Special Reports

City waiting for payoff

Tacoma’s new computer system was supposed to make government so efficient that it would shrink the number of jobs at City Hall.

By streamlining the way the city buys goods, for example, officials thought they could eliminate the equivalent of 28 full-time positions. They thought they could shave more than seven human resources jobs by shifting payroll entry work directly to employees. And by giving Tacoma Public Utilities customers Internet access to their accounts, the utility figured it could trim six customer service positions.

“Standing back and looking at this in a few years, I think we’ll have efficiencies that equal or exceed our initial investment,” TPU Director Mark Crisson said shortly after the system was turned on. “I fully expect beginning in the next biennium, we can expect reduction in staffing levels through the city.”

But rather than shrinking the size of government, the system initially forced officials to hire at least 63 more employees – including 27 permanent workers in the city’s computer department and 33 temporaries in the utility’s customer service section.

At the start of 2005, at least 42 of those new employees remained on the payroll, at a time when city government is cutting services and utilities are raising rates.

City leaders have yet to eliminate a single person from payroll because of computer inefficiencies.

Proponents of the new technology, and even many critics, still believe most problems will be fixed and that the computer system will one day deliver on its promise.

But now, more than a year after they turned the system on, officials have quit talking about reductions in staff. Instead, the talk has shifted to the long-term benefits of the system.

“This is a 10- or 15- or 20-year investment,” City Councilman Kevin Phelps told The News Tribune last week. “You’re looking at this after 18 months.”

But it isn’t clear how the city plans to achieve even the long-term benefits.

Shortly after they turned on the system, officials pushed for an SAP-funded study aimed at determining when the system would pay for itself. It concluded it might pay off in as soon as eight years.

But that study has since come under criticism, and now some leaders are calling for another, more detailed study that might tell them which parts of the system work and which parts don’t – and how to fix the problems. The same people who pushed for the SAP-funded study now say it might be too soon for a second look.

Without some kind of independent assessment, though, it will be hard for the city to get the most out of the new system, city leaders, employees and observers say.

“At this point, it could use a fresh look,” said Joshua Greenbaum, a Berkeley, Calif., computer industry consultant who is familiar with the Tacoma project. “It’s hard to imagine there’s not some ‘cover-your-rear-end’ actions going on.”


Almost from the moment the city turned the system on, officials have been scrambling to do two things: fix problems and make the system more efficient.

Some problems are to be expected from a project of this size, officials say. But no one expected to hire dozens of extra workers and spend millions more on consultants to make the system work. And rather than looking to trim the size of government, the search for efficiencies so far has been about getting back to where the city was when it started.

Instead of cutting positions, utility managers hired 33 additional workers to help deal with the deluge of questions and complaints from customers who couldn’t understand their utility bills after the system started up.

Before the new system, a customer service worker spent an average of four minutes on each phone call, said Bill Schatz, TPU customer service manager. At the peak of the problems last spring, phone calls averaged 12 minutes. By September call times had dropped to about eight or nine minutes, he said. They were down to about six minutes by early this year, Schatz said.

Even after most of the utility bill chaos subsided, TPU still needed about 30 extra workers to help offset the extra time each worker spends on the phone as a result of the complexities of the new system.

To speed up work, the city paid TUI Consulting another $472,500 to refine the customer service department’s software.

As a result of the TUI work, officials reduced the number of additional customer service workers from 33 to 15 and hope to cut another 10 positions by the end of this year, Schatz said.

The reductions should eliminate $90,000 per month in extra spending, officials said.

But the city’s follow-up contracts with TUI Consulting, the same company that received $29.6 million to help install the system, have also drawn complaints from union leaders who fear the city now is overly dependent on the company to keep the system working.

“There are budget concerns and yet there still seems to be money available to pay TUI,” said John Ohlson, president of the American Federation of State, County and Municipal Employees Local 120. “We should be providing for our own employees, rather than paying for a contractor to keep coming back.”

Crisson said he shares the concern and noted that the utility recently sought proposals from outside companies to provide future support services. They received 10 responses, he said, including one from TUI.

On another front, officials threw out a $150,000 computer training software package last year that they admitted didn’t live up to expectations. They then spent nearly $200,000 to buy a new training software package.


Officials are trying to reduce the number of extra employees hired in the wake of the switch-over to SAP.

But the city’s new computer department, created as a result of the new system, more than doubled the size of the previous computer department, going from 37 to 92 employees. There are no plans to restore it to pre-SAP levels.

The 55 new members of the computer department came from elsewhere in the city, but managers replaced 28 of the workers who transferred, leaving the city with a net gain of 27 new employees, said Dave Otto, director of the Business Information Systems Department.

The average salary in the department is $78,000.

Council members were shocked when they first learned how much money and how many people the new department needed.

No one knew until just before the system was turned on how much would be needed.

Council members complained then about a lack of specific goals and told Otto they wanted measurable results, so they could know whether the new system was worth the money.

“Other than graphs that say it’s going to be good and better and kumbaya, I don’t see how we’re going to know” whether goals are reached, Phelps said at Nov. 4, 2003, study session.

Since then, one questionable study has been conducted to determine when the system will pay off.

Even when technical problems are resolved, labor union contracts will make it difficult to cut positions. The city has plans to lay off about a half-dozen computer employees right now – three in the computer department and three in other city departments – but it can’t take action until officials negotiate a new contract with Local 120.

The labor union struck a deal in December 2003 barring the city from laying off any workers.

Ballu Khan, the TUI founder, defended the surge in computer workers, saying it’s a “trade-off.” If the city’s other departments want to become more efficient, the computer department needs more people to get maximum use of the powerful new system, he said.

Crisson said the utilities expect to face a labor shortage as workers from the baby boom generation retire. He believes the new system will allow government to restructure and accomplish more with fewer people.

In some cases, city officials have changed the way they work rather than change the way the new computer system works.

One example is past-due utility accounts.

With the old system, the utility sent out a past-due notice when a customer was $100 behind, said customer service manger Bill Schatz said. Additional notices followed if the bill weren’t paid.

But with the new system, subsequent notices aren’t sent until the system shows that the first one has been “worked,” Schatz said.

Overworked field inspectors, who must physically go to addresses where an account is past due, couldn’t keep up with the volume of late notices going out after the switch-over and weren’t “working” them fast enough to generate additional notices where warranted.

The number of past-due accounts on the books skyrocketed, Schatz said.

To address the problem, the utility initially hired three extra field inspectors to address a backlog of past-due accounts that ballooned after the switch-over to SAP.

“The system was producing a workload we couldn’t handle,” Schatz said.

The utility also decided to temporarily raise the threshold for sending out a notice. It was initially raised to $550 and has since been lowered as the field inspectors worked through the backlog.

Finally, officials also decided to use their knowledge of customer behavior patterns to “outfox” the system, Schatz told TPU board members. Typically, 40 percent of people will pay a bill after they receive the first disconnect notice, Schatz said. So rather than follow through and disconnect someone’s power after the first notice, they will now wait for a second notice.

As a result of the changes, the number of field inspectors is back down to 14, Schatz said.


Tacoma leaders still believe the computer system will eventually save the city money. They base much of their optimism on a return-on-investment study that suggested the system will pay for itself in eight years.

But some city employees and at least one industry expert question the research.

The study, completed in June by Peppers & Rogers Group, was paid for by SAP, the company that made Tacoma’s software.

Peppers & Rogers has a “close relationship” with SAP, said Ian Campbell of Nucleus Research, a Wellesley, Mass., information technology research company that specializes in return-on-investment studies.

Campbell’s company has been critical of SAP in the past, but it isn’t because he doesn’t believe the software has potential.

“SAP is a great product and there are thousands of companies around the world that achieve a positive ROI,” Campbell told The News Tribune.

In this case, Campbell suggested that another company might have been a better choice for the study “given the magnitude of the investment.”

City and TUI officials began talking about conducting a study to advertise the success of the Tacoma project soon after the system was turned on – during the peak of trouble.

“The City of Tacoma is very anxious to promote their accomplishment and I think this ROI would be a great marketing tool for SAP,” Todd Crandall, vice president of TUI Consulting, wrote to Michelle Cooper of SAP. “What can TUI or Tacoma do to get an ROI study moving?”

Cooper replied: “We are very pleased with (project manager Karen Larkin’s) willingness to share the City’s success and are very interested in developing a ROI study.”

Once work began on the report, employees said they felt pressured to provide positive information about the system – and to keep quiet about problems.

Purchasing manager Helen Small detailed her frustrations in a lengthy e-mail to her bosses on May 12 of last year. She described a meeting of computer department and other city employees as “discouraging for all involved” and questioned whether the study would provide an accurate assessment of the new system.

“The majority of end users felt constrained and that we were being channeled toward an outcome and turned back at every corner when something negative was brought out,” Small wrote. Anyone who mentioned something negative about the new system was accused of “being negative, emotional and trying to kill SAP,” she added.

“My interest is on an objective process that articulates factual circumstances and experiences, whatever they may be,” Small’s e-mail concluded. “It would be remiss for us to sweep the minuses under the rug and speak only to the pluses because that happens to better fit the ROI firm’s articulated criteria and ground rules, or BIS’ interpretation/direction.”

In a May 14 e-mail, assistant finance director Joe Delaney was more blunt: “It’s a sham.”

In its report, Peppers & Rogers took note of some of the troubles Tacoma experienced, but still “conservatively” estimated that the city would break even on the cost of the project after about eight years and see a 1 percent annual return on its investment after a decade.

An estimate that Peppers & Rogers called “optimistic” suggested the city could break even after just six years and see a 10 percent return on investment after 10 years.

Both projections assumed that officials quickly got control of “significant” unexpected costs. And the report noted the difficulty the project experienced early on.

“It is undeniable that the implementation of this technology has been difficult on the many users of the system,” the report stated.

City Council members received the report as “good news.”

“I like the fact that you were conservative,” Councilman Rick Talbert told the consultants. “We can only hope that the timelines will be shorter and the savings greater.”

“There is light at the end of the tunnel,” Councilman Mike Lonergan said.

But Campbell, who has seen the ROI study, said it’s overly optimistic and based on “guesses” about how the system will perform in the future.


As the city enters the second year with its groundbreaking software system, leaders agree that Tacoma should hire an independent consultant to examine it to determine what works, what doesn’t and what needs to be done to fix the problems. At a council subcommitee’s direction, the city is seeking proposals for the work – but the cost and scope of the study has yet to be approved by the council.

And there is disagreement over when to conduct the study.

Councilwoman Julie Anderson, who has pushed for a review of the system, wants it to happen as soon as possible.

“I frequently hear from hardworking, dedicated employees that it’s difficult for them to do their jobs,” Anderson said. “And some employees, because they’re so dedicated, have developed work-arounds. Without a top-down assessment, I have no way of knowing whether there’s a problem with SAP, TUI Consulting or internal management.”

TPU board chairman Jake Fey agreed.

“An assessment will tell us if there are software problems or personnel problems,” Fey said. “We need to know the truth.”

But Otto, director of the city’s Business Information Systems Department, wants to wait.

He’s worried that an outside consultant coming in to assess the system now would interfere with his employees, who will be busy this spring installing software upgrades.

Installing the upgrades, which had been put on hold while computer workers tried to fix problems with the new system, will be a huge undertaking, and the city expects to hire more outside consultants to help with the work. Conducting a review of the system at the same time would place even more demands on staff, he said.

Councilman Phelps said it makes sense to wait. During the first two years, tech workers are busy fixing problems and debugging the system, he said. He also worried about the burden that a study would place on the city’s staff, and noted that they already helped Peppers & Rogers complete the ROI study.

“It seems like we’re spending more time analyzing than fixing,” Phelps told The News Tribune editorial board last week.

Phelps blamed disgruntled department managers for many of the problems the city experienced.

“There are some who would’ve taken joy in this not working right,” he said.

Despite the obstacles, Phelps believes the city made the right decision. He compared the city’s experience of installing and using the system to a general leading his troops on the battlefield.

“We’re marching toward where we need to be at,” he said. “We’re not saying that there are not going to be some casualties along the way.”

Councilman Lonergan, chairman of the government performance committee, is among those who believe the system is on the right track, but he doesn’t oppose a review.

Lonergan was critical of the way officials handled the initial problems, but he thinks they’re doing a better job now.

“You don’t make things better by spinning or glossing over the truth,” he said. “We did that early on. We’re not now.”

TUI’s Khan said the city now has the “tools of the trade” to become more efficient.

“People need to get on board and stop blaming the system because they can’t or won’t use it,” he said.

No one suggests the city should abandon SAP. And most people believe most of the problems eventually will be fixed.

“We have to live through this,” City Manager Jim Walton said. “If we stay the course, we will come to appreciate the payoff from this more robust system. You can’t call the game in the second inning when you’re down 5-0. You have to finish it.”

Even now, though, Walton isn’t convinced the city needed a software system as powerful as the one it bought.

“It may be more than a city like Tacoma will ever need,” he said.

The good news, computer consultant Greenbaum said, is that it’s not too late to make the Tacoma project a success.

“There is a lot of redemption that’s possible in a bad or flawed implementation,” he said. “A lot of ground can be covered if you want to step back and, unfortunately, spend the time and money to make it happen.”