Lecture 4: ERP Options and Selection Methods

Transcription

1 Lecture 4: ERP Options and Selection Methods Oran Kittithreerapronchai 1 1 Department of Industrial Engineering, Chulalongkorn University Bangkok THAILAND ProMIS v1.0 1/ 16

2 Outline 1 ERP Software development 2 Very broad academic view of ERP Selection 3 Engineering Economy in IT/IS Project ProMIS v1.0 2/ 16

3 Stakeholder in IT Project training project mgt exit strategy Company resources legacy sys requirement option flow process & BPR vendor selection Consultant implementation middleware System Vendor customization upgrade & support Project team, who? ProMIS v1.0 3/ 16

4 ERP possible options Selection: more than just costs Scope (strategic): # functions, # sites, authority & control, expansion rate Consultant none VS single VS multiple (modules or functions) Software development: full system VS with modification VS best-of-breed Vendor: single VS multiple Implementations Strategy: big-bang VS roll out by site or function BRP levels: radical (clean slate) VS incremental (technological embedded) Evaluation non-financial (business objectives) VS financial (IRR) ProMIS v1.0 4/ 16

5 ERP development method Pro Con In-house (1%) Best fit Most expensive & difficult Slowest In-house with Gain commercial advantage Expensive & difficult supplement (1%) Slow Selected vendor modules (5%) Less risk & cost Best-of-breed (4%) Theoretically best of all Linking problem Slow Single vendor with Retain flexible with vender More expensive modification (40%) helps Slow Full vendor system Fast & inexpensive Inflexible (50%) Efficient If expand, long run time and cost higher Application service Fastest At mercy of provider provider (-) Least risk & cost Subject to price source: Olson, D, 2004 pp. 24, 78 ProMIS v1.0 5/ 16

6 Relative workload of each party In-House Vendor Consultant In-house Very painful None May be useful In-house with supplement Painful Moderate May be useful Selected vendor modules Significant++ Moderate Heavy+ Best-of-breed Significant+ Moderate Heavy+ Single vendor with modification Significant+ Heavy+ Heavy+ Full vendor system Significant Heavy Heavy Application service provider Light None To select source: Olson, D pp. 78 ProMIS v1.0 6/ 16

7 Relative features of each option Time & Budget Main risk High Tech. Security In-house Worst Failed project Very risky High In-house with Better than Very difficult Less risky than High supplement in-house in-house Selected vendor Very poor Linkage Very good High modules Best-of-breed Poor Interfacing Ideal High Single vendor with Good Modification Very good High modification Full vendor system Very good Organization fit Vendor upgrade High Application service provider Can be best Continuity Can be ideal Very low source: Olson, D pp. 77 ProMIS v1.0 7/ 16

8 Selection criteria ERP system: Minimizing total costs: maintenance, service term, infrastructure, consultant Minimizing implementation time: Having complete functionality: module completeness, function compatibility, security Having user-friendly interface: easy to learn & to operate Having system flexibility: easy to upgrade, easy to integrate, & easy to in-house development Having system reliability: stability, fail safe/recovering ERP vendor: Having good reputation: financial, size of vendor, market share Providing good technical capability: technical support capability, implementation Supplying ongoing service: warranties, consultant, training, service speed source: Wei, C et al An AHP-based approach to ERP system selection ProMIS v1.0 8/ 16

9 Guideline for ERP selection Establish selection team, including key users & funders Setup goals and objectives for implementation & expectation Distinguish must-have and nice-to have features Focus on core functions and on a proven implementation methodology Look beyond implementation: upgrade, support, 3-party integration, expansion, international, continuality Verify end-users satisfaction: user friendly (cycle time & # screen) Ask for live demo using a real data There is no perfect ERP software. Hence, listen to your gut-feeling. source: Wei, C et al An AHP-based approach to ERP system selection ProMIS v1.0 9/ 16

10 Important screening questions What are acceptable over-budget and over-implementation time? Does ERP system fit our requirements or is it overqualified? Is the system integrated with those of other partners? If so, how much to integrate? Does the vendor too big ( ignore us)? or too small ( survive without us)? What are the key market domain of vendor/software? Does the vendor co-operate with other consultant companies? Does the implementation plan feasible and simple? What are its current financial forecasts of vendor? source: Wei, C et al An AHP-based approach to ERP system selection ProMIS v1.0 10/ 16

11 ERP project life cycle develop initial requirement with consultant (platform & affected jobs) gather vendor proposals organize project team select vendor & design system install & test system hire implement consultant develop training program & train users data migration & run system parallel with integration establish help desk & go on-line ProMIS v1.0 11/ 16

12 How to present ERP project Capital Mixed Revenue Training 0% 1% 99% Marketing 4% 9% 87% IT/IS 39% 41% 20% Operation 58% 31% 11% source: Olson, D pp. 77 ProMIS v1.0 12/ 16

13 IS/IT project evaluation technique Criteria % Companies % Projects Ranking Financial: Payback IRR NPV Management: Explicit business objective Support decision making Legal/Gov requirements Implicit business objective Response to competition Development: Techical/System requirements Probability of completion source: Bacon, C MIS Quarterly vol. 16 no. 3 ProMIS v1.0 13/ 16

14 Reviews on Engineering Economy What: monetary ways to justify a project Concept: time value of money Cash flow: cost & benefit of investing in a project Project length: (e.g., typical IT/IS 5-7 years) Discounted rate: % interest + MARR Net present value: converting all cash flows to Year 0 Payback period: year/period in which NPV = 0 Internal rate of return (IRR): discounted rate that make NPV = 0 Return of investment (ROI): total benefits total investment Sensitivity analysis: testing robustness Percentage: if fraction of benefits is realized Real option: if some benefits does not realize (0-1) ProMIS v1.0 14/ 16

15 Typical US ERP project Installation time: average 57% longer than expect <12 months (34%) months (45%) Installation cost: average 54% over-budget <$5 million (42%) $5-25 million (33%) $26-50 million (10%) ROI: 41% fail to realize more than half of benefits <5% (14%) 5-15% (18%) 16-25% (36%) source: Olson, D pp. 77 ProMIS v1.0 15/ 16

16 Multi-Criteria Measurement Important score Criteria Worst Best Most Least Gain strategic advantage Do nothing Develop unique system Keep up with competition Do nothing State-of-art vendor Internet connectivity None Modern Update systems (BPR) Nothing Complete Minimize disruption 7-year Current system installation Financial implications Risk $r 1 millions Risk $r 2 millions Gain $g 1 millions Gain $g 2 millions Standardize business process Nothing Complete 10 3 Total source: Olson, D ProMIS v1.0 16/ 16