THREATS IN IMPLEMENTATION OF ERP APPLICATIONS

1 ABSTRACT THREATS IN IMPLEMENTATION OF ERP APPLICATIONS DR. VENKATESH.J*; MS. C.AARTHY** *Associate Professor, School of Management Studies, Anna University of Technology Coimbatore, Jothipuram Post, Coimbatore, Tamil Nadu, India. **Ph.D Research Scholar, School of Management Studies, Anna University of Technology Coimbatore, Jothipuram Post, Coimbatore, Tamil Nadu, India. The objective of this study is to categorize the threats and controls in ERP implementations, with the objective to understand the methods in which administrations can abate the commercial hazards involved. The Implementation of ERP systems has been challenging for many organizations. Given the many reports of significant failures, the application of wrapped ERP software and related changes in business processes has showed not to be an easy task. As many organizations have exposed, the implementation of ERP systems can be a colossal disaster unless the process is controlled cautiously. The study sets the base for further research into the control structure so vital for the success of the applications of ERP systems and analyses the threat for such implementation in an organization. KEYWORDS: ERP systems, Business Risks, Threats, Intricacy, Application, In house skills. 1. INTRODUCTION Enterprise resource planning (ERP) systems assimilate internal and peripheral management information across an organization, implementing finance/accounting, engineering, sales and service, customer relationship management, etc. ERP systems systematize this activity with a unified software application. Their purpose is to simplify the flow of information between all business roles inside the boundaries of the organization and accomplish the connections to outside participants. ERP systems can run on a variety of computer hardware and network arrangements, classically employing a database as an origin for information. ERP's range usually implies significant changes to staff work procedures and practices. Generally, three types of services are available to help implement such deviations consulting, customization, and support. Employment time rest on on business size, number of modules, customization, the scope of process changes, and the readiness of the customer to take ownership for the project. Integrated ERP systems can be implemented in stages. The typical project for a large firm consumes about 14 months and requires around 150 mentors. Small projects can need months; multinational and other large employments can take years. Customization can significantly increase

2 implementation times. Executing ERP typically requires changes in existing business processes. Poor understanding of desired process changes prior to starting implementation is a main cause for project failure. It is therefore decisive that organizations thoroughly scrutinize business processes before implementation. This analysis can identify chances for process rejuvenation. 2. ERP IMPLEMENTATION It also enables an valuation of the configuration of current processes with those provided by the ERP system.erp execution is considerably more difficult in distributed organizations, because they often have different procedures, business rules, data semantics, endorsement hierarchies and decision centers. This may require drifting some business units before others, deferring implementation to work through the necessary changes for each unit, possibly reducing assimilation (e.g. associating via Major Data management) or customizing the system to meet precise needs. A potential disadvantage is that accepting "standard" methods can lead to a loss of competitive advantage. While this has happened, losses in one area are commonly balanced by gains in other areas, increasing overall reasonable advantage. Configuring an ERP system is largely a matter of balancing the way the customer wants the organization to work with the way it was designed to work. ERP systems typically build many variable parameters that modify system operation. For example, an organization can select the type of inventory bookkeeping - FIFO or LIFO - to hire, whether to identify revenue by geographical unit, invention line, or supply channel and whether to pay for shipping costs when a client returns a purchase. The process of ERP application is termed as d as "ERP Implementation Life Cycle". The subsequent steps in concluding the lifecycle is as follows I. SHORTLIST ON THE ORIGIN OF OBSERVATION AND EVALUATE THE SELECTED PACKAGE Choosing an ERP package for the company can never be associated with the process of "Selecting the right Person for the Right Job". This implementation will involve choosing few applications appropriate for the company from the whole many. A group of specialists with focused knowledge in their corresponding arena will be requested to make the study on the basis of various constraints. Each professional will not only examine and verify if the suite is apt for the series of application in their field but also authorize the level of harmonization that the software will help to accomplish in functioning with other departments. In simple terms they will verify if the collaboration of the several sectors due to the arrival of ERP will lead to an amplified output.

3 Shortlist on the origin of observation and In-house evaluate Guidance the selected package Preparing the workforces to use ERP Preparing for the endeavor and GAP scrutiny Business process reengineering and scheming the System Post Application process Mending errors in ERP implementation In-house Assistance and Checking FIG: 1 STEPS IN ERP IMPLEMENTATION CYCLE II. PREPARING FOR THE VENTURE AND ANALYZING THE GAP This phase is aimed at defining the implementation of ERP in all measures. It will lay down the requirements and criteria to be met. A team of officers will take care of this, who will report to the person of the highest hierarchy in the organization. After this the company must detect the gap that has to be bridged, so that the company practice becomes analogous to ERP environment. This has been stated as an expensive procedure but it is unavoidable. The firm will decide to restructure the business or make any other modifications as suggested by GAP analysis in order to make ERP user friendly. III. BUSINESS PROCESS REENGINEERING AND SCHEMING THE SYSTEM Variations in worker rolls, business method and technical particulars find place in this stage of streamlining most frequently referred as business process engineering. The proposal requires lot of scrupulous planning and careful action. This step helps to resolve and conclude the areas where reformations have to be conceded. IV. IN-HOUSE ASSISTANCE AND CHECKING This is deliberated as a very dynamic step in ERP application. The workforces in the firm are proficient to face catastrophe and make negligible corrections as well because the concern can neither be at liberty nor pay more to gain the services of an ERP dealer at all times. Then the professional team perceives and tests the legitimacy of the usage. The system is exposed to the desolate assessments so that it certifies appropriate usage and substantiates the costs acquired. This is a test for ERP operation.

4 V. PREPARING THE WORKFORCES TO USE ERP The workers in the firms will be taught to make use of the system on regular basis so as to confirm that it becomes a part of the system in the business. VI. POST APPLICATION AND MENDING ERRORS IN ERP IMPLEMENTATION The process of execution will find gist only when there is consistent follow up and proper instruction flow subsequently and over the lifetime of ERP. This will comprise all efforts and steps taken to fetch up-to-date and attain greater benefits once the system is executed. Hence an organization has to accomplish ERP implementation safely and correctly. ERP implementation catastrophe is a major concern for companies. ERP operation needs to be done without permitting any possibility for confines and faults. If it is not done seamlessly then the accomplishment of ERP system will remain an interrogation. The leading factor that dismays ERP in an association is the extreme costs and investment. The second one is the enrolling of an ERP employment plan to confirm ERP implementation a grand success. 3. BUSINESS RISKS IN ERP IMPLEMENTATION The identification of threats in information systems projects has been the subject of much research (Jiang et al., 1996; Zmud, 1980). A selection approach for managing software progress risk was discussed by McFarlan (1981). Past research has looked at risk from a technological perspective (Anderson and Narasumhan, 1979) or from a software development perspective (Barki, et al. 1993). Jiang and Klein (1999) observed risk as it related to a multidimensional concept of information success that comprised contentment with the development process, satisfaction with system use, fulfillment with system quality, and the influence of the information system on the organization.. The risks related with the overall success of an organizations project were application intricacy, lack of user participation, and absence of role clarity of individuals on the project. Lack of user support was significant for the organizational impact, while technological innovation affected system quality satisfaction. Systems development was affected by the team's general capability, application intricacy and user support, and systems use was affected by role clarity and user knowledge. Reel (1999) discussed the significance of understanding user needs and justifying user conflict, proper project management including task scope definition, top management sponsorship, and having a project team that owns the apt skills. While these prior studies are relevant, none clearly examined the environment of ERP systems. In this study, the hazards and controls were more technical focusing on software development as compared to the application of packaged solutions that require the reengineering of business procedures and restricted software modifications. In order to capitalize on the probability of success, the risks related with a task must be minimized (Barki, et al. 1993; Jiang and Klein, 1999). As stated above, review firms reduce the risk of audit failure through the identification of characteristic, control and detection risks followed by the formation of a suitable, specified level of overall assessment risk that is a function of those other risks (Arens and Loebbecke, 1997). The same logic holds for the application of an ERP system. In order to improve the chance of success, the risks must be acknowledged and suitable controls must be placed to minimize those threats.

5 The deficiency of alliance between the organization strategy, structure, and processes and the selected ERP application is one risk that is repeatedly identified in the literature (see, for example, Davenport, 1998; 2000). Both the business process reengineering literature (Hammer, 1990; Hammer and Champy, 1993) and the ERP literature proposes that an ERP system alone cannot increase the company performance unless an organization reshuffles its operational processes (Bingi et al., 1999; Davenport, 1998; Davenport, 2000). Further, the ERP implementation project must be a commercial initiative. This needs the organization to gain strategic clarity and a constancy of purpose. Finally, a consequences positioning is required to achieve these objectives. Within an ERP project, the loss of control over the project is another key risk. Loss of control can rise in two methods: the lack of control over the assignment team, and the lack of control over teams once the system is operational. Threats associated with controlling major projects existed prior to the expansion of ERP software, and abundant has been written on project growth (see, for example, Brockner, 1992; Kanodia et al., 1989; Keil, 1995; Sharp and Salter, 1997; Staw, 1976; 1981; Staw and Ross, 1987). The first risk is the lack of control over the assignment team. This lack of control results from the transfer of policymaking and subsequent ineffective confirmation of decisions. In the situation of an ERP project, ensure the association of acquaintance with decision rights, it is general for an organization to form an ERP system execution project team that comprises individuals who have some relevant detailed knowledge associated with the execution of an ERP system (i.e. Information technology knowledge or change management skills). Judgment rights are then assigned to the team. However, where the project team has widespread control over the endorsement of its own decisions creates a potential business risk that the project team would perform in their own interests rather than act in the best benefits of the organization. The second risk is that an operational ERP system always results in the decentralization of accountability and empowerment of lower level employees. A lack of adequate controls over this increased accountability, either within the ERP system itself or in the methods followed by the organization, is a potential business risk. Another major risk is project intricacy (see, for example, Barki, et al. 1993). An ERP system implementation involves relatively large expenses for the procurement of the hardware, software, employment costs, consulting fees and training costs (Davenport, 2000; Mckie, 1998), and can last for an extended period of time. Also, an ERP system implementation project has a wider scope compared to other information system applications, and may cause a substantial number of changes within an organization (Davenport, 2000). Lack of in house skills is another cause of risk in the implementation of ERP systems. Lack of assignment team expertise has often been associated with software development risk (Anderson and Narasumhan, 1979; Barki, et al. 1993; Holland and Light, 1999; Jiang and Klein, 1999). An ERP system implementation project requires a wide range of skills (i.e., change management, BPR) apart from technical implementation knowledge (Davenport, 2000; Glover et al., 1999). Organizations often lack change management skills and BPR skills required for an ERP system implementation. Further, an ERP system is often based on software design and concepts that are most likely new to existing IT staff (Kay, 1999). When a firm moves to a complex ERP system environment, it overcomes many changes in staff relationships. Workforces may need to create

6 new working relationships, share information among departments, obtain new skills and undertake additional responsibilities (Appleton, 1999). These changes can lead to conflict, confusion, and fear among users of the new system (Glover et al., 1999). Unenthusiastic users increase implementation risk (Anderson and Narasumhan, 1979). Staff turnover and other types of employer s conflict create additional business risks associated with an ERP system implementation. In a nut shell, based on a review of the ERP literature, there are five main business risks connected with the implementation of ERP systems: the lack of arrangement of the new information system and business procedures; the loss of control due to transfer of decision making; risks associated with project intricacy; the lack of in house skills; and user s resistance. 4. ERP IMPLEMENTATION CONTROLS 4.1. LACK OF ALIGNMENT OF THE ERP SYSTEM AND BUSINESS PROCEDURES In order to reduce the risk associated with a lack of configuration of the ERP system and business procedures, administrations engage in Business Process Reengineering (BPR), develop elaborate requirements specifications, carry over system testing earlier to the ERP system implementation and closely monitor system performance. Initially, the rethinking and essential reform of business processes allows an organization's operational procedures to be aligned with an ERP system and allows an organization to better find the full profits offered by the ERP system. It also results in the ERP application originating as a business initiative. Further, strategic precision as well as constancy of purpose is attained. Second, a comprehensive requirements description for ERP selection increases the possibility that the ERP system will meet the organization's system requirements and support the essential operational procedures. While the detailed planning is occurring, baseline metrics on existing processes can be obtained what are mandatory for the estimation of the project's outcomes. Third, system testing prior to system implementation and observing the system after implementation are seen as acute to ensure that the ERP system functions smoothly and is able to provide adequate support for the organization's operational processes. Lack of control Alignment of ERP System IMPLEMENTATION CONTROLS Project Complexity Lack of In house skills User s Confrontation

7 FIG: 2 IMPLEMENTATION CONTROLS 4.2. LACK OF CONTROL DUE TO DELEGATION OF DECISION MAKING Through the formulation of a directing committee, appointment of a project sponsor, and internal audit participation, an organization should have control associated with decentralization of decision-making. An expert team enables senior management to unswervingly monitor the assignment team's decision-making processes by having authorization and approval rights on all significant decisions, thereby certifying that there are ample controls over the project team's decision-making processes. In addition to the formulation of an expert team, a project sponsor is assigned direct responsibility for the ERP project's progress and often is responsible to secure funding when more funds are needed than original budget. In summary, through the formulation of the expert team, appointment of a project sponsor, and internal audit's involvement the organization would reduce the business risks associated with probable loss of control resulting from the ERP system implementation. 4.3. PROJECT COMPLEXITY The reduction of the risks associated with project intricacy mainly depends upon the formulation of an expert team, senior managers' support, selection of a project sponsor, the development of a detailed implementation strategy, project management, a project team with sufficient skills, and participation by both consultants and internal audit. In ERP system application projects, senior managers are often involved through appointment to an expert team.senior management's direct participation in the system implementation project often increases the projects seeming importance within the organization (Raghunathan and Raghunathan, 1998) which encourages employees to be actively involved in and afford support for the ERP system implementation. By hiring an executive-level individual with wide knowledge of the organization's operational procedures to be the project sponsor and s/he has responsibility for and is held responsible for the project outcome. In summary, the minimization of business risks related with project complexity largely depend upon the formulation of the expert team, senior managers' support, selection of a project sponsor, a detailed requirements description, development of a detailed execution plan, a project group owning adequate skills, participation of the consultants and internal audit. 4.4. LACK OF IN HOUSE SKILLS An organization cannot completely rely on consultants to implement an ERP system, as consultants have partial specific knowledge of the organization's operations. Thus, a close working relationship between consultants and the organization's project team will lead to a valuable skill assignment in both directions. Moreover, training that is available through the consultants, the vendor, or through some intermediaries provides a valuable resource to develop skills that are lacking in-house. These controls are seen as important in diminishing the risks related with a potential lack of skills. Sometimes a innovative group, "super users" is formed during the ERP implementation. These individuals gain knowledge of the new detailed business procedure and also technical system knowledge through their implementation deeds and training they undergo.

8 4.5. USER S CONFRONTATION User confrontation has been related with most any type of systems modification, and even more so for ERP projects that are combined with Workers who are reengineered out of a position and are subsequently redistributed within the company may enter a desolate process resulting in low productivity. Relating users in the project allows the project team to be aware of users' requirements and address users' concerns (Best, 1997). Moreover to involvement, user training enables to acquire the requisite skills to utilize the ERP system. Thus, organizations often implement some risk management policies to minimize user s resistance. 5. CONCLUSION The purpose of this study was to categorize the risks and controls related to the application of ERP systems in organizations. The existing literature on ERP systems and the literature on systems development risks were used to explore the risks and controls related to the successful implementation of an ERP system. An ERP implementation project is diverse from other systems development projects. The prior literature had identified significant risk factors that encompassed technological change, organizational change and project intricacy. These aspects are the hallmarks of most ERP implementations. Subsequently, it is important to understand how these threat factors can be alleviated. In this research, controls which are mandatory to minimize five types of risks that a firm must control in an ERP system implementation were acknowledged. The results of this research provide support for the proposal that the success of an ERP system application is dependent, in the first case, on recognizing the major business risks and the controls that are need to be put in place to reduce those risks. As a result future research can examine the association among the threats and controls identified in this study through a review of organizations that have implemented ERP systems. 6. REFERENCES [1] Arnold, V.; Hunton, J.E.; Sutton, S.G. (2000): "On the Death and Dying of Originality in the Workplace: A Critical View of Enterprise Resource Planning Systems' Impact on Workers and the Work Environment", Working Paper, University of South Florida. [2] Anderson, J.; Narasumhan, R. (1979): "Assessing Implementation Risk: A Technological Approach", Management Science, vol.25, n.6: 512-521. [3] Appleton, E. (1999): "How to Survive ERP", Datamation, March. [4] Barki, H.; Rivard, S.; Talbot, J. (Fall 1993): "Toward an Assessment of Software Development Risk", Journal of Management Information Systems, vol.10, n.2: 203-225. [5] Davenport, T.H. (2000): Mission Critical: Realizing the Promise of Enterprise Systems. Harvard Business School Press. Boston, MA. [6] Glover, S.M.; Prawitt, D.F.; Romney, M.B. (February 1999): "Implementing ERP", Internal Auditor: 40-47.

9 [7] Hammer, M. (July-August 1990): "Re-engineering Work: Don't Automate, Obliterate", Harvard Business Review: 104-112. [8] Jiang, J.J.; Klein, G. (1999): "Risks to Different Aspects of System Success", Information and Management, vol.36: 263-272. [9] McFarlan, F.W. (1981): "Portfolio Approach to Information Systems", Harvard Business Review, vol.59, n.5: 142-150. [10] Raghunathan, B.; Raghunathan, T.S. (1998): "Impact of Top Management Support on IS planning", Journal of Information Systems, vol.12, n.1: 15-23. [11] Reel, J. (1999): "Critical Success Factors in Software Projects", IEEE Software, vol.16, n.3: 18-33. [12] Zmud, R.W. (1980): "Management of Large Software Development Efforts", MIS Quarterly, vol.4, n.2: 45-55.