10 things you should know about implementing an ERP system

Enterprise resource planning systems permeate almost all operational aspects of the enterprise, and great care and planning are needed to successfully effect such radical organizational changes. But with the right strategy and a little patience, you can reap many rewards. These pointers and caveats will help guide your ERP efforts.

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ERP implementations can take years to complete and the process can be delayed or derailed by faulty planning and execution. Businesses rarely remain static and requests for changes in scope during the project can get out of control. The technology may work, but many organizations miscalculate the impact of process change. Incomplete needs analysis almost always results in understated costs of ERP implementations. Infrastructure and integration requirements, if incomplete, can also result in hidden costs. Managing time, scope, and money is truly a challenge. Here are 10 key considerations that organizations need to keep in mind when they undertake an ERP system implementation.

#1: When ERP projects go wrong, the results can be disastrous

Doing it right can be rewarding; failing can be devastating. For example, one company went millions into the red as a result of technical problems with the rollout of a supply chain system, leading to inventory shortages and incomplete orders filled. Another company took a several million dollar hit on profits as a result of a product oversupply related to problems with an ERP system. The software itself is rarely the cause of big problems. The root cause is often due to the huge business and process change required with ERP implementations.

#2: Prior to implementation, make sure you understand the "why"

Understand the value proposition and the business case for your ERP system. What are the key deliverables and objectives? What is driving the project? Where is the win? What assumptions does the sponsor hold? The answers to these questions will help the team understand the target and the expected results.

#3: Make sure you have a strong sponsor

Your sponsor's level of commitment and support can have the greatest impact on the delivery of an ERP system. Issues and risks will likely get escalated to the sponsor if they aren't resolved earlier. Your sponsor can also serve as the champion for the project when conducting status briefings and training across the enterprise.

ERP systems can stretch resources beyond capacity, so you must have a rational project plan not padded by wishful thinking. Roles and responsibilities must be crystal clear to the sponsor and stakeholders. Strong sponsorship and project management can dramatically affect the outcome, as critical decisions are often required.

#4: Gap analysis is a must have

What are the gaps between the "as-is" and the "to-be" systems? Has the existing system been customized? Identifying functional and nonfunctional gaps between the existing and planned systems is one of the first major tasks to be completed. It's highly recommended that the gap analysis be reviewed and approved by the executive sponsor.

An incredible number of details are involved in the implementation and integration of ERP systems. The vendor may provide an "off-the-shelf" implementation plan, but it doesn't know your integration requirements or functional gaps. So it's up to you to make sure you fully understand and accept the functionality to be delivered. Leave no surprises to surface after it's too late. Gap analysis is a major means of avoiding scope creep down the road and preventing delays due to misunderstood deliverables.

#5: Vanilla is best

Stay with vanilla at all costs and use the standard off-the-shelf package with as little customization as is feasible. Once the enterprise has implemented the core modules (GL, AP, AR, payroll, etc.), it can phase in new features and build things around the edges, such as remote Web interfaces and wireless networking.

Plugging a vanilla system into a legacy system can be tricky, as there may be years of customization built into the original system. Some say that businesses building too much complexity into ERP systems can spend up to 30 percent more per employee on finance operations.

#6: Success = change

Success means delivering change. Functionality must enable existing processes, or processes must change. Business process implications cannot be glossed over, no matter how arduous the task of process mapping/process engineering. What processes and functions are in scope?

Socialize change across the organization with key stakeholders and those most affected by change. Whether the changes entail the processing of payroll exceptions or creating journal entries, involve the most experienced end users as much as possible.

Organizations that focus on technology and ignore the human element of implementations often fail. ERP by definition is about people, not just technology and organizations. Minimize the people side and run a larger risk of missing the target. In fact, process change is often part of the case for the ERP investment.

#7: "Center of excellence" team

Create a center of excellence--an oversight team in addition to the project management office (PMO). Vital to the success of an ERP implementation is a strong tactical team that can manage change and drive toward stability. Most businesses are not prepared to manage the impact to their day to day functions during the implementation. This team is responsible for help desks, testing, training, documentation, database administration, and many other operational issues and "fires."

This team's functions are all closely coordinated with the go-live handoff for each module/milestone, and it can act as the "super-user" from day-one to help avoid chaos.

#8: Invest in business intelligence

In addition to managing operations more efficiently, common data enables ERP software to support more detailed analysis and reporting. Business intelligence (BI) is the engine--the database of business rules that need to be defined for the benefits to be achieved. Building it takes time and enterprise-level decision making.

Often, ERP systems are required to integrate with existing databases. The customer helps lead the BI effort and actively participates in integration. Some things can't be accomplished by the IT pro alone.

#9: Manage risks

There are many flavors and complexities of ERP. Know where the major pain points lie for your situation. The risks to the plan must be clearly defined and include an escalation plan. Are there technology risks? Are scarce skills required? Is there a migration path? Many risks can be mitigated via thorough testing. Testing business cycles is, by nature, a long process. Be certain to have a fallback plan for each implementation milestone where there are risks to mitigate.

If the ERP system is for a small/medium size business (SMB) with little or no legacy systems integration, the task is less risky. However, if a replacement of a large highly integrated, highly customized system is required, get ready for the unexpected. An ERP project should never begin without a clearly defined risk management plan that has the sponsor's approval.

#10: Consider compliance

Because ERP systems are accounting/financial based, there are a number of areas to consider for audits and compliance. Sarbanes-Oxley is the primary act that regulates financial systems. Specific IT controls affect ERP systems implementations as well as the ongoing management of those systems.

This is a big topic, but suffice it to say that in Section 404 of the Sarbanes-Oxley act, compliance is measured by a set of controls that will likely be on the external audit team's list. Any significant conversion, upgrade, or implementation of a financial system is fair game. The project "artifacts" must also be preserved as evidence of due diligence and adherence to the controls throughout the project. These include but are not limited to project plans, issues/risk logs, data conversion plans and results, and signoff on significant financial reports.