1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 MARCH 25, 2015 9 10 CUSTOMER SERVICES AND 11 ADMINISTRATIVE EFFICIENCY COMMITTEE 12 13 14 15 16 17 18 19 20 Reported by: Juli Price Jackson 21 No. CSR 5214 22 23 24 25 26 27 28 1 1 2 P R E S E N T 3 4 For the Board Sen. George Runner (Ret.) of Equalization: Chairman 5 Jerome E. Horton 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Yvette Stowers Appearing for Betty T. 12 Yee, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief, Board Proceedings Division 16 17 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MARCH 25, 2015 4 ---oOo--- 5 MR. HORTON: Members and guests, let us 6 reconvene the meeting of the Board of Equalization. 7 Ms. Richmond, what is our next item? 8 MS. RICHMOND: Our next item is the 9 Customer Service and Administrative Efficiency 10 Committee. 11 Mr. Runner is the Chair of that committee. 12 Mr. Runner. 13 MR. RUNNER: Thank you. And I call the 14 meeting of the Customer Service Committee to open. 15 We have just one item on our agenda today. 16 And I'm going to ask Eric Steen to come on up. 17 I asked for an update and a review quickly 18 of specifically the BreEZe program and what could be 19 learned from that. 20 And let me get -- talk about it in terms of 21 its entirety in this discussion and that is -- or 22 presentation. That is, I think everyone of us are 23 painfully aware of the challenges of State-run IT 24 projects. And the microscope to which they're 25 looked at, what seems to -- at least in the media -- 26 be significant failure rates. 27 And, obviously, we're in the middle of a 28 very big IT program, changing our legacy system. 3 1 And I think it's going to be incumbent upon us to 2 know and to identify and make sure we're learning 3 some lessons from the things that are happening to 4 these other programs. 5 And, so, that's why I've asked Mr. Steen to 6 go ahead and make a presentation to just, I guess, 7 update us as to where we are on that, what's 8 happening and what we're doing to help safeguard 9 ourselves to make sure we are, indeed, doing a 10 responsible and good job for taxpayer -- taxpayer 11 dollars and our staff when it comes to the issue of 12 the -- of the -- our CROS program. 13 Mr. Steen. 14 MR. STEEN: Thank you, Senator Runner. 15 Before I jump into this, I just want to 16 issue a couple of caveats. And one is I don't want 17 to come across as critical of the Department of 18 Consumer Affairs. No doubt they worked very hard 19 and were highly motivated to have successful 20 outcomes. And they ran into challenges. 21 IT projects do run into a lot of issues. 22 And, unfortunately, they hit some pretty hard. And 23 I want -- so, I want to approach this with humility 24 as well because we aren't where they are. They're 25 years ahead of us in terms of their schedule. And 26 we are still in the procurement/pre-implementation 27 effort of the CROS project. So, just wanted to lay 28 the groundwork before I started. 4 1 The -- I've been asked -- we've been asked 2 to assess the Bureau of State Audits audit report of 3 the BreEZe project and to evaluate areas of concern 4 that might intersect with the CROS project. And, 5 so, that's what we've have done. 6 The audit itself is about 130 pages long. 7 I don't think we have the time, or probably the 8 interest, to wade through all of the findings in 9 that audit report. 10 So, what we've tried to do is to distill 11 down the issues that really are germane to what 12 we're doing at the Board of Equalization. 13 And, so, what he have done is identify four 14 main areas or four main categories of findings that 15 really are pertinent to what we're doing. 16 And those categories as follows: Lack of 17 comprehensive requirements. That was one concern 18 that the audit -- that was one audit finding. 19 Another is a lack of resources or inadequate 20 resources. Thirdly, nonconformity or not -- lacking 21 adherence to the Department of Technology's project 22 management methology (verbatim) -- methodology. And 23 then fourthly, a lack of organizational change the 24 management. 25 Those really are the four areas that I 26 think that are -- really should be evaluated in 27 terms of what we're doing with CROS and talk a 28 little bit about some of -- some of the ways we're 5 1 attempting to mitigate issues pertaining to those 2 areas. 3 So, any -- any questions so far? Does that 4 seem like a fair -- a fair approach? 5 Okay. So, I'll start with just dealing 6 with comprehensive requirements. A requirement, 7 just by way of background, is a written statement 8 that describes what the solution needs to do. 9 For example, the solution shall enable a 10 business to register with Board of Equalization. 11 That would be an example of a high level 12 requirement. 13 So, one of the things that DSA stated was 14 that Consumer Affairs relied too heavily on 15 requirements gathering efforts from previous -- from 16 previous IT implementations and didn't spend enough 17 time up front focusing on the developmental 18 requirements. 19 I'm pleased to say that that's not 20 something that we're guilty of. So, what we did is 21 we started out with vision sessions with executives 22 and managers to establish a base set of 23 requirements. 24 And then what we did is we mapped out 25 business processes related to the functional areas 26 within the scope of CROS. So, we addressed things 27 like return filing and registration. We didn't get 28 into HR-related issues or accounting, 'cause that's 6 1 outside the scope of CROS. 2 And then from that assessment of those 3 business processes, we were able to establish 4 greater details about our requirements and also 5 identify areas to improve. 6 So -- and then what we did was we got a 7 number of subject matter experts together to 8 evaluate what we call business rules. So, it's one 9 thing to say the solution must enable business users 10 or businesses to register with BOE. It's an 11 entirely different thing to outline all of the 12 things that have to be true or untrue for a 13 registration to take place. 14 For example, does the person registering 15 have to be at least 18 years old? Do we need to 16 identify a corporate executive officer? Is there a 17 FEIN number that needs to be associated to that? 18 So, what are all those details that we have 19 to have in order to design and then build that 20 solution? 21 So, I'm particularly pleased with this 22 effort, actually, because it's one thing I've never 23 seen done in an organization prior to the contractor 24 arriving. And I'm very pleased with the zeal and 25 the work ethic that's occurred on the project. 26 Nobody knows our business the way we do. We 27 shouldn't expect the integrator to come in and know 28 exactly how we do business. 7 1 And I have just been very pleased with the 2 way the subject matter experts at BOE who understand 3 our business have just attacked this and documented 4 our business rules. And I'm convinced this is going 5 to pay big dividends downstream when we get into the 6 implementation. 7 And then, lastly, once the vendor does 8 arrive, we will walk that vendor through all of our 9 requirements and our associated business rules. And 10 then they will apply their expertise and knowledge 11 from implementations at other tax agencies 12 throughout the nation and will validate -- will 13 further refine and validate our requirements. 14 So, I really -- this is -- I'm focusing on 15 this because it is a significant issue, making sure 16 that you have sold requirements. And it was an 17 issue at BreEZe. I think we have done a very good 18 job at mitigating any risk there. 19 Any -- any questions before I move on to 20 the second finding? 21 Okay. So, secondly, a lack of resources -- 22 we have worked very hard with the executives to make 23 sure that we have sufficient number of resources and 24 those -- and resources who have the qualifications. 25 And I'm very pleased with how this has progressed. 26 And we're also conducting planning to make 27 sure that when the vendor arrives, we will have 28 sufficient resources during that period as well. 8 1 And I would also like to compliment Liz 2 Houser a little bit. When I first arrived here I 3 think I naively thought that, "Hey, I'm the Project 4 Director, if I ask for somebody, you're going to 5 give them to me." 6 She was a big advocate of let's write a BCP 7 and let's get funding for the effort. And at the 8 time it was a lot work, but I'm thankful we did that 9 because it really enabled us to hire staff 10 accordingly. It was very helpful. 11 The third item has to do with a lack of 12 conformity with the project management methodology 13 that the Department -- I'm sorry? 14 MR. RUNNER: Let me ask real quick on 15 that -- on that one item on expertise -- or in 16 regards to expertise and -- and resources. 17 The other issue is not only resources in 18 terms of doing the project, but also in terms of, I 19 guess you maybe call it program leadership and input 20 in regards to making sure, 'cause the last thing we 21 want to do is have kind of like the IT staff over 22 here doing their job and -- and -- and not a good 23 integration then with program people to ensure that 24 what they believe needs to take place is taking 25 place. 26 MR. STEEN: Right. 27 MR. RUNNER: So, in terms -- not only -- I 28 would be concerned about not only the expertise 9 1 within the -- within the IT staff, but also the 2 expertise on the program side in order to ensure 3 that the end product is going to be usable by the 4 program people. 5 MR. STEEN: Right, right, absolutely. 6 And, so, that has to do a little bit with 7 making sure -- a couple of things -- one, making 8 sure that you have representation from your program 9 staff, which we -- I feel very -- I feel very 10 fortunate to have that kind of commitment. We do 11 have quite a bit of program area people involved in 12 CROS and the definition of requirements and the 13 rules. 14 But the other aspect of it is 15 organizational change management. How do we -- how 16 do we energize the entire organization towards 17 making sure that we have the right solution and 18 embracing it as it rolls out? 19 And that's one of the issues that we'll be 20 talking about is the organizational change -- in 21 management as well. 22 Does that -- does that answer your 23 question? 24 MR. RUNNER: Thank you. 25 MR. STEEN: So, nonconformity with the 26 Department of Technology's project management 27 methodology, what I would say -- so, the project 28 management methodology and what the CAPMM really 10 1 represents, it's sort of a base set of plans or 2 templates and guidelines for how you want to manage 3 a project. 4 And they would be applicable whether you 5 were doing an IT project or if you're building 6 a bridge. I mean, these are just fundamental things 7 that you should do with any project management 8 undertaking. So, it's things like, how do you 9 manage our costs? How do we put together and manage 10 a schedule? How do we do our HR staffing plan? How 11 do we manage risks and issues? 12 So, what we have done is prudently gone 13 through the PMM and written all of the plans and 14 done the -- done the sufficient planning at the 15 right time, so that we don't find ourselves in a 16 situation where we haven't planned adequately. 17 I'd even go on to say that I think we've 18 actually exceeded what's outlined in the CAPMM. 19 Running a project is not really just 20 checking off a box. Did you write this plan? 21 Check. Did you write this cost management plan? 22 Check. 23 It's not a -- it's not a paint by numbers 24 activity. It requires artistry. It requires people 25 who really understand engineering. They understand 26 hardware. They understand software. And they 27 understand the business. They understand the 28 program area. And then bringing all of those -- all 11 1 that expertise together to develop a solution. 2 And, so, what we've done is actually not 3 just measured success against, "Hey, are we 4 following this methodology, but what else do we need 5 to do in order to succeed on the CROS project?" 6 So, we actually measure things like how 7 much data -- how many data errors in the production 8 environment have we cleaned up? How much 9 documentation of our interfaces, our data exchange 10 with other organizations, have we done? How many 11 business rules have we documented and have put them 12 through a rigid quality review across the 13 organization and across all levels? 14 And we put together a website on our -- we 15 have a dashboard that we made available to all of 16 our executives. So, you can see at any time how 17 we're doing against these performance measures. 18 So, for instance, if you want know how much 19 money have we spent to date? How much money have we 20 spent in the last month? You can see that on our 21 dashboard. 22 You can see all of those other elements 23 that I have described on that dashboard because 24 we're trying to measure things that matter, that 25 are -- that indicate the type of success that we're 26 making. 27 The last finding that I want to address has 28 to do with -- and you referenced this, 12 1 Senator Runner -- lack of organizational change 2 management. 3 Now this change management has to do with 4 how well does the organization embrace change, 5 embrace the new solution, the technology, the 6 revised processes? Sometimes the reporting 7 relationships get changed. How well does the 8 organization embrace those features of an IT 9 implementation effort? 10 One of the things that Consumer Affairs 11 faced that we don't face is it -- it has 39 12 different boards and bureaus, each of which 13 appreciate a certain level of autonomy. So, that 14 makes it a little more challenging for Consumer 15 Affairs to then say, "Hey, let's have a solution 16 that meets everybody's needs," especially when 17 you're dealing with all of those different entities. 18 We don't have that situation, thankfully. 19 Doesn't mean that organizational change management 20 won't be an issue, but it will be less of an issue, 21 I believe. 22 Another issue that they ran into related to 23 organizational change management is they implemented 24 what's called a COTS solution, or a commercial off 25 the shelf solution. 26 So, somebody builds a licensing 27 application. They implement it in some other state, 28 some other city, some other county. And then they 13 1 take that and they put it in place in California. 2 And in California we like to do things kind 3 of uniquely. So, now the solution that you brought 4 in doesn't necessarily accommodate all of the unique 5 aspects of what you're trying to do related to 6 licensing. 7 Now there's nothing wrong with COTS. You 8 just have to recognize that if you have unique 9 aspects of your business, you have to be able to 10 modify your solution accordingly or you have to 11 modify your business practices. 12 What -- what we have done -- and we have 13 not prescribed to the vendor you have to bring in a 14 COTS or custom develop a solution. But what we have 15 done is put in very strict requirements around the 16 need for a solution that is flexible, so that they 17 can accommodate the unique changes. 18 So, that should protect us in terms of that 19 issue related to organizational change. Because 20 people are saying to the agency, "Hey, we didn't get 21 exactly -- we didn't get a solution that does 22 everything we want." Okay. So -- and on the other 23 side, we put those requirements in. 24 And on the flip side, I think we, as an 25 organization, have to be ready to modify, in some 26 cases, our policies or our practices so that we -- 27 we -- the solution will work to achieve what we want 28 to do. 14 1 Unfortunately, we kind of -- we sometimes 2 build systems like -- what we don't want to do is 3 every single taxpayer is a snowflake and every 4 single tax program is a snowflake. And now you got 5 to build a solution that accommodates all of the 6 uniqueness related to those -- those entities. 7 We want to -- we want to address sort of 8 the 80/20 rule. How do we build the solution that 9 accommodates almost everything we do, as opposed 10 to -- almost everything we do in the -- and the 11 things that compose maybe 2 or 3 percent of our 12 business, we can figure out another way to address. 13 We're also requiring the vendor to provide 14 an organizational change management plan and 15 leadership in this area. 16 I would argue that our pre-implementation 17 activities are a catalyst for organizational change, 18 'cause really what we're doing is marshalling the 19 the resources of the organization toward developing 20 the CROS solution and we're doing it long before the 21 vendor arrives. 22 And then I would say that we have 23 tremendous support at the executive level. And I 24 would say, if I might, that we appreciate support 25 from our Members as well. 26 So, I think across the organization we have a 27 lot of buy-in and support for what we're attempting 28 to do. 15 1 So, in summary, I think we've addressed all 2 of the main issues -- requirements, resources, the 3 project management methodology and organizational 4 organizational change management. 5 I think the areas where we -- where we want 6 to be mindful of are things like ensuring that we 7 refine our priorities as we move forward. Because 8 if we're doing a lot of good things, they can be 9 very good things, but they detract from our ability 10 to succeed on CROS, we may not want to do those 11 things. Those may be Pyrrhic victories. So, we 12 want to make sure that we really define our 13 enterprise priorities appropriately. 14 And then I would say, as I referenced, we 15 want to make sure that we build a solution that 16 meets most of our needs as opposed to trying to 17 define a solution that that accommodates every 18 single one of. 19 So, that's, in a nutshell, an assessment of 20 the audit report. And I know that not everybody 21 here is as interested in the subject as I am. So, 22 hopefully, I haven't droned on too long. 23 But if there's any questions, I'd be happy 24 to answer them. 25 MR. RUNNER: Okay. Well, I appreciate you 26 taking the time to go through that and do the -- 27 take a look at the audit. 28 Again we all know that any of these 16 1 projects are all looked at very carefully. And I 2 think it's going to be incumbent upon upon us to 3 ensure that we the kind of answers and leadership 4 necessary as these issues come before us. 5 And, I think, unfortunately, with State IT 6 projects, you already start with a preconceived 7 conception -- idea that it's going to fail. 8 MR. STEEN: Right. 9 MR. RUNNER: And it's going to cost too 10 much money and it's not going to meet the end 11 result. 12 MR. STEEN: Right. 13 MR. RUNNER: And I think that it's 14 important for us then as the policy makers here to 15 ensure that we are aware and involved in that -- in 16 the leadership of that project. 17 So, any comments from Members? Questions? 18 MS. HARKEY: No. Thank you very much. 19 MR. RUNNER: Okay, thank you. 20 MR. STEEN: Thank you very much. 21 MR. RUNNER: And with that we will adjourn 22 the Customer Service Committee. 23 ---o0o--- 24 25 26 27 28 17 1 . 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, JULI PRICE JACKSON, Hearing Reporter for 9 the California State Board of Equalization certify 10 that on March 25, 2015 I recorded verbatim, in 11 shorthand, to the best of my ability, the 12 proceedings in the above-entitled hearing; that I 13 transcribed the shorthand writing into typewriting; 14 and that the preceding pages 1 through 17 constitute 15 a complete and accurate transcription of the 16 shorthand writing. 17 18 Dated: May 13, 2015 19 20 21 ____________________________ 22 JULI PRICE JACKSON 23 Hearing Reporter 24 25 26 27 28 18