OIS 23-24 Implementing ERP System PDF

1 Lesson 7 Implementing an ERP System from Engineering to Supporting ing. Massimiliano Oleotto Learning Objectives 2 Q1. What are costs and benefits of implementing an ERP System? Q2. What is the structure of the Implementation Project? Q3. And what about its phases? Q4. And what about its Pro...

1 Lesson 7 Implementing an ERP System from Engineering to Supporting ing. Massimiliano Oleotto Learning Objectives 2 Q1. What are costs and benefits of implementing an ERP System? Q2. What is the structure of the Implementation Project? Q3. And what about its phases? Q4. And what about its Project Team? Q5. And what about its Risk Assessment? Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. What are costs and benefits of implementing an ERP System? 3 At this point you know: • • • • • how to select an ERP System that an ERP System embraces the whole company, and that each of its Modules supports a Business Process how to analyze an existing Business Process and the gaps between the existing Business Process and its Modules that implementing it is challenging and you have to manage it with a project – but also manage change and risks all this also applies to … any other IS (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. What are costs and benefits of implementing an ERP System? 4 Now it’s time to know: • how an ERP System is implemented, that is how its: ➢implementation project is structured → we will see the 6 phases of the Waterfall Model ➢change is managed → we will see the importance of the Project Team ➢risks are assessed → we will see what the greatest dangers are based on ... Worst Practices Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. What are costs and benefits of implementing an ERP System? 5 When dealing with the ERP System implementation – like any IS implementation – it is necessary to initially evaluate its costs and benefits An ERP System investment – like any IS investment – should be undertaken only if it leads to a net gain for the company So … it’s a business decision, non a computer project (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. What are costs and benefits of implementing an ERP System? 6 Costs and benefits of an ERP System implementation are both tangible and intangible Cost Benefit Tangible It’s the Total Cost of Ownership – it’s the easiest to quantify because it requires documented cash outflows It’s a saving (e.g. less time to execute an activity, such as the Order-to-cash Process), or a cash increasing (e.g. reduction in fixed assets, such as inventory) Intangible It’s an opportunity cost, i.e. the cost of not implementing the ERP System – it can be evaluated as the loss of business due to the fact that competitors have already implemented the ERP System It’s a credible value of an advantage (e.g. higher sales resulting from visibility of order status) – it’s the most difficult to quantify, and it needs consensus Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. What are costs and benefits of implementing an ERP System? 7 The Total Cost of Ownership (TCO) of an ERP System consists of: • capital expenditure ➢ ERP license → it depends on tier of the ERP, the number of Modules and the number of users ➢ ERP configuration → other Software Licenses (e.g. DB license), Hardware and Network • one-time project expenses ➢ implementation → consulting fees and staff training, but also hidden costs such as travels, data conversion, lost productivity for learning curves, etc. • ongoing support activities costs ➢ maintenance → annual ERP maintenance fee (10% of ERP license or more), annual fees for vendor support, upgrades, etc. Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. What are costs and benefits of implementing an ERP System? 8 Cloud computing is the new paradigm in ERP Systems, where: • • the ERP System is managed through the Internet by the vendor, and accessed by the customer on demand → it becomes a SaaS customers don’t need Servers, OSs, DBs, etc. So TCO is different because the company “rent” the ERP System, i.e. it makes periodic payments (usually monthly) to the vendor for access Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q1. What are costs and benefits of implementing an ERP System? 9 Once determined costs and benefits, it’s possible to evaluate over the life cycle of the ERP System: 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑐𝑜𝑠𝑡𝑠 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠−𝑐𝑜𝑠𝑡𝑠 = 𝑐𝑜𝑠𝑡𝑠 • cost-benefit analysis → 𝐶𝐵𝐴 = • return on investment → 𝑅𝑂𝐼 For example: • a CBA of 1.33 means that, for every € invested, 1.33 € is returned • the corresponding ROI of 0.33 means that the net value created is 33% Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 1 10 Q1. What are costs and benefits of implementing an ERP System? • • • Implementing an ERP System is an investment, so it’s necessary to evaluate costs and benefits to decide whether to do it or not – it’s a business decision based on ROI Costs and benefits are both tangible or intangible – the most important value is the Total Cost of Ownership Today it’s possible to implement an ERP System also in Cloud mode in addition to On-premise mode Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is the structure of the Implementation Project? 11 The Implementation Project of an ERP System can be structured with 6 phases executed in sequence according to a Waterfall Model There are other possibilities, e.g. phases are executed not in sequence according to an Agile Model Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is the structure of the Implementation Project? 12 What are the 6 phases of the Implementation Project? … Not these, possibly ... (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is the structure of the Implementation Project? 13 Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q2. What is the structure of the Implementation Project? 14 The 6 phases of the Implementation Project have these important features: • • • • they take place in sequence, according to the Waterfall Model they get closer and closer to system start-up they include a short period of system supervision after its startup to verify that everything is ok each one of them ends with a project milestone that is represented by precise deliverable Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 2 15 Q2. What is the structure of the Implementation Project? • • • We can use the Waterfall Model for the Implementation Project of an ERP System The phases must be carried out in sequence and after each phase we are closer and closer to the end of the project Six phases can be identified: engineering, visioning, developing, testing, preparing and supporting Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 16 The 1st phase of the Implementation Project is the Engineering phase, in which: • you design the project because you have: ➢ ➢ ➢ ➢ ➢ • SOW issue Project Team building Risk Assessment project planning software installation you start the project – called kick-off Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 17 In the SOW of the Implementation Project there is a “characteristic” element, i.e. the implementation strategy There are 3 possibilities: • • • Big-bang → the activation occurs at the same time for all Business Processes in all branches Step-by-step → the activation occurs at different times for Business Processes, and this happens for all branches Core & roll-out → the activation occurs at different times for branches, but always activating all Business Processes Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 18 Project planning is one of the more critical activity of the Implementation Project because it is always difficult to: • plan activities • ensure that the activities are executed according to the plan Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 19 A first rule to have a good project planning is to think according to time horizons → planning is a forecast, and forecasts are more accurate the closer they are and the more aggregated they are Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 20 A second rule to have a good project planning is to think according to different priorities → it is necessary to distinguish between important and urgent things, and to decide accordingly Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 21 A third rule to have a good project planning is to graphically represent the activities and their progress → with this representation you can check for any delays Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 22 The installation of an ERP software and the related components (such as its DB) on servers is called “instance” An ERP System usually consists of 3 instances – the set of all instances is called “landscape”: • • • Development (DEV) → it’s where that consultants configure and customize the ERP System Quality Assurance (QA) → obtained from DEV, it’s where configurations and customizations can be tested by users Production (PRD) → obtained from QA, it’s the live system Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 23 The 2nd phase of the Implementation Project is the Visioning phase, in which: • two Process Modeling of the company’s Business Processes take place, one concerning the “current state” and the other the “future state” – it’s the ERP to-be model: ➢ as-is analysis ➢ gap identification ➢ to-be modeling • you have the ERP to-be model sign-off Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 24 An ERP System is already set up to support all the Business Processes of a company in a certain way → The Business Processes contained in an ERP System are called “inherent” If these are not the company’s Business Processes, a dilemma arises that we already know: • force the company to adopt “inherent” Business Processes • modify the ERP System to support the company's Business Processes Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 25 Forcing a company to adopt “inherent” Business Processes is more flexible than you think because in an ERP System there is: • the configuration → it is possible to define the ERP System functions with thousands of parameters – e.g. you can define the approval workflow of a purchase order • the verticalization → it is possible to have a version of the ERP System suitable for the economic sector of the company – e.g. you can have a version suitable for fashion companies Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 26 Modifying the ERP System to support the company’s Business Processes can take place in two ways, that is with: • the integration → it is possible to use another Software that is “bolted-on” to the ERP System – e.g. you can add an APS System to have a better planning of manufacturing activities • the customization → it is possible to create Additional Modules – e.g. you can optimize the cutting of parts on a sheet or a glass or a skin (so called “nesting process”) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 27 The as-is analysis shows the company as it is The gap identification shows the company as it will be, through two subsequent scenarios: • first it identifies the gaps that you want to improve Business Processes (clean state engineering) • then it “revises” the gaps according to the adaptations of the ERP System (technology enabled engineering) → some gaps are deleted and new gaps are identified The ERP to-be model is the as-is analysis plus the “revised” gaps Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 28 The 3rd phase of the Implementation Project is the Developing phase, in which: • the prototype of the ERP System is set up in DEV: ➢ ➢ ➢ ➢ ➢ • setup interface with other systems customization Data migration prototype you have the ERP pilot sign-off Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 29 The first main feature of an ERP System is modularization, i.e. the presence of Modules fully integrated with each other Module Definition Standard They must be activated with setup → it’s a long and critical activity External They are on other systems → you need to develop interfaces with other systems Additional They do not exist and must be … created (!) → you need to design and develop them Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 30 We know that developing Software is a very complex job – and the ERP guys know it too So customization is always the last alternative → what you get is something that is “not industrialized”, untested, very expensive and difficult to maintain (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 31 The second main feature of an ERP System is integrity, i.e. the presence of a single DB with all the Data Data Definition It defines the functions of the Configuration system Master Transactional It defines entities such as customers, items, etc. It defines transactions such as orders, movements, etc. Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Frequency only once during implementation when needed day-by-day Q3. And what about its phases? 32 Data migration is the process of moving Master and Transaction Data from the “old” systems to the ERP System There are some problems here: • • • • it needs a Software especially developed procedure it often needs a difficult Data normalization it can be very time-consuming and costly, depending on level of detailed Data and years of historical Data needed it is always treated as a low priority activity but, doing it, your implementation will be very poor Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 33 As soon as possible, the ERP system must be available to users so they can understand: • how it works on a standard basis • how its prototype is set up This activity is called Conference Room Pilot (CRP) because: • it is executed in a conference room that is the temporary location for this work • it leads to the ERP pilot Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 34 The 4th phase of the Implementation Project is the Testing phase, in which: • the prototype of the ERP System is completely and thoroughly tested in QA → this activity is called system test • you have the ERP System sign-off (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 35 Testing is another of the more critical activity of the Implementation Project because: • • • it confirms that everything (Data, system behavior, IS configuration) is ok and the ERP System can … go-live (!) it can be executed with different types of process in order to find and fix defects – we don’t list and analyze them because this is beyond the scope of this course it doesn’t finish with go-live because after it new defects will inevitably be revealed, although generally they are minor defects Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 36 When you test the ERP System and have a nok, this can be caused: • by a lack – setup, interfaces, customizations • but also by a Software malfunction – called “bug” If there is a bug, the problem goes to the ... Programmers (!) Yes, the guys who do that complex job that is developing Software Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 37 The 5th phase of the Implementation Project is the Preparing phase, in which: • the tested prototype of the ERP System is started in PRD: ➢ user profiling ➢ training ➢ system start-up • you finally have … the go-live (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 38 A user has access to an ERP System with personal credentials, i.e. account and password Generally a user doesn’t have access to the whole ERP System but only to a “part”, that is the part necessary to carry out his Role This happens because the ERP System is configured according to the Role – only “super user” can access the entire ERP System This activity is called user profiling, and it comes after the system test and before training Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 39 It is unthinkable to activate an ERP System with unprepared or poorly prepared users – yet it often happens because it is often under-budgeted and it often starts too late The training should have these features: • • • it is about a new set of Business Processes, not only Software it is often done to users by super users because they know the system in general and have also specialized in some areas it should not end once the system is live Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 40 In the system start-up procedure: • you turn off the "old" system (cut-over) • you perform the final Data migration • you check that the ERP System is working correctly • you start the system (go-live) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 41 The 6th phase of the Implementation Project is the Supporting phase, in which: • the users are supported in the first uses of the ERP system: ➢ assistance ➢ Commissioning Report issue • you finally also have the project end Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 42 The implementation does not end with the go-live because the period that follows it is a period of adjustment in which: • users are not yet fully autonomous • the system may still have problems The goal in this period is to stabilize the situation by assisting users and the system If you have worked well, the adjustment takes about a couple of weeks Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q3. And what about its phases? 43 When an implementation project ends, remember to celebrate it ... but only if it ends successfully, of course (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 3 44 Q3. And what about its phases? • • • • • • engineering → is the design of the project, including planning visioning → is the design of the Business Model, but with the constraint of the ERP System developing → is the implementation of the Business Model in a prototype, configuring and customizing the ERP System testing → is the checking of all the functionalities of the prototype – the system is ready for go-live, not the people preparing → is the training of all the users – users can execute their work on the new system supporting → is the first use of the system, solving the last problems Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. And what about its Project Team? 45 The Project Team building is executed at the beginning of the Implementation Project In a Project Team you have: • • • the Project Sponsor the Project Manager all the project members Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. And what about its Project Team? 46 Who is the Project Sponsor? … Yes, who is he/she? Generally he/she is the company’s CEO because the Implementation Project has a huge impact on the organization → it’s invasive, complex, risky and ... costly (!) He/she sets up a Steering Committee as the highest decisionmaking authority for the project → it comprises the company’s Top Management, the vendor’s senior consultants and the Project Manager Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. And what about its Project Team? 47 Who is the Project Manager? … Yes, who is he/she? The selection of the Project Manager is critical to the success or failure of the Implementation Project because he/she is the project … “Deus ex machina” He/she is a company’s manager and responsible for both: • the result of the project requested by Project Sponsor • the day-to-day operations of the project executed by project members Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q4. And what about its Project Team? 48 Who are the project member? … Yes, who are they? Project members are both people from the company and the Vendor: • • company → process owners, super users, IT staff vendor → consultants, that perform various activities, such as modeling, configuration, training, etc. Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 4 49 Q4. And what about its Project Team? • • The Project Team is formed by Project Sponsor, Project Manager and Team Members Project Manager is the most important role because is responsible for the success or the failure of the implementation Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q5. And what about its Risk Assessment? 50 The Risk Assessment is executed at the beginning of the Implementation Project through the Risk Management The objective is: • determine the risks of the Implementation Project, i.e. the possible causes of its failure • plan preventive and protective actions for major risks Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q5. And what about its Risk Assessment? 51 Here is a list of the possible risks of the Implementation Project: • • • • • the Top Management is tempted by solve all problems in one mega project the project is not clearly define the system is implemented in a complex way the system has too many customizations there is a lack of executives leadership and a lack of employees interest which will lead to little use of the system Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q5. And what about its Risk Assessment? 52 The main risk of the Implementation Project does not appear in the list → it is the Scope Creep That is, the extension of the initial scope of the project to other objectives while it is in progress Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Q5. And what about its Risk Assessment? 53 ERP failures have various degrees in terms of severity of effects Failures Description Forthcoming Failure It occurs months after implementation – initially the implementation has considered a success – because problems arises about knowledge transfer, system security, etc. Moderate Failure It occurs when the implementation goes over budget or over time by about 10%, or the company gets slightly less functionality than initially planned Big Failure It occurs when the implementation goes grossly over budget and over time, and the company gets far less functionality than initially planned Unmitigated Disaster It occurs when a company is unable to use the ERP System after implementation, and it reverts to the “old” system or implement a different “new" system – It's time for lawsuits Catastrophe It occurs when there is a business loss or even the company stop that can lead to ... the company failure (!) Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto Learning Objectives – Recap 5 54 Q5. And what about its Risk Assessment? • • • Risk Assessment is the... Risk Management of the ERP System Implementation Project there are “common” risks for the ERP System Implementation Project – the main one is the Scope Creep there are also “common” negative events for the ERP System Implementation Project, the possible occurrence of which involves risks, of course – the main one is the Catastrophe Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto References 55 Course book: Earl McKinney Jr. • David M. Kroenke – Processes, Systems, and Information, An Introduction to MIS – Chapters 6-8 ❑ Other books: Marianne Bradford – Modern ERP, select implement & use today's advanced business systems – Chapter 6 ❑ Massimiliano Oleotto – L’implementazione degli ERP e dei suoi fratelli, Come evitare le catastrofi in azienda – Chapter 4-5 ❑ Organization and Information Systems | a.y. 2023-2024 | Diego Campagnolo – Massimiliano Oleotto