An Analysis of the Canadian Government’s Phoenix Payroll Disaster, Part 1

There has been a steady stream of stories in the Canadian news about the Government of Canada’s Phoenix Payroll System disaster since it went live in 2016. It may not have made it into the mainstream news in other countries, but the massive problems and costs associated with the debacle really should make anyone involved in Workforce Management take notice. This is the first of two blogs looking at what went wrong with the Phoenix project, and how you can avoid making the same mistakes.

  • In 2009 the Canadian government began a pay transformation initiative for their 290,000 employees in 101 departments and agencies. The initiative had two main goals: Replace their 40-year old payroll system which used outdated technology and was maintained by staff who were due to retire soon with a modern, more automated system; and
  • Centralize their regional pay offices that processed pay for approximately 70% of their employees to a single office.

The project had a budget of $310 million, including $155 million to build and implement the selected payroll system (PeopleSoft), and would use IBM as their third-party integrator.

The initiative expected to reap savings of $70 million dollars per year through automating the pay processes, eliminating duplicate data entry, and reducing payroll support staff due to the centralization of pay operations.

Immediately after go-live in 2016the problem began. Today, there are approximately 600,000 outstanding pay transactions affecting 152,000 employees (52% of the workforce). Employees continue to be underpaid or overpaid leading to financial hardship and resulting in a demand for compensation to employees for all the problems they’ve endured over the last two years.

To date, it is estimated that the system will cost the Canadian government $2.2 billion (yes, billion!) over the seven years it will take to stabilize the system which far exceeds the expected savings the initiative was supposed to bring. To say the project is a failure is a massive understatement. Phoenix is on track to be the largest Workforce Management project disaster ever.

Numerous audit reports have analyzed what went wrong, while the failings are numerous, not all result in the scale of problems seen. The key problems can be boiled down to:

  • Attempting to transform technology, people and process all at the same time, with too much focus on technology and not enough on people and process.

As well as replacing their old Workforce Management and Payroll system the project attempted to centralize pay operations and reduce headcount. Canada is a large country and the chosen office was on the Eastern coast of Canada – it didn’t occur to anyone that employees would not want to move across Canada to relocate to the new office, and hiring sufficient, skilled employees in a town of 18,000 would not be easy. Overnight the Canadian Government lost most of its skilled payroll employees and replaced them with poorly trained new employees.

The project assumed employees in the centralized office would be able to handle more transactions per hour than the seasoned employees in regional offices previously could. It was expected the automated nature of the system and the direct access the employees had to the system would deliver this goal. However, key functionality was removed from scope meaning more transactions had to be processed manually and new employees did not perform at the same level as experienced employees.

  • Lack of focus on quality

The project put too much focus on cost and budget management and not enough on quality management. When the project started to go wrong the management team strove to deliver the project on the same schedule and budget as initially agreed. The management team, in an effort to meet the existing budget and timeline, removed key functionality from scope leading to a system that no longer met requirements, did not complete testing, did not perform a pilot project, did not allocate enough time after the initial wave went live to iron out any issues, and went live with an unacceptable number of high impact defects.

  • Lack of truly independent oversight

Although the Canadian government PMO did have processes in place to perform independent oversight of large-scale transformation projects, and report directly to the ministers who were ultimately responsible for the project, this did not occur in the case of Phoenix. While outside auditors were brought in during the project they always reported to the project management team who either had a hand in crafting their final report or managed how the report was presented to ministers so as to downplay the risks that were being raised.

  • Lack of contingency planning

Given the huge scale and impact of the project (monthly pay for 290,000 government employees) there was a surprising lack of contingency planning done before the project went live.  A limited contingency plan was completed two weeks before go-live. The plan mostly covered catastrophic failures and did not account for the type of operational problems that did occur (e.g. the system functioned but problems still persisted in processing accurate pay). The plan did not specify how problems were to be resolved, or who was responsible for them. In addition, the project team did not test the plan. Individual government departments were sent the contingency plan a week before go-live and told to develop their own individual contingency plans from a supplied template; no further help was provided.

Even a cursory reading of the history of this project shows that unrealistic expectations and an unwillingness to address real problems as they arose created an untenable situation that snowballed into an unstoppable disaster.

In the second installment of this series on the Phoenix Payroll System I will look at how these problems should have been handled and what business leaders can learn from Phoenix to ensure they don’t make the same mistakes.