OIS 23-24 Sessione-A06 Selecting ERP (1) PDF

1 Lesson 6 Selecting an ERP System from challenge to … success, of course ing. Massimiliano Oleotto Learning Objectives 2 Q1. Why implementing an ERP System is challenging? Q2. What is Project Management? Q3. What is Risk Management? Q4. What is an ERP System selection? Q5. What about ERP mark...

1 Lesson 6 Selecting an ERP System from challenge to … success, of course ing. Massimiliano Oleotto Learning Objectives 2 Q1. Why implementing an ERP System is challenging? Q2. What is Project Management? Q3. What is Risk Management? Q4. What is an ERP System selection? Q5. What about ERP market? And about ERP Software? Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. Why implementing an ERP System is challenging? 3 Implementing an ERP System is challenging both for Corporates and SME Why does this happen? Because the implementation of an ERP system is: • invasive, involving the entire company, especially people • complex, time-consuming and (very) expensive • risky, i.e. it can end in both success and failure Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. Why implementing an ERP System is challenging? 4 Implementing “another” IS can be as challenging as implementing an ERP System for Corporates and SME However, the implementation of “another” IS is generally: • less invasive • less complex • less risky then the implementation of an ERP System Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. Why implementing an ERP System is challenging? 5 Getting an ERP implementation wrong can be catastrophic (!) ❑ In 2011 Lidl decided to replace its legacy system Wawi with SAP, because the integration between the different ISs with Wawi had become too complex and getting the system to work and maintain was extremely difficult ❑ In 2017 the implementation project seemed to be going well as SAP awarded Lidl as one of its best customers ❑ In 2018, Lidl decided to stop the implementation project because the objectives Lidl wanted to achieve with SAP could no longer be achieved, and therefore decided to keep the old Wavi and make its operation and its maintenance easier → total cost of failure: 500 M€ (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. Why implementing an ERP System is challenging? 6 Even if the implementation of an ERP System is not catastrophic, its failure can cause many damages A survey carried out in 2019 by an ERP vendor to manufacturing and distribution companies revealed that … there are exploding costs, endless delays and features returning to the world of dreams (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. Why implementing an ERP System is challenging? 7 Why do you implement it … if it is challenging? Because a company that uses an ERP System: • solves many “pain points” • gets many benefits • may suffer some disadvantages Nowadays some customers and suppliers, but also some lenders and investors, don’t want to do business with a company that doesn’t use an ERP system (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. Why implementing an ERP System is challenging? 8 Pain points New business model – the legacy system can’t support it Benefits Disadvantages Data integration – Data is captured once and shared across the company The implementation project invasive, complex and risky Business problems – e.g. determining Single version of truth – everybody financial performance or inventory has the same Information, that is levels complete, timely and accurate Lack of employee participation (resistance or … hostility) – it leads to “work-arounds” or … sabotages Growth issues – the legacy system can’t manage a growing number of users and transactions Real time access to Information – it improves collaboration & communication Price tag – it may be the most expensive investment a company ever makes Need for advanced functionality One Process Model covering all the company based on Best Practice – it improves coordination The standardization of Business Processes, if this affects the critical success factors Too many ISs make up the legacy system Look and act of each module are the same Lack of control – it’s not easy to take command of technology Lack of compliance – e.g. IFRS standard for Financial Statements Of course... it reduces costs and increases revenues (!) Having a long life cycle (10 years), in the end it can be not up-to-date Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. Why implementing an ERP System is challenging? 9 How can you make an ERP implementation a success … or at least not a failure? It’s possible if you make it less: • • • invasive → with Change Management complex → with Project Management risky → with Risk Management Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. Why implementing an ERP System is challenging? 10 Change management is a method to support a change in the company from the human side Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 1 11 Q1. Why implementing an ERP System is challenging? • • • Implementing an ERP System is challenging because it’s invasive, complex and risky When implementing an ERP System, pain points, benefits and disadvantages must always be taken into account Implementing an ERP System can be less challenging if Change Management, Project Management and Risk Management are adopted Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 12 Implementing an ERP System in a company is very challenging … we know it But … why • is the implementation of an ERP system in a company a project? • is Project Management needed to manage this project? Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 13 A project is a temporary endeavor undertaken to create a unique product, service or result. The temporary nature of projects indicates a definite beginning and end. [...] Every project creates a unique product, service, or result. Although repetitive elements may be present in some project deliverables, this repetition does not change the fundamental uniqueness of the project work. [...] [PMI PMBOK] → A project is a set of temporary activities that aim to create a unique product Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 14 Therefore … a project is completely different from a process Process Project Repetitive – it is done and redone continuously, and therefore it can be improved Temporary – it is done only once because it has a start and an end (no matter if early or late) Standardized – you get a product that is always the Outcome same, except for small differences Unique – you can’t get the same product, only similar products with similar projects Duration Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 15 Is the implementation of an ERP System in a company always … … temporary? Yes, it starts with the selection and ends with the activation, aka Go-Live … unique? Yes, you can do it only once in that company So … it’s a project (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 16 Project Management is the application of knowledge, skills, tools, and techniques to project activities to meet the project requirements. Project Management is accomplished through the appropriate application and integration of [...] these 5 Process Groups [...]: Initiating, Planning, Executing, Monitoring and Controlling, and Closing. Managing a project typically includes: identifying requirements, addressing the various needs [...] of the stakeholders [...], balancing the competing project constraints [...]. [PMI PMBOK] → Project Management is the (best) set of appropriate structured activities to manage a project Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 17 Project Management looks like PDCA because: • it has a Planning phase, an Executing phase and a Control phase • but it hasn’t an Action phase because a project is unique • and in its place it has an Initiating phase and a Closing phase because a project is temporary Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 18 The Initiating phase is characterized by: • the preparation of the project → obtained the authorization for the project, you identify the stakeholders and the Project Team – project sponsor, project manager and project members • the issue of the SOW → it is a document written by the project manager indicating the key elements of the project: context, objective, duration, cost limit, activity and signatures Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 19 A project has always 3 linked dimensions (it’s the Project Triangle): • scope – what you want to achieve • time – how much time do you have • cost – what resources do you have Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 20 The Planning phase is characterized by: • scope – the definition of WBS → «do it good» • time – the definition of Schedule → «do it fast» • cost – the definition of Budget → «do it cheap» Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 21 Reaching the scope of a project respecting time and cost is a job ... very difficult (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 22 A key scope document is the WBS – it’s a hierarchical breakdown that: • reflects the project requirements • lists all project deliverables and activities Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 23 In a Schedule all project activities are: • sequenced – based on relationships among activities • assigned to resources – both material and human • placed in time – so that you have critical path, i.e. the longest series of activities that need to be done sequentially Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 24 In a Budget all project costs are: • collected – deriving them from resource costs • summarized bottom-up – in a report for the project sponsor • eventually reviewed top-down by the process manager – if total costs exceeds the project cost limit Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 25 The Executing phase is characterized by these facts: • all the work gets done • most of the time and money of the project is consumed • Data is collected – it is analyzed in the next phase • there are quality audits to verify if deliverables are ok Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 26 The Control phase is characterized by checking if the project is on time and on budget → the most used tool to control a project is Earned Value Management – based on Earned Value, i.e. the planned cost of what has been achieved to date Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 27 The Closing phase is characterized by: • the archiving of the project → you state that the project is finished – and this can happen if the scope is reached, but also if it cannot be reached or you no longer want to reach it • the drafting of the Commissioning Report → it is a document written by the project manager in which what has been done is summarized – it is what is given to the project sponsor Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 28 Because of its complexity, Project Management often requires the use of software, called PMS Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is Project Management? 29 We just learned that … implementing an ERP System in a company is a project Because of its (big) complexity, success is more likely to be achieved if you use Best Practices for its management So ... it needs Project Management to manage it (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 2 30 Q2. What is Project Management? • • • The implementation of an ERP System is a project – a project is a set of temporary activities that aim to create a unique product So, it needs Project Management, alias PM – PM is the (best) set of appropriate structured activities to manage a project PM is a process consisting of the following phases: initiating, planning, executing, controlling and closing Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 31 In an ERP System implementation Once you have the full involvement of the people and the correct management of the project It’s necessary to minimize the possibility of something going wrong during it, where: • «something going wrong» → is the risk • «minimize the possibility of» → is the Risk Management Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 32 But ... what is a risk? One possible definition is this: • you carry out some actions to reach some objectives • there is uncertainty because each action cannot have the planned effect on it • the actual effect can be both negative or positive: the negative effect is a risk (or downside risk), the positive is an opportunity (or upside risk) • so … a risk is the possibility of something bad happening Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 33 Now if: • the risk is “bad” because it takes you away from the objectives • the opportunity is “good” because it brings you closer to the objectives It’s obvious that you want to: • decrease the possibility to have risks • increase the possibility to have opportunities Well … Risk Management is a method to do that Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 34 The implementation of an ERP System without Risk Management is subject to Murphy’s Law Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 35 Risk Management is a process that consists of the following activities: • • • • identification – you list all possible risks in a Risk Register assessment – you do both a qualitative and quantitative analysis of every one response – you plan a response for every one monitor – you execute both preventive and contingent actions to mitigate some risks Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 36 Risk identification means: • • • identify all the risks – with techniques such as brainstorming define them – in relation to a certain time horizon and a certain purpose register them – in the Risk Register, also indicating the causes of the negative effect Example for a given ERP System implementation: A possible risk is to go beyond the duration of the project because Go-Live must occur a the beginning of the new year Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 37 Risk assessment means evaluate for each risk its Probability (%), Impact (%) and Net Value (€) in order to have: • • qualitative analysis → Risk Level = Probability · Impact quantitative analysis → EMV = Probability · Net Value Example for a given ERP System implementation: The risk to go beyond the duration of the project has a medium probability (50 %), a major impact (40 %) and a high cost (200 k€) – so Risk Level = 20 % and EVM = 40 k€ Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 38 Risk Level is strictly linked to: • Risk Appetite – attitude toward risk • Risk Threshold – when you start to not accept a risk • Risk Tolerance – when you don’t accept a risk Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 39 Risk response means decide what to do with each risk: • • • • avoid = eliminate the risk → no risk (!) transfer = pass the risk to others, i.e. insurance – no risk (!) accept = take no action – the risk is under Risk Threshold mitigate = make a plan to prevent the risk and protect from its effect – the risk is over Risk Threshold Example for a given ERP System implementation: The risk to go beyond the duration of the project can’t be avoided or transferred and, because the Risk Threshold is 15 %, it can’t be accepted – so, it must be mitigated Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. What is Risk Management? 40 Risk monitor means control for each risk you want to mitigate that: • • actions from its Preventive Plan are executed → it reduces Probability of the risk actions from its Contingency Plan are executed when the Threshold Risk is exceeded → it reduces the Impact of the risk Example for a given ERP System implementation: The Preventive Plan for the risk to go beyond the duration of the project requires a weekly control of project delays, while the Contingency Plan for it requires to swap to a predefined “Plan B” if there is a delay one month before the Go-Live Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 3 41 Q3. What is Risk Management? • • • In the implementation of an ERP System is necessary to minimize the possibility of something going wrong The risk is the possibility to have a negative effect on certain objectives with some actions, while Risk Management, alias RM, is a method to minimize that possibility RM is a process consisting of the following phases: identification, assessment, response and monitor Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. What is an ERP System selection? 42 Before implementing an ERP System you need to … select the ERP System (!) The ERP System selection is always a critical and long (36 months) activity Because if you select an ERP System that is not suitable for your business needs, implementation will be difficult or even ... catastrophic (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. What is an ERP System selection? 43 The ERP System selection has always these 6 steps Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. What is an ERP System selection? 44 The 1st step is to explain why the company has decided to implement an ERP System both for the first time or not Here a Business Case must always be formally defined, that is a summarized explanation of: • • what the scope for implementing the ERP System is when it will be achieved Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. What is an ERP System selection? 45 The 2nd step is to formally define ERP System requirements: • • general requirements, that “all” companies have → they are the “order qualifiers”, with witch the ERP System can be taken into consideration by the company specific requirements, that “the” company have → they are the “orders winners”, with witch the ERP System is chosen by the company Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. What is an ERP System selection? 46 The 3rd step is the search for Software and suppliers, that is a market survey on Internet, LinkedIn, magazines, fairs, etc. The elements of choice for the «long list» (6-8 names) are: • Software → brand, company size, sector specialization, diffusion, functionality, technicality • supplier → software knowledge, implementation experience, reputation, size, proximity, personnel Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. What is an ERP System selection? 47 The 4th step is a demo, that is the vendor’s demonstration of how the Software works Alternatives to the demo are: • reference visit → you can visit similar companies to see how the Software works live • standalone demo → you can install a “trial” version of the Software on a company PC to test it Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. What is an ERP System selection? 48 The 5th step is a request for a quotation only to suppliers, and their Software, who meet the order winners – that is the «short list» (3-4 names) The main problem with an ERP System quotation is that it’s difficult to truly understand because: • • it’s not standard it has many exclusions that can increase costs Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. What is an ERP System selection? 49 The 6th step is the selection of the supplier and its Software and … the final vendor negotiation, of course (!) The decision should have always an objective basis: • • the criterion should be established in the 2nd step it should assign marks and weights to obtain a score and a ranking Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. What is an ERP System selection? 50 Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 4 51 Q4. What is an ERP System selection? • • • Before implementing an ERP System you need to select the ERP System The ERP System selection is a critical (ERP must be suitable for the business) and long (3-6 months) activity The ERP System selection has 6 steps: scope, requirements, search, demo, quotation and selection Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q5. What about ERP market? And about ERP Software? 52 And now … Let’s take a look to ERP market Well … It’s a multi billion industry … and it’s growing year by year (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q5. What about ERP market? And about ERP Software? 53 Then finally … Let’s take a look to ERP Software Well … there are 3 tiers depending on the size of the company Tier 1 Corporate Tier 2 Mid-market company Tier 3 SME SAP S/4HANA SAP By Design SAP Business One Oracle ERP Cloud Oracle JDEdwards Oracle Net Suite MS Finance & Operations - MS Business Central - Infor Cloud Suite - - Sage X3 - - - Odoo - - Panthera Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q5. What about ERP market? And about ERP Software? 54 The presence of the 3 tiers is caused by the differences among companies due to their size: • • • a SME needs a “lean” system because it has little skilled personnel able to implement and use it a Corporation needs a “sophisticated” system to manage a complex organization located all over the world – which causes problems of time zone, language, accounting standard, currency, tax regulations, etc. a Mid-size company needs ... a little bit of both Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 5 55 Q5. What about ERP market? And about ERP Software? • • The ERP market is a multi billion industry and the largest shares go to Sap and Oracle There are three tiers of ERP Software depending on company size – they reflect the different complexity between big and small company Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto References 56 Course book: Earl McKinney Jr. • David M. Kroenke – Processes, Systems, and Information, An Introduction to MIS – Chapters 6-9 ❑ Other books: Marianne Bradford – Modern ERP, select implement & use today's advanced business systems – Chapters 1, 5 ❑ Massimiliano Oleotto – L’implementazione degli ERP e dei suoi fratelli, Come evitare le catastrofi in azienda – Chapters 2-3 ❑ Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto