For discussion FCR(97-98)19
on 20 June 1997

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Customs and Excise Department
New Subhead "Replacement of Customs Control System"
HEAD 31 - CUSTOMS AND EXCISE DEPARTMENT
Subhead 001 Salaries
HEAD 47 - INFORMATION TECHNOLOGY SERVICES DEPARTMENT
Subhead 001 Salaries

Members are invited to approve -

1. a new commitment of $39,900,000 under Head 710 for replacing the existing Customs Control System with a new system with enhanced processing capability and capacity to meet changing business needs;

2. an increase in the ceiling placed on the total notional annual mid-point salary value of all non-directorate posts in the permanent establishment of the Customs and Excise Department in 1997-98 from $1,260,856,000 by $3,149,880 to $1,264,005,880 for creating ten non-directorate posts to provide business input and logistical support for the development of the new system; and

3. an increase in the ceiling placed on the total notional annual mid-point salary value of all non-directorate posts in the permanent establishment of the Information Technology Services Department in 1997-98 from $363,365,000 by $1,537,920 to $364,902,920 for creating three non-directorate posts to provide development support for the new system.

---

PROBLEM
PROPOSAL
JUSTIFICATION

Existing CCS
Need for Replacement of Existing CCS
Proposed Computer System
Anticipated Benefits
Implementation Plan
FINANCIAL IMPLICATIONS
Non-recurrent Expenditure
Recurrent Expenditure
Cost Benefit Analysis
Implications on Fees and Charges
BACKGROUND INFORMATION
A Breakdown of the Realizable and Notional Savings
Cost-benefit Analysis

---

PROBLEM

The Customs and Excise Department (C&ED) needs to replace its Customs Control System (CCS) with a more powerful system in order to carry out various customs control functions effectively and efficiently.

PROPOSAL

2. The Commissioner of Customs and Excise (C of C&E), with the support of the Secretary for Trade and Industry, Secretary for Security and Secretary for the Treasury, and on the advice of the Director of Information Technology Services (DITS), proposes to replace the existing CCS with a new system by September 1998 to address the problems arising from system obsolescence, to cater for enhancement requirements and to provide for future expansion.

JUSTIFICATION

Existing CCS

3. CCS is an essential network system which provides and processes data and intelligence for C&ED officers at over ten sites to perform a wide range of customs and excise control duties. The system provides -

1. information that facilitate the collection and protection of revenue from dutiable commodities;

2. information on investigation and prosecution cases;

3. an intelligence database for the selection of cargo for examination;

4. an intelligence database for the selection of vessels for law enforcement actions; and

5. management information and operational statistics.

Need for Replacement of Existing CCS

4. Since the development of CCS in 1987, the business environment of C&ED has undergone substantial changes. In response to changing needs, C&ED has enhanced, modified and upgraded the system extensively over the years. However, CCS has now reached its limits for further development and will become obsolete. The imminent problems include -

1. Discontinuation of Support Service: From September 1998, the vendor of CCS will discontinue the support service for the operating system of CCS. Without adequate system support, the service of CCS may be subject to disruptions or even total stoppage, putting the effectiveness and efficiency of customs controls at risk.

2. Inability to Support Customs Operations Round-the-clock : The causes of this problem are two-fold. First, due to system limitations and the growth of data and batch reports over the years, CCS now requires six hours for daily batch processing during which it suspends its services to users. As a result, although customs control operates round-the-clock, operational units cannot have access to the intelligence, information and data maintained in CCS for six hours each day. Second, owing to wear and tear, there has been frequent breakdown of hardware components in recent years causing interruption to computer services.

3. No Expandability to Meet Anticipated Business Needs : The existing CCS has already reached its hardware and software limits. There is no flexibility to cope with planned new customs facilities.

4. Inadequate Capability for Information Sharing : Apart from CCS, customs control operations also require the support of other
   

5. computer systems such as the Seizure Management and Inventory Control System (SMANDICS), Vessel Traffic Management System (VTMS) and the Air Cargo Clearance System (ACCS) which is being developed for the new airport. However, with CCS’s existing system limitations, we cannot develop it to interface with the other systems. As a result, automation of matching of information from different systems is not possible and it is necessary for users to input the data from one system to another manually, resulting in duplicated efforts and potential input errors.

Proposed Computer System

5. C of C&E proposes to develop a replacement system. The main functions of the new system are -

1. to take over all functions available in the existing CCS;

2. to provide 24-hour on-line enquiry facilities;

3. to enhance the capability in searching, enquiry and generation of ad hoc reports on information kept;

4. to provide electronic link with SMANDICS, VTMS and ACCS;

5. to enhance the security features to enable the sharing of sensitive information on a need-to-know basis;

6. to enhance Chinese character processing capability and to provide search, enquiry and print functions by using Chinese characters;

7. to enhance the control on input validation; and

8. to provide expandability to meet future operational needs.

Anticipated Benefits

6. Ensure CCS continuity : The new CCS will ensure the continuous provision of adequate and reliable computer support. This is crucial to the effective and efficient operation of a wide range of customs and excise controls.

7. Improve productivity : With enhanced system performance and capability, the new CCS will be able to provide 24-hour on-line service to support CCS dependent customs control functions. This will ensure that the various operational units can deliver the desired level of quality service round the clock. Its ability to interface with ACCS, SMANDICS and VTMS will save manual efforts in data entry, including the deletion of one Senior Customs Officer post, and improve the accuracy and timeliness of information. This will improve the users’ capability to cope with the increasing workload and to respond to urgent operational needs. In addition, the fragmented staff efforts so saved totalling $1,948,000 per annum, can be re-deployed to other front-line customs operations such as undertaking intelligence processing and analysis in the Central Records Unit and conducting importer verification visits in the Cargo Verification Unit.

8. Ability to meet changing demands : Because of the improved capability and performance of the new CCS, C&ED will be better equipped to meet future changes in its business environment with the aid of information technology. CCS’s open system architecture will provide greater flexibility for future expansion with less effort and cost.

9. Effective and efficient dissemination of information : With improved security features, the new CCS will allow users of one subsystem to access the information kept in the other subsystems on a need-to-know basis. This will enable timely and accurate dissemination of information and intelligence with adequate safeguards against abuse.

Implementation Plan

10. In order to ensure uninterrupted CCS services for customs control functions, the proposed system needs to be operational by September 1998. The implementation timetable will be as follows -

FINANCIAL IMPLICATIONS

Non-recurrent Expenditure

11. The estimated non-recurrent expenditure of the proposed system is $49,924,000. This comprises $39,900,000 for the purchase of computer hardware, software, site preparation, implementation services, etc., and $10,024,000 for in-house development staff of the Information Technology Services Department (ITSD) and C&ED. Details of the non-recurrent costs are as follows -

	1997-98 $’000	1998-99 $’000	Total $’000
(a) Hardware	1,021	4,521	5,542
(b) Software	1,497	2,919	4,416
(c) Implementation service	8,815	10,057	18,872
(d) Site preparation	204	4,767	4,971
(e) Data entry service	0	1,510	1,510
(f) Miscellaneous	60	901	961
(g) Contingency	1,160	2,468	3,628
Sub-total	12,757	27,143	39,900
(h) Development staff costs
C&ED	3,341	3,097	6,438
ITSD	1,978	1,608	3,586
Sub-total	5,319	4,705	10,024
Total	18,076	31,848	49,924

12. As regards paragraph 11(a), the cost of $5,542,000 is for the purchase of computer hardware such as mid-range computers, training and development servers, networking equipment, resilience and disaster recovery equipment, and microcomputer equipment items.

13. As regards paragraph 11(b), the cost of $4,416,000 is for the procurement of operating system software, database management software, network management software, distribution software and system development tools.

14. As regards paragraph 11(c), the cost of $18,872,000 is for the acquisition of system implementation and consultancy services from the contract vendor on activities such as application design, data conversion, network management and system security management.

15. As regards paragraph 11(d), the cost of $4,971,000 is for site preparation, other minor site renovation work, cabling and trunking.

16. As regards paragraph 11(e), the cost of $1,510,000 is for out-sourcing of data entry service. We will require the capturing of existing data recorded on dossier cards and the conversion of the unstructured name and address records in the existing CCS into a compatible electronic form of the new CCS.

17. As regards paragraph 11(f), the cost of $961,000 is for initial staff training provided by external vendors relating to database management, system administration, end-user computing tools and Chinese input method, initial installation, rental of data lines and the purchase of consumable for use during system development.

18. As regards paragraph 11(g), the cost of $3,628,000 represents a 10% contingency on the cost items set out in paragraph 11(a) to (f).

19. As regards paragraph 11(h)(i), the cost of $6,438,000 represents the staff cost of C&ED’s project team responsible for providing support in project planning, design and monitoring, liaison with end-users and other Government departments, site preparation, procurement, implementation, data conversion, user acceptance testing, initial end-user training and disposal of the old machine. The team involves 128 man-months of C&ED staff (32 man-months each of Senior Inspector, Inspector, Senior Customs Officer and Customs Officer). We need to create a total of ten posts (two Senior Inspectors, two Inspectors, four Senior Customs Officers and two Customs Officers) with a total notional annual mid-point salary (NAMS) value of $3,149,880. It is necessary to increase the establishment ceiling of C&ED by the same amount.

20. As regards paragraph 11(h)(ii), the cost of $3,586,000 represents the staff cost of ITSD’s project team responsible for system development and implementation, including project planning, design and monitoring, and technical support on ITSD standards and methodologies. The team involves 53.1 man-months of ITSD staff (4.3 man-months of Senior Systems Manager, 17.9 man-months of Systems Manager and 30.9 man-months of Analyst/Programmer I). We need to create a total of three posts (one Systems Manager and two Analyst/Programmers I) with a total NAMS value of $1,537,920. It is necessary to increase the establishment ceiling of ITSD by the same amount.

Recurrent Expenditure

21. The estimated annual recurrent cost is $5,584,000 for the first year, $11,592,000 for the following three years and $11,839,000 from the fifth year onwards. The breakdown is as follows -

22. As regards paragraph 21(a), the annual expenditure is for hardware maintenance. As some hardware items will be installed in 1997-98 for development purpose, we need to start to pay maintenance charges in 1998-99 after the one year free maintenance period after installation. The increase in maintenance cost in 2002-03 is due to the expiry of the discount period from the fifth year.

23. As regards paragraph 21(b), the annual expenditure is for software maintenance and licence fees. Similar to hardware maintenance, we will need a supplement of maintenance charges in 1998-99 and additional funds for maintenance charges in 2002-03.

24. As regards paragraph 21(c), the annual expenditure is for providing on-going external training to new C&ED and ITSD staff due to staff turnover, data lines rental, purchase of consumables and miscellaneous expenses.

25. As regards paragraph 21(d)(i), the annual expenditure represents the staff cost of 14 posts (0.5 Assistant Superintendent, 1.5 Senior Inspectors, three Inspectors, one Customs Officer, four Computer Operators I and four Computer Operators II) in C&ED for system administration, computer operations, help desk, co-ordination and liaison duties, and user training upon the full implementation of the replacement system. All these posts will be redeployed from the 15-strong support team of the existing CCS. After redeployment, one Senior Customs Officer post in the existing team will be realised as savings upon implementation of the new system.

26. As regards paragraph 21(d)(ii), the annual cost is for 37 man-months of ITSD support staff who will be responsible for on-going technical support, enhancements and program modification and on-site support upon the system production. The staff include 0.6 man-months of Senior Systems Manager, 3.8 man-months of Systems Manager, 21.2 man-months of Analyst/Programmer I and 11.4 man-months of Analyst/Programmer II.

Cost Benefit Analysis

27. C of C&E estimates that the proposed new CCS will bring about realizable and notional recurrent savings of $6,140,000 in 1998-99 and $11,966,000 from 1999-2000 onwards. A breakdown of the savings is at Enclosure 1 and a detailed cost-benefit analysis is at Enclosure 2. As we are proposing to replace an existing computer system which will soon become obsolete, the tangible benefits in terms of savings are unlikely to offset the cost involved under the normal cost benefit analysis for computerisation project. However, a timely replacement of the existing CCS will ensure the continuous provision of adequate and reliable computer support to C&ED to carry out its customs control functions effectively and efficiently. It will also enhance system performance to provide improved and 24-hour on-line service, and provide scope for future expansion in meeting new demands. As the quality of service of C&ED has much bearing on the integrity of Hong Kong as an effective customs territory, we cannot afford putting the efficiency of the department’s operations at risk by not replacing the obsolete CCS. We also estimate that if the existing CCS reaches the end of its serviceable life and were not replaced, we would have to revert to manual operations, which would require an additional annual expenditure of roughly $35 million.

Implications on Fees and Charges

28. This proposal by itself will lead to an increase in the licence fees for dutiable commodities by about 1.5% in real terms since the last fee revision.

BACKGROUND INFORMATION

29. The CCS is the first large scale computer system of C&ED to which different operational units can have access. We developed the system in 1987 and implemented it by phases from early 1990 to August 1991.

30. The system comprises the following seven sub-systems -

Dutiable Commodities (Licence) Subsystem;

Dutiable Commodities (Permit) Subsystem;

Air Cargo Subsystem;

Sea Cargo Subsystem;

Ship Research Subsystem;

Cargo Data Subsystem; and

Central Record Subsystem.

31. ITSD conducted a Post Implementation Review for CCS between March 1995 and January 1996. The Review concluded that the system could not adequately meet present day requirements of C&ED as it had already reached its design capacity and we could not further enhance its capacity. C of C&E, in consultation with DITS, plans to replace the current system to tie in with the withdrawal of support service of the vendor in September 1998.

Trade and Industry Branch
June 1997

---

Enclosure 1 to FCR(97-98)19

A Breakdown of the Realizable and Notional Savings

Upon implementation of the new CCS, C&ED officers will no longer handle manual procedures such as printing of permit particulars, processing of cargo appointment schedule, maintenance of dossier card system, inputting and backing up data. The new CCS will simplify and speed up retrieval of information or enquiry of consignment history. Additional features such as interfacing with ACCS, SMANDICS and VTMS will improve the efficiency of the service and save manpower resources - one Senior Customs Officer post in the Ship Research Unit will be deleted as a result. The development of the new CCS will also avoid the maintenance cost of the existing CCS and the development of a local area network in Intelligence Assessment Unit (IAU) of C&ED. The realizable and notional savings are summarized below.

---

Enclosure 2 to FCR(97-98)19

Cost-benefit Analysis

---