Costs of Implementing a New ERP
ERP Implementation and ROI <ul><li>ROI analysis  is becoming an important factor in influencing the organizations’ decisio...
Payback Parameters <ul><li>The  overall payback  that enterprise software can offer to a company gives a more complete ana...
Quantifiable Benefits from an ERP <ul><li>Reduced  inventory  costs  (by at least 20%) </li></ul><ul><li>Reduced  inventor...
The Intangible Effects of ERP <ul><li>ERP provides a framework for working effectively together and devising a consistent ...
Other Factors <ul><li>Many other factors that should be considered while justifying ERP investments.  </li></ul><ul><li>So...
Risks of ERP <ul><li>The  implementation of ERP systems  has been problematic for many organizations.  </li></ul><ul><li>T...
Minimizing the Risks… <ul><li>Prepare well —Meticulously plan each every step of the implementation. </li></ul><ul><li>Hav...
Risks of ERP <ul><li>ERP implementations are notoriously resource intensive, highly complex, time consuming and unpredicta...
People Issues <ul><li>People—employees, management, implementation team, consultants and vendors—are the most crucial fact...
Process Risks <ul><li>The ERP system will introduce hundreds of new business processes and will eliminate a lot of existin...
Technological Risks <ul><li>Keeping pace with the technological advancements is one of the very important issues that will...
Implementation Issues <ul><li>Many ERP implementations fail because they do not consider the various implementation issues...
Managing Risks <ul><li>Ensuring a smooth ERP migration is complex and every implementation involves a certain level of  bu...
Benefits of ERP <ul><li>Installing an ERP system has many advantages—both  direct  and  indirect .  </li></ul><ul><li>The ...
Tangible Benefits of ERP <ul><ul><ul><li>Inventory reduction </li></ul></ul></ul><ul><ul><ul><li>Inventory carrying cost r...
Intangible Benefits of ERP <ul><ul><ul><li>Information visibility </li></ul></ul></ul><ul><ul><ul><li>New and improved bus...
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Transcript of "6d5a24 risks and benefits"

  1. 1. Costs of Implementing a New ERP
  2. 2. ERP Implementation and ROI <ul><li>ROI analysis is becoming an important factor in influencing the organizations’ decision to acquire ERP packages. </li></ul><ul><li>A demonstrable return on investment (ROI) , is becoming a must for customers to invest scarce capital and human resources in ERP packages. </li></ul><ul><li>ROI models fall short in their ability to accurately measure the total value of an enterprise software investment are they are focused only on quantifiable (tangible) measures of return . </li></ul><ul><li>The overall payback that enterprise software can offer to a company gives a more complete analysis of return. This analysis takes into account both the tangible and intangible benefits of the ERP systems. </li></ul><ul><li>Intangible benefits include new business opportunities, improved customer and customer goodwill, better relationships with partners, suppliers and other business associates, improved time to market, etc. </li></ul><ul><li>These intangible benefits contribute significantly to the success of a company's enterprise software implementation and use. </li></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  3. 3. Payback Parameters <ul><li>The overall payback that enterprise software can offer to a company gives a more complete analysis of return. </li></ul><ul><li>The major key payback parameters are: </li></ul><ul><ul><li>Faster time to market </li></ul></ul><ul><ul><li>Improved business processes </li></ul></ul><ul><ul><li>Improved customer support </li></ul></ul><ul><ul><li>Rapid capitalization of new business opportunities </li></ul></ul><ul><ul><li>Lower implementation costs </li></ul></ul><ul><li>The sum of the parameters described by enterprise payback— tangible as well as intangible —offers a much more complete picture of the value of the software and services provided by a given vendor. </li></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  4. 4. Quantifiable Benefits from an ERP <ul><li>Reduced inventory costs (by at least 20%) </li></ul><ul><li>Reduced inventory carrying costs (by 25–30%) </li></ul><ul><li>Reduced manpower costs (by 10% or more) </li></ul><ul><li>Reduced material costs (by 5% or more) </li></ul><ul><li>Improved sales (by 10% or more) </li></ul><ul><li>Improved customer service resulting in savings of 5% or more </li></ul><ul><li>Efficient financial management resulting in savings of 18% or more </li></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  5. 5. The Intangible Effects of ERP <ul><li>ERP provides a framework for working effectively together and devising a consistent plan for action. </li></ul><ul><li>The ERP system improves the efficiency of many departments and functions including: </li></ul><ul><ul><li>Accounting </li></ul></ul><ul><ul><li>Product and Process Design </li></ul></ul><ul><ul><li>Production and Materials Management </li></ul></ul><ul><ul><li>Sales </li></ul></ul><ul><ul><li>MIS Function </li></ul></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  6. 6. Other Factors <ul><li>Many other factors that should be considered while justifying ERP investments. </li></ul><ul><li>Some of them are quantifiable while others are intangible. The major factors are: </li></ul><ul><ul><li>Lower implementation costs </li></ul></ul><ul><ul><li>Lower production costs </li></ul></ul><ul><ul><li>Lower business transaction costs </li></ul></ul><ul><ul><li>Lower cost of reporting </li></ul></ul><ul><ul><li>Lower personnel costs </li></ul></ul><ul><ul><li>Lower business process change </li></ul></ul><ul><ul><li>Lower enhancement costs </li></ul></ul><ul><ul><li>Supporting and enhancing the customer experience </li></ul></ul><ul><ul><li>Supporting and enhancing the partner experience </li></ul></ul><ul><ul><li>Enabling new business opportunities </li></ul></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  7. 7. Risks of ERP <ul><li>The implementation of ERP systems has been problematic for many organizations. </li></ul><ul><li>The implementation of ERP systems can be a monumental disaster unless the process is handled carefully. Some of the well-known and well-documented failure stories are that of Hershey Foods, Whirlpool, Dow Chemical, Boeing, Dell Computer, Apple Computer, etc. </li></ul><ul><li>Implementing an ERP project involves a certain amount of risk . </li></ul><ul><li>The ERP system cannot be implemented in a totally risk free environment. </li></ul><ul><li>The only thing that differentiates successful and flawed or failed implementations is the way in which the risks were anticipated, handled and mitigated . </li></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  8. 8. Minimizing the Risks… <ul><li>Prepare well —Meticulously plan each every step of the implementation. </li></ul><ul><li>Have a contingency plan —There will always be unexpected problems; you should have a plan for those situations. </li></ul><ul><li>Use a proven methodology —A methodology will help ward off risk, but a contingency plan is still absolutely necessary. </li></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  9. 9. Risks of ERP <ul><li>ERP implementations are notoriously resource intensive, highly complex, time consuming and unpredictable in terms of cost and hence very risky. </li></ul><ul><li>There are really three basic areas where problems can occur— people , processes and technology . </li></ul><ul><li>Of the three risk factors, people issues are the most critical . </li></ul><ul><li>People issues contributed to failed implementations in 69% of the case compared to process issues (18%) and technological issues (13%) </li></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  10. 10. People Issues <ul><li>People—employees, management, implementation team, consultants and vendors—are the most crucial factor that decides the success or failure of an ERP system. </li></ul><ul><li>The main people issues are: </li></ul><ul><ul><li>Change management </li></ul></ul><ul><ul><li>Internal staff adequacy </li></ul></ul><ul><ul><li>Project team </li></ul></ul><ul><ul><li>Training </li></ul></ul><ul><ul><li>Employee re-location and re-training </li></ul></ul><ul><ul><li>Staffing (includes turnover) </li></ul></ul><ul><ul><li>Top management support </li></ul></ul><ul><ul><li>Consultants </li></ul></ul><ul><ul><li>Discipline </li></ul></ul><ul><ul><li>Resistance to change </li></ul></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  11. 11. Process Risks <ul><li>The ERP system will introduce hundreds of new business processes and will eliminate a lot of existing processes. Managing the implementation of the business processes is a factor that will decide the success of the ERP implementation. </li></ul><ul><li>The main areas of concern are: </li></ul><ul><ul><li>Program Management </li></ul></ul><ul><ul><li>Business Process Reengineering </li></ul></ul><ul><ul><li>Stage Transition </li></ul></ul><ul><ul><li>Benefit Realization </li></ul></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  12. 12. Technological Risks <ul><li>Keeping pace with the technological advancements is one of the very important issues that will determine the success of the ERP systems. </li></ul><ul><li>Some of the technological issues are: </li></ul><ul><ul><li>Software Functionality </li></ul></ul><ul><ul><li>Technological Obsolescence </li></ul></ul><ul><ul><li>Application Portfolio Management </li></ul></ul><ul><ul><li>Enhancement and Upgrades </li></ul></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  13. 13. Implementation Issues <ul><li>Many ERP implementations fail because they do not consider the various implementation issues associated with a complex and risky project. </li></ul><ul><li>Some of these issues are: </li></ul><ul><ul><li>Project Size </li></ul></ul><ul><ul><li>Lengthy Implementation Time </li></ul></ul><ul><ul><li>High Initial Investment </li></ul></ul><ul><ul><li>Unreasonable Deadlines </li></ul></ul><ul><ul><li>Insufficient Funding </li></ul></ul><ul><ul><li>Interface </li></ul></ul><ul><ul><li>Organizational Politics </li></ul></ul><ul><ul><li>Scope Creep </li></ul></ul><ul><ul><li>Unexpected Gaps </li></ul></ul><ul><ul><li>Configuration Difficulties </li></ul></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  14. 14. Managing Risks <ul><li>Ensuring a smooth ERP migration is complex and every implementation involves a certain level of business and technical risk . </li></ul><ul><li>Managing risk on an ERP project is crucial to its success. A risk is a potential failure point. </li></ul><ul><li>The 5 steps to managing risk are: </li></ul><ul><ul><li>Find potential failure points or risks </li></ul></ul><ul><ul><li>Analyze the potential failure points to determine the damage they might do </li></ul></ul><ul><ul><li>Assess the probability of the failure occurring </li></ul></ul><ul><ul><li>Based on the first three factors, prioritize the risks </li></ul></ul><ul><ul><li>Mitigate the risks through whatever action is necessary </li></ul></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  15. 15. Benefits of ERP <ul><li>Installing an ERP system has many advantages—both direct and indirect . </li></ul><ul><li>The direct advantages include improved efficiency, information integration for better decision- making, faster response time to customer queries, etc. </li></ul><ul><li>The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction and so on. </li></ul><ul><li>Some of the benefits are quantitative (tangible) while many others are qualitative (intangible). </li></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  16. 16. Tangible Benefits of ERP <ul><ul><ul><li>Inventory reduction </li></ul></ul></ul><ul><ul><ul><li>Inventory carrying cost reduction </li></ul></ul></ul><ul><ul><ul><li>Reduction of lead-time </li></ul></ul></ul><ul><ul><ul><li>Personnel reduction </li></ul></ul></ul><ul><ul><ul><li>Cycle time reduction </li></ul></ul></ul><ul><ul><ul><li>Productivity improvements </li></ul></ul></ul><ul><ul><ul><li>Other management improvements </li></ul></ul></ul><ul><ul><ul><li>Financial close cycle reduction </li></ul></ul></ul><ul><ul><ul><li>IT cost reduction </li></ul></ul></ul><ul><ul><ul><li>Procurement cost reduction </li></ul></ul></ul><ul><ul><ul><li>Cash management improvements </li></ul></ul></ul><ul><ul><ul><li>Revenue/profit improvements </li></ul></ul></ul><ul><ul><ul><li>Reduced quality costs </li></ul></ul></ul><ul><ul><ul><li>Improved resource utilization </li></ul></ul></ul><ul><ul><ul><li>Transportation/logistics cost reduction </li></ul></ul></ul><ul><ul><ul><li>Maintenance reduction </li></ul></ul></ul><ul><ul><ul><li>On-time delivery improvements </li></ul></ul></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
  17. 17. Intangible Benefits of ERP <ul><ul><ul><li>Information visibility </li></ul></ul></ul><ul><ul><ul><li>New and improved business processes </li></ul></ul></ul><ul><ul><ul><li>Customer responsiveness </li></ul></ul></ul><ul><ul><ul><li>Improved supplier performance </li></ul></ul></ul><ul><ul><ul><li>Better customer satisfaction </li></ul></ul></ul><ul><ul><ul><li>Cost reduction </li></ul></ul></ul><ul><ul><ul><li>Integration of business functions </li></ul></ul></ul><ul><ul><ul><li>Information integration </li></ul></ul></ul><ul><ul><ul><li>Better analysis and planning capabilities </li></ul></ul></ul><ul><ul><ul><li>Improved information accuracy </li></ul></ul></ul><ul><ul><ul><li>Improved decision-making capability </li></ul></ul></ul><ul><ul><ul><li>Standardization of business processes </li></ul></ul></ul><ul><ul><ul><li>Flexibility and business agility </li></ul></ul></ul><ul><ul><ul><li>Globalization of the organization </li></ul></ul></ul><ul><ul><ul><li>Better business performance </li></ul></ul></ul><ul><ul><ul><li>Supply chain integration </li></ul></ul></ul><ul><ul><ul><li>Use of latest technology </li></ul></ul></ul>Enterprise Resource Planning (Second Edition). Copyright 2008, Alexis Leon. All rights reserved.
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