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Achieved if Key Risks Are Not Addressed' which was released on May 6, 
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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

May 2009: 

U.S. Postal Service: 

Intelligent Mail Benefits May Not Be Achieved if Key Risks Are Not 
Addressed: 

GAO-09-599: 

GAO Highlights: 

Highlights of GAO-09-599, a report to congressional requesters. 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

Figure: Example of a Mail Piece Containing an Intelligent Mail Barcode 
and Program Benefits: 

[Refer to PDF for image: illustration] 

Illustration of an envelope containing address, return address, and 
Intelligent Mail barcode. 

Intended program benefits: 

* Increased efficiency and reduced costs; 

* Reduced amount of undeliverable as addressed mail; 

* Better service information; 

* Price reductions and other benefits for mailers. 

Source: U.S. Postal Service. 

[End of figure] 

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: 

* 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; 

* 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. 

What GAO Recommends: 

GAO recommends that the Postmaster General address the risks to 
successful implementation of Intelligent Mail by developing (1) a 
comprehensive Intelligent Mail strategy; (2) attributable cost and 
savings information; and (3) a plan that addresses how USPS will 
mitigate risks, including the implications of the impact of lower-than-
anticipated customer adoption of Intelligent Mail. USPS agreed to 
recommendations one and three and has begun implementing them, but 
stated that it already has cost information. 

View [hyperlink, http://www.gao.gov/products/GAO-09-599] or key 
components. For more information, contact Phillip Herr at (202) 512-
2834 or herrp@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Intelligent Mail Program Seeks to Provide Better Mail Tracking 
Information and Begins Phased Transition in May 2009: 

The Intelligent Mail Program May Not Achieve All of Its Intended 
Benefits if Key Risks Are Not Addressed: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Significant Dates in the Intelligent Mail Program, 2001 to 
2011: 

Appendix III: Comments from the U.S. Postal Service: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Example of Different Barcodes on a Letter: 

Figure 2: Example of an Intelligent Mail Barcode, Including Its 
Information Fields: 

Figure 3: Selected Mail Operations Involved with Full Service 
Intelligent Mail: 

Abbreviations: 

OIG: U.S. Postal Service Office of the Inspector General: 

PRC: Postal Regulatory Commission: 

USPS: U.S. Postal Service: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

May 6, 2009: 

The Honorable Stephen F. Lynch: 
Chairman: 
Subcommittee on Federal Workforce, Postal Service, and the District of 
Columbia: 
Committee on Oversight and Government Reform: 
House of Representatives: 

The Honorable Danny K. Davis: 
House of Representatives: 

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.[Footnote 1] 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,[Footnote 2] 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. 

Background: 

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. 

Figure 1: Example of Different Barcodes on a Letter: 

[Refer to PDF for image: illustration] 

Illustration of an envelope containing the following barcodes: 
* Certified mail label; 
* PLANET Code; 
* POSTNET Code. 

Source: U.S. Postal Service and GAO. 

[End of figure] 

Intelligent Mail Program Seeks to Provide Better Mail Tracking 
Information and Begins Phased Transition in May 2009: 

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. 

Intelligent Mail Seeks to Provide More Information through the Use of 
Standardized Barcodes: 

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:[Footnote 3] 

* 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. 

Figure 2: Example of an Intelligent Mail Barcode, Including Its 
Information Fields: 

[Refer to PDF for image: illustration] 

Information fields: 

Fields 1-2: empty; 
Fields 3-5: Service type; 
Fields 6-14: Mailer identification number; 
Fields 15-20: Unique number[A]; 
Fields 21-31: Delivery address information. 

Source: U.S. Postal Service and GAO. 

[A] The unique number is either six digits (as shown in the shaded 
area) or nine digits, depending on the mail volume of the mailer. 
Mailers using Basic Service do not have to provide a unique number. 

[End of figure] 

Intelligent Mail Is Expected to Benefit USPS and Mailers by Providing 
Enhanced Information and Mail Tracking: 

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.[Footnote 4] 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[Footnote 5] will receive a discount of 
one-tenth of 1 cent for each piece.[Footnote 6] 

Implementation of Intelligent Mail Involves Many Changes for Mailers 
and USPS: 

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.[Footnote 7] The overall commercial mail 
process using Intelligent Mail, including how it impacts mailer and 
USPS operations, is shown in figure 3. 

Figure 3: Selected Mail Operations Involved with Full Service 
Intelligent Mail: 

[Refer to PDF for image: illustration] 

Mailers: 

Preparation: 
Mailer prepares mail, calculates postage, and schedules mail drop-off 
at USPS facility. 

Intelligent Mail changes: 
* Redesign mail piece to include unique barcodes on each mail piece, 
and on each tray and container; 
* Submit electronic documentation, including how mail pieces are placed 
in trays and containers; 
* Electronically schedule appointment prior to mail drop-off at a USPS 
facility. 

Intended benefits: 
* Price incentives; 
* Address correction and mail induction information at no charge; 
* Efficiency improvements through electronic communication. 

USPS: 

Acceptance: 
USPS accepts mail and verifies mail preparation and postage paid are 
correct. 

Intelligent Mail changes: 
* Automate the mail verification process; 

* Reconcile mail scan information to mailer’s electronic documentation; 

* Provide timely information to mailers regarding mail quality; 

* Train staff on process changes. 

Intended benefits: 
* Efficiency improvements through further automation; 

* More timely and less costly mail entry process; 

* Improve quality control through USPS feedback to mailers. 

USPS: Processing and delivery: 
USPS processes and transports mail to final delivery destination. 

Intelligent Mail changes: 
* Create common infrastructure to read and transmit data throughout 
mail processing; 
* Create new centralized data storage system to provide better access 
to information; 
* Train staff on new systems and equipment. 

Intended benefits: 
* New capability to track individual mail pieces throughout processing; 
* Enhanced diagnostic information will allow USPS to analyze system 
performance and improve delivery reliability. 

USPS: Measuring and reporting service performance: 
USPS uses barcode scans to provide information to PRC and mailers. 

Intelligent Mail changes:
* Develop systems to store and retrieve information from new barcodes; 
* Establish methods to measure service performance; 
* Develop reports on service performance for PRC and mailers. 

Intended benefits: 
• Provide mailers with information about their mail; 
* Service performance information to meet statutory reporting 
requirements. 

Sources: U.S. Postal Service and GAO. 

[End of figure] 

Mailers: 

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 embedded 
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. 

USPS: 

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. 

USPS Has an Aggressive Development Schedule to Implement Intelligent 
Mail in May 2009 and Plans to Add to the Program in a Future Release: 

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.[Footnote 8] 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. 

The Intelligent Mail Program May Not Achieve All of Its Intended 
Benefits if Key Risks Are Not Addressed: 

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. 

Intelligent Mail Implementation May Be at Risk Due to USPS's 
Development and Management Approach: 

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.[Footnote 9] 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. 

USPS Lacks Critical Program Management and Risk Mitigation Elements: 

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. 

Mailers Had Concerns about USPS's Development of the Intelligent Mail 
Program: 

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.[Footnote 10] 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.[Footnote 11] 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 
[Footnote 12]--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.[Footnote 13] 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. 

USPS Actions Address Some Implementation Concerns, but Others Remain: 

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.[Footnote 14] 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,[Footnote 15] 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. 

Financial Incentives May Not Be Sufficient to Encourage Mailers to 
Participate in Full Service: 

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[Footnote 16] 
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.[Footnote 17] 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. 

Conclusions: 

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. 

Recommendations for Executive Action: 

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. 

Agency Comments and Our Evaluation: 

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 
[hyperlink, 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. 

Signed by: 

Phillip Herr: 
Director, Physical Infrastructure Issues: 

[End of section] 

Appendix I: Scope and Methodology: 

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. 

[End of section] 

Appendix II: Significant Dates in the Intelligent Mail Program, 2001 to 
2011:
Date: 2001; 
Event: A report issued by the Mailing Industry Task Force, led by chief 
executives from 11 industry-leading companies and the Deputy Postmaster 
General of USPS, recommended Intelligent Mail as a way to respond to 
customer's needs. 

Date: January 2003; 
Event: USPS established Intelligent Mail and Address Quality 
organization to identify and shepherd efforts to develop Intelligent 
Mail program. 

Date: May 2003; 
Event: USPS published Intelligent Mail Corporate Plan, which 
established the vision of the program. 

Date: 2004-2005; 
Event: USPS finalized the format for the Intelligent Mail barcode. 

Date: September 2006; 
Event: USPS permitted mailers to begin using the Intelligent Mail 
barcode on letter mail. 

Date: December 2006; 
Event: Postal Accountability and Enhancement Act signed into law, 
requiring USPS to report on its service performance[A]. 

Date: January 2007; 
Event: USPS announced that Intelligent Mail program will be fully 
operational for all commercial mailers by 2009. 

Date: July 2007; 
Event: USPS published new specifications for the Intelligent Mail 
barcode. 

Date: January 2008; 
Event: In Federal Register Advance Notice of Proposed Rulemaking, USPS 
proposed to require mailers that get automation prices to use 
Intelligent Mail starting January 2009[B]. 

Date: April 2008; 
Event: 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[C]. 

Date: July 2008; 
Event: The USPS Board of Governors approved funding to create an 
infrastructure that will facilitate Intelligent Mail implementation. 

Date: August 2008; 
Event: 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[D]. 

Date: February 2009; 
Event: USPS announced price incentives for Intelligent Mail Full 
Service. 

Date: May 2009; 
Event: USPS will make Intelligent Mail available for mailers to start 
implementing and testing their systems. 

Date: November 2009; 
Event: Price incentives for Full Service mailers will go into effect 
and USPS plans to add other program functions. 

Date: May 2011; 
Event: All mailers who get price incentives for using barcodes will be 
required to use Intelligent Mail barcodes. 

Source: GAO analysis of U.S. Postal Service documents. 

[A] Pub. L. No. 109-435, 120 Stat. 3198 (2006). 

[B] 73 Fed. Reg. 1158 (Jan. 7, 2008). 

[C] 73 Fed. Reg. 23393 (April 30, 2008). 

[D] 73 Fed. Reg. 49333 (Aug. 21, 2008). 

[End of table] 

[End of section] 

Appendix III: Comments from the U.S. Postal Service: 

Thomas G. Day: 
Senior Vice President: 
Intelligent Mail And Address Quality: 
United States Postal Service: 
476 L'Enfant Plaza: 
Washington DC 20260-4400: 
202-268-6200: 
Fax 202-268-4492: 
[hyperlink, http://www.usps.com] 

April 27, 2009: 

Mr. Phillip R. Herr: 
Director, Physical Infrastructure Issues: 
United States Government Accountability Office: 
Washington, DC 20548-0001: 

Dear Mr. Herr: 

Thank you for providing the U.S. Postal Service with the opportunity to 
review and comment on the draft report titled 'U.S. Postal Service:	
Intelligent Mail Benefits May Not Be Achieved if Key Risks Are Not 
Addressed' (GAO-09-599). 

The GAO study of USPS Intelligent Mail® raises valid concerns about the 
program, but fails to acknowledge specific aspects of the project 
implementation that were provided to the audit team. Most glaring of 
these omissions is the conscious decision of USPS Management to 
implement Intelligent Mail® as a non-generative, infrastructure 
investment. This decision was in recognition of the inability to 
directly attribute and track cost reductions as the result of 
Intelligent Mail® implementation. 

Among the key findings of the study are concerns about USPS development 
and management approach, risk mitigation plans and potential adoption 
rates on the part of mailers. In addition, at a higher level, concern 
was raised about the need for an updated strategic plan for Intelligent 
Mail®. This response will address each of these issues. 

Program Costs: 

The study finds that USPS lacks "information about the overall program 
costs, including its anticipated savings." In fact, USPS provided GAO 
with very detailed information about the cost to implement Intelligent 
Mail®. The program has been implemented with very rigorous controls for 
both expense and capital investments. Specific proposals were developed 
for individual components of the program. Each proposal had defined 
requirements, deliverables and timelines; all of which were established 
at a fixed price. In addition, there is very strict control of cash-
flow to insure that funds are only provided when necessary. 

The fundamental disagreement with GAO Auditors has been in regard to 
the topic of anticipated savings. As was previously identified, this is 
the most glaring of the omissions in the study. USPS Management clearly 
determined this is a non-generative infrastructure investment. This 
decision was made after several months of debate and alternative 
approaches were considered for the Decision Analysis Report (DAR). 
While it is understood that Intelligent Mail® will provide benefits 
that should reduce costs, as well as improve efficiency and service, 
there is no sound financial method to specifically attribute these 
reductions to Intelligent Mail®. 

Intelligent Mail® will provide data and diagnostic information that 
should lead to improvement in customer service, delivery, distribution 
and transportation operations. However, given the myriad of programs 
being implemented in these operations, there is no valid financial 
method to attribute a portion of these savings to Intelligent Mail®. 
Given this lack of a "clear line of sight", there is no sound basis to 
either track or claim these reductions. 

The one exception to this approach for cost reductions is the specific 
activity associated with the acceptance and verification of commercial 
mail. This activity takes place in Business Mail Entry Units and a 
select group of Post Offices. The cost and work hours associated with 
this activity are tracked separately from other operations. The 
implementation of Intelligent Mail® and associated efforts, such as 
Performance Based Verification (PBV), have anticipated cost reductions. 
Both a historical baseline and tracking mechanism are in place for 
these cost reductions. 

Program Management: 

The study raises concerns about the program management approach adopted 
by USPS. In part, USPS Management acknowledges these issues. Given an 
extended timeframe for implementation many, if not most, of the 
recommendations from GAO would have been included in the Intelligent 
Mail® program management approach. However, given the compressed 
timeframe associated with a May 2009 implementation, a truncated 
program management was established. 

The Program Management approach implemented by USPS provided for 
rigorous methods to ensure defined project scope and requirements are 
achieved. There are clearly defined deliverables that included cost and 
schedules, resource planning, as well as the tracking of key 
milestones. Here are several highlights of the Program Management 
approach currently employed by USPS: 

1. Strong Business/IT senior executive sponsorship with easy escalation 
for decision making. 

2. Clear governance, status and communications process. 

3. Standardized weekly process for reporting status. 

4. Weekly checkpoints with set agenda (program schedule, milestones, 
decisions, issues/risks, actions). 

5. Progress on fact-based quantitative project management with delivery 
metrics. 

6. Baseline milestones and dependency program plan, integrated project 
plan and business work plans. 

7. Risk system of record provides tracking, and communication. 

8. Embedded Program Management Office Model; cross-team coordination 
and resource-loaded project plans. 

9. Scope change control; formalized governance, traceability and 
communication of change. 

Although a truncated methodology, it has proven quite effective. 
Despite an extremely compressed schedule, the successful implementation 
of the Operating System environment on May 11 and the Test Environment 
for Mailers on May 18 demonstrates how well this effort has worked. 

In retrospect, the program could have been implemented in two parts. In 
the first, with initial funding provided, all scope, requirements, 
specifications, deliverables, timelines and resource planning would 
have been determined. As a result of this initial effort, a second 
funding document and project plan would have been created for the 
actual implementation of Intelligent Mail®. 

More than likely, it would still have required a multi-phase release 
schedule. This approach would have delayed implementation until at 
least 2011. Alternatively, the first phase would have had to begun 
early in 2007. Given that this approach was not adopted in 2007 and 
USPS Management did not want to delay implementation into 2010, the 
decision was made to move forward with a somewhat truncated approach to 
program management. While not optimal, the actual results have proven 
it to be effective. 

Risk Mitigation: 

The study raises concerns about risk mitigation. At a technical level, 
the Intelligent Mail® program has an extremely detailed risk mitigation 
plan. The plan outlines both the process to identify and approaches to 
mitigate these risks. Beyond a theory, this plan has been effectively 
implemented throughout the various phases of implementation. Given the 
actual performance of risk identification and mitigation throughout 
this program, it is puzzling as to why this issue is even raised at a 
technical level. 

At an overall program level, Risk Mitigation has risen due to the issue 
of Mailer Adoption of Intelligent Mail®. Here is the question: Will 
Intelligent Mail® be successful if mailers do not choose to 
participate? This is a valid issue that can, in part, be addressed in 
an updated Strategic Plan for Intelligent Mail® which is currently 
being developed. 

USPS has already announced that all mailers must convert to the 
Intelligent Mail® Basic format not later than May 2011 if they want to 
qualify for automation discounts. In addition, the POSTNET code and 
PLANET Code will "sunset" in May 2011. Therefore, by May 2011 the 
overwhelming majority of commercial mail will be in an Intelligent 
Mail® format. What remains to be seen is what percentage will be in a 
Full-Service format. 

Mailer Adoption: 

USPS has three basic approaches by which to influence mailer adoption 
of Full-Service Intelligent Mail®: 1) Value to Customer; 2) Price 
Incentive; and 3) Mailing Requirements. USPS has actively employed both 
the first and second approach. The Price Incentive will be implemented 
in November 2009, with per piece incentives of three cents for First-
Class Mail and one cent for Periodicals and Standard Mail. Should these 
price incentives and/or value to customers prove inadequate, USPS has 
the flexibility to revise its strategy using any or all of these three 
approaches referenced above. 

What volume of Full-Service Intelligent Mail® adoption is necessary? To 
answer this question three outcomes must be considered: 

1) Volume is necessary to provide valuable internal data and diagnostic 
reporting. 

2) Volume/Points of entry is necessary to provide for representative 
service measurement. 

3) Volume is necessary to reduce work hours in the acceptance and 
verification process. 

In all three cases, USPS believes the combination of Value to Customer 
and Price Incentives will provide the volume necessary to achieve the 
desired outcomes. Perhaps the most difficult to assess is predicting 
the amount of volume that would be used to provide reasonable 
representation in service measurement. The challenge is not volume; it 
is entry points. The Service Measurement requirement, agreed upon with 
the Postal Regulatory Commission, is a District to District performance 
matrix that should be valid on a quarterly basis. There is already more 
than adequate Intelligent Mail® volume in the network to be 
statistically valid to a destination level. The greatest challenge is 
to get enough mailers to enter at each of the Districts to be 
statistically valid from origin. This is not driven by volume, instead 
it is the number of mailers who participate and where they are located. 

Response to Recommendations: 

The study provides for three recommendations to address risks: 

1) Update Intelligent Mail Strategy; 

2) Program cost information and metrics to be used to track savings; 
and; 

3) Plan to mitigate risks of lower than anticipated customer adoption. 

1) USPS fully concurs with an updated version of the 2003 Intelligent 
Mail Corporate Plan. This effort is underway and will be completed in 
the next few weeks. This effort is based upon work completed as part of 
a 2007 update that remains in draft. The 2009 update will detail 
efforts completed; implementation plans for Release 1 (May 2009) and 
Release 2 (November 2009); possible items for inclusion in a Release 3 
(date to be determined based upon both need and funds availability); 
vision of future upgrades; and enabling features/capabilities on 
Intelligent Mail®. 

2) As previously indicated, detailed program cost information already 
exists and is being closely managed and monitored. The metrics to track 
cost savings will be focused exclusively on reductions in the 
acceptance/verification activities. The baseline is already established 
and the tracking capability is in place. 

3) USPS will explore the risk analysis and potential mitigation 
required should mailer adoption rates fall significantly below 
expectation. This can be produced as a separate document or as an 
appendix to the Intelligent Mail Corporate Plan. 

If you or your staff wish to discuss any of these comments further, we 
are available at your convenience. 

Sincerely, 

Signed by: 

Thomas G. Day: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Phillip Herr, (202) 512-2834 or herrp@gao.gov: 

Staff Acknowledgments: 

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. 

[End of section] 

Footnotes: 

[1] This concept, known as worksharing, generally involves mailers 
qualifying for reduced postage rates by performing certain activities 
such as preparing and barcoding mail so it can be sorted by USPS 
automated equipment. See GAO, U.S. Postal Service: A Primer on Postal 
Worksharing, [hyperlink, http://www.gao.gov/products/GAO-03-927] 
(Washington, D.C.: July 31, 2003). 

[2] The Software Engineering Institute is a federally funded research 
and development center conducting software engineering research in 
acquisition, process improvement and performance measurement, security, 
and system interoperability and dependability. The Chief Information 
Officers Council works to improve federal agency practices related to 
the acquisition, modernization, use, sharing, and performance of 
Federal government information resources. 

[3] A third nonautomation option is also available for mailers that do 
not qualify for automation discounts. Mailers using this option will 
print Intelligent Mail barcodes on their mail pieces, but their mail 
will not receive discounts or any of the increased automation that is 
part of Intelligent Mail. 

[4] Pub. L. No. 109-435, §§ 204, 301, 120 Stat. 3211-3212, 3218-3219 
(2006) (codified at 39 U.S.C. §§ 3652, 3691). 

[5] The four main mail classes that commercial mailers send include (1) 
First-Class Mail, which includes bills, account statements, payments, 
and business correspondence; (2) Standard Mail, which is primarily 
advertising mail such as flyers, circulars, and solicitations; (3) 
periodicals, which include mailed newspapers and magazines; and (4) 
package services, which is primarily merchandise and large quantities 
of printed material. 

[6] This discount amounts to a $3.00 discount for every 1,000 pieces of 
First-Class Mail and a $1.00 discount for every 1,000 pieces of 
Standard Mail. 

[7] GAO has an ongoing review that will separately report on USPS's 
information technology management of the Intelligent Mail program, 
including its systems, policies, procedures, and practices. 

[8] For a more complete Intelligent Mail timeline, see appendix II. 

[9] GAO, Financial Management Systems: Additional Efforts Needed to 
Address Key Causes of Modernization Failures, [hyperlink, 
http://www.gao.gov/products/GAO-06-184] (Washington, D.C.: Mar. 15, 
2006). 

[10] 73 Fed. Reg. 1158 (Jan. 7, 2008). 

[11] 73 Fed. Reg. 23393 (April 30, 2008). 

[12] USPS gave notice of the Intelligent Mail discounts on February 10, 
2009, in its notice of market-dominant price adjustments posted on the 
PRC Web site at [hyperlin, 
http://www.prc.gov/Docs/62/62203/Notice_Consolidated.pdf]. 

[13] 73 Fed. Reg. 49333 (Aug. 21, 2008). 

[14] The Mailers Technical Advisory Committee is 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. 

[15] The Postal Customer Council program is a national program 
comprised of more than two hundred local-level councils that provide 
mailers with a forum for exchanging ideas for improved mail service and 
discussing new and existing USPS products, programs, regulations, and 
procedures. 

[16] 39 U.S.C. §§ 3652, 3691. 

[17] Pub. L. No. 109-35, § 204, 120 Stat. 3211-3212 (2006) (codified at 
39 U.S.C. § 3652). Market-dominant products primarily include First- 
Class Mail--domestic and international single-piece mail (e.g., bill 
payments and letters) and domestic bulk mail (e.g., bills and 
advertising); Standard Mail (mainly bulk advertising and direct mail 
solicitations); periodicals (mainly magazines and local newspapers); 
and some types of package services (primarily single-piece Parcel Post, 
Media Mail, library mail, and bound printed matter). 

[End of section] 

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