Capping the Spewing Spigot of ERP Implementation Costs

Stan Lepeak, Managing Director, Global Research

For too many end-user organizations adopting or expanding commercial enterprise resource planning (ERP) systems, the implementation process can look too much the like current oil spill in the Gulf of Mexico. While not to make light of the spill, ERP implementation efforts are too often out of control, seemingly impossible to conclude or stop, incredibly costly, and for some potentially fatal—at least career-wise. In many cases you could also argue those involved should have seen the potential for a blow-up and taken more advance precautions. While sage advice, the question is what can ERP buyers do to mitigate implementation risk?

As a representative example, EquaTerra has begun working with a $7B revenue global manufacturing organization that launched an SAP implementation effort in 2008. Implementation costs, originally budgeted at an impressive $400M, quickly ballooned to more than $560M as the effort took flight and the complexity and global scope became difficult to address and manage. EquaTerra is working with the client to bring the implementation time frame and budget back to its original scope by doing the following:
•    Improve performance and risk mitigation efforts to improve transparency and remove implementation barriers.
•    Deploy new governance models that lead to facilitated decision making and reduced project churn.
•    Introduce a new global deployment schedule that simplifies the approach and reduces business disruption risk and significantly reduces capital and operating expenditures.

While still not a trivial cost, $400M is viewed as reasonable given the scale and scope of the effort and is within the client’s original business case calculation.

Out of control ERP implementations are nothing new, dating to the 1990’s when commercial ERP implementation efforts took off in the market in advance of “Y2K.” Improvements in buyer, software vendor and system integration implementation skills, however, have often been outpaced by the increased complexity of global ERP efforts, particularly when outsourcing and SaaS/cloud elements are introduced into the equation. What is new are some of the improved tools and techniques buyers can use to address these complex efforts. Additionally, given current economic conditions and the increased global competitive pressure faced by the typical ERP user, the negative ramifications of ERP implementations gone wild are greater than ever.

One Response to “Capping the Spewing Spigot of ERP Implementation Costs”

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