USPS OIG – Projected Savings and Returns on Capital Investment Projects
The Postal Service invests in facilities, vehicles, services, technology, equipment, and other resources. These resources help the Postal Service meet its customer experience, employee engagement, and revenue generation goals; and provide the Postal Service with the tools needed to maintain accountability, credibility, and competitiveness. From fiscal year (FY) 2011 to FY 2015, the Postal Service completed 48 investment projects, which were tracked in its quarterly investment compliance reports. These investments had a combined approved funding amount of about $4.2 billion. We reviewed investments over this period because the average financial projection period for investments was about 10 years and we needed data from a longer period of time to complete our assessment.
Project managers must prepare a decision analysis report (DAR) business case to describe and justify any investment of $1 million or more. A DAR describes the organizational problem addressed by the investment and the need for the expenditure.
Of the 48 investment projects completed between FY 2011 and FY 2015, 11 were generative, non-facility investments. Generative investments are those the Postal Service approves primarily for expected economic benefits. These 11 investments had a total spend of about $2 billion, projected savings of about $13.7 billion, and estimated returns on investment (ROI) of up to 119.6 percent.
In addition, 18 of the 48 investment projects were facility investments (which may or may not be generative) with a total approved funding amount of about $471 million, projected (positive) savings of about $837 million, and estimated ROIs of up to 135.8 percent.
Our objective was to assess whether the Postal Service achieved projected savings and ROIs identified in DAR business cases.
The Postal Service did not always track and assess all data needed to determine whether investments achieved projected savings and ROIs identified in DAR business cases. Personnel only tracked and assessed actual savings for three of the 11 generative investments and actual ROIs for seven of the 11 investments in quarterly compliance reports for two quarters after investment project completion, as policy requires. In addition, although personnel briefly tracked actual savings and ROI for some investments, they did not maintain historical data or documentation to support these actuals for any of the generative investments we reviewed. Therefore, we could not assess whether the Postal Service achieved projected savings and ROIs.
The Postal Service did not:
- Have clear retention policies and procedures for how and where project sponsors should maintain investment documentation.
- Ensure the investment documentation was accessible.
- Enforce requirements to quantify and submit achieved benefits to appropriate personnel from the time the investment project was approved until two quarters after the project was completed, per policy.
- Have specific economic and risk criteria to determine the need for an investment cost study or a formal process for reviewing those criteria. Cost studies compare the actual costs and benefits of the investments to those estimated in the DARs and identify lessons learned.
In addition, current procedures hindered the ability to effectively and efficiently track and verify the financial performance of all facility investments. Specifically, management had to perform multiple, complicated processing steps to search for and extract cost data for 16 of 18 facility investments (about 89 percent) completed between FY 2011 and FY 2015. This was because management did not assign a new accounting identification number to all facility investments, as required by policy.
Management stated they generally only assign new accounting identification numbers to high-dollar value facility projects, but the threshold for assigning these new codes was not defined. In addition, the Postal Service maintained transactional cost data for individual facility investments in the facilities management system (rather than its financial system). A facilities management system project number is needed to search for and retrieve project records in the system; however, management did not maintain the project numbers for the facility investments in our review. As a result, personnel could not efficiently extract actual cost data for facility investments.
Tracking the ROI throughout a project’s life cycle is a commonly used best practice across industries. It is important for the Postal Service to track actual savings and returns and for this data to be readily accessible so the Postal Service can effectively assess the financial performance of its investments. This is necessary to determine whether investments met expectations, were in the best interests of the Postal Service, and could provide insight on lessons learned.
We recommended management:
- Revise policy to more clearly define the retention period for investment data and documentation.
- Develop a plan to ensure project sponsors quantify actual operating savings and ROIs and submit this information with quarterly compliance reports.
- Develop specific economic and risk criteria that may warrant an investment cost study and periodically review investments against these criteria to determine if a cost study is warranted for select investments.
- Update policy to specify what conditions require assignment of a unique accounting identification number for facility investments and require retention of the electronic Facilities Management System project number for all facility investments with quarterly compliance reports.