SYDNEY WATER CUSTOMER INFORMATION AND BILLINGSYSTEM
In July 2002, Australia was experiencing its second-longest dry spell ever and its driest winter
since1978.SydneyWater,the country’s largest water services provider, was busy dealing with the effects of this drought.
However, the utility’s directors had a more pressing concern. The new customer information andbillingsystem (CIBS),
Sydney Water’s largest information technology project, was over-time, over-budgetandnot performing toexpectations.
The board of directors had asked Alex Walker, Sydney Water’s managing director (MD or chiefexecutiveofficer (CEO)),
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to present a progress report. The project had been budgeted at $38.2 million in 2000 and was scheduled to end in
February 2002.To date , more than $60 million had been spent and project completion had been delayed to at least the
last quarter of 2003.
The board was meeting on July17 and had to decide what action to take.
BACKGROUND
SydneyWater
Sydney Water was a corporation owned by the government of New South Wales (NSW), Australia’s most populous
state. The corporation was a monopoly charged with providing drinking water to, and managing waste water and storm
water for, the residents of Sydney, Illawara and the Blue Mountains (more than four million people).It had annual
revenues of $1.4 billion anda ssets in excess of $13billion.It employed more than 3,000 people and had capital
expenditures of about $500 million per year.
The corporation was headed by an MD appointed by the governor of NSW on the advice of Sydney Water’s board of
directors. The MD reported to, and was also a member of, the board of directors. The board had an additional eight nonexecutive directors, appointed by the NSW government (cabinet ministers) on rotating three-year terms. The board was
headed by a chair, appointed from the non-executive members of the board by the governor of NSW.
The board met monthly and had five standing committees: Audit & Risk; Environment; Finance; Public Health &
Research; and Remuneration. Each committee was chaired by a non-executive director.
PricewaterhouseCoopers(PwC)
PwC Consulting’s information technology (IT) division was a large, turnkey solutions provider with offices worldwide.
The firm had worked on a number of projects in Australia for large private and public sector organizations. It enjoyed a
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positive reputation in the business community for completing projects on time, on specification and on budget.
Sydney Water’s Customer Information and Billing System(CIBS)
The CIBS project was intended to improve service to customers ,to fill gaps in existing information systems and to
provide operational efficiencies. It required the integration of 12 major businesssystemsand over 60 third-party
interfaces. It was the utility’s largest IT project ever in terms of scope andbudget.
In February1998, management prepared business case for a new customer information system and issued an expression
of interest (EOI). Twenty-seven vendors responded to the EOI. After a thorough evaluation , six of them were invited to
tender for the project. Five tenders were received. Management evaluated these tenders and recommended to the board
that the contract be awarded to PwC.
The board agreed. Sydney Water contracted with PwC in June 2000 to build and implement CIBS.Totalfunding for the
project was $38.2 million, allocated as $26.3 million to PwC for fees and $11.9 milliontoSydney Water to cover staff and
capital costs. The contract included a provision for a technical proof of concept (TPOC), a working proto type,to be
provided before the final contract was signed.
The project was divided into three overlapping phases that were to take two years to complete altogether:
 R1(Release1)-a tool to service major customers
Feb. ‘00-Aug.‘00
 R2-electronic interaction with commercial and developers
Mar. ‘00-Jul.‘01
 R3 - the substantial phase of the project — integration of
core systems across SydneyWater
Mar. ‘00-Feb.‘02
ProjectRollout
The project’s official start was March 27, 2000. An internal CIBS steering committee was establishedandfirst tasked with
evaluating PwC’s TPOC. The planned demonstration of the TPOC did not occur inearlyJune as planned. Nonetheless, a
final contract with PwC was signed on June21.
On July14 ,the TPOC was finalized .It identified a number of issues which could be potential “ showstoppers.”Nevertheless, the first release of R1was made in September 2000—only one month behind schedule.
The first phase of R2 was completed on December 6,two months behind its scheduled completion date.
The first progress report to the board was made on April11,2001. At this meeting, the board made the MD accountable
for delivering the CIBS project and required him to provide bi-monthly projectupdatesdetailing progress and costs
incurred against plan and budget. The board also approved additional funding in the amount of $4.8 million to capitalize
additional labor costs.
BoardReports
On June 20, 2001 , the MD’s report to the board noted that R2 continued to have problems with testing, posing at hreat to
on-time delivery.
The August 15 report stated that R3 had been rescheduled from March 2002 to June 2002. R2 was scheduled for
implementation in November 2001 (four months behind schedule). Nevertheless, the board approved additional funding
of $8.9 million — $2.1 million against borrowing costs, $800,000 for R2 and two separate contract variations of $3.0
million each for essential business changes and the sharing of costs associated with the delayed implementation of R3.
On October17 , a paper report (no presentation) to the board stated that both R2 and R3 were on time.
On December 19, the MD reported that R2 had gone live in November as planned and that costs were tracking to the
approved budget.
On February 14, 2002, the CIBS project director raised concerns about the ongoing viability of the project and reported
these concerns to the MD. On February 20, the MD reported to the board that most work streams within R3 were
progressing to plan.
In early March 2002, the CIBS project director presented a forecast cost to completion of $95.2 million to the MD,noting
the project would have a negative net present value (NPV). He further presented four alternative paths for completion.
On March 20, the MD’s progress report to the board consisted of a paper report and three over head slides. The report
noted that a detailed review of all costs to date and anticipated had been undertaken ; that a number of work arounds for
the software had been identified ;that a number of option shad been considered to either complete or terminate the
project; that management was opting to continue the project; and that a detailed review was underway to determine if a
September 2002 launch date was feasible.
The board accepted management’s recommendation to continue the project and approved additional contract variations
totaling $7.9million.The total approved budget now stood at $60 million.
At the June 19 board meeting, Walker recommended to the board that the launch date be deferred beyond September
2002 (no new date provided), due to a number of un resolved technical issues. The board accepted this recommendation
and asked for a detailed budget and progress report for its next meetingonJuly17.
NextSteps
ACIBS executive steering committee meeting on July10 concluded that there were 102 critical and significant defects in
the CIBS system. PwC expected to clear most of these by the end of July. Sydney Water’s management needed to
determine when these software could go live and what additional funds, if any ,were needed to successfully complete the
project. The MD needed this information to present the requested updates to the board.