U.S. Postal Service: Intelligent Mail Benefits May Not Be Achieved if Key Risks Are Not Addressed
Published: 2009-05-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over 80 percent of the approximately 200 billion mail pieces processed and delivered by the U.S. Postal Service (USPS) last year was sent by commercial mailers that barcode, sort, or transport mail to get lower postage rates. Starting in May 2009, USPS will encourage these mailers to use new barcodes that have increased capabilities as part of Intelligent Mail, a new program. According to USPS, Intelligent Mail is the most complex change it has ever undertaken. GAO was asked to describe (1) the Intelligent Mail program and the status of implementation efforts and (2) the key risks to implementing Intelligent Mail and how USPS is addressing these risks. GAO reviewed USPS and regulatory documents, public comments, and interviewed USPS officials, mailers, and mailer representatives involved in developing this program.
section_title: What GAO Found
paragraphs: The Intelligent Mail program is a USPS effort to encourage commercial mailers to use standardized barcodes that will improve the ability to track mail. The program is centered on a new barcode that can uniquely identify a mail piece. While Intelligent Mail could provide benefits to both mailers and USPS, it will also require both to make significant changes to their processes and information systems. USPS expects to be prepared to begin implementation in May 2009. After that, USPS will phase in price incentives and other functions in November 2009 and will require mailers to use the new barcode by May 2011 to qualify for lower postage rates. Successful implementation of Intelligent Mail faces two key risks--(1) USPS's management approach and (2) mailers may not choose to participate in the program--which if not addressed, could limit achieving Intelligent Mail benefits. USPS has taken some steps to address these risks, such as a phased approach. However, USPS has not followed some key program management practices to reduce risks, raising questions about whether USPS and mailers will be able to meet schedule and program objectives. For example, USPS (1) lacks a comprehensive strategy, including all planned phases and the specific functions and systems to be implemented in each phase; goals and measures of success; and a risk mitigation plan to address the risks that could impact the Intelligent Mail program as a whole; and (2) lacks information on costs and savings attributable to the Intelligent Mail program, including a baseline and mechanism to track and measure actual savings, which are needed to measure program performance. The second risk is that program success is dependent on mailer participation, and it is uncertain whether pricing and other incentives will encourage mailers to participate to the extent anticipated. Some mailers have said they find the pricing incentives insufficient to recover their investment in the program. The Postal Regulatory Commission has also noted that uncertainty may lead mailers to delay adoption. Low mailer adoption could affect USPS's ability to report representative delivery service results, as required to comply with service performance reporting requirements, but USPS has not said how it would address this risk.

section_title: Letter
paragraphs: Over 80 percent of the approximately 200 billion mail pieces processed  and delivered by the U.S. Postal Service (USPS) last year was sent by  commercial mailers that barcode, sort, or transport mail in exchange for  lower postage rates. Starting in May 2009, USPS will encourage these  mailers to use new standardized Intelligent Mail barcodes which will make  it easier to track and provide information about the mail’s progress  through the processing system. USPS says the Intelligent Mail program is  the most complex program it has ever undertaken, involving changes to  almost 30 different systems, and that it will benefit both commercial  mailers and USPS.
To assist Congress in understanding USPS’s Intelligent Mail program, you  asked us to address (1) what the Intelligent Mail program is and the status  of USPS’s implementation efforts and (2) the key risks to implementing  Intelligent Mail and how USPS addressed them.
To address these issues we (1) reviewed and analyzed USPS documents  related to developing and implementing the Intelligent Mail program; (2)  interviewed officials from USPS, the USPS Office of the Inspector General  (OIG), the Postal Regulatory Commission (PRC), and commercial  mailers—which included representatives from some companies that  participated in the development of the Intelligent Mail program and  commercial mailer associations that represented a majority of the mail  sent; (3) visited USPS and commercial mailer facilities, including facilities  where mail is printed and sorted; (4) reviewed USPS’s management  approach based on practices and industry standards developed by leading  organizations, such as the Software Engineering Institute and the Chief  Information Officers Council, to effectively manage major programs and  minimize risks; and (5) analyzed comments submitted primarily by  commercial mailers and mailer associations in response to USPS Federal  Register notices. We conducted this performance audit from September  2008 to April 2009 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives. See appendix I for  further information on our scope and methodology.
subsections: section_title: Background
paragraphs: The mailing industry includes businesses, organizations, and other parties  that send and rely on mail to maintain contact with their customers. The  industry also encompasses mail preparers, including printers and  businesses that send or receive mail on behalf of a third party.  Collectively, we refer to these two groups as commercial mailers, who in  2008 accounted for 86 percent of all mail processed by USPS. Although  commercial mailers number in the millions, approximately 200 of the  largest mailers account for around 30 percent of the total mail volume.
Since the 1970s, the use of barcodes and automation has increased  efficiency in USPS mail processing operations. Commercial mailers have  been encouraged to use barcodes through pricing incentives, allowing  USPS to cut costs and increase efficiency in its mail processing operations.  In particular, automated mail processing machines can sort mail with  barcodes containing delivery information faster than mail sorted manually.  Over the past three decades, the number and type of barcodes increased  along with technology changes, and in 2003 USPS estimated that there  were more than 30 different barcodes in use. These barcodes include the  following:    POSTNET, which contains delivery information that enables automated  sorting of the mail to the carrier’s route level. Mailers receive a postage  discount when they print POSTNET barcodes on their mail.
PLANET, which is a barcode that contains identification numbers to  enable tracking mail in USPS’s mail processing system but contains less  information than the Intelligent Mail barcode.
Certified mail service, which provides mailers notification when mail  arrives at its destination.
The use of numerous barcodes has led to some drawbacks, such as a  cluttered mail piece (see fig. 1). Additionally, whenever USPS adds or  upgrades its mail processing equipment, it has to ensure that the  equipment remains compatible with each of the relevant barcodes.
section_title: Intelligent Mail Program Seeks to Provide Better Mail Tracking Information and Begins Phased Transition in May 2009
paragraphs: Through Intelligent Mail, USPS plans to use standardized barcodes to  track mail and thus provide USPS and mailers with more information. This  information is important to USPS’s efforts to improve efficiency and  reduce costs. In addition, it could provide mailers with the status of mail  as it moves through USPS’s mail processing system, improving  predictability of delivery, as well as providing information on whether  some mail—such as bill payments and movie returns—has been sent.  Although both USPS and mailers could benefit from the program,  implementing the program will require both parties to make considerable  changes to their systems and processes. USPS is completing its  development of the Intelligent Mail program and plans to implement the  program in phases, with the first phase starting in May 2009 and an  additional phase planned for November 2009.
subsections: section_title: Intelligent Mail Seeks to Provide More Information through the Use of Standardized Barcodes
paragraphs: The overall concept of Intelligent Mail is to provide better information and  improve efficiency by using standardized barcodes to continuously track  the mail as it passes through USPS’s mail processing system. The program  has been led by USPS with input and involvement from the mailing  industry. The Intelligent Mail concept was articulated in a 2001 report by  the Mailing Industry Task Force, which was led by chief executives of 11  mailing industry companies and USPS’s Deputy Postmaster General. This  task force noted that Intelligent Mail would help ensure that mail  processing is responsive to customer needs. Since then, USPS has been  involved with developing and planning the Intelligent Mail program. For a  timeline of the significant events in the development of the Intelligent Mail  program, see appendix II.
Beginning in May 2009, mailers who choose to participate in Intelligent  Mail have two options that offer different incentives based on the level of  effort required for mailers to comply:    Basic Service. Requires mailers to apply an Intelligent Mail barcode and  populate the relevant fields, but not include unique numbers in the  barcode. Mailers who implement Basic Service will receive a postage  discount for using a barcode (as they would using a POSTNET barcode)   but will not receive the postage discount or other benefits associated with  Full Service.
Full Service. Requires mailers to populate and apply a barcode, but unlike  Basic Service, the barcode must contain a number that is unique to the  particular mail piece. Full Service mailers must also uniquely barcode any  trays or containers they use to package mail and submit electronic  documentation of their mailings. USPS provides pricing discounts and  other incentives for mailers implementing Full Service because it requires  mailers to make more changes and results in the greatest benefit for USPS.
The Intelligent Mail program is centered on the Intelligent Mail barcode, a  standardized barcode that is information-rich and expands the ability to  track individual mail pieces (see fig. 2). This barcode is capable of  containing the same information as the current POSTNET and PLANET  barcodes combined, in addition to other data, which eliminates the need  for multiple barcodes on the same mail piece. The new barcode contains    a mailer identification number, assigned by USPS, which enables USPS  to identify the sender of the mail piece, and   a unique number, generated by the mailer, which enables USPS to track  the same mail piece as it travels through its processing system.
Since 2006, USPS has permitted mailers to use the Intelligent Mail barcode  which enabled mailers to test their ability to print the barcode to conform  to USPS standards. In fiscal year 2008, USPS estimated that over 580  mailers had begun using the barcode.
section_title: Intelligent Mail Is Expected to Benefit USPS and Mailers by Providing Enhanced Information and Mail Tracking
paragraphs: USPS has identified several ways it expects the implementation of  Intelligent Mail to benefit USPS and mailers:  Improve efficiency, reduce costs, and improve timeliness of delivery.  USPS says it will be able to use information from Intelligent Mail to  improve its processing system. For example, USPS expects it will be able  to better identify and diagnose problems, such as systemic bottlenecks  that result in costly manual sorting and delivery delays. Also, USPS plans  to use Intelligent Mail to create efficiencies by streamlining and  automating the process it uses to accept mail from commercial mailers,  which is currently time- and labor-intensive.
Reduce the amount of mail that must be forwarded, which can involve  extra handling by USPS and delays in delivery. As an incentive to adopt  Full Service Intelligent Mail, USPS will provide free notification when  intended recipients have moved and filed a change-of-address with USPS,  a service mailers previously paid for. This feature, known as Address  Correction Service, could help USPS meet its goal of reducing the amount  of mail that cannot be delivered as addressed. In exchange for this free  service, USPS requires mailers to update their mailing lists in order to  avoid paying additional fees.
Provide better service to mailers. Through Intelligent Mail, USPS plans to  provide better service to mailers through real-time feedback. For example,  as another incentive to adopt Full Service Intelligent Mail, USPS will  provide mailers information on when their mail entered USPS’s system,  known as Start the Clock. This information, which was not previously  offered by USPS, is helpful because it enables USPS to respond to mailer  inquiries on missing or delayed mail. Also, since Intelligent Mail will be  uniquely identified, USPS will have the ability to isolate and give special  handling to a specific mail piece, which creates an opportunity for USPS to  offer mailers new products and services.
Service performance measurement capability. Intelligent Mail will allow  USPS to gather more comprehensive and detailed service performance  information and measure it against established performance standards,  which will help keep USPS accountable to its stakeholders. The 2006  Postal Accountability and Enhancement Act required USPS to develop a  system to measure service performance and report to PRC. The service   performance measurement system proposed by USPS to meet this  requirement relies on data from Intelligent Mail.
Financial incentives. USPS is also offering a financial incentive to  mailers. Specifically, those who adopt Full Service Intelligent Mail will  receive a postage discount, in addition to other worksharing discounts.  Mailers who use Full Service will receive a three-tenths of 1 cent discount  for each First-Class Mail piece they send, while Standard Mail and  periodicals will receive a discount of one-tenth of 1 cent for each piece.
section_title: Implementation of Intelligent Mail Involves Many Changes for Mailers and USPS
paragraphs: According to USPS, Intelligent Mail is the most complex project it has  undertaken. It also indicated that preparing for and implementing  Intelligent Mail will involve considerable changes for both mailers and  USPS, including significant changes to information and software systems  used by both mailers and USPS. The overall commercial mail process  using Intelligent Mail, including how it impacts mailer and USPS  operations, is shown in figure 3.
Intelligent Mail requires significant changes to the way mailers prepare  and submit their mail. Mailers using Intelligent Mail will need to redesign  their mail pieces by populating and applying the new barcode. Full Service  mailers will also need to ensure that their barcodes contain a unique  tracking number. This means that each mail piece a mailer sends within a  45-day period must have a number imbedded in its barcode that is  different from every other piece of mail that the mailer sends within that  time frame. Full Service mailers must also apply unique barcodes to mail  trays and containers, and document which mail pieces are contained in  which tray and container. These changes may result in significant process  changes for mailers and may require new software or staff training.
Mailers participating in Full Service Intelligent Mail must also make  changes to their information systems in order to submit documentation  electronically to USPS. The electronic documentation must contain  information on all of the Intelligent Mail barcodes used on the mail pieces,  trays, and containers; how the mail pieces, trays, and containers fit  together; and the identity of the mailer. While some mailers currently  submit electronic documentation, many currently submit this information  in hard copy format. Mailers must also provide advance notification of  their mail drop-off to a postal facility by sending an electronic  appointment and will need to ensure that their software systems are able  to communicate effectively with USPS’s systems. This may involve  purchasing or upgrading software or hardware. Mailers will also need to  train their staff on how to use the new software and how to communicate  with USPS electronically.
Intelligent Mail involves changes to USPS’s operations. For instance,  USPS’s current process for mail acceptance and verification is costly,  time-consuming, and labor-intensive. Mail acceptance and verification  involves mailers bringing mail to a postal facility, USPS accepting it and  verifying that it has been prepared according to postal standards, and  USPS verifying that the postage has been accurately calculated. Currently,  this process involves a postal official physically sampling a portion of the  mail to make sure it meets standards and is eligible for the prices claimed  in the mailer’s documentation. With Intelligent Mail, USPS plans to be able  to scan mail pieces, trays, and containers, and reconcile the information to  the documentation that the mailer has sent electronically. USPS envisions  that, by using Intelligent Mail, it can eventually automate the verification  process and reduce its reliance on manual tests of the mail, making it  easier for mailers to hand mail off, thus saving both USPS and mailers time  and the related costs. Furthermore, USPS has completed changes to  software for its mail processing equipment so it is capable of scanning the  new barcodes. USPS officials said they completed these upgrades as they  were performing other, routine software upgrades for this equipment.
In addition, USPS is changing its information technology systems. As  mailers start using Intelligent Mail, USPS expects to process scans from  millions of mail pieces containing new barcodes on a daily basis. USPS is  developing the information technology infrastructure to scan and track  individual mail pieces as they travel through its processing system. First,  USPS is developing a new Intelligent Mail information technology system  to process, manage, and store data from scanned barcodes. USPS has  acquired hardware and is using contractors to develop software for this  system. Second, USPS is integrating this new system with existing USPS  systems to share data, which requires changes to almost 30 different  systems and 59 different connections between these systems. An example  of one of the existing USPS systems that must be integrated with the new  Intelligent Mail system is PostalOne!, a main communications interface  between USPS and mailers. Upgrades to PostalOne! include a better user  interface design for mailers, electronic documentation acceptance  capabilities, and more options for mailers to access Intelligent Mail  tracking information.
USPS plans to use barcode scan information to measure its service  performance and report the results to PRC. However, USPS will need to  establish report content and format standards that comply with PRC  reporting requirements. In order to report service performance to PRC,  USPS will need to develop a strategy to aggregate information from mail  pieces that will be representative of all mail. USPS will also need to  develop standards for information that it will provide to mailers regarding  their own mail.
section_title: USPS Has an Aggressive Development Schedule to Implement Intelligent Mail in May 2009 and Plans to Add to the Program in a Future Release
paragraphs: USPS has said it will be ready to implement Intelligent Mail as planned in  May 2009. To meet this date, USPS has been engaged in an aggressive  program development schedule since June 2008 that involved defining  program requirements and designing, building and testing systems and  interfaces. According to USPS, it began defining the requirements of the  project in July 2008, designing the systems in October 2008, and started  building the systems in November 2008. USPS tested the systems both  internally and with mailers from February through April 2009. A limited  number of mailers have been involved in testing and integrating their  systems with USPS’s systems. Despite this aggressive schedule, a senior  postal official told us that USPS discovered that it could not implement all  of the desired functions of the system by May 2009, as originally planned.  Further, he said that additional functions may be added in future phases  that will be determined at a later date.
The general timeline for Intelligent Mail implementation is as follows:    May 11, 2009. USPS plans to internally implement the first phase of  Intelligent Mail and expects to have the systems in place to provide Full  Service functions, including Address Correction Service and electronic  documentation.
May 18, 2009 and beyond. Mailers will begin testing their systems’ ability  to access and electronically transmit documentation to USPS’s system and  will be ready to fully implement upon completing the tests, which should  take about 6 to 8 weeks according to a senior USPS official.
November 29, 2009. USPS plans to implement the second phase of  Intelligent Mail and expects to begin offering price incentives for Full  Service. USPS also plans to add other program functions, although it had  not finalized these plans when we met with USPS officials in early April.
May 2011. The use of POSTNET and PLANET barcodes will be phased out  and mailers seeking reduced automation postage rates will be required to  use Intelligent Mail barcodes.
Mailers will have approximately 6 months from May through November  2009 to test their systems and begin implementation before the price  incentives go into effect. USPS has estimated that by November 2009,  enough mailers will be participating in Full Service Intelligent Mail so that  it will account for 54 percent of First-Class automation letters and 63  percent of Standard Mail Commercial and Nonprofit automation letters. In  fiscal year 2008, these types of automation letters accounted for  approximately 100 billion mail pieces.
As mailers complete testing and begin generating mail with Intelligent Mail  barcodes, USPS has said it is taking steps to ensure that the mail  acceptance process goes smoothly for mailers presenting mail at USPS  facilities. For example, USPS plans to conduct customized training for  both mailers and USPS employees at facilities where mailers will present  mail barcoded with Intelligent Mail barcodes. This training will be  conducted in the weeks before mailers plan to implement Intelligent Mail.  USPS officials also noted that they will offer training at a national-level  postal forum in May 2009 and will offer materials that mailers can use to  train their staffs.
section_title: The Intelligent Mail Program May Not Achieve All of Its Intended Benefits if Key Risks Are Not Addressed
paragraphs: Implementation of the Intelligent Mail program faces two key risks. First,  USPS’s approach to developing and managing the program has not  followed certain key program management practices to reduce risks and  mailers have raised questions about whether USPS and mailers will be  able to meet schedule and program objectives. Second, USPS has said that  Intelligent Mail success is dependent on mailer participation in the Full  Service option, but it is uncertain whether pricing and other incentives will  encourage mailers to participate to the extent anticipated. If these risks  are not addressed, they could limit USPS’s ability to fully achieve the  program’s benefits.
subsections: section_title: Intelligent Mail Implementation May Be at Risk Due to USPS’s Development and Management Approach
paragraphs: USPS’s management approach to developing the Intelligent Mail program  has lacked critical program management elements that are considered  best practices. The lack of these elements may increase the program’s risk  and raise questions about whether USPS will be able to meet deadlines or  program objectives. Specific elements of an effective management  approach that USPS lacks include    a comprehensive strategic plan;  information about program costs, including its anticipated savings or cost  reductions; and   a risk mitigation plan.
In developing a large and complex effort such as the Intelligent Mail  program, these key elements are particularly important, and USPS could  benefit from best practices used by leading organizations. Best practices  are tried and proven methods, processes, techniques, and activities that  organizations define and use to minimize risks and maximize chances for  success. Experience has shown that organizations that adopt and  effectively implement best practices can reduce the risks associated with  implementing projects, including information technology projects, to  acceptable levels. For example, we have previously reported that using  best practices related to information technology acquisitions can result in  better outcomes—including cost savings, improved service and product  quality, and ultimately, a better return on investment. Such practices have  been identified by leading organizations such as the Software Engineering  Institute, the Chief Information Officers Council, and in our prior work  analyzing best practices in industry and government.
Effective program management involves establishing and maintaining  plans defining project scope and activities, including a budget and  schedules, key deliverables, and milestones for key deliverables. An  effective risk management process identifies potential problems before  they occur, so that risk-handling activities may be planned and invoked as  needed across the life of the product and project to mitigate adverse  impacts on achieving objectives. Key activities include identifying and  analyzing risks, assigning resources, developing risk mitigation plans and  milestones for key mitigation deliverables, briefing senior-level managers  on high priority risks, and tracking risks to closure.
In a separate review begun in March 2009, we are assessing the cost,  schedule, and performance status of the Intelligent Mail program and  whether the Postal Service has the capabilities to successfully acquire and  manage this program. To effectively manage major information technology  programs, organizations should use sound acquisition and management  processes to minimize risks and thereby maximize chances for success.  Such processes include project and acquisition planning, requirements  development and management, risk management, project monitoring and  control. Our work has shown that such processes are significant factors in  successful systems acquisitions and development programs, and they  improve the likelihood of meeting cost and schedule estimates as well as  performance expectations.
subsections: section_title: USPS Lacks Critical Program Management and Risk Mitigation Elements
paragraphs: USPS lacks an up-to-date comprehensive Intelligent Mail strategic plan to  facilitate program management and accountability. A comprehensive plan  or strategy can provide a program’s overall vision and goals, including  detailed milestones and measures of success which provide meaningful  guidance for planning and measuring progress. Such plans can also  establish deadlines for achieving objectives and assigning responsibility  for program implementation. USPS published an Intelligent Mail Corporate  Plan in 2003, which described its overall vision for Intelligent Mail and  three specific strategies for achieving this vision. USPS said that it would  periodically update this plan; however, USPS has not provided periodic  updates, despite making major changes to the Intelligent Mail program.  For example, USPS has announced two implementation phases for  Intelligent Mail—May 2009 and November 2009—but USPS is still defining  key requirements for the November phase and possible future phases.  Also, it is not clear when certain functions and the associated systems,  such as automated mail verification, will be implemented. In other areas,  USPS has developed comprehensive strategic plans that were periodically  updated and that provided an overview of the major phases and activities  that would be completed in each phase. For years, dating back to the  1990s, USPS developed and periodically updated its Corporate Automation  Plan that identified its vision, goals, expected savings, and actions planned  for each phase to achieve a completely barcoded and fully automated mail  processing system. Similarly, USPS developed and updated its Corporate  Flats Strategy that detailed the decision points and activities planned for  the three major phases related to improving flat mail processing.
USPS also lacks program cost information associated with Intelligent Mail,  including a baseline and mechanism to track and measure actual savings.  Having reliable cost estimates is critical to support management decisions  about budget development, resource requirements, and allocation, as well  as to measure performance. According to USPS, one of the key benefits of  the Intelligent Mail program is to reduce operating costs, which are  primarily workhour costs, by increasing the use of mail information to  improve the efficiency of its automated mail processing operations. A  senior USPS official told us that attributing efficiencies and costs savings  directly to the Intelligent Mail program would be difficult because USPS is  initiating numerous programs to reduce costs and would be unable to  isolate and attribute cost savings only to the Intelligent Mail program. We  recognize the difficulty of directly attributing costs, but USPS could  measure how Intelligent Mail implementation affects two processes—mail  acceptance and verification. As we mentioned earlier, USPS envisions  that, by using Intelligent Mail, it can eventually automate its acceptance  and verification processes and reduce its reliance on manual tests of the  mail, making it easier for mailers to hand mail off, thus saving both USPS  and mailers time and the related costs. Since these processes are directly  affected by the implementation of Intelligent Mail, their associated costs  and savings could be identified and attributed to the Intelligent Mail  program. By tracking these costs, USPS could measure how the Intelligent  Mail program actually reduces operating costs in these areas.
Finally, USPS lacks a program-level risk mitigation plan—a plan that  identifies and addresses potential weaknesses before they adversely affect  the Intelligent Mail program. According to USPS officials, the Intelligent  Mail program is the most complex effort initiated in USPS history and its  successful implementation is important to the future of USPS. However,  the program is vulnerable to several areas of risk that USPS has not  addressed. For example, USPS has said that Intelligent Mail success is  dependent on mailer participation in the Full Service option, but it has not  stated how it would address the impact of lower than anticipated mailer  participation. USPS has developed a process to identify and address  technical risks related to, for example, integrating the Intelligent Mail  system with existing USPS systems, but it has not developed a more  strategic-level risk mitigation plan that discusses how it will address the  key risk areas that could impact the program as a whole, such as lower- than-anticipated mailer participation, resource limitations or schedule  delays.
section_title: Mailers Had Concerns about USPS’s Development of the Intelligent Mail Program
paragraphs: During the program’s development over the past 2 years, many mailers  expressed their concerns regarding these risks in comments to the Federal  Register, PRC, and in industry newsletters. In January 2008, USPS  published the Intelligent Mail Advance Notice of Proposed Rulemaking in  the Federal Register, which proposed implementing the Intelligent Mail  program in January 2009. In April 2008, USPS publicized a revised  Intelligent Mail Federal Register notice which pushed back the  implementation date to May 2009 and proposed incentives for Full Service  participants. Based on our review of the more than 460 comments  submitted to USPS in response to these notices, the concerns cited by  mailers included the following:    USPS communication efforts were insufficient, and mailers had difficulty  obtaining program information, including—until recently—the expected  Full Service discount, which prevented mailers from determining their  return on investment;    mailer participation in Intelligent Mail will likely be affected by mailers  who may not be able to use Intelligent Mail barcodes due to the  technological challenge of printing the barcodes and storing all of the  electronic information;    USPS had not provided finalized information technology requirements,  which impeded some company’s efforts to budget for or develop the  necessary software; and    USPS and mailers may not be ready for implementation given USPS’s  short-time period in which to simultaneously design, develop, test, and  implement the Intelligent Mail program.
In August 2008, USPS announced its Intelligent Mail Final Rule which  finalized the May 2009 implementation date and allowed mailers to use  POSTNET barcodes until May 2011. According to a major industry  newsletter published in August 2008, mailers remained concerned with  USPS’s approach. They said they were unable to make the return on  investment and justify the expense without a substantial price differential  or, for some, the benefit of free Address Correction Service with less  restrictive time limits.
section_title: USPS Actions Address Some Implementation Concerns, but Others Remain
paragraphs: USPS has taken some steps to address readiness and mailer concerns  regarding its management and its preparedness to implement the program.  It delayed implementation of the program from January 2009 to May 2009.  USPS has said it will also attempt to address mailer concerns about  management of the program by reaching out to them. In this regard, USPS  officials said they plan to mitigate implementation risks by working with  each mailer to customize its transition from using POSTNET barcodes to  Intelligent Mail barcodes. In addition, USPS also has undertaken a variety  of communication efforts to provide mailers with updated program and  technical information. For example, it established four different  workgroups as part of its Mailers’ Technical Advisory Committee. Each  of these workgroups, comprised of mailing industry representatives and  USPS officials, seeks to resolve a specific issue and offer  recommendations to USPS. USPS also has developed educational and  training programs, such as the Intelligent Mail University, a 1-day  comprehensive course. In addition, USPS has provided information  through its traditional channels of communications, such as through its  Postal Customer Council organization, at conferences, and on its Web  site.
Taken together, some of these USPS efforts could be considered best  practices associated with effective program management; however, the  lack of other critical program management elements may expose the  project to unnecessary risk that it will not achieve its schedule and  performance objectives. In addition to these risks, other factors also add  to the program’s risk, as follows:    The Intelligent Mail program is highly complex and involves multiple  system integrations implemented concurrently in a short timeframe with  limited testing before implementation, which could make the program  susceptible to errors or unanticipated problems.
The program continues to evolve as USPS defines requirements for Phase  2.
Program implementation may require considerable time with USPS  working directly with individual mailers to integrate their respective  systems. For example, it might require up to 8 weeks for a mailer to gain  approval from USPS to submit electronic documentation, during which the  mailer and USPS work together to resolve any technical issues, according  to a senior USPS official.
Last fall we interviewed representatives from nine companies involved in  the mailing industry that participated in the development of the Intelligent  Mail program. We also talked to representatives from six commercial  mailer trade associations who collectively represent most of the mail sent.   Some of these mailers expressed frustrations with USPS’s approach  because, they said, it appeared to lack planning and consistency, making it  difficult for them to make their needed changes.  Some mailers cited the  lack of an overall plan with dates, which caused difficulty with their  internal planning and resource assignment. Without such a plan, it  appeared that USPS was simultaneously making decisions and  implementing the program. For example, USPS announced it would  provide free Address Correction Service to Full Service participants, and  then subsequently announced a time limit for mailers to use information  and implement address changes. Mailers said that the time limitation made  it practically impossible to utilize the service. Other mailers said that, even  though Intelligent Mail required substantial software changes and  development, USPS continued to make changes to program technical  requirements and specifications, making it difficult for them to respond in  time for the planned implementation date.
section_title: Financial Incentives May Not Be Sufficient to Encourage Mailers to Participate in Full Service
paragraphs: Another risk to the success of the Intelligent Mail program is that mailers  may not choose to participate in Intelligent Mail.  Based on our interviews  and review of other industry and USPS documentation, the Intelligent Mail  Full Service option’s pricing and other incentives may not be sufficient to  convince some mailers to participate.  USPS officials have told us that the  success of Intelligent Mail is dependent upon mailers participating in the  Full Service option. Thus, if mailers decline to participate, the program has  a reduced chance of succeeding.
Some mailers have said that the program’s pricing and benefits are not  enough to provide sufficient incentives or even to recover their  investments.  For example, a mailer association said its members had  hoped for a larger discount than USPS announced, considering the large  investments some companies had made in preparing for the Intelligent  Mail program. A mailer told us that in order for the company to recover its  costs, the discount would have to be one-half of 1 cent per mail piece, or  much higher than the announced price incentives. Costs for mailers  preparing for Full Service vary largely depending on the size of the mailer.  For example, some large mailers said they invested millions of dollars to  update and purchase hardware and software, while some smaller mailers  expected to invest tens of thousands of dollars.
Some mailers also expressed their concern about USPS’s delay in offering  the price incentives. USPS delayed the effective date of the price  incentives from May 2009 to November 2009. Although USPS said it did so  because it does not want to punish mailers who do not adopt Full Service  immediately, some mailers who were planning on implementing Intelligent  Mail in May viewed this 6-month delay as problematic because of the  increased time to recover their implementation costs. Finally, some  mailers expressed concerns about the duration of the discount after USPS  announced it intends to offer the price incentives on a temporary basis.  According to USPS, these price incentives are not expected to become a  permanent part of its pricing schedule, meaning the incentives would  likely be phased out. USPS and mailers view the financial incentives  differently. According to USPS, the price incentives are one of several  benefits to encourage mailers to participate in Full Service, while many  mailers view the financial incentives as the main benefit of Intelligent Mail.  In addition to concerns about financial incentives, mailers find Intelligent  Mail complex. USPS requires mailers to greatly change the way they  prepare and submit their mail in order to participate in Full Service and  mailers say these changes may discourage them from adopting it. A  mailing industry consultant wrote in a mailing association’s newsletter in  March 2009 that mailers should just sit back and wait until the “dust and  dollars” settle before participating in Full Service because the benefits  provided by Intelligent Mail are not worth the required effort or  investment.
Other Intelligent Mail benefits offered by USPS may not appeal to some  mailers based on their various business needs and, thus, may not motivate  them to participate. For example, magazine mailers told us they may  benefit from receiving free Address Correction Service—a service which  provides information to mailers when recipients move. Periodical mailers,  including magazines, are currently required by USPS to use Address  Correction Service and must pay $.25 each time they are notified of an  address change. By adopting Full Service, these mailers would receive, at  no additional cost, a service they are currently paying for. However, a  newspaper association representative said that none of the Intelligent Mail  incentives will benefit small newspaper publishers who enter newspapers  at local postal delivery facilities, thus bypassing USPS mail processing  where the Intelligent Mail program information is generated. Additionally,  some mailers viewed the time frame to incorporate updated address  information into subsequent mailings as too short. For example, under  Address Correction Service, the mailers have 30 days to update new  address information without risk of financial penalty, but one mailer told  us more time is needed because its mailings are sometimes prepared  weeks in advance. If mailers do not update the information within the  required timeframe, mailers might incur additional mailing costs from  penalties assessed by USPS.
Mailers are facing other pressures that could affect their decisions to  participate in Full Service, including a recession that has affected their  businesses and additional postal requirements. Some mailers are reducing  the amount of mail pieces sent out due to a worsening economy. For  example, advertising mail in fiscal year 2008 was adversely affected by the  economy—particularly credit card, mortgage, and home equity  solicitations—as well as the continued shift from mail to electronic  communication. Mailers also face other, additional USPS requirements  unrelated to Intelligent Mail but which coincide with its implementation.  These unrelated requirements may affect mailer participation in Full  Service. Within the last year, USPS required mailers to simultaneously  implement several programs, including changes to the standards for  preparing some mail and the frequency that mailers must update their  address information. A mailer, referring to Intelligent Mail and other new  requirements, wrote in an association newsletter that USPS will  permanently lose customers if it continues to make mailing more difficult  and complex by creating new requirements and increasing prices. Thus,  due to costs incurred to implement Intelligent Mail, the reduction in mail  volume, and additional postal requirements, some mailers have questioned  the value the Intelligent Mail program will add to their businesses.
USPS says that the incentives it is offering to encourage mailers to  participate in the Full Service option are appropriate to get Full Service  adoption started and recognize the investments mailers must make to  implement Intelligent Mail. According to USPS, the value of Intelligent  Mail lies in the enhanced value of the information it provides, and not only  in any discount that may accompany its introduction. Furthermore, USPS  said it could increase the incentive later if the adoption rate is too low.  USPS also points out that, in addition to the financial discount, Full  Service mailers will have access to Address Correction Service and Start  the Clock information. A senior USPS official told us that the value of  these other services should provide enough benefit for most mailers to  justify the expense of implementing Intelligent Mail. However, according  to a mailer association, many mailers placed a higher value on the  discount, calling it the main incentive to participate in Full Service.
Without sufficient numbers of customers participating in Intelligent Mail,  USPS may not realize several benefits of the program. Specifically, USPS  may not realize the intended long-term benefit of discontinuing its  existing, manual acceptance and verification process for mailers who use  an automated one for Intelligent Mail. Similarly, USPS’s ability to improve  customer service by providing tracking information on individual mail  pieces will be limited. With this improved tracking capability, USPS could  identify problem areas in its processing and delivery of a mail piece, while  mailers could determine the reasons behind the delivery of late mail,  including an incorrect address or a plant delay. These services to  customers, however, are only available through the Full Service option  because mail pieces in Basic Service are not given unique tracking  numbers. Further, it is not clear what Intelligent Mail information will be  provided to Full Service customers and what price USPS may charge for  this information.
Finally, USPS’s ability to meet its statutory requirement to measure and  report on how well it is meeting its overall delivery performance standards  could be hindered by low mailer adoption rates. The 2006 Postal  Accountability and Enhancement Act required USPS to report on the  speed and reliability of delivery for each market-dominant product.  According to PRC, the mail data USPS will use to measure its performance  must be representative in order to produce meaningful results. However,  USPS’s measurement system only measures the performance of Full  Service mail (and not Basic Service mail), which may result in a  nonrepresentative sample. PRC views mailer adoption of Full Service  Intelligent Mail as critical to producing accurate performance measures  from data representative of a cross section of mail and notes that mailer  uncertainty about Intelligent Mail requirements, implementation dates and  discount rates may delay adoption. PRC has stated that it will monitor  Intelligent Mail implementation to assure that accurate and representative  data are obtained by requiring USPS to report quarterly on its Intelligent  Mail implementation progress.
section_title: Conclusions
paragraphs: USPS is implementing a program to enable it to have much greater insight  into the mail but preparations for Intelligent Mail require considerable  work by both USPS and many of its commercial customers. The  management approach USPS is taking has several key risks that have  raised concerns about whether USPS will be able to implement the  program on schedule and with all program functions in place. USPS does  not have a comprehensive strategy that includes information about all the  phases planned, the numerous functions and systems upgrades included,  when they will be implemented, the program’s goals, the baseline costs,  and expected cost savings. Consequently, it will be difficult for USPS to  measure Intelligent Mail’s performance or to account for its results.  Overall, at the program level, key risks include the uncertainty about  whether mailers will find the incentives offered by USPS appealing enough  to participate in the program, resource limitations, and schedule delays.  Although USPS is aware of these risks, it has no plan for dealing with them  should these potential problems materialize. As a result, the  implementation efforts are at risk of taking longer and costing more and  achievement of the program’s intended benefits may be delayed.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that USPS addresses these risks to the successful  implementation of Intelligent Mail, we recommend that the Postmaster  General take the following three actions: (1) develop a comprehensive  Intelligent Mail strategic plan that defines all planned phases and their  associated functions and systems and includes program goals and  measures of success; (2) develop cost and savings information for the  activities that can be attributed to the Intelligent Mail program, including  the baseline and metrics to be used to track cost savings achieved; and (3)  develop a plan that addresses how USPS will mitigate program-level risks,  including the implications of lower-than-anticipated customer adoption of  the Full Service Intelligent Mail option, resource limitations, and schedule  delays.
section_title: Agency Comments and Our Evaluation
paragraphs: The U.S. Postal Service provided written comments on a draft of this  report in a letter from the Senior Vice President, Intelligent Mail and  Address Quality dated April 27, 2009. These comments are reproduced in  appendix III, and our evaluation of them is summarized below. Based on  the comments provided, we made minor modifications to some portions of  this report.
USPS agreed with our findings that it lacked an up-to-date comprehensive  Intelligent Mail strategic plan and a program-level risk mitigation plan. It  agreed to implement our first recommendation—to develop a  comprehensive Intelligent Mail strategy, including all planned phases and  the associated functions and systems, program goals, and measures of  success—and our third recommendation—to develop a plan that  addresses how it will mitigate risks, including the implication of lower- than-anticipated customer adoption of the Full Service Intelligent Mail  option. USPS did not agree with our finding that it lacks program cost  information, including an estimate of overall Intelligent Mail program costs  and a capability to measure savings, and did not agree to fully implement  our second recommendation, that it develop cost information.
USPS said it will implement our first recommendation by completing an  update to its 2003 Intelligent Mail Corporate Plan within weeks. It said the  update will detail (1) efforts completed, (2) implementation plans for its  two planned phases, (3) items to be included for a possible third phase, (4)  a vision of future upgrades, and (5) enabling features and capabilities on  Intelligent Mail. This will facilitate improved program management and  accountability. However, USPS did not commit to defining program goals  and measures of success, which we believe are critical components of a  comprehensive strategic or Corporate Plan.
USPS did not agree to fully implement our second recommendation  because it said that it has detailed program cost information and that costs  are being closely managed and monitored. In addition, USPS generally  disagreed with our finding that it should develop metrics to measure cost  savings associated with its Intelligent Mail effort. USPS said that although  the Intelligent Mail program would provide benefits that should reduce  costs, as well as improve efficiency and service, it did not anticipate a  specific cost or other benefit from its Intelligent Mail investment, in part  because these costs or benefits could not be measured. USPS explained  that there was no sound financial method to specifically attribute cost  reductions to Intelligent Mail when it is also implementing other efforts to  reduce costs. We recognize the difficulty of directly attributing costs to the  Intelligent Mail program and agree with USPS that the activities associated  with the acceptance and verification of commercial mail are most directly  related to the Intelligent Mail program. USPS said that it already has a  baseline and mechanism in place to track the cost and work hours  associated with these activities. Although USPS did not provide us with  this baseline, we agree that measuring and tracking the costs and savings  associated with the acceptance and verification activities would be the  most directly attributable performance indicator. We have modified our  recommendation accordingly, as we continue to believe that cost and  savings information is critical to provide USPS management with a means  for measuring the outcome of its Intelligent Mail efforts. USPS could  address our recommendation by including a discussion of its baseline and  cost tracking mechanism in its Corporate Plan.
USPS agreed to implement our third recommendation by exploring the  risk analysis and potential mitigation required if mailer adoption rates fall  significantly below expectation, either as a separate document or as a part  of the Intelligent Mail Corporate Plan. In response to our finding that it did  not have a risk mitigation plan, USPS said that, at a technical level, the  Intelligent Mail program has an extremely detailed risk mitigation plan that  outlines both the process to identify risks and approaches to mitigate  these risks. However, USPS also acknowledges that the risk associated  with low mailer adoption is a valid program-level concern. We believe that  including a discussion of how USPS plans to address key risks in an  updated Corporate Plan is appropriate. Our recommendation was not  limited only to risks associated with mailer adoption, and we continue to  believe that USPS should identify and address other risks at the program  level, such as resource limitations or schedule delays, and also include  them in its Corporate Plan.
We are sending copies of this report to the Chairman and Ranking Member  of the House Committee on Oversight and Government Reform; the  Ranking Member of its Subcommittee on Federal Workforce, Postal  Service, and the District of Columbia; the Chairman and Ranking Member  of the Senate Committee on Homeland Security and Governmental Affairs;  the Chairman and Ranking Member of its Subcommittee on Federal  Financial Management, Government Information, Federal Services, and  International Security; the Postmaster General; and other interested  parties. In addition, the report will be available at no charge on the GAO  Web site at http://www.gao.gov.
If you or your staffs have any questions regarding this report, please  contact me at herrp@gao.gov or by telephone at (202) 512-2834. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. GAO staff that made key  contributions to this report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: This report addresses (1) what the Intelligent Mail program is and the  status of the U.S. Postal Service’s (USPS) implementation efforts and (2)  the key risks to implementing Intelligent Mail and how USPS has  addressed them.
To address the first objective, we obtained documentation from and  interviewed USPS officials involved in developing and managing the  Intelligent Mail program. Documented information from USPS included  annual reports, comprehensive operating statements, relevant decision  analysis reports, quarterly investment highlights, and Intelligent Mail  federal register notices, technical guides, readiness plans, schedules,  presentations, and training material. Documented information from the  Postal Regulatory Commission (PRC) included USPS proposals and  responses, PRC questions and rulings, and public comments. We also  coordinated with the USPS Office of Inspector General (OIG), who was  conducting at least two audits of the Intelligent Mail program at the same  time as our review, and reviewed reports resulting from these audits,  released in March 2009, in addition to other OIG reports. To determine key  changes required for USPS and mailers to prepare for the Intelligent Mail  program, we compared USPS current and proposed changes to mail  acceptance, verification, and processing and toured USPS and mailer  facilities, including a presort and printing facility.
To address the second objective—risks to implementing the Intelligent  Mail program and how USPS addressed them—and to obtain the  perspective of mailers, we interviewed representatives from 9 companies  involved in the mailing industry who participated in the development of  the Intelligent Mail program. We contacted these companies directly or  through trade associations. We also talked to representatives from six  commercial mailer trade associations who collectively represent most of  the mail sent. For example, one association said its members, which  consist of over 50 profit and nonprofit organizations and major mailing  associations, generate 70 percent of all mail. Documented information  included association newsletters, written minutes of meetings held with  USPS and letters written by the associations to USPS or PRC officials. We  attempted to interview mailers from small companies to obtain their  perspective on the Intelligent Mail program, but we were told by the  largest mailer association—representing both large and small and the  greatest cross section of commercial mailers—that smaller companies  were not as familiar with the Intelligent Mail program and, thus, were  reluctant to talk to us. USPS officials told us that to comply with  Intelligent Mail standards, many smaller companies would either rely on  vendors, such as software vendors, to provide software updates that  included Intelligent Mail capabilities or pay larger mail preparation  companies to prepare their mail.
We also obtained and reviewed information from the Mailer’s Technical  Advisory Committee, a venue for USPS to share information with mailers  and receive advice and recommendations from workgroups established by  the group’s leadership, which is comprised of USPS and mailing industry  officials. We reviewed documentation from the Mailer’s Technical  Advisory Committee, including written meeting minutes, and  documentation of issues that workgroups have identified and are working  on or have resolved and monitored weekly teleconferences held by  individual workgroups. We attended a local meeting in Dallas, Texas of a  Postal Customer Council, which is a national program comprised of over  two hundred local-level councils that provide a forum for mailers to  exchange ideas for improved mail service and discuss new and existing  USPS products, programs, regulations, and procedures. At the Postal  Customer Council, we participated in Intelligent Mail presentations given  by USPS and observed presentations given by top USPS leadership. We  also attended a presentation of USPS’s Intelligent Mail University, a 1-day  USPS training course in Washington, D.C. for mailers.
To identify risks associated with USPS’s Intelligent Mail program  management approach, we worked with GAO’s Information Technology  team which provided us analytical guidance in identifying relevant criteria.  We used criteria based on the practices of leading organizations, such as  the Software Engineering Institute and the Chief Information Officer’s  Council, to effectively manage major programs and minimize risks. In  addition, we used criteria identified in the GAO Cost Estimating and  Assessment Guide: Best Practices for Developing and Managing Capital  Program Costs (GAO-09-3SP). We compared selected criteria to  information and documentation obtained from USPS to identify areas  where USPS’s management approach for Intelligent Mail did not match  criteria for sound risk management.
In order to provide as broad a perspective as possible on mailer concerns  with USPS’s implementation of the Intelligent Mail program, we analyzed  comments submitted in response to the January and April 2008 USPS  Federal Register notices regarding Intelligent Mail, primarily by  commercial mailers and mailer associations. Specifically, we reviewed two  sets of mailer comments to two Federal Register notices: (1) the  Implementation of New Standards for Intelligent Mail Barcodes, Advance  Notice of Proposed Rulemaking (Advance Notice) in January 2008, 73 Fed.  Reg. 1158 (Jan. 7, 2008) and (2) the Implementation of New Standards for  Intelligent Mail Barcodes, Notice of Proposed Rulemaking (Proposed  Rule) in April 2008, 73 Fed. Reg. 23393 (Apr. 30, 2008). We took a different  analytical approach with each set of comments. Due to the large number  of comments USPS said it received in response to its Advance Notice  (nearly 400 written comments) and the intended use of the results of the  analysis, we determined the most appropriate method to analyze these  comments was to verify and validate USPS’s summary of these comments  as published in the Proposed Rule. In the Proposed Rule, there were 16  statements made by USPS in summarizing the comments. We reviewed all  of the original comments and found evidence of comments supporting  each of the 16 statements. For the second Federal Register notice, the  Proposed Rule, USPS said it received 67 sets of comments. We determined  the most appropriate method to analyze these comments was to conduct a  complete content analysis by reviewing and categorizing all 67 comments.
We conducted this performance audit from September 2008 to April 2009  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Significant Dates in the Intelligent Mail Program, 2001 to 2011
subsections: section_title: A report issued by the Mailing Industry Task Force, led by chief executives from 11 industry-leading
paragraphs: companies and the Deputy Postmaster General of USPS, recommended Intelligent Mail as a way to respond  to customer’s needs    USPS established Intelligent Mail and Address Quality organization to identify and shepherd efforts to develop    USPS published Intelligent Mail Corporate Plan, which established the vision of the program  USPS finalized the format for the Intelligent Mail barcode    USPS permitted mailers to begin using the Intelligent Mail barcode on letter mail    Postal Accountability and Enhancement Act signed into law, requiring USPS to report on its service    USPS announced that Intelligent Mail program will be fully operational for all commercial mailers by 2009    USPS published new specifications for the Intelligent Mail barcode  In Federal Register Advance Notice of Proposed Rulemaking, USPS proposed to require mailers that get  automation prices to use Intelligent Mail starting January 2009  In Federal Register Proposed Rule, USPS revised standards and proposed that mailers will be eligible to use  Intelligent Mail and receive incentives for using Full Service starting May 2009  The USPS Board of Governors approved funding to create an infrastructure that will facilitate Intelligent Mail  implementation  In Federal Register Final Rule, USPS announced that it will allow POSTNET barcodes until May 2011 and  that it will start offering Intelligent Mail Basic and Full Service in May 2009    USPS announced price incentives for Intelligent Mail Full Service     USPS will make Intelligent Mail available for mailers to start implementing and testing their systems    Price incentives for Full Service mailers will go into effect and USPS plans to add other program functions    All mailers who get price incentives for using barcodes will be required to use Intelligent Mail barcodes  Pub. L. No. 109-435, 120 Stat. 3198 (2006).
section_title: Appendix III: Comments from the U.S. Postal Service
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Teresa Anderson, Lauren  Calhoun, Wendy Dye, Brandon Haller, Emily Larson, Amy Rosewarne, and  Travis Thomson made key contributions to this report.