Why wasn’t school payroll simplified before Novopay?

Recently released findings from the Novopay Ministerial Inquiry highlight that there was no serious effort made by the Ministry of Education to simplify schools’ collective agreements or Ministry or school business processes before the start of the Novopay project. This was signalled in the inquiry report as being the “underlying cause of later problems.” And these later problems with the Novopay payroll system have of course been widely publicised, negatively affecting public trust and confidence in the Ministry and wider public sector, and tarnishing the reputation of Talent2, the payroll provider.

This situation then begs the obvious question – why didn’t the Ministry try and “fix” the
schools’ over-complicated payroll practices, processes and legislation before introducing the Novopay system?

There are 15 different national collective employment agreements in operation across the education sector as well as individual employment agreements. When you consider the variety of allowances, leave provisions and other employment conditions which impact pays, the number of possible permutations for individual pays has been estimated to be as high as 10,000. If the Ministry was serious about simplifying their payroll system, this would have been a great opportunity to clean up its act with regard to payroll rules and regulations before Novopay was implemented.

The past history of failed payroll system implementations further supports this argument. The Novopay Ministerial Inquiry detailed that every time the Ministry has tried to change its payroll system in the past, there have been major issues. In the mid-1980s a transfer from its own software to a new customised system caused blocks of staff to not get paid during the transition. When the Datacom system was introduced in 1996, the transfer again was very rocky. The project ran late, the implementation was difficult, and a contractor error eventuated in non-payments to all school employees who had been set up to be paid by direct credit.

With such a tumultuous past, and given the complex and exception-driven environment posed by the New Zealand school system, was it ever realistic that any payroll provider would have a chance of a successful implementation? Mark Neild, a computer industry professional commented that “Novopay’s botched
roll-out was a failure of management, not technology.”  Mr Neild explained that Novopay was a “classic project failure, but it was not the IT parts which failed.” Neild believes that the government wanted large changes in the school payroll system, including simpler national pay structures and for school staff to input their own data, but it was wrong to expect the software to achieve this. (radionz.co.nz, 15-6-2013)

Instead of rationalising the payroll system, “the Ministry progressed towards customising the Novopay service to reflect existing practices, rather than taking advantage of the inherent capabilities in the new software.” (Novopay Ministerial Inquiry) As the project morphed from implementing a configured-package software system towards a highly customised solution, this moved further and further away from the original strategy and business case argument. “More and more, the project was recreating the legacy processes and system…This approach had the effect of slowing the project down, constraining the benefits’ realisation and complicating relationships and future upgrade options.” (Novopay Ministerial Inquiry)

The inquiry report describes the school payroll environment as “overly complex as a result of an accumulation of historical changes.” Instead of being stuck in the past, it’s time the Ministry of Education takes a more forward-thinking approach by updating and simplifying their payroll, bringing the processes and requirements in line with Novopay’s simpler model (as was originally intended).

This has been endorsed by two of the Novopay Ministerial Inquiry recommendations to the Ministry – to engage with stakeholders including sector representatives, “to modernise the collective agreements in the sector in order to reduce the complexity they provide for the schools’ payroll” and to “re-examine the requirements of the current schools’ payroll to remove unnecessary practices and complexity” such as the single payslip, and start and end of year processes. (Novopay Ministerial Inquiry)

Steven Joyce, Minister Responsible for Novopay, has given assurances that he will action all of the inquiry’s recommendations – it’s just a shame that there was no foresight to do this during the nearly ten years of planning and development for the Novopay system.

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Novopay Inquiry: tough lessons to learn from again

Recent findings released from the Ministerial Inquiry into the Novopay Project confirm what many already suspected – that there is no one reason why the Novopay situation escalated, but a long list of bungles. But let’s hope that this time around tough lessons are learnt from, and not forgotten, for future public IT projects.

From all accounts, the two stakeholders, Ministry of Education and Talent2, both had the right intentions at the onset of the project. The Ministry of Education wanted to replace a legacy system with a modern, efficient and
cost-effective payroll system that would benefit the school users, on time and on budget. And on the other side, the provider, Talent2, who had a strong reputation and credentials in the marketplace, wanted to deliver a seamless payroll implementation to the Ministry’s specifications – also on time and on budget. So why did things go so wrong?

On the part of the Ministry, there were major failings in the project management process; scoping was incomplete with specification details; followed by lack of governance and responsibility; and a breakdown in the testing and quality assurance measures before go-live. And given the lessons that should have been learnt from the 1996 INCIS debacle, history should not have repeated itself here. Why did the Ministry and Novopay Project Board not follow its own protocols, documented in the Guidelines for the Management and Monitoring of Major IT Projects (prepared after the INCIS inquiry 13 years ago to specifically stop another major IT project failure)?

The inquiry findings show that the Ministry did not establish the quality of governance required for a complex project such as Novopay. There was no overall accountability for Independent Quality Assurance (IQA), its scope did not encompass the entire project, and it was not provided continuously. In particular, the decisions to remove the pilot and staged rollout, and to adhere to the August 2012 go-live date without the completion of essential testing, sector readiness and Service Centre training had severe ramifications. Had the Ministry adhered to the requirements set out in the major IT project guidelines, a complete readiness assessment before go-live would have clearly indicated the significant risks faced, and the Novopay experience may well have been a positive one.

Another problem was the lack of consultation with the school users during the entire project and the inadequate communications to all users and stakeholders, which should have been part of a comprehensive Change Management Plan. The one-size-fits-all approach applied was insufficient, given the diversity of the stakeholder groups and the varying needs and expectations of different schools. “Principals’ Federation president Philip Harding says if payroll administrators in schools had tested Novopay rather than Ministry staff, the true extent of its failings would have become clear.” (radionz.co.nz, 5-6-2013)

The lack of communication of the fact that the ownership of HR arrangements was to be transferred back to the schools (which was never intended to be part of the payroll provider, Talent2’s responsibilities), is an example of a major Ministry oversight. Instead, the Ministry insisted on communicating one overly positive message – that the Novopay system would be introduced with a totally smooth transition – this set unrealistic expectations to users and other stakeholders. As was asserted in the Novopay Technical Review (March 2013), “it is not unusual for large payroll systems to go live with defects and produce errors in around 5% of payments in the first few pay runs.”

Even though Novopay’s supplier, Talent2, must take its share of blame, the Ministry’s culture and attitude around the Novopay project made the working relationship challenging. “Talent2 reported that early on it attempted to use formal change requests when circumstances changed. The Ministry indicated that this would significantly affect the relationship, so Talent2 chose not to pursue them.” (Novopay Ministerial Inquiry)

Problematic elements of the Ministry’s culture had been reported in findings from a Performance Improvement Framework (PIF) review conducted in 2011, and these same issues were identified with respect to the Novopay project in the Novopay Ministerial Inquiry report. “The Ministry was not always willing to take or act on advice, and at times demonstrated misplaced optimism about the state of the project.” (Novopay Ministerial Inquiry)  The inquiry report goes on to say that at least one external agency engaged in June 2011 to help improve the Ministry’s culture, expressed concern at  the Ministry’s aversion to being challenged and the fact that it was not always receptive to external advice. It seems obvious that Talent2 may well have been trying to meet the Ministry’s requirements but was walking a very shaky tightrope, when it tried to introduce formal processes or raise its concerns, which were likely to be ignored or downplayed.

But the inquiry did make some positive conclusions about Novopay going forward. “Despite the problems, we observed a strong commitment to delivering a successful project and some significant individual efforts. The future of the schools’ payroll system now looks more positive. We are confident that there is scope to address the weaknesses that we have found.”

And Novopay’s recent performance has been very encouraging. The latest PricewaterhouseCoopers (PwC) figures show that for the third pay period running, Novopay achieved an error rate under the 0.5 per cent target. And for four out of the last five pay periods, Novopay not only achieved, but actually bettered this target, including the last three consecutive pay runs – Pay Period 2 at 0.44%; Pay Period 3 at 0.26% and Pay Period 4 at 0.42%. Mr Joyce has further commented that early signs for next pay period indicate that the positive results should continue.

The Novopay situation must be a wake-up call to all public sector employees involved in risky IT projects.

The good news is that Novopay will not be another INCIS – all indications are that Novopay is well down the remediation path to good health – INCIS, on the other hand, was terminal and had to be abandoned in 1999, only one-third complete and at a cost of $104 million of taxpayers’ dollars (The Dominion Post, stuff.co.nz, 6-6-2013).

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