For discussion FCR(96-97)12
on 24 May 1996

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Labour Department
New Subhead “Replacement computer system for processing employees’ compensation claims”

Members are invited to approve a commitment of $15,399,000 for the replacement of the computer system for processing employees’ compensation claims.



PROBLEM

The existing computer system in the Labour Department (LD) for processing employees’ compensation claims is inadequate to meet present day requirements.

PROPOSAL

2. The Commissioner for Labour (C for L), on the advice of the Director of Information Technology Services (DITS), proposes to replace the computer system at an estimated cost of $15,399,000.

JUSTIFICATION

3. The Employees’ Compensation Division of LD installed a computer system in 1989 for processing non-fatal compensation claims made by employees injured at work under the Employees’ Compensation Ordinance (ECO). It is a small system consisting of eight stand-alone computers in LD offices at different locations.

4. The computer system has reached its maximum capacity. For example, it cannot maintain the assessment history of past cases, thus preventing the Employees’ Compensation Assessment Boards (ECABs) from making reference to precedent cases. The system is also unable to support new requirements which may arise from future legislative amendments to improve benefits of injured employees or to extend the coverage of the ECO such as additional data entry on the statutory form for reporting accidents involving injuries to employees. Owing to the limitation of the existing system and the obsolescence of the computer hardware, there is no scope for any meaningful system enhancement to meet the additional requirements.

5. In addition, the system suffers frequent breakdowns. In 1994, the LD recorded 61 hours of breakdowns. The figure quadrupled to 271 hours in 1995, leading to delay in processing claims by injured employees, thus affecting the efficiency in the settlement of claims.

6. The proposed system is an integrated network covering the headquarters of the Employees’ Compensation Division and its nine field offices. This will enhance cross-office communication and facilitate data transfer between offices. The new system will improve the services provided to injured employees and employers in terms of efficiency and reliability. As a result, C for L expects that the Department will be able to set and achieve an acceptable performance pledge in the issue of Certificates of Compensation Assessment.

7. The new system will also enable the ECABs to make reference to precedent cases by computerising past assessment history of claimants. This will facilitate ECABs in making more detailed research and in-depth assessment on the loss of earning capacity of injured employees. In addition, the new system will help detect multiple claims so as to minimise abuses.

8. With the installation of the new system, the LD will be able to streamline some operational procedures and hence enhance efficiency. The larger data storage capacity of the new system will have the potential of meeting additional functional requirements that may arise from future amendments to the ECO.

FINANCIAL IMPLICATIONS

Non-recurrent costs

9. C for L and DITS estimate that implementation of the proposed system will incur a non-recurrent cost of $18,089,000 over a two-year period from 1996-97 to 1997-98. This comprises $15,399,000 for the computer hardware and software, site preparation and implementation services for which we are seeking Members’ approval of a new commitment; and $2,690,000 for in-house development staff of LD and Information Technology Services Department (ITSD). Details of the non-recurrent cost are as follows -


1996-97
$’000
1997-98
$’000
Total
$’000

(a) Computer hardware and software and data communication equipment

5,269

115

5,384

(b) Implementation and data conversion services

4,613

2,548

7,161

(c) Site preparation

770

0

770

(d) Consumables

112

0

112

(e) Training

286

286

572

(f) Contingencies (10% of items (a)

to (e) above)

1,105

295

1,400

Sub-total

12,155

3,244

15,399

(g) Staff costs

(i) LD

1,477

907

2,384

(ii) ITSD

245

61

306

Sub-total

1,722

968

2,690

Total

13,877

4,212

18,089

10. As regards paragraph 9(a), the cost of $5,384,000 is for the acquisition of computer hardware including database servers, workstations, peripherals and data communication equipment and purchase of software.

11. As regards paragraph 9(b), the cost of $7,161,000 is for system development, implementation and data conversion services.

12. As regards paragraph 9(c), the cost of $770,000 is for site preparation works for the computer room, including electrical installation and cabling.

13. As regards paragraph 9(d), the cost of $112,000 is for the acquisition of miscellaneous items including start-up consumables.

14. As regards paragraph 9(e), the cost of $572,000 is for training existing staff in using and supporting the new system.

15. As regards paragraph 9(g)(i), the cost of $2,384,000 represents the staff cost of 64 man-months of Labour Officer/Assistant Labour Officer and clerical support in the LD for the definition of system requirements. As regards paragraph 9(g)(ii), the cost of $306,000 is the staff cost of 2.5 man-months of Senior Systems Manager in the ITSD for the management of the implementation project during the two-year period. Both C for L and DITS will meet the staffing requirement in the current year by internal redeployment.

Recurrent costs

16. The estimated recurrent cost of maintaining and supporting the new system after implementation is $1,836,000 in a full year, made up as follows -


From 1997-98
$’000

(a) Computer hardware and software maintenance

779

(b) Communication line rental

168

(c) Consumables

470

(d) Training for new staff

29

Sub-total

1,446

(e) Staff costs

(i) LD

220

(ii) ITSD

170

Sub-total

390

Total

1,836

17. As regards paragraph 16(a), the cost of $779,000 is for the annual maintenance of the hardware and software.

18. As regards paragraph 16(b), the cost of $168,000 is for the rental of communication lines connecting the offices at different locations.

19. As regards paragraph 16(c), the cost of $470,000 is for the acquisition of consumables such as data tapes and printing materials and other miscellaneous items.

20. As regards paragraph 16(d), the cost of $29,000 is for the training of staff.

21. As regards paragraph 16(e), the annual staff costs of $220,000 and $170,000 for the LD and ITSD respectively are to meet the costs of one Assistant Labour Officer I post to be offset by the deletion of one Assistant Labour Officer II post, and an additional six man-months of Analyst/Programmer II to provide on-going maintenance and user/technical support to the new system.

22. We shall be able to offset part of the additional annually recurrent expenditure by savings in maintenance and staff cost arising from the discontinuation of the existing system. C for L estimates that these savings will amount to $131,000 in 1997-98 and $1,033,000 annually thereafter.

Implementation plan

23. C for L’s proposed implementation plan is as follows -

Activity Target
completion date

Acquisition of implementation service

August 1996

Site preparation

January 1997

System development and procurement of equipment

March 1997

Data conversion

June 1997

User acceptance test

August 1997

Implementation of the new system

September 1997

BACKGROUND INFORMATION

24. LD is responsible for administering the ECO and assisting injured employees in obtaining compensation from their employers in accordance with the ECO. Officers of the Department take part in the ECABs which are established under the ECO to assess the degree of loss of earning capacity suffered by injured employees.

25. We installed the computer system at the Employees’ Compensation Division in 1989 and have made a number of functional enhancements to the system over the years. At present, it contains about one million records of various types including individual cases, injured employees and their employers, case actions, sick leave, and assessment. In the light of service requirements, the ITSD conducted a request justification study in September 1994 and a feasibility study in 1995. The findings indicated that the computer system has reached its capacity limit and should be replaced.

Education and Manpower Branch
April 1996


Last Updated on 2 December 1998