Cypriot Local Administration Reform - Project overview Final - NOTORIA INTERNATIONAL

NOTORIA International

Processes optimization,quality improvement of services for citizens and

operating costs reduction through Lean Six Sigma

Nicosia, November 2014

Project overview

Notoria International

SUMMARY

THE PROBLEM Economic constrains

THE PROPOSAL - smoth approach

- government – italian comparison

- trade offs

THE ITALIAN APPROACH

IN DETAILEAM - methodology to use

- the cluster

- the consolidation

- people staffing issue

- savings

- project scheduling

CONCLUSIONS Kallikratis versus italian approach

Notoria International 3

THE PROBLEM


THE PROBLEM Economic constraints

Total Operating Costs: 267.231.288 €

- of which 43,4% Payroll

- of which 1,9% Mayor & Councillors

Total Income: 256.255.853 € ( of which 20% subsidy)

Total annual Interest to pay: 11.726.300 € (480 M€ total debt)

Need for more cooperation between Municipalities

No complete financing and administrative autonomy

Need for more process monitoring and control

No quality goals assignment

No common HR approach

Processes to optimize: Waste collection, Road Maintenance, Building Permits, Hygiene, Traffic warden

Processes to improve: Green area, Parking Mgmt., HR

Processes to change: Waste Mgmt., Road Lighting

FINANCING PERSPECTIVE FOR ALL MUNICIPALITIES IN CYPRUS

GENERAL PERSPECTIVE FOR ALL MUNICIPALITIES IN CYPRUS

PROCESS PERSPECTIVE FOR ALL MUNICIPALITIES IN CYPRUS


€ 1.600.000€ 800.000€ 0-€ 800.000-€ 1.600.000-€ 2.400.000-€ 3.200.000

FAMAGUSTALARNAKA

LIMASSOLNICOSIA RURALNICOSIA URBAN

PAFOS

Balance

DIST

RICT

+ 250.000 €- 250.000 €

20.445.412 €Total inefficiency:

Municipalities Balance Sheet Distribution

variabilitytargetBalance sheet

WORST MUNICIPALITIES: 11

NEUTRAL MUNICIPALITIES: 11GOOD MUNICIPALITIES: 8


PILOT PROJECT Finance perspective

€ 2.000.000€ 1.000.000€ 0-€ 1.000.000-€ 2.000.000-€ 3.000.000-€ 4.000.000

500

400

300

200

100

0

balance

Inha

bita

nts p

er st

aff

Scatterplot of Inhabitants per staff vs balance

average 230 inhabitants per staff

I QuadII Quad

III Quad IV QuadEu 28 AVERAGE 39 INHABITANTS PER STAFF

ok

No ok

Ok for people staffNo Ok per balance sheet

Ok for balance sheetNo Ok per people staff

GOOD MUNICIPALITIES: 7

MUNICIPALITIESTO BEIMPROVED: 19

BAD MUNICIPALITIES: 4


THE PROBLEM Local government financing indicators: 2012

Central Government: 6.299,8 M€Local Government: 384,8 M€Social Security: 1.593,5 M€

From EUROSTAT

4,64% of Total Government Expenditures


THE PROBLEM Local government dimension indicators

COUNTRYAVERAGE

POPULATION AVERAGE AREA

(SqKm)INHABITHANTS PER EMPLOYEE

EU 27 5.430 47 39

CYPRUS (Municipality)

20.051 23 230

CYPRUS (Community)

676 19

ITALY 7.320 37 30

GREECE 10.820 128 214

FRANCE 1.730 15 32

UNITED KINGDOM 140.050 562 29

GERMANY 6.650 29 47

SPAIN 5.530 62 90

PORTUGAL 34.440 299 55

AUSTRIA 3.530 36 41

MALTA 6.010 5 899


Kapodistrias Plan Kallikatris PlanYear 1994 (starting point) 2010No. of Communities 134 ---

No. of Municipalities 900 325

No. of Provinces 19 ---

No. of Prefectures 54 ---

No. of Regions 13 13

No. of Districts 7

GDP 213.460 M€ (average 1995-2010) 268.972 M€ (average 2011-2013)

Local Gov. Exp. % of GDP 2,6 % (average 1995-2010) 3,2 % (average 2010-2013)

Total Local Gov. Exp. 5.550 M€ 8.607 M€

2010 2011 2012 2013GDP 294.770 M€€ 290.150 M€ 249.190 M 241.780 M€

Local Gov. Exp. % GDP 2,9 % 3,1 % 3,2 % 3,5 %

Total Local Gov Exp. 8.548 M€ 8.995 M€ 7.974 M€ 8.462 M€

GDP 268.972 M€ (average 2010-2013)

Loc.Gov.Exp.: 3,2 % (average 2010-2013)

8.607 M€

+ 447 M€

- 574 M€

- 86 M€

213 M€ saving

2,5% Local

Gov. Exp. (2010)

THE PROBLEM Greece Case Study: Kallikratis Plan

Results not in line with

the initial expectations,

due to:

-Drammatic crisis

-Short schedule

-No prior optimization

-No citizens imvolment

-Central Gov. project


PROPOSALS


11

PROPOSALS

1) Municipalities reduction (30 to 5)

2) People staff reallocation

3) Secondary layer of administration

4) Taxes, fees and fines increase

5) Straight forward implementation

6) No Communities involved

7) No economic results

1) Keeping the existing infrastructure

2) Processes optimization

3) Productivity improvement

4) People empowerment

5) Cooperation and resources sharing

6) Smooth implementation

7) Communities must be involved

??GOVERNMENT APPROACH

ITALIAN APPROACH

English vs Italian study

24,5 M€

43,3 M€

70,5 M€

Processes optimization

Processes Improvement and

re-engineering

Clustering

138,3 M€


OPTIMIZATION AND

PRODUCTIVITY IMPROVEMENT

67,8 M€ of total saving

CLUSTERING

AND COOPERATION

70,5 M€ of total saving

MUNICIPALITIES

CONSOLIDATION

22 Municipalities - 14 M€ of total saving and 222 people to redeploy

12 Municipalities - 59 M€ of total saving and1.223 people to redeploy

STEP 1 STEP 2 STEP 3

PROPOSALS Implementation steps

ORGANIZATION CHANGE

STEP 1

No detailed saving indications

CLUSTERING


Municipilaty A

Municipality DMunicipality G

Municipality E

Phase 1: process optimizationPhase 2a: CooperationMunicipalities & nearest Communities(radius < 20 Km)

Phase 2b: ClusteringMunicipalities & far away Communities(radius > 20 Km)

Phase 3: Consolidation

Ccommunity > 20 Km

Ccommunity < 20 Km

PILOT PROJECT Project ‘s development steps

Municipality C

Municipality F Nunicipality B


PROPOSAL Government organization skeleton

DISTRICT DISTRICT COUNCIL

MUNICIPALITIES

CLUSTERS (5)

COOPERATION TROUGH RESOURCES SHARING

CLUSTER SERVICES (WASTE MGMT., TOWN PLANNING,GREEN AREA; ROAD MGMT)

55

SERVICE RESPONSIBILITY TRANSFER(HYGIENE, COMMERCIAL LICENSES)

COMMUNITIES

President elected by the people


PROPOSAL Italian organization skeleton

DISTRICT CLUSTERINGBOARDS

MUNICIPALITIES

PROXIMALCOMMUNITIES(40% of the communities)

CLUSTERS 18 - 22

COOPERATION TROUGH RESOURCES SHARING


18-225

SERVICE RESPONSIBILITY TRANSFER(HYGIENE, COMMERCIAL LICENSES)

OTHERCOMMUNITIES(60% of the communities)


MAYORS– COUNCILORS BOARD


PROPOSALS Approaches comparison: rough estimation

ITALIAN MINISTER

QUALITY Optimization, improvement, KPIs YES NO

Re-engineering YES NO

CLUSTERING Municipalities cooperation YES YES

Communities cooperation YES NO

Cluster governance by mayors YES NO

District Council (II tier) NO YES

Savings analysis YES NO

Cluster dimension YES NO

Cluster finanging tool YES NO

LAW ENFORCEMENT

Reduction in the councelors NO YES

Mandatory clustering NO YES

DISTRICT Transfering responsibilities YES YES

PEOPLE STAFF Phisical people transfer NO YES

The cluster joining is thecondition for Municipalitiesand Communitiesto get the Government grant

It was not in the ring of theRequested assessment, butwe agree on this.

Add the optimizationphase.

Add theCommunities

District Councilare similar tothe cluster

Add this analysis

NOT IN SCOPE

TO ADD

TO WORK TOGETHER


SAVINGS IN THE ITALIAN

APPROACH

SAVINGS IN THE GOVERNMENT

APPROACHINEFFICIENCIES REDUCTION

67,8 M€ 0 M€

RESOURCES SHARING THROUGH CLUSTERING

70,5 M€ 50,8 M€

DISTRICT COUNCILS OPERATIVE COST

- 5,1 M€

TOTAL SAVING 138,3 M€ 45,7 M€

PROPOSALS Approaches comparison: rough estimation

+ 92,6 M€


THE ITALIAN APPROACH IN DETAIL


• Focus on Customers Requirements

• Cost reduction, Quality improvement, high process performance

• People involvement

19

Define

High level processes description and project

goals

STEPS

GOALS

Measure Analyse Improve Control

Evaluation of the current

performance and needs

Assessment of the actual

situation and cause effect

analysis

New model definition

Verification and validation

results with maintenance

DMAIC methodology is used to improve performances starting from the description of the actual processes and measurable data, in accordance with the objectives and constraints

FINAL OUTPUT

PILOT PROJECT Work method to adopt

Methodology: Lean Six Sigma (DMAIC)PRE-MEASURE


Key variables identification

Parametrization & distribution

Data Clustering

Best Practices & characterization

Ph 1 – Improving Processes (1 year timeframe)

Ph 2- Clustering Collaboration (1 year timeframe)

Ph 3 Clustering Quality Standard

(1 year timeframe)

PILOT PROJECT Process flow

I Session interview

Process mapping

Data Gathering

MUNICIPALITIES &

Communities

Municipalities & CommunitiesData Base

Creation and KPIs setting

District

Sewerage & Water boards

Data AnalysisII Session InterviewDesignImplementation

Validation


1st YEARProject

2nd YEARProject

NON INVASIVEAPPROACH

INCOMEIMPROVEMENT

Waste collection + 7,0 M€Town Planner/Building Permits

+ 1,5 M€

+ 1,0 M€

Municipality Police

+ 1,2 M€+ 0,2 M€

Parking Mgmt. + 4,1 M€ + 2,0 M€Hygiene + 0,2 M€ + 0,1 M€Tourism + 9,2 M€ 1,0 M€

TOTAL + 16,2 M€ 11,3 M€

COSTSREDUCTION

Waste collection - 5,0 M€ - 16,0 M€Public Lighting - 1,3 M€ - 11,0 M€Green Area - 1,5 M€ - 2,0 M€Road Mgmt. - 0,5 M€ - 3,0 M€

TOTAL - 8,3 M€ - 32,0 M€

1st Year Project: 24,5 M€ 5,5% of operating costs

2° Year Project: 43,3 M€ 16% of operating costs

TOTAL: 67,8 M€ 26% of operating costs

Activities

Processes flow optimization and improvementProcesses re-engineeringQuality target assignementProcesses monitoring and reportingCooperation between Municipalities and Communities Single HR department for the whole MunicipalitiesExtending outsourcing service delivery model

Scheduling

24,5 M€ saving

PROPOSALS

43,3 M€ saving

Phase 1 Optimization and Improvement Processes


CASE A CASE B CASE C CASE D CASE ENo. of Municipalities &

Communities382 100 70 40 - 50 18 - 23 10 – 12

No. of Urban Clusters 0 10 10 10 5 5

No. of Rural Clusters 0 90 60 30 13 5

Average Land Surface Urban Cluster

25 sq. Km 25 sq. Km 25 sq. Km 90 sq. Km 100 sq. Km

Average Population Urban Cluster

40.000 40.000 40.000 110.000 120.000

Average Land Surface Rural Cluster

60 sq. Km 90 sq. Km 180 sq. Km 400 sq. Km 1.000 sq. Km

Average Population Rural Cluster

5.000 7.000 15.000 21.500 40.000

Savings 0 16 M€ 18 M€ 25 M€ 36 M€ 43 M€

% of savings regarding existing Local Gov.

Operating Costs0% 4% 5% 7% 10% 12%

22

16 M€

18 M€

25 M€36 M€

43 M€

PROPOSALS Phase 2 – Clustering Scenarios


PROPOSALS

SAVINGS (M€)SERVICE

ACCESSABILITY (%)

ECONOMIC RESOURCES CONCENTRATION. (%) POP. IDENTITY

PERCEPTION (%)CASE A 16 80 33 80CASE B 18 78 34 77CASE C 25 73 38 60CASE D 36 56 71 50CASE E 43 46 80 20

Case DThe best case

Phase 2 – Clustering Scenarios


Parking Management

STE

ER

ING

CO

MM

ITTEE

Standard operating activities

Development activities

ControlMonitoringReporting

PROCESSES

Setting-up

Waste Management

Green Area

Financing accounting and Tax management

Town Plan and Buiding Permits

Hygiene

School Board

Municipality Police

Road Management

Cultural Events

MUNICIPALITIES AND COMMUNITIES EQUIPEMENT &

HUMAN RESOURCES

MAYORS – COUNCILORS BOARD

PILOT PROJECT

MANAGEMENT

RES

OU

RC

ES

SHA

RIN

G

GOVERNANCE

Project details: clustering architecture


Activities

Water Board and Sewerage Board responsibility extensionClustering approach extension

⁻ Municipality with Municipality⁻ Municipality with neighboring

Communities⁻ Communities with Communities

Responsabilities transfer from Districs to Clusters

Scheduling

PROPOSALS

Prudent approachCOSTS SAVING

Total saving through clustering for Local Government 36 M€

Total saving for Central Government 120 M€

DISTRICT

No. OF EXISTING

MUNICIPALITIES AND

COMMUNITIES

No. OF POTENTIAL CLUSTERS

Nicosia 107 6

Larnaca 103 3

Limasol 55 4

Famagusta 9 2

Paphos 108 3

TOTAL 382 18

From the clustering approach: 36,0 M€ 13,5% Total operating costs

TOTAL: 36 M€ 13,5% Total operating costs

Central Government TOTAL cost decrement: 120 M€

Phase 2a – Clustering Scenarios


Activities

Extension of the outsourcing delivery model to the clustersCluster steering committee definition to address the service development issueQuality targets approach extended to the clusters

Scheduling

PROPOSALS Phase 2b – Clustering Quality Improvement

TOTAL: 34,5 M€ 13% Total operating costs

Present Total Operating Costs

Local Government

Productivity improvement via

outsourcing

Quality monitoring and targets achieving

360 M€ 19,5 M€ 15 M€

Outsourcing extension: 19,5 M€ 7% Total operating costs

Quality Target approach: 15 M€ 6% Total operating costs


Prudent solution

Variables to consider in consolidation:

geographical locationgeopolitical considerationsroad networkgovernance effiencymunicipality dimenion

(surface, population)financing capacitypeople staff redeployment

14 M€ Light merging222 units staff reduction

TypologyPresent

# of MunicipalitiesPrudent

# of Municipalities

Challenging # of

MunicipalitiesUrban 11 6 1

Rural 9 7 4

Seaside 10 9 7

TOTAL 30 22 12

Prudent solutionCOSTS SAVING

Employees 7.629.118 €

Mayor and counsellors 1.289.505 €

Vehicles 621.982 €

Building maintenance 563.551 €

Administrative 1.986.266 €

Cultural events 550.100 €

TOTAL13.773.522

€

Challenging solutionCOSTS SAVING

Employees48.223.037

€

Mayor and counsellors 2.703.547 €

Vehicles 1.717.972 €

Building maintenance 1.084.819 €

Administrative 4.106.623 €

Cultural events 1.259.947 €

TOTAL59.095.946

€

Phase 3 - Consolidation Scenarios

59 M€ Tough merging1.223 units staff reduction

Challenging solution


PHASE 4

TypologyPresent

# of Municipalities

# of Municipalitiesafter Prudentconsolidation

# of Municipalities

after Challenging

consolidation

Urban 11 6 1

Rural 9 7 4

Seaside 10 9 7

TOTAL 30 22 12

Total staff: 2843

Total staff: 2649

Total staff: 1.620

222 – 1.223 redeploying resources

- 222 - 1.223

People staffing impact


CONCLUSIONS


24,5 M€

43,3 M€

70,5 M€

30

SAVING Savings trend

Processes optimization Processes

Improvement andre-engineering

Clustering

13,8 M€

Consolidationprudent

59,1 M€

Consolidationchallenging

NON INVASIVE : = 138,3 M€ INVASIVE


GO

Process optimisation

1 Quarter

1 year 2 year 3 year 4 year

Cooperation

Training

Single point HR

Outsourcing extension model

Clustering Municipality & Community

Merging Municipalities and Communities

Outsourcing extension to Clusters

Quality Targets to Clusters

31

Global Scheduling

2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter

SCHEDULING


BACK UP


• Cyprus Approach• After 3,5 years, our estimation is to reduce

• the Total Local Government expenditures by 38% • plus 120 M€ in the Central Government budget

• Kallikratis Plan• After three years, the total achieved savings were 2,5% of

• the 2010 Total Local Government expenditures

CONSIDERATIONS Kallikratis Plan vs Cyprus Approach


Municipality A

1 M€22%

1,5 M€33%

2 M€45% Service Municipality operating costs

Costs reduction due to:-economy of scale and

productivity improvement-process optimization-Outsourcing model adoption

Municipality A: 22% * 3 M€ = 0,66 M€Municipality B: 33% * 3 M€ = 1 M€Municipality C: 45% * 3 M€ = 1,35 M€

Operating costs distribution

Municipality B Municipality C

Ex postService operating costs

PROPOSALS Phase 2 – Example on Budget Operating Cost Distribution

4,5 M€

3 M€

Ex ante Service operating costs


Municipality A

450 K€33% Municipality service income

Municipality A: 33% * 2 M€ = 660 K€Municipality B: 17% * 2 M€ = 340 K€Municipality C: 50% * 2 M€ = 1,000 K€

Income distribution

Municipality B Municipality C

2 M€ Ex postService income

PROPOSALS Phase 2 – Example on Budget Income Distribution

225 K€17%

675 K€50%

1,35 M€ Ex ante Service income

Income increment due to:-economy of scale and

productivity improvement-process optimization


CLUSTER A

Income budget

CLUSTER B

Income budget

CLUSTER C

Income budget

CLUSTER Z

Income budget

. . . . . . .

5 % 5 % 5 % 5 %

Solidarity Fund

Municipalities debt pay off andfuture development projects

PROPOSALS Phase 2 – Example on Cluster Debt Supporting Model


PILOT PROJECT Governance and structure

Project’s governance

Project’s structure- Every Municipality has to assign one person to be fully dedicated to the project

- Every Community has to assign one focal point to use as interface

Municipalities & Communities

Notoria staff

Business

Cypriot Local Administration Reform - Project overview Final - NOTORIA INTERNATIONAL