good afternoon. madam clerk, we have an open item number nine at. we recessed until we could be

joined by the mta director. commissioner campos, would you like to introduce this item? commissioner campos: thank you for taking your time to be here. and i know he had a prior meeting. think you for your flexibility in coming to speak with us. for those of you that were here when this item was first requested and for those of you that are new to the board, i want to simply put this in some context. last year i requested a management, operational audit of the mta. at the time that the audit was requested, the mta had not been subject to a management operations audit in 14 years. as of best practice under our

rules under the board of supervisors, we want agencies to undergo of management performance of it, at least every eight years. -- we want agencies to undergo management performances at least every eight years. what we have before you is the second phase of the audit. the first phase was conducted by the office of budget and legislative analyst. with respect to the second phase of the audit, we engaged cgr management consultants to conduct audit, and from my perspective the timing of the of it makes a great deal of sense. we have new leadership of the mta, and the director of transportation, someone who has

a proven track record of making sure our agencies are following best practices. i know making sure we have the most affected management possible is a priority for mr. reiskin. i think of it that focuses on how the mta is managing capital projects provide the timely footprint for mr. reiskin on how to improve this agency. i also want to thank the leadership of the transportation authority, the chair for creamii and the members. i think it is important that we work together to improve the way we do things i look forward to a similar performance of it being conducted of the county transportation authority so that we can also learn how we can improve and that area. the last thing that i would say before i turn it over to cgr

management consultants for their presentation, is i do think there are many lessons to be learned in the 19 recommendations that are made by this autumn are recommendations that need to be taken seriously. we have heard repeatedly how there are limited resources that the mta has available. this audit point out that as important -- as important as it is to get additional resources, the big problem is we're not doing enough with the resources we have a. we have findings that are sobering and point to significant need for improvement. there are significant delays in the major projects to the tune of 592 days. we're talking about tens of millions of dollars that could be saved. even though we're talking about capital funding, it is clear when these projects go over budget, it does impact operational budget of the

organization. while we do have limited resources, we can do a much better job with the resources we have. with that, i'd turn it over to c turn it over to cgr so they can do their presentation. >> thank you, commissioner and chairman. >> my name is keith kenneth. >> if you will and told us, we will do a little bit of trading back and forth as we go through the presentation. supervisor campos gave a good synopsis of what the motivating factors were for the audit. what you see on this green hair

is the mission that was put into the request for proposal that was issued to which we responded. and along with that mission were questions in several areas, and these are acted -- answer directly in the report in section 3. we used these as a handout in our interviews -- use thesso wed communicate exactly what our mission has been peer yen the timetable -- i would like to make note of the fact that we started in the end of

september/october ain 2010. we completed the first round of the report on march 16 of 2011. in keeping with this collaborative approach of sharing our mission with the mta we at that point gave them a look at -- recommendations we have come up with at that time, most of which carry through to the final report. they circulated that and gave us some feedback on what the recommendations were, which was very helpful in preparing our subsequent drafts of the report. methodology.

and it we're trying to an audit triangulate between what the agency says are the capital process procedures, which is called here on this slide stated practices, what the actual practices are as evidenced by the results achieved, and by what we learned from interviews and in doing things like flow charting and using other diagnostic tools. we also reduced -- referred to generally accepted good practice. supervisor campos used the term of best practice of the agencies like the project management institute, f ta, which has a

project -- handbook of project management refer to these themselves as generally accepted good practices that should be adopted to get away from the idea that any particular agency has to use them. that they should go through and sift out the ones that fit their situation. positive findings. and we had good cooperation. and we had interim report to you in november. -- we had an interim report to you in november. we have problems that caused a delay, but those were addressed, for those part there was a lot of cooperation and openness from the agency.

there were 19 recommendations -- there are more varied in the report, but these are the key ones -- more buried in the report, but these are the key ones. we offered two rounds of review. the first round produced 60 -- 76 comments, which are in appendix 8. with the finalized report we got either concurrence's -- we got concurrence on 17 of the 19 and partial concurrence on the others. we would like to point out some highlights but we think the procesthat we think filling ther with planning projects is a good one and getting input and screening those, and also, we

would like to comment positively on the public input that is giving to the public agency. >> a couple of other positive findings we should draw your attention to is the capital programs in the construction division initiated new control systems authorizing the development of a capital program control system, and this is absolutely the right thing to do, hibecause the current systes are outdated and do not meet modern standards. the second thing is we examined some projects in detail, and for example, at the subway project. we found that was within the constraints of the mta. rather well organized. we particularly like the fact

there have been substantial risk analysis. we liked the fact that they have regular meetings with outside bodies to give them their views, and as a result the fta has given them one of the two projects that have the highest ratings from the fta for grants. >> that said, we would like to discuss five areas of major concern. the first one is how well our projects managed -- are projects managed from looking at the results they achieve or do not achieve? so we picked 13 projects that

have been up history, were far enough along, so that we have visibility either an overrun or a potential over run projected to the end of the report. 12 of those were in that state. one was under budget. i think in a normal sample like that we would expect a higher percentage. so if you look at the figure -- the comparison was done again in costs, and bass line costs include the design and construction, which is shown in

the thermometer in blue. the internal cost, which would be essentially project management, a resident's engineers in the yellow, and then a contingency, which is usually added on to these projects during the conceptual engineering phase. conceptual engineering phase entails 35% of the activity required, so the requirements should be fairly well defined. what these three elements constitute is a baseline cost. what we found in reporting to the board, the fsmta board, and

their own monitoring, is they compare themselves to the approved budget, not the baseline budget. so a strong teaheme is they ougt to be going back and using that as a benchmark. so when you have a baseline budget, this usually becomes the basis for planning capital requirements. when you have an overrun like the average group that we look at of 32 percent signe%, it cree call a brittle portfolio were you have to find funds for the project, and oftentimes this may mean taking from other projects or sources. so what we would like to see, we think the recommendations will

do, will put more of an emphasis on the front end and the planning to first reduce the amount of contingency that may be needed, which is the 30% in the orange, and minimize the potential of overruns. and >second >> the second major concern was the reporting oversight. the first is that the board is not proactive in determining either standards or the information it needs to receive in order to have an oversight of the capital programs. the second is, as my colleague has mentioned, that most projects do over run their

baseline cost, and this is because the board keeps approving additional amounts and additional time for the projects to be completed. typically that early estimates -- the early estimates turn out to be low and the project's cost more. this affects not only the cost benefit, which was expected, but as jim has mentioned, it also affects other projects, which are either waiting to be done or needing to be done. the third thing is that ongoing information the board receives from staff that it is relying on is inadequate for the purposes of oversight. mainly this information comes in the form of a quarterly report, and because this that are

controlling to the approved budget and not based when budgets, they keep showing -- in fact, they have shown all projects as having green traffic lights, that is to say nothing to worry about, and members of the board commented they rely on those as a guide and other things are proceeding well enough. those are often not the critical information. for example, in the central subway, the fdta as a number of points, and one of the critical criteria for how well the project is doing is to examine a contingency that is left. you would think this is something that the board would be particularly interested me -- would particularly be interested in. so those are the of three points that concern us most.

another point, which is related, is there is a great deal up confusing financial information around the mta. -- great deal of confusing financial information around the mta. i will draw your attention to two or three of them. the first one is this body, this board, march 30, 2010 authorized were passed a resolution authorizing 1.57 8 billion for the central subway project. this is on a number of conditions. one of the conditions was the stick to the 1.57 8 billion budget. -- 1.578 billion budget. the report shows the estimated

cost was 50 billion above that. this did not attract comments from the board members, nor was unnoticed by the senior members of staff. in fact, when we inquired about it, we were told it was a typographical error. another example is the executive director, about a year ago, told the board that the mta expected to spend 455 million per year on the state of repair. just a few months earlier in march they had reduced capital budget for 2011 and 2012, which showed expenditure as less than half of that. the problem is that people possibly such as yourselves, see these variety of figures, and

really do not know what to believe, and can only be confused about it. >> item four addresses management processes. and one of the drivers for one of our recommendations was the fact that the agency has initiated a program for state of repair -- state of good repair. the ad iat is an fta-sponsored initiative that evaluate the assets and evaluate where they are in their lifetime, and they have set goals for what they would like the state of good repair to be. for example, if all of the assets were up 50%, they would

be halfway through their lifetimes, even though the assets themselves burievaried in vehicles and such. what we feel fits the responsibility for state of good repair, we will talk about it in more depth later, is the recommendation for asset management teams. right now the agency is functionally organized and thai the participants in the capital projects such as resident engineers and profit controls people, project engineers, are in separate sections. we have a recommendation for an

idea of satisfying the intent of state of good repair. we found it lacking process documentation. we looked for an appendix 8. we identified several areas where this should be improved. one thing is that we are recommending taylor processes for different kinds of assets -- tailored processes for different kind of assets. for example, vehicles should have a different process than construction. there was a steadudy as is stud for capital processes. the study cited ripe for abuse

exciting projects. we think that asset management team will provide closer control on who charges those. at other clients we have seen thus contribute significantly to overruns. i>> the fifth area of major concern is the one we complemented before, which is the cps projects, the capital control projects. this is a difficult project in that it interfaces with numerous other systems, and needs to be very well managed. we believe the initial estimates provided by the vendor were

overly aggressive and would not be met, and we have subsequently had discussions with the staff, and we still believe that. we are concerned that that system, which is important for the future control of projects, is going to run behind time and cost more than it originally was expected. >> ok we're shifting now from our concerns and to recommendations. we have already talked about the asset management teams. we would like to make them, asset managers be responsible for some of the areas that were questions in our charter like state of good repair, what the

delivery method is. would we design or build with the contract manager or so on? and measuring performance against baseline budgets, putting more time into the front end, which is item b. and making sure the project manager has cradled the grave responsibility for projects. that is all we're an estimate is required. -- that is where an estimate is required. we have talked along the lines of the improvement of board reporting. in an appendix 5, there are examples of various metrics that can be used in that type of

reporting. they would provide a portfolio look so that they can look at overall howled the collective management of the portfolio is performing. right now each project is reported individually. >> the task of eliminating the confusing financial information will be a difficult one, because the information is communicated from many different sources within the mta. nevertheless, it would be possible to do a better job than it is being done at the moment, particularly at a higher level when the executive director makes comments about cost and time and so on. >> [inaudible]

life is anything but normal. i>> we think a special effort should be put into improving processes, and a single organizational units should be made possible. there is adequate resources made to improving the use of information technology. for such a large agency, it has a very small i t stuft.t. staff. they're not providing the communications development that they need. another theory, which is critical, is one of the cpsccs integrating to avoid duplication of effort, and the project

operations manual needs to be improved to reflect all of these changes, and also to talk of the i mtiming of information. old information is generally not useful in managing projects. finally, our recommendations are that management of the improvement projects themselves needs to be sharpened. we believe the cpcs is slipping, and ultimately will take longer than originally estimated. we also think there are areas that need attention, and finally come out we have also set out prin