Los Angeles Unified School District Efficiencies Discussion Document CONFIDENTIAL December 2018 LAUSD - 312 - PRA About this report — Limitations and Restrictions This report (the “Report”) has been prepared by Ernst & Young LLP (“EY”), from information and material supplied by Los Angeles Unified School District (“LAUSD” or the “District”), for the sole purpose of assisting LAUSD in the identification of efficiencies and potential cost savings. The nature and scope of our services was determined solely by the Agreement between EY and the California Community Foundation (the “CCF”) dated 31 August 2018 (the “Agreement”). Our procedures were limited to those described in that Agreement. Our work was performed only for the use and benefit of the CCF and should not be used or relied on by anyone else. Other persons who read this Report who are not a party to the Agreement do so at their own risk and are not entitled to rely on it for any purpose. We assume no duty, obligation or responsibility whatsoever to any other parties that may obtain access to the Report. The services we performed were advisory in nature. While EY’s work in connection with this Report was performed under the standards of the American Institute of Certified Public Accountants (the “AICPA”), EY did not render an assurance report or opinion under the Agreement, nor did our services constitute an audit, review, examination, forecast, projection or any other form of attestation as those terms are defined by the AICPA. None of the services we provided constituted any legal opinion or advice. This Report is not being issued in connection with any issuance of debt or other financing transaction. In the preparation of this Report, EY relied on information provided by LAUSD or publicly available resources, and such information was presumed to be current, accurate and complete. EY has not conducted an independent assessment or verification of the completeness, accuracy or validity of the information obtained. Any assumptions, forecasts, projections, or other forms of prospective financial information (PFI) contained in this Report are solely those of LAUSD and its management (“Management”) and any underlying data was produced solely by LAUSD and its Management. We did not examine, compile or apply agreed-upon procedures to PFI in accordance with attestation standards established by the AICPA, and we express no assurance of any kind on the PFI presented. EY did not assist in the preparation, assembly, formulation, development, or processing of LAUSD’s PFI or assumptions used to generate the PFI. Our analysis includes tables aggregating potential cost savings in order to illustrate effects of possible scenarios. Those tables should not be regarded as a restatement of LAUSD’s PFI, or preparation of revised PFI; they are provided as a means of presenting potential ranges of cost savings to assist LAUSD in considering their implications. It is LAUSD’s responsibility to consider these illustrative examples and make its own decisions based on the information available. We have made comments about specific assumptions and components of the PFI herein, where EY had sufficient evidence to provide a reasonable basis for them. We have not provided any opinion, conclusion or any type of assurance about specific assumptions or components of the PFI or on the PFI as a whole. Management has the knowledge, experience and ability to form its own conclusions, including with respect to LAUSD’s PFI. There will usually be differences between projected and actual results because events and circumstances frequently do not occur as expected and those differences may be material. EY takes no responsibility for the achievement of projected results. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 2 LAUSD - 313 - PRA Summary Scope of Work 1 7 Procurement Budget 6 2 Information Technology Efficiencies Analysis Food Services Facilities 5 Workers’ Compensation Transportation 3 EY was engaged by the CCF to assist LAUSD management in assessing efficiencies and potential cost savings opportunities across seven functional areas selected by LAUSD management (i.e. procurement, workers’ compensation, food services, transportation, facilities, information technology, and budget). Management selected the functional areas for analysis. This report is intended to provide LAUSD with an illustrative range of potential cost savings in those identified functional areas, based on discussions with Management, industry leading practices, and operational benchmarks. We understand that the purpose of the analysis is to assist Management in formulating preliminary decisions regarding prioritization of areas of potential cost savings. A detailed quantification of the achievable cost savings in each functional area was not within the scope of this report. To the extent detailed analyses are provided for certain sub-functions, they are intended for illustrative purposes only. 4 The findings arising from the above scope of services are summarized herein. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 3 LAUSD - 314 - PRA Table of Contents Item Page I. Executive Summary 5 II. Procurement 15 III. Workers’ Compensation 21 IV. Food Services 26 V. Transportation 31 VI. Facilities M&O 37 VII. Information Technology 42 VIII. Budget 48 Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 4 LAUSD - 315 - PRA I. Executive Summary Executive Summary Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 5 LAUSD - 316 - PRA I. Executive Summary LAUSD is projecting a sustained operating deficit in the General Fund of over $400M per year, starting in FY19[1] ► Although the District has generated a surplus in each of the past three years, LAUSD management is projecting a deficit in FY19 and beyond, largely driven by increases in pensions, salaries (including a reserve for potential settlement of certain labor contracts), and books and supplies. ► In order to mitigate its projected operating deficit in the general fund, LAUSD is seeking to identify efficiencies and cost savings across various functional areas. $ millions FY19-FY23: LAUSD Management Forecast (see notes 1 & 2) General Fund Only Actual Actual Preliminary ------------------------------------ LAUSD Management Forecast ------------------------------------ Source: LAUSD Management financial projections Note 1: Forecast reflects Management assumptions. An independent validation of the FY19 – FY23 forecasts has not been undertaken and the risks/opportunities associated with the individual forecasts have not been quantified. Note 2: Total Expenditures from FY20 onwards exclude Management’s projected $45.9M annual savings identified in Management’s preliminary fiscal stabilization plan. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 6 LAUSD - 317 - PRA I. Executive Summary Of ~$8.5B of expenditures[1] in LAUSD’s FY19 budget, Management requested an efficiencies analysis focused on seven specific functional areas that accounted for ~$2.3B of spend General fund: $7.8B Other funds: $0.8B Total Spend: $8.5B Other Spend* $6,284 Area Procurement[2] Focus Areas Spend ​ $2,255 Relevant $M 520 (excl. areas below) [2] Workers’ Compensation 131 Food Services 424 Transportation 182 Facilities M&O 618 IT 342 Budget 38 Total $2,255 Current State ► ~$3B spent annually on procurement of goods/services across the District, of which ~$1.5B is paid through the General Fund and an estimated ~$900M is relevant, including IT, Facilities, Food and Transport. ► Fully self-insured workers’ compensation program, using a third party administrator ($10.3M annually) to assist in claims management. ► Serves ~140 million meals annually across 681 campus locations/1,300 units. Receives $27M of support from the General Fund (FY19 Budget). ► Transports ~22,000 students daily over 1,500 routes. Employs 1,558 personnel (incl. 933 bus drivers) and maintains the District’s yellow fleet of 1,298 buses and white fleet of 1,474 vehicles. ► M&O comprises over 4,000 in-house craftspeople and staff, responsible for maintaining the District’s ~92.5 million sq. ft. of real estate. ► Consists of 681 staff, supporting 400,000+ computing devices, 95,000+ wireless access points, 46,000+ network devices and an 300+ application portfolio. IT Department (“ITD”) has an FY19 budget of ~$342M, split between the General Fund ($150M) and bond funds ($192M). ► 308 employees at an FY19 budgeted personnel cost of ~$38M. Functions comprise accounting, accounts payable, budget, payroll and treasury. Note 1: LAUSD Management estimated total spend of ~$8.5B consisting of General Fund forecast of $7.8B + Cafeteria Fund FY19 Budget of $396M + bond-funded IT of $192M + other non-general fund procurement ~$100M. Note 2: Estimated total relevant procurement spend at ~$900 million, including ~$385M of spend budgeted across Food Services, Transportation, Facilities and IT. The ~$385M spend is already represented in the individual budgets of each functional area, therefore it has been excluded from the “Relevant” procurement total of $520M shown above. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 7 LAUSD - 318 - PRA I. Executive Summary Across the seven functional areas, the analysis identified over 50 recommendations with an illustrative potential savings opportunity by FY22 of ~$236M on the low end, equivalent to ~10% of the relevant spend Illustrative Annual Savings Opportunity[1] Represents initial LAUSD targeted savings * Note 1: Illustrative annual savings opportunity is a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. The illustrative savings ranges assume full implementation of cost reduction strategies. Due to implementation timing and associated risk, full savings potential may not be achieved until subsequent years, if at all. See page 9 for discussion of potential savings timing. Further analysis would be required to refine the potentially achievable range of savings, analyze costs of implementation, and further assess timing requirements. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 8 LAUSD - 319 - PRA I. Executive Summary With immediate action, some General Fund savings could be achieved yet in FY19, but the majority of the savings potential is estimated to be realized in FY20 and beyond Illustrative Savings Opportunity by year (General Fund only) High end estimate ► Based on typical timing of this type of implementation, it would be necessary to commence the various initiatives as soon as possible during FY19 in order to achieve the savings within the time frame outlined above. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 9 LAUSD - 320 - PRA I. Executive Summary The savings alone do not eliminate the operating deficit projected by the District; however, implementing the identified savings could delay the depletion of the District’s unassigned fund balance * Note: The forecast deficit was estimated assuming that forecast salaries and benefits expenditures incorporate the “Reserve for Potential Salary Increase” balance from LAUSD’s Multi Year Projection. This assumption does not affect the General Fund unassigned ending balances as the salary reserve is already netted out of the unassigned balances in Management’s projections. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 10 LAUSD - 321 - PRA I. Executive Summary A number of key themes are common across the seven functional areas and would need to be addressed to unlock the estimated savings potential in each area Observations Procurement Workers’ Food Compensation Services Transportation Facilities Information Budget Technology  - -    - Review procedures and policies -     -  Rationalize and maximize assets - - -    -       -  - - -  - -       Improve utilization of data and resources Consolidate vendors and/or renegotiate prices Automate processes Standardization Consider benefits of outsourcing  Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 11 LAUSD - 322 - PRA I. Executive Summary Estimated low end savings potential of ~$236M[1] across all seven areas could be achieved by FY22 if fully implemented successfully (1 of 2) Less complex Moderate More complex Category Recommended areas of focus Technology strategic sourcing program Ref Implementation Difficulty[2] Timing[2] Estimated savings by year ($M)[1] FY19 FY20 FY21 FY22 Total ($M) Low High 1 6-9 months 9 9 9 9 12.5 2,3,4,6,7 6-9 months 36 36 36 36 48 5 9-10 months 3.5 3.5 3.5 3.5 4.5 8 12 months + 11 11 11 15 Enhance internal claim management and oversight capabilities Workers' Compensation Renegotiate the fee agreement with existing third party claims administrator Savings estimate: Reduce telephonic case management and defense attorney utilization $23M - $38M Formalize WC cost allocation and Return to Work (“RTW”) program across the District 1 12-36 months 2 4 7 7 7 10 2 3 months 1 1 1 1 1 3 3 3 months 1 1 1 1 1 1 4 12-36 months 1 4 9 14 14 24 Transfer General Fund food expenses to Cafeteria Fund: FTE expenses Food Services Savings estimate: Transfer General Fund food expenses to Cafeteria Fund: Job Costs, M&O, etc. $24M - $45M Remove requirement to staff Food Services employees for a minimum of 4 hours/day 1a 6 months 5 11 11 11 11 11 1b 6 months 6 13 13 13 13 16 3 12 months + - 18 1-2 6-12 months 10.5 14 14 14 16 3 3-9 months 4.6 4.6 4.6 4.6 6 4 3-9 months 0.5 0.5 0.5 0.5 1 5 12 months 1 1 1 1 2 6 12 months + 0.5 1 1 1 3 7 3-6 months 0.3 0.3 0.3 0.3 0.6 Procurement Food Services, Professional Services, Transportation, General Supplies, Facilities Savings estimate: $59.5M - $80M Textbooks strategic sourcing program Special Education strategic sourcing program Consolidate ~175 contractor bus routes (due for renewal in June 2019) and certain District bus routes based on actual ridership Rationalize yellow bus fleet to optimize fleet mix and reduce maintenance and fuel costs Implement a vendor performance management framework for the bus contractors to Transportation improve on-time performance and capture all liquidated damages Savings estimate: Install radio-frequency identification (“RFID”) readers on all buses for student ridership $22M - $29M counts and provide RFID cards to students Review and revise policies and procedures regarding LAUSD employee eligibility for a District-owned vehicle and transition to leasing structure for light-duty white fleet Eliminate job costing for daily bus routes Note 1: Figures in the annual distribution represent the low end of the illustrative savings opportunity and include both the General Fund and other funds. Illustrative amounts reflect a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 12 LAUSD - 323 - PRA I. Executive Summary Estimated low end savings potential of ~$236M[1] across all seven areas could be achieved by FY22 if fully implemented successfully (2 of 2) Legend: Less complex Moderate More complex Category Recommended areas of focus Utilize outside service providers to complete routine activities; transition to an outsource model for all services Implement a tiered service approach for craft work; hire 12 schedulers to reduce Facilities M&O administrative burden on supervisors Savings estimate: Develop an appraisal process for consolidation or alternative use across the facilities $34M - $42M portfolio Develop a plan to consolidate staff use of office space at 333 Beaudry in alignment with future staff planning Realign the organization to current and future technology needs and dramatically increase the use of outsourcing for commodity functions Establish enterprise standards, policies and procedures to ensure optimal use of IT enterprise assets Savings estimate: Develop Enterprise Architecture and Enterprise Project Management office to ensure $60M - $70M consistent project prioritization and alignment with District capabilities. Move primary data center to low cost locations along with Data Recovery (“DR”) to cloud and rationalized application portfolio. Outsource payroll check printing Implement OpenText to centralize invoice processing and improve 3-way match Budget Rollout / prioritize IT projects to automate school business travel and certain manual Savings estimate: payroll processes $14M Initiate a policy whereby a portion of overpayments, penalties and interest due to late filing of payroll paperwork will be charged back to the schools Consider the appropriate number of "baseline" assistants across pre-K and K-12 based on actual needs (as determined by LAUSD), IEPs, Ed Code, and other requirements. Total estimated savings (including figures from previous page) Ref Implementation Difficulty[2] Timing[2] 1a-1b 12 months + 2a-2b 9-12 months + 3a Estimated savings by year ($M)[1] FY19 FY20 FY21 FY22 Total ($M) Low High 4 10 10 13 2 2 2 3 12 months + 7 16 16 18 3b 9-12 months + 6 6 6 8 1a-1e 4-18 months 7.5 15 15 18 2a-2e 4-18 months 3 15 15 15 18 3a-3d 6-14 months 4 8 8 8 10 4a-4e 6-24 months 11 22 22 24 1 3 months 0.2 0.2 0.2 0.2 0.2 2 6-12 months 0.8 0.8 0.8 0.8 0.8 3, 4b 3-18 months 1.7 1.7 1.7 1.7 1.7 4a 6 months 1 1 1 1 1 5 6 months 10.6 10.6 10.6 10.6 10.6 $123.2 $197.7 $236.2 $236.2 $317.9 1 0.2 0.7 $17.9 2 Note 1: Figures in the annual distribution represent the low end of the illustrative savings opportunity and include both the General Fund and other funds. Illustrative amounts reflect a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 13 LAUSD - 324 - PRA I. Executive Summary • Improvements to existing processes, could facilitate an increase in service standards and reduce low-value administrative time (e.g., Facilities scheduling, tiered craft worker structure) • Significant buy-in required from numerous stakeholders, in order to implement potential solutions (e.g., parents, students, unions, employees, Board, etc.) • Incentivizing stakeholders to assist in cost mitigation, could encourage an efficiency and cost-saving mentality across different parts of the District (e.g., workers’ compensation RTW program, payroll error chargebacks) • Inconsistencies in existing policies could present challenges to governance and implementation • Reducing the vendor pool, could allow the District to optimize volume discounts and reduce the administrative burden of managing a high number of vendors (e.g., procurement strategic sourcing) • Standardization of technology, could drive down cost and reduce maintenance complexity (e.g., rationalize IT applications, reduce IT computer vendor pool) • Eliminating/reducing manual processes, could allow the District to redeploy resources and alleviate the administrative burden on employees (e.g., manual payroll recording, RFID readers) Intended Outcome Reduce waste and overhead spend to keep resources at schools, enhance student experience and outcomes, and mitigate projected fiscal deficit • Internal ability to implement changes due to existing bandwidth and skills • Training and enforcement needed to implement new policies and processes so that savings are sustainable CHALLENGES BENEFITS Potential benefits and challenges of the implementation of potential savings opportunities • Investment costs necessary to achieve certain savings, including capital, personnel or external support • Legislative and regulatory impediments could slow down or restrict desired changes (e.g., CA Ed. Code governing provision of space to Charter Schools limits the ability to dispose of excess capacity) Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 14 LAUSD - 325 - PRA II. Procurement Procurement Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 15 LAUSD - 326 - PRA II. Procurement Methodology and disclaimer EY was engaged by the CCF to assist LAUSD Management with the following: ► ► ► Understand the current state Analyze maturity of procurement practices Estimate opportunities for potential savings Management is the responsible party for all prospective financial information. Illustrative potential savings estimates are based upon: ► ► ► ► Historical LAUSD financial and operational information provided by Management Discussions with select members of the relevant LAUSD functional teams, including the office of the superintendent and the reimagining team Illustrative ranges of cost savings potential from industry leading practices Industry benchmarks Disclaimer regarding illustrative savings estimates: ► ► ► Illustrative savings are based on high-level discussions with Management and do not reflect a detailed analysis Illustrative savings are based on industry benchmarks and may not be reflective of operational, financial, or other factors specific to LAUSD Illustrative savings do not include one-time costs to implement Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 16 LAUSD - 327 - PRA II. Procurement Executive Summary (1 of 2) Current State ► LAUSD spends ~$3B annually on the procurement of goods and services across the District, of which ~$1.5B is paid through the General Fund. ► Management’s primary focus was on procurement savings in the General Fund but also included some spend in related funds (e.g., food services, Cafeteria Fund). ► Approximately $900M (which includes ~$385M of food services, transportation, facilities, and IT spend, see page 7) of the total spend ($3B) was identified by Management for consideration. Procurement Practices and Organization ► LAUSD has a central procurement group that handles many administrative and compliance-related activities and could spend more time driving cost efficiencies. ► Due to budget cuts over the past 10 years, the procurement group has trended toward more decentralization of procurement, eroding the buying leverage of the District and increasing costs across certain categories (e.g. professional services, special education). ► An emphasis on choice and lack of adherence to procurement best practices due to decentralization has limited the procurement group’s ability to control cost. ► Current practice awards items by line level, which does not follow procurement best practices (e.g. bundling, consolidation) and adds substantial complexity to qualify, negotiate with, and manage a very large pool of vendors. ► The District policies and practices include highly detailed specifications of certain goods and services (e.g., facilities maintenance and operations), which have restricted the use of a broad set of qualified suppliers, further reducing competition. ► The procurement group may be understaffed given the current volume of vendors, lacks the appropriate skills/training and does not have the proper mandate to drive best-practice procurement efficiencies (e.g., strategic sourcing, vendor consolidation). Warehouse Operations ► The group of principals interviewed expressed frustration with the ease, quality, value, and timeliness of services provided by warehouse operations. ► Warehouse operations purchases in bulk and marks up goods and services to schools/departments by ~47% to cover a portion of its annual operating costs (~$32M). ► A sample of the top 50 items purchased in general supplies found that in many cases, single-unit retail pricing from an online retailer could be less expensive than the warehouse pricing, suggesting that the current pricing model and/or benefit of the warehouse may need to be further evaluated. Recommendations ► Conduct a one-time, comprehensive strategic sourcing program/initiative focusing on eight major spend categories to drive improved pricing (i.e., re-compete spend categories, consolidate vendors and implement more advanced procurement strategies). ► Implement more user-friendly procurement tools (e.g., e-Catalogs) to streamline the procurement process so that adequate controls are in place to eliminate off-contract spend. ► Implement changes to procurement policies and consolidate “shadow” procurement resources to enable sustainability of any realized cost savings. ► Conduct a deep-dive assessment of the current mark up pricing model and value (cost, service, quality) to the District of the warehouse operations function. Sources: LAUSD Management FY18 AP data, client stakeholder interviews Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 17 LAUSD - 328 - PRA II. Procurement Executive Summary (2 of 2) Less complex Moderate More complex Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 1. Technology: Multiple manufacturers used through IT distributor. No use of reverse auctions for end user hardware (laptops, desktops). Limited recent competition and consolidation activities. Conduct a comprehensive sourcing event for IT hardware directly with OEMs. Leverage dynamic bidding (reverse auctions). Consolidate to two major manufacturers of equipment for laptops/desktops. 6-9 months ~$9M-$12.5M 2. Food Services: Food and dairy categories have not been competed or moved to a new supplier in some years. Conduct a comprehensive sourcing event for both food and dairy to drive improved pricing with incumbents or new suppliers. 6-9 months ~$10M-$13M 3. Professional Services: Bench contracts are used to pre-qualify vendors with pre-negotiated rates but represent the minimum discount available as no work is guaranteed. Professional service bench vendors should be further competed and consolidated to a minimum set of vendors that meet the requirements of the District. 6-9 months ~$9M-$12M 4. Transportation: A comprehensive evaluation of the supplier base has not been performed in the past year, and ~175 pupil transportation routes are set to expire in 2019. Conduct a comprehensive sourcing event for all pupil transportation vendors with bids based on routes rather than bus capacity. 6-9 months ~$7M-$10M 5. Textbooks: Grades 9-12 textbooks are selected by the school vs. centrally mandated, deleveraging spend and adding complexity to the organization. Consolidate core textbooks and conduct a comprehensive sourcing event for consolidated purchasing. 9-10 months ~$3.5M-$4.5M 6. Facilities M&O: LAUSD maintains over 900 unique vendors for maintenance and operations, most of which are small providers. This deleverages spend and adds complexity into the organization. Conduct a comprehensive sourcing event for Integrated Facilities Management (“IFM”). Consolidate vendors to primary IFM vendor or major “trade” vendors to reduce complexity and administration and improve purchasing power. 6-9 months ~$5M-$6M 7. General Supplies: Contracts are awarded by item level rather than as a full comprehensive portfolio. While some items can be procured more cheaply, a number of items can be more costly. Conduct a comprehensive sourcing event for a full service strategic vendor for all general supply items and set profit margins across the portfolio rather than individually negotiating price by item. 6-9 months ~$5M-$7M 8. Special Education: Special education procures its own services currently, using a large set of vendors. Traditional competition and best practice strategic sourcing are not practiced. Conduct a comprehensive sourcing event for special education services across the District. Consolidate to fewer vendors and transition ongoing procurement into centralized procurement to ensure a more effective procurement practice. 12+ months ~$11M-$15M Total ~$59.5M-$80M Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 18 LAUSD - 329 - PRA II. Procurement Recommendation Impact Projection[1] Less complex Moderate More complex Illustrative Future State ► A centralized procurement function that is focused on cost control activities vs. administrative and compliance related activities. ► A procurement function that leverages the buying power of the District to drive down prices across categories. ► A streamlined procurement process and elimination of off-contract spend through the use of user-friendly procurement tools. ► Best practice procurement policies and procedures in place to ensure sustainability of any realized cost savings. *Estimated financial impact shown is high end of estimate. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 19 LAUSD - 330 - PRA II. Procurement Illustrative Implementation Roadmap[1] Execution follows a five-step approach that could range from 7 to 12 months depending on category complexity. Categories Month 1 Technology, General Supplies, Food Services Baseline & Requirements Month 2 Month 3 Vendor Qualification Month 4 Month 5 Vendor Selection Month 6 Negotiations & Contracting Month 7 Month 8 Month 9 Month 10 Vendor Transition & On-boarding Month 11 Month 13+ Month 12 Monitor & Sustain General Supplies, Food Services – Direct Delivery Vendor Pricing input to Warehouse Operations Value Assessment Warehouse Operations Value Assessment Facilities M&O, Prof. Services, Transportation, Textbooks Special Education Current State Assessment Baseline & Requirements Category Profile and Strategy Vendor Qualification Vendor Qualification Immediate ► Consider need for general funded travel and conference spend and/or less expensive options. ► Enforce P-Card best practices to reduce purchase of centrally procured items (e.g., computers). Benchmarking Value Assessment Recommendations Roadmap Vendor Selection Vendor Selection Negotiations & Contracting Vendor Transition & On-boarding Negotiations & Contracting Vendor Transition & On-boarding Short Term ► Focus first on lower complexity areas: Technology, Food Services, Professional Services, Transportation, Textbooks, Facilities Maintenance & Operations, and General Supplies. Monitor & Sustain Monitor & Sustain Long Term ► Focus on Special Education, which is a high spend and high complexity area. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 20 LAUSD - 331 - PRA III. Workers’ Compensation Workers’ Compensation Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 21 LAUSD - 332 - PRA III. Workers’ Compensation Methodology and disclaimer EY was engaged by the CCF to assist LAUSD Management with the following: ► ► ► Understand the current state Analyze workers’ compensation practices and expenditures Estimate opportunities for potential savings Management is the responsible party for all prospective financial information. Illustrative potential savings estimates are based upon: ► ► ► ► Historical LAUSD financial and operational information provided by Management Discussions with select members of the relevant LAUSD functional teams, including the office of the superintendent and the reimagining team Illustrative ranges of cost savings potential from industry leading practices Industry benchmarks Disclaimer regarding illustrative savings estimates: ► ► ► Illustrative savings are based on high-level discussions with Management and do not reflect a detailed analysis Illustrative savings are based on industry benchmarks and may not be reflective of operational, financial, or other factors specific to LAUSD Illustrative savings do not include one-time costs to implement Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 22 LAUSD - 333 - PRA III. Workers’ Compensation Executive Summary Less complex Moderate More complex ► LAUSD has a fully self-insured workers’ compensation (“WC”) program that totaled $111.5M in direct costs during FY17. Current State ► The workers’ compensation program is centrally managed within the District by the integrated disability management unit (“IDM”). ► The integrated disability management unit utilizes a third party claims administrator (“TPA”) to manage workers’ compensation claims. ► LAUSD pays ~$10.3M annually to TPA for claims administrator services. Finding 1. The file review identified approximately 17% in claims financial leakage, which is higher than industry leading practice. “Financial leakage” here can be defined as the additional amount paid, above what might have been paid, if leading practices had been applied Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 1-3 years $7-10M 3 months $1M 3 months $1-3M 1-3 years $14-24M Total $23M-$38M Enhance internal claim management and oversight capabilities • Increase the staffing levels, technical knowledge and experience within the IDM unit. • Enhance claims practices for the TPA and LAUSD internal resources to follow and establish formal governance and quality assurance procedures. 2. The District’s current staffing levels and claims management practices may be limiting more effective management of the program given the size and complexity. Implement cost reductions strategies associated with telephonic case management and defense attorney utilization. 3. Fees paid to TPA are higher than typically seen in industry leading practice and contractual terms with TPA do not have the same level of quality requirements typically seen in industry leading practice. Consider renegotiating the fee agreement with TPA to pursue a reduction in fees along with additional performance assurances (e.g. certain fees will be at risk depending on the outcome based performance metrics). 4. Responsibility for WC management rests solely within the IDM unit, therefore other departments are not directly incentivized to assist in WC cost management. Implement a formal WC cost allocation program throughout the District in conjunction with an updated Return to Work (“RTW”) program. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 23 LAUSD - 334 - PRA III. Workers’ Compensation Recommendation Impact Projection[1] Less complex Moderate More complex Illustrative Future State ► Implementation of new procedures for telephonic case managers (“TCM”) and defense counsel should continue to yield positive savings in the short and long term. ► Renegotiated TPA fee structure and investment in the IDM unit regarding staffing and establishment of improved processes and procedures. ► The final wave would be implementation of a cost allocation program that would require a properly staffed and structured IDM unit in order to maximize its efficiency through accountability and cost reduction. Financial Impact ($ millions) *Financial impact shown is high end estimate Initiative Completion Timing (Months) Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 24 LAUSD - 335 - PRA III. Workers’ Compensation Illustrative Implementation Roadmap[1] Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 13+ Month 12 Month 11 1. Revise TCM and Defense Counsel Practices 2. Renegotiate TPA Fees and Agreement 3. Enhance Internal Claim Management and Oversight Capabilites 3a. Enhance Staffing Levels and Skills 3b. Design and Implement Enhanced Practices 4. Design and Implement a Cost Allocation Program 4a. Design Program 4b. Implement Program with Governance and Communication Plan Short Term Immediate • Immediate process and quality controls should be established to limit the frequency and duration in which TCM and defense attorneys are utilized on claims. • The TPA agreement could be reviewed and renegotiated to align fees and performance requirements with industry peers and best practices. • To effectively reduce and manage leakage, the capabilites of the IDM function need to be aligned with industry leading practice. • These have been broken out into sub-activities: First, rolling out new oversight procedures for the IDM unit to utilize in overseeing the TPA and second, the hiring additional staff. Long Term • Once the technical claims management practices are improved and leakage is reduced, a formal cost allocation program could be implemented to incentivize Principals and department heads in monitoring and reducing the impact WC claims have on the District. • Estimated two months to design a program with >6 months for implementation given the size, significant change management, communication and governance structure needed for the program to be successful. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 25 LAUSD - 336 - PRA IV. Food Services Food Services Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 26 LAUSD - 337 - PRA IV. Food Services Methodology and disclaimer EY was engaged by the CCF to assist LAUSD Management with the following: ► ► ► Understand the current state Analyze food service practices and expenditures Estimate opportunities for potential savings Management is the responsible party for all prospective financial information. Illustrative potential savings estimates are based upon: ► ► ► ► Historical LAUSD financial and operational information provided by Management Discussions with select members of the relevant LAUSD functional teams, including the office of the superintendent and the reimagining team Illustrative ranges of cost savings potential from industry leading practices Industry benchmarks Disclaimer regarding illustrative savings estimates: ► ► ► Illustrative savings are based on high-level discussions with Management and do not reflect a detailed analysis Illustrative savings are based on industry benchmarks and may not be reflective of operational, financial, or other factors specific to LAUSD Illustrative savings do not include one-time costs to implement Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 27 LAUSD - 338 - PRA IV. Food Services Executive Summary Less complex Moderate More complex ► LAUSD’s Food Services program is comprised of expenses in the Cafeteria Fund ($396M FY19) plus additional support from the General Fund ($27M FY19). It serves ~140 Current State million meals annually across 681 campus locations / 1,300 individual units. ► For the past two years, the Cafeteria Fund has generated a surplus (historically loss making prior to FY17); however, the overall Food Services program continues to lose money due to the incurrence of food services expenses in the General Fund (mainly related to the warehouse). Finding Recommendation 1. The Cafeteria Fund has generated a ~$13M surplus over the past two years; however, this surplus cannot be used to offset the ~$25M in expenses incurred by the General Fund (mainly related to warehouse functions) unless these expenses are eligible for transfer to the Cafeteria Fund. Request approval from the California Department of Education (“CDE”) to transfer General Fund food services expenses to the Cafeteria Fund (in process): a) Relevant full time equivalent (“FTE”) personnel costs can likely be transferred and certified. b) Job cost related personnel costs and maintenance and operations costs may be more challenging to transfer or certify if not expressly dedicated to food service related activities. 2. Food and labor account for >90% of cost in the District’s food services program. LAUSD is broadly in-line with other major school districts in food costs but disproportionately higher in benefit costs. Strategic sourcing of food vendors presents incremental opportunities to lower food costs. Refer to section II. Procurement for further detail. 3. Board policy requires that employees are scheduled for a minimum of 4 hours per shift, resulting in employees receiving full benefits under the collective bargaining agreement (“CBA”). The benefit load associated with a 4-hour worker is ~184% of base salary, significantly increasing costs and limiting labor flexibility. Consider removing the requirement to staff food service workers for a minimum of 4 hours per day. Difficulty[1] Timing[1] Illustrative Impact[1] 1a) 1a) <6 months 1a) ~$11M 1b) 1b) <6 months 1b) ~$13-16M 6 - 9 months See section II. Procurement FY 19-20 ~$0-$18M Total $24M-$45M Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 28 LAUSD - 339 - PRA IV. Food Services Recommendation Impact Projection[1] Less complex Moderate More complex Financial Impact ($ millions) Illustrative Future State ► A food services program that is self-funded without any notable general fund support. ► Improved operational flexibility through the employment of part time workers on <4 hour per day contracts, where appropriate, resulting in both additional cost control and the ability to provide targeted support to cafeterias (e.g. more points of sale) to drive higher lunch participation. ► Strategic sourcing of food vendors to further reduce cafeteria fund costs and help fully absorb existing general fund support. *Financial impact shown is high end estimate $24 $22 $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 2. Consider removing requirement to staff Food Services Employees for a minimum of 4 hours/day 1b. Transfer of General Fund Food Expenses to Food Services Fund: Job Costs and Other Expenses 3. Food Supplier Vendors Best Practice[2] 1a. Transfer of General Fund Food Expenses to Food Services Fund: Personnel Expenses (FTEs) 3. Food Consumables / Other Supplies Best Practice1 0 2 4 6 8 Time to Implement (Months) 3. Dairy Best Practice1 10 12 14 Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Related to Procurement Workstream; see ‘Procurement’ section II. for details. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 29 LAUSD - 340 - PRA IV. Food Services Illustrative Implementation Roadmap[1] Month 2 Month 1 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 13+ Month 12 1. Transfer of General Fund Food Services Expenses to the Cafeteria Fund (in process) 3. Establishing Best Practice and Consolidating Food Supply Vendors 3. Establishing Best Practice for Dairy Vendors 3. Consolidating Food Consumables and Other Supplies Vendors 2. Consider removing requirement that Food Services staff are employed for a minimum of four hours per day Immediate • Request approval from the CDE to transfer General Fund food services expenses to the Cafeteria Fund : • In-process • ~3-6 months estimated Short Term • Establish best practice in food supply, diary food consumables and other supplies vendors: • i.e. Strategic Sourcing event, implementing volume pricing, reverse auctions • ~6-9 months estimated Long Term • Consider removing the requirement to staff food service workers for a minimum of 4 hours per day: • Switch some component of 4 hour labor with 2 hour labor to create operational flexibility and generate savings on the benefits expenses • ~12 months estimated Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 30 LAUSD - 341 - PRA V. Transportation Transportation Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 31 LAUSD - 342 - PRA V. Transportation Methodology and disclaimer EY was engaged by the CCF to assist LAUSD Management with the following: ► ► ► Understand the current state Analyze transportation practices and expenditures Quantify opportunities for potential savings Management is the responsible party for all prospective financial information. Illustrative potential savings estimates are based upon: ► ► ► ► Historical LAUSD financial and operational information provided by Management Discussions with select members of the relevant LAUSD functional teams, including the office of the superintendent and the reimagining team Illustrative ranges of cost savings potential from industry leading practices Industry benchmarks Disclaimer regarding illustrative savings estimates: ► ► ► Illustrative savings are based on high-level discussions with Management and do not reflect a detailed analysis Illustrative savings are based on industry benchmarks and may not be reflective of operational, financial, or other factors specific to LAUSD Illustrative savings do not include one-time costs to implement Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 32 LAUSD - 343 - PRA V. Transportation Executive Summary (1 of 2) Less complex Moderate More complex ► LAUSD’s Transportation Services Division (“TSD”) transports approximately 21,000 students daily across over 1,500 routes. Students are transported for four primary reasons: Special Education, Integration, Distance and Hazard, and No Child Left Behind / Core Waiver. Current State ► TSD’s service model for transporting students to and from school is a combination of District-provided and contracted yellow bus service with two major private vendors. ► TSD employs 1,558 personnel and maintains a yellow fleet of 1,307 buses and the District’s white fleet of 1,394 vehicles. ► TSD spent ~$182M on student transportation and fleet maintenance in FY18 (excluding capital one-time funds). State funding has been flat since FY14 ($39M). Finding Recommendation 1. Contracted bus routes are costly given declining ridership numbers. Consolidate ~175 contractor routes up for renewal in June 2019. 2. Bus routes are not being optimized due to the following factors: Consolidate District routes by determining ridership, analyzing routes for efficiency in real-time, and leveraging resources effectively: a) Bus routes are planned based on the number of students eligible for transportation rather than actual ridership. b) Almost 3,000 magnet program students who are not eligible for pupil transportation were assigned to routes in SY19. c) TSD’s outdated GPS and routing technologies have limited to no reporting or analytical capabilities resulting in a lack of data to make informed decisions. Difficulty[1] Timing[1] Illustrative Impact[1] 6-9 months $12M 6-12 months $2M-$4M a) Change the magnet school pupil transportation policy from an “optout” model to “opt-in” transportation and consider home to program distance regarding magnet transportation eligibility. Issue RFP for radio-frequency identification (“RFID”) readers on buses and RFID cards for students to track daily ridership in real time; build requirement for RFID into contractor agreements. b) Align on magnet program transportation policy decisions including exception approval process with District administrators. c) Issue RFP for routing and scheduling system. Issue RFP for GPS system (which syncs with RFID readers). Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 33 LAUSD - 344 - PRA V. Transportation Executive Summary (2 of 2) Less complex Moderate More complex Finding 3. There is an oversupply of yellow bus inventory based on the number of routes. Recommendation Rationalize yellow bus fleet to optimize fleet mix and reduce maintenance and fuel costs: Difficulty[1] Timing[1] Illustrative Impact[1] a) 3-6 months a) $4M-$5M b) 6-9 months b) $600K-$1M 3-9 months $500K-$1M 12 months $1M-$2M 12 months+ $1M-$3M 3-6 months $300K-$600K Total $22M-$29M a) Dispose of ~250 excess buses b) Dispose of 170 buses as new buses arrive in 2019 4. There is no formalized vendor performance management process in place to improve bus contractors’ on-time performance and ensure that all liquidated damages are being captured. Implement a vendor performance management framework for the two pupil transportation vendors to improve on-time performance and capture all liquidated damages. 5. The current process for tracking Special Education (“SpEd”) student transportation counts is highly manual leading to a loss of some Medi-Cal reimbursement. Install RFID Readers on all buses to automate tracking of actual student ridership counts and provide RFID Cards to SpEd transportation students. 6. Due to budget constraints, the District has not consistently replaced its light duty white fleet, leading to high maintenance costs for its white fleet. To reduce high maintenance costs for white fleet: a) Review and revise Policies and Procedures regarding Districtowned vehicles including light duty vehicle eligibility. b) Move to an open-ended lease structure for light duty white fleet. 7. TSD is tracking daily bus routes through an ineffective, labor intensive job cost system that is unnecessarily time consuming and outdated. Eliminate job costing for TSD daily bus routes. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 34 LAUSD - 345 - PRA V. Transportation Recommendation Impact Projection[1] Less complex Moderate More complex Illustrative Future State ► In order to capture the related cost savings from bus route reduction and consolidation, TSD will need to dispose of excess yellow bus inventory, reduce headcount across Bus Ops and Fleet Maintenance and review contract routes for efficiencies on a regular basis. ► In order to realize and maintain these cost savings, the implementation of reliable and consistent tools and technology for data collection and analysis will be critical in order to identify opportunities to improve operations and address broader efficiency issues. *Financial impact shown is high end estimate $16 1. Consolidate contractor routes Financial Impact* ($ millions) $14 $12 $10 3. Rationalize yellow bus fleet $8 $6 2. Route optimization $4 $2 4. Vendor performance management 7. Eliminate job costing 6. White fleet consolidation and open-ended lease 5. Medi-Cal reimbursement $0 1 3 5 7 9 11 13 Time to Implement (Months) Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 35 LAUSD - 346 - PRA V. Transportation Illustrative Implementation Roadmap[1] Month 2 Month 1 Month 3 Month 4 1 & 2. Route optimization project 1. Consolidate contractor routes 2a. Consolidate District routes Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Dispose of 250 excess diesel buses 3b. Month 13+ Month 12 6. White Fleet Cost Reduction 3. Rationalize yellow bus fleet 3a. Month 11 6a. Revise Policies and Procedures Dispose of remaining buses once new buses arrive 6b. Move to an Open-Ended Lease structure 2 & 5. Technology projects 2a. & 5 7. Issue RFP for RFID Readers and Cards Implement vendor performance framework 4. 2c. Issue RFP for routing and scheduling system Migrate routes and stops to ESRI/ArcGIS maps 2c. Issue RFP for GPS system Engage approved vendor and implement system Engage approved vendor and conduct pilot tests Engage approved vendor and implement system Finalize implementation Eliminate job costing Immediate • Monitor vendor performance Discontinuation of job costing for daily routes may result in increased productivity of approximately 9 employees who currently spend a portion of their time tracking job cost details for transportation. Short Term • Work with Procurement department to implement a vendor performance management framework for the two pupil transportation vendors in advance of June 2019 route renewals. Long Term • Work to reduce maintenance costs for the white fleet. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 36 LAUSD - 347 - PRA VI. Facilities M&O Facilities M&O Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 37 LAUSD - 348 - PRA VI. Facilities M&O Methodology and disclaimer EY was engaged by the CCF to assist LAUSD Management with the following: ► ► ► Understand the current state Analyze facilities practices and expenditures Quantify opportunities for potential savings Management is the responsible party for all prospective financial information. Illustrative potential savings estimates are based upon: ► ► ► ► Historical LAUSD financial and operational information provided by Management Discussions with select members of the relevant LAUSD functional teams, including the office of the superintendent and the reimagining team Illustrative ranges of cost savings potential from industry leading practices Industry benchmarks Disclaimer regarding illustrative savings estimates: ► ► ► Illustrative savings are based on high-level discussions with Management and do not reflect a detailed analysis Illustrative savings are based on industry benchmarks and may not be reflective of operational, financial, or other factors specific to LAUSD Illustrative savings do not include one-time costs to implement Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 38 LAUSD - 349 - PRA VI. Facilities M&O Executive Summary Less complex Moderate More complex Current State ► LAUSD Facilities Maintenance & Operations (“M&O”) comprises over 4,000 in-house crafts people and staff, responsible for maintaining the District’s ~92.5 million sq. ft. of real estate. In FY18, M&O costs totaled ~$618 million. ► LAUSD’s portfolio of properties has grown over recent years, despite declining enrollment. Many properties are old and nearing the end of their useful lives, increasing emergent demands. The M&O team has prioritized resources to focus on emergency work orders and has implemented initiatives to increase the efficiency of operations, yet continues to be challenged to meet the demands required to maintain LAUSD facilities. Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 6-9 months + $4M-$6M 1. Staffing levels for M&O were significantly reduced in recent years and despite a rebound to an acceptable range based on industry practice, it is unable to fully meet the needs of schools. a. Consider using outside service providers to supplement the workforce and complete routine activities (“Out-Tasking”). b. Consider a transition to an Integrated Facilities Management (“IFM”) outsource model for all services where possible. 12 months + $6M-$7M 2. M&O staff are attempting to navigate and improve District processes, but many constraints and inefficiencies exist. Work orders average >30 days for resolution and >75% are of an emergent nature. a. Improve processes to increase productivity of all M&O staff by implementing a tiered service approach for craft work. 9-12 months $1M-$1.5M b. Hire 12 schedulers to reduce the administrative burden on supervisors. 9-12 months $1M-$1.5M 3. LAUSD’s total square footage of schools has grown 24% since 2001 despite a decline in student enrollment of 15%. Administrative office space is old, with large office and workstations allocated to staff. a. Evaluate reducing the property footprint maintained by developing an appraisal process for consolidation or alternative use across the facilities portfolio. Execute on space reductions. Define parameters based on requirements of CA Ed. Code and look to Board for approval. 12 months + $16M-$18M 9-12 months + $6M-$8M 3-5 months TBD Total $34M-$42M b. Develop a plan to consolidate staff use of administrative office space in alignment with current and future staffing needs. Excess space could be leased to an outside party. 4. Data is being collected on services provided by M&O resources and the condition of facilities, but the information is not shared across functions or tracked against industry best practices. Develop meaningful metrics that are tracked and reported against industry benchmarks to identify areas of attention for improvement. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 39 LAUSD - 350 - PRA VI. Facilities M&O Recommendation Impact Projection[1] Less complex Moderate More complex Illustrative Future State $20 ► The Facilities M&O team could operate the division with skilled workers focused on tasks that align with their strengths and experience. ► M&O processes could encourage productivity in the field and utilize outsource service providers for staffing flexibility. In-house M&O staff could be focused on critical needs and prioritize preventative maintenance activities, minimizing breakdowns and service calls. ► The LAUSD portfolio of properties and facility utilization could be aligned to meet strategic needs. *Financial impact shown is high-end estimate. 3a. Right Size Property Footprint Financial Impact* ($ M) $15 3b. Central Office Alternative Uses $10 1b. Transition to IFM Model 1a. Out Tasking Routine Work $5 2b. Scheduling Resources 4. Meaningful KPIs 2a. Tiered Craft Workers $0 0 2 4 6 8 10 12 14 Time to Implement (Months) Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 40 LAUSD - 351 - PRA VI. Facilities M&O Illustrative Implementation Roadmap[1] Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 13+ Month 12 4. Meaningful KPIs Identify metrics and benchmarks Update data collection processes Continuous benchmarking and reporting 2b. Scheduling Resources Define roles and responsibilities Approval for dedicated resources Train scheduling resources on new skills and processes Implement new processes 2a. Tiered Craft Workers Develop parts inventory lists Define complexity tiers Develop coverage areas Train M&O staff on complexity tiers, responsibilities and processes Implement new processes 1a. Out-Tasking Routine Work Evaluate work order data to define routine tasks Implement new processes Bid and contract with outsource service provider 3a. Right Size the Property Footprint Overall consolidation appraisal of all properties Develop design and transition plan for consolidation Build community and board approval Continuing evaluation and appraisal Implement consolidation plans 3b. Central Office Alternative Uses Review occupancy data Prepare space program And re-stack plan Begin phase consolidation Market and lease available spaces 1b. Transition to IFM Model Evaluate labor and union agreements Define scope of services to be outsourced Immediate 4. Meaningful KPIs - Track metrics and benchmark data against objective industry standards to measure performance, identify areas for improvement and build accountability. Engage outsource service providers and assess service offerings Short Term 1a. Improve M&O productivity by out-tasking routine and lowskill tasks. 2a. Tier craft workers based on skills and training and assign to work orders with correct inventory on hand. 2b. Scheduling resources to absorb administrative tasks currently handled by supervisors. Begin transition to the outsource provider Bid and contract with outsource service provider Long Term 1b. Transitioning to an outsourced IFM model for all tactical services will reduce overhead costs. 3a. Reducing the footprint of facilities will minimize ongoing expenses and shift focus to fully utilized areas. 3b. Conducting an assessment of administrative office spaces and adjust utilization will allow for planned consolidation. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 41 LAUSD - 352 - PRA VII. Information Technology Information Technology Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 42 LAUSD - 353 - PRA VII. Information Technology Methodology and disclaimer EY was engaged by the CCF to assist LAUSD Management with the following: ► ► ► Understand the current state Analyze IT practices and expenditures Quantify opportunities for potential savings Management is the responsible party for all prospective financial information. Illustrative potential savings estimates are based upon: ► ► ► ► Historical LAUSD financial and operational information provided by Management Discussions with select members of the relevant LAUSD functional teams, including the office of the superintendent and the reimagining team Illustrative ranges of cost savings potential from industry leading practices Industry benchmarks Disclaimer regarding illustrative savings estimates: ► ► ► Illustrative savings are based on high-level discussions with Management and do not reflect a detailed analysis Illustrative savings are based on industry benchmarks and may not be reflective of operational, financial, or other factors specific to LAUSD Illustrative savings do not include one-time costs to implement Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 43 LAUSD - 354 - PRA VII. Information Technology Executive Summary (1 of 2) Less complex Moderate ► IT is responsible for building and maintaining the technology needed to support successful learning in LAUSD. Current State More complex ► At District sites, IT is in charge of surveillance systems, network, alarms, radios, phone systems and PA/intercoms. ► IT has a 300+ application portfolio supporting the central office, school front office, teachers, students and families. ► IT supports over 1,300 schools, 400,000+ computing devices, 95,000+ wireless access points and 46,000+ network devices. Standardization Effective Org Structure Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 1. a) IT spend is overly bond centric. Possible use of bond funds to support operations. Rebalance the use of bond funds vs. general funds so that projects are capability based rather than funding source centric. 16-18 months ~$1.5M-$2M 1. b) Multiple and outdated job descriptions exist in LAUSD, causing overhead. Shift from single job descriptions (currently ~200-300) to streamline job families and reduce approval cycle overhead. 4-6 months ~$1.5M-$2M 1. c) Limited insights into the District’s buying needs. Demand management of IT Service Management (“ITSM”) is imbalanced. Increase collaboration with Educators so that comprehensive strategy aligns technology capabilities with school requirements. 10-12 months ~$2.5M-$3M 1. d) Shadow IT is significant resulting in duplicative resources and decentralized resource management. Consolidate all IT resources into an organizational structure that supports the District’s objectives. 16-18 months ~$7M-$8M 1. e) Direct and non-direct communication channels to help desks, increasing ticket resolution times. Optimize and streamline help desks and align to ITSM standard processes. 4-6 months ~$2.5M-$3M 2. a) Multiple vendors with decentralized vendor management for a broad range of infrastructure devices. Streamline vendor footprint to drive centralization and standardization. 16-18 months ~$3M-$3.5M 2. b) Essential commodity functions (e.g., app development, testing, WAN) are managed in-house incurring overhead. Realize benefits by moving commodity services to a managed service model and increasing use of outsourcing. 16-18 months ~$8M-$9M 2. c) Enterprise applications are not fully leveraged, increasing application portfolio and costs. Develop an enterprise applications first approach to fully utilize capabilities. 4-6 months ~$2M-$2.5M 2. d) Decentralized security policies may be exposing the enterprise to risk. Develop comprehensive Enterprise security policies and procedures to encompass needs of all LAUSD functions. 8-12 months ~$1M-$1.5M 2. e) Asset management is not consistently applied enterprise-wide. Develop and operationalize an enterprise IT asset refresh policy. 4-6 months ~$1M-$1.5M Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 44 LAUSD - 355 - PRA VII. Information Technology Executive Summary (2 of 2) Less complex Moderate More complex Rationalize & Maximize Assets Govern as one body Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 3. a) Inconsistent IT investment review process limits transparency of investments, prioritization, and budget allocation. Implement showback/chargeback model for IT services in order to provide transparency into ITD services consumption. 10-12 months ~$1M-$1.5M 3. b) Insufficient project reviews, financial delivery metrics and project cost benefit realization tracking. Establish effective enterprise-wide program management office (“EPMO”) and budget oversight committee (“EBOC”) with defined investment factors and thresholds. 10-12 months ~$1.5M-$2M 3. c) Lack of a formal Enterprise Architecture (“EA”) results in duplicative capabilities and non-standard practices, leading to non ITD functions playing an active role in governing technology. Establish an EA practice and align with business and IT vision and strategies. 12-14 months ~$4.5M-$5M 3. d) Organizational change management (“OCM”) is immature and a formal operating model is not evident. Develop a formal operating model and work with other functions to establish enterprise-wide OCM. 6-8 months ~$1M-$1.5M 4. a) Data centers (primary and data recovery (“DR”)) exist in highcost, high-risk geographical areas. Shift data center to lower cost location, modernize primary data center to align with business needs and outsource DR to the cloud. 22-24 months ~$12M-$12.6M 4. b) Application portfolio (~300 active apps) is understated and not rationalized. Implement application portfolio optimization and rationalize applications to optimize current active application portfolio. 6-8 months ~$4M-$4.3M 4. c) Evidence that automation is not in widespread use. Implement emerging technologies, such as RPA, for routine IT activities and analyze historical data to predict trends. 16-18 months ~$1M-$1.3M 4. d) Lack of insights into effective controls into capital expenditure. Dramatically increase use of cloud to better address capital vs. operational balance. 16-18 months ~$1M-$1.3M 4. e) Use of managed service providers (“MSPs”) is not optimized. Streamline MSP to simplify contracts. 10-12 months ~$4M-$4.5M Total $60M-$70M Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 45 LAUSD - 356 - PRA VII. Information Technology Recommendation Impact Projection[1] Less complex Moderate More complex Illustrative Future State 16 By implementing the IT cost optimization recommendations, ITD and the District may also realize the following benefits: ► Empowered and enhanced partnership between ITD and the District along with effective governance across multiple departments in the District. ► Improved transparency in finances with better accountability. ► Balanced capital and operational expenditure and balanced operational and instructional spend. *Financial impact shown is high-end estimate. . Move primary and secondary data centers (4a) 14 Financial Impact* ($ M) 12 Outsource commodity services (2b) 10 Consolidate Shadow IT (1d) 8 Establish EA(3c) Rationalize Applications (4b) 6 4 Optimize helpdesk activities (1e) 2 Streamline MSPs (4e) ITSM Demand Mgmt (1c) Consolidate Enterprise Applications (2c) Establish EPMO(3b) Rationalize job descriptions (1b) IT Asset Refresh Policy (2e) Develop ITO (3d) 0 0 5 10 Enterprise Security Policy (2d) Develop showback/Chargeback (3a) 15 Streamline vendor footprint (2a) Implement RPA (4c) Cloud First Approach (4d) Bond Centric (1a) 20 25 30 Time to Implement (Months) Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 46 LAUSD - 357 - PRA VII. Information Technology Illustrative Implementation Roadmap[1] Month 1 Month 2 Month 3 Month 4 1a. Bond Centric Projects Month 5 Month 6 Month 7 1b. Rationalize Job Descriptions Month 8 Month 10 2e. Develop Asset Refresh Policies 1c. ITSM Demand Management Month 11 Month 13+ Month 12 2c. Consolidate and Increase Leverage of Enterprise Applications 1d. Consolidate Shadow IT 1e. Optimize help desk Activities 4c. Implement RPA/Chatbots 3b. Establish EPMO/EBOC 3c. Establish Enterprise Architecture 4e. Streamline MSPs 3a. Develop Showback/Chargeback Method 4b. Rationalize Applications 2b. Outsource Commodity Services Month 9 2a. Streamline Vendor Footprint 4a. Move Data Centers and 4d. Develop Cloud First Approach 3d. Develop Formal IT Operating Model Short Term Immediate ► Shift from single job descriptions (currently ~200-300) to streamline job families and reduce approval cycle overhead. ► Implement application portfolio optimization and rationalize applications to optimize current active application portfolio. ► Optimize and streamline help desks. ► Consolidate enterprise applications and develop formal IT operating model. 2d. Enterprise Security Policies Long Term ► Streamline MSP to simplify contracts. ► ► Develop showback/chargeback model to realize value of IT services and increase transparency into IT cost. Implement emerging technologies, such as RPA, for routine IT activities and analyze historical data to predict trends. ► Streamline vendor footprint to drive centralization. ► Implement ITSM demand management to better align with the District’s buying needs. ► Shift data center to lower cost location, modernize primary data center and outsource DR to the cloud. ► Establish governing bodies, like Enterprise Architecture, Enterprise Project Management Office, to align with District’s capabilities and better prioritization of project portfolio. ► Consolidate and streamline Shadow IT to eliminate duplication of technologies and resources. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 47 LAUSD - 358 - PRA VIII. Budget Budget Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 48 LAUSD - 359 - PRA VIII. Budget Methodology and disclaimer EY was engaged by the CCF to assist LAUSD Management with the following: ► ► ► Understand the current state Analyze select budget department practices and expenditures Quantify opportunities for potential savings Management is the responsible party for all prospective financial information. Illustrative potential savings estimates are based upon: ► ► ► ► Historical LAUSD financial and operational information provided by Management Discussions with select members of the relevant LAUSD functional teams, including the office of the superintendent and the reimagining team Illustrative ranges of cost savings potential from industry leading practices Industry benchmarks Disclaimer regarding illustrative savings estimates: ► ► ► Illustrative savings are based on high-level discussions with Management and do not reflect a detailed analysis Illustrative savings are based on industry benchmarks and may not be reflective of operational, financial, or other factors specific to LAUSD Illustrative savings do not include one-time costs to implement Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 49 LAUSD - 360 - PRA VIII. Budget Less complex Executive Summary Moderate More complex ► LAUSD’s Budget and Finance departments, including the Office of the CFO, Accounting, Accounts Payable (‘AP’), Budget/FP&A, Payroll and Treasury, currently consist of Current State approximately 308 employees with a budgeted personnel cost of ~$38M in FY19 ► Due to recent rounds of budget cuts over the last few years, several of the departments have reduced headcount; However, within areas such as Payroll and AP, there are opportunities for process improvements and automation that could lead to cost reductions. Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 1. Manual paper checks make up approximately 20% of payroll disbursements, and these checks are processed, printed, metered, and delivered to the Post Office for mailing. Engage with a 3rd party payroll services provider(e.g., ADP) to determine evaluate the possibility of outsourcing the manual payroll check process. 3 months $150K 2. Vendor invoices are submitted in various formats, creating issues with invoice visibility for the A/P department. An RFP for the implementation of Open Text technology is currently underway to centralize the majority of vendor invoicing and 3-way match process in SAP. 6-12 months $800K 3. Booking business travel is automated within SAP at central office, but is a manual process at the schools. A travel help desk manually enters all school travel forms. Roll-out the automated business travel module to schools to establish consistency and process efficiency. 3-6 months $200K 4a. To establish accountability, initiate a policy whereby a portion of overpayments, penalties and interest due to late filing of payroll paperwork could be charged back to the schools or departments (e.g., 50% charge back). 6 months $1M 12-18 months $1.5M 6 months $10.6M Total $14M 4. Time reporters and time approvers are not adhering to the established payroll cut-off dates and paper form submissions are causing payroll errors. Late filing of paperwork leads to erroneous overpayments to employees and penalties and interest owed to California Retirement Systems. 5. Special Education baseline assistant staffing exceeds CA Ed. Code requirements and has not been adjusted as part of the SpEd division’s budget allocation practices. 4b. Internally prioritize several online payroll interface initiatives (payroll approval, certification of absence form, and self time reporting) that are slated to be implemented. These initiatives are already in process, but are not expected to be completed for several months. Consider the appropriate number of "baseline" assistants across pre-K and K-12 based on actual needs (as determined by SpEd division), IEPs, Ed Code, and other requirements. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 50 LAUSD - 361 - PRA VIII. Budget Recommendation Impact Projection[1] Less complex Moderate More complex Illustrative Future State ► Outsourcing of payroll check printing could create savings and improve efficiency in the short term by lowering the costs of delivery of the payroll checks. ► Implementation of Open Text could result in a central electronic repository for vendor invoices, leading to efficiencies in the A/P department and better customer service to vendors. Rolling out the SAP Travel Module to the schools could reduce the travel desk need. Time sheets and absence forms could also be automated. ► With effective accountability protocols in place, employee overpayments could be greatly reduced, resulting in savings and improved coordination with schools for completing payroll forms. ► A baseline staffing standard should be developed to appropriately allocate SpEd assistant positions based on need and requirements rather than historical practices. $12.0 *Financial impact shown is high end estimate $11.0 $10.6 Financial Impact* ($ millions) $10.0 6. Reduce SpEd baseline assistants to CA Ed. Code requirements $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 4. Payroll Overpayments Chargeback to Schools $1.0 1.Outsourcing of Manual Checks $1.0 3. Implementation of SAP Travel Module at the Schools $0.2 $0.8 $0.2 $0.0 0 2 4 6 5. Timesheet and Certificate of Absence Form Automation $1.5 2. Implementation of Open Text 8 10 12 14 Time to Implement (Months) Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 51 LAUSD - 362 - PRA VIII. Budget Illustrative Implementation Roadmap[1] Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 13+ Month 12 Outsourcing of printing manual checks Payroll overpayment accountability to schools Implementation of SAP Travel Module at schools Reduce SpEd baseline assistants in FY20 budget in line with CA Ed. Code requirements Implementation of OpenText for centralization of vendor invoices Timesheet, Time Approval and Certificate of Absence Form Automation Immediate • LAUSD is currently evaluating the ability to outsource the printing of manual paychecks including the related technical requirements. Long Term Short Term • Policies should be established to create accountability for employee overpayments by charging a portion back to the schools that miss payroll deadlines and/or fail to timely file critical paperwork (e.g., 50% charge back). • The SAP Travel Module has been developed and is used at the central office, but could also be rolled out to the schools. • SpEd division to consider changing budgeting process for SpEd baseline assistants, including reducing baselines in line with Ed. Code requirements and actual needs. • An RFP for the implementation of Open Text is currently underway to centralize the majority of vendor invoicing and 3 way match process in SAP. • The three initiatives to automate the payroll process (time approval, certification of absence forms, and self-time reporting) will take approximately six months each to implement, and could be delayed if other special projects take priority. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 52 LAUSD - 363 - PRA EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2018 EYGM Limited. All Rights Reserved. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com Preliminary Draft. Prepared solely for the CCF. Reliance restricted. Does not constitute assurance or legal advice. Please refer to limitations and restrictions on page 2 and 3. Page 53 LAUSD - 364 - PRA Los Angeles Unified School District DRAFT Efficiencies Discussion Materials - Addendum CONFIDENTIAL December 2018 LAUSD - 365 - PRA Preliminary DRAFT - Subject to material change Table of Contents Item Page index I. Executive Summary 3 II. Procurement 5 III. Workers' Compensation 24 IV. Food Services 42 V. Transportation 54 VI. Facilities M&O 69 VII. Information Technology 87 VIII. Budget 113 Page 2 LAUSD - 366 - PRA Preliminary DRAFT - Subject to material change I. Executive Summary Estimated low end savings potential of ~$236M[1] across all seven areas could be achieved by FY22 if fully implemented successfully (1 of 2) Less complex Moderate More complex Category Recommended areas of focus Technology strategic sourcing program Ref Implementation Difficulty[2] Timing[2] Estimated savings by year ($M)[1] FY19 FY20 FY21 FY22 Total ($M) Low High 1 6-9 months 9 9 9 9 12.5 2,3,4,6,7 6-9 months 36 36 36 36 48 5 9-10 months 3.5 3.5 3.5 3.5 4.5 8 12 months + 11 11 11 15 Enhance internal claim management and oversight capabilities Workers' Compensation Renegotiate the fee agreement with existing third party claims administrator Savings estimate: Reduce telephonic case management and defense attorney utilization $23M - $38M Formalize WC cost allocation and Return to Work ("RTW") program across the District 1 12-36 months 2 4 7 7 7 10 2 3 months 1 1 1 1 1 3 3 3 months 1 1 1 1 1 1 4 12-36 months 1 4 9 14 14 24 Transfer General Fund food expenses to Cafeteria Fund: FTE expenses Food Services Savings estimate: Transfer General Fund food expenses to Cafeteria Fund: Job Costs, M&O, etc. $24M - $45M Remove requirement to staff Food Services employees for a minimum of 4 hours/day 1a 6 months 5 11 11 11 11 11 1b 6 months 6 13 13 13 13 16 3 12 months + - 18 1-2 6-12 months 10.5 14 14 14 16 3 3-9 months 4.6 4.6 4.6 4.6 6 4 3-9 months 0.5 0.5 0.5 0.5 1 5 12 months 1 1 1 1 2 6 12 months + 0.5 1 1 1 3 7 3-6 months 0.3 0.3 0.3 0.3 0.6 Procurement Food Services, Professional Services, Transportation, General Supplies, Facilities Savings estimate: $59.5M - $80M Textbooks strategic sourcing program Special Education strategic sourcing program Consolidate ~175 contractor bus routes (due for renewal in June 2019) and certain District bus routes based on actual ridership Rationalize yellow bus fleet to optimize fleet mix and reduce maintenance and fuel costs Implement a vendor performance management framework for the bus contractors to Transportation improve on-time performance and capture all liquidated damages Savings estimate: Install radio-frequency identification ("RFID") readers on all buses for student ridership $22M - $29M counts and provide RFID cards to students Review and revise policies and procedures regarding LAUSD employee eligibility for a District-owned vehicle and transition to leasing structure for light-duty white fleet Eliminate job costing for daily bus routes Note 1: Figures in the annual distribution represent the low end of the illustrative savings opportunity and include both the General Fund and other funds. Illustrative amounts reflect a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Page 3 LAUSD - 367 - PRA Preliminary DRAFT - Subject to material change I. Executive Summary Estimated low end savings potential of ~$236M[1] across all seven areas could be achieved by FY22 if fully implemented successfully (2 of 2) Legend: Less complex Moderate More complex Category Recommended areas of focus Utilize outside service providers to complete routine activities; transition to an outsource model for all services Implement a tiered service approach for craft work; hire 12 schedulers to reduce Facilities M&O administrative burden on supervisors Savings estimate: Develop an appraisal process for consolidation or alternative use across the facilities $34M - $42M portfolio Develop a plan to consolidate staff use of office space at 333 Beaudry in alignment with future staff planning Realign the organization to current and future technology needs and dramatically increase the use of outsourcing for commodity functions Establish enterprise standards, policies and procedures to ensure optimal use of IT enterprise assets Savings estimate: Develop Enterprise Architecture and Enterprise Project Management office to ensure $60M - $70M consistent project prioritization and alignment with District capabilities. Move primary data center to low cost locations along with Data Recovery ("DR") to cloud and rationalized application portfolio. Outsource payroll check printing Implement OpenText to centralize invoice processing and improve 3-way match Budget Rollout / prioritize IT projects to automate school business travel and certain manual Savings estimate: payroll processes $14M Initiate a policy whereby a portion of overpayments, penalties and interest due to late filing of payroll paperwork will be charged back to the schools Consider the appropriate number of "baseline" assistants across pre-K and K-12 based on actual needs (as determined by LAUSD), IEPs, Ed Code, and other requirements. Total estimated savings (including figures from previous page) Ref Implementation Difficulty[2] Timing[2] 1a-1b 12 months + 2a-2b 9-12 months + 3a Estimated savings by year ($M)[1] FY19 FY20 FY21 FY22 Total ($M) Low High 4 10 10 13 2 2 2 3 12 months + 7 16 16 18 3b 9-12 months + 6 6 6 8 1a-1e 4-18 months 7.5 15 15 18 2a-2e 4-18 months 3 15 15 15 18 3a-3d 6-14 months 4 8 8 8 10 4a-4e 6-24 months 11 22 22 24 1 3 months 0.2 0.2 0.2 0.2 0.2 2 6-12 months 0.8 0.8 0.8 0.8 0.8 3, 4b 3-18 months 1.7 1.7 1.7 1.7 1.7 4a 6 months 1 1 1 1 1 5 6 months 10.6 10.6 10.6 10.6 10.6 $123.2 $197.7 $236.2 $236.2 $317.9 1 0.2 0.7 $17.9 2 Note 1: Figures in the annual distribution represent the low end of the illustrative savings opportunity and include both the General Fund and other funds. Illustrative amounts reflect a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Page 4 LAUSD - 368 - PRA Preliminary DRAFT - Subject to material change II. Procurement Procurement Page 5 LAUSD - 369 - PRA Preliminary DRAFT - Subject to material change II. Procurement Executive Summary (1 of 2) Current State ? LAUSD spends ~$3B annually on the procurement of goods and services across the District, of which ~$1.5B is paid through the General Fund. ? Management's primary focus was on procurement savings in the General Fund but also included some spend in related funds (e.g., food services, Cafeteria Fund). ? Approximately $900M (which includes ~$385M of food services, transportation, facilities, and IT spend, see page 7) of the total spend ($3B) was identified by Management for consideration. Procurement Practices and Organization ? LAUSD has a central procurement group that handles many administrative and compliance-related activities and could spend more time driving cost efficiencies. ? Due to budget cuts over the past 10 years, the procurement group has trended toward more decentralization of procurement, eroding the buying leverage of the District and increasing costs across certain categories (e.g. professional services, special education). ? An emphasis on choice and lack of adherence to procurement best practices due to decentralization has limited the procurement group's ability to control cost. ? Current practice awards items by line level, which does not follow procurement best practices (e.g. bundling, consolidation) and adds substantial complexity to qualify, negotiate with, and manage a very large pool of vendors. ? The District policies and practices include highly detailed specifications of certain goods and services (e.g., facilities maintenance and operations), which have restricted the use of a broad set of qualified suppliers, further reducing competition. ? The procurement group may be understaffed given the current volume of vendors, may not have the appropriate skills/training and does not have the proper mandate to drive best-practice procurement efficiencies (e.g., strategic sourcing, vendor consolidation). Warehouse Operations ? The group of principals interviewed expressed frustration with the ease, quality, value, and timeliness of services provided by warehouse operations. ? Warehouse operations purchases in bulk and marks up goods and services to schools/departments by ~47% to cover a portion of its annual operating costs (~$32M). ? A sample of the top 50 items purchased in general supplies found that in many cases, single-unit retail pricing from an online retailer could be less expensive than the warehouse pricing, suggesting that the current pricing model and/or benefit of the warehouse may need to be further evaluated. Recommendations ? Conduct a one-time, comprehensive strategic sourcing program/initiative focusing on eight major spend categories to drive improved pricing (i.e., re-compete spend categories, consolidate vendors and implement more advanced procurement strategies). ? Implement more user-friendly procurement tools (e.g., e-Catalogs) to streamline the procurement process so that adequate controls are in place to eliminate off-contract spend. ? Implement changes to procurement policies and consolidate "shadow" procurement resources to enable sustainability of any realized cost savings. ? Conduct a deep-dive assessment of the current mark up pricing model and value (cost, service, quality) to the District of the warehouse operations function. Sources: LAUSD Management FY18 AP data, stakeholder interviews Page 6 LAUSD - 370 - PRA Preliminary DRAFT - Subject to material change II. Procurement Executive Summary (2 of 2) Less complex Moderate More complex Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 1. Technology: Multiple manufacturers used through IT distributor. No use of reverse auctions for end user hardware (laptops, desktops). Limited recent competition and consolidation activities. Conduct a comprehensive sourcing event for IT hardware directly with OEMs. Leverage dynamic bidding (reverse auctions). Consolidate to two major manufacturers of equipment for laptops/desktops. 6-9 months ~$9M-$12.5M 2. Food Services: Food and dairy categories have not been competed or moved to a new supplier in some years. Conduct a comprehensive sourcing event for both food and dairy to drive improved pricing with incumbents or new suppliers. 6-9 months ~$10M-$13M 3. Professional Services: Bench contracts are used to pre-qualify vendors with pre-negotiated rates but represent the minimum discount available as no work is guaranteed. Professional service bench vendors should be further competed and consolidated to a minimum set of vendors that meet the requirements of the District. 6-9 months ~$9M-$12M 4. Transportation: A comprehensive evaluation of the supplier base has not been performed in the past year, and ~175 pupil transportation routes are set to expire in 2019. Conduct a comprehensive sourcing event for all pupil transportation vendors with bids based on routes rather than bus capacity. 6-9 months ~$7M-$10M 5. Textbooks: Grades 9-12 textbooks are selected by the school vs. centrally mandated, deleveraging spend and adding complexity to the organization. Consolidate core textbooks and conduct a comprehensive sourcing event for consolidated purchasing. 9-10 months ~$3.5M-$4.5M 6. Facilities M&O: LAUSD maintains over 900 unique vendors for maintenance and operations, most of which are small providers. This deleverages spend and adds complexity into the organization. Conduct a comprehensive sourcing event for Integrated Facilities Management ("IFM"). Consolidate vendors to primary IFM vendor or major "trade" vendors to reduce complexity and administration and improve purchasing power. 6-9 months ~$5M-$6M 7. General Supplies: Contracts are awarded by item level rather than as a full comprehensive portfolio. While some items can be procured more cheaply, a number of items can be more costly. Conduct a comprehensive sourcing event for a full service strategic vendor for all general supply items and set profit margins across the portfolio rather than individually negotiating price by item. 6-9 months ~$5M-$7M 8. Special Education: Special education procures its own services currently, using a large set of vendors. Traditional competition and best practice strategic sourcing are not practiced. Conduct a comprehensive sourcing event for special education services across the District. Consolidate to fewer vendors and transition ongoing procurement into centralized procurement to ensure a more effective procurement practice. 12+ months ~$11M-$15M Total ~$59.5M-$80M Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 7 LAUSD - 371 - PRA Preliminary DRAFT - Subject to material change II. Procurement Finding #1: Technology: ~$9M - $13M illustrative savings potential [1] See footnote 1 below Relevant[2] $ $99M ? ? ? ? ? ? ? ? Timing: >500 unique vendors identified in AP data. Top 10 vendors make up 80% of spend, with top 5 suppliers contributing 68% of spend. Findings ? Difficulty: Suppliers LAUSD strategically sources and standardizes its IT infrastructure with a single vendor (Dell), which is best practice to gain economies of scale and reduce complexity. LAUSD uses an IT distributor to purchase end-user hardware (e.g., desktops, laptops); however, spend is not concentrated with any one manufacturer (e.g., Dell, HP, Apple, etc.). Hardware refresh policies are not standardized across the District, nor are total computer requirements (e.g., one computer per student). A number of applications reside outside of the IT Department's direct control (e.g., Maximo). This practice of "Shadow IT" or decentralized spend deleverages IT resources and adds organizational complexity. Education software purchasing is decentralized to allow greater choice for schools. LAUSD is currently migrating to Remedy to manage IT assets (a recommended approach). The IT Department has historically tried to establish bench contracts to pre-negotiate rates; however, no minimum order quantities are guaranteed, which would typically reflect the minimum available discounts. 6-9 months Illustrative $: $9M-$12.5M Sourcing & Procurement Assessment[3] Best Practices Opportunity Comprehensive Strategic Sourcing Medium Supplier Consolidation High Specification Optimization Low Service Level Agreements Low Volume Pricing Agreements High Early Payment Discounts Medium Low Cost Country Sourcing Low Negotiations & Benchmarking Recommendations ? ? ? ? Consider centralizing procurement and management of end-user devices and software and identify key suppliers to increase LAUSD's buying position and reduce complexity of maintenance: ? Further standardize end-user devices, similar to the current IT infrastructure practices. ? Select core software products and limit choice to gain more economies of scale. Better track IT assets (e.g., software licenses and physical devices). Establish strategic partnerships with IT contractors to gain more favorable pre-negotiated rates. Conduct a comprehensive strategic sourcing project. Medium Cost Transparency Low Reverse Auctions High Consumption Reduction High Offsets Constraint Market Conditions Low Commodity Low Contract Termination Low Sources: LAUSD Management FY18 AP data, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Represents the estimated portion of the current LAUSD budgeted spend in this category that may be relevant for assessment of potential savings opportunities, as determined with LAUSD management. Note 3: Sourcing & Procurement assessment was performed to determine opportunity potential for each category of spend based on current state, input from LAUSD management, industry benchmarks, and industry leading practice. Page 8 LAUSD - 372 - PRA Preliminary DRAFT - Subject to material change II. Procurement Finding #2: Food Services: ~$10M - $13M illustrative savings potential [1] See footnote 1 below Relevant[2] $ $133M Suppliers ? ? ~40 unique vendors identified in AP data. Top 4 vendors make up 80% of spend. Findings ? ? ? ? ? LAUSD has historically sourced food items by line level rather than as a full comprehensive portfolio. This practice may achieve better unit prices in some categories but does not take advantage of the full economies of scale for all food-related categories. Select categories (e.g., dairy and produce) are delivered to the schools directly on a daily basis and other categories (e.g., frozen grocery) are delivered to the LAUSD warehouse where it is tempered and then transported to the Newman Nutrition Center for preparation before being shipped to schools. LAUSD has adopted a number of policies to focus on better nutrition (e.g., Good Food Purchasing Program, Chicken Standard, etc.) and employs a nutritionist to formulate menus and cut costs. This is a best practice and is recommended. Contracts have limited use of volume pricing agreements and early payment discounts (e.g., only a 1% rebate if purchased volumes are 10% over the contracted maximum amount). Reverse auctions were tried in the past; however, open bids resulted in higher prices and the practice was discontinued before maturing. Recommendations ? ? ? Difficulty: Consider combining the food services program as a single portfolio and developing a relationship with a strategic vendor to gain better pricing through economies of scale and reduce organizational complexity. Consider incorporating tiered pricing to achieve better pricing. For more commoditized items (e.g., dairy), consider using a mature reverse auction process. Timing: 6-9 months Illustrative $: $10M-$13M Sourcing & Procurement Assessment[3] Best Practices Opportunity Comprehensive Strategic Sourcing High Supplier Consolidation Low Specification Optimization Low Service Level Agreements Low Volume Pricing Agreements Medium Early Payment Discounts Medium Low Cost Country Sourcing Low Negotiations & Benchmarking Low Cost Transparency Medium Reverse Auctions High Consumption Reduction Low Offsets Constraint Market Conditions Medium Commodity Medium Contract Termination Low Sources: LAUSD Management FY18 AP data, stakeholder interviews, Goldstar contract, Driftwood contract, Good Food Purchasing Program, grocery RFP Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Represents the estimated portion of the current LAUSD budgeted spend in this category that may be relevant for assessment of potential savings opportunities, as determined with LAUSD management. Note 3: Sourcing & Procurement assessment was performed to determine opportunity potential for each category of spend based on current state, input from LAUSD management, industry benchmarks, and industry leading practice. Page 9 LAUSD - 373 - PRA Preliminary DRAFT - Subject to material change II. Procurement Finding #3: Professional Services: ~$9M - $12M illustrative savings potential [1] See footnote 1 below Relevant[2] $ $173M ? ? ~3,000 unique vendors identified in AP data. Top 205 vendors make up 80% of spend, with top 5 suppliers contributing 26% of spend. Findings ? ? ? ? LAUSD has an established process for all professional services: ? >$250K follows a formal RFP process ? $25K - $250K follows a less formalized process (but still establishes scoring metrics) ? <$25K is at the discretion of the schools/buyers. Historically, all services over $10K were centralized to apply procurement best practices, however, this was discontinued. When RFPs are sent out for competitive bid, a historical list of vendors (maintained at the Warehouse) are invited to bid. A process to ensure that a number of new vendors are invited to bid is not consistently applied. This practice limits the number of qualified bidders. Bench contracts are used to pre-qualify vendors - this does not guarantee an award and thus may not yield the maximum discount. Recommendations ? ? ? ? Difficulty: Suppliers Centralize all spend above $10K and focus central procurement efforts on establishing bench contracts for schools to use rather than maintain low spend vendors. Consistently apply the process in place to ensure that a number of new vendors are invited to bid. Consolidate vendors and establish rate cards or tiered pricing with strategic category partners to reduce complexity and administrative workload of maintaining low spend vendors. Evaluate piggybacking opportunities with other government entities or use other established government contracts (e.g., US General Services Administration) for professional services. Sources: LAUSD Management FY18 AP data, LAUSD Procurement Manual - 6th Edition, stakeholder interviews Timing: 6-9 months Illustrative $: $9M-$12M Sourcing & Procurement Assessment[3] Best Practices Opportunity Comprehensive Strategic Sourcing Medium Supplier Consolidation Medium Specification Optimization Low Service Level Agreements Low Volume Pricing Agreements Medium Early Payment Discounts Low Low Cost Country Sourcing Low Negotiations & Benchmarking Low Cost Transparency Low Reverse Auctions Low Consumption Reduction Low Offsets Constraint Market Conditions Low Commodity Low Contract Termination Low Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Represents the estimated portion of the current LAUSD budgeted spend in this category that may be relevant for assessment of potential savings opportunities, as determined with LAUSD management. Note 3: Sourcing & Procurement assessment was performed to determine opportunity potential for each category of spend based on current state, input from LAUSD management, industry benchmarks, and industry leading practice. Page 10 LAUSD - 374 - PRA Preliminary DRAFT - Subject to material change II. Procurement Finding #4: Transportation: ~$7M - $10M illustrative savings potential [1] See footnote 1 below Relevant[2] $ $87M ? ? >200 unique vendors identified in AP data. Top 5 vendors make up ~80% of spend, with one vendor accounting for 40% of transportation spend in FY18. Findings ? ? ? ? The Transportation Services Department ("TSD") spends ~$56M per year with its two primary transportation vendors. ~175 of the contractor transportation routes are set to expire in June 2019. There is excess capacity on contractor buses due to various factors (e.g., bus routes are planned based on eligibility rather than actual ridership, contracts require 10% extra buses and staff on standby). TSD procures LAUSD-owned and leased vehicles, parts, fuel and equipment from >200 vendors. A comprehensive evaluation of the supplier base has not been performed in the past year to determine the potential for supplier consolidation (or fragmenting) opportunities to drive per unit and SG&A costs down. Three primary fuel providers were identified, some of which have interdependencies (e.g., Trillium requires that it supplies fuel with the equipment). Recommendations ? ? ? Difficulty: Suppliers In advance of the ~175 contractor routes expiring in June 2019, comprehensively evaluate all transportation vendors and contracts to arrive at a sourcing strategy and identify key suppliers to support route needs. Bids should be based on routes required rather than bus capacity. An opportunity may exist to increase the number of bidders by regionalizing routes. Conduct a comprehensive sourcing event for all vehicle, parts, fuel and equipment vendors. Consolidate and engage in reverse auction bidding for the fuel contracts. Timing: 6-9 months Illustrative $: $7M-$10M Sourcing & Procurement Assessment[3] Best Practices Opportunity Comprehensive Strategic Sourcing High Supplier Consolidation Medium Specification Optimization Low Service Level Agreements Medium Volume Pricing Agreements Medium Early Payment Discounts Medium Low Cost Country Sourcing Medium Negotiations & Benchmarking Low Cost Transparency Low Reverse Auctions Medium Consumption Reduction Medium Offsets Constraint Market Conditions Medium Commodity High Contract Termination Low Sources: LAUSD Management FY18 AP data; First Student, STA, Trillium, Falcon Fuels and Delta Liquid Energy contracts; J-4: White Fleet Replacement Plan; LAUSD Procurement Manual - 6th Edition; stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Represents the estimated portion of the current LAUSD budgeted spend in this category that may be relevant for assessment of potential savings opportunities, as determined with LAUSD management. Note 3: Sourcing & Procurement assessment was performed to determine opportunity potential for each category of spend based on current state, input from LAUSD management, industry benchmarks, and industry leading practice. Page 11 LAUSD - 375 - PRA Preliminary DRAFT - Subject to material change II. Procurement Finding #5: Textbooks: ~$3M - $5M illustrative savings potential [1] See footnote 1 below Relevant[2] $ ? $117M ? ? ? ? Textbook selection is largely dictated by the State of California through 8th grade - LAUSD selects from that list which textbooks are available for teachers to use. Grades 9-12 textbook selections are "board adopted", giving Districts more control over this cohort. LAUSD has an understanding of its aggregate textbook demand; however, it does not have an understanding of textbook demand from other California districts or of the price other districts are paying for their textbooks. Digital textbooks are currently procured via two methods: bundled with a textbook or as a stand-alone digital copy. Procuring digital copies could reduce costs but may prove challenging to navigate due to the Williams Sufficiency Act regarding equal access to instructional materials. An effort to understand how many pupils would satisfy the digital requirements under the Act would be required. No evidence of early payment discounts found. Recommendations ? ? ? ? Timing: ~150 unique vendors identified in AP data. Top 3-4 vendors account for ~80% of textbook spend, with Benchmark Education Company accounting for 60% of textbook spend. Findings ? Difficulty: Suppliers Consider reducing the number of high school textbook options schools can select from to increase buyer power and consolidate spend. Investigate feasibility of strategic partnerships with other California districts to strengthen collective purchasing power, or piggyback off of potentially more favorable California district textbook contracts. Investigate feasibility of implementing digital textbooks in the classroom to procure cheaper books. Improve early payment discount terms for textbooks through negotiations with suppliers. 9-10 months Illustrative $: $3.5M-$4.5M Sourcing & Procurement Assessment[3] Best Practices Opportunity Comprehensive Strategic Sourcing High Supplier Consolidation Medium Specification Optimization Low Service Level Agreements Low Volume Pricing Agreements Low Early Payment Discounts Medium Low Cost Country Sourcing Low Negotiations & Benchmarking Low Cost Transparency Low Reverse Auctions Low Consumption Reduction Low Offsets Constraint Market Conditions Medium Commodity Low Contract Termination Low Sources: LAUSD Management FY18 AP data; Williams Sufficiency Act; LAUSD Procurement Manual - 6th Edition; stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Represents the estimated portion of the current LAUSD budgeted spend in this category that may be relevant for assessment of potential savings opportunities, as determined with LAUSD management. Note 3: Sourcing & Procurement assessment was performed to determine opportunity potential for each category of spend based on current state, input from LAUSD management, industry benchmarks, and industry leading practice. Page 12 LAUSD - 376 - PRA Preliminary DRAFT - Subject to material change II. Procurement Finding #6: Facilities Maintenance and Operations: ~$5M - $6M illustrative savings potential [1] See footnote 1 below Relevant[2] $ $66M ? ? ? ? ? The Facilities M&O team insources the majority of facilities management work and uses vendors to augment its staff during peak demand. This hybrid approach does not take advantage of LAUSD's scale. Maximo is LAUSD's facilities management database used to store facility information and prioritize projects. A facility condition index was recently completed to assess and inventory all of LAUSD's facilities. This is a best practice and LAUSD should continue developing this capability to gain greater transparency of upcoming maintenance to provide select contractors a guaranteed minimum amount of work at better negotiated rates. Job Order Contracting ("JOC") is used to control project costs and is a best practice. Historically, a number of parts have been specified to reach higher quality standards and extend the useful life of the asset, which can be more costly. Recommendations ? ? ? ? Timing: ~1,500 unique vendors identified in AP data. Top 114 vendors make up 80% of spend, with top 5 vendors contributing to 18% of total spend. Findings ? Difficulty: Suppliers Consider identifying a strategic vendor to support all facilities maintenance work (e.g., JLL or CBRE), recognizing that certain labor agreement terms may have made this option challenging historically. Consider combining Facilities M&O into regions and consolidating vendors to a few strategic partners to gain better pricing, reduce administrative overhead and support the operations rather than working with a broader variety of smaller vendors. Given certain small business requirements, consider requiring that a percentage of the work with strategic partners could go to businesses meeting those particular requirements. Review items that may have been over-specified to reduce costs. For procurement of commoditized items (e.g., janitorial supplies), consider using reverse auctions. Illustrative $: 6-9 months $5M-$6M Sourcing & Procurement Assessment[3] Best Practices Opportunity Comprehensive Strategic Sourcing High Supplier Consolidation High Specification Optimization High Service Level Agreements Low Volume Pricing Agreements Medium Early Payment Discounts Low Low Cost Country Sourcing Low Negotiations & Benchmarking Low Cost Transparency Low Reverse Auctions Medium Consumption Reduction Offsets Low Constraint Market Conditions Low Commodity Low Contract Termination Low Sources: LAUSD Management FY18 AP data, Facilities Maintenance - with cost centers, LAUSD interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Represents the estimated portion of the current LAUSD budgeted spend in this category that may be relevant for assessment of potential savings opportunities, as determined with LAUSD management. Note 3: Sourcing & Procurement assessment was performed to determine opportunity potential for each category of spend based on current state, input from LAUSD management, industry benchmarks, and industry leading practice. Page 13 LAUSD - 377 - PRA Preliminary DRAFT - Subject to material change II. Procurement Finding #7: General Supplies: ~$5M - $7M illustrative savings potential [1] See footnote 1 below Relevant[2] $ $45M ? ? ? ? LAUSD procures general supplies to resell to schools with an average mark up across all categories of ~47% (see Appendix for Warehouse Margin Analysis). This mark up is used to fund warehouse operations, including product costs, receiving, storage, picking, packing and delivery. General supply items are procured at an item level bulk purchase rather than partnering with a strategic partner (e.g., Staples, Office Depot). P-Card usage for general supplies was $12M in the prior year. Through interviews with select principals, it was noted that using the warehouse for general supplies can be particularly difficult due to the process for placing orders, unfavorable pricing, delivery delays and product quality issues. Recommendations ? ? ? ? Timing: >1,000 unique vendors identified in AP data. Top 69 vendors make up 80% of spend, with top 5 vendors contributing to 28% of total spend. Findings ? Difficulty: Suppliers Consider combining the general supplies program as a single portfolio and partnering with a strategic vendor (e.g. Staples, Office Depot) to gain better pricing across the portfolio. Centralize spend for general supplies to reduce instances of receiving retail pricing for supplies. Consider performing a specification optimization project to review the specifications for certain items to identify opportunities to standardize on a more cost-efficient solution. In addition to a performing a deep-dive assessment of the warehouse operations, consider doing a customer satisfaction survey to understand general sentiment of the warehouse and the challenges for greater usage of the warehouse rather than buying items at a store or through an online platform. Illustrative $: 6-9 months $5M-$7M Sourcing & Procurement Assessment[3] Best Practices Opportunity Comprehensive Strategic Sourcing Medium Supplier Consolidation High Specification Optimization Medium Service Level Agreements Low Volume Pricing Agreements Medium Early Payment Discounts Medium Low Cost Country Sourcing Medium Negotiations & Benchmarking Low Cost Transparency Low Reverse Auctions Medium Consumption Reduction Offsets Low Constraint Market Conditions Low Commodity Low Contract Termination Low Sources: LAUSD Management FY18 AP data, Warehouse FY18 PO, Credit-Card-All_Trans-7-1-17 to 6-30-18, Audit_Report-Buyer_Card-11-30-17, LAUSD interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Represents the estimated portion of the current LAUSD budgeted spend in this category that may be relevant for assessment of potential savings opportunities, as determined with LAUSD management. Note 3: Sourcing & Procurement assessment was performed to determine opportunity potential for each category of spend based on current state, input from LAUSD management, industry benchmarks, and industry leading practice. Page 14 LAUSD - 378 - PRA Preliminary DRAFT - Subject to material change II. Procurement Finding #8: Special Education: ~$11M - $15M illustrative savings potential [1] See footnote 1 below Relevant[2] $ $184M ? ? >700 unique vendors identified in AP data. Top 38 vendors make up 80% of spend, with top 5 vendors contributing to 34% of total spend. Findings ? ? ? Difficulty: Suppliers Special education services are procured directly by the Special Education Division ("SED") outside of the procurement group and follow different procedures, practices and policies. Special education students each have an Individual Education Program ("IEP") that defines the care and education requirements for the year. IEPs are tracked in Welligent, which is then used to place students in the appropriate program or non public school. LAUSD has a strong understanding of the individual requirements through Welligent; however, this information is not used to understand the aggregated supplier need. The LAUSD BII (Behavior Intervention Implementation) program includes having a resource monitor the child for behavior and safety through an extended period. LAUSD Management suggested that having a resource monitor the child full time may potentially impede a child from fully acclimating and developing, as well as being more costly to support. Timing: 12+ months Illustrative $: $11M-$15M Sourcing & Procurement Assessment[3] Best Practices Opportunity Comprehensive Strategic Sourcing Medium Supplier Consolidation Medium Specification Optimization Low Service Level Agreements Medium Volume Pricing Agreements Medium Early Payment Discounts Medium Low Cost Country Sourcing Low Negotiations & Benchmarking Recommendations ? ? ? Consider placing special education procurement back under the central procurement team with defined support from the SED to ensure that best practices and standard terms are achieved. Consider completing a fully comprehensive strategic sourcing project to understand the full needs of the SED and consolidate suppliers to increase LAUSD's buying position. Review BII program and evaluate cost and effectiveness to eliminate programs that may not be supporting the objective of the program. Sources: LAUSD Management FY18 AP data, stakeholder interviews Medium Cost Transparency Low Reverse Auctions Low Consumption Reduction Offsets Medium Constraint Market Conditions High Commodity Low Contract Termination Low Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Note 2: Represents the estimated portion of the current LAUSD budgeted spend in this category that may be relevant for assessment of potential savings opportunities, as determined with LAUSD management. Note 3: Sourcing & Procurement assessment was performed to determine opportunity potential for each category of spend based on current state, input from LAUSD management, industry benchmarks, and industry leading practice. Page 15 LAUSD - 379 - PRA Preliminary DRAFT - Subject to material change II. Procurement Warehouse Finding: A deeper dive into the warehouse pricing model and warehouse operations should be considered in order to determine the value and benefit of maintaining warehouse operations Observations ? LAUSD maintains a 370,000 square foot distribution center (the "warehouse") at Pico Rivera. The warehouse fulfills two primary functions - the delivery of food and related services to support the Food Services program and the delivery of standard supplies, equipment and furniture to the District's schools and offices. ? The LAUSD warehouse provides consolidated shipping of school-related products and supplies (including food, school supplies, furniture and mail) to over 700 locations using a staff of ~300 FTEs and a fleet of ~150 trucks (conventional and alternative fuel). ? The warehouse maintains roughly ~2,500 SKUs and fulfills over 100,000 orders of food, supplies and equipment on an annual basis, of which 60% is food. ? The warehouse marks up the costs of the supplies when selling back to schools/departments in an effort to recoup a portion of the operational costs (~$32M). Cost markups range from -11% to 536% of product unit prices with a weighted average of 47% (See margin markup analysis in Appendix E - Procurement). ? In analyzing a sample of 30 of the top 50 items and comparing like items sold by two different large retailers, it was noted that 15 of the items could have been purchased for $1.8M less, suggesting that the mark up pricing may need to be re-evaluated. ? Additionally, current practice awards items by line level, which does not follow procurement best practices (e.g., bundling, consolidation) and adds substantial complexity to qualify, negotiate with and manage a larger-than-necessary pool of vendors. ? Ordering through the warehouse is cumbersome when compared against typical e-commerce sites. A physical catalogue is published on an annual basis with all the products, which are then ordered through SAP by end users. Search functionality is not optimized, resulting in missed item searches (e.g., "vests" will not provide a result but "vest" will). ? Private sector companies leverage leading full-service vendors and distributors that can deliver a broad set of categories on a daily/weekly basis, eliminating the need for centralized warehouse operations (e.g., major food distributors for food services; office supplies, school supplies and furniture from large multi-product vendors with an online presence and distribution networks). ? Opportunity exists to contract with large distributors directly to provide both goods and services to reduce overall category costs, as well as organizational complexity. For example: LAUSD could contract with a large online retailer directly and negotiate a fixed profit model. The company would then gain the set profit margin off the purchase and utilize their infrastructure (sourcing, website purchasing, warehousing and distribution) to fulfill orders. ? Therefore, based on the observations noted above, it is recommended that LAUSD consider a deep-dive assessment of the current warehouse pricing model and overall value of maintaining warehouse operations. Sources: Warehouse tour; margin mark-up analysis; top 50 SKUs benchmark analysis; stakeholder interviews. Page 16 LAUSD - 380 - PRA II. Procurement Preliminary DRAFT - Subject to material change Appendix - Procurement Page 17 LAUSD - 381 - PRA Preliminary DRAFT - Subject to material change II. Procurement Appendix A - Procurement LAUSD AP spend was categorized across a number of different areas LAUSD 2018 Fiscal Year Procurement Spend - $3.0 Billion Category Insurance Benefits Construction Charter Schools Education Services Facilities Professional Services Textbooks Food Services Other Expenses IT Transportation General Education Supplies Debt Servicing Grand Total General Fund ($M) Other Funds ($M) Grand Total ($M) % of Total Cum. % $11 $338 $349 12% 12% $125 $363 $488 16% 28% $17 $380 $397 13% 41% $297 $31 $327 11% 52% $261 $2 $263 9% 61% $242 $19 $261 9% 70% $104 $87 $191 6% 76% $130 $0 $130 4% 80% $14 $146 $159 5% 86% $85 $61 $147 5% 90% $93 $17 $110 4% 94% $95 $1 $96 3% 97% $47 $3 $50 2% 99% $0 $31 $31 1% 100% $1,521 $1,479 $3,000 100% 100% Source: LAUSD Management - FY18 AP data Notes: 1. Spend categorized by General Fund vs. other funds. 2. Procurement group worked closely with other cost efficiency workstreams to validate savings opportunities and avoid double counting. 3. Full Kaiser and Health Net spend not present in AP data. Page 18 LAUSD - 382 - PRA Preliminary DRAFT - Subject to material change II. Procurement Appendix B - Procurement Vendor pareto analysis of select categories of spend Technology Food Services Professional Services Transportation Textbooks Facilities General Supplies Special Education Total spend, all funds ($M) $110 $159 $191 $96 $130 $261 $50 $205 Total number of vendors 526 37 ~3,000 230 153 ~1,500 ~1,100 718 Number of vendors accounting for 80% of total spend 10 4 210 5 4 120 74 38 Source: LAUSD Management FY18 AP data Page 19 LAUSD - 383 - PRA Preliminary DRAFT - Subject to material change II. Procurement Appendix C - Procurement: Illustrative example of savings potential Technology: IT hardware spend is fragmented across a number of suppliers; $3.5M of opportunity may exist in desktop/laptop purchases Hardware Price Opportunity ($) IT Hardware Purchases SY18 70,000 SY18 Desktop Laptop Servers Average $900 $944 $9,995 Benchmark $545 $705 $5,675 Delta $355 $239 $4,320 Quantity 4,445 8,017 20 Opportunity $1.6M $1.9M $86K 62,330 60,000 Units 50,000 40,000 30,000 Opportunity of ~$3.5M 17,274 20,000 Methodology: ? 10,000 4,576 1,604 465 ? 1,628 Microsoft Lenovo Apple Dell Haier HP Suppliers Sources: LAUSD Management FY18 PO data; Asset Data New Contract Summary; benchmark data Desktop, laptop and server unit prices from the 2017-18 school year ("SY18") were compared against available benchmark data. The difference in price was multiplied against the quantity purchased that school year to identify the potential savings opportunity. Note: Apple computers were removed from this analysis to compare Windowsbased systems. Takeaway ? ? LAUSD uses a computer solutions distribution company to purchase IT hardware using a variety of manufacturer options. Spend is not consolidated with any one manufacturer, which limits the total discount potential. LAUSD should consider contracting with a manufacturer directly to avoid distributor mark ups and limiting manufacturer options to improve purchasing power. Page 20 LAUSD - 384 - PRA Preliminary DRAFT - Subject to material change II. Procurement Appendix D - Procurement: Illustrative example of savings potential 70% of textbook payments are <$25K and likely not centralized; opportunity exists to improve pricing through combined purchasing Textbook Spend by Range Spend under $25k Range Textbook Spend Transaction Count <$10K $42M 24,998 $10k-$25K $49M 2,959 $25k-$100K $30M 834 $100K-$1M $3M 18 >$1M $6M 2 Grand Total $130M 28,811 ($ in Millions) $30 $6 $130 >$1M Total Spend $3 $49 $42 <$10k $10k-$25k $25k-$100k $100k-$1M Sources: LAUSD Management FY18 AP data; stakeholder interviews Takeaway ? ? ~$91M spend is likely not centralized. AP spend data shows many small orders for the same products from different schools; opportunity may exist to achieve volume pricing by centrally procuring orders. Additional opportunity to reduce pricing may be attained by combining orders with other districts and reducing the load on vendors by limiting the number of production runs for the same textbooks. Page 21 LAUSD - 385 - PRA Preliminary DRAFT - Subject to material change II. Procurement Appendix E - Procurement General Supplies: Warehouse Margin Mark up Analysis. The warehouse marks up items an average 47% to offset operational costs Category A Top 10 B Top 10 C Top 10 Item Total PO Amount Markup % Markup $ PAPER BOND 8.5X11" WHITE 20# 10/CASE BAGS TRASH LINER BLK 44 GAL 125/CS PAPER TOILET SINGLEFOLD 250/PK 36 PK/CS TOWEL PAPER SINGLEFOLD 250/BALE FLOOR FINISH, ACRYLIC COPOLYMER, 5 GAL FLOOR FINISH SPORT FLOOR 5 GAL CAN SEALER GYM/CLASSROOM WOOD FLOORS 1GAL/CN PAPER TOILET TISSUE ROLL TWO-PLY RADIO TWO-WAY WALKIE-TALKIE PORTABLE TISSUES CLEAN/FACIAL 60/CSE PAPER BOND FLUORESCENT PURPL 8.5X11 24# PAPER CONSTRUCTION ORANGE 18X24" 50/PK PEN, GEL, RETRACT, GRIP,MED, 14/PK ASST WORDBOOK BEGINNING CURSIVE WRITING GD 3 PAPER BOND RECYCLED, 8-1/2"X11" 20LBS, 9 DIVIDERS, CLEAR LABEL, W/5 WHITE TABS/SE TONER CART, LEXMARK, MS31X/41X/51X BLACK PLATES PAPER 8" ROUND UNCOATED 410/CS PAPER CUTTER 18" SAFETY CABINET FILING 4 DR LETTER W/LOC BLACK EMERGENCY FIRST AID 400 STUDENTS "B" TABLE ACT 30X60" GRAY NEBULA/BLACK CHAIR 18" VIRCO ZUMA NAVY PAPER BOND 8-1/2 X11" GRAY 500/RM 2018 CHAIR 18" BLACK BLK/CHROME FELT GL ERASER, DRY ERASE, JUMBO TAMPON, SANITARY, 3/4 " X5" 500/CASE BOX STORAGE CRAYON 2" DEEP CORRUGATED PAPER BOND MP PINK LEGAL 20# 8-1/2X14 WORDBOOK "IMPROVING CURSIVE WRITING" BOO $1,787,861 $1,463,594 $1,447,677 $1,148,505 $962,789 $631,682 $358,736 $353,607 $352,083 $349,232 $45,096 $20,291 $19,871 $18,872 $17,463 $17,437 $16,705 $16,101 $15,734 $15,619 $34,781 $22,652 $17,617 $7,150 $6,894 $5,352 $5,081 $4,764 $4,701 $4,676 34% 52% 68% 65% 36% 23% 33% 40% 26% 39% 68% 22% 15% 32% 34% 41% 62% 13% 61% 23% 24% 10% 27% 34% 22% 8% 24% 39% 33% 60% $609,732 $758,289 $991,226 $741,447 $345,463 $142,870 $119,809 $142,360 $92,311 $137,224 $30,683 $4,495 $2,952 $6,113 $5,887 $7,186 $10,353 $2,150 $9,561 $3,656 $8,438 $2,174 $4,768 $2,430 $1,495 $418 $1,198 $1,878 $1,569 $2,814 TOTAL of Top 10 A, B and C items $9,172,624 47% $4,190,948 Markup Range # of Unique Products Markup $ 0% - 49% 1,605 $5.6M 50% - 99% 494 $5.1M 100%+ 145 $2.2M Total 2,244 $12.9M Category # of Unique Products Markup $ A 381 $5.6M B 701 $5.1M C 1,162 $2.2M Total 2,244 $12.9M Observation ? The warehouse marks up roughly $12.9M (47%) on $27.8M of spend to offset operational costs. 28% of items are marked up over 50%, with 6% of items being marked up over 100%. Recommendation ? LAUSD should perform a deeper dive into the mark up pricing and value of maintaining the Pico Rivera warehouse operations. Note: A, B, and C categories are classified as items making up 80%, 15% and 5% of spend, respectively. Sources: LAUSD Management FY18 PO data; stakeholder interviews Page 22 LAUSD - 386 - PRA Preliminary DRAFT - Subject to material change II. Procurement Appendix F - Procurement Benchmarking 30 of the top 50 items showed better pricing on 15 items through online retailers compared against the warehouse Product Description PAPER BOND 8.5X11" WHITE 20# 10/CASE BAGS TRASH LINER BLK 44 GAL 125/CS TOWEL PAPER SINGLEFOLD250/BALE FLOOR FINISH, ACRYLIC COPOLYMER, 5 GAL SEALER GYM/CLASSROOM WOOD FLOORS 1GAL/CN RADIO TWO-WAY WALKIE-TALKIE PORTABLE TISSUES CLEAN/FACIAL 60/CSE CHAIR-DESK SIZE 16.5' TO 18" NAVY SANDST DISPENSER,TOILET PAPER,SGL FOLD, S STEEL PAPER BOND MP96 BRIGHT 8.5X1120#WHITE DISPENSER LIQ SOAP LATHER CAP APRX 40OZ BOOK COMPOSITION WIDE RULED ADHESIVE GLUE STICK NON-TOXIC, WHITE PAPER XEROX WHITE 8.5X11 HI SPEED 10/CSE EASEL PAD YELLOW RULED 25X30.5" 2/BX CRAYONS STANDARD ASSORTED 16/BOX SOAP, LIQUID FOR DISPENSER W/ ALOE REMOVER, FLOOR FINISH, 4 GAL/CASE MARKER DRY-ERASE BROAD LO-ODOR BLK 12/BX CLEANER NEUTRAL CONCENTRATE 2 LITERS SHARPENER PENCIL ELECTRIC, BLK/GRYNEW PENCIL, PRE-SHARPENED, #2 HB 12/BOX MARKER DRY-ERASE BROAD LO-ODOR BLU 12/BX DISPENSER PAPER TOWEL-STAIN LESS WATERCOLOR PENCIL SETS, 24-COLOR SETS PAPER TOILET TISSUE ROLL 2-PLY1000' CALCULATOR TI-84 PLUS CE 10 PACK PROTECTOR SHEET 8.5X11" TOP LOAD 100/BX GLUE, WHITE NON-TOXIC 1 GALLON BOTTLE GLOVES, VINYL, POWDER FREE, LARGE 100/BO TOTAL PO Total Amt $1,787,861 $1,463,594 $1,148,505 $962,789 $358,736 $352,083 $349,232 $324,218 $262,800 $234,126 $159,827 $159,257 $158,018 $145,282 $143,542 $130,392 $129,908 $127,075 $97,212 $87,625 $85,495 $84,677 $83,908 $81,578 $81,195 $80,068 $78,674 $71,886 $64,906 $63,421 $9,357,890 PO Qty 71,400 56,050 61,290 13,550 4,775 2,700 9,013 2,260 5,000 8,400 6,700 24,000 94,404 5,880 4,275 312,000 5,000 5,000 16,824 2,300 2,100 124,800 14,520 1,550 22,680 3,900 60 11,000 6,668 29,000 Unit Cost $23 $24 $17 $65 $69 $119 $35 $131 $48 $25 $22 $6 $2 $23 $31 $0.38 $24 $23 $5 $35 $37 $1 $5 $48 $3 $19 $1,197 $6 $9 $2 Markup % 34% 52% 65% 36% 33% 26% 39% 34% 18% 14% 31% 22% 39% 154% 118% 34% 37% 32% 45% 45% 50% 28% 68% 94% 50% 48% 68% 27% 14% 62% Weighted Avg. Price $31 $36 $28 $88 $92 $150 $49 $154 $55 $33 $30 $15 $3 $30 $42 $1 $34 $34 $8 $45 $62 $1 $8 $71 $5 $24 $1,362 $10 $11 $5 Lowest Comparable Price $49 $28 $34 $83 $45 $90 $34 $183 $42 $31 $30 $3 $2 $49 $59 $4 $11 $97 $10 $70 $18 $3 $15 $33 $9 $22 $1,358 $13 $15 $6 Delta % Savings ($18) $9 ($6) $5 $47 $60 $15 ($29) $13 $2 $0 $12 $1 ($19) ($17) ($4) $24 ($63) ($2) ($25) $44 ($2) ($7) $38 ($4) $1 $4 ($3) ($4) ($1) -60% 24% -22% 6% 51% 40% 31% -19% 24% 7% 1% 77% 25% -62% -42% -787% 69% -189% -26% -57% 70% -145% -89% 54% -64% 6% 0% -34% -34% -32% Savings (Loss) Procuring direct from online retailers $(1,308,303) $488,514 $(380,851) $71,592 $222,152 $163,012 $138,384 $(64,702) $64,954 $20,339 $ 1,386 $286,107 $80,042 $(110,265) $(74,405) $(1,229,031) $117,699 $(317,192) $(34,282) $(58,301) $92,379 $(218,095) $(102,768) $59,161 $(79,542) $ 5,482 $251 $(36,491) $(25,282) $(42,018) $1.8M Opportunity Sources: LAUSD Management FY18 PO data; independent comparative pricing from two separate large online retailers Takeaway ? ? Schools may be able to buy many items cheaper online through a much improved purchasing experience. Further discounts may likely be available by contracting directly with a large online service provider to negotiate profit margins for items vs. going through a competitive bidding process for individual items. LAUSD should consider contracting with large suppliers directly to improve costs across the portfolio, reduce organizational complexity, and improve customer service and reliability. Page 23 LAUSD - 387 - PRA III. Workers' Compensation Preliminary DRAFT - Subject to material change Workers' Compensation Page 24 LAUSD - 388 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Executive Summary Less complex Moderate More complex ? LAUSD has a fully self-insured workers' compensation ("WC") program that totaled $111.5M in direct costs during FY17. Current State ? The workers' compensation program is centrally managed within the District by the integrated disability management unit ("IDM"). ? The integrated disability management unit utilizes a third party claims administrator ("TPA") to manage workers' compensation claims. ? LAUSD pays ~$10.3M annually to TPA for claims administrator services. Finding 1. The file review identified approximately 17% in claims financial leakage, which is higher than industry leading practice. "Financial leakage" here can be defined as the additional amount paid, above what might have been paid, if leading practices had been applied Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 1-3 years $7-10M 3 months $1M 3 months $1-3M 1-3 years $14-24M Total $23M-$38M Enhance internal claim management and oversight capabilities o Increase the staffing levels, technical knowledge and experience within the IDM unit. o Enhance claims practices for the TPA and LAUSD internal resources to follow and establish formal governance and quality assurance procedures. 2. The District's current staffing levels and claims management practices may be limiting more effective management of the program given the size and complexity. Implement cost reductions strategies associated with telephonic case management and defense attorney utilization. 3. Fees paid to TPA are higher than typically seen in industry leading practice and contractual terms with TPA do not have the same level of quality requirements typically seen in industry leading practice. Consider renegotiating the fee agreement with TPA to pursue a reduction in fees along with additional performance assurances (e.g. certain fees will be at risk depending on the outcome based performance metrics). 4. Responsibility for WC management rests solely within the IDM unit, therefore other departments are not directly incentivized to assist in WC cost management. Implement a formal WC cost allocation program throughout the District in conjunction with an updated Return to Work ("RTW") program. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 25 LAUSD - 389 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Finding #1: Claim management execution is inconsistent with industry leading practice See footnote 1 below Overview A review was conducted of 75 claim files to assess the level of claim management execution against industry leading practices. Where gaps between current and leading practices were identified (i.e. "claim leakage"), the financial impact was quantified. The leakage observed was 17%, which is higher than the industry average. Entity Type Leakage range* Difficulty: Public Entities 8 - 10% Timing: 1-3 years Mid-Size & Large Corporates 5 - 7% Potential $: $7-10M File Review Sample Parameters Results by Claim Handling Phase ? ? ? ? Leakage was identified across multiple phases of the claim management lifecycle with claim investigation being the top driver of leakage. While supervision was not a direct driver of leakage, improved TPA supervisory performance could have impacted the results across all phases. All claims reviewed included Indemnity (i.e. lost time claims paid). 65 claims were closed (all within the last 12 months). 10 claims reviewed were still open at the time of review. Accident years included 2013-2017 with 73% of claims from 2016 and 2017. ? All claims reviewed had paid amounts in excess of $10,000. Leakage Summary The most significant leakage was allocated to indemnity costs which indicates a strong focus should be placed on reducing the frequency and duration of lost time claims. Claim Leakage Phase Indemnity Medical Expense Total % of Total Investigation $440,259 $146,251 $32,725 $619,235 41% Resolution $208,182 $51,534 $72,787 $332,503 21% Disability Management $157,238 $27,721 $0 $184,959 12% Medical Management $99,195 $57,206 $8,701 $165,101 11% $27,500 $8,077 $9,461 $38,402 $2,437 $43,378 $35,361 $0 $61,371 $4,782 $1,397 $0 $91,308 $56,237 $46,219 $38,402 6% 4% 3% 2% $988,314 $363,888 $181,763 $1,533,964 100% Payment Type Paid Amount Leakage % Leakage Amount Indemnity $3,580,394 28% $988,313 Medical $4,698,158 8% $363,888 Expense $930,805 20% $181,763 Litigation Supervision Compensability Subrogation Total $9,209,356 17% $1,533,964 Grand totals Sources: LAUSD Management information and industry data See appendix for additional descriptions and key drivers of leakage Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 26 LAUSD - 390 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Finding #2: Internal staffing levels and claims management practices are inconsistent with industry practices for a WC program of this size and complexity See footnote 1 below Overview Difficulty: The IDM unit has undertaken numerous efforts to improve WC results. Despite challenges associated with staffing and limited technical claims experience at the specialist level, the IDM unit is currently utilizing many practices that are consistent with industry peers and leading practice. These include meeting regularly with the TPA to conduct in-person claim reviews, ongoing communication and engagement with other department heads including employee health and safety, and executing special projects geared towards reducing future WC liabilities, such as the accelerated closure project. Timing: 3 months Potential $: $1M LAUSD is facing both internal and external challenges associated with running an effective WC program. Internally, there may be a lack of financial motivation for injured workers to return to work based on current salary continuation policies and the ability to use illness time to compensate for lost income. Externally, California is one of the more complex jurisdictions with a high propensity for attorney representation and litigation. These challenges along with the significant cost and impact that WC has on student achievement, heightens the need for rigorous program management. Based on the assessment, four opportunities were identified to improve how the IDM department can impact the overall WC program across three dimensions: people, process and governance. Sources: LAUSD Management information, stakeholder interviews, benchmark data Process People Governance Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 27 LAUSD - 391 - PRA III. Workers' Compensation Preliminary DRAFT - Subject to material change Finding #2: Internal staffing levels and claims management practices are inconsistent with industry practices for a WC program of this size and complexity People o 1. Insufficient staffing and technical skills to manage the program o While the IDM unit is overseen by a highly technical and qualified director, the unit itself may not have the necessary technical skills and resources to properly manage the program more effectively. Throughout the file review, numerous instances were identified where initial and ongoing investigations lacked proactive claims handling and rigorous medical management. It is an industry leading practice for loss sensitive organizations like LAUSD to utilize technical claims specialists to perform ongoing oversight of the individual claim strategies and practices. o Recommendations ? Workloads of the existing staff are higher than industry average. Currently, the IDM unit has four WC claim specialists with an average open workload of 110 active Temporary Total Disability ("TTD") claims. Based on the active claim inventory and complexity of the program and jurisdiction, an additional two claim specialists should be recruited to help in overseeing all newly reported claims and in communicating trends to the District. This is essential in not only limiting the impact of WC to the District, but also in lessening the impact that WC absence may have on students. ? The current team of claim specialists may not have the technical knowledge required to perform rigorous oversight of individual claims and vendors. Consider requiring that all new staff have, at a minimum, 2 - 4 years of technical WC claim handling experience. For existing staff, provide formal technical claim management training on an ongoing basis and continue the practice of allowing attendance of WC specialists to the file reviews with the TPA. Sources: LAUSD Management information, stakeholder interviews, benchmark data Page 28 LAUSD - 392 - PRA III. Workers' Compensation Preliminary DRAFT - Subject to material change Finding #2: Internal staffing levels and claims management practices are inconsistent with industry practices for a WC program of this size and complexity 2. Lack of rigorous LAUSD specific claim management guidelines LAUSD currently has special service level instructions that the TPA is required to follow. However, they are generally broad and exception based. Programs the size and complexity of LAUSD typically establish more detailed claim management guidelines which include specific requirements for all claim management activities from initial assignment to claim closure. Process Recommendations ? Develop detailed claim management requirements for the TPA to utilize on all LAUSD claims that mitigate the leakage drivers identified in the file review ? Short-term cost savings opportunities related to claims guidelines are as follows: o Telephonic Case Manager Fees: In F17, the total TCM fee paid by LAUSD was $1.1 million. Since then LAUSD eliminated the use of prior broad TCM triggers and is now leveraging the TPA's analytics program which helps identify when a TCM is needed. In the file review, the use of the TCM's was excessive as adjusters were assigning TCM's to manage basic disability and medical issues. In addition to leveraging the TPA's analytical model, LAUSD should develop a detailed set of triggers and a formal approval process for the TPA to utilize a TCM beyond 30 days. o Defense Counsel Fees: In FY17, Defense counsel fees were $12.9 million and the file review identified numerous instances where the defense attorney was performing claim adjusting work such as evaluating claims for settlement and conducting negotiations on low to moderate complexity claims. While defense costs are trending down this year, additional focus should be placed on shifting core claims adjusting work from defense attorneys back to the TPA claims adjuster. 3. Lack of ongoing communication between LAUSD staff and disabled employees Communication between the employer and injured worker is a critical element to facilitating timely and effective return to work. While the IDM department sends get well cards to workers who are out of work, there is no formal requirement for the claim specialists or immediate supervisors to make contact with injured workers. Of the $3.5M in indemnity dollars paid, 28% was identified as leakage, which was largely driven by injured workers who alleged soft tissue injuries and remained out of work longer than anticipated. A focus needs to be placed on maintaining an open dialogue with injured workers to reduce the frequency and duration of lost time claims. Recommendations ? Establish a requirement that Supervisors or Principals contact injured workers on a regular basis while out of work. The communication should be documented and provided to the Integrated Disability Management team so it can be incorporated into the claim strategy. ? In addition to the immediate supervisor communication, establish formal ongoing injured worker communication requirements for the WC claim specialists. All communication results should be documented. Sources: LAUSD Management information, stakeholder interviews, benchmark data Page 29 LAUSD - 393 - PRA III. Workers' Compensation Preliminary DRAFT - Subject to material change Finding #2: Internal staffing levels and claims management practices are inconsistent with industry practices for a WC program of this size and complexity 4. Lack of rigorous and outcome focused quality assurance practices Governance There is currently no formal review of the TPA or other key claim vendors. Defense counsel performance is also measured via claim adjuster surveys and compliance with billing standards and TPA's performance is not formally assessed. It is a leading practice for a program similar to LAUSD to conduct annual reviews of all key vendor partners. Once the additional and trained staff is in place, LAUSD should establish additional oversight and quality assurance practices for key WC claim vendors. Recommendations ? Enhance LAUSD's level of involvement in the claims management process and establish formal claim oversight practices and procedures. Consider requiring WC claims specialist to review active claims under their assignment at minimum every 90 days to evaluate the current claims status and claims resolution plan. LAUSD should develop formal requirements for additional review and oversight based on severity indicators such as lost time, surgery, modified duty availability, attorney representation and litigation. ? Conduct a formal retrospective audit of TPA's claims management practices on a bi-annual basis. Consider utilizing the audit results to assess TPA's performance and incentives in addition to identifying opportunities for continuous improvement. This audit should address compliance with the previously defined LAUSD claim management guidelines. ? Conduct formal defense attorney file audits focused on claim outcomes rather than billing compliance and cycle times as those are not effective measures of the quality of defense counsel's performance. TPA currently conducts legal surveys on the responsiveness of the attorneys and those surveys are completed by TPA adjusters. However, legal surveys alone are not an effective measurement of legal performance and should be supplemented with a formal review of claim outcomes via a formal audit of litigation performance. ? Conduct a formal review of the providers within the Medical Provider Network (MPN) to assess whether the ratings provided to them via TPA's quality practices are aligned with claim outcomes. TPA reports out on penetration for providers rated as 3 - 5 stars. However, it remains unclear how many providers treating LAUSD workers are 4 or 5 star rated or how these ratings are determined. Medical management was one of the top drivers of claim leakage in the file review and verifying the quality of medical providers within the MPN would further assist in limiting leakage. Sources: LAUSD Management information, stakeholder interviews, benchmark data Page 30 LAUSD - 394 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Finding #3: TPA fees are higher than industry peers and the TPA contractual quality requirements lack the appropriate level of oversight and rigor See footnote 1 below Overview Difficulty: LAUSD utilizes a third party administrator ("TPA") to perform all claims administration services. The current agreement includes a cost plus pricing plan which includes a claims administration fee. Typically across the industry, indemnity claims are priced higher than medical only claims given the level of severity and effort associated with properly managing exposure. Currently LAUSD averages a 62:38 split for medical only vs. indemnity ratio. The industry average is a 75:25 ratio. The goal for LAUSD should be to get to a 70:30 rate by enhancing internal claims management practices and implementation of a cost allocation program. This will reduce the indemnity claim frequency and downstream severity for the remaining indemnity claims. Timing: 3 months Potential $: $1-3M The current claims administration fee charged by the TPA for claim handling is $10.3 million. A review of the fee proposal provided by the TPA to LAUSD to calculate the claims administration fee suggests opportunity related to pricing exists. Most notably, the current contract was priced with separate costs per dedicated resource, which may not incentivize the TPA to assist in preventing or resolving claims expeditiously. The model supports a structure where the greater the amount of WC claims received, the more resources would be needed. Negotiating a contract for a WC program the size and complexity of LAUSD by utilizing a standard fee for anticipated WC claims could provide more objectivity in anticipated resource needs while allowing for flexibility during times of greater or lower WC claim volume. 2013 Historical Number of Claims Filed 2014 2015 2016 2017 Total Ratio Indemnity 1,766 1,628 1,569 1,560 1,433 7,956 37.7% Med Only 2,560 2,649 2,518 2,707 2,696 13,130 62.3% Total 4,326 4,277 4,087 4,267 4,129 21,086 100.0% Calculation If you apply a conservative benchmark cost estimate of $250 per medical only claim and $2,500 per indemnity claim against the 2016 inventory numbers, the total cost for claims would be $4.6 million. In a cost plus plan, there would be additional fees such as system and account management charges. However, the gap between the conservative estimate and the actual claims administration fee is significant. ? ? Utilizing a conservative benchmark of $250 per medical only claim indicates $677k of the $10.2M TPA fee related to medical only claim management (2,707 x $250). This implies that cost per Indemnity claim would be $6,136 which is more than two times higher than the conservative cost benchmark of $2,500. ($9.6M / 1,560 claims). Recommendation It is recommended that LAUSD consider renegotiating their contract with their current TPA, and if necessary consider issuing an RFP to evaluate alternate providers and pricing. LAUSD should also work with TPAs to enhance the quality requirements in the contract and develop outcome based metrics and quality assurance practices to be used to assess performance. LAUSD should also require that TPAs provide them with all copies of the subcontracts they have in place with their vendors in order for LAUSD to confirm those services are charged back with no markup. Sources: LAUSD Management information, stakeholder interviews, benchmark data Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 31 LAUSD - 395 - PRA III. Workers' Compensation Preliminary DRAFT - Subject to material change Finding #4: Lack of organizational focus and accountability of the workers' compensation program See footnote 1 below Overview Worker's compensation represents a significant cost to the organization through direct costs (claims payments and administration fees) and the downstream impact that employee absence has on operational efficiencies and student achievement. Organizations with leading practice WC programs utilize a holistic approach which encourages active engagement in WC mitigation and management throughout the organization. The two most common ways organizations engage management across departments and functions to participate in claims management is through 1. cost allocation and 2. formal return to work programs ("RTW"). Difficulty: Timing: 1-3 years Potential $: $14-24M 1. Cost Allocation: LAUSD currently does not allocate WC costs or performance measures to individual field locations or schools. The file review identified numerous claims with extended periods of disability on minor soft tissue injuries and a lack of effective utilization of modified duty. While technical claims oversight and management should be conducted by the centralized IDM department, it is well known and accepted in the industry that initial and ongoing communication with injured workers by their local supervisor increases the likelihood for modified or regular duty return to work. Other behaviors that were not observed and should be incentivized through cost allocation include: ? Consistently provide meaningful and modified duty RTW options to injured workers. ? Assist with initial claim investigations by securing photos of the scene or providing statements on suspicious claims. ? Report new claims timely and accurately. Key design elements of a leading practice cost allocation include: ? Utilization of KPI's that are directly linked to post claims management activities. ? Costs or surcharges applied to claims based on frequency and severity trends. ? Allocation linked to claim financials such as total severity and lost time status. Successful implementation requires a significant shift in culture. To obtain buy in, the program needs to be communicated with complete transparency. A baseline should be established based on historical results prior to establishing goals for each field operation/school. As this would be new to LAUSD, leaders throughout the organization will need to be trained on the program and practices. 2. Return to Work: LAUSD has a current return to work/ stay at work program which should be updated and re-introduced throughout the organization as part of the implementation of the aforementioned cost allocation program. It is important to utilize a RTW program that is closely aligned with the behaviors being incentivized through cost allocation. Formal training and reintroduction of the program should also be completed. Sources: LAUSD Management information, stakeholder interviews, benchmark data Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 32 LAUSD - 396 - PRA III. Workers' Compensation Preliminary DRAFT - Subject to material change Appendix - Workers' Comp Page 33 LAUSD - 397 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Appendix A - Workers' Compensation File Review Results- Definitions and Top Drivers by Phase Below are the definitions, associated leakage amounts, and top drivers of leakage scored throughout the claim file review: Phase Definition Leakage Amount Identified Thorough initial and ongoing investigation of the claim including but not limited to; o Investigation Resolution Disability Management Medical Management o Identify additional factors that may impact return to work. o Continuously evaluate indicators of symptom magnification and malingering. o Ongoing evaluation of the claim facts and most probable outcome to determine the most cost effective resolution strategy. o Assessment of the exposure and development of a settlement strategy and range. o Ongoing analysis of the claimant's disability and pursuit of work restrictions based on the claimant's recovery. o Coordination between employer, provider and claimant for modified and regular duty return to work options. o Analysis and ongoing management of prescribed treatment against guidelines and claim facts. $619,000 $332,000 $185,000 $165,000 o Review of medical risk factors and identification of non-compliance with treatment plans. o Oversight and coordination of all claim litigation including the development of a litigation strategy, assignment of counsel, decisions to litigate vs. settle and management of all litigation expenses. $91,000 Active monitoring of the claim progression with specific feedback provided to the adjuster on the effectiveness of the current case strategy, recommendations for additional activity and commentary on case reserves. $56,000 Analysis of the claim investigation results to determine if the claim is compensable and what body parts were injured as well as the potential severity of the injury. $46,000 Litigation o Supervision o Compensability Obtain all information needed to complete a compensability analysis and determine the mechanism of injury and potential severity. Top Drivers of Leakage o Lack of rigorous investigation, especially with habitual claimants. o Need to obtain more details surrounding loss facts, preexisting conditions and how they impact treatment plans. o No independent analysis from the TPA adjusters into the overall exposure, treatment plan or strategy. o Settlement ranges not used. o Over-reliance on defense counsel's analysis. o Lack of proactivity into pursuing a settlement based on the claim facts. o QME's not explored timely. o Modified duty options not explored when available. o Lack of proactive follow-up to confirm the level of disability and how it would impact return to work. o Lack of proactive follow-up to ensure treatment was obtained. o Medical records not obtained or evaluated timely in order to confirm treatment plans and duration. o Failure to develop an action plan with defense counsel that is aligned with the facts of the claim. o Litigation costs and likelihood of success not properly factored into the resolution plan. o Lack of impactful coaching or direction that would have moved the claim closer to resolution. o Accepting injuries without sufficient details into how the loss occurred or how it resulted in the injury. Page 34 LAUSD - 398 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Appendix B - Workers' Compensation Workload Analysis on Third Party Administrator ("TPA") The TPA has a dedicated claims team that manages the LAUSD WC program. As part of this assessment, the TPA account manager and operations director in charge of the LAUSD account were interviewed. The dedicated claims team primarily consists of 34 indemnity adjusters, 2 medical only specialists, 1 full time complex adjuster, and 2 complex specialists with partial caseloads. Below is a breakdown of the new notices received and the average caseload per dedicated adjuster: New Notices Average Caseloads Fiscal Year 2015 2016 2017 Adjusters Caseload Medical Only 1,675 1,505 1,511 Medical Only 72 Indemnity 2,671 2,834 2,849 Indemnity 123 Total 4,346 4,339 4,360 Complex 40* * One complex adjuster has a full workload which is consistent with industry practice. However there are two (2) adjusters with partial caseloads in the 20's. ? ? ? The contract with the TPA requires a caseload under 125 for indemnity adjusters, which is an industry leading practice as utilizing lower caseloads enables more proactive and rigorous claims management. As previously noted, the files reviewed possessed excessive leakage and did not demonstrate proactive claims management. Over time, there may be an opportunity to reduce the number of adjusters allocated to the LAUSD account by the TPA as new notice volumes are well below industry averages. However, LAUSD should focus initially on raising expectations for the TPA for more rigorous claim management rather than reducing TPA headcount. ? On an annual basis, each indemnity adjuster receives approximately 1 new claim every 3 days which is below the industry average of 1 per day. ? The TPA utilizes two complex claims adjusters to triage and assign claims. There may be an opportunity to leverage basic business rules for triage and assignment rather than high cost complex claims adjusters. Sources: LAUSD Management information, stakeholder interviews, benchmark data Page 35 LAUSD - 399 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Appendix C - Workers' Compensation Overall Costs to LAUSD ? ? ? Workers' compensation ("WC") direct costs totaled $111,454,574 in FY17 WC costs are broken down into claims paid and third party administrator fees These costs are used as the baseline for which to forecast savings based on future state recommendations Claims Paid: Fiscal Year 2017 2016 2015 *Number of employees at LAUSD 75,729 75,502 75,788 Number of new claims filed 4,360 4,339 4,346 Indemnity Paid Medical Paid Expense Paid Total Paid $38,296,005 $39,330,275 $35,905,598 $43,464,401 $44,210,744 $43,743,156 $19,435,155 $18,988,976 $20,682,996 $101,195,561 $102,529,996 $100,331,750 Breakdown of WC claim costs: Third Party Administrator Fees: Vendor TPA Yearly fee as per the contract $10,259,013 Summary of annual workers' compensation direct costs: Fiscal Year Claims Paid TPA Costs Total Cost 2017 $101,195,561 $10,259,013 $111,454,574 2016 $102,529,996 $10,259,013 $112,789,009 2015 $100,331,750 $10,259,013 $110,590,763 Indemnity Payments 2017 Permanent Partial Disability $19,620,02 3 Temporary Total Disability $15,188,84 1 Settlements $3,089,183 Vocational Rehabilitation $397,958 Total $38,296,00 5 Medical Payments 2017 Expense Payments 2017 Medical Doctors $24,991,209 Legal Fees $12,885,083 Medical Settlement $5,640,855 Peer Review $3,087,119 IME's $6,472,295 Utilization Reviews $1,409,864 Physical Therapy $3,866,513 TCM $1,078,337 Pharmacy $2,493,529 Surveillance $974,752 Total $43,464,401 Total $19,435,155 Sources: LAUSD Management information, *The number of employees was calculated by using the number of W2's filed by LAUSD with the state of California Page 36 LAUSD - 400 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Appendix D - Workers' Compensation Short and Long Term Claim Cost Savings Overall Claims Costs The cost savings potential was analyzed using an aggregate and individual loss year analysis to quantify potential savings. The loss year analysis forecasts savings based on industry indemnity to medical only ratios and benchmarks. The aggregate claims paid analysis is based on the leakage assessment and annual claims payments. Aggregate Claims Paid Analysis Loss Year Performance Analysis LAUSD averages a 62% (medical only) vs 38% (indemnity) ratio. The industry average is 75% vs 25% and LAUSD should look to get to a 70:30 rate by enhancing internal claims management practices and the implementation of an integrated cost allocation and return to work program. Below is the 2016 claims reported data from the TPA used as a baseline for the analysis: Claim Type Claims reported in 2016 Frequency *5 yr. average cost per claim Indemnity 1,560 37.7% $32,680 Medical Only 2,707 62.3% $1,925 Totals 4,267 100% $34,605 Scenario 1: Reducing the indemnity ratio from 38% to 30% to reach the 70:30 ratio Analysis: ? 2987 Med Only claims X $1,925 = $5.75M The file review identified 17% leakage across the sample which included claims from the 2013 - 2017 loss years. Organizations similar to LAUSD that have enhanced their claims management and oversight practices could experience a 5-7% reduction in claim leakage over a three year period, which would align LAUSD closer to the industry average of 8-10%. Leakage can be reduced further through continuous improvement with incremental reductions beyond 3 years. Calculation ? $101M average claim cost spend x 5 - 7% in leakage reduction represents $5M to $7M in annual savings. After the internal claims practices have been enhanced, there is potential for additional cost savings by implementing an integrated cost allocation and return to work program. The savings potential of cost allocation varies as some organizations have experienced up to a 25% reduction in claim costs. Based on the current state and other cost reduction initiatives recommended, LAUSD could anticipate an additional 15 - 25% reduction in claim costs on top of the prior leakage reduction. ? 1280 Indemnity claims X $32,680 = $41.83M ? Total Spend = $47.58M Calculation ? Compared to average 5 year total claim spend ($52.46M) which represents savings of nearly $5M per year. ? Future annual spend of $95M (6% reduction off base) x 15% represents $ 14.25M in annual savings. ? The $95M represents the future annual claim costs once leakage is reduced closer to industry peers. ? Moving forward, LAUSD should utilize the average cost per claim(s) to measure year over year trends and monitor the performance of the WC program, which is consistent with industry leading practice. Scenario 2 : Reducing medical only from 38% to 25% to reach the 75:25 ratio Analysis: ? 3200 Med Only claims X $1,925 = $6.16M ? 1067 Indemnity claims X $32,680 = $35.05M ? Total Spend = $41.2M ? Compared to average 5 year total claim spend ($52.46M) this represents savings of over $11M per year. Fiscal Year Total Paid 2017 2016 2015 Avg. $101,195,561 $102,529,996 $100,331,750 $101,352,436 Note: Improvement in claim practices may result in acceleration of claim payments, therefore when quantifying the impact of changes, LAUSD should include an actuarial assessment of total future liabilities Sources: LAUSD Management information, *Average incurred over past 5 loss years based on the TPA "Stewardship Report" 2017 Page 37 LAUSD - 401 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Appendix E - Workers' Compensation Claims reporting data New Claims Reported by Job Title and Year Claim Counts 800 600 400 200 0 Special Education Assistant Elementary Teacher Building and Grounds Worker Secondary Teacher Special Education Teacher Shoulders Ankle Top 5 Most Reported Injury Types 600 Claim Counts 500 400 300 200 100 0 Knee Low Back FY 2015 Multiple Body Parts FY2016 FY2017 Sources: TPA Stewardship Report 2017 Page 38 LAUSD - 402 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Appendix E - Workers' Compensation Claim Counts by Percentage Claims reporting data (continued) Percentage of Claims Reported by Age Group within LAUSD 35% 30% 25% 20% 15% 10% 5% 0% 18 - 29 30 - 39 40 - 49 50 - 59 60+ Misc. Causes Cut, Punctured Top 5 Reported Causes of Injury 1,400 1,200 Claim Counts 1,000 800 600 400 200 0 Strain Fall of Slip Injury FY 2015 Struck of Injured By FY2016 FY2017 Sources: TPA Stewardship Report 2017 Page 39 LAUSD - 403 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Appendix E - Workers' Compensation Claims reporting data (continued) Top 5 Reported Natures of Injury 2,000 Claim Counts 1,500 1,000 500 0 Strain Contusions Sprain FY 2015 FY2016 Multiple Physical Injury Laceration FY2017 Sources: TPA Stewardship Report 2017 Page 40 LAUSD - 404 - PRA Preliminary DRAFT - Subject to material change III. Workers' Compensation Appendix E - Workers' Compensation Claims reporting data (continued) 200 Claim Counts and Severity - Nature of Injury by Location 12,000 140 10,000 120 10,000 Claim Counts and Severity - Cause of Injury by Location 180 9,000 160 8,000 100 6,000 80 4,000 60 40 2,000 7,000 6,000 80 5,000 60 Severity 100 Claim Counts 120 Severity 8,000 4,000 3,000 40 20 2,000 South District West District East District Central District Northeast District Northwest District 20 1,000 South District West District Central District East District Northeast District Trip Struck/Injured By Object Strike Against Object Lifting Fall/Slip Lifting Struck/Injured By Object Stress Lifting Fall/Slip Lifting Fall/Slip Stress Lifting Struck/Injured By Object Multiple Physical Injury Only Contusion (Bruise, Skin Surface) Laceration Sprain Strain Multiple Physical Injury Only Contusion (Bruise, Skin Surface) Mental Stress Sprain Strain Multiple Physical Injury Only Contusion (Bruise, Skin Surface) Mental Stress Sprain Strain Claim Counts 140 Northwest District Sources: TPA Stewardship Report 2017 Page 41 LAUSD - 405 - PRA IV. Food Services Preliminary DRAFT - Subject to material change Food Services Page 42 LAUSD - 406 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Executive Summary Less complex Moderate More complex ? LAUSD's Food Services program is comprised of expenses in the Cafeteria Fund ($396M FY19) plus additional support from the General Fund ($27M FY19). It serves ~140 Current State million meals annually across 681 campus locations / 1,300 individual units. ? For the past two years, the Cafeteria Fund has generated a surplus (historically loss making prior to FY17); however, the overall Food Services program continues to lose money due to the incurrence of food services expenses in the General Fund (mainly related to the warehouse). Finding Recommendation 1. The Cafeteria Fund has generated a ~$13M surplus over the past two years; however, this surplus cannot be used to offset the ~$25M in expenses incurred by the General Fund (mainly related to warehouse functions) unless these expenses are eligible for transfer to the Cafeteria Fund. Request approval from the California Department of Education ("CDE") to transfer General Fund food services expenses to the Cafeteria Fund (in process): a) Relevant full time equivalent ("FTE") personnel costs can likely be transferred and certified. b) Job cost related personnel costs and maintenance and operations costs may be more challenging to transfer or certify if not expressly dedicated to food service related activities. 2. Food and labor account for >90% of cost in the District's food services program. LAUSD is broadly in-line with other major school districts in food costs but disproportionately higher in benefit costs. Strategic sourcing of food vendors presents incremental opportunities to lower food costs. Refer to section II. Procurement for further detail. 3. Board policy requires that employees are scheduled for a minimum of 4 hours per shift, resulting in employees receiving full benefits under the collective bargaining agreement ("CBA"). The benefit load associated with a 4-hour worker is ~184% of base salary, significantly increasing costs and limiting labor flexibility. Consider removing the requirement to staff food service workers for a minimum of 4 hours per day. Difficulty[1] Timing[1] Illustrative Impact[1] 1a) 1a) <6 months 1a) ~$11M 1b) 1b) <6 months 1b) ~$13-16M 6 - 9 months See section II. Procurement FY 19-20 ~$0-$18M Total $24M-$45M Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 43 LAUSD - 407 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Finding #1. The Cafeteria Fund has improved from generating a deficit to generating a surplus. The transfer of ongoing General Fund support to absorb this surplus is key See footnote 1 below Cafeteria Fund Excess/(Deficit) FY12 Actual - FY19 Budget Difficulty: / Timing: <6 months Potential $: ~$11M / ~$16M Sources: FY12 - FY17 LAUSD CAFR for each fiscal year; FY18 preliminary management accounts; FY19 Superintendents Final Budget ? Since FY16, the Cafeteria Fund has generated a surplus in each of FY17 (~$14M) and FY18 (~$13M) and is budgeted to generate an increased surplus of $~24M in FY19. This improvement has led to a reduced reliance on General Fund transfers to cover annual deficits. ? In FY16, the District made the decision to transfer certain costs from the Cafeteria Fund to the General Fund over concerns about certifying their eligibility for CDE compliance purposes. This is responsible for the majority of the Cafeteria Fund improvement in FY16. ? In addition to this, the incremental improved financial performance of the Cafeteria Fund is a result of revenue growth aided by the expansion of programs (e.g. Breakfast in the classroom, hot suppers) and a change in federal certification requirements. This has increased free/reduced price meal ("FRPM") eligibility in certain schools. ? As any surplus created in the Cafeteria Fund must remain in that fund, transfering General Fund support dollars back into the Cafeteria Fund is critical to achieving cost savings for food services. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 44 LAUSD - 408 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Finding #1 (continued). Of the ~$27 million in budgeted FY19 General Fund support for food services, ~$9 million relates to warehouse personnel and is likely to be the least complex to transfer See footnote 1 below General Fund Support FY19 Budget Warehouse Transportation Plant, Maintenance & Ops Nutrition Center Other Amount ($M) Personnel Expenses 8.96 Job Costs 0.75 Other Expenses 0.78 Personnel Expenses 0.06 Job Costs 5.30 Other Expenses 0.33 Personnel Expenses 1.89 Job Costs 2.60 Other Expenses 0.71 Personnel Expenses 0.72 Other Expenses 0.31 Job Costs 3.50 Other Expenses 0.77 Community Services Job Costs Total GF Support FY 2019 Budget Transfer Complexity Compliance Complexity Difficulty: / Timing: <6 months Potential $: ~$11M / ~$16M 0.67 $27.34 Source: LAUSD Management Financial Information ? ~$9M of warehouse expenses relates to 82 FTEs. If the CDE approves the pro-rata allocation of expenses to federal nutrition programs, based on meals served, the warehouse FTE expenses are the least complex to certify as compliant provided the warehouse FTEs are solely dedicated to food services. ? Similarly, the personnel expenses associated with the Nutrition Center are likely to be less complex to certify as compliant. ? Job costs, particularly transportation and M&O, pose potential compliance certification risks as they relate to individuals whose personnel costs are being split between food services and non-food services expenses (i.e. different funds and different programs). ? If there are any issues with CDE approval of the expense transfer, consideration should be given to by-passing the warehouse and sourcing all food from vendors that deliver directly to school sites. This would have the effect of increasing food costs but automatically making them eligible for the Cafeteria Fund. The increased food cost would be offset by lower staffing at the warehouse to reflect the significantly reduced throughput (60% of warehouse throughput is estimated by District management to be food). Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 45 LAUSD - 409 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Finding #2. Labor and food account for >90% of costs in the Cafeteria Fund. Employee benefits is a material driver of cost at ~100% of total salaries (incl. overtime, relief & supplemental) $ in millions Total Revenue Personnel expenses Salary Health/Welfare Pension OPEB Benefits Other Benefits Total Personnel expenses Non-personnel expenses Food Transfer of Indirect costs Materials & Supplies Other Total non-personnel expenses Actual FY16 Actual FY17 Actual FY18 Budget FY19 CAGR FY16-FY19 $ 352.7 $ 374.0 $ 378.7 $ 419.8 6% $ (86.9) $ (41.9) (10.0) (19.5) (9.3) (167.7) $ (89.4) $ (43.9) (12.1) (18.0) (9.7) (173.1) $ (94.6) $ (45.9) (14.0) (17.6) (9.8) (181.9) $ (94.0) (46.1) (17.0) (16.8) (10.1) (184.0) 3% 3% 19% -5% 3% 3% $ Expenses as a % of Fund Costs FY16 FY17 FY18 n/a n/a 24% 12% 3% 5% 3% 47% n/a 25% 12% 3% 5% 3% 48% FY19 n/a 26% 13% 4% 5% 3% 50% 24% 12% 4% 4% 3% 46% Labor & Food $ $ (165.9) $ (12.5) (4.9) (5.8) (189.1) $ (168.2) $ (11.3) (3.9) (3.4) (186.8) $ (162.1) $ (13.9) (4.1) (3.6) (183.6) $ (177.5) (18.3) (12.0) (4.2) (212.0) 2% 14% 35% -10% 4% 47% 3% 1% 2% 53% 47% 3% 1% 1% 52% 44% 4% 1% 1% 50% 45% 5% 3% 1% 54% Total Expenses $ (356.8) $ (359.8) $ (365.6) $ (396.0) 4% 100% 100% 100% 100% Cafeteria Fund Excess/(Deficit) $ (4.1) $ 14.2 $ 13.1 $ 23.8 Source: LAUSD Management Financial Information ? Since FY16, the District has transitioned from generating a Cafeteria Fund deficit to generating a surplus. This is a function of revenue growth (6% CAGR) exceeding cost increases (4% CAGR). District management advises that revenue growth has been achieved due to a change in federal certification requirements, which has increased free / reduced price meal eligibility in certain schools. ? Labor and Food account for >90% of expenses, which is typical of food services (rent, traditionally the third notable contributor, is not a factor in most schools). ? The District's benefit load, at almost 100% of salaries (base salaries + overtime, supplemental, relief & salaries), is a significant driver of cost. ? Within benefits, healthcare is the largest cost factor. ? Pension reflects the fastest growing cost component (19% CAGR), reflective of the increases in the required plan contribution rate for CalSTRS and CalPERS. ? Food cost has increased at a 2% CAGR, reflective of good cost control; however, there remains opportunities to reduce costs further through the procurement process. Page 46 LAUSD - 410 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Finding #2 (continued). The District's food services cost as a % of expenses is slightly above its peers while its benefits load, as a % of total salaries, is notably higher than other large school districts in the US See footnote 1 below Benefits as a % of Salaries - FY19 Budget Difficulty: Timing: 6 - 9 months Potential $: $10M-$13M Average excl. LAUSD 57% ? The school districts included in the comparison on this page represent 5 of the 6 largest districts in the US, by enrollment. ? Clark County was omitted from the comparison as its food services expenditures were not identifiable within its published annual budget. * New York City DoE does not identify the component of fringe benefits attributable to Food Services within its budget. Fringe benefits for FY19 have been estimated based on the FY16 and FY17 'Systemwide Expenditure Reports' for NYC DoE Food Services Fund Expenses FY 19 Budget School Districts Food % Other % Total % LAUSD 45% 55% 100% Chicago Public Schools 40% 60% 100% Miami-Dade County Public Schools 44% 56% 100% New York City DoE** 43% 57% 100% Broward County Public Schools 43% 57% 100% Peer Group Average (excl LA Unified) 42% 58% 100% ? The District's benefit load (benefits as a % of salaries (including overtime supplemental & relief salaries), at 96% in FY19 Budget, is significantly higher than this peer group (average 57%). ? The District's disproportionate benefit load is a function of: i. The provision of full-time benefits to all food services workers, including part time employees. ii. None of LAUSD's healthcare plans require employee contributions to premium costs (Chicago, Miami-Dade & Broward plans all require, at a minimum, contributions for dependents. New York has some zero contribution and some employee contribution plans). ? The District's food cost as a percentage of food services expenses is slightly above its peers. Improvements to the procurement process, including strategic sourcing, consolidation of vendors, volume pricing agreements and reverse auctions could potentially generate ~$10M - ~$13M in food savings. This level of savings would likely bring LAUSD back in line with these peers. ** New York City DoE does not identify the component of fringe benefits attributable to Food Services within its budget. Fringe benefits for FY19 have been estimated based on the FY16 and FY17 'Systemwide Expenditure Reports' for NYC DoE Sources: 1. LAUSD: Management Financial Information; 2. Chicago Public Schools FY19 Budget Book; 3. Miami Dade County Public Schools State Budget Forms 2018-2019; 4. New York DoE Fiscal 2019 Preliminary Budget; 5. Broward County Tentative District Budget July 31, 2018 Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 47 LAUSD - 411 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Finding #3. Board policy requires employees to be scheduled for a minimum of 4 hours. The total cost of hiring a 4 hour employee is almost 3 times their salary, after health and other benefits See footnote 1 below Food Services Benefit Loading by Contract Type (FY19) Difficulty: Timing: FY19-20 Potential $: $0-$18M ? LAUSD's Food Services Division employs 3,827 employees (2,868 FTE) totalling $84 million of base salaries (excluding overtime, supplemental & relief salaries) and $97 million of associated benefits and pensions. ? A District Board policy, approved in 2007, mandated that part-time workers be scheduled for a minimum of 4 hours per day. This timing entitles 4 hour workers to receive full healthcare benefits and consequently materially increases the cost of a part time employee. ? The benefits cost of hiring a 4 hour employee is an additional 184% of base salary (excluding overtime). $70 ? Allowing LAUSD to hire 2 and 3 hour employees instead of 4 hour employees could reduce the costs of the Cafeteria Fund by up to $17.9 million annually (refer to Appendix C - Food Services for calculation). Average Food Service Positions Cost (FY19) $60 Average Cost ($K) $50 ? Chicago Public Schools ('CPS') is the 3rd largest school district in the US by enrollment and the closest in size to LAUSD. Detailed personnel information for CPS is publicly available, facilitating the comparison of food services position costs between the districts. $34 $40 $30 $15 $20 $29 $23 $10 ? Average salaries for LAUSD are ~26% higher than at CPS ($29k vs $23k) for food services positions, compared to a 10% difference in annual wage between Los Angeles ($27k) and Chicago food labor ($25k) according to the Bureau of Labor Statistics. ? Although average salaries are higher for LAUSD, it is benefit cost which is the most significant disconnect, exceeding CPS by ~226% ($34k vs $15k). $LAUSD CPS Average Salary Sources: 1. LAUSD Position Report 08.07.18; 2. Chicago Public Schools Employee Position Roster 06.30.2018 (www.cps.edu) Average Benefits Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 48 LAUSD - 412 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Finding: The District's breakfast participation, food costs and productivity are both in the leading quartile of school districts while lunch participation and overall costs lag KPI: Breakfast participation Lunch participation LAUSD FY18 Quartile Ranking Quartile* Upper Median Lower 63% 1st 55% 4th Cost/Meal (incl General Fund) $ 3.49 3rd Food Cost/Meal $ 1.53 3rd Food Cost/Meal (incl Distribution) $ 1.68 2nd Meals per Labor Hour (productivity) 24.3 1st 54% 80% $ 4.04 $ 1.98 $ 1.98 19.4 41% 67% $ 3.62 $ 1.67 $ 1.67 16.3 31% 56% $ 3.08 $ 1.45 $ 1.45 14.4 Breakfasts Served/ Lunch Served/ Enrollment of Total Direct Cost Relating to Total Food Cost including (Breakfasts*0.5 + lunches + Enrollment of entire District x Total Food Cost/Total Meal Formula entire District x No. of School Food Services/Total Meal distribution/Total Meal snacks) /Total labor hours of No. of School Days in the Equivalent** Days in the Year Equivalent** Equivalent** food services staff Year Average cost of a meal, % of District students % of District students Average cost of a meal based Average cost of a meal based Average number of meals Description including all food service participating in breakfast participating in lunch on food only (excl labor) on food only (incl distribution) served per hour of labor costs (incl labor) * Quartile data based on Council of Great City Schools ('CGCS') Report October 2018 ** Total Meal Equivalents = total meal counts of all meal types with Breakfast weighted as 0.5, snack as 0.25, lunch as 1.0 and supper as 1.0, in line with the weightings applied by CGCS ? According to the CGCS, participation in breakfast has a high correlation with school attendance, alertness, health and academic success. The District introduced Breakfast in the Classroom ('BIC') in FY13 and expanded it in FY17 as a means of increasing participation, helping contribute to its upper quartile position. ? Participation in lunch, per the CGCS, indicates customer satisfaction because food selections at schools are appealing, quick, and economical. The District is in the bottom quartile in this metric. Higher throughput generally creates cost efficiencies and one factor that should be considered to improve participation includes having more points of sale ('POS') to reduce waiting times. ? In order to do this in a fiscally controlled manner, the ability to engage employees on less than 4 hour shifts is necessary. ? Overall cost/meal is in the third quartile, broadly in line with the median. The District's underperformance in this category is largely attributable to its higher cost of labor. ? The District's food cost/meal is in the leading quartile, albeit LAUSD's costs exclude a component of distribution as most food is delivered first to the District's warehouse and then on to schools. For vendors who deliver direct to school sites, these distribution costs will be included in the food cost. Including the relevant transport and warehouse costs, this implies LAUSD is in the higher cost 2nd quartile. ? LAUSD's productivity (meals per labor hour - 'MPLH') is in the upper quartile overall, although secondary schools as a group fall within the second quartile (average 19.3 MPLH). This further emphasizes that LAUSD's high labor costs are not a result of inefficient staffing but of disproportionately high costs per employee. Page 49 LAUSD - 413 - PRA IV. Food Services Preliminary DRAFT - Subject to material change Appendix - Food Services Page 50 LAUSD - 414 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Appendix A - Food Services Summary of Cafeteria Fund Excess/ Deficits $ in Millions FY12 Total Revenue $ FY13 246.5 $ $ FY14 293.2 $ $ Total Expenses (88.4) (78.0) (139.1) (14.8) (4.7) $ (325.1) Cafeteria Fund Excess/(Deficit) $ FY15 324.1 $ (86.0) (78.8) (163.3) (9.3) (3.7) $ (341.1) $ $ FY16 336.5 $ (88.7) (81.7) (188.3) (11.3) (3.9) $ (374.0) $ $ FY17 352.7 $ (97.5) (82.9) (182.3) (18.2) (4.8) $ (385.7) $ $ FY18 FY19 Budget 374.0 $ 378.7 $ (86.9) (80.8) (170.9) (12.5) (5.8) $ (356.8) $ $ 419.8 (89.4) (83.7) (172.1) (11.3) (3.4) $ (359.8) (94.6) (87.3) (166.2) (13.9) (3.6) $ (365.6) $ (94.0) (90.0) (189.5) (18.3) (4.2) $ (396.0) (4.1) $ 14.2 $ 13.1 $ 23.8 $ (28.8) $ (21.9) $ (23.1) $ (27.3) $ (32.9) $ (7.7) $ (9.9) $ (3.5) Expenses Salaries Benefits Books & Supplies Transfers - Indirect Costs Other $ (78.6) (47.9) (49.9) (49.2) General Fund Support Fund Excess/Deficit (after Gen Fund support) $ (78.6) $ (47.9) $ (49.9) $ (49.2) Sources: 1. FY12-FY17 LAUSD CAFR(s) 2. FY18 - FY19 LAUSD management information Page 51 LAUSD - 415 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Appendix B - Food Services General Fund has provided between ~$22M-$29M annually in non-reimbursed support for the food services program since FY16 $ in Millions Food Services Personnel Non-personnel Total Food Services Community Services Personnel Non-personnel Total Community Services Actual FY16 $ $ $ $ Plant Maintenance and Operations Personnel Non-personnel Total Plant Maintenance and Operations $ Facilities Acquisition and Construction $ Total General Fund Support $ $ Actual FY17 Actual FY18 Budget FY19 FY17 YoY change FY18 FY19 21.47 $ 4.62 26.10 $ 16.93 $ 1.49 18.42 $ 15.65 $ 1.76 17.41 $ 19.30 2.16 21.46 (21%) (68%) (29%) (8%) 18% (5%) 23% 23% 23% 0.54 $ 0.00 0.54 $ 0.57 $ 0.00 0.57 $ 0.57 $ 0.00 0.57 $ 0.67 0.67 5% (60%) 5% 1% 9% 1% 17% (100%) 17% 2.18 $ 0.01 2.19 $ 2.70 $ 0.16 2.86 $ 4.87 $ 0.20 5.08 $ 4.49 0.71 5.20 24% 1,354% 30% 81% 25% 78% (8%) 248% 2% $ 0.02 $ 0.01 $ - - (23%) (100%) 28.82 $ 21.86 $ 23.08 $ 27.34 (24%) 6% 18% - Source: LAUSD Management Financial Information ? Certain food services costs are funded from the General Fund over legacy concerns about certifying their eligibility for CDE compliance purposes. For example, a warehouse stock picker would need to certify (i) that they were solely dedicated to food services and (ii) the specific nutrition program to which their time was dedicated. ? When the Cafeteria Fund was generating a deficit, there was no financial incentive to seek to transfer these costs from the General Fund back into the Cafeteria Fund. ? The District has started the process of seeking CDE approval to transfer these expenses back into the Cafeteria Fund, with expense eligibility based on the pro-rata allocation of expenses to programs by meals served. ? As of FY18, 75% of the General Fund support into the Cafeteria Fund are from expenditures relating to food services functions (primarily warehouse and transport), and 22% are from plant and maintenance and operations ("M&O") related functions. Page 52 LAUSD - 416 - PRA Preliminary DRAFT - Subject to material change IV. Food Services Appendix C - Food Services Estimated savings in health benefits from removing requirement to schedule a minimum of 4 hours per employee There are 1280 employees working 4 hours per day in food services. Their aggregate cost is $15.7 million of salary and $28.8 million of benefits. Of the benefits, a large portion is attributable to the healthcare benefits (excluding OPEB) which is 155% of salary. No. of Employees 1,280 Unemploy. Benefits $10,240 0% SS Benefits $972,800 6% Pension Benefits $2,831,360 18% Medicare Benefits $229,120 1% OPEB Healthcare Total Cost $15,668,480 100% Workers Comp $472,320 3% $6,412,800 41% $17,907,200 155% $44,504,320 $12,241 $369 $8 $760 $2,212 $179 $5,010 $13,990 $34,769 Hours/Day Total Hours/Day Salary 4 % of Salary 5,120 On a per worker basis, that is equivalent to: 1 4 4 For illustrative purposes, assuming the theoretical replacement of 1280 employees working 4 hours per day with 2,560 2 hours per day employees (in order to produce the same labor hours), the District would save $13,990 per employee in healthcare costs. No. of Employees 1 2,560 Unemploy. Benefits $4 SS Benefits $380 Pension Benefits $1,106 Medicare Benefits $90 OPEB Healthcare Total Cost $6,121 Workers Comp $185 $2,505 - $10,390 $15,668,480 $472,320 $10,240 $972,800 $2,831,360 $229,120 $6,412,800 - $26,597,120 Hours/Day Total Hours/Day Salary 2 2 2 5,120 By replacing 4 hour labor with 2 hour labor, there are $17.9 million of potential healthcare savings available. As it is not expected that a full scale supplementation of 4 hour labor with 2 hour labor would occur (e.g. some additional 4+ hour labor could be engaged, 2 hour labor could be offered a higher hourly wage etc.), potential savings are estimated in a range of up to $17.9 million. Source: LAUSD Management information: Position Report 08.07.18; Page 53 LAUSD - 417 - PRA V. Transportation Preliminary DRAFT - Subject to material change Transportation Page 54 LAUSD - 418 - PRA Preliminary DRAFT - Subject to material change V. Transportation Executive Summary (1 of 2) Less complex Moderate More complex ? LAUSD's Transportation Services Division ("TSD") transports approximately 21,000 students daily across over 1,500 routes. Students are transported for four primary reasons: Special Education, Integration, Distance and Hazard, and No Child Left Behind / Core Waiver. Current State ? TSD's service model for transporting students to and from school is a combination of District-provided and contracted yellow bus service with two major private vendors. ? TSD employs 1,558 personnel and maintains a yellow fleet of 1,307 buses and the District's white fleet of 1,394 vehicles. ? TSD spent ~$182M on student transportation and fleet maintenance in FY18 (excluding capital one-time funds). State funding has been flat since FY14 ($39M). Finding Recommendation 1. Contracted bus routes are costly given declining ridership numbers. Consolidate ~175 contractor routes up for renewal in June 2019. 2. Bus routes are not being optimized due to the following factors: Consolidate District routes by determining ridership, analyzing routes for efficiency in real-time, and leveraging resources effectively: a) Bus routes are planned based on the number of students eligible for transportation rather than actual ridership. b) Almost 3,000 magnet program students who are not eligible for pupil transportation were assigned to routes in SY19. c) TSD's outdated GPS and routing technologies have limited to no reporting or analytical capabilities resulting in a lack of data to make informed decisions. Difficulty[1] Timing[1] Illustrative Impact[1] 6-9 months $12M 6-12 months $2M-$4M a) Change the magnet school pupil transportation policy from an "optout" model to "opt-in" transportation and consider home to program distance regarding magnet transportation eligibility. Issue RFP for radio-frequency identification ("RFID") readers on buses and RFID cards for students to track daily ridership in real time; build requirement for RFID into contractor agreements. b) Align on magnet program transportation policy decisions including exception approval process with District administrators. c) Issue RFP for routing and scheduling system. Issue RFP for GPS system (which syncs with RFID readers). Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 55 LAUSD - 419 - PRA Preliminary DRAFT - Subject to material change V. Transportation Executive Summary (2 of 2) Less complex Moderate More complex Finding 3. There is an oversupply of yellow bus inventory based on the number of routes. Recommendation Rationalize yellow bus fleet to optimize fleet mix and reduce maintenance and fuel costs: Difficulty[1] Timing[1] Illustrative Impact[1] a) 3-6 months a) $4M-$5M b) 6-9 months b) $600K-$1M 3-9 months $500K-$1M 12 months $1M-$2M 12 months+ $1M-$3M 3-6 months $300K-$600K Total $22M-$29M a) Dispose of ~250 excess buses b) Dispose of 170 buses as new buses arrive in 2019 4. There is no formalized vendor performance management process in place to improve bus contractors' on-time performance and ensure that all liquidated damages are being captured. Implement a vendor performance management framework for the two pupil transportation vendors to improve on-time performance and capture all liquidated damages. 5. The current process for tracking Special Education ("SpEd") student transportation counts is highly manual leading to a loss of some Medi-Cal reimbursement. Install RFID Readers on all buses to automate tracking of actual student ridership counts and provide RFID Cards to SpEd transportation students. 6. Due to budget constraints, the District has not consistently replaced its light duty white fleet, leading to high maintenance costs for its white fleet. To reduce high maintenance costs for white fleet: a) Review and revise Policies and Procedures regarding Districtowned vehicles including light duty vehicle eligibility. b) Move to an open-ended lease structure for light duty white fleet. 7. TSD is tracking daily bus routes through an ineffective, labor intensive job cost system that is unnecessarily time consuming and outdated. Eliminate job costing for TSD daily bus routes. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 56 LAUSD - 420 - PRA Preliminary DRAFT - Subject to material change V. Transportation Finding #1: Contracted routes are nearly double the cost of District routes on a cost per rider basis; ~175 contractor bus routes could be considered for consolidation Difficulty: Key Performance Indicators - District No. of Routes Cost per Rider (FY18) Average Rate per Day per Route (FY18) 12,989 397 $4,455 $732 Special Ed 3,886 533 $9,868 $362 Total 16,875 930 $5,702 $530 No. of Routes Cost per Rider (FY18) Average Rate per Day per Route (FY18) Ridership (Sept 18) Integration LA Unified FY19 Key Performance Indicators - Contract LA Unified FY19 Ridership (Sept 18) Integration 942 31 $19,729 $3,191 Special Ed 4,177 543 $9,171 $388 Total 5,119 575 $11,114 $550 Bus Capacity - Integration See footnote 1 below Bus Capacity - Special Education Timing: Potential $: 6-9 months $12M Findings ? Designated District routes are under utilized, with larger integration buses operating at around 50% capacity. Bus stops/routes for the upcoming school year are released by Student Integration Services in October, even though TSD does not establish routes until the following June after receipt of enrollment data in May. ? While many SpEd students require customized transportation, the District has a higher cost per rider than the contractors. This may be due to the burdensome manual process to implement new routes for these students. ? On a cost per rider basis, contracted routes cost nearly double District routes. Despite declining ridership numbers, the District has been unable to stave off rising contractor costs and unfavorable contract terms (e.g. contracted buses are paid 4 hours/route regardless of actual time needed and contractors are required to have 10% additional capacity). ? While contract bus capacity on integration routes is low at only 31%, the cost per rider is high (close to $20k per student per year) to transport less than 1,000 students on 31 routes per day. Recommendations ? Align communications between Student Integration Services, schools, and TSD regarding routes and pick-up/drop-off locations. ? Automate current manual process for SpEd transportation placement process. ? Consolidate ~175 Contractor routes up for renewal in June 2019 (31 integration routes and 144 SpEd routes). ? Continue to evaluate the cost and necessity of contracted bus services. Sources: LAUSD Management information Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 57 LAUSD - 421 - PRA Preliminary DRAFT - Subject to material change V. Transportation Finding #2: Routes based on eligibility rather than ridership, leading to high costs per student and per mile KPIs - Pupil Transportation Special Education Integration Other Total Quartile Ranking* No. of Routes Eligible Riders Ridership (Sept 18) Cost per Eligible Rider (FY18) Cost per Actual Rider (FY18) Cost per Mile Operated (FY18) Average Rate per Day per Route (FY18) 1,076 428 31 1,523 - 11,100 26,106 881 38,498 - 8,063 13,931 809 22,803 - $6,906 $2,883 $4,208 $4,092 4th $9,507 $5,488 $4,583 $6,908 4th $8.87 $13.42 $11.57 4th $358 $898 $981 $537 - Quartile* Top Performing Median Worst Performing $774 $1,075 $1,479 Description Operating cost efficiency per rider Difficulty: Timing: Potential $: 6-12 months $2M-$4M $4.24 $5.07 $7.36 Sum of direct cost, indirect cost & contractor cost of bus services, divided by number of riders Formula See footnote 1 below Sum of direct, indirect & contractor cost of Sum of direct & indirect costs bus services, divided by total # of routes, of bus services, divided by divided by number of school days total miles operated transportation is available Operating cost efficiency per Operating cost efficiency per route per day mile of transportation * Quartile data based on Council of Great City Schools ('CGCS') Report October 2018 Findings ? Bus routes are planned based on the student eligibility rather than actual ridership. Recommendations ? Consider consolidating routes by: ? TSD's outdated routing technology has limited to no reporting or analytical capabilities resulting in lack of data to make informed decisions. o Changing the magnet transportation policy from an "opt-out" to an "opt-in" model and consider revising home to program distance limit for magnet transportation eligibility. ? The District only counts ridership a handful of times per year, which leads to inaccurate or nonexistent data, making it difficult or impossible to plan and adjust fleets/routes as needed to maximize efficiency. o Issue RFP for routing and scheduling system to lower mileage, cut fuel usage, and improve asset utilization. ? Almost 3,000 magnet program students who are not eligible for pupil transportation were assigned to ~240 routes in FY19. Board transportation policy changes regarding Integration eligibility made in 2012 have not been implemented in practice. o Track ridership on a daily basis in real time by equipping buses and students with RFID readers and cards. o Align on magnet program transportation policy decisions including exception approval process with District administrators, families, and schools . Sources: LAUSD Management information Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 58 LAUSD - 422 - PRA Preliminary DRAFT - Subject to material change V. Transportation Finding #3: Route consolidation and purchase of new buses is leading to an oversupply of aging yellow fleet inventory See footnote 1 below Difficulty: Key Performance Indicators - Yellow Fleet District FY19 Quartile Ranking* Quartile* Top Performing Median Worst Performing Formula Description % of Fleet Alt Fuel Average Age of Fleet (Years) Cost per Bus ($) Daily Runs per Bus 74% 1st 10.43 4th $90,109 4th 3.04 4th 65% 16% 7% 7.00 8.10 10.00 Number of alternatively fueled buses divided by total number of buses Average age of combined fleet including vehicles beyond economic repair Total direct and indirect Total number of bus runs, divided transportation cost divided by total by the total number of buses used number of buses for daily yellow bus services Eco-fuel measurement Average age of district buses Total cost per bus operating within Number of buses available for the the district total number of daily trips $47,256 $60,272 $77,139 Timing: 3-9 months Potential $: $4.6M-$6M 5.12 4.11 3.50 * Quartile data based on Council of Great City Schools ('CGCS') Report October 2018 Findings ? The District has 1,292 buses (including 145 out of service for repairs) but only operates 900 routes per day. Outside of daily routes, the yellow fleet is used for school-to-school transportation and field trips. Even when considering these incremental needs, it appears the number of buses owned is well in excess of the 15% industry spare ratio standard. ? The District operates ~400 diesel and gas buses that were manufactured before 2007, which is when more stringent emissions regulations went into effect. These buses have a high maintenance cost per vehicle. ? TSD received Measure Q bond funds of ~$33M which were spent over FY17 to FY18 on 335 new school buses, 170 of which will be delivered in 2019. Recommendations ? Rationalize yellow bus fleet to optimize fleet mix and reduce maintenance and fuel costs: o Dispose ~250 excess buses which have the highest maintenance and fuel costs. o As new buses arrive from January to June 2019, dispose of another 170 buses which have high maintenance and fuel costs. o Continue to evaluate yellow fleet mix as routes are consolidated. Sources: LAUSD Management information Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 59 LAUSD - 423 - PRA Preliminary DRAFT - Subject to material change V. Transportation Finding #4: Outdated GPS technology has limited reporting and analytical capabilities resulting in lack of data to make informed decisions and assess contractor performance Difficulty: Timing: 3-9 months Potential $: $0.5M-$1M See footnote 1 below Findings ? LAUSD contracts with two yellow school bus companies for home to school student transportation services: First Student and Student Transportation of America ("STA"). Mission Student Transportation ("MST") merged with STA in January 2018. Historically, the District has spent between $53M - $58M annually on contracted bus services, or ~35% of pupil transportation expenditures. ? Each contractor has performance standards set forth in their respective contracts based on on-time performance and a maximum "total allowable incidents" for each month that they are in operation. Incidents typically refer to late or missed trips. Contractors are assessed penalties (liqudated damages) for each late or missed trip. ? TSD is largely monitoring the bus contractors on-time performance manually, as TSD's GPS technology is outdated so is rarely used for performance monitoring due to limited data and reporting. Based on the contractor GPS data available, only 93% of arrivals are on-time with almost 50% of late buses over 11 minutes late. ? Both First Student and STA have been in breach of their "total allowable incidents" for the 2018-19 school year so far - First Student in August 2018 and STA in September 2018. Recommendations ? Issue a RFP for a GPS system to track contractor (and District) bus locations, ride times and arrival times, as well as quantify "deadhead" miles and communicate with parents and schools for District routes. ? Implement a vendor performance management framework for the two pupil transportation vendors to track and report bus contractor performance metrics and capture and bill all liquidated damages claims accurately. Sources: LAUSD Management information Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 60 LAUSD - 424 - PRA V. Transportation Preliminary DRAFT - Subject to material change Finding #5: Utilization of RFID technology to capture Special Education student transportation data will enable the District to fully capture Medi-Cal reimbursements See footnote 1 below Difficulty: Timing: Medi-Cal Billing Option Program Potential $: ? The Local Educational Agency Medi-Cal Billing Option ("LEA") allows LAUSD to be reimbursed for their cost of providing selected health services to Medi-Cal eligible students. ? Specifically, LAUSD can be reimbursed under the Medicaid program for providing specialized medical transportation services to certain Medicaid-eligible children under IDEA. Eligibility ? In order to bill for covered specialized medical transportation services through the LEA, the District must: o Provide transportation in a specially adapted vehicle or one that contains specialized equipment. o Document the need for LEA covered medical services and LEA covered specialized medical transportation services in the student's IEP. o Provide a transportation trip log that includes the mileage, origination point and destination point for each student, full name, and date transportation was provided. o Review school attendance records to verify that the student was in school and received an approved LEA covered medical service (other than transportation). Billing and Reimbursement ? LEA covered specialized medical transportation services include a per-trip component and a mileage component. These two components must be billed separately using procedure codes for maximum allowable reimbursement rates for a one-way trip of $18.54 (one-way trip as one unit of service) and for mileage of $1.30/mile. ? The amount reimbursed is 50% FMAP (Federal Medical Assistance Percentage) - the federal share of a state's Medicaid expenditures. FMAP is determined annually by state. Source: Local Educational Agency (LEA) Medi-Cal Billing Option Program Transportation Claiming Guide: June 2017 12 months $1M-$2M Findings ? The District's process to capture the information needed to submit Medi-Cal reimbursements is a manual process. ? The District recently piloted a Scantron program for SpEd transportation routes, whereby the students' information is scanned when they board the bus and the data is then directly uploaded into Welligent, instead of the current manual process. On December 3, 2018, Scantron will be live across all SpEd routes. ? While the new Scantron process will be an improvement over the current process, the manual nature currently in place leaves the potential to mis-report ridership leaving Medi-Cal reimbursements unreimbursed. Recommendations ? Consider installing RFID readers on buses and distributing RFID cards to transportation students. ? The use of RFID technology on all buses will further automate and improve the ability to accurately track student ridership thereby increasing Medi-Cal billings and reimbursements. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 61 LAUSD - 425 - PRA Preliminary DRAFT - Subject to material change V. Transportation Finding #6: Light duty "white fleet" vehicles can be more costly to fuel and maintain (~$12M annually); a leasing strategy could reduce these costs by replenishing older inefficient vehicles See footnote 1 below Findings Difficulty: Timing: ? TSD operates five major garage facilities in order to service a District-owned fleet of 1,292 yellow school buses, 1,474 trucks, autos, and vans ("white fleet"), and also 1,056 pieces of power equipment. TSD also operates two body shops and handles all fueling needs within District borders at designated fueling stations. Potential $: ? TSD's FY19 budget includes 194 employees for maintenance of the aforementioned fleet at a total employee cost of $22.8M (which includes 28 vacant positions at $2.9M). o In FY18, actual spend was on average ~$414 on maintenance (including overhead) per vehicle per month and ~$248 on fuel per vehicle per month. $1M-$3M White Fleet in Operation (1,474 Vehicles) (Avg Age: 12.2 yrs) o The budget is split roughly ~40%/60% between the white ($8.9M) and yellow ($13.9M) fleet. ? In FY18, actual white fleet employee costs were ~$6.7M and fuel expenditures totaled ~$5.6M. 12 months+ Age Group (Years): o The average age of the white fleet vehicles is 12.2 years, with over 60% of vehicles over 10 years old and 37% aged 15 years or older. The older vehicles tend to have much higher fuel and maintenance costs, imposing a significant burden on the District and its fleet maintenance workers. 0-5 5-10 10-15 15-20 20+ 10% 25% 28% 14% 24% Recommendations ? An open-ended leasing strategy for the 1,165 light duty portion of the white fleet could lead to close to $10M in potential savings over 10 years based on an analysis provided by the District. This would require the District to actively liquidate its aging fleet. Such a structure for light duty vehicles could allow the District to outsource light duty vehicle maintenance and replace more vehicles with less capital while reducing maintenance and fuel costs. ? Before such a program is implemented, a review and revision of the Policies and Procedures regarding District-owned vehicles should be conducted to determine whether the white fleet can be consolidated or further rationalized. Sources: LAUSD Management information Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 62 LAUSD - 426 - PRA Preliminary DRAFT - Subject to material change V. Transportation Finding #7: A review of the TSD Job Cost Accounting process should be held with the CFO's office to determine what parts of the process to simplify or eliminate See footnote 1 below Difficulty: Findings Timing: 3-6 months Potential $: $300k-$600k Background to TSD job costing ? LAUSD received TIIG integration reimbursements years ago which required detailed route accounting. The funding requirements have since changed and no longer requires the detailed accounting of each route to be tied to a specific school or education goal. In spite of requirement changes, LAUSD continues to track all daily school transportation through a job cost billing system. Job-costing - home to school/school to home pupil transportation ? Every route is tracked by a time consuming, detailed job cost billing system that attempts to record the cost of individual bus driver salaries and other associated costs of each route to the schools served. ? There are 9 job cost data entry operators who sit within TSD (under Bus Operations), at a cost of $600,000 per year for salary and benefits. ? In a review of similar size districts, including San Diego, an outside benchmark analysis performed by a third party did not find a district, other than LAUSD, that was tracking expenses for transportation on a daily job cost basis. Recommendations ? Review the TSD job-costing process with CFO's office to determine what parts of the process may be simplified or eliminated. ? LAUSD should follow the recommended methods in the California School Accounting Manual ("CSAM") that permit pro-rata formula distribution without detail job costing to simplify the process and free up unnecessary resources. The relevant costs could possibly be charged to a central department to avoid the time and resources involved in detailed tracking of the expenses to specific schools. Costs can then be allocated at year-end based upon an agreed-upon methodology (e.g. pro-rata student formula). ? The simplification and/or discontinuation of the TSD job-costing process should align LAUSD with peer districts and greatly reduce the complication of the system. This can be accomplished within available resources and may result in increased productivity of approximately 9 employees who currently spend some portion of their time tracking job cost details for transportation. Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 63 LAUSD - 427 - PRA Preliminary DRAFT - Subject to material change V. Transportation Other finding: Various personnel issues in relation to the District's bus drivers may be impacting recruiting, route planning, and operating efficiency within TSD Findings Heavy and Light Bus Driver Positions (FY19) ? Bus drivers comprise close to 60% of TSD personnel, with 933 bus drivers (507 heavy bus drivers and 426 light bus drivers) across ~900 District bus routes. FY19 budgeted bus drivers wages and benefits (for filled positions) are ~$55M or 34% of total FY19 pupil transportation expenditures. o There are also 205 unfilled vacant bus driver positions (90 heavy, 115 light) in the FY19 budget or $11.6M in wages and benefits. ? Despite declining ridership and reductions in routes, there have been no significant headcount reductions within TSD in recent years. ? A Board policy, approved in 2007, mandated that part-time workers be scheduled for a minimum of 4 hours per day. This limits TSD's ability to more efficiently manage its staffing and can be costly considering that 4-hour employees are eligible for full healthcare benefits. 150% 29% 227 217 29% 29% 77% 86% 69% 33% 200 29% 156 62% 57% 29% 43% 100% 100% 100% 100% 40 100% 150 100 93 50% 200 100% 100% 0% 50 0 4 Hour EE 4.5 Hour EE Salary Load 5 Hour EE Health Benfits Load 5.5 Hour EE 6 Hour EE Other Benefits Load 8 Hour EE Number of Employees (Position Cost Composition (% of Salary) 200% ? The classifications of "heavy" and "light" bus drivers are unnecessary distinctions under the CBAs and complicate recruiting and planning. 250 Bus Driver Benefit Loading by Contract Type (FY19) Recommendations ? Consider eliminating unneeded vacant bus driver positions within the budget to free up budget dollars. ? Review the number of bus drivers required, given potential reductions in the number of routes (and buses). ? Consider the possibility to consolidate bus driver positions by moving part-time positions to full-time positions and removing "heavy" and "light" bus driver classifications to allow more flexibility in staffing. Employees Sources: LAUSD Management information Page 64 LAUSD - 428 - PRA V. Transportation Preliminary DRAFT - Subject to material change Appendix - Transportation Page 65 LAUSD - 429 - PRA Preliminary DRAFT - Subject to material change V. Transportation Appendix A - Transportation Higher Performance Benchmarking Summary Median Performance Lower Performance The following is the summary of LAUSD as compared to other districts based on select performance metrics. The information is basis data as reported by Council of the Great City Schools. Where available, data for the agencies has been collected for five years from 2013-2017, unless otherwise noted. Key performance category Fleet Characteristics Operational Metrics Cost Efficiencies Fleet Efficiencies LAUSD Performance Highest Performing Median Lowest Performing Fleet age (yellow buses) 12.8 6.5 8.4 8.8 Percent of alternatively fueled vehicles 66% 74% 28% 6% Percent of buses with GPS tracking capabilities 96% 100% 98% 71% 99.9% 100% 100% 83% General education student ride time 41 22 32 36 Special education student ride time 38 31 42 43 Miles between accidents 38,405 70,948 48,116 25,598 Miles between preventable accidents 133,229 156,606 93,418 59,695 Fuel cost as a % of retail - diesel (2017) 66% 68% 80% 97% Fuel cost as a % of retail - gasoline (2017) 77% 77% 85% 90% Cost per mile $5.83 $3.90 $4.77 $5.20 Cost per rider $2,731 $703 $998 $1,185 Cost per bus $65,729 $49,686 $57,789 $58,606 Daily buses as a % of total buses 91% 91% 86% 66% Daily runs per bus 2.17 5.10 4.19 2.70 On-time performance Service Performance LAUSD Source: Council of Great City Schools Report October 2018 Page 66 LAUSD - 430 - PRA Preliminary DRAFT - Subject to material change V. Transportation Appendix B - Transportation Financial Trends $ in millions $ in millions $ in millions Sources: LAUSD Management information ? TSD's total expenditures have increased at a compounded annual growth rate (CAGR) of 2% since FY16, while personnel related expenditures have increased at a 5% CAGR since FY16. The benefit load, at over 70% of salaries, is a significant driver of this cost and has increased at a 9% CAGR over the same period. ? Bus contractor expenses are the main cost driver of non-personnel expenses, equating to ~35% of total FY18 pupil transportation costs. In FY18, TSD exceeded its budget by $6M, primilary due to an overage in bus contractor expenditures. In the FY19 budget, contractor costs are budgeted at $44M compared to $56M per the contractor agreements, suggesting a potential underbudgeting of contractor costs. The $13M variance could be made up by offsetting against unfilled vacanices if not filled before year end. ? Fleet Maintenance (White Fleet) costs have increased by 9% CAGR since FY16 due to the rising cost of salaries and benefits and high costs of maintaining the aging white fleet. * Other Transportation includes alternative transportation costs due to distance or hazards, athletic program transit, community recreation programs, and public carrier fare. Page 67 LAUSD - 431 - PRA Preliminary DRAFT - Subject to material change V. Transportation Appendix C - Transportation Enrollment and Ridership Enrollment and Ridership for Magnet1 $71,875 $73,347 $79,955 ? Students are primarily transported for the following reasons: $77,423 120,000 $75,000 90,000 60,000 $100,000 79,485 83,105 88,600 $50,000 $25,000 75,861 30,000 Cost ($K) Number of Students 150,000 $20,000 26,106 15,000 $10,000 0 2015-2016 Ridership 14,016 13,904 13,848 2016-2017 2017-2018 2018-2019* Enrollment Eligibility $0 Expenditure $78,582 $79,046 $78,219 $100,000 120,000 $75,000 90,000 $50,000 60,000 20,000 72,973 73,561 73,085 73,185 11,100 10,000 $25,000 $20,000 $10,000 8,909 0 2015-2016 Ridership 2016-2017 Enrollment 8,489 2017-2018 Eligibility 8,081 Cost ($K) Number of Students $76,054 2. Magnet, Capacity Adjustment and Permits with Transportation are all Integration programs where school bus transportation is provided if the school of attendance exceeds a two-mile radius of the assigned school for elementary students or five-mile radius of the assigned school for middle and high school students. 3. Students are transported because the walk route they take from home to school and back is potentially hazardous (e.g. students who must cross freeway off ramps, railroad tracks or other hazardous conditions as determined by the Board of Education). Enrollment and Ridership for Special Education 1 150,000 1. Transportation for special education students is mandated by federal law under the Individuals with Disabilities Education Act of 2004 (IDEA). This service is provided regardless of the proximity of the child's home to the child's school of attendance and is based on the child's Individualized Education Program. ? Despite continuing declines in overall District student enrollment, magnet program enrollment has grown 25% since 2015-16; however magnet student ridership has been declining. Some of this decline is attributed to students moving schools. TSD plans its bus routes based on eligibility, as opposed to ridership, which is reflected in rising integration program expenditures which increased at a 3% compounded annual growth rate (CAGR) since FY16. ? TSD SpEd program expenditures increased at a 1% CAGR since FY16 despite gradual declines in ridership. $0 2018-2019* Expenditure *2018-2019 expenditures based on FY19 TSD Budget. 1. 2015-2016 ridership information was not available during the span of the analysis. 2. 2017-2018 ridership survey for Region E was not available; figures calculated pro-rata by assigned magnet/SPED students as a % of total riders. Sources: LAUSD Management information Page 68 LAUSD - 432 - PRA VI. Facilities M&O Preliminary DRAFT - Subject to material change Facilities M&O Page 69 LAUSD - 433 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Executive Summary Less complex Moderate More complex Current State ? LAUSD Facilities Maintenance & Operations ("M&O") comprises over 4,000 in-house crafts people and staff, responsible for maintaining the District's ~92.5 million sq. ft. of real estate. In FY18, M&O costs totaled ~$618 million. ? LAUSD's portfolio of properties has grown over recent years, despite declining enrollment. Many properties are old and nearing the end of their useful lives, increasing emergent demands. The M&O team has prioritized resources to focus on emergency work orders and has implemented initiatives to increase the efficiency of operations, yet continues to be challenged to meet the demands required to maintain LAUSD facilities. Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 6-9 months + $4M-$6M 1. Staffing levels for M&O were significantly reduced in recent years and despite a rebound to an acceptable range based on industry practice, it is unable to fully meet the needs of schools. a. Consider using outside service providers to supplement the workforce and complete routine activities ("Out-Tasking"). b. Consider a transition to an Integrated Facilities Management ("IFM") outsource model for all services where possible. 12 months + $6M-$7M 2. M&O staff are attempting to navigate and improve District processes, but many constraints and inefficiencies exist. Work orders average >30 days for resolution and >75% are of an emergent nature. a. Improve processes to increase productivity of all M&O staff by implementing a tiered service approach for craft work. 9-12 months $1M-$1.5M b. Hire 12 schedulers to reduce the administrative burden on supervisors. 9-12 months $1M-$1.5M 3. LAUSD's total square footage of schools has grown 24% since 2001 despite a decline in student enrollment of 15%. Administrative office space is old, with large office and workstations allocated to staff. a. Evaluate reducing the property footprint maintained by developing an appraisal process for consolidation or alternative use across the facilities portfolio. Execute on space reductions. Define parameters based on requirements of CA Ed. Code and look to Board for approval. 12 months + $16M-$18M 9-12 months + $6M-$8M 3-5 months TBD Total $34M-$42M b. Develop a plan to consolidate staff use of administrative office space in alignment with current and future staffing needs. Excess space could be leased to an outside party. 4. Data is being collected on services provided by M&O resources and the condition of facilities, but the information is not shared across functions or tracked against industry best practices. Develop meaningful metrics that are tracked and reported against industry benchmarks to identify areas of attention for improvement. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 70 LAUSD - 434 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Finding #1. M&O craft workers struggle to meet District needs. Increasing use of outsource provider(s) for routine tasks may save $4M+ annually, increasing to $10M+ under a full IFM model See footnote 1 below Finding Difficulty: LAUSD is currently facing a number of staffing challenges. During the recession, the M&O staff was significantly reduced, although headcount has since increased to meet average industry expectations. LAUSD employs over 4,000 in-house craftspeople and staff that require management and administrative support. In-house costs account for 87% of the total M&O spend, not including utilities (see Appendix A for details). This M&O group is challenged to meet the high demand for repairs and maintenance due to the advanced age of the schools and inefficient operational processes. Available resources have focused on urgent and emergency issues instead of earmarking resource time for predictive maintenance, resulting in higher total cost of service. Timing: 12 months+ Potential $: $10M-$13M Recommendation Consider increasing the use of outsourced service providers to complete routine tasks ("out-tasking"). Over time, consider moving to an outsource model for all tactical services, beginning with commonplace and easily transferrable activities. Leading organizations typically outsource all tactical services to one or two large providers. Given LAUSD's large geographical footprint, develop regional relationships with strategic vendors to support all maintenance and operation activities. ? LAUSD should consider utilizing outsource providers for routine, low-skill tasks, such as painting, graffiti removal, filter replacements (a/k/a "out-tasking"). These tasks may be appropriate for some LAUSD craft workers but are not an efficient use of LAUSD's more experienced crafts workers. Increasing the outsourcing of routine tasks could facilitate a decrease in the number of outsourced complex tasks and provide opportunities to complete routine tasks after hours. ? Evaluate and negotiate the internal labor agreements in consideration of the ultimate goal of reducing overall costs of the M&O division. Begin to outsource commonplace and easily transferrable services as part of a potential transition to an IFM model. Utilizing out-tasking services will allow attrition to reduce in-house staffing levels or M&O could create a program for staff to voluntarily transfer to the outsource service provider. ~$10M-13M total annual savings assumes a 3% reduction in M&O and custodial costs under an IFM model. Benefits Challenges ? Eliminates overhead and administrative need to manage large workforce. ? Time to identify and transition to strategic vendors to support the M&O team. ? Provides the same level of service at a reduced cost. ? Short-term additional cost of outsourced, flexible, or temporary resources. ? Focuses resources on skilled tasks and predictive maintenance efforts, which will lead to reductions in higher-cost service call work orders. ? Political, labor and legislative hurdles to increased use of outside providers. ? Contractual constraints with a shift towards increased use of outside vendors for services. ? Provides the opportunity to complete maintenance outside of school operating hours. Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 71 LAUSD - 435 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Finding #2a. Maintenance activities are reactive. The District should consider implementing a tiered system to match craft worker experience to work order complexity and ensure appropriate level of resources are applied See footnote 1 below Finding Difficulty: M&O teams are doing their best to provide service and have improved many processes, yet teams are still reactive and focused on emergencies (see detail in Appendix B). Unplanned emergencies often result in higher costs versus predictive maintenance activities. The average number of days to complete work orders is high despite meeting industry standard staffing levels, suggesting that operational processes are limiting the amount of "wrench time" craft workers spend resolving service calls (see detail in Appendix A). As an example, area directors report that travel times between LAUSD sites often reduces the amount of "wrench time" on site. Additionally, expensive skilled craft worker resources are spending time completing routine tasks (see detail in Appendix C). Timing: 9-12 months Potential $: $1M-$1.5M Recommendation Improve processes to ensure that M&O priorities are focused on the best use of existing resources. Ensure that craft workers with the appropriate skill level and training are assigned to particular work orders. Aligning resources with maintenance needs will improve craft worker efficiency, reduce the time to resolve a work order and eventually limit the need for out-tasked services. In addition, confirm that necessary parts for a work order are on hand to prevent additional trips between M&O sites. Savings estimates are based on the previous school year's maintenance costs and estimated at 1%-3% savings in efficiency per year based on similar industry experiences. Establish a tiered system of complexity for incoming service calls and routine maintenance work orders. Work order complexity will be defined based on historical data and craft supervisor expertise. Work orders are grouped into tiers and associated with necessary craft worker skills and training. Work is then matched with the appropriately skilled worker, based on the complexity of the task, and combined with expected parts availability. Craft workers can transfer work orders to the next appropriate tier if they discover the required work is beyond their skill level. ? An inventory list should be developed based on common failures seen at LAUSD facilities. Lists and parts could be carried by each tier level of craft worker on their vehicle, matching common activities to common materials. In addition, coverage areas could be defined for each tier of craft worker and aligned with assigned work orders, shortening the travel time and increasing the number of work orders completed per craft worker. Low complexity and high frequency tasks could be grouped into smaller coverage areas, while high complexity tasks and skilled craft workers could typically be responsible for a larger coverage area. Other Opportunities: Stagger work shifts to increase the amount of work time that falls outside of regular school hours; Develop preventive maintenance ("PM") work plans at the asset level and generate work orders regularly for each asset that requires a PM and create PM cycles for key items such as painting and HVAC replacement; prioritize PM work orders to reduce the amount of higher cost, disruptive breakdowns that generate service calls. ? Benefits ? ? ? ? Increase productive time at a facility site and reduce travel time. Shorten work order time to issue resolution. Improved preventative maintenance will reduce the number of emergency work orders and as a result, lower work order costs. Build predictability in parts usage. Challenges ? ? ? ? Time to develop inventory parts lists. Time to align craft workers to regional coverage areas. Requires training, effort to implement, and discipline to maintain new practices and procedures. Time to update Maximo in order to enable this solution. Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 72 LAUSD - 436 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Finding #2b. Administrative tasks distract Area Facilities Service Directors ("AFSD") and craft supervisors from valuable responsibilities. Enlist scheduling resources to take responsibility for administrative tasks See footnote 1 below Finding Difficulty: The District's 59 AFSDs are burdened by administrative tasks and spend a large portion (~30%) of their day handling tasks such as on scheduling craft workers, invoice processing, and sourcing parts, reducing the time spent at facility sites to oversee craft workers and assist with field issues. School principals indicate that they have seen field craft workers taking excessive breaks and that maintenance tasks have been unnecessarily overstaffed. AFSDs also report that they have found field craft workers to be unproductive without supervision, as demonstrated by the high average number of days to complete work orders despite M&O having industry standard staffing levels. Timing: 9-12 months Impact: $1M-$1.5M Recommendation Enlist scheduling resources to absorb administrative tasks that are currently being handled by AFSDs and craft supervisors. Removing administrative burdens from craft supervisors and directors will allow them to focus on necessary maintenance activities such as on-site field presence and ensuring craft workers are working productively to complete assigned work orders to the best of their ability. Craft supervisors should also provide their expert advice on complicated work orders, determine next steps, and influence progress towards resolution. Scheduling tasks should be taken over by skilled schedulers who are compensated at the average administrative cost rate (~$93,989) which is significantly less than the average supervisor cost of $140,314 (see Appendix D for details). Hiring 12 schedulers and distributing those resources amongst the M&O craft specializations is estimated to cost ~$1.1M annually. Taking scheduling tasks from supervisors and providing coverage with administrative resources, could create net savings of $1M-$1.5M per year by allowing supervisors to focus on high complexity tasks and limit the need for outside vendors to accomplish the same tasks. ? Benefits ? ? ? Better supervision of craft workers in the field to increase productivity. Skilled expertise in the field to assist with higher complexity tasks and to mentorship of craft workers. Further understanding of number of hours or resources need to resolve M&O tasks. Challenges ? ? ? Approval for additional division resources. Specific training on scheduling skill set. Requires training, effort to implement, and discipline to maintain new practices and procedures. Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 73 LAUSD - 437 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Finding #3a. Capacity and utilization data indicate opportunities to reduce square footage, right-size the property footprint, and lower M&O costs, including current inventory of ~5,500 portable buildings See footnote 1 below Finding Difficulty: Enrollment at LAUSD schools has declined approximately 15% since 2001 while square footage of facilities increased 24% (see Appendix E for details). Portable buildings account for approximately 9% of total square footage. Reported data on school capacity and utilization shows that enrollment is at 88% of the defined capacity, which does not reconcile with the trends in enrollment and square footage. While utilization is in line with benchmarks for spare capacity, over 200 schools have >15% excess capacity (see Appendix E for details), leading to ongoing maintenance costs of unused areas. While rebalancing is a challenge, there is excess capacity at many schools. Timing: 12 months+ Impact: $16-18M* * Note: Does not include remediation or other costs necessary to achieve savings Recommendation Reductions in the footprint of all facilities could reduce ongoing expenses for those areas and allow M&O teams to focus on having a positive impact on utilized areas. Create a task force to identify opportunities for unused or underutilized spaces, including the re-use or conversion of land to other public use or benefit to LAUSD through redevelopment. LAUSD should develop a process to identify facilities that may be consolidated and work to dispose or repurpose the sites, starting with a detailed review of sites that have high excess capacity. Additionally, individual schools should be assessed to determine if M&O activities can be consolidated within that school. CA Ed. Code requirements and school board input could be used to define parameters and approval. Planning teams could work with principals to determine how to efficiently configure schools and create opportunities to portion or divide off space in a safe and secure manner. Inspections could continue with a defined minimum level of maintenance to ensure upkeep and safety. Achieving savings may require a significant upfront cost but could result in projected $14-15M in annual savings by eliminating maintenance, custodial, and utility costs for excess space, assuming minimal impact on overall District enrollment. The solutions above are beyond the purview of LAUSD Facilities M&O; however, the M&O division does have control over efforts to reduce the remaining ~5,500 portable buildings. M&O should continue to work with schools and identify bungalows that are not being used or where the current use can be relocated to permanent structures. Unused portable buildings could be assessed for value and then monetized or disposed of. A $2-3M annual savings is estimated for these activities. ? ? Other Opportunities: Enforce standardization program to reduce the variability of parts and reduce the amount of special services provided by the M&O division. Benefits ? ? ? ? Allow M&O to focus more efforts on higher utilized facilities. Reduce the total number of assets to be maintained. Minimize M&O costs for unoccupied and underutilized areas. Potential for leasing or conversion of assets and land into revenue generating assets. Challenges ? ? ? Political and community considerations with consolidating schools and potential re-use of public land. Requires cooperation and acceptance from school principals, communities, students and other users. Board approvals and legal requirements. Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 74 LAUSD - 438 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Finding #3b. Based on current headcounts at 333 S. Beaudry, LAUSD is allocating ~370 square foot of space per employee, compared to leading companies which average ~150 square foot per employee See footnote 1 below Finding Difficulty: LAUSD has over 5 million square feet of administrative office space, including approximately 1.4 million square feet at 333 S. Beaudry in downtown Los Angeles. Large offices and workstations were observed as well as a significant amount of vacancies. Based on current headcounts at 333 S. Beaudry, LAUSD is allocating ~370sf per employee, compared to leading companies which average approx. ~150sf per employee. This space continues to incur expenses for maintenance, cleaning and utilities in the same manner as occupied space. Timing: 9 - 12 months+ Impact: $6-8M* * Note: Does not include remediation or other costs necessary to achieve savings Recommendation Similar to the deep study effort into school capacity and utilization, LAUSD should conduct an assessment of the administrative office areas, with a particular focus on the office building at 333 S. Beaudry. LAUSD should adjust its utilization and space allocation metrics to meet current practices, allowing for a reduction in space. The process should consider any headcount projections, strategic staffing plans, and define LAUSD space needs in relation to industry standards. Space utilization guidelines should be updated to meet current standards, including opportunities for alternative workplace strategies and leasing unused space to other users. A phasing plan to consolidate personnel onto common floors or areas could free up blocks of space to be considered for lease to other parties which would generate revenue for LAUSD. It is anticipated that ~250,000sf of office space at 333 S. Beaudry could potentially be vacated through consolidation of LAUSD staff in other areas. Current downtown LA office market Full Service Gross ("FSG") rents for similar class office space is ~$30 psf, implying LAUSD could potentially generate ~$7.5M of annual rental revenue on excess space. ? ? Benefits ? ? ? Potential revenue from leasing of space to other parties. Allow for refresh of existing office space to newer finishes and office standards. Improved space can positively impact employee morale and productivity, turnover. Challenges ? ? Effort required to track metrics and data and to analyze it for use. Initial investment to upgrade and consolidate space. Sources: LAUSD Management information, stakeholder interviews, benchmark data Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 75 LAUSD - 439 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Finding #4. Existing M&O data is under-utilized. Use data collected to drive continuous improvement and identify areas for cost savings. Monitor additional KPIs. See footnote 1 below Finding Difficulty: The M&O division is tracking useful and valuable data on performance of operations and the condition of sites. However, this data is not routinely compared to industry benchmarks as a tool to understand how performance compares to industry standards (see Appendix F for details). In some cases, such as with satisfaction surveys, the information collected is subjective in nature and thus has questionable value. While the surveys may be coming back positive, end users have stated that they are not reporting their actual negative opinions (see Appendix G for details). Timing: 3-5 months Impact: TBD Recommendation LAUSD should consider tracking metrics and benchmarking them against industry standards to identify areas of focused improvement. This includes tracking KPIs and useful metrics that inform on cost impacting performance. Data can be used to assist with strategic planning, such as: route planning, allocations of technicians by area or by site (including dedicating resources to areas or needs), determination of appropriate skills needed, etc. See appendix for comparisons of current LAUSD data to select industry benchmarks. Use of objective benchmarks to measure personnel performance and increase accountability for meeting benchmark standards. Implement consequences or corrective actions based on objective results. Some additional metrics that could be helpful but that are not tracked or compared against benchmarks include: ? # of work orders completed per craftsperson ? # work order by trade, by area, by region ? Revise existing satisfaction survey reports to contain fewer subjective questions. Surveys should provide concrete evidence that the work orders were completed and at a high quality level. Survey questions could be revised to ask: (a) If the requestor received a response indicating that the service call was received and acknowledged; (b) if they were given a estimate on when the issue would be resolved; (c) If the request/issue was resolved; and (d) is any further action needed. ? Future savings should be expected once tracking and reporting are in place. Savings will be dependent on the identified improvement opportunities made apparent by new KPIs. Other Opportunities: Prioritize project planning in order to spend time effectively on developing projects that ultimately could get funding approved. Tier approval process to get faster approvals; Establish funding for the replacement of critical assets that are at the end of their useful life. Allow an expedited approval process for projects that meet this replacement criteria. Document, communicate, and enforce prioritization processes. Track time to complete prioritized projects. Improve communication with other division of LAUSD via training. Request feedback on what is relevant information to communicate. Use a single database to track status of planned projects. ? Benefits ? ? Data collected can provide intelligence on performance and be used to identify areas of improvement. Improvements in metrics translate into cost savings. Challenges ? ? Effort required to track metrics and data and to analyze it for use. May need to revise processes to ensure appropriate data is collected. Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 76 LAUSD - 440 - PRA VI. Facilities M&O Preliminary DRAFT - Subject to material change Other potential areas within LAUSD facilities for further consideration of savings and efficiencies performance assessment ? ? ? Project planning and development: o Define the school improvement program o Evaluate the gate approval process, project prioritization, and communication between M&O teams Architecture and engineering services: o Understand the scope of energy management programs; energy efficiencies and utility cost reduction strategies o Evaluate time to complete designs, project prioritization, and communication between M&O teams Facilities Condition Assessment (FCA): o Evaluate current assessment process and Facilities Condition Index (FCI) results o Future application of collected assessment data o Continuation of the FCA program Page 77 LAUSD - 441 - PRA VI. Facilities M&O Preliminary DRAFT - Subject to material change Appendix - Facilities M&O Page 78 LAUSD - 442 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Appendix A - Facilities M&O Finding #1. Overview - FY18 Operational costs In-house costs account for 87% of the total M&O spend, not including utilities $ in millions Cost Category In House Spend Maintenance $ 164.2 Maintenance - Overhead $ 21.8 Custodial & Grounds/Ops Labor $ 208.5 Custodial & Grounds/Ops Supplies $ 9.4 Operations Overhead $ 5.1 Other M&O Admin $ 17.6 Utilities Total $ 426.6 Vendor Spend Total Spend $ 63.5 $ 227.8 $ 21.8 $ 208.5 $ 1.9 $ 11.2 $ 5.1 $ 17.6 $ 126.0 $ 65.4 $ 618.0 Source: LAUSD Management information - preliminary FY18 actuals Page 79 LAUSD - 443 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Appendix B - Facilities M&O Finding #2a. FY18 work orders and FY18 service calls M&O teams focus on reactive service calls at the expense of preventive maintenance ('PM') ? LAUSD's current ratio of service calls versus preventive maintenance is not in line with industry benchmarks. The work order ratio at leading organizations typically breaks down to 30% unplanned work and 70% planned PMs ? According to last year's work order data, LAUSD's M&O department was overwhelmed with service calls due to emergencies, struggling to keep up with the volume of incoming calls. One maintenance area reported roughly 200 service calls per day, with the ability to complete only 100 calls in the same timeframe ? LAUSD's maintenance program is highly reactive, with minimal future planning. While preventive maintenance is being done, it is focused on regulatory requirements and PM work orders are generated at a site level versus at an asset level, resulting in loss of equipment history and tracking Source: LAUSD Management information, benchmark data M&O appropriately prioritizes emergency calls, but does not efficiently complete routine work ? M&O effectively prioritizes emergency calls, but at the expense of routine calls ? The current time to resolve service calls is longer than the expected benchmark. Leading facilities operations strive to have over 95% of work orders completed within an expected timeframe. For example, routine calls should be resolved within 7-14 days ? Work orders that take longer than 30 days to resolve should be rare. Larger scopes of work should be reclassified as small projects and managed outside of the work order process Source: LAUSD Management information, benchmark data Page 80 LAUSD - 444 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Appendix C - Facilities M&O Finding #2a. Craft worker resources Expensive skilled resources are spending time completing routine tasks Job Title Carpentry Senior Carpenter Carpenter Difference Average Cost $ $ $ 114,672 107,997 6,675 ? Across M&O crafts, the cost difference between craft field worker and a senior craft field workers is approximately $7,000 ? At present, there are 102 senior craft workers employed ? ? Electrical Senior Electrician Electrician Difference $ $ $ 119,296 112,247 7,049 Plumbing Senior Plumber Plumber Difference $ $ $ 122,074 114,945 7,129 Heating & Air Conditioning (HVAC) Senior HVAC Technician HVAC Technician Difference $ $ $ 123,351 116,132 7,219 Difference between average Senior Craft Workers cost and average Craft Workers cost $ 7,018 Cost Difference for 102 Senior Craft Workers Average Cost on Administrative Tasks (30%) $ $ Based on LAUSD Management interviews, senior craft field workers reportedly spend up to 30% of their work day on tasks that could be handled by non-senior craft field workers ? ? Employing senior craft workers results in a yearly cost of ~$716,000 above the cost of employing non-senior craft field workers The M&O department is spending an extra ~$215,000 per year paying senior craft field workers to complete routine tasks, below their level of expertise LAUSD's skilled workforce is stretched to meet facility needs and deliver necessary services. There is an opportunity to align resources with responsibilities and improve the productivity of all craft workers 715,836 214,751 Source: LAUSD Management information Page 81 LAUSD - 445 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Appendix D - Facilities M&O Finding #2b. Craft supervisor priorities Highly skilled craft supervisors spend valuable time on administrative tasks Job Title Electrical Technical Supervisor Floor Covering Technical Supervisor Swimming Pool Technical Supervisor Area HVAC Supervisor Area Plumping Supervisor Area Electrical Supervisor Paving Supervisor Landscaping Supervisor Glazing Supervisor Area Carpentry Supervisor Area Operations Supervisor Tree Maintenance Supervisor Average Cost Positions $ 158,212 1 $ 158,207 1 $ 154,758 1 $ 150,939 5 $ 149,179 7 $ 145,181 8 $ 144,721 1 $ 131,806 1 $ 131,226 1 $ 126,086 4 $ 120,119 28 $ 113,331 1 Average Maintenance Area Supervisor Cost $ 140,314 59 Average Maintenance Area Supervisor Cost on Administrative Tasks (30%) $ 42,094 59 Average M&O Administrative Cost (Schedulers) 93,989 $ Potential Cost Savings $ 2,483,553 12 $ 1,127,868 $ 1,355,685 ? Director interviews indicated that area supervisors spend a large portion, around 30% of their day on administrative tasks such as scheduling, invoice processing, etc. These activities cost LAUSD $42,094 per supervisor ? LAUSD currently employs 59 supervisors, resulting in a total yearly cost of $2,483,558 spent on scheduling activities ? Scheduling tasks should be taken over by skilled schedulers who are compensated at the average administrative cost rate ? Hiring 12 schedulers and distributing those resources amongst the M&O craft specializations will cost $1,127,868 ? Taking scheduling tasks from supervisors and providing coverage with administrative resources, could create net savings of $1-1.5M per year ? LAUSD's skilled workforce is stretched to meet facility needs and deliver necessary services. There is an opportunity to align resources with responsibilities and improve the productivity of supervisors Source: LAUSD Management information. Cost reflects salary and benefits Page 82 LAUSD - 446 - PRA VI. Facilities M&O Preliminary DRAFT - Subject to material change Appendix E - Facilities M&O Finding #3a. Portfolio Allocation and Capacity LAUSD's portfolio of properties is vast and has grown despite falling enrollment Historical trends and observations suggest LAUSD has more capacity than needed ? Self-reported E-CAR data shows enrollment as a percentage of capacity at 88.2%, but capacity varies greatly by school. However, additional study is needed as trends in portfolio growth and declining enrollment, and M&O staff reports suggest greater excess capacity. ? Square footage of K-12 classrooms has grown 24% since 2001. Enrollment, including charter schools, has declined approximately 15% in the same period . ? Based on last year's E-CAR data, over 200 schools have greater than 15% excess capacity. The 200 schools represent 28% of reported LAUSD schools. ? There is an estimated opportunity to normalize the levels of excess capacity and reduce overall square footage of the property portfolio by 1.5-2 million square feet. Source: LAUSD Management information Page 83 LAUSD - 447 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Appendix F1 - Facilities M&O Finding #4. Benchmarking Costs per square foot are higher than school facility benchmark, while costs per student are broadly in line % of Costs 10% 37% 15% 20% 17% % of Costs 10% 37% 15% 20% 17% % of sq. ft. 6% 35% 17% 25% 18% % of students 0% 39% 12% 18% 31% Total custodial costs at LAUSD trend significantly higher than industry benchmarks Sources: 1. LAUSD Management information 2. Benchmark data and the International Facility Management Association Page 84 LAUSD - 448 - PRA Preliminary DRAFT - Subject to material change VI. Facilities M&O Appendix F2 - Facilities M&O Finding #4. Benchmarking (continued) Maintenance costs psf appear in line with industry standards, but costs per student are significantly higher, suggesting excess capacity Utility costs and labor costs ? There is competition among regional institutions to attract experienced craft workers. Management advises that LAUSD has struggled to retain/attract valuable staff members for the M&O division. Sources: 1. LAUSD Management information 2. Benchmarks data and the International Facility Management Association, City of LA, LA County Page 85 LAUSD - 449 - PRA VI. Facilities M&O Preliminary DRAFT - Subject to material change Appendix G - Facilities M&O Finding #4. Survey Responses 14 staff members completed all or part of the survey, scoring Facilities M&O operations on a scale of 1 to 5 (where 5 is best) against over 200 leading practices Leading organizations strive to score 4 or above in each category Sources: LAUSD Facilities M&O staff survey responses; benchmark data Page 86 LAUSD - 450 - PRA VII. Information Technology Preliminary DRAFT - Subject to material change Information Technology Page 87 LAUSD - 451 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Dimensions of information technology ? The 12 dimensions were assessed via interviews with LAUSD and IT Department ("ITD") stakeholders and via review of data collected against benchmarks and leading practices. ? The findings and recommendations resulting from the assessment of the 12 dimensions were consolidated into four key themes for cost optimization, as set out below. IT Dimensions 1 Data Center 7 Telecom 2 Hardware 8 Application portfolio 3 Enterprise Service Management 9 Enterprise Architecture 4 Procurement 10 Governance 5 Security 11 Facilities Tech Services Network 12 6 2 1 IT Finance Four IT cost optimization themes 4 3 Page 88 LAUSD - 452 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Executive Summary (1 of 2) Less complex Moderate ? IT is responsible for building and maintaining the technology needed to support successful learning in LAUSD. Current State More complex ? At District sites, IT is in charge of surveillance systems, network, alarms, radios, phone systems and PA/intercoms. ? IT has a 300+ application portfolio supporting the central office, school front office, teachers, students and families. ? IT supports over 1,300 schools, 400,000+ computing devices, 95,000+ wireless access points and 46,000+ network devices. Standardization Effective Org Structure Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 1. a) IT spend is overly bond centric. Possible use of bond funds to support operations. Rebalance the use of bond funds vs. general funds so that projects are capability based rather than funding source centric. 16-18 months ~$1.5M-$2M 1. b) Multiple and outdated job descriptions exist in LAUSD, causing overhead. Shift from single job descriptions (currently ~200-300) to streamline job families and reduce approval cycle overhead. 4-6 months ~$1.5M-$2M 1. c) Limited insights into the District's buying needs. Demand management of IT Service Management ("ITSM") is imbalanced. Increase collaboration with Educators so that comprehensive strategy aligns technology capabilities with school requirements. 10-12 months ~$2.5M-$3M 1. d) Shadow IT is significant resulting in duplicative resources and decentralized resource management. Consolidate all IT resources into an organizational structure that supports the District's objectives. 16-18 months ~$7M-$8M 1. e) Direct and non-direct communication channels to help desks, increasing ticket resolution times. Optimize and streamline help desks and align to ITSM standard processes. 4-6 months ~$2.5M-$3M 2. a) Multiple vendors with decentralized vendor management for a broad range of infrastructure devices. Streamline vendor footprint to drive centralization and standardization. 16-18 months ~$3M-$3.5M 2. b) Essential commodity functions (e.g., app development, testing, WAN) are managed in-house incurring overhead. Realize benefits by moving commodity services to a managed service model and increasing use of outsourcing. 16-18 months ~$8M-$9M 2. c) Enterprise applications are not fully leveraged, increasing application portfolio and costs. Develop an enterprise applications first approach to fully utilize capabilities. 4-6 months ~$2M-$2.5M 2. d) Decentralized security policies may be exposing the enterprise to risk. Develop comprehensive Enterprise security policies and procedures to encompass needs of all LAUSD functions. 8-12 months ~$1M-$1.5M 2. e) Asset management is not consistently applied enterprise-wide. Develop and operationalize an enterprise IT asset refresh policy. 4-6 months ~$1M-$1.5M Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 89 LAUSD - 453 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Executive Summary (2 of 2) Less complex Moderate More complex Rationalize & Maximize Assets Govern as one body Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 3. a) Inconsistent IT investment review process limits transparency of investments, prioritization, and budget allocation. Implement showback/chargeback model for IT services in order to provide transparency into ITD services consumption. 10-12 months ~$1M-$1.5M 3. b) Insufficient project reviews, financial delivery metrics and project cost benefit realization tracking. Establish effective enterprise-wide program management office ("EPMO") and budget oversight committee ("EBOC") with defined investment factors and thresholds. 10-12 months ~$1.5M-$2M 3. c) Lack of a formal Enterprise Architecture ("EA") results in duplicative capabilities and non-standard practices, leading to non ITD functions playing an active role in governing technology. Establish an EA practice and align with business and IT vision and strategies. 12-14 months ~$4.5M-$5M 3. d) Organizational change management ("OCM") is immature and a formal operating model is not evident. Develop a formal operating model and work with other functions to establish enterprise-wide OCM. 6-8 months ~$1M-$1.5M 4. a) Data centers (primary and data recovery ("DR")) exist in highcost, high-risk geographical areas. Shift data center to lower cost location, modernize primary data center to align with business needs and outsource DR to the cloud. 22-24 months ~$12M-$12.6M 4. b) Application portfolio (~300 active apps) is understated and not rationalized. Implement application portfolio optimization and rationalize applications to optimize current active application portfolio. 6-8 months ~$4M-$4.3M 4. c) Evidence that automation is not in widespread use. Implement emerging technologies, such as RPA, for routine IT activities and analyze historical data to predict trends. 16-18 months ~$1M-$1.3M 4. d) Lack of insights into effective controls into capital expenditure. Dramatically increase use of cloud to better address capital vs. operational balance. 16-18 months ~$1M-$1.3M 4. e) Use of managed service providers ("MSPs") is not optimized. Streamline MSP to simplify contracts. 10-12 months ~$4M-$4.5M Total $60M-$70M Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 90 LAUSD - 454 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Findings #1c, #1e, #2b, #2e, #4c: Enterprise Service Management See footnote 1 below Estimated Savings Opportunity Priority $6M - $7M Medium Difficulty: Timing: 16-18 months Potential $: $6M-$7M Findings ? Asset management software is not leveraged to better track IT assets, including but not limited to physical devices, enterprise software licenses, etc. ? Assets are refreshed on an "as-needed" basis, which causes a lack of standardization and creates a burden for technology transformation. ? Service desk processes are manual and inefficient (e.g., call tracking, first resolution, etc.). ? Multiple enterprise-wide help desks exist, providing siloed support to applications. ? Varied communication channels exist (e.g., Remedy, direct phone lines) to reach the help desks, which increase complexity of tracking tickets/issues. ? Contractors provide Level 1 and Level 2 support after hours and overflow at ~$4 per call Recommendations Financial Framework Levers Levers Opportunity Demand Management Supply Management Asset Management Consolidation Shared Services Delivery ? Develop an enterprise IT asset refresh policy and operationalize the plan. ? Extend existing implementation of Remedy across LAUSD for service management, making it the system of record while removing duplicate systems and processes. ? Train users adequately, reduce cost of other help desk systems and track efficiency metrics against service delivery for customer service. ? Leverage emerging technology, such as, chatbots to automate certain help desk processes and activities, improving efficiency and reducing operational cost. ? Increase standardization of processes and enhance consistency of end-user experience by aligning help desks to ITSM processes. ? Reduce reliance on service desk contractors for after hours and overflow that charge a premium. n n n n Organization Structure Optimization Benchmarking Process Efficiency Technology Enabled Efficiency Vendor Optimization SLA Management Modernization n n n n n n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 91 LAUSD - 455 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Findings #1b, #1d, #2b, #2c, #4b: Application Portfolio (1 of 2) See footnote 1 below Est. Savings Opportunity Priority $10M - $11M Medium Difficulty: Findings Timing: 22-24 months Potential $: $10M-$11M ? LAUSD maintains several complex and custom applications which process large amounts of data. These applications require high-cost infrastructure and personnel support. ? Individual development/testing/production processes and resources are dedicated to each major application area (e.g., MiSiS, SAP, Enterprise Reporting, Welligent, etc.). Financial Framework Levers ? LAUSD has multiple Enterprise Resource Planning systems (e.g. ITD uses SAP for payroll, accounting, time reporting, benefits, e-recruit, employee self-service whilst Facilities uses Maximo for asset management, procurement, timekeeping, payroll). See also IT Procurement findings. Levers ? LAUSD has multiple applications that are used for recruiting and other functions of HR. ? Enterprise application SAP processes most of the payroll for LAUSD. Around 20% of the payroll is processed manually. Recommendations Demand Management n Supply Management n Asset Management Consolidation ITD to prepare and provide the District with a comprehensive application roadmap. ? Consolidate Maximo and SAP to optimize cost savings, increase process standardizations and maintain one system of record for payroll, accounting, procurement, timekeeping, travel, etc. Benchmarking ? Human Capital Management ("HCM") module can be used to consolidate various HR functions. Process Efficiency ? Take an SAP (payroll, HCM, etc.) first approach and consolidate custom apps (emphasize "minimum viable product" methodology to implement must-have features/functions). Technology-Enabled Efficiency ? Rationalize applications and target them to key enterprise standard systems - SAP, MiSiS, Welligent, Remedy, Schoology. Vendor Optimization Implement Agile for rapid delivery for all projects within ITD. n Shared Services Delivery ? ? Opportunity Organization Structure Optimization SLA Management Modernization n n n n n n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 92 LAUSD - 456 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Findings #1b, #1d, #2b, #2c, #4b: Application Portfolio (2 of 2) Findings ? The current travel authorization process is manual. It involves physically printing the form and faxing it for further approvals. ? Unemployment claims are managed and maintained by a single resource by leveraging a LAUSD desktop. This may cause a single point of failure and risk of data loss. ? Business rules (e.g., attendance, graduation, etc.) are not clearly documented, increasing complexity in reports and dashboards. ? About 20 years of student data exists and can be used for more robust analytics to predict trends. Financial Framework Levers Levers Opportunity Demand Management Supply Management n n Asset Management Consolidation n Shared Services Delivery Organization Structure Optimization Recommendations Benchmarking ? Incorporate end-user training to realize benefits of the technology implementation. Process Efficiency ? SAP has a travel module which is widely used by large organizations. Process efficiency could be greatly improved by leveraging the Concur module of SAP. Technology Enabled Efficiency ? Current processes in SAP can be leveraged for unemployment claims. ? Develop and socialize a business rules repository for clear documentation of metrics (e.g., graduation rates, attendance). ? Implement RPA within IT to reduce routine IT activities (e.g., regression test, QA, security log reviews, etc.) ? Leverage machine learning and automation to understand historical data (~20 years) and predict trends. ? Generate focused reports that could benefit specific ecosystem partners, like principals, teachers, counselors and parents. Vendor Optimization SLA Management Modernization n n n n n n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 93 LAUSD - 457 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Findings #2a, #4c, #4e: Procurement See footnote 1 below Est. Savings Opportunity Priority $8M - $8.5M Medium Difficulty: Findings ? LAUSD has multiple Enterprise Resource Planning systems (e.g., ITD uses SAP for payroll, accounting, time reporting, benefits, e-recruit, employee self-service, while Facilities uses Maximo for asset management, procurement, timekeeping, payroll). See also, Application Portfolio findings. ? Education software purchasing is carried out in an ad-hoc manner. A centralized policy is not in place, which could regulate licensing costs by leveraging site licenses. ? Several end-user computing device contracts are available. Schools are purchasing devices in an ad-hoc manner with minimal emphasis on standardization (see also Hardware findings). Demand Management Over 300+ vendors exist, providing overlapping services to LAUSD IT and making it challenging to negotiate costs. Supply Management ? Timing: 16-18 months Potential $: $8M-$8.5M Financial Framework Levers Levers Opportunity Asset Management Recommendations Consolidation n n n n Shared Services Delivery Enable single source contracts with large, qualified vendors for key IT assets, without a requirement to solicit multiple vendors. Organization Structure Optimization ? Improve the procurement process to hire specialized skilled resources without impacting project schedule. Benchmarking ? Consolidate Maximo and SAP to optimize cost savings, increase process standardizations and maintain one system of record for payroll, accounting, procurement, timekeeping, travel, etc. Process Efficiency ? Establish a new process that involves ITD oversight in the purchase of end-user devices and streamline these contracts. ? Establish standards and guidelines for acquiring products and services to optimize spend and gain favorable cost savings. ? n n Technology Enabled Efficiency Vendor Optimization SLA Management n n Modernization Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 94 LAUSD - 458 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Finding #2b: Network See footnote 1 below Est. Savings Opportunity Priority $2.5M - $3.5M Medium Difficulty: Findings Timing: 16-18 months Potential $: $2.5M-$3.5M ? WAN capabilities are managed in-house, increasing cost overhead. ? Multiple vendors/manufacturers are used for network components deployed per site like switches (e.g., Alcatel, Allied Telesyn, Aruba, Cisco, HP, Perle, Uplogix) and UPS (APC, Avayan Cisco, Eaton, Lucent, Powerware, Tripplite), which complicates sourcing contracts (see Appendix B for details). Financial Framework Levers The network operations team operates efficiently by reducing overhead expense (70% reduction in expenses for the LAN maintenance contract, 40% expense reduction in operational expenses). Levers ? Opportunity Demand Management Supply Management Asset Management Recommendations ? Outsource commodity services, such as WAN. ? Consolidate vendors/manufacturers for network components (such as Switches, UPS, etc.) to gain improved purchasing power and to simplify contracts. ? Continually improve SLA enforcement for vendors (for basic and premier services). ? Improve operational efficiencies by focusing on emerging technologies, such as the Internet of Things. Consolidation n n n n Shared Services Delivery Organization Structure Optimization Benchmarking n Process Efficiency Technology Enabled Efficiency Vendor Optimization SLA Management Modernization n n n n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 95 LAUSD - 459 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Finding #2b: Telecom See footnote 1 below Est. Savings Opportunity Priority $2M - $3M Medium Difficulty: Findings Timing: 16-18 months Potential $: $2M-$3M ? LAUSD telecommunication systems are archaic and ~90% of funding currently used for telecom projects is allocated through federal funds that are not guaranteed. ? Multiple funding sources are used for telecom projects (e-Rate, bond funds for modernization, general funds for maintenance) that are inconsistent, putting projects in flight at high risk. Financial Framework Levers ? Execution of the telecom refresh program is rather slow. According to current estimates, it will take more than 7 years to complete the refresh. Levers ? A feasibility analysis of the hosted VoIP solution is being piloted at Kennedy Elementary School. ? Cellular expenditures incurred by the District are high, with the top 10 school sites spending ~$24k annually (for 38 devices) for hardware and service costs and non-school sites spending $565k annually (for 1,493 devices). Opportunity Demand Management Supply Management Asset Management Consolidation Shared Services Delivery Recommendations Organization Structure Optimization ? Develop a more aggressive strategy to secure adequate funding to maintain existing telecommunication systems. Benchmarking ? Accelerate adoption of cloud-based phone services to replace traditional phone equipment to reduce telecom expense (the average business saves ~43% on phone expense by switching to cloud) and facilitate efficient tracking and management of calls. Process Efficiency Reduce service cost share of telecom expense in school and non school sites by transitioning to VoIP . Vendor Optimization ? Technology-Enabled Efficiency SLA Management Modernization n n n n n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 96 LAUSD - 460 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Finding #2d: Security See footnote 1 below Est. Savings Opportunity Priority $1M Medium Difficulty: Findings ? A decentralized IT security program (e.g., network and physical security) adds complexity in defining, managing, maintaining and enforcing security standards. ? ITD has developed a 5-year security program that attempts to establish a much broader IT security program based on ISO/IEC 27001 standards. Execution of this program will require significant changes to current resources and technologies. ? Current security standards for applications remain at the infrastructure and application level but not at a code base level, exposing greater security vulnerabilities. ? A gap analysis completed for the District in 2017 determined that 600 information security policies were not compliant with ISO/IEC 27000 standards, putting assets in the organization at risk. Recommendations Timing: 8-12 months Potential $: $1M Financial Framework Levers Levers Opportunity Demand Management Supply Management Asset Management Consolidation n Shared Services Delivery Enhance approach to information security design, operations and standards to balance risk, usability and efficiencies. Organization Structure Optimization ? Increase effectiveness of enterprise-wide risk management system. Benchmarking ? Reduce security risks by creating and communicating a policy on key security considerations (such as access controls). Process Efficiency ? Fill gaps in resource management by hiring/upskilling current employees. ? Improve effectiveness by integrating security in every project from inception and by improving governance and accountability on businesses. ? n n n Technology Enabled Efficiency Vendor Optimization SLA Management Modernization n n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 97 LAUSD - 461 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Findings #1c, #1d, #3c, #3d: Enterprise Architecture See footnote 1 below Est. Savings Opportunity Priority $8M - $9M High Difficulty: Findings Timing: 16-18 months Potential $: $8M-$9M ? ITD's current strategic plan has limited insights into organizational change activities and a need for operating model alignment with processes and technology. ? There seems to be little focus on the discipline that imposes structure, order and predictability, providing latitude to interpret strategy, business change and technology investment priorities. Financial Framework Levers ? The IT roadmap lacks a dimension to sense environmental change and respond efficiently and effectively. Levers ? A reputable process that demonstrates a) how technology creates value, b) how technology will deliver this value, and c) how value will be captured, does not currently exist. Demand Management ? A decentralized software architecture within the IT organization leads to non standard architecture practices and guidelines, causing inefficient development, design, support and maintenance practices. Supply Management Recommendations Opportunity Asset Management Consolidation Shared Services Delivery ? Establish an EA practice creating a charter, operating model and an organization structure with roles, goals, and activities to align with business and IT vision and strategies. Organization Structure Optimization ? Develop EA principles, guidelines, patterns and practices, leveraging leading industry practices. Benchmarking ? Create blueprints and roadmaps for the business, information, application, and technology domains, creating current and future state architecture across business functional areas. Process Efficiency ? Align the business initiatives roadmap with the EA blueprint identifying gaps and opportunities. ? Identify and align IT security technologies with components of the overall enterprise to support reliable, available and protected execution of core services and capabilities. Technology Enabled Efficiency Vendor Optimization SLA Management Modernization Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. n n n n n n n n n Page 98 LAUSD - 462 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Finding #1d: Facilities Tech Services See footnote 1 below Est. Savings Opportunity Priority $4M - $5M High Difficulty: Findings Timing: 16-18 months Potential $: $4M-$5M ? Facilities IT services (a/k/a Facilities Technology Services) primarily provides support to schools at a budget of $6.5M; however, it was noted that the budgeted amount is likely understated compared to actual spend. ? The project portfolio consists of 23 projects that are mostly funded by bond money and implemented across multiple years and are funding source centric rather than business capability centric. Financial Framework Levers ? The enterprise application IBM Maximo is used for work order management, preventative maintenance, equipment inventory and personnel management. It has interfaces to CAFM, COLIN, LAUSD Contracts, and SAP. Levers ? A lack of enterprise architecture oversight limits standardization and adds integration complexity. Opportunity Demand Management Supply Management Asset Management Recommendations Consolidation Shared Services Delivery ? Unify Shadow-IT within ITD to eliminate duplicate processes, technology and resources. ? Implement an application portfolio assessment and rationalization to fully leverage enterprise applications and consolidate the portfolio within ITD. ? Pause current projects and reassess spend to ensure greater ROI and benefits to the District. ? Execute projects that are capability based to ensure appropriate allocation of bond funds. Organization Structure Optimization Benchmarking Process Efficiency Technology Enabled Efficiency n n n n n n Vendor Optimization SLA Management Modernization n n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 99 LAUSD - 463 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Findings #1a, #3a: IT Finance See footnote 1 below Est. Savings Opportunity Priority $3M - $4M Medium Difficulty: Findings Timing: 16-18 months Potential $: $3M-$4M ? The lack of a showback/chargeback model creates gaps in financial transparency and accountability of how IT spending supports District objectives. ? Total cost of ownership reporting around services, applications and projects is lacking, which impedes ITD's ability to properly budget and forecast IT spend. Financial Framework Levers ? Current IT spend is likely understated due to the presence of Shadow IT, resulting in duplicative resources and decentralized resource management. Levers ? There is heavy reliance on one-time project funding (~50%) to staff current resources, which prevents optimal resource allocation. Opportunity Demand Management Supply Management ? There is limited tracking of resources (allocation, spend, utilization) due to a lack of integration with SAP. Asset Management ? IT funds are bond centric. Consolidation Shared Services Delivery Recommendations Organization Structure Optimization Benchmarking ? Simplify showback/chargeback model for IT services in order to provide transparency into IT costs and consumption. ? Develop an IT service costing method to demonstrate cost of individual IT services. ? Orchestrate shifting of staff to long-term funding sources rather than one-time funding sources (currently at ~50%). ? Increase cost transparency by providing end-to-end tracking of IT spend (including labor). Vendor Optimization ? Rebalance the use of bond funds vs. general funds to ensure that projects are capability based rather than funding source centric. SLA Management Process Efficiency n n Technology Enabled Efficiency Modernization Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 100 LAUSD - 464 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Finding #3b: Governance See footnote 1 below Est. Savings Opportunity Priority $2M - $3M High Difficulty: Findings Timing: 10-12 months Potential $: $2M-$3M ? There is no formal IT investment review process that is consistently applied. This limits transparency of investments, prioritization and budget allocation (see Appendix C for details). ? Project reviews and financial delivery metrics are currently not enforced, leading to a need for an Enterprise Budget Oversight Committee ("EBOC"). Financial Framework Levers ? A phased approach to organizational change management creates a lax and reactive approach to transformation initiatives. Levers ? The PMO is acting in a dual capacity as an EA organization by governing technology standards. Opportunity Demand Management Supply Management Asset Management Recommendations Consolidation ? Establish effective enterprise-wide program management office ("EPMO") and EBOC with defined investment factors and thresholds. Shared Services Delivery ? Address the complexity of LAUSD operations by defining and enforcing standard policies and procedures. Organization Structure Optimization ? Establish processes to track project benefits post-implementation and increase accountability across the enterprise. Benchmarking ? Develop an IT operating model (see Appendix 1D for proposed IT operating model design) to improve performance, reduce duplicative efforts and ensure efficient resource allocation and work with other functions to establish enterprise-wide OCM. Process Efficiency Technology Enabled Efficiency Vendor Optimization SLA Management Modernization n n n n n n n n n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 101 LAUSD - 465 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Findings #4a, #4d: Data Center See footnote 1 below Est. Savings Opportunity Priority $11.5M - $12M High Difficulty: Findings ? IT has one primary data center located in downtown LA and a secondary data center that acts as disaster recovery and business continuity. Both data centers are located in high-risk areas near the San Andreas Fault and in highcost locations. ? All IT and Shadow IT applications are hosted on-premises in downtown LA with limited insights into the future infrastructure roadmap. ? Primary and secondary data center operation costs are not tracked effectively. Primary data center refresh costs of ~$18.8M are realized over 5 years out of general funds. Demand Management Bond projects totaling ~$70.2M are used for executing several projects at the secondary data center. Supply Management ? Timing: 22-24 months Potential $: $11.5M-$12M Financial Framework Levers Levers Opportunity Asset Management Recommendations n n n Consolidation Shared Services Delivery ? Move the primary data center to a lower cost and lower risk geographical area. ? Evaluate feasibility of using a hybrid backup approach (i.e., on-premises and cloud). ? Reduce operating and labor costs by eliminating dormant services that are no longer needed. Benchmarking ? Implement a strategy to systematically migrate applications to the cloud to gain efficiencies in storage and further reduce hosting costs. Process Efficiency ? Develop standard processes and procedures to increase virtualization and move applications to the cloud. ? Re-architect data centers to plan for projected District demand that exceeds current capacity. n Organization Structure Optimization Technology Enabled Efficiency n n Vendor Optimization SLA Management Modernization n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 102 LAUSD - 466 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Findings #4a: Hardware See footnote 1 below Est. Savings Opportunity Priority $2M - $3M High Difficulty: Findings ? Vendors for end-user devices (laptops, desktops, mobile devices and servers) are fragmented between Apple (~17.7% of total spend on end-user devices) and an IT distributor (~82.3% of total spend on end-user devices). See Appendix A - Information Technology for details. o LAUSD has limited VoIP capabilities and most of voice and network spend is focused on traditional telephony. ? The District has insufficient mass communication channels (PA systems, communication with parents). ? There is a lack of an enterprise-wide minimum security/CCTV technology framework. 22-24 months Potential $: $2M-$3M Financial Framework Levers The IT distributor provides end-user devices from multiple manufacturers (Acer, Dell, Haier, HP, Lenovo, Microsoft, Samsung), reducing any efficiencies that could be gained through economies of scale. ? Timing: Levers Opportunity Demand Management Supply Management Asset Management Consolidation Recommendations n n n n Shared Services Delivery Organization Structure Optimization ? Reduce vendor fragmentation by optimizing procurement for end-user needs to gain cost efficiencies. ? Roll out Bring Your Own Device ("BYOD") at schools to reduce cost pressures on ITD. Benchmarking ? Enhance telecommunication infrastructure to improve communication within the school ecosystem. Process Efficiency ? Monitor, deploy and support video surveillance to reduce risks to the District's students, staff and properties. Technology Enabled Efficiency ? Streamline and optimize multiple vendors for hardware components to increase buyer power of LAUSD and strategically position the District to negotiate cost-effective contracts. Vendor Optimization SLA Management Modernization n n n n n Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 103 LAUSD - 467 - PRA VII. Information Technology Preliminary DRAFT - Subject to material change Appendix - Information Technology Page 104 LAUSD - 468 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Appendix A - Information Technology End user devices spend by vendor ? Multiple manufacturer brands are purchased through a 3 rd party provider. ? Reducing the number of choices and/or directly contracting with OEMs could result in substantial savings. $17,631,175 Arey Jones (School) Schools $3,628,515 Apple (School) Arey Jones (Central) $4,232,146 Central Office $1,097,281 Apple (Central) $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 Source: LAUSD Management information Page 105 LAUSD - 469 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Appendix B - Information Technology Network vendor count by network device categories Wireless 5 Video Surveillance 3 UPS 8 Switch 7 Server 1 Router 2 4 PBX PA 4 Digital Media 4 Content Engine 1 Communication Server 1 0 1 2 3 4 5 6 7 8 ? Multiple vendors exist for most of the network device categories. ? Consolidation of network device vendors could result in substantial savings. ? Illustrative list of network device manufacturers used: o AVAYA o OPTEC DISPLAYS o LUCENT o PERLE o CRADLEPOINT o AND o ARUBA o HP o LG o MULTITECH o 3COM o ALCATEL o EATON o DVEO o UPLOGIX o POWERWARE o TRIPP-LITE o VALCOM o CISCO o SONY o APC o APC o ALLIED TELESYN o PANASONIC o LOGITECH 9 Source: LAUSD Management information Page 106 LAUSD - 470 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Appendix C - Information Technology IT spend on projects by Run, Grow, Transform categories Breakdown of IT spend into Run-Grow-Transform projects ? Current IT project spend is heavily focused on running the business (69%), with only 31% of IT project spend dedicated to growing the business and transformative projects. ? IT project budgets are not tracked uniformly across all IT projects. ? There is limited benefits tracking for IT projects (e.g., are KPIs met). ? Average spend on IT projects is $1.1M, with a median spend of $235K. ? The highest spend of $24M was on a telecommunications modernization project. Transform 2% Grow 29% Run 69% 0% 10% 20% 30% 40% 50% 60% 70% Source: LAUSD Management information, stakeholder interviews Page 107 LAUSD - 471 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Appendix D - Information Technology Proposed IT operating model design Engage Define to develop and manage the IT architecture District Strategy Alignment Assess and deliver to deliver specialized and integrated solutions in a rapid and agile way Strategy and Architecture District Support Solutions Delivery Enterprise Architectures Investment and Innovation Selection Architecture Design, Standards and Policies Business Needs Analysis Transition Business Concept Design Information Innovation Mgt Customer Experience Design Enterprise Solutions Solution Design Security Technology Application Enterprise PMO Project Resource Program/ Management Financial Service Management and Support Infrastructure Mgt Release and Deployment Mgt Digital Services Design Bus. Readiness (Stakeholder engagement, Bus. impacts/change/benefits assessment, Communications, Training req.) Service Cat Update Applications Mgt Security Mgt Information and Knowledge Management IM Education and Advice Reference Services Configuration Mgt Live Cutover Verification Project Controls Vendor Engagement People Management Request Fulfilment Problem Mgt Incident Mgt IT Change Mgt IT Strategy Development Market Assessment Bus. Change (Transition plan, Benefits realization, postimplementation support) IT Service Mgt Design Information and Knowledge Mgt Design Vendors and Partnerships Common across the value chain: Quality Assurance Integration - Business Process Service Catalog Partnership Mgt Config and Build Digital, Information and Knowledge Demand` Mgt Support and Specialized Support Build IT Service Mgt Design Prioritization Business Alignment Improve and assure to support the District, continuously improve the services and secure the investment Capacity Management Digital Services Management Service Level Management Workload Management Performance Management Access and Retrieval Digitization and Migration IT Continuity Management Vendor Relationship Management Financial Management Governance Govern, Comply and Manage manage and improve performance through implementation of best practices , performance measurements and continuous improvements Define Practices Project Portfolio and Bus Change Management Strategic Sourcing Financial and Investment Monitor and Report Risk Mgt Support and Service Management Portfolio Performance Vendor Performance Culture and Workforce Communicati on and Training Financial Performance People Performance Continuous Improvement Legislative Compliance Services Performance Architecture Security & Information Mgt Compliance IT Overall Performance and Continuous Improvement Approach Risk Page 108 LAUSD - 472 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Appendix E - Information Technology FY19 IT budget by category - current state (1 of 2) 1.A - Bond Projects 1.C - Limited General Fund 1. FY19 IT Budget by Category 1.D - See next slide ITD Priority Projects, 2.12% Bonds Less than 0.1%, 4.63% Bond - Core Network, 2.19% D. Bond - LAN Modernization, 10.73% Bond - Radio Communication, 3.38% ITD Efficiency Projects, 1.40% $38,407,327 Ongoing Opex 11.24% C. Bond - MiSiS, 3.56% Bond - Enterprise Reporting, 6.57% Bond - Unified Enrollment, 3.67% A. $191,020,255 Bond Projects 55.89% Bond - 2019 LE Pkg 1, 4.58% Bond - DR/BC, 6.20% Bond - School Telecom Modernization, 5.02% Bond - Learning Mgmt System, 5.35% GF E-Rate, 3.52% IT Beaudry Bldg Tech Upgrade, 0.71% $49,608,215 Limited General Fund 14.52% Various Projects, 6.77% B. $62,746,934 On-going Administered 18.36% 1.B - Ongoing Administered GF Software Bundle (Admin), 1.23% Admin Progs - LCFF & Other, 3.57% Admin RRGM Telecom Repair, 1.30% Source: LAUSD management financial information ? IT's total FY19 budget of ~$342M is allocated across 4 major areas: Ongoing Opex, Limited General Fund, Ongoing Administered and Bond Projects. ? There is a heavy reliance on bond funds for IT projects (~56% of the total IT budget). ? Not all the bond projects are shown on chart 1.A above. Bond funds that are less than 0.1% (11 bonds) are included under "Bond funds less than 0.1%" Admin Software/Hardware Maint, 7.94% Admin Telephone Exp, 4.31% Page 109 LAUSD - 473 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Appendix E - Information Technology FY19 IT budget by category - current state (2 of 2) 1.D - Ongoing Opex Ongoing Opex by salaries 4% Ongoing Opex by other operational expenses 4% 7% 1% 16% 2% 0% 3% 15.16% 22% 84.84% 62% 79% CIO IT Support Services IT Customer Services IT Enterprise Planning IT Infrastructure & Systems Support Software Applications Source: LAUSD Management financial information IT Support Services IT Customer Services IT Enterprise Planning IT Infrastructure & Systems Support Salaries Other operational expense ? ITD's total ongoing operational expense is ~$38.4M. ? Employees' salaries constitute a significant portion (~85%) of IT's operational expenses, whereas other operational expenses are ~15%. ? Streamlining IT customer services and IT support services (11% of total salary) could present significant cost optimization opportunities. ? The lack of a breakdown into expenses provides limited insights into details. Page 110 LAUSD - 474 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Appendix F - Information Technology Indicative comparative financial performance and operational effectiveness Financial Performance 100.0% 5.0% 80.0% 4.0% 60.0% 3.0% 37.1% 22.8% 40.0% 5.9% 2.1% 1.5% 4.2 4.2 3.6 3.61 3.4 3.37 3.2 3.19 Average age of end user devices Average age of computers Opportunity exists to have a consistent IT asset refresh policy to further enhance end-user experience. 244.0 169.0 200.0 100.0 53.2 0.0% IT Spending Percentage of District Budget IT Spending Capital Investments IT CapEx/ OpEx split is very disproportionate and indicates skewed spend categorization and reporting and limited financial transparency. 320.0 300.0 3.0% 2.0% 0.0% 4.0 4 3.0 3 2.0 2 1.0 1 0.0 0 400.0 4.3% 1.0% 20.0% 5 5.0 Operational effectiveness 90.0% IT Spend as a percentage of District budget is twice the median of other urban public school districts, indicating cost optimization opportunities. 300.0 250.0 200.0 150.0 100.0 50.0 0.0 270.7 0.0 IT Spending Per Student IT spend per student is ~25% of the median even though spend as a percentage of budget is twice the median. Consider reducing headcount and redeploying money for digital transformation of schools. LAUSD High Median Low Sources: LAUSD Management information; Council of Great City Schools ('CGCS') Report October 2017 136.0 76.6 55.1 Support break/fix Staffing Cost Per ticket* Multiple help desks provide granular services and additional supplication of hardware and software, leading to support break/fix costs roughly 3.5 times the median spend. *Bar represents extrapolation of provided data Page 111 LAUSD - 475 - PRA Preliminary DRAFT - Subject to material change VII. Information Technology Appendix G - Information Technology Financial framework levers: definitions and descriptions Demand Management Manage demand intake effectively to maximize value (e.g., demand/portfolio management) Benchmarking Use external benchmarking to drive toward industry parity Supply Management Process Efficiency Manage and optimize supply to deliver business outcomes Redesign or improve overall process efficiency Asset Management Technology-Enabled Efficiency Manage assets efficiently to extract more value Use emerging technologies to deliver process and cost efficiency (e.g., chatbots, RPA, cloud) Consolidation Vendor Optimization Merge and consolidate similar functions/assets/services Extract optimal value through contracts (e.g., better contract terms) Shared Services Delivery SLA Management Establish common function to deliver services at lower cost Manage service levels to meet customer value and expectations Organization Structure Optimization Optimize organization structure to eliminate redundancy in management structure Modernization Modernize current applications / infrastructure to gain efficiency Page 112 LAUSD - 476 - PRA Preliminary DRAFT - Subject to material change VIII. Budget Budget Page 113 LAUSD - 477 - PRA Preliminary DRAFT - Subject to material change VIII. Budget Less complex Executive Summary Moderate More complex ? LAUSD's Budget and Finance departments, including the Office of the CFO, Accounting, Accounts Payable ('AP'), Budget/FP&A, Payroll and Treasury, currently consist of Current State approximately 308 employees with a budgeted personnel cost of ~$38M in FY19 ? Due to recent rounds of budget cuts over the last few years, several of the departments have reduced headcount; However, within areas such as Payroll and AP, there are opportunities for process improvements and automation that could lead to cost reductions. Finding Recommendation Difficulty[1] Timing[1] Illustrative Impact[1] 1. Manual paper checks make up approximately 20% of payroll disbursements, and these checks are processed, printed, metered, and delivered to the Post Office for mailing. Engage with a 3rd party payroll services provider(e.g., ADP) to determine evaluate the possibility of outsourcing the manual payroll check process. 3 months $150K 2. Vendor invoices are submitted in various formats, creating issues with invoice visibility for the A/P department. An RFP for the implementation of Open Text technology is currently underway to centralize the majority of vendor invoicing and 3-way match process in SAP. 6-12 months $800K 3. Booking business travel is automated within SAP at central office, but is a manual process at the schools. A travel help desk manually enters all school travel forms. Roll-out the automated business travel module to schools to establish consistency and process efficiency. 3-6 months $200K 4a. To establish accountability, initiate a policy whereby a portion of overpayments, penalties and interest due to late filing of payroll paperwork could be charged back to the schools or departments (e.g., 50% charge back). 6 months $1M 12-18 months $1.5M 6 months $10.6M Total $14M 4. Time reporters and time approvers are not adhering to the established payroll cut-off dates and paper form submissions are causing payroll errors. Late filing of paperwork leads to erroneous overpayments to employees and penalties and interest owed to California Retirement Systems. 5. Special Education baseline assistant staffing exceeds CA Ed. Code requirements and has not been adjusted as part of the budget allocation practices. 4b. Internally prioritize several online payroll interface initiatives (payroll approval, certification of absence form, and self time reporting) that are slated to be implemented. These initiatives are already in process, but are not expected to be completed for several months. Consider the appropriate number of "baseline" assistants across pre-K and K-12 based on actual needs (as determined by SpEd division), IEPs, Ed Code, and other requirements. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 114 LAUSD - 478 - PRA VIII. Budget Preliminary DRAFT - Subject to material change Finding #2: Vendor Payment Inefficiencies See footnote 1 below Overview ? ? ? ? LAUSD currently disburses ~$3.5 billion in payments and processes ~500K invoices on an annual basis. Vendor invoices are currently submitted in various formats (such as email, snail mail, physical delivery, fax or digital copy) and processing is a highly manual process. The potential for data entry errors or inconsistencies is high during the invoice entry and validation process. The current process results in issues with invoice visibility for the AP department, leading to significant inefficiencies and follow-up activities in the AP Department. Difficulty: Timing: 6-12 months Potential $: $800K Recommendation ? ? ? An RFP for the implementation of Open Text is currently underway to centralize the majority of vendor invoicing and the three way match process in SAP. All invoices would be received into a centralized mailroom and scanned into Open Text using a data capture function and directly posted into SAP. This will reduce the time needed to process invoices, giving the AP department increased visibility and allow for more accurate data capture. It is estimated that a proposal to implement Open Text may be brought to the Board in the November/December timeframe, and implementation can potentially begin in January lasting approximately 6 - 12 months. The efficiencies resulting from the implementation of Open Text are expected to free up resources amongst the various positions in the AP function. It is estimated that there is an opportunity to free up 8 total positions, yielding a cost savings of approximately $800K* per year. *Estimated savings is based on positions within the AP department having an average cost of $100K per year including salary and benefits. Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 115 LAUSD - 479 - PRA VIII. Budget Preliminary DRAFT - Subject to material change Finding #3: Travel Module Process at the Schools See footnote 1 below Overview ? ? LAUSD utilizes SAP to make business travel reservations through the travel module. Currently, all employees at the central office have access to the module and are able to make their own travel reservations online. However, this module is not accessible at the school level. As a result, teachers requesting business travel must manually submit these requests to the Travel/P-Card Support Unit (which currently sits in Procurement) in order for these requests to be registered in SAP. The Travel/P-Card Support Unit currently consists of six dedicated positions (1 for each of the local districts) and one support position primarily devoted to travel support. Difficulty: Timing: Potential $: 3-6 months $200K Recommendation ? ? The SAP travel module is currently capable of being implemented at the school level and ready to be rolled out, which would eliminate the need for travel support by the positions mentioned above. It is estimated that once this module is fully implemented at the school level, and the majority of the help support function is no longer needed, the result could be the elimination of two of the above seven positions. The remaining positions could still be devoted to P-Card support and could see an increase in productivity given a reduction in workload. The cost of these positions, on average, is $100K per year for salary and benefits. Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 116 LAUSD - 480 - PRA Preliminary DRAFT - Subject to material change VIII. Budget Finding #4: Time Reporting Inefficiencies and payroll overpayments Overview The Time Reporting Process at LAUSD is currently a manual process whereby timesheets and certification of absence forms must be collected by timekeepers and approved before payroll deadlines within each payroll cycle. ? The completion, submission and approval process of the Certification of Absence forms is a time consuming process prone to many errors. Time is spent by timekeepers to track down forms which causes incorrect time code reporting and delayed payments, requiring payroll staff to correct the errors. ? Time reporters and time approvers are not adhering to the established payroll cut-off dates and missing payroll deadlines. Employees are often not being paid on their designated pay dates and as a result are missing their entire or partial paycheck. In addition, penalties and interest are owed to the California Retirement System. ? Paperwork for employees that are retiring or changing assignments is not consistently being processed in a timely fashion, leading to overpayments to employees. ? During FY18, LAUSD data suggests that certain employees were overpaid by ~$3.2M and the District also incurred penalties and interest of ~$0.5M with the CA retirement system. Overpayment to Current/Separated Employees: TIME ADJUSTMENTS CONTINUOUS ASSIGNMENT CHANGES Penalties/Interest paid to the CA Retirement System: ANNUALIZATION TOTAL EE Type Employees Amount Employees Amount Employees Amount Employees Amount Active 1,558 $ 947,728 258 $ 638,796 62 $ 106,910 1,878 $ 1,693,433 Separated 449 $ 216,934 94 $ 434,893 211 $ 810,592 754 $ 1,462,419 Totals 2,007 $ 1,164,661 352 $ 1,073,689 273 $ 917,502 2,632 $ 3,155,852 Description CalSTRS Penalties & Interest CalPERS Arrears CalPERS Administrative Fees Grand Total Amount $325,576 $142,571 $15,500 $483,547 Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 117 LAUSD - 481 - PRA Preliminary DRAFT - Subject to material change VIII. Budget Finding #4: Time Reporting Inefficiencies and payroll overpayments (continued) See footnote 1 below Recommendation 4a: Establish accountability by considering a charge back policy for payroll errors In order to encourage increased coordination with the schools in the collection of employee payroll forms, LAUSD could consider initiating a 50% charge back policy to the schools for employee overpayments to establish accountability. While in certain instances an employee may be overpaid through no fault of the school (under current practices), the intent of this new policy would be to encourage the schools to improve their internal processes, as well as communication and coordination with employees. The schools have the most direct interaction with and access to the employees and could take a larger role in reducing overpayments. Difficulty: Timing: 6 months Potential $: $1M See footnote 1 below Recommendation 4b: Automate the payroll reporting process within SAP Difficulty: Timing: Improvements to the Time Reporting System in SAP are underway. However, due to existing demands and the need to respond to special projects as they arise, the IT department is focused on multiple projects, and these critical improvements to automate the payroll function may take in excess of 18 months to implement. It is recommended that these initiatives be considered for increased priority. Phase Time to Implement Estimated Start Date Automated Time Approval 6 Months March 2019 Automated Cert. of Absence Form 6 Months September 2019* Self-Time Reporting 6 Months March 2020* 12-18 months Potential $: $1.5M *Estimated start dates could be delayed by special projects Sources: LAUSD Management information, stakeholder interviews Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 118 LAUSD - 482 - PRA Preliminary DRAFT - Subject to material change VIII. Budget Finding #5: Special Education resource allocation - budgeting practice See footnote 1 below Difficulty: Overview ? ? ? ? LAUSD's FY19 budget includes 5,762 special education assistants ("baselines") at an annual cost of ~$370 million. LAUSD management indicated that there are two requirements in the Ed Code governing baselines and beyond that LAUSD (specifically the SpEd division) has the flexibility to allocate baselines as it chooses. The two known Ed Code requirements are: 1. At least 80% of the resource specialists within a local plan shall be provided with an instructional aide. 2. For pre-school programs, the Ed Code requires one adult per every five students. The SpEd division allocates baselines to SpEd programs based on historical practices rather than a more comprehensive analysis that would consider actual needs (as determined by LAUSD and the SpEd Division). As a result of the current budgeting practice used by LAUSD, all SpEd classes appear to receive the minimum of one baseline, but many older programs receive more thereby exceeding the aforementioned Ed Code requirements. Positions Required by Ed Code or Other[1] Potential Surplus Avg Cost[2] ($) Cost of Non-Ed. Code Req. Positions ($M) 775 668 107 $54,015 $5.8M Resource Specialist baselines 1,084 994 90 $54,015 $4.8M Total 1,859 1,662 197 3,903 TBD 3,903 Pre-school baselines Timing: Potential $: 6 months $10.6M $10.6M Memo: Other baselines $54,015 $210.8M Source: LAUSD Management information as at 09/06/2018 Note 1: As determined and provided by LAUSD management Note 2: "Avg Cost" reflects the fully-loaded cost of the position (salary + benefits) Recommendation ? ? The District should consider employing a budgeting practice that more comprehensively evaluates the staffing of baseline assistants, while considering critical needs (as determined by LAUSD and the SpEd division), IEPs, Ed Code, and other requirements. A baseline staffing standard should be developed to appropriately allocate positions based on need and requirements rather than on historical practices. A further assessment should be undertaken on the staffing of the remaining 3,903 baseline positions to determine adequacy and if any opportunities exist to adjust staffing. Note 1: Implementation difficulty and timing are preliminary estimates based on input from LAUSD management and industry best practices. Actual difficulty and timing could vary significantly based on other factors. Illustrative financial impact reflects a high-level benchmark based on industry leading practices, industry benchmarks, and discussions with Management. Page 119 LAUSD - 483 - PRA VIII. Budget Preliminary DRAFT - Subject to material change Appendix - Budget Page 120 LAUSD - 484 - PRA Preliminary DRAFT - Subject to material change VIII. Budget Appendix A - Budget Budget Process Overview 1. Governor's Budget & E-Cast projns 7. November - December: Budget to actual comparison completed. Resource allocations (#3) trued up for actual costs. 2a.Resource Allocation Process 7. First interim Budget 6. July - September: Prior fiscal year closed. Current fiscal year adjusted for Norm Day enrollment (mid-Sept). 6. Year end closing 5. May - June: Budget brought to the Board for adoption. Initial Fiscal stabilization plan required if future years project negative reserve balances. Local Control & Accountability Plan ("LCAP"), a requirement of the Local Control Funding Formula, is submitted in tandem with budget. Summary of key timelines and events in the budget process 5. Final Budget 2b. Second Interim Budget 3. Budget development LCAP 4. Governor's Budget revision Source: LA Unified management information 1. January: Governor's Budget dictates expected funding per ADA. E-Cast projections, completed by LAUSD, form the basis for enrollment estimates. 2a. February-mid March: Schools allocated positions and funding for non-personnel expenditures. 2b. February-mid March: Expenditure review for remainder of current FY to estimate carryover. 3. Mid March - mid April: Initial resource allocation (teachers, nurses, principals, counselors) based on prior year position cost. 4. May: Governor's revised budget issued. District budget is revised as necessary. Page 121 LAUSD - 485 - PRA Preliminary DRAFT - Subject to material change Page intentionally left blank Page 122 LAUSD - 486 - PRA