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Risk Management in ERP Projects: Conciliating Rigor and ...


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Risk Management in ERP Projects: Conciliating Rigor and ...

  1. 1. Risk management in ERP projects: reconciling rigor and flexibility Suzanne Rivard Holder of the Chair in Strategic Management of Information Technology HEC Montréal Bentley ERP Workshop 15 october 2004
  2. 2. Outline <ul><li>Foreword – the practice of relevance </li></ul><ul><li>The Hydro-Quebec Distribution (HQD) project </li></ul><ul><li>Definitions </li></ul><ul><li>A two-tier risk management approach </li></ul><ul><li>Reconciling rigor and flexibilility </li></ul>
  3. 3. Foreword - the practice of relevance <ul><li>The topic : enduring or current organizational problems </li></ul><ul><li>The implications : have to be implementable 1 </li></ul><ul><li>The results : have to be implemented 2 </li></ul><ul><ul><li>We shall use the term ‘implementation’ to refer to the manner in which the manager may come to use the results of scientific effort 2 </li></ul></ul>1 Benbasat, I., Zmud, R.W., « Empirical Research in Information Systems: The Practice of Relevance, » MIS Quarterly , March 1999. 2 Churchman, C.W., Schainblatt, A.H., «The Researcher and the Manager: A Dialectic of Implementation,» Management Science , Vol.11, No.4, February 1965.
  4. 4. The HQD project - objectives <ul><li>Transforming HQD sales and customer service processes </li></ul><ul><li>Replacing 200 legacy applications with and enterprise system </li></ul>
  5. 5. The HQD project - size <ul><li>370 M $CDN </li></ul><ul><li>Approximately 250 team members </li></ul><ul><li>Four years </li></ul><ul><li>Sixteen « work packages » </li></ul><ul><li>3600 employes </li></ul><ul><li>3 Million customers </li></ul>
  6. 6. Project director HQD Board of directors Board of directors Auditing committee President HQ-Distribution Project Steering committee Tactical committee Vice-president Sales & customer services Mgnt committee S&CS Reporting twice a year Every 6-8 weeks . Every other week Monthly report Leader IT Director IT The HQD project - structure Leader Training Leader Development Leader Project office Leader Change management Monthly report <ul><li>Auditor </li></ul><ul><li>Risk mgnt advisor </li></ul><ul><li>Capgemini </li></ul>
  7. 7. Definitions: Risk Exposure <ul><li>Where: </li></ul><ul><li>UR i : Undesirable results i P(UR i ) : Probability associated with UR i L(UR i ) : Loss associated with UR i </li></ul>Barki, Rivard, Talbot, 1993, 2001; Bernard, Rivard, Aubert, 2003
  8. 8. Definitions: Risk Management 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 Probability of UR Loss due to occurrence of UR 6 5 4 3 2 1: Budget overrun 2: Not respecting schedule 3: Poor technical quality 4: Poor process/systemquality 5: User dissatisfaction with process or system 6: Unser dissatisfaction with project 7: Not obtaining benefits 8: Inability to institutionalize change 8 1
  9. 9. UR 1 UR 2 UR 3 F1 F2 F3 F4 F5 F6 X 1 X 2 X 3 The issue of estimating probabilities
  10. 10. A two-tier method for software project risk management Second tier - work package risk exposure : short term horizon (4 months); UR particular to a work package ; risk factors have to be identified Top tier - project risk exposure 1 : «long term horizon»; ultimate and generic UR; generic risk factors 1 Barki, H., Rivard, S., Talbot, J., « An Integrative Contingency Model of Software Project Risk Management», JMIS , vol. 17, no 4, 2001 p. 37 - 70. Barki, H., Rivard, S., Talbot, J., « Toward an Assessment of Software Development Risk», JMIS , vol. 10, no 2, 1993 p. 203 - 225. Bernard, J.G., Rivard, S., Aubert, B.A., « Mesure du risque de ERP, » SIM, vol.9, no.2, pp.25-50, 2004.
  11. 11. Bernard, J.G., Rivard, S., Aubert, B.A., « Mesure du risque de ERP, » Systèmes d’information et management, 2004 X X X X X X ~User satisfaction /product X X X X ~Process -system quality Lack of cultural fit with integrator Lack of expertise integrator Software vendor quality Process/software fit Software quality Organisational environment Process complexity Technological complexity Lack of internal expertise Project size Technological newness Undesirable results Risk factors ~User satisfaction /project ~Technical quality ~Schedule ~Budget X X X X X X X X X X X X X X X X X X X X X X X X X X X X X
  12. 12. Tier 1 - Risk map May 2003 May 2004 Likelihood Likelihood <ul><li>~Budget </li></ul><ul><li>~Schedule </li></ul><ul><li>~Technical adequacy </li></ul><ul><li>~Functional adequacy </li></ul><ul><li>~User satisfaction with system </li></ul><ul><li>~User satisfaction with project </li></ul><ul><li>~Tangible benefits </li></ul><ul><li>~Harmonious implementation of change </li></ul>
  13. 13. Tier 1 – risk mitigation ledger
  14. 14. TIER 1 TIER 2
  15. 15. Tier 2 – Risk map January 2003 April 2003
  16. 16. Reconciling rigor and flexibility <ul><li>The risk management process « in vivo » </li></ul><ul><ul><li>Prior to a new work package (tier 1) </li></ul></ul><ul><ul><ul><li>Update risk assessment of global project </li></ul></ul></ul><ul><ul><ul><li>Update risk mitigation mechanisms in ledger </li></ul></ul></ul><ul><ul><ul><li>Validation by management committee </li></ul></ul></ul><ul><ul><ul><li>Report to steering committee </li></ul></ul></ul><ul><ul><li>At mid-work package (tier 1) </li></ul></ul><ul><ul><ul><li>Update risk mitigation ledger </li></ul></ul></ul><ul><ul><li>Every other week (tier 2) </li></ul></ul><ul><ul><ul><li>Update risk assessment of work package </li></ul></ul></ul><ul><ul><ul><li>Update risk mitigation ledger </li></ul></ul></ul><ul><ul><ul><li>Report during management committee meeting </li></ul></ul></ul><ul><li>The project management office </li></ul><ul><ul><li>Every other week, report on budget, schedule, output </li></ul></ul>
  17. 17. Reconciling rigor and flexibility « Laisser-aller » Project leaders adopting the behavior of the « grizzly man » of Northern Rodhesia ore mines 1 Courtenay, B., The Power of One , Mandarin, 1992. « Rigidity » « Absurd decisions » 2 Morel, C. Les décisions absurdes. Éditions Gallimard, Paris, 2002. Rigorous method, flexible use
  18. 18. Researching the reconciliation issue <ul><li>A process analysis of the pendulum movement ? </li></ul><ul><li>Ethical issue : the external expert and the researcher </li></ul>