SUBMISSION TO SARPA:

Transcription

1 SUBMISSION TO SARPA: Topic Name Revenue Management & Enhancement, a methodology to enhance revenue and ensure that strategic decisions are taken to protect revenue by thinking out of the box Description Author A case study of the Revenue Management & Enhancement Programme undertaken by Ekurhuleni Metropolitan Municipality (EMM), describing the need for this programme, the factors and drivers considered and our vision. EMM has taken bold steps to run a comprehensive programme focused on revenue; however along the stages we have discovered that revenue has provided a burning platform for us to re-engineer our processes and adopt a new operating model to ensure that we not only enhance revenue but also take very bold decisions to protect revenue. EMM has chosen to drive revenue enhancement by establishing a programme with projects focused on revenue generation, management, protection and enhancement. Miyelani Holeni Prepared For SARPA Conference 2010 Date 29 June

2 Contents 1. BACKGROUND CURRENT SITUATION STATEMENT OF VISION Vision Context Overarching principles and goals Financial Sustainability METHODOLOGY Tripod methodology Goals REVENUE MANAGEMENT AND ENHANCEMENT PROGRAMME The Programme Programme Objectives Programme Structure Programme Scope IMPLEMENTATION Projects in the programme Implementation OUTCOMES AND IMPACT Outcomes Impact The journey going forward CONCLUSION

3 1. BACKGROUND The Ekurhuleni Metropolitan Municipality was established in It covers an extensive geographical area, from Germiston in the west to Springs and Nigel in the in the east. Ekurhuleni is one of six metropolitan municipalities resulting from the restructuring of local government. The former local administrations of the nine towns in the East Rand Alberton, Benoni, Boksburg, Brakpan, Edenvale/Lethabong, Germiston, Kempton Park/Tembisa, Nigel and Springs were amalgamated into the new Metropolitan Municipality, along with two other councils the Khayalami Metropolitan Council and the Eastern Gauteng Services Council. In recent times, EMM found itself in a precarious position with respect to financial sustainability. This was in part due to the level of debt having grown over the years and the recent unfavourable economic conditions that resulted in the country facing sliding into a recession. The high rate of consumer default on payments left EMM in a position where the operating income was inadequate to meet all the financial obligations and commitments. EMM made a decision that it will face the difficult circumstances with a measured approach that will ensure that it emerges with a strong balance sheet. This necessitated that EMM applies unconventional strategic thinking to revenue management and enhancement which must be remarkably different from current practice. EMM developed and adopted a financial suitability model that would not only result in the improvement revenue levels but would also reduce cost and find creative ways of funding large project through alternative sources of funding. 3

4 2. CURRENT SITUATION The Finance (Income Division) is responsible for collecting revenue for the main services offered by a municipality of water, electricity, rates, and solid waste. The Income Section has 20 Customer Care Areas (CCA) for customers to pay their municipal bill and for general enquiries. The CCA is main points of contact with customers supported by a call centre. The call centre is outsourced and currently is responsible for taking calls for reporting electricity and water related incidents. Billing and Credit Control functions carried out at the CCA level in nine different databases which align to the former Town Councils (e.g. Brakpan, Boksburg, Germiston etc.) incorporating the with respective townships of (e.g. Brakpan incorporates Tsakani and Geluksdal). The billing and credit control functions are performed by internal staff. Meter reading is outsourced to one meter reading company (MRC) and the oversight role for meter reading is carried out by the Water and Electricity Meter Management Companies (WEMMC). The WEMMCs are responsible managing the MRC and for the maintenance of meters. Debt collection has been outsourced to debt collectors and each CCA manages its own debt collection process and debt collectors. The disconnection of services (electricity) has been outsourced to contractors and is allocated to the CCA. The Income Division is but one of the revenue collection centres within Ekurhuleni Metro, with Metro Police and Licensing, Housing Department, Fresh Produce Market being others. The collection of revenue is therefore fragmented according to the service or product consumed leaving departments to own their revenue collection processes and by default have ownership of the customer. With fragmentation come inherent weaknesses, inefficiency, duplication, complexity and lack of ownership of end to end processes. EMM has an operating income budget of R19 billion which is derived from 19 sources ranging from services rendered to grants from National Treasury. The over reliance on income from the sale of electricity, water and property rates raises concerns of financial sustainability. 4

5 Figure 1: Operating Income Budget of EMM The Regional Electricity Distribution model, AARTO legislation and the equitable share formula used to allocate budgets to municipalities but a few instruments that are outside of the sphere of control of local government. These may be subject to change and revisions from time to time thereby impacting on the source of income for EMM and other municipalities. In the case of EMM, the income from the sale of electricity is both a welcome source of income an Achilles heel. If this income were to be lost or even be reduced, EMM would be left vulnerable and at its wits end with closing the gap created in the income. 5

6 3. STATEMENT OF VISION 3.1 Vision EMM differentiates itself from all organisations by choosing to be The Smart, Creative and Developmental City. This vision drives the all the functions and activities of EMM including the financial aspects. 3.2 Context Ekurhuleni is the manufacturing hub of South Africa; it is often referred to as Africa s Workshop. The OR Tambo International Airport is situated in Ekurhuleni, and some 14 million passengers pass through the airport every year. Some of the Blue IQ projects are being implemented in Ekurhuleni include the Wadeville- Alrode Industrial corridor linkages to the largest logistical hub, the City Deep Container terminal. Ekurhuleni holds enormous potential and has the ability supported by strong capabilities of becoming the fastest growing economic hub and certainly the biggest contributor to the GDP of Gauteng and South Africa. 3.3 Overarching principles and goals EMM has adopted principles that will be central to the establishing of specific goals for financial sustainability. These principles define our intent, a statement of work and outline what success looks like. The principles are articulated by the following points: We must provide services to all customers and bill them without fail For every R1.00 levied we must collect 93 cents all the time We must develop alternative sources of funding and diversify our income base There must be a single owner of revenue! There must me a single owner of the customer! The must be a single view of the customer! There must clear owners of end to end business processes! There must be clear owners of services and products rendered by EMM! Technical department own the services, products, skills and associated people There must a clear owner of the systems 6

7 3.4 Financial Sustainability EMM has developed a model to manage the two drivers of financial sustainability namely revenue and cost. A balance must be achieved between the two drivers that must see costs coming down significantly to boost the revenue and this must be in tandem with all initiatives aimed at enhancing revenue. The financial sustainability model is a holistic approach to ensuring that EMM will not only be able to meet its obligations but will have a healthy balance sheet. The key to financial sustainability is the understanding that revenue is the fuel that drives the engine and the cost is the oil that ensures that the engine does not cease. The cost side of the model begins with a budgeting model that is accurate and is supported by well defined prioritisation criteria. The management of cash is also crucial to ensure that all the cash reaches the account of EMM sooner to fund the cash flow and allow for investing activities to be undertaken. Figure 2: Financial Sustainability Model The activity that will have a significant and ongoing impact on revenue is the adoption of alternative funding sources either than the current ones of rates, equitable share and grants. A new strategy of attracting capital from development agencies and private companies with funding is currently being developed to ensure that EMM does not have to use its own money to implement programmes. This is in line with the Public Private Partnership (PPP) model that is being debated at different levels of government. The rationale behind this is to use freely available funds to implement 7

8 revenue generating projects and rather share the upside with the funder(s), we would have gained more financially and reduced risks in the process. EMM has to be good at generating and managing revenue and this in a nonnegotiable issue. In driving the financial sustainability model, revenue protection has been shifted from being an operational activity to a strategic one. Revenue protection activities and initiatives are now gaining momentum and recognition within the organisation. Revenue protection is now the agenda of senior management and is discussed as part of the key performance indicators. Figure 3: Revenue Model EMM is moving towards revenue and is aligning all the departments and function to achieve this. Revenue enhancement will be institutionalised to become part of the functions that have to be carried out in the course of doing our work. 8

9 4. METHODOLOGY 4.1 Tripod methodology The Tripod methodology integrates the products and service that we render to our customers with the revenue that we receive. The customer is at the top of the tripod because they are the initiator of all activities when they interact with us. EMM is responsible for the execution based on the needs and requirements. The customer interacts with the soft and hard elements designed to meet their needs. By initiating the interaction with EMM, the customer: Talks to our staff, Request a service governed by a policy and follow a process, Submit information that is captured in a system, Pay for the service and Receive the service Figure 4: Tripod Methodology The customer will then continue to follow the model with future interactions where the emphasis may be on making a payment of services every month. The interaction between the customer and EMM is currently under review and is subject to change with a view of ensuring that EMM continues to receive the payments for ongoing services rendered. To this effect, EMM is making more options of payment available to the customer which range from physical to electronic channels. The channels are designed to follow the behaviour of our customers i.e. when they go shopping at the 9

10 grocery store or surf the internet or at the ATM they can also pay their account with us and buy an electricity voucher. Business process management is one of the key areas which require work. It is our belief that once the processes are fixed and aligned, this will provide the tipping point for EMM as this will cover the customer service, revenue collection, maintenance and reporting of faults amongst others. Business process management will create an internal capability and readiness to deliver services to the citizens of EMM. 4.2 Goals EMM has set itself a goal of enhancing revenue over a five year period from 2010/11 financial year to 2015/16. It is expected that in the year 2015/16 EMM will have raised revenue to the amount of R5 billion of which 40% to 60% will remain part of the operating income. Figure 5: Projected revenue for a period of 5 years 10

11 5. REVENUE MANAGEMENT AND ENHANCEMENT PROGRAMME 5.1 The Programme The Revenue Management and Enhancement Programme (RMEP) is an ORGANISATIONAL WIDE programme It is a MEDIUM TO LONG TERM programme It will help us to achieve FINANCIAL SUSTAINABILITY This programme will assist us in BREAKING DOWN SILOS This programme is a PLATFORM + CATALYST for developing a model for prioritising the allocation of resources 5.2 Programme Objectives Reduction of consumer debt through appropriate credit control and debt collection to improve revenue Improved, Consistent and Accurate /Integrative property value chain Improved Customer Services Monitoring and Evaluation of consumption processes and efficiencies Revenue Collection 5.3 Programme Structure The Revenue Management and Enhancement Programme shall be managed through a programme management office. The programme management office (PMO) will be a dedicated unit that has been established within the Department of Finance to house the programme. A full time Programme Manager shall be responsible for managing the PMO and will be assisted by various key resources. The resource will be responsible for 6 key areas as illustrated below. 11

12 Figure 6: Programme Roadmap 5.4 Programme Scope As result of the decision from the Strategic Management Team meeting held that resolved on the following critical matters to be considered for the realization of the Revenue Management & Enhancement Unit, namely:- Project based approach should be adopted in establishing the revenue management & enhancement unit; Stabilize the current service delivery environment; Work towards refining the situation to ensure effective planning; Gradual implementation of change management and transformation of internal processes of service delivery; Setting-up of project streams, for example finance, city development, ict, legal and administration etc; Identify projects based on the criticality, i.e. Without successful implementation revenue will be compromised severely; Practical short, medium and long term projects that need to be achieved with strict timelines and clear milestones; Detailed project plans should be developed to ensure effective project monitoring and evaluation; Sourcing of human resources both internally and externally to ensure realization of the project; The project plan will be designed to illustrate the required actions, resource requirement, timelines and estimated costs where possible given the time constraints; Advisable to have a dedicated programme manager to manage the implementation of improving the revenue of the EMM. 12

13 6. IMPLEMENTATION 6.1 Projects in the programme The Revenue Management and Enhancement Programme has a number of high profile projects geared at addressing all the areas of EMM. The projects are divided to into those that will deal with house-keeping issues, those that will put processes and system of managing the functions better, and those that that will lead EMM into the new dynamics of the new world. Figure 7: Programme Roadmap The house keeping projects are about accurate meter reading, correct billing, applying credit control policy consistently, answering the customer queries and providing resolution. In order to put in place effective processes and systems in place to manage various functions, we will implement business process management, implement credit control and debt management systems, have a single view of the customer and develop a performance management framework for teams. The new world requires of EMM that it harnesses methane gas and channels it to power, reduces the carbon footprint and earn carbon credit in the form of money, manage customers in a way that 13

14 seeks first to understand their needs than out constraints and to be able to break down are services or functions into components. The new world dynamics recognises that components are building blocks for functions and processes that produce a set of outcomes. EMM will isolate components such as a property, meter, customer, location, suppliers of services and allow the flexibility of combining the components to form various building blocks and outcomes. The components will be managed within a specialised system that is capable of interacting with any related system. For instance a customer is the common denominator and can own a property with a location; a property can have a meter and other services. The services are the variables that will differ from customer to customer and possibly from area to area. The extent to which we understand all the components that we have at our disposal will determine how we can generate, manage, protect and enhance revenue. 6.2 Implementation The implementation of the projects is designed to fit the requirement and to protect revenue going forward. For big consumers, a key accounts management unit will be implemented and capacitated to deal with all the big customers. Automated meter reading (AMR) technology will be implemented to send in reading every 15 minutes to a central server thereby improving the accuracy of reading and billing. A project to audit of big customers, bill them accordingly and sell new services has been launched and one of our biggest customers has already been audited with success. EMM will realise R10 million from the audit and increase monthly levies by up to five times. Meters that were buried underground have been unearthed and raised above ground. For household consumers, our vending system is currently being interfaced with the billing system to enable the collection of arrears before the purchase of electricity. EMM is the process of selling the debtors book to get cash up front to commit to capital projects. This will be run in tandem with the implementation of credit control strategies and systems to ensure that the debt book never grows to the proportions it has reached. 14

15 A business process management tool will be implemented to automate and integrate our processes end to end. EMM is currently working towards creating a single view of the customer and driving collaboration between all the departments to get a single bill. This will be run alongside the project to launch an electronic bill presentment and payment platform thus increasing our payment channels and technology. EMM has developed a campaign that is the mouth piece of the initiatives currently underway to drive revenue management and enhancement. Siyakhokha Siyathuthuka is an educational programme for our customers and a call to action to pay for services received. This covers The eradication of illegal consumption of services by connection to water and or electricity sources illegally, Encouraging the indigents to come forward and register for subsidies, Demonstrating how EMM uses the monies paid to it by the customers EMM is currently working towards the enforcement of Municipal By-Laws by putting in place urban monitoring supported by the Metro Police and the Magistrates Courts. 15

16 7. OUTCOMES AND IMPACT 7.1 Outcomes We have identified that the current projects will deliver potential revenue of R415 million in the current financial year. 7.2 Impact Manage to integrate the organisation and break silos Identified bottlenecks and are fixing them Identified new projects to enhance revenue and influence the strategic path of EMM Developed an internal consulting competency to ensure financial sustainability 7.3 The journey going forward EMM is finalising projects that will enhance revenue and will work with companies or individuals who are willing to work at risk to share the upside with EMM. We are looking for R5 billion in five years. 16

17 8. CONCLUSION The Revenue Management and Enhancement Programme will run for a minimum period of 3 years within which it will be presiding over large projects which will have an impact on the revenue of EMM. The Programme Management Office will take on the role of initiating new projects over and above the current ones. The new projects will be carefully thought through and well researched. These projects will from the onset be geared to deliver revenue. The Revenue Management and Enhancement Programme will therefore leave a lasting legacy for the organisation and introduce a new way of managing and collecting revenue through conducting analysis and applying diagnostic measures. 17