The Post Office Network Change Project Analysis Construction Essay

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This report deals with a National Audit Office (NAO) value-for-money report and reviews the frameworks and concepts used. It begins with an overview of the project, which summarises aims and outcomes of the project.

The NAO report was analysed using the four phase model of project management as defined by Maylor (2003), these are define, design, delivery and the development phase. In this report, we present a review of how the Network Change Programme ('the project') was implemented and the challenges that were encountered therein. 

Firstly, the define phase describes the project and organizational strategy and determines the goals. Secondly, the design phase is concerned with the planning, estimation and modelling processes and deals furthermore with possible conflicts and their resolution. Thirdly, the delivery phase is the actual stage where the project is carried out. The important points are the organisation and control of the day-to-day activities in order to ensure that the project is accomplished as planned. The final phase (the develop phase) assesses the project process and compares the project's targeted objectives with the outcomes. In addition, the 'lessons learnt' are documented and will end the project lifecycle. 

The final part of this report sums up the most important points and the current situation is presented in order to provide up-to date recommendations on how the Post Office Ltd. should continue their efficiency program, which is covered in the value-for-money report.

Overview of NAO-Project

The Department for Business, Enterprise and Regulatory Reform (BERR) approved in May 2007 the closure of 2,500 post offices, which were run by sub-postmasters. As a compensation for this loss, at least 500 outreach services (mobile outlets that offer equal or limited services) would be added to the existing 11,500 stationary outlets. The reduction of outlets is known as the "Network Change Program" which is part of the larger plan aimed at returning Post Office Ltd. into a profitable business by 2010-11. In order to achieve this ambitious goal, the government spends annually £150 million to support both, the day-to-day operations and the restructuring of the postal network. Besides improvements in the financial performances, the plan aims to drive efficiencies so as to gain a sustainable revenue stream. Including the governmental subsidy, the BERR funds up to £1.7 billion (over five years) owing to the fact that the Post Office Ltd. plays a special role both social and economic for society in the UK (please see Define Phase). As BERR is the principal shareholder in the Royal Mail Holdings plc (Post Office Ltd. is a part of this Holding), they carry out the oversight function of the project by looking after the main three tasks:

Ensure that the public investment in the Post Office Ltd. is reasonably used

Ensure that there are no major disadvantages for Post Office Ltd. customers after the reduction of various outlets

Ensure that the restructured network is able to cope with future requirements  

To give the reader a simple overview of the important factors (inputs, constraints, mechanisms and output of the project), the ICOM-model (Maylor, 2003) is applied to the Network Change Programme:

Main Part: Project Details

Define Phase

According to Gray and Larson (2002) and Maylor (2003) the Define (or Definition) Phase identifies the broad specifications of the project and sets goals, objectives and assigns major responsibilities.

It can be seen in the ICOM model that the Post Office Network Change programme's objectives refer to reducing costs by closing non-profitable outlets. Furthermore, it should increase the operations productivity and the overall performance to eventually generate revenue, not losses. Since 2000 (NAO Report 2009) Post Office Ltd. has been making losses and is heavily subsided by the British government. Due to the poor financial situation and the fact that the traditional market of postal service is declining (substitution of letters by modern technologies and in addition increasing competition in this sector), Post Office Ltd. has to increase its profitability (preferably by reducing costs) of its operations in order to limit the negative effects on the UK taxpayers.

As a result of the above reasons, Post Office Ltd. decided to reduce the network costs by closing down about 2,500 post offices which were run by sub-postmasters. The closures were necessary but entail various negative consequences on the project's stakeholders (see Design Phase). For the purpose of providing a socially acceptable solution, certain guidelines (these project constraints were also called "minimum or numerical access criteria") apply to the closures to conserve the social and economic benefits of the local post office to the general society. There should be a fair balance of closures both in rural and urban areas. Furthermore, the sub-postmasters who were affected should receive a reasonable compensation to cover their most immediate losses. In order to narrow down the negative impacts on society, it must be feasible for 99% of the UK citizens to be within three miles, and 90% within one mile to the nearest post office outlet (including mobile outlets).

In conclusion, the project is mainly concerned with reducing the operation's cost (and therefore increase productivity and profitability) but also paying attention to the various constraints as the post offices play an important role both in rural and urban areas of the UK.

Design Phase

The design phase addresses the general planning and modelling of alternatives, the budget and the schedule. Furthermore, the available resources are allocated and a possible model is developed to cope and resolve conflicts with major stakeholders. The general plan consisted of the following steps:

Analysis of non-profitable outlets

Check framework of minimum access criteria for possible closures

Development of area plans for closures in conjunction with interested parties, including Postwatch

Public consultation

Closure and if applicable establishment of a outreach outlet

Primary Objective

Businesses need to allocate capital resources to their most promising projects (Meredith & Maylor 2010). Therefore the project is intended to save approximately £45 million a year from 2011 onwards. The approved budget was £176 million. Prior to the project the Post Office Ltd. had a network of around 14,000 offices and in the financial year 2005-2006 declared a loss of £130 million.

Budget

The approved budget for the Network change programme is listed below:

(NAO Report 2009)

(1) The amount to be paid to the sub-postmasters was derived by dividing the number of post-offices to be shut down by the approved amount to be paid out.

Schedule

The approved schedule of the project was from May 2007 to November 2008. It had a life cycle of eighteen months. However, it suffered from a series of problems that led to a delay. It was expected that the new delivery date was in summer 2009, running six months behind schedule.

The project had a precedence relationship of finish-to-start: the start of the successor activity is dependent on the completion of the predecessor activity (PMBOK Guide 2004). The activities had mandatory dependencies. Please see Appendix A for the Gantt chart for further illustration.

Stakeholders Analysis

The project had many stakeholders, which were protecting one interest or the other. In order to ensure that the project was executed successfully, there was a need to draw up a proper communication plan that will cater for the needs of the stakeholders as they arise.

The Power/Interest Matrix is used below to group the stakeholders as it speaks to their level of interest and the power of influence they can wield on the project (Johnson & Scholes 2008):

Grouping of Stakeholders

Dispute Resolution Process

In order to ensure a seamless flow of the project, Post Office Ltd. searched through historical information to draw out lessons learnt on past projects. This is to guarantee that a dispute resolution process was put in place to address and resolve issues as they arise. The following chart shows how the dispute escalation process was handled:

Figure 2.2: The Escalation Process (NAO Report 2009)

Delivery Phase

The delivery phase is part of the project life cycle where the organisation aims to achieve the set targets and objectives.

In order to implement the Network Change Programme the whole phase was divided into four stages (NAO Report 2009):

Framework for minimum access criteria

Development of area plans for closures

Local public consultation on these plans

Provision of outreach services

Framework for Minimum Access Criteria

In December 2006 BERR announced the access criteria; the main aim of these criteria was to maintain the national network of the post offices and to protect vulnerable customers in deprived rural, urban and remote areas, which include the following (NAO Report 2009):

99% of the UK population should be within a three mile radius and 90% within a one mile radius of a Post Office Ltd. outlet

99% of the total UK population situated in deprived urban areas should be within a distance of one mile to an outlet

95% of the total urban population should be within one mile to the nearest outlet

95% of the total rural population should be within three mile to the nearest outlet

95% of a postcode district should be within six mile to the nearest outlet

Development of Area Plan

The development of the area plan was considered as one of the main stage for implementing the Network Change Programme. The area plan was made in order to identify the different branches for closures.

A "Memorandum of Understanding" (MoU) was signed by Post Office Ltd. and Post Watch. The MoU defined the roles of Post Watch and local authorities, it illustrates the area plans for closures which will be drawn up Post Office Ltd.. Furthermore, Post Office Ltd. had the full power to decide upon the final closures, whereas the post watch's role was to assess how the closures impact on the local communities and ensure that all customers were kept informed about the changes (see Appendix A for the Gantt chart and the detail steps).

For the development of area plan, Post Office Ltd. used a Geographic Information System (GIS), which helped in storing, capturing and analysing location data. Post Office Ltd. sought the assistance of Post Watch in order to obtain information about the impact of closures and several issues in accessing alternative branches. Post Watch and Post Office Ltd. visited every proposed closure before the consultation process, which helped to find out most suitable branches for closures (NAO Report 2009)

Public Consultations

After suitable branches were identified, a public consultation process was carried for six weeks. The main reason for this was to minimise the uncertainty for the sub-postmasters as well as for involved customers. But this short consultation period made some customers felt not valued and they had the impression that these closure decisions were an accomplished fact. However, as a result of the consultation process about 92 closures proposals were withdrawn.

After the consultation process, there was an escalation process which was agreed by both the bodies (please see Figure 2.2 for the Escalation Process). According to the MoU, Post Office Ltd. had the inevitable power to decide about closures.

Provision of Outreach Services

Outreach services were introduced in order to compensate for the closures. 500 outreach services were planned to be realised by the end of the programme. Different forms of outreach services were planned such as partnered outreach, hosted outreach, mobile outreach and home service.

Outreach services helped in meeting the access criteria. By the end of March 2009 only 433 outreach services were established. This delay was due to the negotiations over the hosted and partnered outreach (NAO Report 2009).

Develop Phase

When a project is completed, it is necessary to measure whether the project is a "success" or not. The next question will be: what does project success actually mean?

One of the most common approaches to project success has been to consider a project successful when it has met its time and budget goals (Freeman and Beale 1999). However, measuring a project success by only using time and budget measures are deemed insufficient and may lead to a completely wrong conclusion. Some projects may count as successful, for instance, a project that met time and budget constraints but did not meet customer needs and requirements (Atkinson 1992).

To measure the success of this project, we adopt the model developed by Shenhar et al. (Shenhar, Dvir, Levy 2001) that success of a project can be approached through four different dimensions (efficiency, customer impact / satisfaction, business / direct success and future potential).

Efficiency

Efficiency is related to how successful the project manages its limited resources (budget and time) to meet its objectives (Shenhar et al. 2001). As commonly defined, on this dimension, project success is when a project meets its aims within the budgeted cost and planned schedule (Shenhar et al. 2001).

Project Target vs. Outcomes

(1) The 'Compensation paid to sub-postmasters' figures include both compensation paid and amounts committed to payment.

Costs

Cost wise, as at the end of March 2009, the actual cost incurred was 89% of the budget. Meanwhile, at the same time period, the number of branches closed was approximately 95% of its target and the outreach services established was about 87% compared to the target. Conclusively, costs have been lower than expected, although benefits to date have also been lower.

Form the figures above, it can be said that the project has been somewhat efficiently managed. However, proper cost control shall always be in place to ensure that the project will be efficiently carried out until the closure of the project.

Schedule

The duration of the project was initially 18 months, commencing in May 2007 and shall be completed by November 2008. As of March 2009 the programme was still active, largely because of delays in establishing outreach services, which had delayed the closure of offices that these services were due to replace. This delay in reaching the target was due to negotiations over hosted and partnered outreach outlets taking longer than expected (NAO Report 2009).

Customer Impact / Satisfaction

This dimension relates to how the project addresses and meets the customer requirements and needs (Shenhar et al. 2001).

As a project within public service organisation, the outcome of the project will directly affect the local community as its customer. This dimension will capture the feedbacks from the customer. Several concerns were raised as responses to this project:

Fact: The consultation period was set for a six-week period.

The six-week consultation period was felt to be too short by some of the stakeholders, some formed the impression that the consultation process was not being taken seriously and that the closure decisions were a "fait accompli" (Post Watch response 2008). The handling of some of the early post office closures at the local level also suffered from poor communications; subsequent changes were made to improve the process (NAO report 2009).

Fact: "Partner" outreaches are unable to accept postal packets weighing more than 2 kg as they believe relatively few customers will be affected by the inability of some outreach services to handle packets weighing more than 2 kg.

This, however, will mean considerable inconvenience for those who need to send large packages, and could have an impact on local businesses (Post Watch response 2008).

Fact: There is no guarantee that there will not be further closures after the Network Change Programme as a result of individual postmasters' and postmistresses' decisions (Post Watch response 2008).

This will possibly affect the future 'coverage' of the post service, which will in turn affect the local communities.

Business / Direct Success

This dimension again is somewhat straightforward, which is measured primarily in terms of: how the project is contributing/creating short-term, realised, commercial success of the project. Financial measures are used in this dimension (Shenhar et al. 2001).

Referenced to table 2.4, it is noted that the project has contributed approximately £19 million saving by the end of March 2009. This saving comes from reduced remuneration to sub-postmasters net of lost profit margin from reduced sales.

Future Potential

The fourth dimension addresses the issue of preparing the organizational and technological infrastructure for the future (Shenhar et al. 2001). Significant reduction on the number of post offices will eventually form a better shape of the organisation. This is, in parallel with potential cost savings which enhance the organisational and technological infrastructure for the future. Some financial measures, related with potential future financial benefit, will be in taken into account in this dimension.

On the Network Change Programme proposal, it is noted that this project will contribute £44 million saving per year once it is completed (NAO Report 2009):

However Post Office Ltd does not separately monitor central efficiency savings or reduced cash holding costs attributable to the Programme as distinct from other initiatives.

Overall the project was able to achieve a good result with several issues which shall be addressed properly.

Conclusion

Main Findings and Current Situation

As of March 2009, the Network Change Programme's expenditures were within the budget, albeit some undertakings were not yet completely carried out. On a financial viewpoint, the project also proved its contribution to the future corporate profitability.

However, some findings are noted in relation to the effect of the programme on their customers. The lack of time at the public consultation stage and potential problems with Post Office Ltd.'s capability and coverage in the future are some major issues. 

Having these facts, it is imperative for BERR and Post Office Ltd. to ensure that the cost reduction initiative carried out in this project will not negatively affect their public obligation in serving the communities.

Owing to unforeseen disruptions, the process of closing inefficient branches is still in the process of completion. Regarding the schedule there are some delays but they have minor impacts on the overall project's success (according to the framework developed by Shenhar et al. 2001). However, these potential disruptions should have been identified at an earlier stage to avoid such situation.

Recommendations

Due to the fact that the Network Change Programme was a success, we recommend the following steps to be taken by the Post Office Ltd.:

In order to achieve the planned targets in the short-term (increased profitability by increased performance at constant quality) Post Office Ltd. should commit itself to a strategic partnership with an organisation, which is in the same market. This co-operation would be beneficial to reduce costs by utilising synergy effects. This approach seems to be suitable to ensure that Post Office Ltd. decreases its dependencies on the UK government (eventually the British tax payer), but in order to become competitive in the long-term, the organisation should build up some internal capabilities to become more efficient and eventually independent.

In order to do so, Post Office Ltd. should diversify its business by entering other growing markets like the logistics industry. There are two examples in other countries that show that this transition is possible. Former public postal organisations were privatised into listed multi-national enterprises such as the TNT (Dutch post office equivalent) and Deutsche Post DHL (German post office equivalent). TNT is more concerned with express services whereas Deutsche Post DHL is more specialised in contract logistics.

These two examples demonstrate that a former public organisation can become successful and competitive by diversifying their business.

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