Quash ERP Selection Failure Risks Before They Torpedo Your Project
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Enterprise Resource Planning (ERP) Archives
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September 19, 2011 7:30 AM
Our recent ERP benchmark study (soon-to-be-released) points out the obvious relationship between ERP selection success and ERP implementation success, that is: a failed selection project inevitably results in a failed implementation project.
Now, ruminate on this statistic - a paltry 32% of ERP selection projects succeed. This means that 68% of ERP projects are destined to fail before implementation even starts.
ERP selection failure (and ERP failure in general) can almost always be traced to some avoidable root cause. An organization's task, therefore, is to identify and deal with potential root causes before they cause damage. This is what we call risk management.
Now, although each organization operates within its own unique set of circumstances, certain risk factors act as common threats to ERP selection projects. In this article, I highlight a few of these key threat areas, their potential consequences, and some tactics to manage them.
Risk Category 1: Business Risk
Risk Factor: An ERP Project That Doesn't Product Positive Value
- Cause: Pursuit of an ERP project that isn't tied to business goals.
- Potential Consequences: An expensive, disruptive ERP investment that fails to generate a positive return.
- Mitigation Tactics: Start the project with an analysis of the organization's strategic objectives, business goals and operational performance. Then, identify the areas in which ERP can help drive value. Only then will an organization be in a position to design a procurement process capable of delivering a value-producing ERP project.
Risk Factor: A Runaway ERP Selection Project
- Cause: Inadequately well-defined project structure and/or ineffective project management.
- Potential Consequences: Cost overruns, delays, unresponsive proposals.
- Mitigation Tactics: Clearly define the project plan, schedule, and vendor participation requirements. Use an experienced procurement or project manager. If one isn't available internally, look for external help.
- Cause: A potential vendor has influence over the procurement process, the substance of the RFP and/or the list of potential vendor participants.
- Potential Consequences: The biased process might direct the buyer away from a more well-suited vendor or solution.
- Mitigation Tactics: Prevent any potential vendor from influencing the procurement process. If outside assistance is required, ensure that the advisor/consultant is fully agnostic and independent from all potential respondents.
- Causes: An RFP that fails to define the requirements with sufficient particularity. A failure to deliver the RFP to an appropriate set of vendors.
- Potential Consequences: Vendors may deliver vague, unresponsive, or incomparable proposals.
- Mitigation Tactics: Buyers should use the RFP process to clearly define their needs. At a minimum, buyers should clarify the business objectives, project scope, specifical functional requirements, specific technical/technological requirements, and specific user requirements. The buyer should also perform a market analysis (including landscape of vendors and solutions used by competitors) to identify potentially well-suited respondents.
Risk Factor: Poor Decision-Making
- Cause: A poorly defined decision-making process.
- Potential Consequences: The buyer makes a selection decision based largely on subjective criteria or an alignment with a specific sales person instead of based on a reasoned analysis relative to true business needs. Another potential consequence is that the buyer is incapable of making a decision.
- Mitigation Tactics: Before assessing alternatives, the buyer should define specific evaluations criteria. The buyer should also define a process for resolving conflicting views and breaking ties.
Risk Factor: Poor Implementation Performance
- Cause: A contractual relationship that fails to drive ERP implementation success.
- Potential Consequences: Implementation delays, cost overruns, project failure.
- Mitigation Tactics: The buyer should consider negotiating terms that incentivize the ERP services vendor to deliver a successful project. For example, it can link payment obligations to the successful completion of key project deliverables.
If you're concerned that your organization might be exposing itself to too much ERP selection risk, give us a call. We would be happy to discuss whether your project might benefit from an ERP selection risk assessment and mitigation plan.
Originally posted on Pemeco's Blog
| Blogger Profile: Jonathan Gross | |
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Jonathan manages ERP selection projects drawing upon his experience as a commercial lawyer and his M.B.A. education to help clients select the right-fit ERP systems and negotiate the best deal. He is an industry analyst and advises boards of directors on issues relating to business, strategy and law. |
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