How did Health NZ spend $72 million on one IT project?

Analysis – “You know, it’s all very technical… it sounds boring… but it’s very important, really, because everyone can remember projects that failed.”

This is Infrastructure Minister Chris Bishop, who will have to sort out the infrastructure sector.

Business cases are not up to the mark, there are holes and gaps in investment management, risk assessment may be completely absent.

This is all from recent warnings to the bishop from the Treasurywho oversaw the previous, imperfect system.

A test case of what can go wrong with this system is Health New Zealand’s $240 million IT project, which RNZ reported this on Friday. spent $72 million paying contractors and consultants over two years.

Despite all that experience and all that spending – so much so that it has left HNZ with a deficit so big that it plans to cut 1,100 IT positions to save money – it was forced to undergo a complete reset of its budget and timeline this year. base lines.

Here’s a non-technical, less boring account of how the $72 million Health Sector Agreements and Payments Program (HSAAP) got out of control—along with Bishop’s views. done in interview With Morning report and later in a press release.

Secure the holes

“Addressing New Zealand’s massive infrastructure deficit will require years of sustained action,” Bishop said.

New Zealand’s health IT gap left him with no choice.

The company processed $400 million in payments annually. week using three or so IT systems built in the 1990s for everything from organ donation services to bandaging, outsourced operations and residential care.

Employees have entered and continue to manually enter invoices, receipts, and the like.

“Many processes rely on paper forms, printing them and distributing them across the country,” according to reports from June and August that RNZ dug up under the Official Information Act.

The systems were vulnerable to “operational failures, fraud and (OFF) due to age and obsolescence of technology” and suffered from tens of millions of dollars in payment “leaks”.

This needed to be fixed.

Is there already a fix or not?

“What I mean is that everyone can think of examples where there have been huge costs over time, and it’s largely due to poor decision making from the start, poor project definitions and lack of careful oversight. ” said Bishop.

Health NZ first carried out a business case.

In 2021, the case stated that the full HSAAP program would take 10 years to roll out, although the IT solution itself “will be completed by 2024.”

“By June 2023, it became apparent that there were real delivery problems,” the OIA reports said.

By October 2023, the review resulted in changes to three pillars: oversight (often called governance), what the actual technologies will be (often called the “stack”), and “ensuring the focus is on speeding up delivery.”

By March 2024, the Treasury had reviewed Gateway – something it does when projects are high risk or volatile.

“HSAAP reports that AMBER/RED is not currently implemented, which is a fair reflection of the progress made compared to the difficulties identified in recent months,” he concluded several months ago.

The Treasury has advised healthcare to accelerate rather than stop, but only after a full reset to get a clear baseline and budget.

By October 2024, the company had some good news: a major enhancement to its new agreement management system had been launched.

Expectations are different now than in 2021. Public sector as a whole received new ordersto trim down your $8 billion IT investment wish list by sharing updates and avoiding unusual individual purchases.

Not so quick fixes

“Ultimately this will slow down the ability to deliver on our infrastructure and investment priorities,” Bishop said, referring to the poor and patchy business cases presented to Cabinet..

Forced to reboot the large payments project, New Zealand’s Ministry of Health has long remained exposed to higher risks.

“The risk of a legacy system—and the associated payment failures—has only become more pressing and severe since the business case was approved” in 2021, the OIA reports said.

The reset approach will ultimately save an additional $7 million per year, but will take much longer to reach that point.

“Delivery will occur over a longer period of time and with a corresponding delay in realizing benefits and ongoing costs to support legacy technologies.”

This raises the question of future readiness: will IT deployed today need a major overhaul soon after it is fully operational in 2030?

Pay the price

“When it comes to these large capital expenditure projects, you know, billions and billions of dollars, it has a huge impact on the Crown’s balance sheets,” Bishop said.

New Zealand health care has a huge financial hole.

HSAAP and other IT projects may help correct this situation in the long term, but in the short term they only make the situation worse (though HSAAP only projects $2 million in cost overruns this year).

The delays mean that contractors and consultants, who cost $72 million between 2022 and September 2024, remain on the payroll longer, allowing them to remain on staff longer as employees leave as part of a cost-cutting restructuring (they, of course, they may soon return as contractors).

The Treasury advised the Department of Health to “develop a long-term commercial strategy to provide an affordable and sustainable technology solution through suppliers. At the same time, the possibility of improving existing contracts should be considered.”

The project’s external hiring costs are falling and are projected to roughly halve this fiscal year to $15 million from the previous two years, from $800,000 a month for consultants alone to $160,000.

Personnel costs are a small part of personnel costs, and some of them are no doubt retained to keep old, outdated payment systems running.

The goal is for staff costs to operate the new payment system to be cut by more than half, to about $5 million a year, by 2030.

Final decision

“It comes back to the questions you asked at the beginning about decision making and expert oversight,” Bishop said. Morning report on Friday.

“So we’re looking internally within government to make sure that we’re really, you know, focusing our best minds and our best resources on this.”

Health NZ continues the long and costly work of leaving behind the risky legacy of legacy IT.

HSAAP is currently running at four percent capacity.

By June next year it could process 600,000 transactions a year, compared with 120 million it has to manage.

By 2030 this could happen. At least, unlike many other projects that turned out to be too ambitious, “experts” still predict that this project will bring all the expected benefits and it has not had to be scaled back.

At least not yet.