For the Strategic Professional Examinations, itis not abvays possible to publish suggested answers which comprehensively cover all ‘the valid points which candidates might make, Credit willbe given to candidates fo points not included in the suggested answers, ur which, nevertheless, are relevant t0 the requirements. In addition, In this imegrated caso study examination condidates mey reintroduce points made in other questions or parts of questions as long as these are made in the specific context of the requirements of the question being answered. The suggested answers presented below inevitably give much more detail than would be expected from most candidates under examination conditions and include most of the obvious points evidenced from the case information. The answers are therefore intended (0 (provide a structure of the approach required from candidates and cover the range and depth of knowledge relating 19 each task which ‘might be demonstrated by the most well prepared and able candidates. They are also intended to support revision and tuition for future examinations. 1 @ © Briefing Paper FAO: Rail Co Trust Board ‘The agency relations of the partis involved in Rail Co and their sights and respon: RailCo is what would be called a devolved government body operating within the public sector. In terms f strategie purpose, RailCo exists to implement government palcy in egard of passenger rail services. Therefore, ts organisational objectives wil largely be determined by the political leaders of Besland. Ultimately isthe responsibility ofthe chief executive of Rail Coto report to the jgovecnment of Beeland (through the Rail Co Trust Board) on Rail Co's stewardship of the public funding itreceives. ‘The main partes involved inthe agency relationship of Ral Co are the government, inthe form of the Ministry for Transport of Beeland 22 the principal and the Rail Co Trust Saard and the board af directors, comprising 2 mi of executive and non: executive officers, acting as the agents. As stated above, ultimately the chief executive of Rail Cis responsible to the government for RailCo's management and stewardship of the public funding i receives. tis important to note that the way in which Ril Co is regulated and governed is focused an value for money rather than on the achievement of profi. ‘There is also a further agency relationship within Rall Co, in that the Rall Co board of directors ls accountable to the Rall Co Test Board, tisthe responsibility ofthe Rall Co Trust Board to set a range of performance targets each year and to hold the Rall Co board to account for the effective and efficient use ofthe funds alloceted by government and by the fare paying passengers Afurther aspect of the agency elationshio in Rail Cos thatthe ukimate principals the taxnayer end the customers, in that itis he for the who pays fr the rail service and Ral Co exists for their benefits the ultimate responsiilty of the board af Fal Ca ta tencure that Rall Co carries out ite aastenger services on behalf of those whe fund the activity [mainly taxpayers) and those who Use and pay fr the services rai passengers). Funders (i. texpayers) and customers are sometimes the same people (for instance, taxpayers who commute on Rail Co's trains) but sometimes they are not, and this could give rise to disagreements onhiow much isspentand on what particular provisions. Rail Co has a responsibilty to allots principalsto delverits services efficiently effectively andotfering good value for money Asis evidencedin the recent article nthe Beeland Hera, many customers are not satitied with the value for money affered by Ral Co. Its the responsiblity ofthe Rall Co Wust Board to ensure that the Key outcomes of Rall Co are delivered by setting a range of performance targets, against which performance is measured perioically. ‘The role and value ofthe non-executive directors on the board of Rail Co Not-for-profit or public sector ergeniations must alto be diracted and controlled appropriately, a the decisions and actions of 2 few individuals can affect many individuals, groups and organisations which have litle or no influence over ther. Public sector organisations, such as Ral Co, havea duty to serve the government, but must act in a way that teats stakeholders fair, ‘The non-executive directors (NEDS) are not employees of the company and ate not involved ints day-to-day running, The non: executive directors usually receive a lt fee for ther services and are engaged under a contract for service ‘The role of NEDS isto provide a balancing influence on the board of directors and help to minimise conflicts of interest. The Has Report, published in 2003, summarised their role as: to contribute to the strategic alan = ta scrutinise the performance af the executive directors = to provide an external perspective on risk management = todeal with people issues, such as the future shape ofthe board and resolution of conflicts. Importantly, the NEDs should have high ethical standards and act with integrity and probity. Their main role is to support the executive directors of failCo and monitarits conduct, demonstrating wilingnessto lien, question, debate and challenge, Its recognised as best practice that 8 company should have more non-executive directors than executive directors. This is the «ase for Ral Co, as canbe seen omits structure highlighted onthe Rail Co website, The NEDs of RalCoare responsiblev7for running the four board committees which are set up to monitor the performance of Rail Co in key areas such as health and safety and auait and risk management The NEDs are ako responsible for setting and reviewing the directors remuneration fang evaluating the corporate governance structure and activities of Ral Co and ensuring thatthe board is adequately governed, structured and staffed. This is particularly relevant and important to a public sector company such as Rall Co, where transparency ‘and public scrutiny are prevalent. ‘The chaitman of Rail Co is also 8 non-executive director and plays 2 Key olen the business. The chairman has theultimate role of leading the board, whilst the chief executive leads the business. Therefore, the roles of chairman and chief executive are complementary and interlinked, “The NEDe of Rail Co can ada value tothe business by: = broadening the horizons and experience of existing executive directors, particularly if they come from a wide range of both public and private sector organisations. sation of ideas, particularly in terms of busi facilitating the eros strategy and planning, = playing vital part to playin appraising and commenting on RalCo's achievement of value for money and advising on strategies toimprovetthis, [A team of executive and non-executive directors needs to be made up of people with business acumen and hands-on experience, Norvesecutive directors should be able to fille gaps in expertise not avaliable in the executive team and provide independent and abjective scrutiny tothe daction af uch organisations inthe public interest, (2) To: The Rall Co ust Board From: Audit analyst, National Audit Authority Date: avsx'ccce ‘A report om the customer satisfaction performance of Rail Co and the relative performance of Rail Co with its competitors lover the Tast three years An evaluation ofthe customer satisfaction survey results Percentage satisfied Actual % Trust Hoard Trust Board change target for 20N6 target 20N6 —20NS_-20N4 ——-20NS to Target growth achieved? 20X6 on 20X5 Overalisatisaction with youriourney 87 30 92 3% 3% No Satisfaction with ticket buying facilities 60 6 6 1% 2% No Availabilty of staff 62 6 70 3% 5% No Helofulness/attitude of staff 6 2B 7 2% 2% ves Rekabilty of service 84 a1 86 3% 5% No Value for money for price ofthe ticket 50 56 37 6% 2% No In analysing the resuts of the customer satisfaction survey, as indicated in the key performance measures highlighted in ‘Appendix 3, these clearly show that overall customer satisfaction of Rail Co's services has declined in 20X5. Overall satisfaction has clacrented by 3% an 20XS results, and, notably hi is significantly below the target of 2 2% inereate forthe year, as cet by the Rail Co Tust Board. This isa key indicator for Rail Co as it demonstrates whether the services provided are effective inthe eyes of its customers. Although 873 is stil high, it does reflect a growing dissatisfaction from the point of view of the customers as @ continued trend. This needs to be ceversed, Customers are also clearly not happy with the ticket purchasing facilities offered at the train stations, with a 4% decrease in satisfaction trom 20KS. Agai, the Rail Co Tust Board target of 82% increase on 20XS has not been met. One customer feedback comment highlights customer frustration withthe lack of online facilites, ‘This is vary frustrating and often, Fuse my car mstead of going by tram as tts more comventent than queug to buy a train ticket.” Other national ral operators do offer online ticket During facilities and it would appear that its absence in Rail Co is @ cause for concern, as customers are becoming increasingly Unhappy with having to queue fer tickets at stations “The measure of staff helpfulness and attitude isthe only performance target met by Rll Co in 20K6. Thisis positive ait indicates staff commitment and attitude and could be an indicator of successful staff management policies at Rail Co, The avallabilty of staff has declined by 2% ane thus clearly not achieved the target set by the Rail Co Trust Board, indicating a possible problem with adequacy of staffing levels or levels of absenteeism. The customers’ perception of the reliability of service has improved from 20KS by 3%, which isa positive outcome. This could be due to incrented investment in new trains. However, if this is considered in conjunction with the results of the competitar analysis, itis evident that in fact, the punctuality of Ral Co's services isin fact decreasing year on year. These measures appear to beat odds, butt must be noted that the customers’ perception of reliabilty could include other factors, other than trains being on time to their destination, For example, reliability coud include celiailty of staff on the trains or eeliabilty of trains stopping at the correctstations. One of the most important measures is customers’ perception of value for money of the price they pay for ticket. This has decreased significantly compared with 20XS by 6%. This is 2 significant negative change in customer perception and one18which cannot be ignored. As stated by a customer inthe annual survey, ‘The price ofthe regular rcket I buy to commute ro work hhas increased by nearly 10% since last year I really can't understand wi, as Ido not seem 10 be getting more for my money” ‘This ie impartant tothe government because ifcustomers da nat believe that they are getting value for mony andifticket prices continue to rise, then Rail Ca aren danger of losing more customers. ‘The above Mindings should also be considered in conjunction with the results of the competitor performance analysis, as iscussed below. Competitor performance analysis ANR Rail Co Ceeland Rail 20X6 20XS-20N4-20N6--20XS_-20X4_—20N6-—«ONS —-20N4 Revenue growth «45% «SSH SKB Operating profit 334% 255% 198% 256% 309K 343% 35.4% 315% 27%Costperkm(as) «640-350 3.60 303630262 Cost per employee (85) 92,004 95,706 100,041 110,654 101,618 93,221 83,68 80,290 78,033, Ticket price increase pa 49% 00% 8% IK = OH BH = Curtomersatefaction improvementpa 2% 8% BR HBO Injuries per staff member 11% 14% 14% «18% OLTH LTH 04% OME OSH Focusing on the key findings of this analysis, It fs noticeable that revenue growth is much lower for Rall Co than its two competitors. In 20K6, revenue growth for bath competitors was much higher than that of Rail Co Indeed, Ceeland Rail achieved an B% revenue increase despite a 4.7% decrease in average ticket prices, indicating that more passengers were using the network and that there may be some price elasticity af demand. Conversely, Rail Co's revenue inereased by only 2-58 with an average increase in ticket price of 83%, indicating a significant fallin fare paying passengers on trains in 20X6, but the aticein the Herald newspaper indicates that there may be a 10% increase in total passengers being carried on the service making the service increasingly overcrowded and uncomfortable. Siarificantly, Rail Co also failed to achieve the revenue growth target set by the Ral Co rust Board for 20K6 of 5. All three companies have achieved 2 healthy operating profit margin, but again, Rail Co is not performing as well as its competitors. Bath Ceeland Rail and ANR have achieved a significant improvement since 20KA in operating profit margin, indicating animproverantinits cost control However, RailCo's operating profit margin has decreased by 8-4%in the same period, This should be of significant concern to the board of Rail Cost indicates @ weakness in cost control This point is further highlighted by considering the cost per kilometre travelled per company. Rail Co has the highest cost per kilometre, which has alo risen each year since 20X8, Ceeland Ral’ cost per kilometres significantly less than Rail Co and has been stable over the same period, indicating sound cost management systems. Ceeland i clearly larger organisation than Rail Co and therefore may benefit from economies of scale, which must be taken into account, but nevertheless, both ANR and Ceeland Ral appear to be managing thelr costs much more efficlentWy than Rallo. Rall Co also underperfarms both of is competitors in terms of trains on time and once again it has flied to meet the target for improvement set by the Rail Co Trust Board for 2X6 (a decrease of 2% on 20KS compared to a target of #394). Obviously it isclificut to judge this measure without further information on distances travelled ner tain end train type, but it does give us an ingicator of how customers are likely to perceive each company. This is indeed verified by the customer satisaction surveys for {each company, which clearly shows that the customers of the two competitors are currently far more satisfied withthe services they offer Ceeland Rallis outperforming both cvals in these two key measures ‘Another important measure to consider is staff turnover, as tis can be 2 key indicator of staff satisfaction and overall wll being of staff in the company. It is clear from the analysis that staff turnover in Beeland is high compared to the other two comparies. Indeed, in 20X6 it was double that of Ceeland Rail. Obviously iti dificult to make a detailed judgement without having further information relating to staf? make-up in terme of fulltime ang parttime staf and age and length of service. However, thie ‘measure should be a clear indicator to Beelane's management that ths could be symptomatic of ahigh level of staff dissatisfaction compared to the competitors and the reasons must be investigated and addressed if possible. I staf are pooty trained or poorly aid, or working in an unsafe envionment, then ths could lead to poor metivation, which wll have an overall impact on customer satisfaction and staff effectiveness. Also, staff turnover will ad significant costs to Rail Co's operation. Although this review has only considered a limited number of performance indicators, it is clear that Beeland Rail is not performing 2s well sits competitors and that there are a numberof areas which the board must address immediately19(6) The Rail Co Trust Board Becland Xexecere Dear Chairman ‘Thefollowingis cur report onthe effectiveness o internal contrals of Ral Co basedon th andanalyse, idence havebeen able tocallect Having thoroughly reviewed the Rall Co performance data, the recent board meeting minutes of all Co and the transport report inthe Beeland Herald, a number af internal control weaknesses can be highlighted. Ficst, there appears to be serious weaknessin the control of passengers accessing trains without tickets. Thisis referred to in the Beelend Herald transport report, where it is mentioned that this issue had already been raed inthe last two annual reports. This creates a significant dusiness sk which does not seem to have Been acted upon or mitigated by the Rail Co board It has been highlighted for over two years that Rall Co believes that significant numbers of passengers are traveling on Ral Co's network without tickets. A key internal control weakness would appear to be that appreximately 40% of Rail Cos stations do not operate ticket barriers, allowing the potential for customer ticket fraud. This potentially will ave seriously damaging consequences on the performance of Rail Coin that revenues are not being optimized Second, there appears to be a weakness in staff management and safety procedures, in that there has been an increase in the ‘numberof injuries to staff reported by Rall Co in the last year. This s evidenced inthe recent performance information analysed by one of my coleagues in Exhibit 3. although Kim Lun has assured the BHSO that a thorough investigation would be undertaken immediately it indicates that Rall Co has potential weaknesses in safety procedures and also in staff training procedures. The performance statistics indicate that Rail Co has lower levels of training than its competitors and Kim Lun (non-executive director) has noted that there had been a lack af investment in the training of staff in the last three years, which i also a key internal control weakness and one which could seriously impede the performance of Ral Co. Staff who are not appropriately trained are more likely to have accidents and to make mistakes. again, this wil have serious repercussions on the overall performance (of Rall Co and could have seriously damaging impact upon reputation if serious injuries occur ‘further internal control weakness could be seen as the lack af investment in online booking systems. Several other national train operators offer online booking facilities an evidence suggested that this had positively impacted upon revenue growth and customer satisfaction in all ofthese businesses (Appendix 3). Lack of focus upon IT investment and development in Key strategic information systems could be ceen as an internal control weakness and could hamper the eng: term performance of Ral Co, |Afurther internal control weakness could be the current pay structure. Poorly pad staff who are disatisfed will eave or may take strike action HR policies on fir aay could be considered to be weak f they are not commensurate with the expected payrate, Throughout the board meeting, there is evidence of the chiet executive's inability to react to these key internal weaknesses effectively andit would seem thatin some cases, this reluctance and inactivity coulé have seriously damaging consequences for Rail Co. ina number of cases, there i evidence ofa failure to achieve his fiduciary duty to the trustee of Ral Co. Ficst, his comments in relation to Rail Co's performance are inaccurate and reflect his own opinion, based on historic performance and not the actual performance in 20X6. Clearly, somenarrow aspects of performance have improved, butt is net in line with competitors and customer expectations in the current climate. Miscomment thatthe target for punctuality set by the Wust Board was unachievable and not relevant s highly inappropriate and shows a breach of his fiduciary duty to the trustees. is his role as chief executive to ensure that these targets are achievable and they cannot simply be ignored. Also, his statement that customers de not understand value for money demonstrates his lack of understanding ofthe customers’ perception af tis critical measure. Itis wrong for him to make such a sweeping and unjust statement and could seriously damage the reputation of Rail Co it enece views were made publi His exponse tothe investment in ticket barriers unfounded and demonttrates 2 ack of understanding of a key internal control weakness in relation to the potential level of fraud in Rail Co. He hac made a significant judgement founded upon no evidence of costs outweiahing the benefits andhis assessment that mast fraud being unpreventable’s i-iudgedand incorrect. Again, his lack of understanding of such an important issue isa falure of his fiduciary duty. His cormment that there is no evidence to suggest that staff morale is low is incorrect, as staff turnover is increasing strongly indicating low morale. He pointed to evidence in the customer survey report which indicated an annal growth in customer satisfaction levels in celation to staff helpfulness and attitude but ths not linked to staff training in any way. His logic i awed and his attitude towards staff and adequate training could be seriously damaging to Rail Co. ‘The CE also commented that online ticket facilities went against the tactional values of customer service focus of Ral Co. His reluctance to invest in such technology could prove to be seriously damaging to Rail Co's performance. itis clear that custorners are nothapey with ticket buying faites and should thiscontinve more willuse other meansof transport, Todelay this decision could be damaging to RailCo, enould custamers continue ta chose ether forms of transport to commute, ‘The chief executive's attitude towards the unions could be severely damaging to Rail Co, should the unions decide to take strike action. The CE commented that the unions were merely taking advantage of the latest survey results ta put the board under pressure to increase levels of pay for its members. Although Rail Co must negotiate with the unions, to take an aggressive stance could be counter-productive. Hiscomment relating to the media as an unimportant stakeholders incorrectas adverse media reports about Rail Co area potential reputational risk to the organisation,203 In conclusion, my overall opinion is that the comments made by the chief executive demonstrate 2 number of serous failures and weaknesses in his Fiduciary duty tothe principals and trustees of Rail Co. | have grave concerns regarding his awareness of the current situation facing Rail Co and his abilities to respond effectively tothe changes which will be required in the coming months. Yours sincerely Assistant audio, NAA (2) To: Chatr of the Nominations Committee From: Chair of sub-committee Date: xxxx/x2016 Subjects A review of the candidates for chief executive of Rail Co Introduction ‘The outline person specification sets out some very clear criteria for the role of CE in Rall Co, specifically the requirement for demonstration of experience at CE level in a similar organisation. Obviously an understanding of the ral industry is also an important factar to cansder Alto, ina high profile public sectorenviranment, an ability to operate successfully in camplex aoitial eenvizonment and to manage the complex elationships with multiple stakeholders wil bea key factor. Importantly inthis role of CE inal itis laarthat many changes needto be made in the near future to address its current failures and to achieve the t and.expectations of ts ke stakeholders and therefore the new CE should have the skis and abilities to manage and lead a dynamic change programme at Rail Co Candidate A Candidate A clearly has a significant amount of experience as a CE, having worked at this level since 20W0. As 2 CE of @ ‘multinational oil company he will have significant experience of managing a highly complex business environment and multiple stakeholder infuences, including government. Additionally, his recent CE experience is within the rail industry working for JPS Expres in Jayland, Notably, he led the privatisation of JPS tains in 20X3, therefore he has experience of working in the publlc sector environment prior to 20%. He has clear experience of working with the government and regulatory authorities, which will be a key kiln Ral Coin managing the relationship with the Trust Board and the Minister of Transport. His ability to build and ‘maintain relationships with external bodes, staff and the media would appear to be a highly positive capabilty and one which is highly desirable the current operating climate of RailCo. Notably, Candidate A demonstrates key skills in change leadership ane human performance management. tis clear that a change programme will need to be carried out by the new CE in a number of key areas, including the improvement in the performance ff human resources and key strateaie project investments. Candidate A has a praven track record in change leadership and! in managing complex projects and these will be key attributes. In addition, his focus upon strong internal control i a key competence required at this present time Candidate Candidate B also has 2 number of very postive attributes. Currently, he is nat working within the cll ndustry, but does work for @ very large aviation company which will clearly require many key leadership skis. Akhough he has not worked as @ CE for quite as long as Candidate A, notably he has worked inthe ral industry previously as a finance director for Ceeland Ral, Therefore he will have an excellant knowledge ofthe financial management requirements of Ral Co. His obvious skils and experience in financial management would be = hugely postive intiuence for Rail Co, His focus on KPle and developing strategies for cevenue growin and operational efficiency would be hugely positive for Ral Co, However, his experiences focus largely upon financial management which, although critically important to Rail Co, may be rather too narrow and not sufficiently focused upon the change leadership requirements of Rail Ca, There ie alzo limited evidence of managing stakeholder relationships in a complex environment such as Ral Co, particular the relationship with government and regulatory bodies. Aso, there site evidence of is ailties tlead change Recommendation Both candidates have a wide range of sls and experience and bath would bring very postive attributes to Rall Co, Overall, taking into consideration the current requirements of Rail Co and the likely changes which will need to be undertaken by the newly appointed CE inthe near future, than my recommendation would beta apaoint Candidate A Hehae all ofthe ralavant public sector experience, together with his experience of managing complex stakeholder relationships and his change leadershipexperlence.a(e) [stiaet Talent = Individuals who can make a difference to organisational performance through theirimmediate contribution or in the longer term, by demonstrating high future potential Talent management = The attraction identification, development, engagement, retention and deployment of individuals who are of particular value to an organisation, = ks critical for Ral Co to develop, manage and retain individuals as part of @ planned talent management strateay Notes: ‘The definition of talent emphasises that these are individuals wha can make an impact on the performance of Rll Co, This is of tutmostimpartance in the near future as Rail Co attempts to turn around its business performance. Importantly, talent management should be seen as a Key strategic management activity which sits alongside and indeed underpins the whole corporate strategy. ‘Many organisations consider the ‘talents’ ofall ther staff and work on ways to develep their strengths, Talent management programmes may inchice a range of aetiities such as formal and informal laacership coaching, networking events and board- level and client exposure. Itcan also include ensuring that al staff are adequately and effectively tained and motivated at all levels ofthe business ‘Slide 2 “The contribution of the chief executive im talent management = important that talent management strategy is led from the top = Senior management team must assess the human talent needs f the change programme = Driving forcein attracting talent and bulking a high performance workplace Notes: Ensuring thatthe talent management strategy is closely aligned with the corporate strategy must be a priority The CE must lead the senior management team in understanding the main priorities of the change programme in Ral Co which should then be used to develop 3 human talent forecast, whien can help shape ail Co's talent management strategy: Visible senior-level support for talent management is critical, and this is best done by the CE. The ability to attract external talent depends upon how potential applicants view Rail Co. The creation of an attractive employer brand isan important factor in recruiting external talent. Again the CE willbe a diving force in this, as the figure head and mouthpiace of the organisation he will be integral in creating the employer brand which wil attract talent to Ral Co2(3), To: Chair ofthe audit and risk Committee From: Internal Auditor Date: sxxe'ccre aby Analysis of potential fraud in the Beeland network Introduction “Thisreport analyses the information on theticketsales and rail usage by stations within the Beeland ailnetworkand evaluate the potential for passenger fraud and its impact on the revenue of the Ral Co, ‘The analysis is based on the information in spreadsheet that was produced by the financial controller reproduced below, dial ata on tors in Rion += atang nao ‘ett Pepuston Whee faiay uses sueapur “etal” pertcat aus(®) on lla)” Coes on are ont own Gamer ‘parte’ iotown. portawe “iene sate Sad’ permorth popultan) tc popeon) “poptsn) ‘The spreadheet acepared by the financial controller has identified the estimated fraud per month in Region 2, based upon the variance between actual tickets sold and estimated ticketssold per town based on estimated percentage of allway users per town). “Thisisthon estimated as percentagebased on the total population each town. tis notable that foreach railway station which has a ticket barrier thatthe levelof fraud is markedly lower than those stations without ticket barriers (stations C, D, Gand I. Thevefore, it can be assumed that ticket barriers are clearly having a direct impact on preventing fraud. The estimated ralvay users in the towne need further investigation. How was ths calculated? Was this based on surveys or on demographic factors or both? This would have to be examines further ‘The spreadsheet also calculates the percentage of unpreventable fraud at 1-28%, based upon an average of those stations which have ticket barriers (stations A,B, H.1). This presumes that there is an element of fraud occuring an Rall Cos networkwhich cannot be prevented with the installation of ticket barriers, There will always be some degree of fraud occurring which is almost impossible to control. Again there isan assumption about preventable versus unpreventable fraud. Further information may be required to understand how this estimate was arrived at and whether thsis the same at all stations and regions. Therefore the spreadsheet takes this into account when calculating the percentage of fraud due to poor internal control (erevantable fraud) at these stations without ticket barriers. If we then use this information to calculate the total preventable fraud bated upon the total population in each town, then itcan be calculated that total annual preventable fraud isestimated tobe nearly $27 milion in Region 1 alone. if we were to extrapolate this across 20 regions, it glves an estimated annual fraud of $8542 milion. The assumption that this region is perfectly representative of other regions allowing such an extrapolation i a tenuous one. Its unlikely that the profile of towns, theie demographics, ane the proportion of rail users or prevantable versus unpraventable fraud levels will be the same across regions. However if these assumptions can reasonably be made, this s a significant amount and ifwe were to take this as a percentage of totalrevenuein 2016it amounts to 12% of annual evenve. Thisis a staageringly high figure andclearly a significant control problem forailCo. Even fthe level of preventable fraucwasassuredta be SO%of the calculated figure abave (say $8270 milion), tis evel of fraudis stil unacceptable. (b)The first measure which all Co should consider is the installation of ticket barriers at thase stations witha high level ofpreventable fraud and which currently do not have ticket barvers. Clearly, ticket barriers are a huge deterrent to fraud, as evidence by the levels encountered at stations with barriers on the network in Region 1. Obviously, Rail Co would need to undertake 2 thorough cost benefit analysis on such a project but from the estimated level of preventable fraud calculated above, then its likely that such an investment would have sigificant benefits fr Rail Co.23e | further measure would be to expand ticket offices and employ more staff at ticket offices to reduce queuing time for customers. Clearly customers are likely to become frustrated by having to queve Tor tickets, particulary if they may miss ther train. Expansion of ticket booths or the installation of ticket machines would provide customers with more opportunity to buy 3 ticket. Another measure would be to offer customers the ability to purchase tickets whilst on the trains. Ths is likely to mean ‘employing more ticket inspectors on each train, Obviously this islikely tobe cost, but Ral Co could manage this byonlyemploying more staff on peak time trains. Raila should also consider the pricesit charges ta customers. Some customers may be motivated to travel without a ticket due ta its unaffordabily inthis case, these customers will inevitably tke the opportunity to travel without tickets if they can do so. This could include younger customers, such as students, for example, who cannot afford a regular high priced ticket. Ral Co should review its pricing polices and structure and consider offering a more afferdable range of ticket prices to meet the needs of is customer groups, suchas student concessions, of-peak travellers and frequent user discounts and passes. Rall Co could also consider the introduction of an online train ticket booking Facility. it would seem that Ral Co is indeed bahind Itscompetitorsin this development and should be serious consideration for Rail Co. Online ticket purchasing islkely to be a hugely convenient tcket buying option for its customers andi likely to encourage more customers to buy tickets in the comfort oftheir own home or office. Obviously, this will be a signifcant investment for Rail Co and a major project undertaking, butit would likely be a significant influence in reducing fraud, Cleary, Ral Co cannot control all customer fraud and it will always encounter dishonest travellers. However, Its important 10 implement measures which safeguard against lost revenue which isnot done with dishonest intentions Business case for the investment in an online ticket sales system for Rail Co Introduction “The following business case sets out how investment in online ticket sales could assist Rail Coin producing more timely customer data and assist in customer relationship management. Current situation Presently, Rail Co does not operate an online ticket sales faclity for its customers. Al tckets are purchased at ticket offces located at each station Recent evidence suggests that asa result of inadequate ticket buying facies atthe stations combined with a lack of ticket baciers, there Isa high level of fraud occurring inthe network. Some ofthis fraud could be eliminated with the Introduction of improved ticket buying facites such as an online booking fact. In adeltion, customers are used to being able to buy products and services online and as a modarn organisation Rail Co should bee considering offering customers such a facility It has become an expectation of agital ife that customers are provided with the flexibility #0 buy products and services fram the comfort of their own home. Research alo suagests that ather national passenger rail service providers offer customers such facility. Therefore, not to offer such facilities may be detrimental to Rall Co's competitiveposition. Analysis of the benefits of an online ticket sales facility “The purpose af CRM isthe building af relationships in order to affact eustomer acquisition, retention and loyalty sulting in the evelopment of 1:1 relationships with these customers. Ths ‘customer focused” approach, which will involve building a strong relationship with Rall Co's customers az well ¢ gathering, toring and sharing information about thete customers acroze the organisation, wil ikely improve customer loyalty. Electronic CRM, n the form of an onlin ticket sales system, would make it possible for Rall Co to have as much contact as possible with its customers through the internet. Tis internet support for Rail Co's customers would likely take the form of presales information, such as timetabling information, ticket purchasing services and after-sales support, such as online refunds or customer account queries. The internet would make it possible for Ral Co to have frequent contact with its customers, and £0 enable us to operate and maintain a detailed customer database, assisting us even further in developing better customer relationships. further value ofthe internet for Rall Co could be seen in the quicker flow of information (realtime sales data) and ‘more consistent communications which can result from its use The effective use of CRM systems could assist in Ral Co's relationship-bulding activities while also contriauting to the profitability of the business. Some ofthe goals which we should set would include retaining our existing passengers, improving customer satisfaction withthe services we offer and increasing customer loyalty. Customers wha receive excellent services remain loyal anda further advantage f that they provide free advertising by talking about the organisation's services, Operational CRM includes customer-tacing apolications such as sales force automation, enterprise marketing automation and customer service and support. Rail Co may consider the implementation of a customer call centre, which is also 8 component of, ‘operational CRM. In this way, al interactions withthe customer could be recorded, enabling Rall Coto gather even more date on the customer and thus track the customer. Analytical CRM could alzo he used to analyse the data which has been created through onerstional CRM, to build» picture of the customer. Analytical CRM includes the capturing, storage, extraction, processing, interpretation and reporting of customer data stored in cata warehouses, The will enable us to examine customer behavioural pattern in order to develop marketing and promotional strategies which can be talored to specific customer groups, such as students, the elderly, dally commuters or leisure travellers24co} Risk assessment [A detailed cost analysis must been undertaken to assess the financial viability of an investment in an ontine ticket sales system for Ral Co. Further risks should also be considered including the customer nercention of such a system and also a stakeholder mapping exercise will need to be undertaken. The main skis that customers wil not use the system, ether due toa reluctance to change purchasing habits or due toa lackof awareness of the facility. These risks can be overcome through adequate customer awareness strategies such as instation advertising and national and regional TV and radio advertising Outline project initiation document Project objectives ‘To implement an online ticket sales system in Rail Coto enable customers to purchase tickets online aswellasthrough ticket sales ofices at train stations. The overallobjective ofthe project ste increase customer satisfaction eve Anticipated benefits = Areduction a numbers of passengers traveling without tickets = Improved revenues:nd profitability = Increased levels of customer satisfaction and loyalty = Upto the minute customer data for marketing purposes = Reduced marketing costs due to online advertising Tallored marketing approach meaning a more targeted focus on customers needs Scope [Anextensionaf the current website toinclude web-based icket booking technologyand.customer contactfacities, customer database to capture customer information and booking history which canbe ulsed for customer relationship management and marketing purposes. Deliverables/Outcomes | fully operational customer ticket sales site as pait of the current Rail Co website within 22 onthe Constraints Funding to be considered as part ofan overall coat benefit analy tobe completed, Resources ‘the projectwillneedto be undertaken byan external systems development orovider. A tender process will need tobe carried out immediately Time—the project should be completedand the booking system fully perationalwith 12 months ot the project start date (tobe confirmed), KeystakehoWers = Custamers/tarepaying aastenaers = Station and train staff offal Co = Theboardof directors = allo Trust Beare =__Thegovernment of Beeland Project team roles Project manager (Ral Co projects and infrastructure staff) Development tear systemsdevelopment supper staff) Rail Go director of projects and infrastructure One NED Riskassessment Costoverruns Delays to project deadline Lack of customer usage or satisfaction with the system Systems security breaches Cost estimates To be undertaken Performancemeasures = Number of tickets sold online = Number of repeat purchase online = -Raduetion in lvale of fous = Number of customer accounts setup online = _Impacton revenue growth8