erp failures and lessons.

August 25th, 2012 by Stephen Jones Leave a reply »

What is the cost of software that isn’t implemented properly. What is the real cost of software that isn’t  fully tested and properly deployed prior to production?

You might consider Knight Capital, that recently lost over $400 million in a matter of minutes because of a glitch in its trading software  that wasn’t fully tested and properly deployed prior to production. In addition to the immediate impact of lost cash and profits, the software failure also caused the company’s stock to drop 68-percent the day following the glitch.

 This is a drastic example, but there have been no shortages of  projects in this region that have been dismal in their result. This specific failure indicates some of the potential risks of ERP software initiatives for organizations in all industries. When organizations consider the risk and cost of an ERP failure, they tend to look at the relatively smaller-scale risks (e.g., going over budget or not realizing business benefits) and tend to overlook the expense of  lost business benefits that can easily carry a much larger cost e.g. loss of key customers and projects/orders, loss of demotivated key staff, bad PR image, problems with audit etc.

 When you factor in implementation risks, such as: unaccounted  assets due to the inability to accurately track data, lost customer orders because of botched inventory planning, and/or revenue shortfalls due to shipping problems, the damage caused by ERP failures increases dramatically. Both Shane Company and Lumber Liquidators, two companies that recently quantified the impact of their failed ERP implementations, discovered that the damage caused by their failures increased exponentially once opportunity costs and negative business impacts were taken into account.

Although a “do-it-yourself” mentality has some benefits in terms of employee ownership to get projects completed this approach has all too often proven to be flawed over the years. A strong project manager on your  staff  and a few  employees that have been through implementations before will help, but few companies have a ful time team on standby, especially with in depth implementation expertise.  The benefits of local experienced implementors who will be around to see the project through and to support beyond,  realistic expectations on both sides on  the achievable scope and efforts needed,  adequate time allocated for training and practice/rehearsal and handholding , and a collaborative approach with responsibilities and onwership on both the client and  implementation partner are lessons learned by most clients on their first implementation, that increase the success of their next project.

 We will never know your business as well asyour team but we learn from many business and implementations and we  implement ERP systems all day every day.  So just as most of us can do some minor car and home repairs  westill  use a professional garage or a construction firm for major work. There is a specialast role in erp implementation.  It’s sobering to compare  how much time and money  is spent on company cars, insurance, servicing, and driver training and testing, and the expertise and certifications and systems of driving instructors and car mechanics compared with the much more important task of driving and maintaining the company business systems, and the skills of those involved and the time and resource allocated in getting the system in.

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