You are a senior executive in a company that is going to implement an ERP for the first time. You don’t have experience with this kind of project. So what should you be planning and doing, when, and who will be involved?
In our series on What is ERP, in Part 1 I explained what ERP is and why it has become such a significant part of most organizations. Here in Part 2, I will be looking at what company executives should be considering Before they start implementing an ERP system.
Responsibility for an ERP project
In the “Thinking About ERP” book the responsibility for an ERP project is given to what the book calls The Seeker of Value. In most organizations, the CEO is likely to delegate this role to either the CFO or CIO, no one lower in the organization.
The Seeker of Value develops a Case for Change document, which describes what the proposed ERP project entails, why it is being undertaken, and what the expected cost is. They have overall responsibility to ensure the ERP project delivers what has been scoped in the Case for Change. This includes control of the timeline, allocations of resources, and managing risks.
What to consider
An ERP project is not a trivial cost exercise, so executives need to be aware of the different cost components of an ERP project. Here are the obvious ones.
- Software license cost (or subscription cost if the ERP is running in the cloud).
- Implementation and testing: the cost to install and configure the software, and confirm it meets business needs.
- Consultants: external consultants who know the ERP application are essential as the business won’t have the expertise.
- Data migration: often an under-estimated cost. This is the process of taking data from old systems and mapping it to the new ERP system, then converting and migrating the data, and finally validating the data is correct.
- Integration: not a single company has only one system it depends on. There will be applications, either in use or proposed, that will need to work with the ERP system.
- Training: if you try to reduce this cost you will get bitten later. Either the ERP project will fail because the company doesn’t have the skills, or it will become a white elephant because staff won’t know how to use it effectively.
- Project management: few businesses, except large corporations, employ dedicated project managers. For a properly-run project, a good ERP project manager will be needed.
Then there are less obvious cost items.
- Change management: one major reason that large IT projects fail is not due to the software, but the people who have to work with the new system. So when planning starts, involve and get buy-in from the people who will be the users of the system. This is not just a meeting, it’s an ongoing process of winning hearts and minds.
- New business processes and policies: to get value from an ERP system, there should also be changes to the business to make it more effective. Therefore changes will happen to the way things work in the business – the processes and policies of the past must be modified, which is obviously going to take time and money.
- Upfront design and planning: the saying “Failing to plan is planning to fail” applies here. Allocate time before the project to ensure that the objectives of the ERP project are clear, realistic and agreed, and then make sure that the plan to reach those objectives is feasible.
- Scope creep: If you are not careful, and don’t stick to the original project objectives and plans, things can easily get out of hand and project costs can skyrocket. A good project manager will help mitigate this.
- Report creation: Businesses rely on reports to track progress, check status, and monitor performance. While all ERP systems provide report templates, new or customized reports will be required for specific requirements.
- Cost of staff and management time: Expect some staff and management to be pulled into the ERP project, either unexpectedly or for longer than planned
- Ongoing training: When the knowledge and skills of staff are not maintained, problems occur. Once the ERP project is over, there needs to be a budget for ongoing training.
2. The implementation
- Project scope: Although the Case for Change should clearly define the project scope, scope changes can happen quite easily during a project. There needs to be a procedure and people involved to evaluate whether a change of scope is valid.
- Project review: Make sure there is a steering group that regularly reviews the project. This need not be for board members, but unresolved issues should be referred upwards for a speedy response. If issues are not addressed promptly, it will cost time and money.
- Project responsibilities: There are two groups who are deeply involved in an ERP project – the internal staff, and the external consultants. It is critical that the roles and responsibilities of both groups are clearly defined.
- Inclusion of staff: People from every level in the organization should be included and consulted, not only senior-level staff.
- Scheduling of training: A schedule will need to be developed to minimize the effect of training on day-to-day work, bearing in mind employees will need time to practice and learn new skills.
3. Ongoing use, management and maintenance
- An ERP application, and the project, requires governance. That means:
-defined levels of authority,-transparent and accountable leaders,-responsible corporate behaviour.
- ERP as the ‘single source of truth’. The ERP system shouldn’t be seen just as a transactional system. It needs to be managed and developed so that all data necessary for business decisions come from and rely on data in the ERP application.
- An ERP project is an ongoing undertaking because customers, markets and business changes – it never really ends. The board should periodically review the alignment of the ERP system with the business direction and goals.
Think through the issues
An ERP system is the foundation of the operations of a business. But common causes of ERP project disasters are:
- poor communication,
- poorly set expectations,
- unclear objectives,
- inflexible teams and processes,
- ineffective resourcing,
- competing agendas
Therefore, the company board and executives need to be very sure that all aspects of the project are managed properly and that the system delivers what the business requires. If the executive decision-makers set the strategy and actions for the ERP by thinking through the issues raised here, the probability of success is high.