a discussion of the application planning

A Discussion Of The Application Planning & Decision Making Process.

Retain, Upgrade, Or Replace Your CIS

Phoenix, Arizona May 19, 2005 9:45 am to 10:45 am

An Approach to the Application Planning Process

Retain, Upgrade, Or Replace Your CIS - CIS Conference - Phoenix, AZ. | May 19, 2005 | www.tmgconsulting.com

The following diagram provides a high-level view of TMG Consulting’s Application Planning approach.

Industry Analysis(How does this compare to industry

best practices, costs, etc?)

Business Analysis(Cost, Benefits, Risk, Timeframe?)

Alternative Analysis(What are viable ways to achieve target?)

GAP Analysis(What is the difference

between current and target?)

Design BlueprintA Blueprint for Success

Project Management & Administration

Customer Education Path

Business Environment

Technical Environment

Application Environment

Organization Environment

Process Environment

Information Environment

Operational and Cost Metrics

Current Environment(What are we doing today?)

Strategy/Target Environment(What do we want to do?)

Business Environment

Technical Environment

Application Environment

Organization Environment

Process Environment

Information Environment

Operational and Cost Metrics

Industry Perspective Outsourcing and the ASP TMG Product Reviews

Planning Project ApproachPlanning Project Approach


March April May June

M1. Documented

Current Environment,

and AssessmentM1 Contains

2. Gather Information

3. Current Assessment

M2. Completed Requirements Analysis, Gap

Analysis, and Alternative AssessmentM2 Contains

4. Requirements Analysis5. Formulate Target

6. GAP Analysis7. Alternative Assessment

M3. Completed Business

AnalysisM3 Contains

8. Business Analysis

M4. Delivered Design

BlueprintM4 Contains

1. Project Mgmt & Admin

9. Blueprint for Success

1. Project Management

2. Gather Information

5. Formulate Target

4. Requirements Analysis

6. GAP Analysis

7. Alternative Assessment

8. Business Analysis

9. Blueprint For Success

3. Current Assessment

Ongoing Project Administration

Application Plan Project Activities & ScheduleApplication Plan Project Activities & Schedule


1.0 PROJECT MANAGEMENT

1.1 Project Management

Complete contractual documents.

Establish project web site.

Arrange for project participants.

Finalize organization and reporting.

Finalize project calendar and timeline.

Develop detailed work program.

Confirm invoicing and reporting.

Confirm other project management requirements.

1.2 Project Administration

Administer the website.

Administer the work program.

Provide team direction and manage project resources.

1.3 Project Kickoff

Prepare kickoff materials.

Schedule kickoff meeting

Conduct kickoff to introduce and formally launch the project.

1.4 Industry Perspective

Schedule presentation.

Deliver the CIS utility industry perspective.

TMG CUSTOMER EXAMPLEAn example of project activities spanning project weeks and total work hours.

Project Work Activity 1Project Work Activity 1


2.0 GATHER INFORMATION

2.1 Conduct InterviewsIdentify individuals to interview.Schedule and conduct interviews.Document interview results.

2.2 Conduct SurveysDistribute survey for comment.Update survey as required.Announce survey and activate.Compile survey results.

2.3 Gather MaterialsProvide Client with a list of material to be provided.Client to gather and provide material.

2.4 Conduct WalkthroughsConduct facility and operational walkthroughs as required.

2.5 Review Current SystemConduct a workshop to review the current system(s) under evaluation.

19) Your overall satisfaction level with CIS?

The average response...

B C DA F

25% 37% 18% 7% 7%

N/A

6%

Observation

The majority of participants (69%) indicate the current CIS is satisfactory to outstanding. Only 31% believe CIS is unsatisfactory, failing or have no comment.

Unsatisfactory87 responses or

18%

Above Average121 responses or

25%

Average176 responses or

37%

Failing32 responses or 7%

Excellent32 responses or 7%

Not Applicable26 responses or 6%

TMG CUSTOMER EXAMPLEThe following is an excerpt from a survey of over 300 user participants.



3.0 CURRENT ASSESSMENT

3.1 Business AnalysisStrategy, structure, offerings, configuration, process, data, staff and systems.

3.2 Customer AnalysisCustomer interaction, service, reading, billing, payment, collection and revenue.

3.3 Application AnalysisProduct technology, data design, functionality, usability, and scalability.

3.4 Technology Analysis Including: the database, operating system, server, network, desktop, and cooperative environment.

3.5 Financial Analysis Business costs, IT costs, vendor costs, and contract commitments.

3.6 Delivery, Operation, Support Analysis

Services associated with delivering, operating, and supporting the system.

3.7 Risk Analysis Identifies areas of exposure and level of risk.

TMG CUSTOMER EXAMPLEThe following business analysis is an excerpt from a recent CIS assessment

B1. Strategy

B2. Structure

B3. Offerings

B4. Configuratio

n

B5. Process

B7. Staff

B6.Data

B8. System

Data integrity issues exist.

Lack essential information to manage the business.

Reports provide conflicting data or no data.

Business process redesign work occurred however it was not embraced by staff.

Staff not working to standard practices.

Processes continue to evolve without effort to document and retrain staff.

Additional staffing required throughout the organization.

High turnover in new hires (night shift in particular).

Dependence on key staff increases risk.

Workload and system problems contribute to low morale and loss of confidence in system.

Growth strategy increasing current base from 250,000 to 500,000 is difficult to support.

Core business of delivering power and billing is not being supported.

No issues identified. Rates and rules of service understood and configured.

Provides essential offerings for wires company and energy company.

Difficult to implement new programs such as EBPP.

Difficult to operate extended capabilities for wires and energy company.

Systems being implemented with little consideration to CIS integration, e.g. the Outage Management System should use CIS for customer information and not replicate.

No issues identified.

A B C D F

Overall



4.0 FUNCTIONAL REQUIREMENTS

4.1 Define Functions & FeaturesTMG Consulting will gather available documentation on business requirements.TMG Consulting will incorporate these requirements into its 2,500 item CIS baseline requirements checklist. This checklist reflects industry best practices and the work completed over the past 12 years across numerous utilities.TMG Consulting will conduct a half-day introduction to the CIS baseline function and feature checklist. Based on this introduction the team will identify key users participants and develop the review schedule. The baseline will be published for pre-review. Conduct work sessions across a minimum of 5 days to review, modify and weight the CIS baseline function and feature checklist.Publish the checklist for final review and consideration by the user community.Use the checklist to evaluate the current CIS System(s).

TMG CUSTOMER EXAMPLE



5.0 FORMULATE STRATEGY

5.1 Senior Management Workshop – Vision & Strategy

Conduct a work session to identify: business vision and strategy regarding: waves of innovation and risk, customer centric position, core and extended customer service, customer perception of value, customer value package, customer marketing strategy, market drivers, and business system drivers.

5.2 Target Business Workshop – Direction & Objectives

Conduct work session to identify: target business objectives (e.g. retain full service walk-in locations), business activity outsourcing, scope of products, services, and programs, external and internal contact or touch points, and business life-cycle considerations.

5.3 Target Technology Workshop - Direction & Objectives

Conduct work session to identify: target computing environment, application environment, and related development, support, operating and maintenance environments.

5.4 Target Integration Workshop - Application Interfaces

Conduct a work session to identify: customer application architecture, interfaces, and integration points.

Customer Marketing & SalesFocus on Potential CustomersFocus on Existing Customers

Customer Billing

Complex BillingUnbundled BillingThird Party Billing

Customer OfferingsBrandingCompetitive launch period of 4 to 6 monthsOffer retail products & servicesOffer utility servicesOffer city servicesOffer communication servicesOffer home entertainment servicesMust bill to have a new product or service

The Customer

3. Customer 3. Customer CareCare

3. Customer 3. Customer CareCare

7. Customer7. CustomerBillingBilling

7. Customer7. CustomerBillingBilling

2. Customer2. CustomerMarketingMarketing

2. Customer2. CustomerMarketingMarketing

6. Customer6. CustomerOfferingsOfferings

6. Customer6. CustomerOfferingsOfferings

5. Customer 5. Customer ChoiceChoice

5. Customer 5. Customer ChoiceChoice

4. Customer4. CustomerRevenueRevenue

4. Customer4. CustomerRevenueRevenue

1. Customer1. CustomerGrowthGrowth

1. Customer1. CustomerGrowthGrowth

Customer InteractionNumerous paths to interact A single point of contactUltimate customer self-service

Customer RelationshipKnow your customer when they call

Customer Service Provide exceptional levels of customer service

Customer Life-Cycle Mgmt Provide comprehensive services from registration through termination

Customer Growth Use technology to optimize Staff Support an aggressive acquisition strategy

Customer Revenue StreamOlder technology ultimately impacts revenue streamOlder technology ultimately impacts vision and recognition of revenue

Customer ChoiceCustomer acquisitionCustomer enrollmentForecasting & schedulingRisk managementCommodity managementData collectionData communication

CISToolsTM




6.0 GAP ANALYSIS

6.1 Identify GAPS

Review and understand the current environment.

Develop and document the target environment.

Identify GAPS between the current “as is” and target or ‘to be” environments.

Identify critical GAPS or minimums to be addressed.

TMG CUSTOMER EXAMPLEThe identification of items considered to be in scope based upon identified GAPS.



7.0 ALTERNATIVE ANALYSIS

7.1 Develop Alternative Solutions

Identify potential CIS scenarios.

At a minimum each scenario will include: a brief description, positive and negative points, resource requirements, installation costs, ongoing costs, development timeframe, and project risk.

7.2 Evaluate Alternative Solutions

Refine evaluation criteria and assign weight based upon criticality.

Perform a comparative analysis of each scenario based upon the defined evaluation criteria and associated weights.

Document results of the alternative analysis.

Present the ranking of alternatives and agree on the scenario to be further refined and supported.

TMG CUSTOMER EXAMPLEA description and diagram of an alternative to retain the billing system.



8.0 BUSINESS ANALYSIS

8.1 Develop CostsRefine installation and ongoing costs.Develop a disbursement schedule.Identify cost allocation.Identify incremental cost per customer.

8.2 Develop BenefitsDevelop tangible cost savings.Develop tangible cost reductions.Develop tangible revenue enhancement.Develop intangible benefits.

8.3 Complete Cost/Benefit Analysis

Formulate the cost / benefit and identify return on investment.

Production Years

RAPID BENEFITS ANALYSISProduction Year

1Production

Year 2Production

Year 3Production

Year 4Production

Year 55 Year Total

TOTALS = $ 29,417,238 $ 29,417,238 $ 29,798,256 $ 30,188,298 $ 30,587,796 $ 30,997,205 $ 150,988,793

Cost Reduction $463,300 $463,300 $477,199 $491,515 $506,260 $521,448 $2,459,723

Cost Reduction IT InfrastructureCurrent IT Chargeback 4,633,000$

Percentage Decrease 10% 463,300$ $463,300 $477,199 $491,515 $506,260 $521,448 $2,459,723Annual Chargeback Increase 3%

Cost Avoidance $1,087,500 $1,087,500 $1,163,625 $1,245,079 $1,332,234 $1,425,491 $6,253,929

Increased Efficiency - Primary Users

Average Salary 30,000$ Load 150%

Average Loaded Salary 45,000$ Number of Positions 200

CIS Utilization Percentage 100%Efficiency Gain 10% 900,000$ $900,000 $963,000 $1,030,410 $1,102,539 $1,179,716 $5,175,665

Annual Salary % Increase 7%

Increased Efficiency - IT Staff



CIS Utilization Percentage 100%Efficiency Gain 50% 187,500$ $187,500 $200,625 $214,669 $229,696 $245,774 $1,078,264


Revenue Enhancement $27,866,438 $27,866,438 $28,157,432 $28,451,704 $28,749,301 $29,050,266 $142,275,141

Acquire & Retain Customers

Total Annual Revenue 545,000,000$ Number of Customers 650,000

% At Risk Or Target to Attain 5% 27,250,000$ $27,250,000 $27,522,500 $27,797,725 $28,075,702 $28,356,459 $139,002,387Annual Increase 1%

Additional Product Revenue - Time to Market

Anticipated Product Revenues 50,000,000$ Improved Days to Market 90

Interest Rate 5% 616,438$ $616,438 $634,932 $653,979 $673,599 $693,807 $3,272,755Annual Increase 3%

Estimated Costs $38,596,250 $3,614,013 $3,722,433 $3,834,106 $3,949,129 $4,067,603 $19,187,283

Installation Costs

Number of Customers 1,002,500 Cost Per Customer 35$ 35,087,500$ $0 $0 $0 $0 $0 $0

Ongoing Costs

Installation Costs 35,087,500$ Ongoing Costs Percentage 10% 3,508,750$ $3,614,013 $3,722,433 $3,834,106 $3,949,129 $4,067,603 $19,187,283

Annual Increase 3%




9.0 BLUEPRINT FOR SUCCESS

9.1 Prepare Draft Blueprint

Compile project material and develop report draft.

Issue report draft for review and comment.

Review and incorporate changes into draft report.

Conduct iterative review process.

9.2 Conduct Presentations

Prepare presentation materials.

Conduct formal and informal presentations as required.

9.3 Deliver Final Blueprint

Update the report draft to reflect needs or changes identified during the various presentations.

Deliver the final report and close the project.



Understand & Assess the Current Environment


Application Decision ModelApplication Decision Model

Q1. Maintain CIS Q2. Enhance CIS

Q4. Replace CISQ3. Migrate CIS

DECISION QUADRANTS

TMG Consulting utilizes the following decision model to determine optimum application direction.


Application Decision Model Categories

The TMG Consulting decision model requires assessment of the following two areas…

1. Business PerspectiveHow does the existing customer system address current and planned business needs?

2. Technical PerspectiveHow is the existing technical foundation, environment, tools, and application design viewed?

The following pages evaluate CIS from a business perspective and a technical perspective in an attempt to answer these two questions.

1. Business Assessment

1.1 Application Demonstration 1.4 Competitive Advantage

1.2 Application Functionality 1.5 Application Viewpoint

1.3 Application Integration

2. Technology Assessment

2.1 Technology Infrastructure 2.4 Data Environment

2.2 Application Architecture 2.5 Scalability & Performance

2.3 Application Support


Application Decision Model Grading ScaleApplication Decision Model Grading Scale

Within each category, evaluation criteria is defined and a “grade” assigned indicating project position and outlook for successful completion or impact.

Grading is subjective based upon material provided, interviews conducted, and industry experience. All grades begin at a “C+” and are incremented or decremented based upon the assessment. In the event insufficient information was available, the grade defaults to a “C+”. Variations in the grade definition are detailed within each of the evaluation categories.

Outstanding Above Average Satisfactory Unsatisfactory Failing

Assigned Grade

A+ A A- B+ B B- C+ C C- D+ D D- F

Relative Points

12 11 10 9 8 7 6 5 4 3 2 1 0

Midpoint Mid


Business Assessment – Average Grade Business Assessment – Average Grade

Average Grade

Average Grade

AA BB CC DD FF

CIS

How does the existing customer system address current and planned business needs?

Business Assessment

1.1 Application Demonstration

1.1 Application Functionality

1.2 Application Integration

1.3 Competitive Advantage

1.4 Application Viewpoint

Average Business Grade


Technology Assessment - Average Grade

How is the existing technical foundation, environment, tools, and application design viewed?

Average Grade

Average Grade

AA BB CC DD FF

CIS

2. Technology Assessment

2.1 Technology Infrastructure 2.4 Data Environment

2.2 Application Architecture 2.5 Scalability & Performance

2.3 Application Support

Average Technical Grade


Application Decision Model ResultsApplication Decision Model Results

A+ A A- B+ B B- C+ C C- D+ D D- F

Q1. Maintain CCIS1. Status Quo

Q2. Enhance CCIS2. Major Upgrades 3. Re-front Scrapper4. Common Front-end5. New User Interface6. Data Warehouse

Q4. Replace CCIS9. Custom Development10. Managed CIS (COTS)11. Hosted CIS12. Outsourced CIS13. ASP CIS

Q3. Migrate CCIS7. Re-host8. Re-engineer

APPLICATION DECISION MODEL

A+

A

A-

B+

B

B-

C+

C

C-

D+

D

D-

F

Business Fit

Technical Fit

Review Industry Divers


A Strategic Customer FocusA Strategic Customer Focus

Structure deals with organizational considerations which affect the customer and their perception of value.

Customer Centered Organizations• Think Like Customer (TLC)• View Customer as Primary Asset• Focus on Customer Satisfaction• Focus on Long-Term Relationships

The customer is the center of the world. Employees surround the customer to establish and manage the relationship.

Strategy identifies what the organization is trying to accomplish in terms of the customer and generating customer value

Systems are the manual and automated processes which affect the customer and their perception of value.

The Customer

Systems Structure

Strategy

Employee

Employee

Employee

Employee

Employee

Employee


Discount Your Customers

Focus on Core Customer Service

Focus on Caring Customer Service

Acknowledge - Appreciate - Affirm - Assure

Customer Grade Outstanding A

Exceeds B

Satisfactory C

Unsatisfactory D

Failing FImpatient - Rude - Sarcastic - Ignore - Blame Others

Provide Basic Products, Programs, Services

Utility

How would you rate in providing exceptional levels of service to customers? (may want to segment by customer type)

Core & Extended Customer ServiceCore & Extended Customer Service


CIS Market DriversCIS Market Drivers

Customer Marketing & SalesFocus on Potential CustomersFocus on Existing Customers

Customer BillingComplex BillingUnbundled BillingConvergence or Third Party Billing

Customer OfferingsBrandingCompetitive launch period of 4-6 monthsOffer retail products & servicesOffer utility servicesOffer city servicesOffer communication servicesOffer home entertainment servicesMust bill to have a new product or service

The Customer

3.3.Customer Customer

CareCare


CareCare

7.7.CustomerCustomer

BillingBilling

7.7.CustomerCustomer

BillingBilling

2.2.CustomerCustomerMarketingMarketing

2.2.CustomerCustomerMarketingMarketing

6.6.CustomerCustomerOfferingsOfferings

6.6.CustomerCustomerOfferingsOfferings


ChoiceChoice


ChoiceChoice 4.4.CustomerCustomerRevenueRevenue

4.4.CustomerCustomerRevenueRevenue

1.1.CustomerCustomerGrowthGrowth

1.1.CustomerCustomerGrowthGrowth

Customer InteractionNumerous paths to interact A single point of contactUltimate customer self-service

Customer RelationshipKnow your customer when they call

Customer Service Provide exceptional levels of customer service

Customer Life-Cycle Mgmt Provide comprehensive services from registration through termination

Customer Growth Use technology to optimize Staff Support an aggressive acquisition strategy

Customer RevenueOlder technology ultimately impacts revenue streamOlder technology ultimately impacts vision and recognition of revenue

Customer ChoiceCustomer acquisitionCustomer enrollmentForecasting & schedulingRisk managementCommodity managementData collectionData communication

CISToolsTM


Market Driver Critical Reactive

Critical Proactive

High Impact

Low Impact

No Impact

1. Customer Growth Initiatives

Support an aggressive growth strategy

Support a changing organizational philosophy & structure

Support a multi-company environment

2. Customer Marketing and Sales Initiatives

Focus on potential customers

Focus on existing customers

3. Customer Care

Provide a single point of contact for the customer

Ultimately position for customer self-service with limited human interaction.

Maintain a relationship and current customer position or situation

Provide exceptional levels of customer service

Provide multiple communication and access paths to include customer self service.

4. Customer Revenue

Technology issues may impact current revenue

Technology issues may impact vision revenue

Utilize technologies to optimize staff

Technology is costly to operate and support



Market Driver Critical Reactive

Critical Proactive

High Impact

Low Impact

No Impact

5. Customer Choice / Privatization

Provide mechanics associated with choice / privatization

6. Customer Offerings

Support an aggressive branding strategy

Support a competitive launch of 4 to 6 months

Offer commodity based products and services

Offer non-commodity based products and services

7. Customer Billing

Accommodate complex billing

Offer unbundled billing

Offer combined billing across customer accounts

Offer convergence billing across product lines

Offer third party billing

8. Other

Eliminate islands of customer information


Functional Fit & Requirements Definition


Scope of FunctionsScope of Functions

Customer Management

Customer Management

Account Management

Account Management

Credit & Collection

Management

Credit & Collection

Management

Service Address

Management

Service Address

Management

Service Order ManagementService Order Management

Inventory Management

Inventory Management

Portfolio Management

Portfolio Management

Rates Management

Rates Management

Billing Management

Billing Management

Usage Management

Usage Management

Service Point

Service Point

Customer Choice

Customer Choice

Customer Service/Care

Customer Service/Care

System Mechanics

System Mechanics

Financial Management

Financial Management

The following diagram represents the major functional categories.


Checklist ExampleChecklist Example


Requirements WeightingRequirements Weighting

2525 CriticalCritical The most critical features which are the primary drivers for this replacement effort.The most critical features which are the primary drivers for this replacement effort.

1010 MandatoryMandatory Features which are mandatory, the system must provide for within the base automation.Features which are mandatory, the system must provide for within the base automation.

55Required

But FlexibleRequired

But Flexible

These features are required now however, the utility is flexible in how the system implements the feature (automation / manual workaround).

These features are required now however, the utility is flexible in how the system implements the feature (automation / manual workaround).

33Future Need

Future Need

These features will be required at some time in the future and can be provided as a future product release.

These features will be required at some time in the future and can be provided as a future product release.

11Nice To

HaveNice To

HaveThese features are nice to have but are not a required component of the new system.These features are nice to have but are not a required component of the new system.

00

00

00

00

00

TotalTotal 00

Number of Items

Number of Itemsassign weights to each category.


Vendor Checklist ResponseVendor Checklist Response

55 Current BaseCurrent Base The function is provided in the base product. No modification is requiredThe function is provided in the base product. No modification is required

44 Planned BasePlanned Base The function will be provided in the next planned release of the product. No modification is required.The function will be provided in the next planned release of the product. No modification is required.

33 Roll Into BaseRoll Into Base The function will be developed and placed into the base product during installation activities at no cost.The function will be developed and placed into the base product during installation activities at no cost.

22 Other BaseOther Base The function can be obtained from another customers enhancements or a joint effort with another customer.The function can be obtained from another customers enhancements or a joint effort with another customer.

11 EnhancementEnhancementThis requires a customer specific enhancement to be developed. Following implementation the customer enhancement may or may not be rolled into the next planned product release.

This requires a customer specific enhancement to be developed. Following implementation the customer enhancement may or may not be rolled into the next planned product release.

The vendor will respond to each item with…

… scores will be developed to assess functional fit.


Review ScheduleReview Schedule


Scope of Functions – Account ManagementScope of Functions – Account Management

Account Management

Account Access Account Status Account Types (e.g. Master) Account Transfer Account Close Account Offerings Account Views

Account Adjustments Account Exemptions

Account Processing

Account Management

An account is created to reflect the establishment of a financial agreement for the provision of a product or service.

The account is the primary path for accessing and viewing customer account related information.

An account can be defined as a single account, a master account, or a temporary account.

It reflects available and installed service offerings, product offerings, equipment offerings, and program offerings.

It supports a wide array of account views into account transactions, consumption, payments, billings, adjustments and account specific notes.

Return


Scope of Functions – Billing ManagementScope of Functions – Billing Management

Billing Management

Cycle Driven Billing Date Driven Billing Event Driven Billing Consumption - Time Based Consumption - Volume Based Real-Time Consumption Consumption Validation

Billing Periods / Proration Billing Calculations Subscription Billing Budget Billing Fees/Charges/Taxes/Surcharges Online Account Billing What-if Billing Adjusted Billing Account Bill Summary or Master Bill

Estimating

One-time or Miscellaneous Bill Bill Formatting Bill Messaging Special Handling Mail Address Certification Bill Printing Billing Controls Billing Reports

Billing Management

Support of cycle driven, date driven and event driven billing schedules.

The process will input time based and volume based consumption and will provide for consumption validation and estimation algorithms.

The process will identify appropriate contract clauses and utilize associated rate schedules and pricing plans.

The billing process will provide for flexible billing periods and accommodate proration.

In addition to batch billing the system will provide for on-line account billing for ”what-if” analysis and adjusted billing.

Return

Define & Document Alternatives


TMG Consulting uses the following industry model as the basis for defining possible alternative scenarios. The following model presents four quadrants representing general software scenarios to consider regarding CIS options in support of a CIS replacement initiative. Client example provided below.

Maintain ExistingStatus Quo

Maintain ExistingStatus Quo

Enhance ExistingMajor UpgradeRefront-GUI/BUIData Warehouse

Enhance ExistingMajor UpgradeRefront-GUI/BUIData Warehouse

Replace ExistingCustom DevelopManaged CISHosted CISOutsourced CIS

Replace ExistingCustom DevelopManaged CISHosted CISOutsourced CIS

Migrate ExistingRehostRe-engineer

Migrate ExistingRehostRe-engineer

Maintain the Status Quo. No change in the existing status quo.

Major Upgrade. Support a project for extensive upgrades to the existing system(s)

Refront – GUI/BUI. A project to put a Graphical User Interface and/or a Browser User Interface on the existing system.

Data Warehouse. A project will be initiated to enhance and implement new access paths from the desktop to the customer data. This may encompass the implementation of a data warehouse / datamart, and web based system access.

Rehost Platform. A project to migrate the functionality of the existing system from the current environment to a new computing environment taking advantage of a new platform with a front-end graphical user interface or browser user interface. The system functionality will remain unchanged.

Re-engineer. A project which will utilize the existing system as the functional baseline for the development of a new customer system.

Custom Development. A project to plan, design and implement a new CIS fully customized to the needs of the utility. The utility may utilize a design guide as a starting point.

Managed CIS Solution. A project to implement a CIS product solution operated within an in-house environment with product support and regular product releases provided by the vendor.

Hosted CIS Solution. A project to implement a CIS product solution operated at a third party facility with the application supported by the vendor who provides product support and regular product releases.

Outsourced CIS Solution. A project to implement a CIS product solution operated in an outsourced or Application Service Provider (ASP) environment with product support and regular product releases provided by the vendor.

AlternativesAlternatives


Alternative ScenariosAlternative Scenarios

A series of alternative scenarios are identified including status quo which is the baseline. Client example provided below. Category # Alternative Discussion Viable

Maintain 1 Status Quo The status quo is used as the baseline for comparison of all other options.

YES For baseline & possible default.

Enhance 2 Major Upgrades

Conducting major upgrades to CSS Customer/1. Upgrade multiple company jurisdictional requirements. Make sure EDI can handle 4 different companies. Have to look at jurisdictional first, than have to look at business. Also be aware of possibility of supporting Virtual Call Center. Have to look at the GUI (re-engineer to BUI or stay with GUI more of a nice to have). Using hotkeys in CSS - change training approach.

YESCombine into a single Customer/1

Enhance 3. Re-front - Scrapper

Typically used to extend the life of a character based CIS. The Customer/1 solution already has a graphical interface.

NO

Enhance 4. Common Front-End

Used to bring multiple systems together to a single desktop. NO

Enhance 5. New – GUI/BUI Used to replace an existing user interface. Considered only for Customer/1 if migrate all users to this CIS solution.

NO

Enhance 6. Data Warehouse

Used to extend the life and capabilities of the current system. NO

Migrate 7. Re-host Platform

Used to move a robust CIS from an aging technology (server, operating system, database) to a new technology.

NO

Migrate 8. Re-Engineer Use an existing robust CIS as the baseline for the development of a new CIS using latest technology.

NO

Replace 9. Custom CIS Development of a CIS which meets the specific needs of the utility. NO

Replace 10.

Managed CIS The implementation of a new CIS product solution, managed by the vendor, and operated in-house is a viable solution.

YES

Replace 11.

Hosted CIS The implementation of a new CIS product solution, managed by the vendor, and hosted is a viable solution.

YES

Replace 12.

Outsourced CIS

The implementation of a new CIS product solution, managed by the vendor, and outsourced is a viable solution.

YES


Alternative ScenariosAlternative ScenariosA profile is developed for each scenario. Client example provided below.

Year 1 Year 2 Year 3 Year 4 Year 5

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Installation - Development

Deploy Storm

Highlights

Perform necessary upgrades to the Customer/1 CSS product.

Conduct business readiness and convert utility 2 to the new upgraded CSS.

Convert utility 3 from the legacy CIS to the upgraded Customer/1 CSS.

The solution will be operated, within a hosted facility.

The total cost is $29,121,000 million ($22.2 million vendor + $6.8 million utility)

The total incremental cost is ($2M) or $0.38 PCMS for this solution.

It will take 24 months to implement the solution.

Category Metric CommentsCustomer Metered Services (PCMS)

1,713,000 Customer Metered Services to convert

TimeframesTotal Timeframe 241. Installation 12 Development2. Deployment 6 Readiness & deploy3. Storm Period 6 Production criticalInstallation CostTotal Cost$PCMS $17 $ Per Customer

Metered ServiceCost $29,121,0

00# Customer Metered Services x $PCMS

Vendor Cost OnlyVendor $PCMS $13.00 Vendor portion of

cost$PCMS – Hardware $1.00 Hardware portion$PCMS – Application $2.00 Software portion$PCMS – Services $10.00 Services portionCost $22,269,0


Utility Cost OnlyUtility $PCMS $4.00 Utility portion of

costCost $6,852,00


Incremental Ongoing CostCurrent Costs $19,080,5

13Less Savings $2,000,00

0On-Going Annual Cost $17,080,5

13Ongoing – Monthly Total

$1,423,376

Annual/12 months

Ongoing $PCMS - Subtotal

$0.38 Total PCMS 3,750,000

Target HostedCurrent

Utility 1-4

LegacyCIS

Utility 5

Customer/1

Utility 5x

CIS

Customer/1 CSS

Utility 1x

Utility 1x

Utility 2x

Utility 5x

Utility 3x

Utility 4x

Utility 2x

Utility 3x

Utility 4x

1. Upgrad

e

2. Conver

t

Assess Alternatives & Identify the Optimum Solution


Assessment criteria is used to evaluate each alternative scenario. The following are possible evaluation criteria.

# Assessment CategoryWeigh

tDescription

1 Installation Costs 15 The total costs to implement the solution.

2 Operational Costs 15 The total annual cost to operate the solution for a period of 10 years.

3 Installation Timeframe 5 The time to implement the solution

4 Solution Risk & Viability 15 The risk associated with installing and operating the solution.

5 Resource Utilization 5 The staffing and resources to implement and operate the solution.

6 Business Strategic Fit 5 The solution promotes business strategy and objectives.

7 Technology Direction Fit 5 The solution promotes technology strategy, platforms, etc.

8Benefits & Improvements

10 Hard and soft benefits and improvements to the current situation.

9 Net Present Value 15 Net Present Value of each solution

10 Buy-in & Support 10 Internal and external buy-in and support for the solution.

TOTAL 100

Analysis of AlternativesAnalysis of Alternatives


Assessment CriteriaAssessment Criteria

Assessment criteria is developed for each assessment category in order to score the alternative scenarios. Client example provided below. Assessment Category

A B C D F

1. Installation CostsCost is

Minimized $25M or Less

Cost is Attractive

>$25M to <$40M

Cost is Acceptable >$40M to <$60M

Cost Issues Exist

>$60M to <$90M

Cost Unaffordable

>$90M

2. Operational CostsCost is

Minimized $0.25 or less

Cost is Attractive >$0.25 to $0.35

Cost is Acceptable> $0.35 to $0.45

Cost Issues Exist

>$0.45 to $0.55

Cost Unaffordable

> $0.55

3. Installation Timeframe

12 months or less

24 months or less

36 months or less

48 months or less

More than 48 months

4. Solution Risk & Viability

Piece of Cake / Very Realistic

Manageable Risk / Workable

Acceptable Risk / Worth Considering

Considerable Risk /

Questionable

Extreme Risk / Impractical

5. Resource UtilizationNo Problem

<$5mAchievable

>$5m to $10mIssues To Resolve

>$10m to $20m

Significant Issues

>$20m to $50m

Cannot Resource

>$50m

6. Business Strategic Fit

Positions Future Strategy

Exceeds Current Strategy

Meets Current Strategy

Falls Short of Current Strategy

Opposite Direction of

Current Strategy

7. Technology Direction Fit

Next Technology

Curve

Exceeds Technology

Curve

Meets Technology Curve

Behind Technology

Curve

Way Off Technology

Curve

8. Benefits & Improvements

Outstanding Benefits / Improve

Exceeds Expectations

Some Tangible Benefits / Improve

No Tangible Benefits

No Benefits or Improvements

9. Return On Investment

Low Cost / High Benefit

High Cost / High Benefit

Moderate Cost / Moderate

Benefit

Low Cost / Low Benefit

High Cost / High Benefit

10. Buy-in & Support Embrace Acceptable Cautious Prove It Grave ConcernsWouldn't Touch

It


AssessmentsAssessments

The solutions are evaluated using the assessment categories and evaluation criteria. Client example provided below.

Category A B C D F

SCOREInstallation Costs

Cost is Minimized

$25M or Less

Cost is Attractive >$25M to

<$40M

Cost is Acceptable >$40M to

<$60M

Cost Issues Exist >$60M to

<$90M

Cost Unaffordable

>$90M

1. Status Quo $0 +2

2. Consolidated CSS $29 +1

3. SPL - SPL $39 1

3. Peace - Peace $42 0

4. Peace – First Data $25 +2

5. SPL - ADS $42 0

6. SPL - IBM $32 1

7. Peace - IBM $48 0

Category Data Values

Installation Costs Total Installation Vendor Installation Utility

1. Status Quo $0 $0 $0

2. Consolidated CSS $29,121,000 $22,269,000 $6,852,000

3. SPL – SPL $39,356,000 $21,939,000 $17,417,000

3. Peace - Peace $41,609,000 $24,192,000 $17,417,000

4. Peace – First Data $24,636,000 $14,742,000 $9,894,000

5. SPL - ADS $42,129,000 $23,962,000 $18,167,000

6. SPL - IBM $31,755,924 $27,026,784 $4,729,140

7. Peace - IBM $47,824,693 $43,159,213 $4,665,000


Assessment SummaryAssessment Summary

The assessment is summarized and total award points identified. Client example provided below.

The following table summarizes the grade or fit, weight, award points and total award for each of the alternatives across the 10 evaluation categories. The translation into this table from the previous pages is as follows: A= 2, B= 1, C= 0, D= -1, and F= -2.


Summary RecapSummary Recap

A recap of the scenarios and their assessment is provided. Client example provided below.

Installation Costs

Operational Costs

Installation Timeframe

Solution Risk/Viability

Resource Utilization

Business Strategic Fit

Technology Direction Fit

Benefits & Improvemen

ts

Return On Investment

Buy-In & Support

Outstanding Points (A – B) Satisfactory Points (C) Unsatisfactory Points (D – F)

Operational costs of $0.38 PCMS are lower than current costs of $0.42 PCMS.

A 24 month installation timeframe with 12 months to develop, 6 months to deploy, and 6 months for the storm period.

Risk is acceptable and is only associated with the risk of project failure. It is a viable solution with no system, technology, or business risk.

Resource requirements of $7 million is achievable to implement the solution.

Fulfills the business strategic fit regarding: 7 million customers, multi-company, resolve current technology, and minimizes costs with a single CIS.

A high degree of benefits and improvements will be realized.

A relatively high cost with high benefits should result in a positive ROI.

Has significant buy-in and support.

Installation costs are acceptable at $29 million ($22 million to vendor and $7 million payroll and other expenses).

There are project resource issues to resolve as the solution requires $7 million in staffing and expenses to implement.

This mainframe custom developed system does not promote quick assimilation of acquired utilities onto the platform.

It does not support the offering and quick time to market of new products, programs and services.

Does not utilize a product application with limited customization, a reliance on configuration, and the availability of regular product releases.

A B DA B A B B BB

CONSOLIDATE CSS


The following matrix presents the alternative solutions ranked by positive to negative return. Client example provided below.

TMG Consulting recommends pursuing these alternatives which do the best job of meeting overall criteria.

40 6. Replace - Managed CISPositive Return. Generally solutions with a score greater than zero should be pursued as they provide a positive return and acceptable risk.

40 7. Replace - Hosted CIS

10 3. Enhance - UI & Convert

TMG Consulting recommends pursuing these options, however, the net value will be zero meaning the utility may be better off in some areas but worse off in others.

0 1. Retain - Status Quo

Ground Zero. As a solution approaches zero, should consider doing nothing.

TMG Consulting recommends not pursuing these alternatives as they do not adequately address the utility’s overall criteria.

-10 8. Replace - Outsourced CISNegative Return. Generally solutions with a score less than zero should not be pursued as they provide a negative return or unacceptable risk.

-20 2A. Enhance - FE Wrapper

-20 2B. Enhance - FE Portal

-30 2D. Enhance - FE Warehouse

-30 2E. Enhance - FE Integration

-40 2C. Enhance - FE CRM

-60 5. Replace - Custom

-70 4. Migrate - Re-engineer

To Be Considered

Recommended Course of ActionRecommended Course of Action

Develop a Business Case for the Optimum Solution


BenefitsBenefits

A detailed assessment of benefits did not occur as part of this process, however, TMG Consulting offers the following rapid cost benefit analysis for consideration. Production Years

RAPID BENEFITS ANALYSISProduction Year

1Production Year 2

Production Year 3

Production Year 4

Production Year 5

5 Year Total

TOTALS = $ 32,353,559 $ 32,353,559 $ 33,265,389 $ 34,242,481 $ 35,290,949 $ 36,417,505 $ 171,569,883

Cost Reduction $5,724,620 $5,724,620 $6,297,082 $6,926,791 $7,619,470 $8,381,417 $34,949,379

Cost Reduction IT InfrastructureCurrent IT Chargeback 15,901,723$

Percentage Decrease 36% 5,724,620$ $5,724,620 $6,297,082 $6,926,791 $7,619,470 $8,381,417 $34,949,379Annual Chargeback Increase 10%

Cost Avoidance $1,012,500 $1,012,500 $1,083,375 $1,159,211 $1,240,356 $1,327,181 $5,822,623

Increased Efficiency - Primary Users



CIS Utilization Percentage 100%Efficiency Gain 10% 1,012,500$ $1,012,500 $1,083,375 $1,159,211 $1,240,356 $1,327,181 $5,822,623


Increased Efficiency - IT Staff

Total Charges 1,320,579$ Load 100%

Average Loaded 1,320,579$ Factor 1

CIS Utilization Percentage 100%Efficiency Gain 0% -$ $0 $0 $0 $0 $0 $0


Revenue Enhancement $25,616,438 $25,616,438 $25,884,932 $26,156,479 $26,431,124 $26,708,907 $130,797,880

Acquire & Retain Customers

Total Annual Revenue 500,000,000$ Number of Customers 563,000

% At Risk Or Target to Attain 5% 25,000,000$ $25,000,000 $25,250,000 $25,502,500 $25,757,525 $26,015,100 $127,525,125Annual Increase 1%

Additional Product Revenue - Time to Market

Anticipated Product Revenues 50,000,000$ Improved Days to Market 90

Interest Rate 5% 616,438$ $616,438 $634,932 $653,979 $673,599 $693,807 $3,272,755Annual Increase 3%

Estimated Costs $28,158,699 $11,156,969 $12,272,666 $13,499,932 $14,849,926 $16,334,918 $68,114,411

Installation Costs

Number of Customers 563,000 Cost Per Customer 32$ 18,016,000$ $0 $0 $0 $0 $0 $0

Ongoing Costs

Ongoing Costs 10,142,699$ Ongoing Costs Percentage 100% 10,142,699$ $11,156,969 $12,272,666 $13,499,932 $14,849,926 $16,334,918 $68,114,411

Annual Increase 10%

Client example provided below.


BenefitsBenefits

Cost Reduction: The possibility of reducing the current IT operational chargeback from $2.34 to $1.50 for a savings of $0.84 per customer/month

Cost Avoidance: TMG Consulting conservatively assumed a 10% increase in user efficiency would occur as the result of improvements brought about by a new core CIS with extended capabilities geared to a retail company. All 225 positions were used to calculate this efficiency. From an IT perspective, TMG Consulting used current support services fees and said conservatively there would be no efficiencies or avoided costs.

Revenue Enhancement: Within the open retail environment the utility must compete for new customers and retain existing ones. A simple and conservative method to assign value to the customer was to take the year 2001 revenues estimated at $500 million and divide by the 563,000 customers to assign an average revenue figure of $888.10 to each customer. Assumed 5% of the customers at any point in time were at risk for leaving for another retailer or the value of obtaining another customer in the open market represented additional revenue of $888.10, and that a 5% increase in number of customers through switches was anticipated. Additional product revenue of $50 million annually is anticipated. The ability for the utility to improve the time to market for a new product or service by 90 days is worth the time value of money.

Estimated Costs: The one time capital cost of $18 million and the ongoing annual cost of $10 million is placed into the worksheet.

Summary of Costs and Benefits: The following table summarizes the core CIS costs and benefits for a 5 year operating period.

Benefits Summary Base Year 1 Year 2 Year 3 Year 4 Year 5 TotalCost Reduction 5,724,620$ $5,724,620 $6,297,082 $6,926,791 $7,619,470 $8,381,417 $34,949,379

Cost Avoidance 1,012,500$ $1,012,500 $1,083,375 $1,159,211 $1,240,356 $1,327,181 $5,822,623

Revenue Enhancements 25,616,438$ $25,616,438 $25,884,932 $26,156,479 $26,431,124 $26,708,907 $130,797,880

Total Benefits 32,353,559$ $32,353,559 $33,265,389 $34,242,481 $35,290,949 $36,417,505 $171,569,883

Costs Summary Base Year 1 Year 2 Year 3 Year 4 Year 5 TotalInstallation Costs 18,016,000$ $0 $0 $0 $0 $0 $0

Ongoing Costs 10,142,699$ $11,156,969 $12,272,666 $13,499,932 $14,849,926 $16,334,918 $68,114,411

Total Costs 28,158,699$ $11,156,969 $12,272,666 $13,499,932 $14,849,926 $16,334,918 $68,114,411



Payback Period Net Present Value Internal Rate of Return Profitability Index

The payback period measures the length of time required to recover the amount of initial investment. It is computed by dividing the initial investment by the cash inflows through increased revenues or cost savings. The payback period for this investment is less than one year or 0.87 years.

Net present value (NPV) is the excess of the present value (PV) of cash inflows generated by the project over the amount of the initial investment (I). NPV = PV - I The present value of future cash flows is computed using the so called cost of capital (or minimum required rate of return) as the discount rate. When cash inflows are uniform, the present value would be: PV = A x T (i,n) where A is the amount of the annuity. A positive NPV indicates the project should move forward.

The Internal rate of return is defined as the rate of interest that equates I with the PV of future cash inflows. In other words, at IRR, I = PV or NPV = 0. Accept the project if the IRR exceeds the cost. Since the IRR of the investment is greater than the cost of capital (10%), accept the project.

The profitability index is the ratio of the total PV of future cash inflows to the initial investment - that is, PV/I. This index is used as a means of ranking projects in descending order of attractiveness. If the profitability index is greater than 1 accept the project.

Investment MeasurementsInvestment Measurements

TMG Consulting’s rapid cost/benefit analysis utilizes the following 4 investment measures. Client example provided below.

Cost of Investment

$28,158,699

Benefits$32,353,55

9Payback Period

0.87 years

Annual Benefits

$28,158,699

Cost of Capital %

$32,353,559

Period 0.87 years

Factor 3.791

Present Value$122,652,3

41Cost of Investment

$28,158,699

Net Present Value

$94,493,642

Present Value of Benefits

$122,652,341

Cost of Investment

$28,158,699

Index 4.356

Cost of Investment

$28,158,699

Benefits$32,353,55

9Internal Rate of Return

46.23%


Investment MeasuresInvestment Measures

As a result of this rapid cost/benefit analysis TMG Consulting suggests the utility will receive sufficient return on its investment to justify pursuing this initiative. The worksheet has been provided for modification by the utility to perform additional analysis.

Cumulative Cost/Benefit Graph

Total Benefits 32,353,559$ $32,353,559 $33,265,389 $34,242,481 $35,290,949 $36,417,505

Cumulative Benefits $32,353,559 $65,618,947 $99,861,429 $135,152,378 $171,569,883

Total Costs 28,158,699$ $11,156,969 $12,272,666 $13,499,932 $14,849,926 $16,334,918

Cumulative Costs $39,315,668 $51,588,334 $65,088,266 $79,938,192 $96,273,110

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

$180,000,000

$200,000,000

1 2 3 4 5


Thank you for your attention.

TMG Consultingwww.tmgconsulting.com

9210 Honeycomb Dr.Austin, Texas 78737

Greg Galluzzi [email protected]

p. 512.288.2655f. 512.288.2622

a discussion of the application planning

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