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ERP Project Management

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Management Information System
Prof. Surojit Mukherjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur
Week - 03
ERP
Lecture – 13
ERP Project Management – Challenges, Risks and Best Practices
Hello everybody. Today’s discussion will be on the topic of ERP Project Management,
Challenges, Risks and Best Practices. The thing you need to understand that a ERP
implementation project; when we implement ERP software like SAP in a large
organization, it is a very complex activity. It takes quite some time may be depending
upon the size of the organization it could take from at least 6 months to sometimes
couple of years. And if you are talking about global companies, multinationals which are
spread across several countries, when you do a ERP implementation, it can take may be
5 or 6 years to complete all the countries in the world.
When you are doing such an exercise, it also involves a lot of people, large team works
for these implementations, minimum may be 15 to 20 and maximum again for this
multinationals, it can go into several 100s. Sometimes in large projects, you might have
500 people at the peak working on a single implementation project.
So, you can very well understand, there are tremendous amount of dynamics involved;
tremendous amount of challenges involved and risks because when you are working with
such a complex program and project and involving so many people across countries,
multiple cultures etcetera, a lot of things can go wrong.
So, that is what as potential manager like you need to understand and know the
challenges; the risks and the best practices. Best practices mean the good things that you
should try to do when you are implementing a project and at the same time, at the
beginning of project its true for any project, we do a extensive risk analysis.
So, as a project manager, one of the first job when you start a project is to do a risk
analysis of the project that where things can go wrong, during the course of the project.
The duration of the project, the project life cycle can be you know, several months, 6
months to a year for ERP project. We are talking about many months duration, may be 1
year or 2 years.
So, many things can go wrong in this time period. Take for the example, this current
situation of coronavirus; COVID, what has happened? So, all the projects which were
running during this time, all of them got impacted. I mean nobody say probably in the
month of December, or may be in November, when a project had started a ERP
implementation and nobody could ever think about something that can go wrong, where
the project will stop for several months.
Now, it is already almost in the fourth month and where, people are still you know stuck
at places. So, many things and everything is going haywire. So, this is what are the
challenges, risks etcetera which a project manager need to know. So, you should
understand, what are the various types of risks, which I will try to cover briefly here in
my presentation. It will give you an overview of all those aspects .
To start with we should define and manage the scope of the ERP project. So, what is the
scope? So, first we need to know, what are the scope of a project which is covered under
this ERP or what we are talking about enterprise resource planning software. So, one is
the process scope. So, like every business, there were lot of business processes which I
have been talking about earlier. So, we need to map out the number of processes, which
are there in all the functional areas, which are being covered during that program
implementation.
You may not sometimes implement all the modules of SAP for example. Just to save
time or we want to start something quickly, maybe you want to do only the Finance and
Manufacturing for example; I mean you probably you can do HR etcetera later.
So, not so very critical, not so very important; but Sales, Manufacturing and Finance are
important areas. Finance is of course, required because finance is at the core. But things
like plant maintenance, quality management etcetera you can delay; HR probably you
can delay, but many people do it together. So, anyway, depending on the cost and budget
and time etcetera the modules can be selected, but the processes needs to be identified
and listed and signed off. These are the processes for which we will do the project.
Functionality - similarly from the process comes the functionality. What are the various
functionality we want to capture into this ERP? Some of the functionalities can be better
handled by say existing softwares which have been custom built for a specific job, for
example payroll.
So, many times, it happens that many organizations have developed their own payroll
software and which is working and which can work better than what is being offered by
say the ERP software. So, you want to may be retain that payroll and then, build a bridge
(interface)connecting it with the SAP software. So, that functionality within SAP
software, you will not implement because you want to use an existing software. So, that
is little bit of less work for the SAP project implementation.
Organizational scope, - again see the companies can constitute of say head office, then
multiple locations, multiple factories, multiple manufacturing units, warehouses, sales
offices, branches etcetera. So, you have to decide which of the organization elements
will be covered under the scope of the SAP project. Some of the remote, for example,
sales offices may be in small towns or villages, where only one person is working and
you may not include in your project because when you include a location it means
additional cost, effort, connectivity etc. You have to have a network and so many other
things like training of the people etcetera, and other things are there. So, we have to
decide what is the organizational scope.
Technical enhancement scope - is what sort of enhancements to the SAP software you
need. SAP is offering several features, but your organization may be needing something
which is not being offered by in SAP product. So, you might have to want to add
something extra, some other new functionalities. So, that is where custom development
comes in. So, you have to write codes for that. So, that is extra time and cost. So, you
should try to minimize the technical enhancements, try to stick to whatever the SAP
product is offering. This is commonly referred as a vanilla implementation where no
change is being done to the software product from a technical perspective.
So, whatever the product is offering try to stick to that that is because from a future
maintenance perspective, the less the amount of code you write better it is for the
software quality because the more you write codes, you can actually produce lot of bugs.
So, you have to test it and then, there could be some errors and there could be some
integration problem with the existing company product supplied and the component you
have written. So, those can only give rise to a lot of maintenance issues. So, best is to
avoid and that is the best practice, minimize and changes to the original product. But if it
is required, it is required. So, you have to do it.
Technical infrastructure scope – includes the Servers, Desktops, Data storage systems,
back-up devices, Disaster recovery systems, SAP and other supporting softwares,
Operating Systems for the servers, connectivity like LAN, WAN etcetera.
Interface scope - is the scope that is how many of the existing software, you want to
retain and build a bridge, that is, custom software to connect these softwares with SAP
software because all the financial information has to flow into SAP as because finally,
your balance sheet, profit and loss and other statutory reports etcetera everything will
have to come out of SAP. So, all financial transaction of the organization has to be
captured in the SAP Finance module. So, for that you have to build your interface like I
said the payroll. If you want to use existing payroll system, fine you can use it; but then,
you have to build a connecting program and we call it an interface. So, whatever
transaction happens in the payroll like the salary payment etcetera that information goes
into the financial books of account like all the credit and debit entries flow to the SAP
finance book of accounts.
So, it depends on the scope as to how many such software’s you want to connect because
for each one of them, you have to build a separate program and writing a separate
program again means cost and possibilities of introducing bugs. So, that is what you
need to budget.
Data conversion scope - Original data which are there in the legacy system from the
existing softwares will have to be now transported into SAP. So, that is called data
conversion. Conversion, because it has to be converted into a format which you are
designing for the new product. May be the whole material name codification is changing.
So, previously it was known by say a material code of say by the name of the product,
now you want to put a number code. Like you have noticed in bank accounts. For
example, after the Core banking system, all the banks got computerized; the account
numbers got changed. Previously, we had account numbers which were very small, few
digits; e.g.6122 was your account number. But nowadays, normally we will find an
account number which is very difficult to remember may be 10 digits, 10 character, 14
characters like 110578345678 (example of new bank account numbers).
So, there is a meaning, I mean there is lot of meaning in that design because they are
conveying lot of information not for us, but to the bank employees. They from seeing the
account number, can find out many things like whether it is a current account; whether it
is a savings account etcetera, which region the account belongs to; may be which city;
which region. So, many information, intelligent information is hidden in that number
code. So, that is why the number code becomes very long of your account. Previously,
we just had a small code 6382 that was your account number, which was very easy to
remember.
But nowadays, with computerization things have changed. So, that is data conversion
where old data which was few 6382 account number will now get converted into an
account number which will have 10 characters.
Reports and Forms scope – Reports you know is very important in MIS. The reports has
to come out from the SAP system. Normally, SAP, they have their own standard reports
which are good enough, but sometimes you want to have reports in your existing
template and formats which your management team ( specially Senior Management ) is
used to working with. They would like to see the data by columns and rows as per
existing reports. If you want to replicate and want to get that same reports in the existing
formats from the SAP; then, you will have to write again a program. Similarly, for forms
where you need to fill up say your purchase requisition is a form. So, you have to design
that form because your company logo will be there, company address will be there,
company PAN number will be there.
So, the new form has to be designed say the sales invoice. In sales invoice, again same
thing; company logo, company address, company registered PAN number etcetera will
have to be inserted. So, many important statutory information has to be there in these
forms. So, that has to be designed. So, these are all part of the job and lot of development
effort is involved in designing these Reports and Forms. This effort also defines the
scope of the project as it is a major cost factor.
Now, the method how do we implement. You see there are lot of phases in these projects
and it goes from one phase to other. It starts with Evaluation phase, when you are
actually doing the pre-sales, trying to understand the complexity of the job because you
have to quote a right price, how much time it will take, how many people you will need
etcetera. So, that is a more or less the sales part.
Now, once the sales part is over and you get the order and you get the contract, then you
start the project. You start with Project Preparation phase, that is where you do all the
risk analysis, building your team, do the training of the team members of the consulting
and also your client’s team members. Both the team, start to work from a Project office.
Training is the most important starting activity in this phase, where you have to train the
client’s team members in SAP software and it’s various features and how it is configured
client will need to train your team ( consultant who have come to implement the SAP
system ) about their business processes. As you have come from outside, the
consultants, you do not know what the business processes are in that company. Suppose
they are manufacturing battery for example. So, they will you around the factory, show
you the manufacturing processes, how it starts with the raw material etcetera. And then,
they will have to explain in detail all business processes, how the company works, what
are the rules and regulations etcetera.
Business blueprint is a design phase, when you are actually designing the To-Be process
to be followed by the organization after SAP gets implemented. As-Is refers to the
existing process and To-Be is the new process because I have told you in the previous
session that something called a Business Process Re-engineering happens. So, when you
implement an ERP or SAP, lot of processes undergo change because you are now
capturing the best processes, which are there in the SAP product which has been you
know gathered from their experience with large multinational corporations like Toyota,
General motors, Coca Cola etcetera. So, you get the all their best practices. And you
need to change your business process to the best, what is happening in the successful
companies. So, that is what we are doing in the design phase. So, my organization today
following this business process, but going ahead will adapt these new processes.
So, that becomes the To-Be business process. So, all your stakeholders from the
company side like the CFO, the chief of Marketing, the chief of Production, the chief of
Purchase everybody will have to agree to the new processes which is being proposed by
the product. And you as a consultant, you are telling yes, you should adapt this for your
advantage and they will have to understand. And they will have to sign off “yes”, we
agree and once that whole thing is signed off, then you move into the Realization Phase
which is the Build phase that is where you start actually working on the software.
Now, in SAP is something is known as Customization. Here you do not need actually
programmers or coders to customize the software because it is already prebuilt. The
software comes ready, everything is written. Now, the functional people, the persons
who we call functional resources are the people who are experts in finance, materials
management, sales and marketing, manufacturing etcetera. They do not write codes, but
they know how the business process works.
So, accordingly, they will now configure the product by writing some formula, selecting
some check boxes, putting some values etcetera, like the stock values for example. For
each item, they will decide what should be the reorder-point for planning the purchasing
of these materials. These values are estimated based on their process knowledge and
what they think would give the maximum benefit to the company.
So, the project team will discuss with the client and jointly decide the best stock level to
maintain for each of the costly material. Stock quantity should neither be in excess nor in
shortage as had been explained earlier.
So, all that is being done these consultants and it is something known as configuration.
Also, you have to create your master data. So, all the Material Master, the Customer
Master, Vendor Master; these are all thing which needs to be created on the computer by
capturing all information, like - name, address, phone numbers, contact details, PAN
number etcetera. What are the materials they supply etcetera, what are the previous
vendor rating you had in the in your records? Apart from these Master records, you have
to enter all your stocks and open items like - open purchase order, open sales order just
before the system moves to production. This is called Go-Live, when the organization
starts to do transactions in SAP.
But these are the things which have to be done without writing any code. We will not get
into too much of details about the ERP software. All you need to know that this is a
Realization phase where you do building the actual usable system you are creating for
the users (company employees). So, in Blueprint phase you design the system and now
you are building it in the Realization phase. Then, Final Preparation phase is when you
are getting ready after testing of the system, people are getting trained, data is going to
be uploaded etcetera. Infrastructure readiness you have to check, but the main thing here
is training of all the Users of the system. So, all the users will need to know how to
operate that SAP software.
So, you are a part of materials team and so you will be handling these Materials
Management screens. If you are a sales person, you would be viewing or working on
transactions like - Creating a sales order, Shipping goods , Billing , Invoice verification
etcetera. So, how will you create a sales order? You open a customer name and order
quantity etcetera. So, that sort of training is given as to how they will do the transactions
because day in and day out the sales person has to create sales order or when you are
floating a sales enquiry, how will you float a sales enquiry?
So, all those things are taught during the training because that is what the transactions
they will be doing when they actually start working on the SAP system when it is goes
live. So, Go-Live is the day you shut down your old systems and start working and
carrying out your business with the new SAP software. So, that is where the entire
company changes over, from their existing systems to the new ERP system. Take the
example of banking industry. They moved over from manual systems to the online core
banking systems (CBS). So, any branch of the bank you go they are all connected with
same software. So, now, you do not have go to your particular branch, you can go to any
branch of your bank and withdraw money. There is no restriction that you have to go to
your own particular branch and then only you can get money from there. If you have an
account in state bank, you can go to walk into any state bank branch and withdraw
money. That is because they are having a common ERP type of software platform and
everybody knows how to operate that.
So, when it goes live and everybody start working on the same software and then, we
have last phase that is Sustain which means maintenance because any software you know
has to be continuously maintained and upgraded. When a user faces a problem he will
raise a problem ticket and then, the maintenance team called Helpdesk team will start
working to resolve the problem to keep that software up and running.
Because otherwise sometimes software hangs or there is an error, it will crash and so
many things can go wrong with a IT system. So, there is a team which looks after
continuously 24 x 7 to see that your system is up and running.
You have several dimensions which are required as part of this journey. These
dimensions are - People, Process, Knowledge and Technology.
I was telling you earlier, how the project is implemented. Knowledgeable persons, and
skilled people are required for these projects. People with SAP skills, are involved in
developing the new processes which I had talked about before. You have to follow a
process step by step for which the consultants follow a methodology.
When you are doing the implementation, you have to go step by step. It cannot be
arbitrary knowledge. Of course, you need knowledge of the product and the knowledge
of the company/ Organization which is very important. All the team members must be
fully aware of how does this company’s business work. So, all the business processes of
the company have to be known by the team members of both side the clients as well as
the company people and then of course knowledge of technology is there. The major
thing is about technology including both software and hardware and knowledge of
business processes.
Blue print (design) phase - It is critical to have overall end to end picture of your future
state, business process and To-Be scenario. What I was talking about, is you need to
know what is my organization that I am designing for the future. Obviously, you want to
design something better, something newer. You do not want to stick to your old
processes because everybody wants something latest and best, whenever one is investing
so much of money buying a new sophisticated world class product.
So, SAP / ERP these are all world class products, best of the things available across the
world. So, when you are implementing that at a lot of cost and effort, you want to get
some benefits out of this investment. So, you want to have the best processes in the
world followed by the leading organizations in the world. So, that is why you have to
design new processes and develop proper To-Be scenarios for all the functional areas.
Design is the main thing because unless you design it right whatever you build will not
be right. So, you have to think and brain-storm very much. So, that is where here all the
top level of the management is involved, all the functional owners, the business process
owners, the head of finance department - CFO, the head of marketing - CMO, the head
of purchase, the head of manufacturing or head of operations, all of them finally will
have to understand the processes and sign off. They have to give their approval. And
only then you can go ahead and design and build as per this signed-off design.
Business requirements should be as detailed as possible such that the business SMEs;
SMEs meaning subject matter experts and consultants can understand your exact
business needs.
So, only experts in SAP product knowledge should finalize the Fit-Gap analysis as
custom development is a major cost and should be minimized to the extent possible.
Now, here I am discussing about new developments. This is called Fit-Gap in the sense
after the design you can realize that some of the process of this company are very unique.
They are not covered in the SAP product. So, that is called we call this as a gap.
So, what is the solution? One of the solution is to write / build a separate program like I
was talking. So, the gap has to be fulfilled by building a separate program, but then you
have to very carefully analyze it. Is it really required in the new scenario? Can we do
without that or can be replace it by a standard process given in SAP?
So, all that discussion should go on because any development you want to do that is a
question of cost because you have to have a developer. A developer, will write the codes
in maybe 5 days, 6 days or 7 days’ etcetera. And then, you have to test etcetera. Testing
is again a very big costly component in any software development as it takes lot of time.
So, do a proper analysis that do we need it? If it is absolutely required; yes, we have to
do it, but try your best to avoid that. So, the custom development should be kept to the
minimum to reduce cost and a high system performance.
And the more the extra programs you build, the software becomes very heavy. So, the
response time gets impacted and any IT system you must have felt many time, when you
are working, that the response time is very critical for the user. Like if you are using a
phone or when you are doing a banking transaction and the system is slow, it hangs; you
feel very irritated, you are not happy. So, you want something you think should move
very fast.
Deployment and go live best practices - When you are planning to go live with the
system; you need to check for system preparedness, completeness of all system
integration testing, completion of all end user training etcetera so, which are very
important. In the training plan, the people who are going to use system, must be trained
thoroughly because it is a complex software. Learning it is not easy. So, you have to train
them in all the transactions that each user would execute in SAP. I had told you earlier
that because it is an online system working on real times any mistake a user does, gets
immediately reflected across the organization.
And it is hitting your finance books. So, as soon as I entered, I have received 10
materials and instead of 10, I type 100, I have added by mistake one more zero, maybe I
was not focusing, I was watching something on my phone by or talking to someone on
my phone which we often do. In one hand I am holding the phone and talking while in
the other hand, I am doing my typing. And I do a mistake that instead of 10, I hit another
zero, making it 100 and that is a major mistake and as soon as I hit enter, it is gone out of
your hand. Such things make the training a very critical exercise in the implementation.
Systems performance testing – I was talking about the slow performance etcetera and its
importance. So you have to do the load test and performance test, when everybody is
working and large volume of much of data is going, how the server would be
performing. Too much of data load may make it ‘hang’.
You have seen in e-commerce sites or you have read in the newspapers, some day they
give lot of discounts and then, plenty of people login across the country, Flipkart etcetera
and they crash as the servers cannot handle so much of traffic. So, that load test has to be
done which is true for any centralized IT system.
Then, check to verify internal external constituent readiness. You have to have the
support Help Desk ready as it is very important because from day one, users will have
problems. E.g. he is not able to use a report, he has forgotten his password, he is not able
to login, he is not being able to do his transaction, it has become slow etcetera, all sorts
of complaints will start coming in as it happens with the new users. So, the help desk
should be in place from day one and they should be ready to answer all the questions and
solve their problems. Otherwise, users may lose interest and this can place the whole
project in jeopardy.
All IT equipment’s should be fully tested and their service level agreements for PC’s ,
printers, servers etc. with your vendors in place. All stakeholders should be duly trained
and made aware of the changes. So, training, comes in several times. So, everybody must
be trained and be made aware. Service level agreements or AMC’s (annual maintenance
contracts) should be in place because the machines should work, your local PC, your
printer because all these gadgets are required for efficient functioning of the software
Continuous engagement with stakeholder and project leaders - So, that is during the
course of the project do’s and do not’s, work closely with the implementers senior
executive and delivery leaders to discuss avenue of improvements in project execution.
As I was telling you, always interact with the senior level people from the client side
because they are the people who are giving you decision and if they delay that decision,
then your project will get delayed. So, that is another risk.
Review risks associated with project delivery - Budget overruns, solution quality, Qgates
with vendor executives and proposed mitigation plans. These various aspects of
risk analysis we will talk few slides later.
You should always interact such that your project does not get delayed because as I told
you these are long and complex projects and if the project gets delayed there will be a
cost overrun. Finally, it will cost more to the company in case of delay. Management
does not like whenever a project manager will ask for more money.
Oversee and advice the periodic (daily or weekly) project leadership meetings - Ensure
accurate project progress is reported. Communication is extremely important. So, as a
project manager, suppose I am assuming you are as a project manager implementing a
project, one of your major task is to regularly communicate your project progress and the
status to all stakeholders, specially, to the senior leadership of your client. He is your
customer for whom you are implementing this project. So, they should be all kept
updated and informed.
Continuous engagement with stakeholders and Project leaders (Do’s and Don’ts) -
Continue to manage disagreement of conflicts between business teams, internal
leadership and systems integrator. I mean this is pretty obvious. Evaluate and quality
project progress report for preparing periodic steering committee meetings. As I told you
just now, you should always communicate, communicate and communicate.
See that everything is ready when steering committee meeting takes place because major
decisions are taken during steering committee meetings and ensure that all sign-offs and
deliverable approvals are obtained and procedures are followed throughout because it is
very important to get all documents signed-off.
Because later on people can deny as no, I did not tell you this etc. So, there can be
disputes. But, if you have a signed off document then the risk can be avoided
Project Implementation challenges; - Scope change; Budget change, Long timelines. I
have discussed Process Redesign Challenges, Unrealistic Expectations and Complex
Interfaces. So, when there is an unrealistic expectation from the customer, they want
something you know they always want the sky but as it is not possible you have to
manage their expectations.
Then process redesign could be difficult sometimes as all nee