# Using Analytic Hierarchy Process Method in ERP system selection process

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3 IV. ERP SELECTION METHOD REVIEW ERP selection is a complex, subjective process with more than a few realistic options. It is obvious that company needs some metrics in order to choose the right ERP and its vendor. There are number of qualitative and quantitative ERP selection methods which support this process. Widely used methods include scoring, ranking, mathematical optimization and multi-criteria decision analysis. As not all ERP selection criteria are easy to measure and ERP selection process should be as objective and easy as possible, in this case the AHP model created by Thomas Saaty in the 1970s, is useful system because it combines two approaches the "black and white" of mathematics, and the subjectivity and intuitiveness of psychology to evaluate information and make decisions that are easy to defend (Saaty 1980). AHP method, directs how to determine the priority of a set of alternatives (both economic and non-economic criteria are transformed into the quantitative expression) and the relative importance of attributes in a multiple criteria decision-making problem. AHP is one of the most widely used multi-attribute decision-making methods. In this method, the decisionmaker (DM) performs pair-wise comparisons, and, the pair-wise comparison matrix and the eigenvector are derived to specify the weights of each parameter in the problem. The weights guide the DM in choosing the superior alternative (Babak, Turan 2011). Case study Author offers to use quantitative technique or AHP method in order to make ERP and vendor selection process as objective and easy as possible. The first step of ERP selection process is to make ERP selection criteria list and to determine which of them are very important and which of them are less important. Each criterion is assigned a number on a scale. If attribute A is absolutely more important than attribute B and is rated at 9, then B must be absolutely less important than A and is valued at 1/9. Fig. 3. Decomposition of the problem into a hierarchy Author makes an assumption that selection criteria of ERP system are total cost (TC), implementation time (IT), functionality (F), user friendliness (UF) and reliability (R) and there are 3 options (A, B, C) of ERP system. Hierarchical categorization of the ERP system selection problem is shown in Figure 3. Once the model of hierarchy is built, the next step is to evaluate the elements by making pair wise comparisons or the comparison matrices of decision maker for ERP software selection (see Table 1). For example, total costs are 5 times more important than functionality of ERP etc. In order to determine the priority of all the criteria, we have to divide the number indicated in each cell by the sum of the column and then to show the sum of each row (see Table 2). For example 1/9,533333=0,104895; 3/9,533333=0, etc. TABLE I. COMPARISON MATRIX OF ERP SELECTION CRITERIA (1) * 0,2 = 1/5; 0, = 1/3; 0, = 1/7 43

4 Volume 6 Number 3 September 2013 TABLE 2. COMPARISON MATRIX OF ERP SELECTION CRITERIA (2) After that we have to divide the sum of each row by the sum of the last column in Table 2. These calculations show the priority of each ERP selection criteria. Thus, the calculations are as follows: W TC = 0, / 5 = 0, W IT = 2, / 5 = 0, W F = 0, / 5 = 0, W UF = 1, / 5 = 0, W R = 0, = 0,08577 The next step is to determine the normalized weights of each system (A, B, C) according to the each criteria (TC, IT, F, UF, R). The aim of this action is to prioritize A, B, C systems according to each ERP selection criteria. Analogous calculations have to be made after which ERP systems priorities according to each selection criteria can be determined (see Table 3). TABLE 3. COMPARISON MATRIX OF ERP SYSTEMS ACCORDING TO EACH SELECTION CRITERIA After these steps all the estimations are summarized (see Table 4). 44

5 TABLE 4. SYNTHESIS OF ERP SYSTEM SELECTION EVALUATION ERP system evaluation is made by multiplying each priority of criteria by each ERP system priority according to these criteria and by summing these results. For example, ERP system A evaluation is 0, * 0, , * 0, , * 0, , * 0, , * 0,08577 = 0, etc. The sum of the last column is 1. It means that calculations are correct. According to this evaluation, priority of ERP system A is the highest and it is the best solution to be selected for implementation. IV. CONCLUSION The responsibility for ERP selection and implementation is usually being transferred on consultants and vendors chosen by those consultants. Despite the fact that ERP selection is strategic and complex decision making process, company can make ERP selection decision by oneself using supportive method. Qualitative and quantitative techniques should be connected in order to make the process of ERP selection as objective and effective as possible. AHP is combination of intuitive and quantitative aspects in ERP selection process. Therefore, the priority of one best ERP system can be distinguished. REFERENCES [1] Aberdeen Group Sector Insight Think Your Organization Is Too Small for ERP? Think Again. Individual subscription. [2] Babak, D. R., Turan, E. E ERP System Selection by EHP Method: Case Study from Turkey. International Journal of Business and Management Studies. Vol. 3, No. 1, p. [3] Bulotienė, E Verslo valdymo sistemų pasirinkimo kriterijai, in Oracle diena 2010 conference. October 19, Vilnius, Lithuania. [4] Davidavičienė, V. Elektroninis verslas. 2009, Vilnius: Technika. 465 p. [5] Hinssen, P Business/IT Fusion: monograph. Belgium: Mach Media. 276 p. ISBN [6] Klaus, H.; Rosemann, M.; Gable, G.G What is ERP? Inform Systems Frontiers 2 (2): ISSN: doi: /A: [7] Management training and leadership training, online, Available on the internet: < > [8] Mendez, E The Age of Agility, in Credit Union Magazine. July 1, [9] Oracle Business and IT Alignment: An Oracle View. Oracle White Paper. 19 p. [10] Oracle Company s website. Available on the internet: < [10] Panorama Consulting Group ERP Report 2011 [online], [accessed on 6 November, 2011]. Available on the internet: < [11] Paškevičiūtė, R Kaip gauti daugiau naudos iš verslo valdymo sistemos: in in Oracle diena 2010 conference. October 19, Vilnius, Lithuania. [12] Saaty, T.L., The Analytic Hierarchy Process. McGraw-Hill, New York. [13] Tamošiūnienė, R., Marcinkevič, A. Peculiarities of Projects of Enterprise Resource Planning System. KSI Transactions on Knowledge Society, Vol. 4 (3), 2011, Sofia, A publications of Knowledge Society Institute. p.p [14] Tamošiūnienė, R., Angelov, K. Project and Programme Management and Evaluation. Publishing House of Technical University, Sofia, 2011, 186 p. [15] Vlek, M Business Agility, in Oracle diena 2010 conference. October 19, Vilnius, Lithuania. [16] Xu, L.; Tjoa, A.; Chaudhry, S Research and practical issues of enterprise information systems II. USA: Springer Science and Business Media p. ISSN /

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