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San Diego City Schools Case Study Presented by: Walfridus Chaspuri Zhen Guan Kent Ikeda Jun Mei Agiimaa Tsogt 1

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Background O In 2002, SDCS was the eighth largest urban school district in US and the second largest in CA O Serves 142,000 students in K-12 at > 180 educational facilities O 25K full- and part-time employees O 2001-2002 operating budget of $1.1B O Undergoing reform effort to improve teaching and learning in the classroom O Desire to modernize business practices 2

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ERP and Education Industry O Education industry second largest in US O > $320B spent within K-12 segment O According to the National Center for Education Statistics, 81 school districts in the US served >= 50K students O IT spending low O Average of 2% of revenues going to IT budgets 3

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ERP in School Districts O Industry leaders traditionally focused on private- sector clients now tailoring products to education markets O SAP O Peoplesoft O Oracle O In 2001-2002, prices charged to education clients dropped O Due to slowdown in general economy O Critical mass of districts now interested in ERP systems 4

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ERP in School Districts O Emerging trend was new focus on education within top-line consulting firms O Accenture O Price Waterhouse Coopers O Deloitte O SAIC O As consulting firms education practices matured, deeper understanding of unique challenges confronting school districts emerged O Firms better prepared to provide higher-quality assistance to clients 5

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Persistent Risks O ERP failed to deliver what was promised to school districts O Districts reported low level of satisfaction O ERP design and implementation immensely technical and difficult O 50% of implementations failed 6

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ERP Project Risk O What do you think could be the risks identified for ERP Project implementation? O Significant portion of risk similar to any ERP deployment, including O Scope creep O Wide-scale deployment O Issue escalation O Organizational change O Risks associated to education industry O Negotiations O IT experience O Software modifications O SDCS school board high divided five-member board O Would you advise the school board of these risks? Why or why not? 7

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Unique Problems for School Districts O Three problems within school districts hindered successful implementation of ERP systems O Limited budgets O Under-qualified personnel O Changing leadership 8

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Problems Unique to Education Industry O Limited Capital O Persistent lack of funding O Only spend about 2% O Under invest in consultants O Spend on software and on consultants O Purchase inferior solutions because of price 9

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Problems Unique to Education Industry O Under-Qualified Personnel O IT staff not professionals O Districts over rely on consultants and outside experts because staff members are not trained 10

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Problems Unique to Education Industry O Changing Leadership O Longest Superintendent tenure was 6 years O Impacts ERP implementation O Inconsistent support from top management 11

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Problems O Scope Creep O Increasing the desired features O Wide Scale Deployment O Deploying O Hardware O Software O User training O Issue Escalation O Snowball effect 12

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Problems O Poor Negotiation O The lack of experience when negotiation with solution providers results O Increased costs for software O Decreased benefits in service contracts with the solution provider O Software maintenance cost increases yearly O Starting at around 15-20% and could be as high as 30% of the purchase cost of the software 13

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Problems (SLA) O SLA service level agreement O Agreement between ISP and clients that defines O Estimated downtime O Level of technical support O Number of users that can be served simultaneously O Help desk response time O Support O Dial in access O Usage statistics 14

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Problems (SLA) O Failure of clients to understand what level of SLA is needed by their business processes O Results in mismatching of projected requirements to actual requirements O Difficult to agree on what is actually needed O Failure to O Define O Inability to understand when to upgrade/change agreement to server business objective 15

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Problems O Software Modification O Increases cost of implementation O Increases cost of technical support O Increases cost of upgrades 16

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Problems O Convincing top management to support the implementation of ERP O School board is divided 17

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The Ideal ERP System O Ideal school district ERP system was one where full power of ERP was used to face the challenges confronting school managers O School districts finance, HR, food services, health services, procurement, delivery, and student tracking functions would be seamlessly integrated 18

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The ERP Big Picture at SDCS O SDCS management sought to develop enterprise-wide system to help reform and modernize districts business operations O District staff spent 18 months planning implementation of ERP modules in areas of finance, HR, and student information system (SIS) O SIS considered holy grail of ERP modules O Initial survey reveled even the best SIS systems offered only 50% of functionality that district required 19

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Alternatives O ERP Vendors O Benefits O Simpler integration process between software module O Less training cost for personnel O Potentially lower cost of ownership O Easier to support the ERP system O Drawbacks O Potential changes in way school district does business O Potential software functionality gap in between modules 20

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Alternatives O Best-of-Breed O Benefits O Ability to create a more organizational specific functionally of the ERP system O The client is not locked in with one vendor O Reduced potential functionality gaps between modules O Drawbacks O Much more complex system to implement O Will cost much more than just hiring an ERP vendor 21

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Alternatives O Implement all modules at once O Benefits O All IT learning occurs at once and theres no downtime between implementations O Reduced training costs O Reduced time between implementations O Ideally all modules are on the current version O Drawbacks O Exponentially increased complexity O Increased costs 22

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Alternatives O Do Nothing O Always a choice to do Nothing O Benefits O Cost savings O Drawback O Not accomplishing any goals O Problems are not addressed 23

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Alternatives O Delaying ERP implementation O Benefits O More mature educational ERP systems O Allows school district to evaluate its needs O Allows vendors to refine their software O Drawbacks O Current problems will not be solve till the future O Current problems may prove to be costly O School district may not be able to continue operating until new system is available 24

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Alternatives O Wait for SOA and BPI O Benefits O Better integration of systems O Many services can be standardized to reduce redundancies in the system O Allows for many processes to be automated O All benefits associated with automating business processes O Drawbacks O Same as doing nothing and waiting for educational ERPs to mature. O Extra complexity, costs, time O Not a proven method in the Educational industry 25

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Alternatives O Software Choice O Best of Breed/Single Vendor O Best of Breed get best solutions but no integration O Single Vendor great integration however not optimal/best solution for each 26

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Discussion Question O What module was decided to be implemented first? Why? O HR module was to be implemented first. O Districts head of HR successfully implemented HR module at prior assignment and had hands- on experience O Early success of HR module would build greater buy-in among district staff for future ERP initiatives 27

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SDCS Human Resources ERP Module O Current SDCS HRMS mainly composed of 30- year-old legacy mainframe code recently migrated to client/server platform O HRMS included payroll, personnel, and benefit systems O Other stand-alone applications purchased or built over the past decade O No true integration among any of the systems O Sharing of data between systems not automatic O Each functional area responsible for data entry for respective department O Resulted in duplication of data entry 28

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Employee Benefits O Administration of employee benefits was complex and required significant manual work 29

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Payroll O Payroll division responsible for several areas and handled more than 28 different forms O Time and labor collecting O Paycheck processing 30

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Personnel O Complex process involved O Processed retroactive payments and credentials O Reviewed education certification and demographics O Handled substitute staffing 31

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System Implementation Timeline O Shortest time estimates for implementing one module of an ERP system was 10-24 months, excluding post-production support 32

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ERP System Costs O Wiemann heard cost estimates for ERP implementation projects ranging from $15M for small-scale (implementing one module) to > $125M for full-scale, heavily customized ERP solution O Cost elements included O Software O Implementation/consulting O Infrastructure O Training O Ongoing costs 33

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Cost Summary of Deploying SDCS ERP HR Module 34

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ERP System Benefits O Tangible cost savings O Staff reductions O Reduced overtime in HR and fiscal control departments O Reduced printing costs, processing errors, and space costs O Productivity improvements O Free up principals and clerical staff for crucial functions they were unable to perform O Soft benefits O Improved employee morale and productivity O Improved recruiting efforts O Improved management access to data 35

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Discussion Question O In order to generate ROI, length of time for analysis based on five-year useful life of the systems once implemented O Wiemann unsure what cost of capital to use O Unsure how to quantify soft benefits O How can you quantify soft benefits of the system and include them in a ROI analysis? O Quantified through creative assumptions O Assumptions can come from experiences others had when implementing similar solutions or from drawing on similarities between other quantifiable benefits O Other principals compared their successful implementation like receiving an additional recruiting team, valued at $320K/year O SDCS spent $400K/year on an internal audit team to provide access to HR data. This team could be disbanded with the implementation of an HR solution leading to a $400k/year benefit O Improved employee morale and productivity could be measured by a lower turnover rate, leading to lower training costs and recruitment costs, as well as higher output rates leading to lower clerical demands and improved service 36

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Discussion Question O With the info presented, what should Wiemann present and recommend at the board meeting? Specifically, would you recommend going forward with the HR system implementation? If not, what alternatives would you suggest? O This case focuses on the challenge of quantifying the return on investment (ROI) of a large technology project in the nonprofit environment of the San Diego City Schools O The school district does not generate a profit so traditional revenue enhancement arguments do not work O The system ROI is composed of two major components: cost savings from removal of legacy applications and productivity improvements O The cost containment benefits are relatively straightforward to quantify, but do not justify the system O Productivity improvements are harder to quantify and many can be categorized as soft benefits O Many of the productivity and cost-saving benefits will not be realized without personnel reductions, which are especially difficult in school districts and government agencies O The case discusses the tradeoffs quantifying soft benefits and productivity improvements, best practices for management decision making, and the organizational change necessary to realize the ROI 37

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Decisions/Outcome O SDCS listed assessment criteria for vendors in draft of RFP for HR system O Product functionality 40% O Price 25% O Support 15% O Organizational strength 10% O Only a few vendors successfully implemented ERP systems in school districts providing K-12 education O What was the final consideration in choosing the software vendor? O Vendors experience with K-12 educational market 38

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Decisions/Outcomes O Empower Solutions selected as implementation partner, using PeopleSoft enterprise software O Completed within budget (approx $11.6M) O Live in approximately one year O Complete understanding of K-12 processes O Good training program in place O Built relationships with key personnel on SDCS staff 39

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Decisions/Outcome O After implementing the ERP system O Users were satisfied with the new system O Old laborious paper method replaced with faster, more reliable electronic version O Staff members able to achieve immediate results O More productive, more accurate in their work O Less bogged down by paperwork O School district able to slim down workforce O Employees were more productive with new system in place, resulting in additional savings on payroll O Saved money by automating processes on the system instead of using the old paper process 40