ERP for Big Valley City

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  • ERP automates above activities with an integrated software application to facilitate the flow of information between relevant business groups in an organization
  • Only 41% of ERP project are successfulMajority of failures are due to Implementers
  • People is being used mainly for financial and human resource modulesversion 7.5 to version 8.8
  • As a result CIO of Big Valley, Bob Henderson is looking for various options to minimize enterprise resource planning (ERP) ongoing costs of ownership. leading to further cost escalations for already cash-strapped City establishment.
  • Tax revenues
  • Transparency & Improvements Analyze plans, performance for sound Decision making
  • (20% of original license fee)
  • For 3yrs
  • Phase1: terminate all the support and services except minimal services for dealing high profile issues.Resolving such issues might take time for Legacy mode as they are new to Big Valley city’s ERP environment
  • Benefits = Savings-costs =4,889,250- 1,563,625
  • regarding the existing maintenance contractdue to layoffCompromise of service quality due to Identify in the contract the process assurance procedures to verify performance
  • and benefit the cost-effectiveness and healthy growth of Big ValleySign a long-term contract with LegacyMode for future 5-10 years
  • ERP for Big Valley City

    1. 1. CRIC ConsultingEnterprise Resource Planning : Ongoing maintenance and cost benefit analysis
    2. 2. Enterprise Resource planning (ERP) Integrated Management System Finance & HR Admin & Planning Sales & Services OperationalAccounting 2
    3. 3. ERP (Continued) ERP ERP ERP Providers Implementers Tommorow Legacy Oracle SAP GEMS BI-Tech Accenture Now modeTier I Tier II 41% Failure: Implementation 3
    4. 4. Big Valley City • Metropolitan city in Central valley, General California • 26.2% living below the poverty lineInformation • Currently use PeopleSoft ERP systems • Recently spent $2M to upgrade PeopleSoftEnvironment • IS department has 70 employees 4
    5. 5. The Problem Oracle takes over PeopleSoft in Peoplesoft 2005 customers facing possible upgrade to Oracles Fusion in 2008 5
    6. 6. PEST Analysis 6
    7. 7. Political •Increase Taxes •Job creation Pressure on •InfrastructureGovernment to Investment, including IT 7
    8. 8. Economic •Budget deficit •Increase in labor costEconomic •Shrinking tax basechallenges •Liquidity Crunch 8
    9. 9. Social •High poverty rate (about 26%) •High unemployment rate •Cost and absence of quality Healthcare Social •Lack of skilled manpowerchallenges •Influx of illegal immigrants 9
    10. 10. Technological •Improvement in Healthcare facilities •Outsourcing of back-office jobs •City infrastructureTechnological requirements challenges •Modernization of existing Educational system 10
    11. 11. Key IssuesHigh existing costs & spendingInappropriate revenue collection methodsQuality of life of citizensVague data 11
    12. 12. Key Issues Matrix Importance Low Importance High ImportanceUrgency Analyze plans, performance Low Urgency Quality of life for sound decision making Inappropriate revenue High Urgency High Costs collection methods 12
    13. 13. Suggested AlternativesUpgrade to Oracle FusionOutsource Oracle support services to 3rd partyVendorsReplace PeopleSoft with ERP Tier II products 13
    14. 14. Alternative 1: Upgrade to Oracle Fusion Pros Cons Known commodity Higher long term costs Complexity of use and Feature-rich functionality support Higher turnover rates due to Easy to customize as per increased demand of TIER1 customer requirements ERP professionals Stable vendor/Less Poor quality of support & change maintenance services 14
    15. 15. Alternative 2: Outsource Oraclesupport Service to 3rd party Vendors Pros Cons Capable of meeting Big Valley Unfamiliarity with the functional needs system Lower long term costs Higher one time costs Vendor collaboration Enhanced quality of support issues Quick resolution time of issues Flexibility in selection of ERP implementer vendors Negotiable contract terms 15
    16. 16. Alternative 2:Comparison of 3rd party support vendors Accenture TomorrowNow LegacyModePros • Leading IT service • Large provider of SAP • Flexible contract provider • Highly experienced term: 1,3,5,10-year • Expertise in PeopleSoft with PeopleSoft • Maintain legal & Oracle ERP products products compliance • End-to-End help desk • Resolves issues without costly services immediately upgrades • Flexible contract agreementCons Charges premium cost Face pressure to switch to Only one year of help SAP desk support 16
    17. 17. Alternative 3: Replace Peoplesoft with ERP Tier II products Pros Cons Lower long term costs Higher one time costs than PeopleSoft Specialized in public Time-consuming sectors implementation Staff readiness Good support services challenges Simpler technical environment/faster Risk of project failure learning curve 17
    18. 18. Alternative 3: Tier II ERP Products SunGard Bi-Tech GEMS• Specialized in public sector • Specialized ERP provider• Availability of all ERP for public sector modules • Offers Property• Extensive training services Management Systems ERP offered module• Roughly 37 % savings over 5 • 29% savings over 5 year year period period 18
    19. 19. Financial comparison Analysis 19
    20. 20. Alternative I PeopleSoftCurrent annual maintenance fees: $260,000Assuming another 5% increase in the future3-year maintenance fees total at $975,000 20
    21. 21. Alternative II 3rd Party Implementors •Total cost: $450,000 Accenture •Cost saving: $330,000 •Total cost: $390,000TomorrowNow •Cost saving: $390,000 •Total cost: $303,000LegacyMode •Cost saving: $477,000
    22. 22. Alternative III Tier II ProductsSwitching cost be 30% of current 3-year maintenance feesBi-Tech: • Total cost for 3 years: $725,400GEMS: • Total cost for 3 years: $983,000
    23. 23. Alternative I Alternative II Alternative IIITotal Oracle Accenture Tomorrow Legacy SunGard GEMScost in 3 Fusion Now Mode Bi-Techyears ($) 780,000 450,000 390,000 303,000 725,400 983,000 1200 Thousands 1000 800 600 400 200 0 23
    24. 24. Evaluation criteriaBest Long Term PositionBest Functional CapabilityLowest CostLowest technical skill requirementBest technical architecture 24
    25. 25. Decision making Matrix (scale of 10) Alternative I Alternative II Alternative III Score Score Score Best Long Term 4 6 7 Position Best Functional 9 8 5 Capability Lowest Cost 3 7 9Lowest technical skill 2 8 7 requirement Best technical 8 7 5 architecture Total 26 36 33
    26. 26. Does selection help-resolve our Key issues? Key issues Alternative IIHigh existing costs & spendingInappropriate revenue collection methodsQuality of life of citizensAnalyze plans, performance for sound Decision making 26
    27. 27. Vendor selection (Accenture/TomorrowNow/LegacyMode)Meeting cost-saving purpose(appx $477,000 for 3yrs)Improving the quality of serviceFreeing up cash flow and human resources to focus oncore business LegacyMode 27
    28. 28. Implementation Steps of Alternative II Define Sign contracts Business processmeasurement of with change and efficiency LegacyMode reengineering Post- Assessment of implementation new review transactions 28
    29. 29. 1. Define measurement of efficiencyEfficiency of bug fixes & patchesQuality of support to major application releasesQuality of technical supportCompliance with federal government standards andregulations 1 2 3 4 5 6 7 8 9 10 Legacy Mode 29
    30. 30. 2. Sign contracts with LegacyModeBegin Phase I of terminating the maintenance contract withPeopleSoftSign contract with LegacyModeNegotiate with LegacyMode on the contract terms(3years), and charges of help desk services during contractperiod 30
    31. 31. 3. Business process change and reengineering Employee Commitment Maintaining Reduction long-term in IT staff relationship Education Change in & Training process 31
    32. 32. 4. Assessment of new transactionsTest the services provided at initial periodImprove the process before final implementationSchedule for complete termination of existing contract 32
    33. 33. 5. Post-implementation review Assess the performance of LegacyMode according to the measurement of efficiency Arrange a team to solve the identified issues 33
    34. 34. Cost ConsiderationsOne-time costs:Signing the contract Est. 101,000* 5% = $5,050Transition Est. 101,000* 2% = $2,020 Long-time costs:Possible downsizing Maintenance cost Est. (64-14) * (29,415/2)= $735,375 101,000*3= $303,000Unexpected cost Help desk support after 1-year Est. 101,000* 9%*2 = $18,180 $500,000 Total costs: $1,563,625 34
    35. 35. Cost Considerations (Continued)Savings from lower Maintenance cost ( 3-year) (260,000-101,000)* 3= $477,000Savings after possible downsizing Est. 50 * 29,415 * 3 = $4,412,250 Total Savings: $4,889,250 Benefits= $3,325,625 35
    36. 36. Decrease Negative Impacts Possible conflicts Employee Dis- Collaboration with Oracle satisfaction Challenges• Accessing the • Communicate with • Focus on smooth existing contracts staffs honestly and knowledge transfer• Involve Legal teams constantly • Support process for for best possible • Reinforce the vision cross-training actions and benefits vendor support• Including extra cost • Include severance staff for handling of costs in the budget • Appropriate potential Lawsuit documentation of escalation matrix 36
    37. 37. TimelineAugust2006 July 2007 April 2008•Define measurem •Business process •Post- ent of change and implementation efficiency reengineering review December September 2006 2007 •Sign contracts •Assessment of with new transactions LegacyMode 37
    38. 38. Contingency Plan Quality Forced toWhat after degradation in upgrade to 3years? service Oracle Fusion Reassess the Consider not Re-evaluate and performance of extending the consider switching to PeopleSoft & contract and re- Tier 2 Products - LegacyMode after evaluate other SunGard Bi- every 6 months options Tech/GEMS 38
    39. 39. Thank you 39
    40. 40. Relation between Key Issues Transparency & Analyze plans,Reduction in existing Improvements in performance for costs revenue collection sound Decision methods making Improvements in quality of life of Improvements in quality of life of Improvements in quality of life of citizens citizens citizens
    41. 41. Reason for FailuresIn reality only 41% of ERP implementation projects are successfulMain reasons for failures: ERP system misfit Poor project management effectiveness Too tight project schedule Users’ resistance to change 41
    42. 42. Cost calculation —— Alternative ii Accenture• Annual maintenance fees: at a premium cost $150,000• Annual costs saving: 260,000 – 150,000 = $110,000• Total costs in 3 years: 150,000 * 3 = $450,000TomorrowNow• Annual maintenance fees: 260,000 * 50% = $130,000• Annual costs saving: 260,000 – 130,000 = $130,000• Total costs in 3 years: 130,000 * 3 = $390,000 LegacyMode• Annual maintenance fees: approximately $101,000• Annual costs saving: 260,000 - 101,000 = $159,000• Total costs in 3 years: 101,000 * 3 = $303,000 42
    43. 43. Cost calculation - alternative III Bi-Tech•Annual Costs: 260,000* (100-37%) = $163,800•Total maintenance costs for 3 years: 163,800 * 3 = $491,400•Assuming switching fees will be 30% of current 3-year maintenance fees,•Total costs for 3 years: 491,400 + 780,000*30% = $ 725,400 GEMS•Upfront licensing + training + consulting: $575,000•Annual maintenance fees: $87,000•Total licensing etc. and maintenance costs for 3 years: $575,000 + 87,000 * 2 = $749,000•Assuming switching fees will be 30% of current 3-year maintenance fees,•Total costs for 3 years: 749,000 + 780,000 * 30% = $983,000 43

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