For discussion FCR(97-98)14
on 13 June 1997

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Treasury
New Subhead "Replacement of ICL Mainframe Computer"

Members are invited to approve the creation of a new Subhead "Replacement of ICL Mainframe Computer" with a commitment of $38.1 million under Head 710 Computerisation.

---

PROBLEM
PROPOSAL
JUSTIFICATION
Present situation
Benefits of the proposed system
FINANCIAL IMPLICATIONS
Non-recurrent cost
Recurrent costs and savings
Cost benefit analysis
Implementation plan
BACKGROUND INFORMATION
Major Application Systems at the ICL Mainframe Computer

---

PROBLEM

The existing ICL (International Computer Ltd) mainframe computer of the Treasury is approaching the end of its serviceable life. It does not have adequate processing power and terminal connection capability to meet the growth in transaction volume and demand for more on-line facilities.

PROPOSAL

2. The Director of Accounting Services (DAS), with the support of the Secretary for the Treasury, proposes to replace the existing ICL mainframe computer and peripherals with a new system at a non-recurrent commitment of $38.1 million.

JUSTIFICATION

Present situation

3. DAS installed the existing ICL mainframe computer in 1990. The system operates 24 hours a day, seven days a week. It supports the running of 40 applications, a list of the major ones is at the Enclosure. One of the key applications supported by the mainframe is the Ledger Accounting and Financial Information System (LAFIS) which provides financial information needed throughout Government for budgetary control. Other applications support a wide range of revenue collection and payment services affecting a large number of clients. These include -

1. payment of salaries, allowances, pensions and certain other benefits to civil servants or their dependants;

2. payment to Government’s creditors;

3. collection of payments on Government rent and premium and General Demand Notes issued by departments to the public; and

4. collection of repayments of loan under the student loan schemes.

User branches/departments have on-line facilities to access these applications. At present, a total of about 1 200 terminals in all government branches and departments are connected to this mainframe computer.

4. As the ICL mainframe computer is almost seven years old, both its performance and reliability are declining, with more frequent breakdowns. This has resulted in a reduction of the total service time. The interruption would be more than the actual machine down-time as additional computer time would be required to recover the spoiled jobs. DAS envisages that the performance of the system will deteriorate further as it grows older. If the system was not replaced, the increasingly frequent breakdowns would risk delaying government transactions, affect the timely updating of government ledgers which are essential for financial control purposes, and jeopardise service to the public.

5. Besides its deteriorating performance, the machine has also reached its capacity limit. Its utilisation rate now averages 75% throughout the day and 90-95% during peak hours. Such a high utilisation rate means that the machine has little scope for handling an unexpected increase in the volume of transactions and that existing users will encounter increasing difficulty in getting access to the system. On the other hand, DAS estimates that both the volume of transaction and the requirement for on-line facilities will increase steadily. At present, the on-line volume for a peak month is 1.43 million transactions. DAS anticipates transaction volume will increase to 1.92 million in five years’ time. We therefore need to replace the existing mainframe system with a more powerful one to cope with the anticipated growth.

6. In view of the above, DAS proposes to replace the existing ICL mainframe computer and peripherals by an updated model and related new peripherals.

Benefits of the proposed system

7. The proposed system will have more advanced technological features in both hardware and software. It will sustain a high level of system availability, thereby reducing system down-time to a minimum. In addition, the proposed new system will offer greater compatibility with the latest peripherals and communication lines which run faster than the existing ones. This will improve the overall throughput by about 30%.

8. DAS estimates that the proposed replacement system will be capable of providing the required processing capacity to cope with the anticipated growth in demand in the next five years. The new system will also have the capability for expansion to meet further increase in demand.

FINANCIAL IMPLICATIONS

Non-recurrent cost

9. DAS estimates that implementation of the proposed system will incur a total non-recurrent cost of $38,100,000, broken down as follows -

10. As regards paragraph 9(a), the cost of $33,450,000 is for mainframe computer, peripherals, data communication equipment and associated mainframe system software.

11. As regards paragraph 9(b), the cost of $2,130,000 is for the acquisition of professional services on site preparation, delivery, hardware and software installation, system migration and implementation.

12. As regards paragraph 9(c), the cost of $700,000 is for training of staff for the implementation and support of the proposed system.

13. As regards paragraph 9(d), the cost of $1,820,000 represents a 5% contingency on the cost items set out in paragraphs 9(a), (b) and (c).

14. The Treasury will redeploy existing staff for managing and supporting the development and implementation of the proposed system.

Recurrent costs and savings

15. The recurrent maintenance and licence cost of the new system will be about $9,400,000 a year. This is $600,000 less than the maintenance and licence cost of the existing system.

16. DAS estimates that there will be a saving of 15 square metres in floor space as the new system and peripherals will be more compact. This is equivalent to $107,000 in notional annual accommodation cost. Although this is notional, the space thus released will provide room to meet expansion requirements of the Treasury. Moreover, the new system will be more energy efficient and we estimate the saving in electricity consumption to be in the region of $450,000 a year.

17. There will be no additional recurrent staff cost as the Treasury will redeploy existing staff for supporting and operating the proposed system.

Cost benefit analysis

18. As we are proposing to replace an existing computer system which is approaching the end of its serviceable life, the tangible benefits in terms of savings are unlikely to offset the cost involved under the the normal cost benefit analysis for computerisation projects. However, a timely replacement of the existing mainframe will ensure no interruption to the many revenue collection and payment operations supported by the system. It will also provide scope for meeting the anticipated growth in transaction volume and on-line enquiries without adversely affecting the performance standards.

Implementation plan

19. DAS plans to implement the proposed system according to the following schedule -

BACKGROUND INFORMATION

20. The existing ICL mainframe computer of the Treasury was installed in 1990 at a non-recurrent cost of $47.2 million (1988-89 price level) and it replaced the previous one, which was installed in 1983.

21. The Treasury serves as the Government’s central paymaster in respect of goods and services supplied. It also provides a centralised collection service in respect of rates, Government rents, land premia, water and sewage charges and other demand notes. One of the key performance targets in respect of Treasury’s payment services is to effect payments to creditors within nine calendar days after authorisation by the departments in 95% of the cases.

Finance Branch
June 1997

---

Enclosure to FCR(97-98)14

Major Application Systems at the ICL Mainframe Computer

---