ERP risks that can’t be ignored
Enterprise resource planning (ERP) risks are inherent. In many cases, risk is commensurate with the scale of the ERP project. The more areas of the business the ERP system will touch, the greater the likelihood of associated risk.
This should come as no surprise to the ERP project team heading into active evaluation, selection and ERP implementation.
Unlike a typical project team that might live through an ERP project once or twice a career, Ultra’s ERP consultants have successfully guided hundreds of manufacturers and distributors through the process of enterprise initiatives and offer a unique perspective on ERP risks that we consider a best practice in the industry.
Awareness of ERP risks
Gaining an awareness of ERP risks and striving to embrace a proactive risk management stance will help teams take steps to address serious project and business issues in the future. The six risk categories encountered most frequently include:
1. Business priorities and leadership: These risks commonly arise due to changing business and leadership dynamics of the project. As an example, are competing priorities likely to necessitate resource reallocation? Will key team members and resources be pulled into another high priority enterprise-wide project? Can the organization handle existing workloads and operations without affecting the ERP project? These threats stemming from project organization, resource allocation, workload, and competing priorities must be addressed and require appropriate mitigation activities.
2. Financial budget and value realization: Many projects undertaken by manufacturing and distribution organizations carry risk related to the budget or financial expectations of the project. Risk typically stems from a lack of comprehensive scoping and budgeting for the project; insufficient assessments of tangible benefits and measurable targets that define investment expectations; changes in the project budget allocation; or unanticipated financial forecast changes. This risk category impacts confidence in realizing the business case and value priority of the project.
3. Project scope and timeline: Here’s where that dreaded "scope creep" comes into play. ERP risk in this area comes from unexpected project scope changes such as unplanned business or process requirements; lack of appropriate scope details leading to assumptions and misunderstandings; or software modules/functionality that don’t deliver to the expectation and therefore require additional change, development, due-diligence, and more time. Changes to the original work plan including extensions or reductions of the project timeline also increase risk for project success.
4. Resource staffing and competencies: Similar to the first category of business risk, these risks involve project team staffing, resource allocations, competing priorities, individual competencies, and organizational stability. For example, consider any potential changes in executive leadership that might negatively impact project sponsorship.
5. Change and cultural adoption: Successful adoption of change across the enterprise requires mature change management techniques, principles, and experience. This area of risk relates to general acceptance or resistance to change, individual adoption of the project activities or outcomes, and just as important—the overall readiness of each functional area to move forward in executing the day-to-day expectations of the business with confidence, efficiency, and success.
6. Process capability and future state expectations: It’s important to proactively assess risk associated with the process expectations as well as what the capability of those processes are.
Understanding these expectations is key to ensuring the project team delivers the results in terms of anticipated business efficiencies, productivity goals, and value targets.
Charlie Schloff is a partner and chief innovation officer for Ultra Consultants, a CFE Media content partner. This article originally appeared on Ultra Consultants’ blog.