In practice, ERP systems can be difficult to deploy and maintain. ERP packages are complex by nature and IT departments must invariably tailor the software to fit the company's specific requirements and business processes. Installing an ERP system is usually a massive undertaking measured not in months, but in years. Even after the initial deployment, an ERP system must be continually adapted to reflect changes in the business and software upgrades and extensions.
Due to their complexity, ERP projects are expensive. Before embarking on an ERP project, it's important to understand the project's total cost of ownership (TCO), which extends far beyond the price of the ERP software. In a survey of 63 companies, Meta Group found that the average TCO was $15 million for ERP when real project costs such as software, staff time, consulting, and hardware were included.
If you want to avoid out-of-control costs and incomplete results, it's essential to understand an ERP system's hidden costs and the major issues involved with implementing a project. Here are several key areas where problems can arise:
Planning and project management
It takes time and effort to properly prepare for an ERP deployment. The company's IT staff and the appropriate business managers must be given the time and clear responsibility to conceive and evaluate the project's scope, costs, and timeline. It's important to assign the planning responsibilities to staff members who not only have a good grasp of the technology, but who also understand the company's business requirements and processes. Also make sure that whoever leads the planning sees the project through--from the initial deployment to some extended period after deployment to work out the inevitable kinks.
Integration
Companies almost always underestimate the time and cost necessary for enterprise software integration. ERP systems rarely exist in a vacuum and they usually need to be tied into software and complex business processes that predate the ERP system. In addition to software from a primary ERP vendor, the enterprise may also want to use applications provided by other software vendors. For example, a company may want to tie its core ERP suite from SAP into a CRM application from Siebel and global trading management software from Vastera. Mergers and acquisitions also create difficult integration challenges because the merged companies may use different ERP packages and other different applications with which they've already integrated. Dick Kuiper, a vice president with Meta Group, says that a large enterprise typically operates five or more ERP systems and some companies are known to have more than 20 ERP systems.
Dirty data
A number of problems and hidden costs crop up when handling real-world data. When an enterprise converts its legacy systems to ERP, it must convert large amounts of data for use in the new system. Much of the old data is difficult--if not impossible--to convert, which means a lot of time and money will be spent re-entering it into the system or putting it through complex conversion processes. Even after a system is fully deployed, you can't take the data for granted because it ages. For instance, every month some of the company's customers, employees, and business partners change their address or other parts of their profile. Gartner Group analyst Beth Eisenfeld estimates that 2 percent of a company's customer data goes bad every month. She recommends an ongoing effort to clean up obsolete data. Finally, when data is combined from multiple systems for analysis or as a result of integration projects, more work can be involved to clean it up and convert it.
Testing
Given the mission-critical nature of a company's ERP system, it should be thoroughly tested before it's fully deployed. Don't just test the system with dummy data. Use actual data from different real-world scenarios. For example, a manufacturing company should pull up historic orders from customers and route the orders through the entire process of creating the product, shipping it, and billing for it. Ideally, employees who actually operate the specific business processes on a day-to-day basis should perform these tests. Of course, all of this costs money, but the investment will significantly reduce other costs that result from the downtime and poor implementations that occur when systems aren't properly tested.
Documentation
ERP systems take a long time to deploy and are used for many years within a company. That means they usually outlast the IT employees and business-process managers who conceptualize, deploy, and modify the systems. Documenting the system is crucial so that future employees can make sense of the software and business-process logic the system encompasses. Documentation is also needed to help future workers deal with the inevitable updates, extensions, and integration projects that occur as a company evolves. In addition, documentation can save consultants time and help them map out the scope of projects properly to improve cost accountability.
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