Technology rollout at the core of NZ health project troubles

A planned common financial management and procurement system for New Zealand District Health Boards is over budget and more than three years behind schedule.
Written by Rob O'Neill, Contributor

Inadequate planning, poor communications and the lack of a project management discipline contributed to the blowout of an IT project that aimed to unite financial management and procurement across the New Zealand public health sector.

Health Benefits Ltd (HBL) was established as a Crown entity five years ago to implement shared procurement across separate New Zealand District Health Boards (DHBs). At the core of its programme was the development of a shared financial management and procurement system called the Finance, Procurement and Supply Chain (FPSC) programme.

In a report into the project, the Auditor-General described FPSC as "the most significant piece of work that HBL led".

The FPSC component of the programme was forecast to provide gross benefits of NZ$503.3 million, more than 70 percent of HBL's total planned savings over five years.

The FPSC programme was to be based on an existing Oracle installation and be completed by November 2014. However, by March 2015 it was still incomplete and NZ$80 million of a revised budget of NZ$92.1 million had been spent.

"At that time, the programme was modified with a revised budget of NZ$120 million," the Auditor-General found. "Because the programme is still developing, it is too early to assess the level of benefits it will deliver."

Forecast completion is now three to four years later than planned, sometime in 2018.

Difficulties led to the FPSC being "substantially paused" in May 2014 and re-planned with a later delivery date and changed scope.

The programme was ambitious and complex, with many risks and HBL's communication with DHBs was inadequate, the Auditor-General found. HBL's board lacked timely and accurate information and HBL had no programme management office to maintain project management discipline.

While DHBs approved the FPSC business case, the commitment of some to the programme appeared to be limited.

DHBs provided NZ$68.3 million of capital funding for the FPSC programme through an issue of shares by HBL. This was part of an "invest to save" model that required upfront funding to create future benefits.

"In some instances, these benefits were not expected to be realised for years and would not necessarily be spread equally throughout the health sector," the Auditor-General found. "In effect, DHBs were being asked to support investments that would deliver national savings but might incur local costs."

A National Procurement Service that centralised a range of procurement for DHBs was put into effect in July 2014, but without the support of the planned FPSC finance system.

"We understand that this is planned to be put into effect beginning in the second half of 2016," the Auditor-General commented.

The report says the programme's goals were ambitious: to create a single system that could replace 20 systems and different ways of operating.

"It appears that HBL underestimated the health sector's fragmentation. This made achieving the programme's objectives in the time allotted particularly challenging..."

The original business case required that the FPSC programme use an existing Oracle finance system implementation, but this could not be done to the extent originally forecast.

Further, costs such as integration with pharmaceutical buying agency Pharmac were unbudgeted in the original business case.

While HBL reported total gross savings in the health sector of NZ$301.8 million by the end of June 2014, the Auditor-General found that total included NZ$54.1 million of savings from HBL's first year of operations in 2010/11, which preceded the five-year period covered by the savings target.

"Actual savings achieved during the first three years of the five-year period were NZ$247.7 million, compared with estimated savings for the first three years of $220 million."

However, little of that was directly attributable to HBL.

"The savings ...came from several sources, including DHB individual and collaborative procurement initiatives; MBIE's all-of-government initiatives; and healthAlliance procurement, as well as savings from HBL-led procurement initiatives." the Auditor-General found.

Reported savings directly attributable to HBL up to June 30, 2014 were NZ$71 million, less than the cost of the FPSC implementation to date.

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