The 4 ERP governance best practices you can’t ignore


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With these key best practices, you can create strong ERP governance that will help you use your platform effectively, with an increased focus on the strategic objectives of your business.

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The 4 ERP governance best practices you can’t ignore

  1. 1. The 4 ERP governance best practices you can’t ignore Greg Davis, Managing Director, Business Advisory Services Enterprise resource planning (ERP) programs are much more than the software brand that runs them — they can be the foundation of business success. Effective ERP programs start with a governance structure of processes and controls, fueled by an overall continuous process improvement mindset. But many companies struggle to get the most out of their ERP investment. Common questions include: • Who owns it? Many organizations wrestle with the accountability of ERP: IT or business? • What is the best structure? For an ERP program to be successful, a carefully defined organizational structure must be in place. • What information should it provide? Making an efficient ERP program design means defining specific goals and metrics. • What governance is in place? Even with the best software in place, lack of ERP governance can diminish results significantly. We believe that governance issues are the major reason why ERP programs fail to meet their goals. ++15+T +70++N We believe that governance issues are the major reason why ERP programs fail to meet their goals.
  2. 2. If governance is central to ERP success, how do companies improve their programs? There are many ways to improve ERP governance. Here are four important areas that you should consider right now — prioritizing these areas could provide visible results. “We struggled for years to get results and accurate information out of our ERP to manage the business. Our inefficiencies were rooted in our misguided perception that ERP was software … and we became repetitive in our miscues in handling ‘system issues.’ Only after we applied a business focus, and realigned process owners to establish an ERP operating group, did we make progress toward becoming a strategic organization again and obtaining value out of our ERP.” — Vice president, HR, global manufacturer Best practice No. 1: Institute an ERP operating group This is a good opportunity to take a step back and look at your ERP organization. If it was cobbled together over time (as most are), then this is the time to reorganize. A best practice is to form an ERP operating group (ERPOG) made up of business process owners and technical leaders who manage all initiatives and priorities. Successful ERPOG win themes include: • Consensus — A collective voice for all ERP issues and strategic goals • Efficiency — Suggestions for improved business process efficiencies • Visibility — Improved visibility to process metrics and critical information • Oversight — Commitment to best practices and process improvement opportunities Figure 1: ERP roles and responsibilities Executive steering committee ERPOG Business process owners Business analysts Functional area leads Subject matter experts Report metrics Performance metrics Technology services ERP change control Help desk issues 2 4 ERP governance best practices you shouldn’t ignore 4 critical ERP governance best practices
  3. 3. 3 4 ERP governance best practices you shouldn’t ignore Figure 2: A sound ERP organization Executive steering committee ERP program champion Business process owners Functional area leads Subject matter experts Business analysts Business leaders ERP operating group ERP support Third-party app support Infrastructure/network Security admin Change control Development/business intelligence Technology solutions Enabling business decisions These win themes are enabled by critical functions: • Reporting — Report critical business information and metrics to the executive steering committee. • Project prioritization — Prioritize all improvement programs and projects. All initiatives cannot have the same priority. • Project status — Provide regular status updates of programs and projects. • Issues management — Expedite issues management, escalation procedures and resolution. • Implementation/release management — Methodical implementation of new ERP functionality. • Change management — Structured environment change control. • Software modifications — Review and evaluate additional software components required to support system health. • Change evaluation — Review and evaluate the integrated impacts of change. • Communication strategy — Establish communication between the business process owners and the functional area leads, subject matter experts and business analysts. • Recommendations — Provide operational recommendations to the steering committee. • IT oversight — Integrate IT into the overall process. Use technology as a service to enable the business. A strong and well-managed ERPOG will serve as the foundation for successful ERP program management. ERP is a way of doing business, not an IT system. Technology services should be a part of the process and enable and support business decisions, but the business should own the ERP.
  4. 4. 4 4 ERP governance best practices you shouldn’t ignore Best practice No. 2: Take a disciplined approach to master data management Data governance (or management) is the process of setting policies, rules and processes that guide information creation, use and management. Data governance practices largely determine the reliability of ERP information, so taking a disciplined approach to ERP data integrity is a core best practice. Master data management (MDM) business processes should be standardized and centralized under one umbrella. Defining information access and flow is an important factor. In order to ensure the accuracy of global data, companies typically design their workforce to focus a small number of people on managing specific types of master data. When updates are requested, change request forms are submitted to the MDM team for review. This team is responsible for following all global policies related to data field specifications and must follow defined service-level agreements to ensure timeliness of changes. Using data integrity reports and annual audit procedures are also important factors in maintaining accuracy across the business. Figure 3: Master data management success factors Best practice No. 3: Manage releases carefully In a strategically planned and controlled ERP environment, any changes or new releases must be managed carefully. For large-scale, complex ERP environments, a best practice is to define a methodical, phased approach that includes mandatory quality assurance. Strong release management provides for a method to the madness that typically consumes most ERP organizations. The alternative is the perpetual firefighting scenario that often derails overall program progress. It is especially important that any third-party vendors follow all guidelines for submitting and making changes, and that their applications reflect any new releases. See Figure 4 for an example of a release schedule. A strong release management scenario for ERP organizations should include: • Identifying production release windows/ schedules that are ideal and will not jeopardize the business • Aligning both production fixes and newly implemented functionality with a logical release window • Developing a detailed plan and quality review cycle for each release • Performing gate reviews for each environment and test cycle • Implementing all necessary testing cycles (e.g., load, acceptance) as the results will be reported in the gate reviews conducted by the ERPOG • Moving the release date if functionality or development items fail or do not go through the release management process • Allowing end-user and executive-level visibility to the functionality roadmap Benefits or outcomes • Clearly defined roles, responsibilities and accountability • Centralization and coordination of methodologies and policies, creating an entity-wide standard (data) language with a single version of the truth • Enable common view of data and information across the organization, facilitating proactive management and better decisions • Reduction of data inconsistency and integrity issues, decreasing time and costs associated with turning data into useful information • Improved user confidence in fact-based decision-making as information is kept in one place, in a known and organized structure Guiding principles • Ensure data management is a business-driven function rather than an IT-driven function within the organization • Dedicate and commit to developing staff with clear roles, responsibilities and measurable objectives regarding data quality and usage • Implement standardized processes, security and master data tools, and promote common data repositories that share common business rules and definitions • Direct management attention to the data management process to further its success
  5. 5. 5 4 ERP governance best practices you shouldn’t ignore Jul 14 JDE–MAJ Release Duration (days) Start End 162 01/10/13 08/23/13 Contract/Gate Approval for Development 20 01/10/13 02/04/13 Develop phase 115 02/07/13 07/15/13 Code/unit/string test 25 02/07/13 03/11/13 Submit plans for System Test 0 N/A N/A Review plans/prep for 3rd Party Software for System Test 0 N/A N/A System Test Environment Build Prework 0 N/A N/A Drop Code/Tables for System Test (Modular CRP) 0 N/A N/A Build environment for System Test 0 N/A N/A Shakeout environment for System Test 0 N/A N/A Execute System Test 15 03/14/13 04/01/13 System Test Review/Walk-through (Exit Review) 5 03/28/13 04/01/13 Integrated Test Environment Preparation 36 02/25/13 04/15/13 Submit plans for Integrated Test 1 02/25/13 02/25/13 Review plans/prep for third-party Software for Integrated Test 20 02/28/13 03/25/13 Integrated Test Environment Build Prework 5 03/28/13 04/01/13 Release Closed to Add’l Scope (SRs/Code & Schedule Impacting CRs) 1 04/01/13 04/01/13 Drop Code/Tables for Integrated Test 1 04/01/13 04/01/13 Build environment/data prep/refresh data for Integrated Test 5 04/04/13 04/08/13 Shakeout environment for Integrated Test 5 04/11/13 04/15/13 Integrated Test Window 60 04/18/13 07/08/13 Execute Interapplication Connectivity Test (ICT) for third-party applications 15 04/18/13 05/06/13 ICT Review/Walk-through (Exit Review) 5 05/02/13 05/06/13 Execute End-to-End Test (includes UAT/Reg) 45 05/09/13 07/08/13 End-to-End Test Review/Walk-through (Exit Review) 3 07/06/13 07/08/13 Production Readiness Test Environment Preparation 36 04/08/13 05/27/13 Submit plans for Production Readiness Test 1 04/08/13 04/08/13 Review plans/Prep for third-party Software for Production Readiness Test 20 04/11/13 05/06/13 Production Readiness Test Environment Build Pre-Work 5 05/09/13 05/13/13 Drop Code/Tables for Production Readiness Test 1 05/13/13 05/13/13 Build environment/data prep/refresh data for Production Readiness Test 5 05/16/13 05/20/13 Shakeout environment for Production Readiness Test 5 05/23/13 05/27/13 Review entrance criteria for Production Readiness Test 3 05/25/13 05/27/13 Production Readiness Test Window 30 05/30/13 07/08/13 Execute Enterprise Load & Performance Test 30 05/30/13 07/08/13 Execute Production Readiness Test 0 N/A N/A Execute SAT 0 N/A N/A Production Readiness Test Review/Walk-through (Exit Review) 3 07/06/13 07/08/13 Training Environment Load 2 07/02/13 07/03/13 Lock Code/Tables 1 07/11/13 07/11/13 Enterprise Release Management Go/No-go Director Review 2 07/14/13 07/15/13 Deploy Phase 44 07/11/13 08/23/13 Pre-Deployment Activities 5 07/11/13 08/23/13 Production Deployment 10 07/15/13 07/24/13 Production Warranty 37 07/18/13 08/23/13 Production Warranty (test environments) 7 07/18/13 07/24/13 Drop Code/Tables for Breakfix 1 07/18/13 07/18/13 Build environment/data prep/refresh data/shakeout for Breakfix 7 07/25/13 07/31/13 Production Warranty (Breakfix) 30 07/25/13 08/23/13 Figure 4: Example of a release schedule
  6. 6. 6 4 ERP governance best practices you shouldn’t ignore Best practice No. 4: Utilize metrics Defining and actively using metrics or key performance indicators for every business process area is another best practice. Each process area needs metrics reported by the process owner in the ERP organization. These analytics are reported to the executive team and evaluated at defined intervals. Metrics should reflect the organization’s goals and they should be SMART — specific, measurable, achievable, realistic and time-bound. As the saying goes, “If you can’t measure it, you can’t manage it.” Managing your business with metrics works hand in hand with the ERPOG to reduce the number of decisions that are based solely on instinct or gut feeling and enable decisions based on objectivity and facts. These clear and factual views of business performance are seen on a continuous basis. Metrics drive execution and process improvement, while helping you closely monitor the results of action or change. 7 keys to successful metrics 1. Reflect the organization’s and process area’s goals and keys to success 2. Measure process performance effectiveness or efficiency, including changed conditions or problems 3. Monitor reliably, repeatedly and accurately 4. Limit the number 5. Encompass the entire process collectively 6. Support with high-quality data 7. Address pain points The ERP 2.0 concept Some companies don’t have the luxury of re-implementing or upgrading the ERP, but are struggling and still in dire need of change or returns on their investment. This paradigm can shift with relatively simple and fundamental changes. By making improvements to ERP governance processes and controls, immediate positive returns can be realized. Using elements of some of the four ERP governance best practices we’ve discussed, ERP 2.0 changes can be used to create an improved enterprise footprint made up of both system and business process changes focusing on the following areas: • ERP governance and process excellence — This is accomplished by establishing the ERP operating group and is supported by performing business process reviews. • User enablement — User skills and knowledge can be upgraded through continuing education and training and carefully defined documentation and materials development. • Data and reporting improvements— Improvements can be accomplished with better data management policies and upgraded reporting tools and strategies. • Methodical release management protocols — Improved release management can be accomplished through: – Minor release(s): Identifying and grouping several help desk tickets into a release schedule – Major release(s): Identifying larger projects due to project-based work, new functionality or systems integration – Emergency releases
  7. 7. 7 4 ERP governance best practices you shouldn’t ignore Conclusion If you are struggling to manage your ERP, follow these steps to improve your situation and maximize your investment: 1. Establish a sound ERP organization with business process ownership and accountability. 2. Implement disciplined master data management practices and protocols. 3. Manage releases diligently. 4. Use metrics that drive business performance. With these key best practices, you can create strong ERP governance that will help you use your platform effectively, with an increased focus on the strategic objectives of your business. All of these best practices work together to allow your ERP experience to be proactive and successful. Contact Greg Davis Managing Director Business Advisory Services T 913.272.2720 E
  8. 8. Content in this publication is not intended to answer specific questions or suggest suitability of action in a particular case. For additional information on the issues discussed, consult a Grant Thornton LLP client service partner or another qualified professional. © 2014 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd About Grant Thornton LLP The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest-quality service t public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the world’s leading organizations of independent audit, tax and advisory firms. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity. In the United States, visit Grant Thornton LLP at