HD108 - Customer Service Study


Executive Summary:
[This report was modified on 12/29/05 by replacing the Table of Contents.]

The Virginia Department of Motor Vehicles (DMV) serves a customer base of almost 5.2 million licensed drivers and the owners of 7.3 million registered vehicles. DMV serves its customer base through a network of service delivery options. It currently operates 73 full-service offices - called customer service centers (CSCS) - located across the Commonwealth. In addition, DMV has strategically positioned itself to offer customers a variety of service options as alternatives to visiting an office in-person, including:

• DMV Selects (contractual vehicle license agents);
• mail-in program;
• customer contact center;
• www.dmvNOW.com web site;
• online dealer program;
• touchtone telephone system; and
• self-service centers.

Three budget items were added to the 2004 and 2005 Appropriation Acts in response to a comprehensive cost analysis of DMV conducted by the Auditor of Public Accounts (APA). The first budget item called for DMV to use the APA's cost accounting methodology to develop an activity-based cost accounting system. The second budget item required DMV to develop performance goals and strategies for submission as part of the budget process. The focus was on identifying the level of performance that could be met with the resources allotted. These budget items were included in the 2004 Appropriation Act. Third, budget language was added in 2005 that required DMV to analyze the impact of potential changes to its customer service goals and service delivery methods.

In response to the General Assembly's directive, DMV has now developed an activity-based cost accounting system. The FY 2005 results, which identify the per-unit costs of DMV's primary transactions, were submitted to the APA in November 2005. In addition, the requirements for performance goals have been satisfied via the new Strategic Plan process that was implemented for the 2006-2008 Biennial Budget Submission. Service Area plans that include goals, strategies and performance measures were developed for the seven major activities of the agency: Driver Services, Vehicle Services, Motor Carrier Services, Transportation Safety Services, Information Technology, Facilities and Grounds Management Services, and General Management and Direction. These plans were submitted to the Department of Planning and Budget in July 2005.

The focus of this report is the analysis of customer service levels and usage of DMV's various service options. In particular, this report identifies the cost implications of maintaining different average customer wait times at customer service centers (CSCS) -- from ten minutes up to 45 minutes, in five-minute increments. It also examines the potential impact of imposing a surcharge on transactions performed at CSCs that could be performed more efficiently via DMV's alternative service options. In addition, it discusses the progress DMV has made to date in migrating transactions from CSCs to its more cost-effective service options.

DMV currently has a goal to serve its customers within an average of20 minutes. Agency staff employed statistical modeling to assess how staffing, and therefore funding, would need to be changed to meet both shorter and longer wait times than DMV currently attains. The analysis suggests that varying average wait time goals between ten and 45 minutes has a minimal impact on funding, because small changes in staffing levels create substantial impacts on average wait times. Based on the statistical modeling, DMV would need an additional $552,000 for all 73 CSCs to meet a ten-minute average wait time. For FY 2005, 27 CSCs already maintained average wait times approximating ten minutes. To meet a 45-minute average wait at each CSC would require approximately $527,000 less than currently budgeted. These changes amount to less than one percent of DMV's field staff expenditures.

A key lesson demonstrated through the statistical analysis is that strategic scheduling can reduce customer wait times using existing staff resources. For example, if a CSC tends to have a rush of customers during the first hour of operation, adding one service window during that one hour may reduce overall wait times by five to 15 minutes, particularly in small CSCS. However, it is also important to note that the modeling assumes that the most efficient staff scheduling pattern is employed in each office, based on customer arrival rates. There are many practical situations in which a CSC manager may not be able to follow an optimal staff schedule, for example due to employee illnesses. These situations could impact the extent to which a CSC can meet a particular wait time goal with the resources identified by the modeling. As such, DMV believes it is important to test the modeling results through a pilot program in selected CSCS. DMV has begun work on this pilot and will have results in early spring 2006.

The analysis also points to the desirability of supplementing full-time staff with wage and/or classified part-time staff to be able to adequately serve customers during peak times without having excess staff capacity during the slower times. Given the potential ability to use wage staff to effect average wait time changes, the average hourly wage rate, which is significantly less than full-time salaried staff costs, was used in calculating the funding impact. However, DMV also plans to explore other staffing configurations, such as the use of classified part-time staff, in further analysis of CSC staffing.

In addition to seeking ways to provide service more cost-effectively and efficiently through its CSCS, DMV also has taken steps to offer service through lower-cost alternative service options, such as the Internet, touch tone telephone system, and mail-in program. DMV's goal in having alternative service options is to conduct the transactions via alternative services that are less complex, and that do not require face-to-face contact, so that the CSCs can focus on the transactions requiring a customer visit.

DMV's new activity based cost accounting system, developed in consultation with the Auditor of Public Accounts, provides clear evidence of the cost effectiveness of these alternative service options. For example, the cost to conduct a vehicle registration renewal at a CSC is $6.77, compared to $4.61 at a DMV Select, $2.94 through DMV's mail-in program, and $2.70 through both the Internet and touchtone telephone system. Usage of DMV's alternative service options has increased during the past five years, as DMV has added transaction types available through alternative services and taken steps to promote these options. For example, in FY 2000 almost all driver's license renewals were conducted in a CSC. By FY2005, 58 percent of customers eligible to use an alternative service to renew their driver's license chose to do so. Likewise, fewer registration renewals are conducted in CSCs today (36 percent in FY 2005) than they were in FY 2000 (41percent). For both types of renewals, the rate of growth in customer usage has been greatest with the Internet, which is one of the lowest-cost service options available.

DMV has achieved this growth in alternative service usage by actively promoting those services and constantly identifying and implementing new transactions to be conducted via an alternative service. For example, DMV revised its vehicle and driver's license renewal notices to promote electronic service options, such as the Internet. Also, customers who contact DMV's call center are now routinely provided information on conducting their transactions through alternative options. Transactions recently made available through alternative services include: transcript request, surrender plates, reporting of vehicles sold or traded, and title replacement.

DMV's ability to move transactions out of the CSCs and into its lower cost service options has enabled the agency to reduce the resources it devotes to CSCS. DMV expended less on CSCs in FY 2005 than it did in FY 2001. CSC FY 2001 expenditures totaled $58 million, while FY 2005 expenditures were $55.4 million - 4.5 percent less in actual dollars and 13 percent less in constant dollars. CSC staffing during this period was reduced by 17 percent.

While DMV has taken numerous steps to encourage greater use of its alternative service options, there is clearly more to be done. The Appropriation Act language specifically directed DMV to examine the possible use of surcharges for transactions completed in a CSC that could have been performed via an alternative service. The intent of the surcharge is to encourage customers to use an alternative service option rather than the CSC when such an option is available. Through this analysis DMV identified seven transactions that are available via multiple alternative service options, and therefore, could be candidates for applying a surcharge. DMV staff then conducted several research activities to identify and assess possible surcharges for these transaction types, including surveying other states regarding their experiences with surcharges, conducting a review of marketing literature, comparing the current fees charged for these transactions with DMV's cost to conduct them, and contracting with Virginia Commonwealth University (VCU) to obtain input from DMV customers.

Based on this research, DMV identified two potential ways to set a surcharge level. One possibility is to set the surcharge at an amount sufficient to cover the actual difference in costs between a CSC transaction and the same transaction conducted using alternative means. This approach would rely on the results of the activity based cost accounting system. With this approach, the surcharges could potentially range from $4 to $6.50 per transaction. The other possibility is to set the surcharge at an amount that customers report would cause them to seek out an alternative service option. The VCU study identified customers' views on differential pricing ranging from $1 to $10 per transaction.

VCU's study, which obtained input from a relatively small sample of DMV customers, produced mixed results. Based on customer opinions on pricing, DMV estimates that between 12 percent and 23 percent of CSC transactions could potentially be migrated to alternative service options, depending on the surcharge amount imposed. However, the VCU study also found that DMV's lower income customers would be disproportionately negatively impacted given their greater reliance on cash payments and lesser access to the Internet.

Given the mixed results from the VCU study, DMV believes it would be appropriate to explore the use of surcharges further before making a determination regarding their use. Specifically, the agency has made plans to include questions about the use of surcharges or discounts in its upcoming biennial survey of customers, to be conducted in February-March 2006. The results of this statewide survey should shed more light on the potential benefits and drawbacks of using surcharges. Further, DMV believes that the use of surcharges is just one of many options that should be explored. In addition to strategies currently underway, other options that should be examined include requiring that, for certain transactions, customers who come to a CSC must use the self-service center or drop off the work for later processing at headquarters, or eliminating altogether the ability to conduct certain transactions in a CSC, such as vehicle registration renewals. DMV will continue to identify additional strategies, explore the feasibility of these strategies, and implement them as appropriate. During this process, DMV will keep the General Assembly informed of its progress and seek legislative approval as needed.