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Cypriot Local Administration Reform - Project overview Final - NOTORIA INTERNATIONAL
THE PROPOSAL - The proposal suggests optimizing processes, improving quality of services, and reducing operating costs for municipalities through Lean Six Sigma and clustering municipalities. THE ITALIAN APPROACH - The approach involves 3 phases: 1) optimizing processes, 2) cooperation between municipalities and communities through resource sharing, and 3) clustering municipalities and communities to consolidate services and reduce costs. THE SAVINGS - Clustering could save between 16-43 million Euros annually, reducing operating costs by 4-12%. The best scenario would cluster 40-50 municipalities and communities and save 36 million.
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Cypriot Local Administration Reform - Project overview Final - NOTORIA INTERNATIONAL
- 1. NOTORIA International Processes optimization, qualityimprovement of services for citizens and operating costs reduction through Lean Six Sigma Nicosia, November 2014 Project overview
- 2. Notoria International SUMMARY THE PROBLEMEconomic constrains THE PROPOSAL - smoth approach - government – italian comparison - trade offs THE ITALIAN APPROACH IN DETAILEAM - methodology to use - the cluster - the consolidation - people staffing issue - savings - project scheduling CONCLUSIONS Kallikratis versus italian approach
- 3. Notoria International 3 THEPROBLEM
- 4. Notoria International 4 THEPROBLEM Economic constraints Total Operating Costs: 267.231.288 € - of which 43,4% Payroll - of which 1,9% Mayor & Councillors Total Income: 256.255.853 € ( of which 20% subsidy) Total annual Interest to pay: 11.726.300 € (480 M€ total debt) Need for more cooperation between Municipalities No complete financing and administrative autonomy Need for more process monitoring and control No quality goals assignment No common HR approach Processes to optimize: Waste collection, Road Maintenance, Building Permits, Hygiene, Traffic warden Processes to improve: Green area, Parking Mgmt., HR Processes to change: Waste Mgmt., Road Lighting FINANCING PERSPECTIVE FOR ALL MUNICIPALITIES IN CYPRUS GENERAL PERSPECTIVE FOR ALL MUNICIPALITIES IN CYPRUS PROCESS PERSPECTIVE FOR ALL MUNICIPALITIES IN CYPRUS
- 5. Notoria International € 1.600.000€800.000€ 0-€ 800.000-€ 1.600.000-€ 2.400.000-€ 3.200.000 FAMAGUSTA LARNAKA LIMASSOL NICOSIA RURAL NICOSIA URBAN PAFOS Balance DISTRICT + 250.000 €- 250.000 € 20.445.412 € Total inefficiency: Municipalities Balance Sheet Distribution variability target Balance sheet WORST MUNICIPALITIES: 11 NEUTRAL MUNICIPALITIES: 11 GOOD MUNICIPALITIES: 8
- 6. Notoria International PILOT PROJECTFinance perspective € 2.000.000€ 1.000.000€ 0-€ 1.000.000-€ 2.000.000-€ 3.000.000-€ 4.000.000 500 400 300 200 100 0 balance Inhabitantsperstaff Scatterplot of Inhabitants per staff vs balance average 230 inhabitants per staff I QuadII Quad III Quad IV Quad Eu 28 AVERAGE 39 INHABITANTS PER STAFF ok No ok Ok for people staff No Ok per balance sheet Ok for balance sheet No Ok per people staff GOOD MUNICIPALITIES: 7 MUNICIPALITIES TO BE IMPROVED: 19 BAD MUNICIPALITIES: 4
- 7. Notoria International 7 THEPROBLEM Local government financing indicators: 2012 Central Government: 6.299,8 M€ Local Government: 384,8 M€ Social Security: 1.593,5 M€ From EUROSTAT 4,64% of Total Government Expenditures
- 8. Notoria International 8 THEPROBLEM Local government dimension indicators COUNTRY AVERAGE POPULATION AVERAGE AREA (SqKm) INHABITHANTS PER EMPLOYEE EU 27 5.430 47 39 CYPRUS (Municipality) 20.051 23 230 CYPRUS (Community) 676 19 ITALY 7.320 37 30 GREECE 10.820 128 214 FRANCE 1.730 15 32 UNITED KINGDOM 140.050 562 29 GERMANY 6.650 29 47 SPAIN 5.530 62 90 PORTUGAL 34.440 299 55 AUSTRIA 3.530 36 41 MALTA 6.010 5 899
- 9. Notoria International 9 KapodistriasPlan Kallikatris Plan Year 1994 (starting point) 2010 No. of Communities 134 --- No. of Municipalities 900 325 No. of Provinces 19 --- No. of Prefectures 54 --- No. of Regions 13 13 No. of Districts 7 GDP 213.460 M€ (average 1995-2010) 268.972 M€ (average 2011-2013) Local Gov. Exp. % of GDP 2,6 % (average 1995-2010) 3,2 % (average 2010-2013) Total Local Gov. Exp. 5.550 M€ 8.607 M€ 2010 2011 2012 2013 GDP 294.770 M€€ 290.150 M€ 249.190 M 241.780 M€ Local Gov. Exp. % GDP 2,9 % 3,1 % 3,2 % 3,5 % Total Local Gov Exp. 8.548 M€ 8.995 M€ 7.974 M€ 8.462 M€ GDP 268.972 M€ (average 2010-2013) Loc.Gov.Exp.: 3,2 % (average 2010-2013) 8.607 M€ + 447 M€ - 574 M€ - 86 M€ 213 M€ saving 2,5% Local Gov. Exp. (2010) THE PROBLEM Greece Case Study: Kallikratis Plan Results not in line with the initial expectations, due to: -Drammatic crisis -Short schedule -No prior optimization -No citizens imvolment -Central Gov. project
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- 11. Notoria International 11 PROPOSALS 1)Municipalities reduction (30 to 5) 2) People staff reallocation 3) Secondary layer of administration 4) Taxes, fees and fines increase 5) Straight forward implementation 6) No Communities involved 7) No economic results 1) Keeping the existing infrastructure 2) Processes optimization 3) Productivity improvement 4) People empowerment 5) Cooperation and resources sharing 6) Smooth implementation 7) Communities must be involved ??GOVERNMENT APPROACH ITALIAN APPROACH English vs Italian study 24,5 M€ 43,3 M€ 70,5 M€ Processes optimization Processes Improvement and re-engineering Clustering 138,3 M€
- 12. Notoria International OPTIMIZATION AND PRODUCTIVITY IMPROVEMENT 67,8 M€of total saving CLUSTERING AND COOPERATION 70,5 M€ of total saving MUNICIPALITIES CONSOLIDATION 22 Municipalities - 14 M€ of total saving and 222 people to redeploy 12 Municipalities - 59 M€ of total saving and1.223 people to redeploy STEP 1 STEP 2 STEP 3 PROPOSALS Implementation steps ORGANIZATIO N CHANGE STEP 1 No detailed saving indications CLUSTERING
- 13. Notoria International Municipilaty A MunicipalityDMunicipality G Municipality E Phase 1: process optimization Phase 2a: Cooperation Municipalities & nearest Communities (radius < 20 Km) Phase 2b: Clustering Municipalities & far away Communities (radius > 20 Km) Phase 3: Consolidation Ccommunity > 20 Km Ccommunity < 20 Km PILOT PROJECT Project ‘s development steps Municipality C Municipality F Nunicipality B
- 14. Notoria International PROPOSAL Governmentorganization skeleton DISTRICT DISTRICT COUNCIL MUNICIPALITIES CLUSTERS (5) COOPERATION TROUGH RESOURCES SHARING CLUSTER SERVICES (WASTE MGMT., TOWN PLANNING, GREEN AREA; ROAD MGMT) 55 SERVICE RESPONSIBILITY TRANSFER (HYGIENE, COMMERCIAL LICENSES) COMMUNITIES President elected by the people
- 15. Notoria International PROPOSAL Italianorganization skeleton DISTRICT CLUSTERING BOARDS MUNICIPALITIES PROXIMAL COMMUNITIES (40% of the communities) CLUSTERS 18 - 22 COOPERATION TROUGH RESOURCES SHARING CLUSTER SERVICES (WASTE MGMT., TOWN PLANNING, GREEN AREA; ROAD MGMT) 18-225 SERVICE RESPONSIBILITY TRANSFER (HYGIENE, COMMERCIAL LICENSES) OTHER COMMUNITIES (60% of the communities) CLUSTER SERVICES (WASTE MGMT., TOWN PLANNING, GREEN AREA; ROAD MGMT) MAYORS– COUNCILORS BOARD
- 16. Notoria International PROPOSALS Approachescomparison: rough estimation ITALIAN MINISTER QUALITY Optimization, improvement, KPIs YES NO Re-engineering YES NO CLUSTERING Municipalities cooperation YES YES Communities cooperation YES NO Cluster governance by mayors YES NO District Council (II tier) NO YES Savings analysis YES NO Cluster dimension YES NO Cluster finanging tool YES NO LAW ENFORCEMENT Reduction in the councelors NO YES Mandatory clustering NO YES DISTRICT Transfering responsibilities YES YES PEOPLE STAFF Phisical people transfer NO YES The cluster joining is the condition for Municipalities and Communities to get the Government grant It was not in the ring of the Requested assessment, but we agree on this. Add the optimization phase. Add the Communities District Council are similar to the cluster Add this analysis NOT IN SCOPE TO ADD TO WORK TOGETHER
- 17. Notoria International 17 SAVINGSIN THE ITALIAN APPROACH SAVINGS IN THE GOVERNMENT APPROACH INEFFICIENCIES REDUCTION 67,8 M€ 0 M€ RESOURCES SHARING THROUGH CLUSTERING 70,5 M€ 50,8 M€ DISTRICT COUNCILS OPERATIVE COST - 5,1 M€ TOTAL SAVING 138,3 M€ 45,7 M€ PROPOSALS Approaches comparison: rough estimation + 92,6 M€
- 18. Notoria International 18 THEITALIAN APPROACH IN DETAIL
- 19. Notoria International • Focuson Customers Requirements • Cost reduction, Quality improvement, high process performance • People involvement 19 Define High level processes description and project goals STEPS GOALS Measure Analyse Improve Control Evaluation of the current performance and needs Assessment of the actual situation and cause effect analysis New model definition Verification and validation results with maintenance DMAIC methodology is used to improve performances starting from the description of the actual processes and measurable data, in accordance with the objectives and constraints FINAL OUTPUT PILOT PROJECT Work method to adopt Methodology: Lean Six Sigma (DMAIC) PRE-MEASURE
- 20. Notoria International 20 Keyvariables identification Parametrization & distribution Data Clustering Best Practices & characterization Ph 1 – Improving Processes (1 year timeframe) Ph 2- Clustering Collaboration (1 year timeframe) Ph 3 Clustering Quality Standard (1 year timeframe) PILOT PROJECT Process flow I Session interview Process mapping Data Gathering MUNICIPALITIES & Communities Municipalities & Communities Data Base Creation and KPIs setting District Sewerage & Water boards Data AnalysisII Session Interview DesignImplementation Validation
- 21. Notoria International 21 1st YEAR Project 2nd YEAR Project NON INVASIVE APPROACH INCOME IMPROVEMENT Waste collection + 7,0 M€ Town Planner/Building Permits + 1,5 M€ + 1,0 M€ Municipality Police + 1,2 M€ + 0,2 M€ Parking Mgmt. + 4,1 M€ + 2,0 M€ Hygiene + 0,2 M€ + 0,1 M€ Tourism + 9,2 M€ 1,0 M€ TOTAL + 16,2 M€ 11,3 M€ COSTS REDUCTION Waste collection - 5,0 M€ - 16,0 M€ Public Lighting - 1,3 M€ - 11,0 M€ Green Area - 1,5 M€ - 2,0 M€ Road Mgmt. - 0,5 M€ - 3,0 M€ TOTAL - 8,3 M€ - 32,0 M€ 1st Year Project: 24,5 M€ 5,5% of operating costs 2° Year Project: 43,3 M€ 16% of operating costs TOTAL: 67,8 M€ 26% of operating costs Activities Processes flow optimization and improvement Processes re-engineering Quality target assignement Processes monitoring and reporting Cooperation between Municipalities and Communities Single HR department for the whole Municipalities Extending outsourcing service delivery model Scheduling 24,5 M€ saving PROPOSALS 43,3 M€ saving Phase 1 Optimization and Improvement Processes
- 22. Notoria International CASE ACASE B CASE C CASE D CASE E No. of Municipalities & Communities 382 100 70 40 - 50 18 - 23 10 – 12 No. of Urban Clusters 0 10 10 10 5 5 No. of Rural Clusters 0 90 60 30 13 5 Average Land Surface Urban Cluster 25 sq. Km 25 sq. Km 25 sq. Km 90 sq. Km 100 sq. Km Average Population Urban Cluster 40.000 40.000 40.000 110.000 120.000 Average Land Surface Rural Cluster 60 sq. Km 90 sq. Km 180 sq. Km 400 sq. Km 1.000 sq. Km Average Population Rural Cluster 5.000 7.000 15.000 21.500 40.000 Savings 0 16 M€ 18 M€ 25 M€ 36 M€ 43 M€ % of savings regarding existing Local Gov. Operating Costs 0% 4% 5% 7% 10% 12% 22 16 M€ 18 M€ 25 M€ 36 M€ 43 M€ PROPOSALS Phase 2 – Clustering Scenarios
- 23. Notoria International 23 PROPOSALS SAVINGS(M€) SERVICE ACCESSABILITY (%) ECONOMIC RESOURCES CONCENTRATION. (%) POP. IDENTITY PERCEPTION (%) CASE A 16 80 33 80 CASE B 18 78 34 77 CASE C 25 73 38 60 CASE D 36 56 71 50 CASE E 43 46 80 20 Case D The best case Phase 2 – Clustering Scenarios
- 24. Notoria International 24 ParkingManagement STEERINGCOMMITTEE Standard operating activities Development activities Control Monitoring Reporting PROCESSES Setting-up Waste Management Green Area Financing accounting and Tax management Town Plan and Buiding Permits Hygiene School Board Municipality Police Road Management Cultural Events MUNICIPALITIES AND COMMUNITIES EQUIPEMENT & HUMAN RESOURCES MAYORS – COUNCILORS BOARD PILOT PROJECT MANAGEMENT RESOURCES SHARING GOVERNANCE Project details: clustering architecture
- 25. Notoria International 25 Activities WaterBoard and Sewerage Board responsibility extension Clustering approach extension ⁻ Municipality with Municipality ⁻ Municipality with neighboring Communities ⁻ Communities with Communities Responsabilities transfer from Districs to Clusters Scheduling PROPOSALS Prudent approach COSTS SAVING Total saving through clustering for Local Government 36 M€ Total saving for Central Government 120 M€ DISTRICT No. OF EXISTING MUNICIPALITIES AND COMMUNITIES No. OF POTENTIAL CLUSTERS Nicosia 107 6 Larnaca 103 3 Limasol 55 4 Famagusta 9 2 Paphos 108 3 TOTAL 382 18 From the clustering approach: 36,0 M€ 13,5% Total operating costs TOTAL: 36 M€ 13,5% Total operating costs Central Government TOTAL cost decrement: 120 M€ Phase 2a – Clustering Scenarios
- 26. Notoria International 26 Activities Extensionof the outsourcing delivery model to the clusters Cluster steering committee definition to address the service development issue Quality targets approach extended to the clusters Scheduling PROPOSALS Phase 2b – Clustering Quality Improvement TOTAL: 34,5 M€ 13% Total operating costs Present Total Operating Costs Local Government Productivity improvement via outsourcing Quality monitoring and targets achieving 360 M€ 19,5 M€ 15 M€ Outsourcing extension: 19,5 M€ 7% Total operating costs Quality Target approach: 15 M€ 6% Total operating costs
- 27. Notoria International 27 Prudent solution Variables to consider in consolidation: geographical location geopolitical considerations road network governance effiency municipality dimenion (surface, population) financing capacity people staff redeployment 14M€ Light merging 222 units staff reduction Typology Present # of Municipalities Prudent # of Municipalities Challenging # of Municipalities Urban 11 6 1 Rural 9 7 4 Seaside 10 9 7 TOTAL 30 22 12 Prudent solution COSTS SAVING Employees 7.629.118 € Mayor and counsellors 1.289.505 € Vehicles 621.982 € Building maintenance 563.551 € Administrative 1.986.266 € Cultural events 550.100 € TOTAL 13.773.522 € Challenging solution COSTS SAVING Employees 48.223.037 € Mayor and counsellors 2.703.547 € Vehicles 1.717.972 € Building maintenance 1.084.819 € Administrative 4.106.623 € Cultural events 1.259.947 € TOTAL 59.095.946 € Phase 3 - Consolidation Scenarios 59 M€ Tough merging 1.223 units staff reduction Challenging solution
- 28. Notoria International 28 PHASE 4 Typology Present #of Municipalities # of Municipalities after Prudent consolidation # of Municipalities after Challenging consolidation Urban 11 6 1 Rural 9 7 4 Seaside 10 9 7 TOTAL 30 22 12 Total staff: 2843 Total staff: 2649 Total staff: 1.620 222 – 1.223 redeploying resources - 222 - 1.223 People staffing impact
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- 30. Notoria International 24,5 M€ 43,3M€ 70,5 M€ 30 SAVING Savings trend Processes optimization Processes Improvement and re-engineering Clustering 13,8 M€ Consolidation prudent 59,1 M€ Consolidation challenging NON INVASIVE : = 138,3 M€ INVASIVE
- 31. Notoria International GO Process optimisation 1Quarter 1 year 2 year 3 year 4 year Cooperation Training Single point HR Outsourcing extension model Clustering Municipality & Community Merging Municipalities and Communities Outsourcing extension to Clusters Quality Targets to Clusters 31 Global Scheduling 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter SCHEDULING
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- 33. Notoria International 33 •Cyprus Approach • After 3,5 years, our estimation is to reduce • the Total Local Government expenditures by 38% • plus 120 M€ in the Central Government budget • Kallikratis Plan • After three years, the total achieved savings were 2,5% of • the 2010 Total Local Government expenditures CONSIDERATIONS Kallikratis Plan vs Cyprus Approach
- 34. Notoria International 34 MunicipalityA 1 M€ 22% 1,5 M€ 33% 2 M€ 45% Service Municipality operating costs Costs reduction due to: -economy of scale and productivity improvement -process optimization -Outsourcing model adoption Municipality A: 22% * 3 M€ = 0,66 M€ Municipality B: 33% * 3 M€ = 1 M€ Municipality C: 45% * 3 M€ = 1,35 M€ Operating costs distribution Municipality B Municipality C Ex post Service operating costs PROPOSALS Phase 2 – Example on Budget Operating Cost Distribution 4,5 M€ 3 M€ Ex ante Service operating costs
- 35. Notoria International 35 MunicipalityA 450 K€ 33% Municipality service income Municipality A: 33% * 2 M€ = 660 K€ Municipality B: 17% * 2 M€ = 340 K€ Municipality C: 50% * 2 M€ = 1,000 K€ Income distribution Municipality B Municipality C 2 M€ Ex post Service income PROPOSALS Phase 2 – Example on Budget Income Distribution 225 K€ 17% 675 K€ 50% 1,35 M€ Ex ante Service income Income increment due to: -economy of scale and productivity improvement -process optimization
- 36. Notoria International 36 CLUSTER A Income budget CLUSTER B Income budget CLUSTER C Income budget CLUSTER Z Income budget .. . . . . . 5 % 5 % 5 % 5 % Solidarity Fund Municipalities debt pay off and future development projects PROPOSALS Phase 2 – Example on Cluster Debt Supporting Model
- 37. Notoria International 37 PILOTPROJECT Governance and structure Project’s governance Project’s structure - Every Municipality has to assign one person to be fully dedicated to the project - Every Community has to assign one focal point to use as interface Municipalities & Communities Notoria staff