcome of the formal consultation with industry by Ofgem may lead to a change in the design and delivery strategy; which 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. 98. The high level view of DCC s assumed solution to support Reform Package 2a is illustrated in Figure 7. The diagram illustrates the databases, application layer, orchestration and interfaces (including their direction). This is aligned 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 2a; 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 2a. 99. Note that while DCC has assumed it will run five procurement projects to procure the CSS and additional projects for the 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 now included in the current plan. The five planned CSS procurement projects are based on complexity characteristics consistent with the Reform Package 2a solution assumptions. DCC Switching Business Case DCC Public Page 31 of 99

32 7.2.2 Scope of DCC activities Figure 7 Reform package 2a: high level view of assumed solution 100. 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. These were refined in DB1. Following joint planning undertaken by DCC and Ofgem, there is now increased certainty on the scope of DCC s products and activities which has resulted in a removal on the High and Low scenario modelling based on RP 3, and instead this scope of activity focuses primarily on the delivery on Design Baseline 2 (Preferred Solution) Reform Package 2a. DCC Switching Business Case DCC Public Page 32 of 99

33 Area 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 DCC approach for Baseline scenario Lead development of industry interface specifications not relating to the CRS Rationale Current expectation set by Ofgem Role in Regulatory Design workstream DCC required to actively contribute to the Regulatory Design workstream Design Team Current expectation set by Ofgem Number of procurements projects required Five procurement areas. (1) Central Switching Service - Registration Service (2) Address Service (3) Service Management and Operations (4) System Integrator Service (5) Core Systems Assurer Provides an appropriate balance of competition, allowance for natural splits in the market and a level of integration complexity Table 5 - Areas of scope uncertainty DCC Switching Business Case DCC Public Page 33 of 99

34 8 Solution: Delivery and resourcing approach 8.1 Overview 101. 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 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 105. 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 current scope, key programme phases and deliverables. The DCC Switching Programme Plan allows DCC to generate a costed resource plan. DCC Switching Business Case DCC Public Page 34 of 99

35 106. There is much greater certainty in the scope of DCC s role following DB2 consultation with Ofgem, it is also now possible to determine the timescales of the Transitional Phase with certainty since 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 are 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 are 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 the estimated level of resource effort required to deliver each work package DCC Switching Business Case DCC Public Page 35 of 99

36 the roles assigned to each work package (explained in Section 8.4 below) A high level timeline is included in Figure 8. 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 36 of 99

37 Figure 8 - High level DCC programme timeline The timeline within this plan represents the DB2 Plan assured by PA Consulting in October 2017 when the business case was written. DCC are working with Ofgem to revise the plan to reflect DB3. DCC Switching Business Case DCC Public Page 37 of 99

38 8.3 Summary of key activities 112. 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 CSS 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 Operations 114. 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 The Operations workstream covers the development of the Switching Programme s Operations and Service Management strategies, detailed approaches and the definition of the requirements to support these. It will engage with industry and potential suppliers and will influence the end-to-end switching service design from an operations perspective. It will also drive alignment of operations and transition strategies and management plans with regulatory code development A description of the key activities during each phase of the overall Transitional Phase is included below. Blueprint phase 117. Key DCC activities within the Blueprint phase relate to leading and contributing to the development of high level products which will form part of the preferred solution. DCC have reviewed and update these Blueprint products based on industry feedback following the DCC Switching Business Case DCC Public Page 38 of 99

39 Blueprint RFI and consultation on Design Baseline 2. DCC will also develop, baseline and commence updated reporting against the DCC Switching Business Case during the Blueprint phase DCC sought 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 continue to 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. Detailed Level Specification phase 119. 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 (Preferred Solution). 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 CSS and to produce any additional artefacts to complete the design and requirements for the CSS. Note that the design includes requirements relating to the delivery of the CSS 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 CSS during DLS, DCC will define all of the CSS 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 CSS. 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. DCC Switching Business Case DCC Public Page 39 of 99

40 123. 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 CSS interface 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 CSS design, DCC has commissioned some design proving activities. The objective of these activities is 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 activities will provide the programme with increased confidence that the design will operate as intended, based on firm evidence Since the March baseline, the programme has now engaged a supplier, TVS, to deliver the design proving activities. DCC and Ofgem have agreed that the supplier will deliver the activities in 3 releases which will be made up of a number of sprints delivered using Agile development methodology. Additional governance has been set up to manage the work and appropriate resource included in the new Business Case The objectives and scope of each release is as follows: 1. Release 1 Foundation and Ecosystem. This release will cover some aspects of the solution such as Objections, choreography, switching), basic tables, relationships and data types in the database along with inputs and outputs 2. Release 2 CRS and Detailed Design. This release will focus on CSS Design proving, again covering objections, choreography and switching), proving of the physical database and systems along with inputs and outputs. 3. Release 3 will deliver a test harness which 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 CSS 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 CSS 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 Switching Business Case DCC Public Page 40 of 99

41 130. DCC will complete the Procurement Plan for the CSS 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, followed by a more detailed market engagement later in the DLS phase as the design is more fully developed. Enactment phase 131. During the Enactment phase, DCC will execute the procurement and contracting of the CSS 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. 20 The governance arrangements relating to procurement 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 CSS and other supporting services as required (on the assumption that there will be a Central Switching Service - Registration Service, Address Service, Service Management and Operations, System Integrator Service and Core Systems Assurer); a total of five procurements. 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 135. 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 Design Forums; 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 will be using the Ofgem Design Forums, as opposed to the initially proposed Switching Advisory Group, which would provide industry oversight of DCC s Switching Programme on areas such as scope, timescales and risks. During the development of the 20 Ofgem and DCC, Switching Programme Procurement Framework, 18 January 2017: DCC Switching Business Case DCC Public Page 41 of 99

42 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 139. 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 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. Additionally the Programme Plan has been assured externally by a leading Consultancy Effort 142. 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 143. 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 6 below. Roles are mapped against the programme workstreams to which they primarily contribute. DCC Switching Business Case DCC Public Page 42 of 99

43 Role Focus areas Programme workstream Programme Director Deputy Programme Director Programme Manager Project Manager Programme Management Office (PMO Analyst, Project Support Officer, Programme Controls Lead, Risk Manager, Business Analyst) Programme Advisory Business Architect Design Assurance Software Engineer Test Assurance Price Control Lead Finance Business Partner Industry Liaison Design workstream Technical Lead Lead the DCC Switching Programme Interfacing with Ofgem and industry Lead the VFM Commercial Procurement Strategy Lead the engagement with programme governance and industry stakeholders 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 Lead the development of the DCC Switching Business Case Cost Model for activities during the Transitional Phase 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) Support and assure the design work and to translate the design into a commercial document Support the Design Proving work from a technical perspective and liaise with the design team on proving work and later on during Release 3 To ensure the Design Proving tool is fit to release to a the wider community Contribute to development of price control and charging arrangements for the DBT and Live Operations phases Maintain DCC Switching Business Case Cost Model for activities during the Transitional Phase Develop and maintain reporting against DCC Switching Business Case Engagement with programme governance and industry stakeholders Lead the Design workstream DCC Switching Business Case DCC Public Page 43 of 99

44 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 Architecture Development Lead Define and maintain CSS design, non-functional requirements and service management approach Support CSS 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-toend switching arrangements Develop technology and communications standards for the end-to-end switching arrangements Define CSS 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 Solution Architect Business Analyst Data Architect Data Migration Architect Security workstream Security Lead 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 CSS procurement from an interfaces and messaging perspective Develop solution architecture, data architecture and governance and nonfunctional 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 CSS 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 CSS procurement from a data architecture perspective Manage Security workstream DCC Switching Business Case DCC Public Page 44 of 99

45 Security Architects/ Consultants Delivery and transition workstream Delivery Lead Integration Architect Test Lead DBT Mobilisation Operations workstream Operations Lead Senior Service Architect 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 CSS 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 Manage Delivery and transition workstream Support the Ofgem Delivery workstream lead Contribute to development of Blueprint delivery strategy Develop design and build plan and post-implementation plan for the end-to-end switching arrangements Define CRS delivery plans Support CSS 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 CSS procurement from an integration perspective 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 CSS procurement from a testing perspective Mobilise for DBT (subject to licence amendments). 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 CSS procurement from an operational requirements perspective Develop service management design for the end-to-end switching arrangements Define service management approach and requirements for the CRS DCC Switching Business Case DCC Public Page 45 of 99

46 Operations Architect Service Architect Regulatory design workstream Regulation Lead Procurement workstream Procurement Lead Commercial Lead Procurement Consultants Strategic Legal and Commercial Support Legal Advisor Support CSS procurement from a service management perspective Contribute to development of regulatory arrangements 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 CSS Lead procurement of CSS by providing commercial direction in VFM Provision of Commercial leadership in the Development of the Procurement Framework, Procurement Plan and Sourcing Strategies Support preparation for CSS procurement, including supporting market engagement as required Support procurement of CSS execute a procurement project Support procurement of CSS, 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 6 - Capabilities and key focus areas DCC Switching Programme team structure 145. 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 and 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 46 of 99

47 Programme Director Apr 16 May 19 Programme Advisor Apr 16 Dec 17 5% utilisation Deputy Programme Director Sep 17 May 19 Programme Workstream Operations Workstream Design Workstream Delivery Workstream Security Workstream Commercial Workstream - Regulation Commercial Workstream - Procurement Design Assurance Analyst (1) Dec 17 May 19 Reporting/ Design Proving PM Feb 17 Jun 18 Industry Liason Sept 17 May 19 60% utilisation Programme Manager Apr 16 May 19 Ops Lead Apr 17 May 19 50% utilisation in Enactment Technical Lead Apr 17 May 19 Delivery Lead Apr 16 Aug % utilisation reduced to 50% in enactment Security Lead Sep 16- May 19 Regulation Lead (20% utilisation) Apr 16 May 19 Procurement Lead Apr 16 May 19 Design Assurance Analyst (2) Dec 17 May 19 Software Engineer Aug 17 Mar 18 PMO Business Analyst Apr 16 May 19 Lead Business Architect Apr 16 -May 19 Snr Service Architect Apr 17 May 19 Solution Architect Apr 16 May 19 50% utilisation in Enactment Integration Architect Apr 16 May 19 Security Architect July 17 June 18 Procurement Specialist x2 Nov 18 May 19 Test Assurance Analyst Apr 18 May 18 Project Support Officer Apr 16 May 19 PMO Analyst (Planner) Apr 16 May 19 Finance Business Partner Arp 16 May 19 Price Control Lead (20% Utilisation) Apr 16 May 19 Service Architect 1 50% utilisation from June 18 Apr 17 May 19 Operations Architect Jan 18 May 18 Architecture Development Lead Apr 16 May 19 50% utilisation in Enactment Data Architect Apr 16 May 19 Test Lead 1 Apr 17 May 19 E2E Security Team Feb 17 Dec 17 Security Advisor 20% Utilisation Jan 18 May 18 DCC Legal Advisor 5 % Utilisation Apr 16 May 19 Strategic Legal and Commercial Support Prog Controls Lead May 16 Aug 17 Finance Analyst Jul 18 Mar 19 (50% Utilisation) Service Architect 2 Jan 18 May 18 Business Analyst (ABACUS & Design) Apr 16 Apr 18 Business Analyst (RTM) Dec 17 May 19 Business Analyst / Risk Management Dec 17 May 19 Business Analyst (Abacus) Apr 16 Apr18 Business Analyst (Requirements) Jun 17 Apr 18 Data Migration Architect Nov 17 Jan 18 Figure 9 DCC Switching Programme team structure End of Blue Print to End of CSS Design DCC Switching Business Case DCC Public Page 47 of 99

48 Programme Director Deputy Programme Manager Programme Workstream Operations Workstream Design Workstream Delivery Workstream Security Workstream Commercial Workstream - Regulation Commercial Workstream - Procurement DBT Mobilisation Design Assurance Analyst (1) Dec 17 May 19 Industry Liason 60% utilisation Sept 17 May 19 Programme Manager Apr 16 May 19 Ops Lead Apr 17 May % utilisation (reduced to 50% in enactment) Technical Lead Apr 17 May 19 Delivery Lead Apr 16 Aug % utilisation reduced to 50% in enactment Security Lead Sep 16- May 19 Regulation Lead (20% utilisation) Apr 16 May 19 Procurement Lead Apr 16 May 19 SI Project Manager Feb 19 May 19 DBT Project Manager x5 Apr 19 May 19 Design Assurance Analyst (2) Dec 17 May 19 PMO Business Analyst Apr 16 May 19 Project Support Officer Apr 16 May 19 PMO Analyst (Planner) Apr 16 May 19 Business Analyst (RTM) Dec 17 May 19 Lead Business Architect Apr 16 -May 19 Finance Business Partner Arp 16 May 19 Price Control Lead (20% Utilisation) Apr 16 May 19 Finance Analyst Nov 18 May 19 Snr Service Architect Apr 17 May 19 Service Architect 1 50% utilisation from June 18 Apr 17 May 19 DPP Service Analyst May 18 May 19 Solution Architect Apr 16 May 19 50% utilisation in Enactment Architecture Development Lead Apr 16 May 19 50% utilisation in Enactment Data Architect Apr 16 May 19 Integration Architect Apr 16 May 19 Test Lead 2 Apr 18 May 19 Security Architect July 17 June 18 Procurement Specialist x2 Nov 18 May 19 Procurement Specialist x4 Jan 18 May 19 DCC Legal Advisor 5 % Utilisation Apr 16 May 19 Strategic Legal and Commercial Support Nov Dec 17 SI Deputy Project Manager Feb 19 May 19 DBT Deputy Project Manager x 5 Apr 19 May 19 Business Analyst / Risk Management Dec 17 May 19 Figure 10 - 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 48 of 99

49 8.5 Sourcing approach Optimum Resourcing Approach Mixed model 147. The DCC continues to adopt a mixed model, filling roles with a combination of permanent staff, contractors and consultancy services. This decision was based on a number of factors including value for money, and the additional points below Advantages 148. 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 152. By deploying a mixed staffing model, the forecast staff costs are 9,172k. This reflects cost reduction when compared to the Baseline 1 (March 17) of 13,225k. Conclusion 153. Following the option appraisal, the mixed model represents the best balance of cost, knowledge retention and flexibility Selected approach: mixed model 154. 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. DCC will be required to justify any additional central resource through its annual price control reporting. DCC Switching Business Case DCC Public Page 49 of 99

50 Identifying generic vs specific roles 155. 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 6. specific roles roles that are filled 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 11. 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 - Janet (specific) Test Analyst (generic) Role category Figure 11 - Example role hierarchy Identifying permanent and temporary resource 158. 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 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. The cost model no longer determines the resource profile, the Programme Management team now holds the responsibility of resource determination based on the planned work and effort. DCC Switching Business Case DCC Public Page 50 of 99

51 Figure 12 - FTE profile by source 160. An overview of the split of staff numbers and costs across the different sources of resource is provided in Figure 13. Figure 13 - Staff sourcing breakdown 161. A detailed breakdown of the resource types required by DCC by source, shown as FTE months, is provided in Table 7, Table 8 and Table 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. DCC Switching Business Case DCC Public Page 51 of 99

52 Perm Staff (FTE Months) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Commercial (Procurement) Commercial (Regulatory) Design Delivery and Transition Design Operations Programme Management Security Table 7 - Permanent resource breakdown Contractor Staff (FTE Months) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Commercial (Procurement) Commercial (Regulatory) Design Delivery and Transition Design Operations Programme Management Security Table 8 - Contractor resource breakdown Consultancy resource (FTE Months) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Commercial (Procurement) Commercial (Regulatory) Design Delivery and Transition Design Operations Programme Management Security DCC Switching Business Case DCC Public Page 52 of 99

53 8.5.3 Drivers for potential variance Table 9 - Consultancy resource breakdown 163. When DCC recruits for specific roles, there may be instances where we vary from the forecasted 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 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 53 of 99

54 9 Costs 165. 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 167. The total estimated cost to industry associated with delivering the baseline scenario is summarised in Table 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 September 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 60% 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 40% is related to the cost of DCC specifying and procuring the CSS elements to the overall Switching arrangements. ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total Cost To Industry 2,360 6,982 7, ,266 Total Base Costs 1,902 4,257 4, ,828 Staff Costs (excludes consultancy) 814 2,576 2, ,528 Non-Staff Costs (includes consultancy) 1,088 1,680 1, ,300 Materiality Threshold - 1,472 1, ,174 Contingency - 1,472 1, ,174 Overhead ,274 Margin ,991 Table 10 - DCC baseline scenario costs DCC Switching Business Case DCC Public Page 54 of 99

55 171. 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 173. All of the costs set out in Table 10, 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 21. 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 22, 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 11 below. Charging group Weighting Import electricity suppliers 49% Export electricity suppliers 8% Gas suppliers 37% Electricity distributors 6% Gas transporters 0% Table 11 - Charging group and weighting 176. 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 55 of 99

56 2016/17. The efficient costs forecast to be incurred in RY 2017/18 will be included in the Charging Statement were 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 181. 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 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 in the Programme Plan 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 blended consultancy day rate to the consultancy resource profile, in order to generate a base DCC Switching Business Case DCC Public Page 56 of 99

57 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 187. The annual cost of each programme workstream is summarised in Table 12. A mapping of resource roles against the programme workstream to which they primarily contribute is provided in Table 16. Note that this table excludes consultancy resource, which is categorised as non-staff cost. DCC Switching Business Case DCC Public Page 57 of 99

58 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 1,730 3,233 3, ,172 Commercial (Regulatory) Design Delivery and Transition Commercial (Procurement) Programme Management Regulation Lead Delivery planning, Testing, DBT mobilisation Procurement Lead, Procurement consultancy, Commercial, Legal Programme Director, Programme Manager, PMO, Business Case, Price Control, Finance, Reporting, Recruitment, Industry Liaison , , , ,121 1, ,259 Security Regulation Lead Design Operations Architecture, Business Analysis, Data, Service Management Operation Lead, Operations Architect,Senior Service Architect,Service Architect,Service Analyst Table 12 - DCC staff costs , The cost by permanent, contractor or consultancy resource for each programme workstream is summarised in Table 13, Table 14 and Table 15. 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 58 of 99

59 Permanent Resource Costs ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total 269 1,328 1, ,304 Commercial (Procurement) Commercial (Regulatory) Design Delivery and Transition Design Operations Programme Management ,995 Security Table 13 - Permanent resource costs Contractor Resource Costs ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total 545 1,248 1, ,224 Commercial (Procurement) Commercial (Regulatory) Design Delivery and Transition Design ,061 Operations Programme Management Security Table 14 - Contractor resource costs Consultancy Resource Costs ( k) RY 16/17 RY 17/18 RY 18/19 RY 19/20 Total Total ,644 Commercial (Procurement) ,109 Commercial (Regulatory) Design Delivery and Transition Design Operations Programme Management Security Table 15 - Consultancy resource costs DCC Switching Business Case DCC Public Page 59 of 99

60 Primary workstream Delivery and Transition Design Procurement Programme Regulation Security Operations Resource roles Delivery Lead Integration Architect Test Lead DBT Mobilisation Architecture Development Lead Business Analyst Data Architect Data Migration Architect Solution Architect Technical Lead Commercial Support Legal Advisor Procurement Lead Procurement Specialists Business Architect Finance Analyst Finance Business Partner Industry Liaison Price Control Lead PMO Analyst Programme Advisory Programme Controls Lead Programme Director Deputy Programme Director Programme Manager Project Manager Project Support Officer Design Assurance Business Analyst (RTM, Risk Management) Software Engineer Regulation Lead Security Lead Security Architect Security Advisor Operation Lead Operations Architect Senior Service Architect / Service Architect Table 16 - Role categorisation DCC Switching Business Case DCC Public Page 60 of 99

61 9.4.1 Resource rate card 189. 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 190. 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 oncosts, central DCC costs and the corporate overhead is included in Table 17. 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 17 Summary of items included in on-costs, central DCC costs and corporate overhead 191. 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 multiplier being applied for each role is included within the rate card in the cost model (Appendix D ). DCC Switching Business Case DCC Public Page 61 of 99

62 192. 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 18. 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 18 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. Temporary resource 198. 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 18 for either permanent or contractor resource this is only applied to the overall cost base. 23 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 62 of 99

63 199. 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 DCC Switching Business Case DCC Public Page 63 of 99

64 [Table redacted] Table 18 - Permanent employee salary benchmarking 202. 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 203. 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 double-counted 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 approach given the cost required to establish and monitor an internal cross-charging arrangement that DCC Switching Business Case DCC Public Page 64 of 99

65 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. DCC Switching Business Case DCC Public Page 65 of 99

66 9.5 Non-staff resource costs 210. The majority of the DCC costs are staff-related; however, some non-staff costs are included within the programme budget as detailed in Table 19 Non-staff resource costs ( k) RY /17 RY /18 RY /19 RY /20 Total Total 1,088 1,680 1, ,300 Table 19 - Non-staff resource costs 211. A budget for additional office space has been included where the capacity of current DCC premises is exceeded 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 has 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) 214. 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. 24 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 66 of 99

67 9.6 Corporate overhead 217. 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 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. The 9.5% overhead was justified in the 16/17 price control submission but continues to be under review 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 DCC Switching Business Case DCC Public Page 67 of 99

68 control submissions, as requested by Ofgem in its DCC: Price Control Decision 2015/16 document 25, 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 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) 26 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. 25 Ofgem, DCC Price Control Decision: Regulatory Year 2015/16, 28 February 2017: 26 Ofgem, DCC: Regulatory Instructions and Guidance 2015, 29 May 2015: DCC Switching Business Case DCC Public Page 68 of 99

69 10 RAIDO 226. 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 227. 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 baseline reform 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 baseline 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 69 of 99

70 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 20 and the key opportunities in the extract from the RAIDO Assumptions 234. 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 235. 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 236. 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 70 of 99

71 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 71 of 99

72 Risk ID Category Risk Owner Description Potential Impact Mitigation Plan R006 Non-scenario risk Reviews and Programme governance takes longer than planned and requires material rework to products Ofgem R032 Non-scenario risk Plan estimates are optimistic DCC Due to the fact that the DCC Switching Programme Plan is based on the assumption that the Ofgem and Industry review of Products will take no longer than 15 days and that all products will be approved first time at TDA and/or SRO sign off There is a risk that the Ofgem and Industry review of DCC products takes longer than the planned 15 days including SRO/TDA acceptance. 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 result in; - Delay to completion of products increasing DCC time and effort as DCC would be required to keep resources in place for longer than planned - Requirement for DCC to carry our rework on design products - Extended time and effort to complete DCC activities in order to update and complete products. 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 DCC can help to mitigate the probability by engaging with Ofgem regularly prior to the review. Reduce the probability by ensuring that the approvers have visibility of the product as it is being developed or are aware of the direction of travel to provide the opportunity for early feedback to guide product development. Inventigate posibility of setting up early workshops with Ofgem SRO to ensure the scope and purpose of products is understood from the Pre-mitigation Scoring 4 - Likely (50% to <70%) Undertake schedule risk analysis to understand the impact of uncertainty and risk within the programme to inform the contingency amount and highlighting areas to focus management attention 3 - Possible (20% to <50%) Pre-mitigation Severity 3 - Moderate 4 - Major Post Mitigation Scoring - Probability 3 - Possible (20% to <50%) 3 - Possible (20% to <50%) Post Mitigation Cost Impact Post Mitigation Cost Impact x Probability 2,694, ,173 1,077, ,269 R045 Non-scenario risk Service Provider tender response delay DCC Due to the fact that the DCC Switching Programme Plan for procurement activities is based on the assumption that potential CSS Service Providers will have 34 days to respond during the procurement activity There is a risk that Service Providers will require extension to respond to Invitation to Tender that exceeds planned timescales. This could result in; - Increased time and effort to support contractor response times - Delay to responses being received by DCC - Impacting the delivery of the contract signature date - Delay to production of the Recommendation Reports and achievement of IM3 Mitigate the probability through by robust market engagement or providing early sight to requirements to potential bidders. Mitigate the impact by investigating whether we can limit the time that can be requested for extension? 3 - Possible (20% to <50%) 3 - Moderate 3 - Possible (20% to <50%) 1,077, ,269 R030 Non-scenario risk Contract closure timescales DCC Due to the fact that CSS 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... 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 The DCC Programme Plan is uncontingent and further time to allow for this has not been added 4 - Likely (50% to <70%) 4 - Major 3 - Possible (20% to <50%) 1,077, ,269 In order to deliver the activities requested by Ofgem and detailed in the DCC Switching Programme Plan, This could result in; - Gaps in the resource required to deliver the DCC will mitigate the likelihood by undertaking recruitment as early as possible in 3 waves. R029 Non-scenario risk Increased use of temporary resource DCC DCC plans to recruit individuals into a number of DCC element of work, potentially resulting in Mitigate the impact by hiring temporary resource 4 - Likely (50% to 3 - Possible (20% to 3 - Moderate permanent roles. Due to a competitive resource market delays to the completion of DCC activities only on a short term basis to limit the gap. <70%) <50%) 661, ,380 where specialist skills are in high demand... - Increased use of temporary resource as an interim measure, leading to increased DCC staff Total 7,970,284 2,519,340 Table 20 - Key risks DCC Switching Business Case DCC Public Page 72 of 99

73 Opportunity ID OP009 OP014 OP013 Total Category Opportunity Description Potential Impact Non-scenario opportunity Non-scenario opportunity Non-scenario opportunity Procurement approach to be adopted for the CRS solution Fewer procurement projects Simple CRS solution 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. 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. Table 21 Key opportunities 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 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 Premitigation Scoring 3 - Possible (20% to <50%) 2 - Unlikely (5% to <20%) 2 - Unlikely (5% to <20%) Cost Impact Cost Impact x Probability 206,609 72, ,040 50, ,263 48, , ,351 DCC Switching Business Case DCC Public Page 73 of 99

74 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 following Design Baseline 2 RP2a Preferred Solution (version controlled, v3.1 against the original baseline) Overview 237. 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 74 of 99

75 11.3 Principles 242. 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 75 of 99

76 11.4 Form and level of the materiality threshold 244. 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 14 - Materiality threshold (for illustrative purposes only) 245. 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 76 of 99

77 Level of the materiality threshold 246. The calculation of each element of the contingency allowance is explained below. Allowance for unforeseen change 247. 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 68k 10% of the Enactment baseline costs, which equals 755k 249. The total allowance for unforeseen change is 823k, 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 252. The total materiality threshold is equivalent to the total level of contingency, which is equal to 3,174 or 18.4% of the total cost to industry associated with the baseline scenario (see Figure 15). DCC Switching Business Case DCC Public Page 77 of 99

78 Figure 15 materiality threshold profile 11.5 Reviewing the materiality threshold 253. When updating the DCC Switching Business Case under the process set out in Section 12.5, we reviewed 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 included 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 256. 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 DCC Switching Business Case DCC Public Page 78 of 99

79 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 79 of 99

80 12 Monitoring and updating the DCC Switching Business Case 260. 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 261. 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 262. 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 16. All of the reports shown in Figure 16 are defined in the subsequent sections of this document and elaborated diagrammatically in Figure 17 and Figure 18. The relationships between different reports are also highlighted. DCC Switching Business Case DCC Public Page 80 of 99

81 Figure 16 - Switching Programme Reporting overview DCC Switching Business Case DCC Public Page 81 of 99

82 12.2 Programme delivery reporting Purpose 264. 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 266. The programme delivery reports that DCC will produce in support of the DCC Switching Programme are defined in Figure 17 and summarised below 27 : 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. 27 Levels of reporting detail are aligned to the WBS levels explained in section 8.2 DCC Switching Business Case DCC Public Page 82 of 99

83 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 83 of 99

84 Figure 17 Programme delivery reports DCC Switching Business Case DCC Public Page 84 of 99

85 12.3 Ex post plus financial reporting Purpose 267. 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. 28 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) 28 Ofgem, Decision: DCC's role in developing a Centralised Registration Service, 17 May 2016: DCC Switching Business Case DCC Public Page 85 of 99

86 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 272. 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 29, 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. 29 Ofgem, DCC: Regulatory Instructions and Guidance 2015, 29 May 2015: DCC Switching Business Case DCC Public Page 86 of 99

87 275. 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 18 Relationship of information reporting across different financial and price control reports DCC Switching Business Case DCC Public Page 87 of 99

88 12.4 Annual ex post financial reporting Purpose 277. 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 Figure 19 below. 30 These arrangements are set out in Condition 37 of the Smart Meter Communication Licence DCC Switching Business Case DCC Public Page 88 of 99

89 Reports Figure 19 Time periods for reporting variance through price control 281. 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. 31 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 284. 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 31 Ofgem, DCC Price Control Decision: Regulatory Year 2015/16, 28 February 2017: DCC Switching Business Case DCC Public Page 89 of 99

90 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 17) 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 288. 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 289. 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 90 of 99

91 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 291. 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 91 of 99

92 Figure 20 Example: forecast to exceed the total materiality threshold in x reporting instances Timing of reactive updates to the DCC Switching Business Case 295. 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 Process for updating the DCC Switching Business Case 297. The process for updating the DCC Switching Business Case is summarised in Figure 21. 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. DCC Switching Business Case DCC Public Page 92 of 99

93 Figure 21 Process for updating the DCC Switching Business Case DCC Switching Business Case DCC Public Page 93 of 99