Underestimating complexity led to Phoenix problems: Report

The federal government’s failure to fully appreciate the intricacies involved in changing the way it administered payroll led to the problems it faced when it launched its Phoenix pay system last year, a recently released independent report said.

“It is our view that fundamentally it was the underestimation of the initiative’s complexity that led to its downfall,” said the report by consulting firm Goss Gilroy. Called Lessons Learned from the Transformation of Pay Administration, the report stems from a study it carried out earlier this year on the government’s Transformation of Pay Administration Initiative (TPA).

Problems with Phoenix have been ongoing since the government began rolling it out in Feb. 2016.

For months, thousands of public-sector workers were overpaid, underpaid or not paid at all.

To deal with the problems, the government had to open satellite pay centres, hire additional staff, do more training, and implement further system changes. Even with these adjustments, it is still having difficulty processing pay requests on time.

The government said it hired Goss Gilroy to review how it managed and implemented the TPA in order to identify lessons that it could apply to future projects involving large-scale changes. The report examines the issues surrounding the TPA from its start in 2008 to April 2016 when the Phoenix system went fully live.

The TPA involved two main projects to address payroll and software issues. One was to consolidate the government’s payroll services, spread out over its department and agencies, in a single location at a new pay centre in Miramichi, N.B.

The second was to replace the government’s 40-year-old payroll system with a commercial off-the-shelf product that would be integrated with its HR management systems. Overall, the government estimated the TPA would save about $78 million a year through staff reductions and technological efficiencies.

“Transforming the pay system of the public service is no small task,” the report said. When the government began the TPA, the Department of Public Works and Government Services Canada (now called Public Services and Procurement Canada (PSPC)) administered pay for 300,000 employees in 100 departments and Crown corporations.

“In 2009, it was estimated that the Government of Canada pay system carried out close to 8.9 million annual transactions, valued at approximately $17 billion,” the report said. “In all, the public service was comprised of 22 different employers (such as for the core public administration and for separate agencies) negotiating over 80 collective agreements totaling over 80,000 business rules,” it said.

Under the TPA, government departments and agencies would move to the Phoenix system, with compensation advisors in Miramichi administering payroll for almost half of them. The remaining organizations would continue to have their own compensation advisors within the department or agency.

Through interviews and workshops with stakeholders, as well as a review of documentation, the consulting firm developed a list of 17 lessons to be learned from the TPA initiative.

They include the importance of defining what is changing and who is affected by it when carrying out a major initiative, implementing change management strategies, and making one entity responsible for overseeing the change.

“No one individual or governance body was assigned the authority to ensure the necessary steps were being taken to ensure the overall success of the initiative,” the report said on the TPA.

“The TPA Initiative was complex, broad, and highly dependent on the ability of a wide range of users to prepare for the transition, and adapt and change the way they carried out their HR and pay activities,” it said. “The change required that pay and compensation personnel, HR personnel, supervisors and managers perform HR and pay operations online and in real time.”

“This meant, for example, that managers had to approve hours worked before or right at the end of the pay period rather than after the end of the pay period, which removed the previous flexibility to adjust data after the fact. Delays in entering and approving information in the system could have a direct impact on the accuracy of employees’ pay,” it said.

The study found that although the government had a change management plan, it did not fully implement it.

In addition, although TPA documents referred to how complex the government’s pay processes were “most of those consulted for the study admitted that very few people (other than compensation advisors) understood the degree of complexity associated with the day-to-day requirements to ensure accurate pay.”

The report stated that the lack of broad-based understanding of the complexities was compounded by the fact that most departmental deputy heads did not realize the full scope of the TPA and the leadership did not identify the project as being more crucial than any other.

Another lesson cited in the report was the importance of assigning a person or a group to a “challenge” role. The report stated that this function, which requires asking tough questions and raising issues, is critical for effectively monitoring the overall project, including risks, budget, schedule, and outcomes.

The report said the lack of a challenge role was made worse by the fact that the workplace culture did not foster “speaking truth to power” or hearing bad news, which may have discouraged employees from asking pointed questions or making critical comments.

In addition, the report said the government did not use effective communication strategies to explain TPA changes.

 “The study team heard that the content of the messages communicated by PSPC often lacked context; hence, the target audience did not have a full understanding of what was required of them and they did not have the background needed to help guide them when making important decisions about their own activities,” it said.

Another lesson highlighted was the importance of fully checking technology systems before going live with them, something the government did not do.

“The study heard that only some types of pay were tested by departments and agencies, usually not the most complex types of pay (such as seasonal, part-time and acting),” the report said.

“(We) warned the government repeatedly that Phoenix should have been rolled out one department at a time until no bugs were reported in the system,” said Public Service Alliance of Canada, which represents federal civil servants, in response to the report.

Another lesson cited in the report was the importance of having enough workers with the necessary expertise to see the project through from beginning to end.

“Many compensation advisors had to adapt to moving from being embedded in a department or agency to working within PSPC,” the report said. “This pressure was compounded with the loss of over 700 positions and a move to Miramichi. As a result, many compensation advisors with experience and expertise in payroll were either lost to attrition or chose not to move to Miramichi.”

The report also noted that many new compensation advisors hired for Miramichi did not have the expertise needed to administer the payroll.

In addition, the report said the government’s training efforts were insufficient. Not only did compensation advisors not learn how to effectively use Phoenix before it was launched, but line managers either did not attend training sessions or were not adequately trained on it.

Other lessons included not to expect savings until well after implementing a change and the importance of properly funding and equipping departments affected by a major transformation.

The lessons not only illustrate what can happen when an organization does not appreciate the complexity of changes, but also the need to value employees — in this case, payroll staff.

“While staff cuts may have been motivated by urgency in achieving planned initiative savings, in hindsight there was overconfidence in the abilities of the new pay IT solution, and a serious underestimation of the necessary role of the compensation advisors in ensuring employees are paid accurately and on time,” the report said.