Planning Your CIS Initiative
By Greg Galluzzi, President, TMG Consulting, Inc. November, 2006

In today’s market, it is estimated that as many as 40 percent of utilities who are thinking about replacing their legacy billing system are engaged in the development of an application plan.

Rather than rushing out to engage in a selection effort, these utilities are taking a step back to conduct a more thorough assessment of their existing situation. They are trying to answer one question – should we retain, upgrade, or replace our existing billing system?

GATHER INFORMATION
The first step of any application plan is to gather information. Several methods are used including: interviews, surveys, walkthroughs, and the gathering and review of materials.

Anywhere from 20 to 75 users and technical personnel may be interviewed to identify their perspective and requirements. It is very typical for the majority of those interviewed to believe the current billing system does a satisfactory job in supporting their business operations. Many have been through prior CIS replacements and don’t want to experience a second replacement effort.

Since not all system users can be interviewed a survey is typically conducted and sent to the user community with questions regarding how well the current system is meeting their needs, and what they might want to see in a new system. It is very common for 40% to 65% of the surveyed users to indicate that the current system assists them in doing their job. However, their overall satisfaction level with the current system is typically only at a satisfactory (C) level. In addition, when asked if they would like to see the current system upgraded or replaced, the majority or nearly 50 percent will usually express an interest in upgrading the current system rather than replacing it.

The interviews and the survey results confirm that while the current billing system may be meeting basic needs, there remains a desire to replace the system and provide users with a better tool to do their jobs. In addition, the utility is usually faced with technology issues which hamper the ability to effectively enhance the system. The need to eliminate risk and enhance business efficiencies become primary drivers for potentially replacing the system.

CURRENT ASSESSMENT
The current environment is reviewed to determine how well it is meeting the business and technology needs of the utility. From a business perspective legacy billing systems typically are assigned a grade of low satisfactory (C-). For example, a utility may consider:

Application Demonstration. The system is reviewed and evaluated against an industry score card with 137 touch points. The majority of legacy billing systems receive a usability score of satisfactory (C) or unsatisfactory (D).

Application Functionality. The system is evaluated against a standard industry function and feature checklist. This typically results in a functional fit of between 25% and 65% for the legacy billing system, which is a failing (F) grade.

From a technical perspective the legacy billing system is typically assigned a grade of unsatisfactory (D). For example a utility may consider:

Application Architecture. This category takes a look at application considerations such as cooperative processing mode, the use of parallel processing and partitions, the programming language, program design, use of API’s, security capabilities, and documentation. The legacy billing system typically receives a grade of unsatisfactory (D).

Application Support. This category examines support of the application including: the development approach, both current and future application support, the development environment, change management, and quality on-time delivery of system enhancements and fixes. The legacy billing system typically receives a grade of unsatisfactory (D)

Based on the current assessment - the low business fit (C-) and the low technical fit (D) are often good indicators that the current billing system should be replaced with a new CIS solution.

INDUSTRY PERSPECTIVE
Generally, across all utility types about 50% of utilities continue to operate legacy billing systems while the other 50% have implemented or are currently replacing their legacy billing system with a new CIS product solution.

Let’s take a look at what the top 50 cities in the U.S. are doing with their legacy billing system. Nearly half of the cities in this sample, 44%, have implemented a new CIS. At this time, 22% are currently selecting or implementing a new CIS. A total of 66% of the cities in this survey have implemented or are currently implementing a new CIS. Another 10% are actively planning to implement a new CIS. This brings the total to 76% of the cities who have implemented, are currently implementing, or are planning to implement a new CIS solution. The remaining 24% continue to operate legacy billing systems.

Over the past few years, we have attempted to standardize and link costs to customers served. However, the market continues to focus on customer metered services. As a result, a utility can expect to spend the following on a new CIS.

A utility may spend $20 to $30 per customer metered service to vendors, consultants and integrators for CORE CIS hardware, software and services.

A utility may spend another $5 to $30 on payroll costs and additional out-of-pocket costs for items such as overtime pay, bonuses, temporary staffing, project space, training facilities, etc.

A utility may purchase additional hardware, software and services to implement EXTENDED CIS capabilities (e.g. change management, bill production, data warehouse). This cost is estimated at $0 to $30 for EXTENDED Services and $0 to $20 for EXTENDED Products.

Realistically, a utility serving 100,000 customers can expect to spend around $2.5 million on core CIS vendor costs, and $1.5 on staffing and out-of-pocket costs, for a total of $4 million in CIS implementation costs.

CIS ALTERNATIVES
To evaluate CIS alternatives, a utility will utilize a model which presents general software scenarios to consider regarding CIS options in support of a possible CIS replacement initiative. These options generally include: Status Quo, Major Upgrades, New User Interface, Data Warehouse, Re-hosting, Custom Development, Product Solution, Hosted Solution, Cosourced Solution, and an Outsourced Solution.
To further analyze these options a utility will typically use a number of key assessment criteria and weights to evaluate and rank the alternatives. This may include things like: Installation Costs, Operational Costs, Installation Timeframe, Solution Risk & Viability, and Business Strategic Fit.

The majority of the time the decision is to replace the current system with either a product solution which is either operated within an internal or an external datacenter. In some instances, the utility elects to extend the life of its legacy billing system by 5 to 7 years by adding a data warehouse, or a new user interface to the existing system.

BUSINESS PLAN
The benefits which may be realized with the implementation of a new CIS product solution may be segmented into Cost Reduction, Cost Avoidance, and Revenue Enhancements. However, the development of benefits does not usually result in the identification of hard dollars associated with cost reduction benefits. Most benefits are associated with efficiencies and soft dollars which are identified with cost avoidance benefits. It is extremely difficult if not impossible to develop a cost/benefit analysis which results in a positive benefit analysis for the implementation of a new CIS solution. A new CIS solution is typically justified on the basis of a strategic initiative or the avoidance of risk associated with maintaining an aging technology infrastructure and application architecture.

CONCLUSIONS
Upon completing the application plan the majority of utilities realize their legacy billing system is only providing a satisfactory level of usability and a failing functional fit in comparison to what is available in today’s CIS offerings. They are faced with technology issues regarding the application and the inability to continue enhancing and supporting the system. Most of the systems are unable to support the utility’s movement toward a more customer focused business environment where it is working to delight and exceed customer expectations.

As a result, these utilities are making a strategic decision to replace their legacy billing system with a new CIS product solution which is managed and supported by the vendor.

Greg Galluzzi is the President and Senior Consultant with TMG Consulting based in Austin, Texas. Greg has 25 years of information technology and consulting experience across 300 CIS projects. Greg can be reached at gregg@tmgconsutling.com.