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Business Models

Business Models. 1. Introduction. ICT is a long-term, high-maintenance and heavy-investment initiative Obtaining and maintaining sufficient funding for each E-Government project is one of the greatest challenges faced by the parties responsible Public funds are limited. 2.

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Business Models

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  1. Business Models 1

  2. Introduction • ICT is a long-term, high-maintenance and heavy-investment initiative • Obtaining and maintaining sufficient funding for each E-Government project is one of the greatest challenges faced by the parties responsible • Public funds are limited 2

  3. Business Models and Cost Management in E-Government • In the past • Outright purchase approach • Funding from individual agency’s budget • Current • Wider scope and coverage • Economies of scale • Contractual clauses • Service level agreement • Service level rebate 3

  4. Wider Scope and Coverage • E-Government projects cut across ministry and agency boundaries • Funding for most of the E-Government projects is administered at central agency level to facilitate sharing of E-Government applications • Using CRFP, the evaluation now focus on the feasibility and value for money • Evaluation is done in tandem with extensive research on best industry practices and intense scrutiny of the costing proposed 4

  5. Economies of Scale • The simultaneous implementation of the E-Government projects provide an opportunity to leverage on economies of scale while negotiating deals • Common components • Network • Licensing fees 5

  6. Contractual Clauses • High visibility and cost of E-Government has led government to be more cautious in determining the payment structure • Tied to the key deliverables and acceptance criteria • Safeguard against delays with penalties for late delivery in using Liquidated Ascertained Damages (LAD) 6

  7. Service Level Agreement • Essential to have a service level agreement when transferring responsibilities from the government to private sector • Sets out the standards, measures and performance levels expected 7

  8. Service Level Rebate • The rebate system encourages the appointed contractor to • Plan for maintenance and upgrades • Monitor the system constantly • Set up help desks • Take other proactive measures to maintain an acceptable service level • When the contracted service provider fails to deliver against agreed benchmarks, the government claims service level rebates 8

  9. Outright Purchase • Government contracts out the procurement, design and development of the system to a private party • Total contract price • Hardware • Software • Network equipment • Development and maintenance of application software • The risk of technology obsolescence is fully borne by government 9

  10. Outsourcing • The current propounded business philosophy is to concentrate on core business and form partnerships with experts to take care of non-core activities, such as the operation and management of ICT • The government has experimented with a variety of outsourcing methods • Network infrastructure outsourcing • Build-Operate-Transfer (BOT) • Build-Operate-Own (BOO) 10

  11. Network Infrastructure Outsourcing • The operation and monitoring of EG*Net is outsourced to GSB, a subsidiary of Telekom Malaysia • GSB’s Network Control Centre (NCC) provides support services to resolve operational problems and monitor up-time, availability, network outage, utilisation and provides help desk services for queries and fault reports • GSB is paid a one-off fee for each successful site installation and commission, and a quarterly utility charge for maintenance and management 11

  12. Build-Operate-Transfer (BOT) • E-Procurement is funded using the BOT approach • The contractor finances the project • Operates the services for an agreed contractual period • Transfers the services back to the government at the end of the contract period 12

  13. E-Procurement Entities Procurement Service Provider Supplier Buyer • Provides total solution to enable all necessary transactions • Necessary applications, hardware & software • Capability for orders, request for quotation and tender documentation • Assurance of security and confidentiality of these documents • Adherence to all necessary government procurement policies and legal requirements • Registered with Ministry of Finance • Registering and coordinating with procurement service provider to ensure that their product information is up to date • Made up of various ministries, agencies and departments of the government 13

  14. Cost Recovery • The service provider receives income from • subscription fees • transaction fees • catalogue fees 14

  15. Issues and Challenges • Initial pressure to get E-Procurement off the ground quickly resulted in an unstable system • End-users reverted to previous procurement methods • with the assistance of central agencies such as Finance Ministry and MAMPU, the government is trying to increase the level of usage in order to realise the benefits of using the system and ensure vaibility for the procurement service provider 15

  16. Build-Operate-Own (BOO) • An online portal that unites all services across all departments and agencies is essential for the realisation of E-Government vision • Organised along functional lines or citizen life-cycle is the logical way forward 16

  17. E-Services Entities Service Supplier Gateway Provider Service Provider • Linking government systems and processes onto a common system • government agency • Responsible for creating services for citizens • Private entities • Provide electronic delivery channels • Under the BOO framework, the gateway provider and service provider procure and develop the system and bear all costs relating to operating and maintaining the system • The government, as the service supplier, links legacy systems with the gateway provider and monitors the progress and the service quality of the entire project 17

  18. Cost Recovery • Service providers and gateway provider are allowed to charge users for online transactions • Service providers - The users (citizen) pay a convenience fee for the electronic service • Gateway provider – the users (service providers and government) are being charged a service fee for each successful transaction 18

  19. Cost Recovery • Considerations for payment structure • Current charges that are imposed on citizens when renewing their driver’s license and road tax at the post offices • Unit cost to the service suppliers for operating and managing the counters and bill payments on their own • Internal rate of return to gateway and service providers based on projected transactions 19

  20. Issue and Challenges • To accept electronic payments, the government has to re-engineer existing paper-based business transactions • Updating legal statutes and policies to support the new technologies • Cost-benefit and risk analysis to determine which applications are suitable for electronic payments • Calculate and benchmark transaction costs for current payment processing and new transaction types • New payment methods to be integrated into existing legacy systems and processes 20

  21. Issue and Challenges • With the launch of E-Government, funds needed to be allocated for bank fees and other associated credit card costs • Tedious negotiation to reduce fees – government is a secure paymaster with low risk to the acquiring banks • The gateway and service providers have to think of how to attract citizens and business to use their services • Integrating all services into one portal is a complex and time-consuming task – requires integration and interoperability between multiple parties 21

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