G. Balu Associates. Knowledge Management Series PROCESS DOCUMENTATION A PRE-REQUISITE FOR ERP IMPLEMENTATION. Editorial, Executive Summary

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1 G. Balu Associates Knowledge Management Series V O L U M E 1 I S S U E PROCESS DOCUMENTATION A PRE-REQUISITE FOR ERP IMPLEMENTATION Editorial, The highest manifestation of life consists in this: that a being should govern and be governed by its own actions that comes out of proper planning. In other words, ERP which is defined as Enterprise Resource Planning in common IT parlance, nowadays are turning out to be a more unplanned mechanism for integrating various core information's and functions of an enterprise. Under this era, this newsletter brings out the most important and basic requirements that any enterprise should ensure before an ERP being implemented in their organization. Executive Summary In recent times there has been an increase in the talk about ERP and its Implementation processes. Many enterprises have burnt their hands on implementation of ERP. There are only few success stories and many failures in ERP Implementation with the hype attached with the ERP. Many enterprises announce their ERP Implementation to be a successful one, even though it may not be, which brings out the fact that they continue to live with and used to live with unanswered problems. This article brings out and discusses various reasons for the failure of ERP Implementation and suggests one of the critical prerequisite, that can be well planned and implemented in the pre-implementation phase or preparatory phase of the ERP implementation process to ensure smooth and successful implementation of ERP. Raja Gopalan. B Partner Financial Management and Consultancy Services (FMCS practice) [email protected]

2 P A G E 2 PRELUDE: In this competitive business environment, much greater interaction between the customers and manufacturers/service providers, flow of quality and reliable information within and outside the enterprise gains high importance. Also in order to achieve the improved delivery performance, decreased lead times within the enterprise and improved efficiency and effectiveness of flow of information, manufacturers/service providers need to have efficient planning and control systems that enable good synchronization, integration and planning in all the processes and elements of the enterprise. Hence there is a need for standard software package, which can integrate, synchronize the isolated functions into streamlined business processes in this competitive volatile business environment. ERP, an acronym for Enterprise Resource Planning, a wide system that encompasses corporate mission, attitudes, beliefs, values, objectives, style of operation and of course people who make the organization seek to streamline the operation process and information flow of the enterprise. We are well aware that ERP is an integrated suite of application software modules that combines all the aspects of the business. It integrates all activities in the organization, including planning, manufacturing, sales and marketing. It provides operational, managerial and strategic information for an enterprise, in order to improve its productivity, quality and competitiveness, in other words, ERP organizes and integrates operation processes and information flows to make optimum use of the resources such as men, material, money and machine. The general outcome of an ERP is that one database, one application and one user interface for the entire enterprise. Though ERP implementation would really advantage the enterprise, the extent of the advantage derived lies in the success of implementation of the ERP. In fact the process of Implementation of ERP is generally considered the time for overall cleansing of the business processes. The fact is that fifty percentage of the ERP implementation fail due to numerous reasons and 90% of the ERP Implementation does not keep up the promise of basis of implementing ERP. Thus in general, the ERP Implementation process neither meets all requirements nor cleanses the business process. Let us read on find solutions for the effective, efficient and timely implementation of ERP.

3 V O L U M E 1 I S S U E 2 P A G E 3 MAKING A DECISION FOR ERP IMPLEMENTATION: Even though everybody is well aware that effective implementation of ERP will benefit the enterprise, the analysis and the decision on the necessity to implement ERP, the right time to implement ERP for the nature and type of business the enterprise is in the hands of the management. ERP implementation involves a lot of analysis and planning such that the solution offered is the best fit that addresses the requirements of the Company. The planning and analysis phase, generally called the pre-implementation phase or the preparatory phase is more critical than the implementation which is usually complex and expensive. In short, the real success of the ERP Implementation lies in the clarity of documentation of the need to implement ERP and selection of right time for implementation of ERP. A careful analysis and understanding of the business and its intricacies, functions of each profile in the organization chart, flow of the transactions in the company and its linkage to the Financial Statements are very essential before making the final ERP decision, rather than after being kneedeep in an implementation. WHY DOES ERP IMPLEMENTATION FAIL A LESSON TO LEARN: An ERP package after implementation is expected to improve the flow of information, formalize and standardize all the business processes and workflow that exist in an enterprise but as said above ERP Implementation miserably fail due to numerous reasons. Statistics reveal that inadequate definition of functional requirements account for nearly 50% of ERP implementation failures. This is due to lack of comprehensive and systematic development of quality set of the need for and the functional requirements for ERP Implementation. This leads to a greatest cause of wrong selection of ERP which leads to Implementation failure. Another reason for ERP Implementation failure is, top executives, familiar with an ERP system implement the same system in their company without defining functional requirements. Generally the top management commits a mistake by selecting a package at the top levels of a company without intimately knowing its characteristics which often results in selecting an ERP package that does not fit the organizational needs, or that the package selected takes longer to process daily work tasks. Deciding to Implement ERP

4 P A G E 4 Another reason is that lack of a change management approach as part of the program can prevent a program from succeeding. Resistance to change is quite often caused by failure to build a case for change, lack of involvement by those responsible for working with changed processes and inadequate communication. A lack of buy-in often results from not getting end-users involved in the project from the very start, thereby negating their authorship and ownership of the new system and processes. Another cause of ERP implementation failure is the miscalculation of effort and time to accomplish the project. Always the implementation process comes under stringent time limits which is generally difficult to follow and the tendency not to incur any further cost due to longer period of implementation or extension of the project schedule affects the quality and completeness of the implementation process. Hence the thought of shorter the project period lesser is the cost incurred becomes meaningless. Why do ERPs fail? Another biggest cause of ERP implementation failure is inadequate education and training, which are almost always underestimated. ERP-related training is crucial as most employees must learn new software interfaces and business processes which affect the operation of the entire enterprise. The corporate culture is impacted by changes in the company s business processes, and shortchanging this part of the ERP implementation leads to much pain and suffering downstream. A major mistake is cutting short the critical events in the project plan, such as time for documentation, redefining and integrating processes, or testing before "going live." Another common mistake is made when a company leaves out the selfexamination of business processes and uses ERP to cover-up weaknesses. It is easier to buy software than to perform the more difficult task of identifying weaknesses and opportunities for improvement. Also an important reason of ERP implementation failure is non-involvement of end users in the implementation process. The top management always have a thought that ERP implementation is only to get some valuable and unique reports i.e., the top management facilitating themselves for accomplishing their decision making processes rather than involving the end users, removing the fear in their minds, educating them, defining their work profile, giving them time for adapting to the changes, they realizing the advantages out of implementation.

5 V O L U M E 1 I S S U E 2 P A G E 5 Above all, being unaware or non-identification or not mitigating of the control gaps or weaknesses which is existing in the present business transaction processes make the proposed ERP a replacement for the existing one that does not meet the requirements thereby a waste of time and resources above money. SOLUTION STEPS TO TASTE SUCCESS RATHER JUST AVOIDING FAILURE: The successful implementation of ERP can be ensured by concentrating on the analysis and the planning phase or Pre-implementation phase rather spending the major portion of the implementation time in customization, training the users and fighting and resolving with the psychological adaptability of end users of the enterprise. The ultimate solution to get the ERP implemented successfully will be to standardize the flow of information, standardize and formalize all the business processes and workflow that exist in an enterprise and then selecting the ERP that suits the business and transaction flow of the enterprise and customizing the ERP to exactly match the requirement of the enterprise. Since ERP Implementation is also considered the cleansing activity of the overall enterprise, the process and work flow shall be standardized after taking into account the existing control gaps and weaknesses and other practical difficulties and implementing the remedy for those identified gaps and difficulties. The standardization of processes and work flow shall be documented, before the implementation of the same as Standard Operating Process (SOP), in a pictorial form to be more clear and precise how the information, documents, authority and approvals flow and how each transaction of the enterprise gets into the ERP. ERP Failures A Concern Though the end output will be the SOP for each process the same shall be documented so that at the end of the documentation the work profile and the activities to be performed by each process owner in various transaction processing can be pulled out and rights and authorities can also be defined. The above process documentation shall be performed in the below mentioned phases to add more value and address the real picture of processing the transactions.

6 P A G E 6 SCOPING DOCUMENTATION PHASE: This phase involves identification of key functions in the enterprise, defining their sub-functions, processes and sub-processes. This phase also brings out all the activities performed by the enterprise which flows within and across the departments or functions. The concept or a thumb rule that initiates this documentation is that all activities in the enterprise directly or indirectly impacts the financial statements at different levels. The mapping of AS-IS transaction/processes flow of all activities in each functions is done by interacting with the end users of the enterprise and observing the flow of processing the transactions. This phase acts as a barrier breaker in Implementation process as the transaction processing difficulties are heard upon from the end users. This also helps in increasing the mental adaptability of the ERP Implementation by the users. RISK AND CONTROL GAP ANALYSIS PHASE: This phase uses the AS-IS documentation as the basis. In this crucial phase, the transaction risks involved in the processes shall be listed out process wise and the corresponding controls to be implemented to mitigate the risk involved shall be suggested, discussed, finalized and then documented with the help of the process owners and the function owners. This in general helps the enterprise to manage the change that the employees are going to face through a new ERP System. The controls to be implemented shall be then short listed to facilitate the customization in the ERP. This will also help the Organization in mitigating the internal control gaps through transactions thereby leading to a risk free transaction.

7 V O L U M E 1 I S S U E 2 P A G E 7 IMPLEMENTATION PHASE: This phase involves the reworking of the AS-IS process taking into account the identified risks and controls for mitigating the risks. The process documentation is also tested to debug or mitigate any further arising control gaps. This reworked - risk free transaction process acts as a SOP for recording any transaction in new ERP system. This TO-BE process gives the work profile for each of the user in the enterprise. The above process documented acts as a input and also the guidelines for the ERP Implementer to complete the Implementation. The above Process documentation reduces the time involved to a considerable extent in the customization of ERP and also completing the User Acceptance Test Procedures. It can be rest assured that the process documentation addresses almost all the instances which lead to ERP Implementation failure. Since the process owners are attended to by the management through the process documentation activity, the resistance to change is managed at the best possible way. By training the users with the SOP and giving clarity over their work profile and activities to performed in the enterprise the adequate training and exposure is given to the users. Also the critical events like UAT, customization, user rights and authorities are taken care in process documentation, more time can be allotted for data migration and report generation formats etc. Stages in Mapping Processes

8 P A G E 8 FOR THE BEST USAGE OF ERP: With the advent of technology and growing IT (Information Technology) field, ERP as integrated business management software is considered as an IT platform capable of enabling a shift to more integrated and process oriented business design from the conventional legacy system. It is a business tool rather than a system tool as it establishes business process engineering as well as re-engineering and brings about radical changes in an organization. Hence, implementation of the right system software will enable the Company to be in an advantageous position by examining the requirements of the Company. Deciding on the appropriate ERP is a long-term and irreversible decision which has to be taken by the management of an enterprise. Best Usage of ERP implementation is, therefore crucial in its current business process as well as to the improvement on the future business prospects. Thus the requirements of the Company are to be synchronized with the modules offered by the ERP software. By mapping the process documentation in the pre-implementation phase and making it a pre-requisite, it helps in smooth and successful implementation of ERP. ERP

9 V O L U M E 1 I S S U E 2 M/s. G. Balu Associates, an Indian Assurance Firm by nature, is continuously working on these kinds of alerts in all respective core areas and bringing to the desk of its clients. Ganapathy Subramanian. B AUDIT LEAD No.4A,Venketesa Agraharam Road, Mylapore, Chennai Tamil Nadu, INDIA Phone: +91 (44) (44) [email protected] We shall be glad to convey that these alerts either past or present find place in our website in the category of archives or new as the case may be. As always, Knowledge sharing has been our Success Mantra. We would also love to hear from you any comments or suggestions, which we strongly believe as worthy inputs. DISCLAIMER These knowledge management series are only meant for private circulation and may only be considered as a reference for issues related to which these topics address to and for no other purpose. It does not provide legal opinions, nor does it contain or purport to contain any specific legal, compliance, accounting, tax or any other advice under any other law for the time being in force in and outside India on the topics covered. All best practices, templates, specimens, sample clauses, circulars from various statutory bodies in and outside India, agreements and other documents are provided strictly for reference and information purposes only, and do not constitute legal, compliance, accounting, tax or any other advice on the matters covered therein. G. Balu Associates cannot accept any responsibility for any loss whatsoever kind including loss or revenue, anticipated savings or profits, loss of goodwill or for any indirect or consequential loss whatsoever to any person using these documents, or acting or refraining from action as a result of the material in this publication. It is further understood that recipients of these series of articles will obtain their own legal and other relevant professional advice, in accordance with their specific interests, needs, and circumstances.