How to Mitigate Risk in ERP System Selection & Implementation

Selecting and implementing an enterprise resource planning (ERP) system can be a complex and high-stakes endeavor, but embracing the right strategies can significantly mitigate the associated risks and increase the likelihood of a transformative process that enhances productivity, streamlines workflow, and drives organizational growth.

“While ERP platforms can be transformational and add significant value, companies must be careful when implementing or upgrading systems to avoid risks that could limit the return on investment, create vulnerabilities or cause regulatory concerns,” wrote Kari Sklenka-Gordon in the Baltimore Business Journal. “Recent Gartner research found that 75 percent of ERP initiatives fail; that rate is so high due to the number of risks that occur during implementations.”

Risky Business but Benefits Outweigh the Costs

A study of risk management in ERP implementation for Aston University acknowledged that ERP projects are “highly risky” because they are technically complex, multidisciplinary, capital intensive, and span a long duration.

“Although risk management practices increase the project cost in terms of deploying extra human resources and overheads, additional resources for risk mitigation, etc., the benefits (proactive approaches to prevent failure) will ultimately outweigh the costs,” concluded the white paper authors.

One study cited in the research paper found the top five risk factors for implementing an ERP System:

• Inadequate ERP selection
• Ineffective strategic thinking and planning.
• Ineffective project management techniques.
• Bad managerial conduct.
• Inadequate change management.
  
  

What Can Go Wrong? Finding a Framework for Risk Factors

The authors of the white paper presented a framework for risk factors in ERP selection and implementation according to project phase and risk category:

• Planning
  • Project Management Processes

• • • Inaccurate business case
    • Unclear objectives
    • Weak implementation team
      
      
  • Organizational Transformation
    • Lack of management/executive commitments and leadership
    • Lack of synergy between IT strategy and organizational competitive strategy
    • Unclear change strategy
      
      
  • IT
    • Lack of communication with the end users
    • Inadequate training plan for the users
      
      
• Implementation
  • Project Management Processes

• • • Inappropriate management of scope
    • Lack of communication between ERP implementation team, ERP provider and ERP users
    • Poor contract management
      
      
  • Organizational Transformation
    • Inappropriate change management
    • Inappropriate management of culture and structure
      
      
  • IT
    • Business process reengineering incompetence
    • ERP installation incompetence
    • Inappropriate selection of ERP software
    • Inappropriate system integration
    • Inaccurate performance data
    • Inappropriate users training
      
      
• Hand-over, Evaluation, and Operations
  • Project Management Processes
    • Inappropriate contract closeout
      
      

• • Organizational Transformation
    • Inadequate Organizational readiness
    • Resistance to change
    • Lack of user training
      
      
  • IT
    • Inappropriate system testing and commissioning
    • Multi-site issues
    • Lack of clarity on inspection and maintenance
    • Inaccurate performance measurement and management framework
      
      

Of course, not every ERP selection and implementation will be faced with all of the associated risks above, but organizations prepared to effectively manage risks will increase their likelihood of a successful transformation.

Strategies to Mitigate Risk on Your ERP System Project

There are many different strategies to mitigate risk on your ERP system project but if your organization lacks a well-thought-out strategy then the selection and implementation could be doomed to failure.

“Businesses must strategize ways to minimize the risks before the ERP implementation to avoid events of ERP failures,” says Enterprise Talk. “With the growing ERP market, businesses must carefully evaluate the risks before ERP system implementation. Adequate communication with ERP consultants is a primary step to minimize the risks as they effectively aid in setting up business-related goals. Mitigating the risks promotes quality, speeds up implementation, and minimizes consulting costs.”

Let’s explore some of the best practices for mitigating risk during the ERP system journey:

• Thoroughly Assess Business Needs: Before embarking on the selection process, conduct a comprehensive assessment of your organization's specific business needs. This involves engaging stakeholders from different departments to gain a deep understanding of their requirements. By aligning the ERP system with your organization's objectives and processes, you reduce the risk of choosing an ill-fitting solution.
  
  
• Involve Key Stakeholders: To mitigate risk effectively, involve key stakeholders throughout the selection and implementation phases. These stakeholders should include representatives from various departments who will be directly impacted by the ERP system. Their involvement ensures that the system's functionalities and features meet their specific requirements, increasing the chances of successful adoption.
  
  
• Thorough Vendor Evaluation: Carefully evaluate potential ERP vendors before deciding. Consider factors such as vendor reputation, industry experience, financial stability, support services, and the scalability of their solution. Request demonstrations and references from similar organizations to assess the vendor's capability to meet your needs. This diligent evaluation minimizes the risk of selecting an unreliable vendor or an ill-suited ERP system.
  
  
• Create a Clear Implementation Plan: Develop a detailed implementation plan that outlines the necessary steps, timelines, and responsibilities. This plan should consider the organization's capacity for change and provide a realistic timeframe for implementation. By clearly defining the implementation process, potential risks can be identified and addressed proactively, ensuring a smoother transition.
  
  
• Conduct Thorough Testing: Testing is a critical aspect of ERP implementation. Develop a robust testing strategy that includes various scenarios and ensures the system meets all functional requirements. Thoroughly test data migration, integration with existing systems, user interfaces, and any customizations or configurations. Rigorous testing minimizes the risk of system failures or data inconsistencies during go-live.
  
  
• Provide Comprehensive Training and Change Management: Successful adoption of the ERP system relies on user acceptance and understanding. Invest in comprehensive training programs that cover both technical aspects and the system's impact on day-to-day operations. Additionally, implement change management strategies to prepare employees for the transition, address concerns, and encourage engagement. Proper training and change management mitigate the risk of resistance or poor user adoption.
  
  
• Monitor and Evaluate Progress: Throughout the implementation process, closely monitor and evaluate progress against predefined milestones. Regularly review the project's status, identify potential roadblocks, and take corrective actions promptly. Establish key performance indicators (KPIs) to measure the system's effectiveness and address any issues that arise. Ongoing monitoring and evaluation help mitigate risks by ensuring timely intervention and course correction.

Contact KnowledgePath Consulting today for help in reducing cost and risk while selecting and implementing an ERP system for your organization that can successfully transform your business.