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8/25/2013

ERP

KEY RISK FACTORS IN ERP IMPLEMENTATION

B. Prasanthi 2012PGP079

| V. Nishanth Shouri 2012PGP108

KEY RISK FACTORS IN ERP IMPLEMENTATION


Introduction
ERP has become a buzzword for quite some time now since every other organization wants to be technologically efficient for which ERP seems to be the solution. ERP is an enterprise system which integrates several modules, each of which constitutes a function in the process and provides a way to identify and remove bottlenecks. ERP, if implemented correctly, can bring about a huge change in the way business processes are run in the company and improve productivity on a large scale. But, when we read about ERP, the first thing that pops out is the fact that more than often, ERP implementation has been a failure than success. The reasons for failure are multitude. Lot of research went into identifying the reasons of failure. Still, there are companies that prefer ERP solutions to their processes. And we tried to identify the risks involved in the selection, implementation and maintenance of ERP in an organization. From our study, we also came to know that the key risk factors during several of these phases are linked to the critical success factors during each stage. In the paper Key Risks in ERP Implementation by Eugene A. Khvalev, the author has listed the top 25 key risk factors in the order of frequency of occurrence of which the top 5 are: 1. Lack of Top Management Support and commitment 2. Unclear goals and objectives 3. Limitation in Resources 4. Insufficient training of end-users 5. Failure to redesign business process

As we map these with the critical success factors, we can easily identify the commonality. In this writeup we would like to elaborate on these five risk factors individually and give our opinion on them.

1. Lack of Top Management Support and Commitment


By looking at this, we immediately get the question The top management is the reason why ERP is getting implemented. Then why do they not support it and why are we questioning their commitment? But one of the primary reasons for this being the top most risk factor is the top management losing faith in the project they have initiated. Their support and commitment needs to be present right through the entire phase of ERP implementation. They, as the key strategists of the organization, needs to send down the message through their hierarchy that they strongly believe in the change and they are confident enough that the change will bring about a positive result for the whole organization. One of the reasons why the faith wavers in the middle might be because the expectations of the top management and what the system is delivering are quite different. It means that they have not clearly understood the ERP system when they have selected it. Also, the question of cost and time comes into picture. Due to all these reasons, they tend to move away from the actual goal.

2. Unclear Goals and Objectives


Goal setting is an essential element for the success of any project and in particular ERP project. If the objective for the project is not clear or not properly communicated, then it will be really tough to understand the purpose of the project thereby leading to confusion and improper handling of the same. This risk generally arises when there is a mismatch between the expectations of the client group and the implementing team. Often, this confusion occurs in the client group when some existing functionalities are termed as BAU (Business As Usual), but the process is unknown due to various reasons. This makes it tough for the implementation team to implement new process and might take long time implying increased cost thereby increasing risk of failure. Thus poorly designed processes, vague requirements and objectives increase the risk of delivering a successful solution. This risk also occurs when there is improper and inefficient communication among the employees of the organization.

3. Limitation in Resources
Limited resource availability is another major factor that throws the success of ERP project into risk. Resources in terms of human capital, time and finance are the major reasons. Human resources play a vital role in implementation since the team engaged with heavy load or fewer loads will lead to demotivation. ERP implementations tend to fail often due to improper estimations made by organisations in terms of developing a project plan with realistic timelines thereby leaving no contingencies to accommodate delays which may occur due to even minor unforeseen circumstances. In fact, these "unknowns" might result in significant project overruns, as dependencies between various

implementation activities tend to compound schedule slippage and resource costs because team members are not effectively utilized. While it is important to give consideration to resource loading to ensure team is equipped enough to handle the project, it is equally difficult to maintain a fully resourcebalanced plan at the task level for a large ERP implementation.

4. Insufficient Training of End-users


End-users are the most important stakeholders in an ERP project since they use the implemented project instead of the existing Business processes. If these end-users are not provided with proper change adapting plan, the risk of implementation failure raises significantly. Hence it is important that organisations should have a proper cutover plan during which changeover to new ERP plan occurs. A cutover plan needs to be drafted far before the actual project goes live and should be continuously refined as the go-live date approaches. Here resource planning is important and this is where generally organizations tend to fail to mobilize cutover planning with enough lead time to address these considerations. Soon after implementation, the consultants might be terminated due to shortage of resources at this stage leading to insufficient training.

5. Failure to Redesign Business Process


Rethinking and redesign of business process enables an organizations operational process to get aligned with an ERP system thus allowing the organization to get full benefits of the implemented system. Only then, strategic clarity and constancy of the purpose will be attained. Failure in redesigning the Business processes occur due to improper communication in the requirement specifications which again trigger the second reason mentioned above, goals and objectives becoming vague. Existing business process should be understood completely before deciding on implementation of the new design. Redesigning business process gets tough if the resources utilized to implement them are no longer available. Hence improper documentation of business process knowledge may lead to more time and effort, increasing the risk right at the planning phase of ERP project.