Implementing ERP

Internal Auditor, Feb, 1999 by Steven M. Glover, Douglas F. Prawitt, Marshall B. Romney

ERP INITIATIVES CAN BE INTIMIDATING AND FRAUGHT WITH RISK. NONETHELESS, BECAUSE THE STAKES ARE SO HIGH AND THE POTENTIAL FOR TROUBLE SO GREAT, IT'S APPROPRIATE - EVEN ESSENTIAL - FOR INTERNAL AUDITORS TO BE INVOLVED.

Legacy systems are being replaced at a rapid pace by enterprise resource planning (ERP) systems, such as SAP R/3, PeopleSoft, and Baan, often with great benefits to the organization, but sometimes with painful side effects. Since it is management's responsibility to plan and carry out a successful systems implementation, most difficulties and failures cannot be attributed to shortcomings on the part of internal auditors. However, internal auditors can be part of the solution by being appropriately and actively involved in ERP adoptions, from start to finish. By understanding the risks most commonly associated with ERP implementations and appropriately leveraging their core skill sets, internal auditors can become important members of the organization's strategic ERP implementation team.

AN ERP HORROR STORY

Discussions with representatives from several companies that use Eat, systems reveal that these organizations have all made similar mistakes. The story of BIZ Inc., a large, mythical corporation whose experiences mirror those of actual organizations, demonstrates what can, and often does, go wrong in an ERP systems implementation.

A GOOD START BIZ's decision to switch to ERP was based on sound business reasoning. Costs to maintain the mainframe-based information system had escalated in recent years because the manufacturer no longer supported the model used by the organization. In addition, Arnold Jackson, the Assistant Vice-President in charge of information systems, recognized that client/server systems represented the future of computing. It was time for a change.

Arnold and his staff prepared a general plan that broadly outlined how the organization could migrate to a client/server system. They also engaged one of the major public accounting firms to help them determine their information system needs and recommend possible solutions.

After interviewing several users, the consultants identified three software products that would meet BIZ's needs. They also recommended one package they considered to be a "best fit" for the organization.

THE PROBLEMS BEGIN Unknown to Arnold and other management, BIZ s parent organization had also been planning a move to a client/server environment. Unfortunately, they had chosen a different ERP package than the one recommended for BIZ. Although BIZ was basically self-directed and autonomous, the larger parent organization strongly suggested that BIZ select the same software. Since their choice, Brand X, was a leading ERP package and was among the three suggested by BIZ'S outside consultants, BIZ agreed.

BIZ hired a different consulting firm to help with the implementation. As a result, three groups were directly involved: Brand X's support staff, the outside consultants, and BIZ'S own information systems staff. Although a general implementation plan was outlined, a detailed adoption and testing plan was never developed.

BIZ chose the public-sector version of Brand X instead of the commercial one adopted by the parent company. Unfortunately, the public-sector version was relatively new, not well tested, and designed primarily for governmental entities - not for BIZ's type of organization. The system couldn't handle some of the basic tasks BIZ expected it to perform, such as budget encumbrances, and k didn't process returns, credits, or blanket orders in a manner consistent with BIZ's operating environment.

BIZ took comfort in the fact that expensive consultants were on the job and quickly got the project off the ground. However, it soon became evident that they were not familiar with the public-sector version of Brand X. More importantly, the consultants did not thoroughly understand BIZ or its industry.

The consultants lacked the "big picture" perspective of the company's business operations and were unable to suggest ways BIZ could reengineer their processes to facilitate ERP adoption and increase efficiency and effectiveness. When BIZ asked the consultants "Can we do this?" the consultants answered,"Yes, we think we can make that work." A more informed answer would have been something like, "We probably could, but we do not recommend that. We suggest the following...."

At the same time, BIZ personnel were busy dealing with the daily demands of running the existing system and didn't spend a lot of time thinking about these issues. By default, BIZ and the consultants resorted to making the new system mirror the old one in look and feel, thinking this approach would minimize the suffering associated with the new system. In doing so, the weaknesses of the old system were ignored and, in fact, painstakingly designed into the new system.

TIME TO HIT THE SWITCH After more than a year, BIZ's management was frustrated with the amount of time it was taking to complete the project. They were also approaching the end of the lease on the mainframe and did not want to incur the high cost of renewing it. As a result, the end of the lease term was set as a firm date for shutting down the mainframe and "going live" with the new system.