2 The Department and its Agencies
Role and purpose of the Department's Agencies
7. The Department has a number of important functions
delegated to arms-length Executive Agencies.[6]
8. The Trade Unions told us that 'the Department
is not an integrated whole but a collection of businesses bound
together'. We understand that there is no Department-wide intranet,
no Department staff directory or email directory, and no common
information technology systems or procedures.[7]
This is disappointing. The Trade Union side believes that 'an
absence of central control and common terms and conditions' works
against the Department effectively delivering its policies.[8]
We agree.
9. There remain serious concerns, not simply within
individual agencies, but across the Driver and Vehicle Operator
Group as a whole and stretching even further across other Agencies
and the Department itself. In particular: there are tensions between
the strategic aims of the Department and an inability to link
this properly with Agency activity on the ground; the slow development,
poor integration and costly and delayed implementation of information
technology systems; and a lack of consistent internal working
practices and conditions.[9]
These are not new problems. The Committee has highlighted serious
deficiencies in Agencies' work before, most recently in our work
on the Department's 2005 Annual Report.
Shared Services
10. The Department is implementing a Shared Services
project which will achieve savings by standardising, simplifying
and sharing support service functions across the central Department
and Executive Agencies, thereby helping to focus more resources
on frontline operations. The project will incur significant up-front
costs over the next four years. The Department estimates these
at between £44 million and £49.5 million.[10]
For the Driver and Vehicle Operator Group of Agencies and the
Highways Agency, the Department estimated that costs incurred
on the project to December 2005 were £463,000.[11]
11. Shared Services is expected to achieve annual
savings of around £16 million, which will be largely achieved
through savings on staff,[12]
although the full annual savings will not be achieved until after
2008-09.[13]
12. The interim Business Case for the project appears
to be sounder than those documents available to the Committee
at earlier stages.[14]
We have concerns however about some of the cost changes between
earlier documents and the current Business Case, in particular
whether:
- the present level of optimism
bias of £5.3 million is enough;[15]
- there is too much reliance on external input.[16]
This expertise could be brought in-house, possibly through fixed
term contracts;
- expected savings will be achieved;
- the project received a satisfactory 'Gateway
0' review in April 2006;
- the Trade Union side is sufficiently engaged
and onboard with the project.
13. We expect the Department to keep a tight control
on the project to ensure that the planned savings are delivered.
The Department itself admits in the Business Case says that financial
risk is 'high': 'There are … financial risks resulting from
potential delays or non-delivery of functionality to the scope
demanded, as any delays to full implementation will erode benefits'.[17]
The Department has also conducted a 'sensitivity analysis' which
shows the impact of a 25 per cent increase in costs or decrease
in benefits on the project outcome.[18]
It is clear that there is scope for financial disaster if costs
are not tightly controlled.
14. Over the next four years the Department estimates
that the Shared Services project will cost in excess of £44
million. The exact cost however remains unclear. It is important
that lessons are learned from this complex project. We expect
that any problems which may be encountered by the first Agencies
to join will be addressed for later Agencies. It is critical that
Shared Services is implemented 'on budget' and 'on time'. The
financial and organisational ramifications of failure are certain
to be significant. We expect the Department to keep us fully informed
of progress against the project plan. Any delays and the implication
of these on additional costs should be made clear.
6 See Annex for details. Back
7
Ev 121 Back
8
ibid Back
9
HC 684, pp22-24, paras 84-94 Back
10
Q20 Back
11
Freedom of Information Request F0001853 to the Department for
Transport, 9 January 2006 Back
12
Q17 Back
13
DfT Shared Service Project - Outline Business Case Report, version
1.3a Back
14
This was the so-called Outline Business Case Report version 1.3a
(OBC) dated May 2005 (updated September 2005). The Business Case
referred to in this report is the Shared Services Programme: Updated
interim Business Case version 0.7, January 2006 Back
15
'Optimism bias' is defined in the Treasury Green Book, paras 5.61-5.64.
There is a demonstrated, systematic, tendency for project appraisers
to be overly optimistic. This is a worldwide phenomenon that affects
both the private and public sectors. Many project parameters are
affected by optimism - appraisers tend to overstate benefits,
and understate timings and costs, both capital and operational.
To redress this tendency, appraisers should make explicit adjustments
for this bias. These will take the form of increasing estimates
of the costs and decreasing, and delaying the receipt of, estimated
benefits. Back
16
For example, the OBC assumed 25,000 resource days at an external
daily rate of £1134 a day. This has risen to the current
estimate of 58,000 resource days at £1600 a day. One of the
main reasons seems to be a significant increase in post-design
requirement. Back
17
Shared Services Programme: Updated interim Business Case version
0.7, paras 5.17-5.18 Back
18
ibid, para 8 Back
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