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12-managingriskfactorsinerpimplementationanddesign-090720231532-phpapp02

12-managingriskfactorsinerpimplementationanddesign-090720231532-phpapp02

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Unformatted text preview: {*3 Journal of Advances in Mana ement Research g K, 1’ Vol.3(I) 2006 (pp. 59—67) MANAGING RISK FACTORS IN ERP IMPLEMENTATION AND DESIGN: AN EMPIRICAL INVESTIGATION OF THE INDIAN INDUSTRY Ashim Raj Singla and D.P. Goya] Institute of Management Technology Ghaziabad, UttarI’radesh, India. Email: [email protected], [email protected] ac. in Abstract Enterprise Resource Planning (ERP) Systems, which has became a buzzword in the late 1 990, are the most integrated information systems that cut across various organizations as well as various functional areas. Small and medium enterprises, competitor fr behavior. business partner requirement are the identified and established dimensions that affect ERP systems. Further it has been observed that ERPsystems prove to be afailure either in the design or its implementation. A number of reasons contribute in the success or failure afar: ERP systems. Enterprise resource planning systems inherently present unique risks due to tightly linked interdependencies ofbusiness processes, relational databases, and process reengineering, etc. Knowledge ofsuch risks is important in design of system and program management as they contribute to success ofoverall system in this paper an attempt has been made to study the design and implementation risks factors/or ERP systems in Indian organizations. F or this two public sector companies name/y PUNCOIW and PTL located in northern India have been selected. Based on the model used to study ERP risks and thus thefindings, various recommendations have been putforward to suggest a strategy so as to mitigate and manage such risks. Keywords: Enterprise Resource Planning (ERP), Risk Factors, Design and Implementation Risk Factors, Information systems auditors. INTRODUCTION Enterprise resource planning systems are a corporate marvel, with a huge impact on both the business and information technology worlds. They are designed to enhance competitiveness by upgrading an organization’s ability to generate timely and accurate information throughout the enterprise and its supply chain. A successful ERP system implementation can shorten production cycles, incrcascs accuracy of demand for materials management & sourcing and leads to inventory reduction because of material management, etc. It’s the first enterprise wide product implementing client scrvcr concept which has changed nature of JObS in all functional areas and provides one of the primary tool for rcenginccring. llowcvcr various studies have revealed that not all designs and/or implementations ofERP system are successful. According to Langenwalter (2000). ERP implementation failure rate is from 40% to 60%, yet companies try to implement these systems because they are absolutely essential to responsive planning and communication. The competitive pressure unleashed by the process of globalization is driving implementation of ERP projects in increasingly large numbers. so a methodological framework for dealing with complex problem of evaluating ERP projects is required (Tcltumbdc, 2000). LITERATURE SURVEY It has been found that, unique risks in ERP imple- mentation arises due to tightly linkcd interdcpcndcncics Journal of Advances in Management Research vol. 3(1) pp. 5945 7, 2006 V 759 N AND DESIGN: AN EMPIRICAL INVESTIGATION OF THE INDIAN INDUSTRY of business processes, relational databases, and process reengineering ( Wright and Wright, 2002). Similarly, business risks drive from the models, artifacts, and processes that are chosen and adopted as a part of imple— mentation and are generated from the firm’s portfolio of MAP ’5 with respect to their internal consistency and their external match with business partners. Organizational risks derive from the environment 7 including personnel and organizational structure — in which the system is chosen and implemented (O’Lealy, 2000). According to Umble and Umble (2002), three main factors that can be held responsible for failure of ERP system are: poor planning or poor management; change in business goals during project; and lack of business management support. In another study, it has been found that companies spent large money in developing ERP systems that are not utilized. It is quite common for ERP project to finish late, cost more than predicted, unreliable and difficult to maintain. Moreover BPR also had a high failure rate with consultants estimating that as many as 70% of the BPR projects fails (Hammer and Champy, 1993). Hammer (1990) advocates that the power of modern technology should be used to radically design business processes to achieve dramatic improvements in their perfomiance. From a software perspective ERP systems is complete. But from the business perspective it is found that soflware and business processes needs to be aligned, which involves a mixture of business process design and software configurations (Hamer, 1990). So a purely technical approach to ERP system design is insufficient. According to Allen and Kern (2002), a careful use of communication and change management procedures is required to handle the often business process reengineering impact of ERP systems which can alleviate some of the problems, but a more fundamental issue of concern is the cost feasibility of system integration, training and user licenses, system utilization, etc. needs to be checked. A design interface with a process plan is an essential part of the system integration process in ERP. By interfacing with a process plan module, a design interface module helps the sequence of individual operations needed for the step-by-step production of a finished product from raw materials. Similarly the contributions made by many other authors have been listed in the Table 1. Knowledge of such risks is important in planning and conducting assurance engagements of the reliability of these complex computer systems. But there are certain gaps in existing studies regarding finding the various critical risk factors in ERP system design and imple- mentation. So based on the above literature survey and discussions held with academicians & users of ERP system, the following factors have been identified (Table 2) for successful ERP implementation. OBJECTIVE Keeping in view the importance and gaps in research, a study with the objectives to identify and analyze risk factors in planning and design of ERP system has been undertaken. SCOPE The study has been conducted in two large manufacturing public sector organizations PUNCOM ('l‘elecom system) and PTL (Tractors) located in northern India. PUNCOM specialize in R&D as well as manufacturing in telecommunication systems and various related equipments. It has developed its enterprise-wide product to streamline the Whole system. On the other hand PTL is large tractor manufacturing unit and is controlling its own several subsidiary units. One of its subsidiaries SWRAJ is developing mini trucks. PTL is using its self designed enterprise-Wide product, but is planning to implement SAP. RESEARCH METHODOLOGY 1. Secondary data for research was collected from related books, publication, annual reports, and records of organization under study. 2. Primary data has been collected through questionnaire- cum—interview technique. For this purpose questionnaire was created on already established models and survey of literature. Questionnaire was first pre-tested on 20 managers from the actual sample to be interviewed for checking its reliability and content validity. Cronbach’s alpha test was applied, Where the value of coefficient Was 0.87. Thus pre- tested & modified questionnaire was administered to all the sampled respondents. For developing design model, the managers in the EDP departments of each of the selected organizations were interviewed. Where as for the purpose of developing implementation model all the managers in thc EDP departments along with an appropriate sample of the managers at the three levels of the management of each of the selected 60 Journal ofAdvances in Managementrilieseurch vol. 3(1) pp. 59—67, 20013 MANAGrNG RISK FACTORS l'N ERP IMPLEMENTATION AND DESIGN: AN EMPIRICAL INVESTIGATION or THE lNDIAN INDUSTRY —__——___—_——..————————_——_- Table 1: Literature Review —__—____—___—_,—_._—.— Risk Factor Discussions Users involvement Users training Proces s reengineering (BPR) ERP lacked adequate control System Design Vendor Perfo rmance Infrastructure Design Implementation is poorly executed System does not pro— vide information needed Data conversion is poorly executed. Budget overrun. Time overrun. Skill Mix Management structure and strategy Network capacity to allow proper access to ERP system Security Risks Lack of fiill-time commitment of customers to project management and project activities. Mary Sumner Lack of sensitivity to user resistance is a risk. Mary Sumner Users are not adequately involved in ERP Design. Daniel E.0 'Leary Users are not adequately involved in ERP Design. Sally Wright and Arnold M Wright. Mary Sumner Daniel E, O'Leary Sally Wright andArno/dM Wright Without adequate training, s system can never be used properly, nor can it ever achieve the returns that were projected. Theodore Grossman and James Walsh Failure to redesign business processes. Mary Sumner Process Recrlgineering was required. Sally Wright andArnold M Wright. If expert did not expect that process reengineering is required that would force us to question their expertise. Daniel E. O‘Leary Employees feeling powerless due to downsizing, lack of critical information due to insufficient participation. may lead to BPR failure. PERNILLE KRAEMMEKANU, CHARLES MULLER, HARRYBOER Inability to built bridges to legacy applications. Mary Sumner ERP system initially lacked adequate control Daniel E. O’Leary Control risk potential varies by mandatory nature ofERP subsystems. Risk is more aligned with the company’s business operations. Sally Wright and Arnold M Wright. Poorly designed, it did not adequately mirror required processes. Daniel E. O'Learjv Sally Wright and ArnoldM Wright Failure to adhere to standardized specifications which the software supports. Mary Sumner Lack of integration. Mary Sumner Every new versions changes processes. System increases variety and fragmentation of processes. Linking ERP to other system increases complexity. Potential problems arise with third party implementation partners. Vendors may be learning over the new version or deploy collage students on implementation. Theodore Grammar: and James Walsh Vendors may over promise new features in new versions. Organizations should be highly skeptical of these promises because they often turn out to be worthless. Theodore Grossman and James Walsh Infrastructure design must be a collaborative effort between client and vendors, Theodore Grossman and James Walsh ERP systems are based on advanced technologies that require replacement of existing infrastructure. It is risky as it requires additional capital, NIVAHITUK SEEV NEUIWANN and MOSHE ZVIRAN Daniel E. 0 ’Leary Sally Wright andArnold M Wright. System is not task-technology fit. Daniel E. O 'Leary System designed did not provide information needed for the task. Sally Wright andArno/d M. Wright. Daniel E. O'Leary Sal/y Wright andArnnldM Wright. Legacy data cannot always be converted for ERP systems. A group must be assigned responsibilities to evaluate the quality and completeness of legacy data. Theodore Grammar: and James Walsh Daniel E. 0 ’Leary Daniel E. 0 ’Leary Insufficient training and reskilling. insufficient internal expertise, lack ofbusiness and technology knowledge, failure to mix internal and external expertise effectively are risk factors. Mary Sumner. Lack of top management support, Lack ofproper management control structure, Lack of project champions and ineffective communications, etc. Mary Sumner. Stress testing of network and system must be performed before going live. Theodore Grossman and James Walsh Some ERP subsystems (Payroll, supply—chain. financial) exhibit greater control and security risks than others. Daniel E. O’Leary Failure to check unauthorized access to infomation.Sally Wright and Arnold M Wright. Journal of Advances in Management Research vol. 3(1) pp. 59—6}, 2666 V V 61» MANAGING RISK FACTORS IN ERP IMPLEMENTATION AND DI—Sl AN lLVII’IKlCAL INV‘LSTIGATION or THE INDIAN lNDUSTRY Table 2: Sub Factors for Enterprise Resource Planning (ERP) Implementation Success Factor I. General Risk factors in ERP system implementation. Users are not adequately involved in design. Users are not adequately trained to use the ERP system. Process reengincering is required. ERP system initially lacked adequate control, Poorly designed, it did not adequately mirror required processes. Implementation is poorly executed. System designed did not provide infonnation needed to do the task. Data conversion is poorly executed Difficulty in executing new processes. Factor 2. Risk factors in ERP implementation on the basis of time. cost and other factorsBudget overrun. Time overrunLack of benefits. System does not meet business plan criteria. Factor 3. Risk factors encountered with migration of ERP system. Time needed for implementation. Technical problems with new version. Bad estimates with migration partners. Cost involved. Quality of migration support. Factor 4. Risk factors from users involved in various phases ofERP system. Inattention to work with the new system. Inadequate training or failure to follow procedures of new system. Not smart enough to understand the system advantages. Arc lazy and want to continue working with traditional procedures. Overly perfectionist in their experience Too difficult to learn and use in reasonable amount oftime. organizations were selected. The sample of the randomly selected managers was proportionate and statistically sound that represents the universe of managers of the selected organizations. 115 experienced respondents from both the companies who specialize in their related production skills and use of ERP system had participated in the study. 3. Data was collected on 5 point Likert scale depending on the relative importance ofa factor. Finally the factor analysis is applied to analyze the data to arrive useful conclusions using SPSS package. Table 6 and 7 represents the rotated factor matrix, i.e. the final Creating political problem with some users by changing political or work distribution in organization. Lack ofinternal expertise and skillset. Lack of ability to recruit and retain qualified ERP system dcvclopcrs. Factor 5. Risk factors in planning and Requirement analysis. Lack ofpropcr top management support. Lack ofChampion and proper project management structure. Failure to redesign business processes. Factor 6. Risk factors in system design of ERP. System is expensive. Increasing variety and fragmentation ofprocesses. Choice ofoperating system may influence the knowledge and people required. Network capacity to allow proper access to ERP system. Every new versions changes processes. Linking ERP to other system increases complexity. Factor 7. In operation & security implementation of ERP system. "no little effort goes into supporting effective use. System is not updated as business needs changeFailure to check unauthorized access to information. Unauthorized use ofaccess codes and financial passwords. "heft by entering fraudulent transaction data. ‘heft by stealing or modifying data. Factor 8. Other risk factors. Attempt in industry to steal business secrets. Extensive reliance on computer and internet connectivity. Large R&D effort as percentage ofrevenues. National / International media profile. Operator error while executing transaction. Software bugs or data errors statistics, for risk factors in ERP implementation and risk factors in ER? desrgn and planning. All the factor loadings that are greater than 45 (ignoring the sign) have been considered for further analysis. The 34 variables of these tables were then loaded on 8 factors (see table 3). In order to find out as to which of the above given factors rank as the most satisfying/ dissatisfying for ERP implementation, the factor wise average score (from 5 pt. likert scale) were calculated. The satisfaction level of the factors on the basis of factor-wise average scores has been categorized as given below (see table 4). The naming ofthe factors 62 N Journal ofAdvanceS in Managemeithiesealth vol. 73(1) pp. 59—67, 2006 MANAGWG RISK FACTORS IN ERP IMPLEMENTATION AND DESIGN: AN EMPIRICAL INVESTIGATION OF IHE I has been done on the basis of the size of the factor named after these variables (see table 3) loadings for respective variables. Greater the factor loading, greater are the chances of the factor being Tables 3: Average score of implementation risk factors as tested in PUNCOM and PTL (N=115) INDusrRY Factor/Rating Issues Frequency 1 2 3 4 5 Avg Risk factors in ERP system Implementation. Implementation Process reengineering is required. 0 7 27 53 28 3.89 Constraints Budget overrun. 0 1 12 43 59 4.39 (3.876) Time overrun. 0 6 18 52 39 4.08 Inattention to work with the new system. 0 7 35 55 1 8 3.73 Not smart enough to understand the system advantages 4 24 36 37 14 3129 After going live Bad estimates with migration partners. 1 32 50 26 6 3.03 (3.4375) Failure to check unauthorized access to information. 0 7 53 35 20 3.59 Extensive reliance on computer and intemet connectivity 1 26 53 23 12 3.17 Large R&D effort as percentage of revenues. 0 1 35 47 32 3.96 ERP Software Too difficult to learn and use in reasonable 0 37 46 25 5 2.95 (3.1325) amount oftime Theft by entering fraudulent transaction data. 0 21 66 22 6 3.11 Operator error while executing transaction. 0 19 61 35 O 314 Software bugs or data errors 2 13 49 47 4 3.33 System Migration Data conversion is poorly executed. 0 14 42 49 10 3148 (3.25) Difficulty in executing new processes. 0 7 50 43 15 3.57 National / International media profile. 8 32 61 14 0 2.70 Project Users are not adequately trained to use the ERP system 0 O 24 47 44 4.17 Management Implementation is poorly executed. 0 5 I4 58 38 4.12 (4.29) Creating political problem with some users by changing political or work distribution in organization. 0 1 15 36 63 4140 Lack of‘internal expertise and skill set. 0 0 15 30 70 4.48 Risk factors in ERP system planning and design. System Design Users are not adequately involved in design. 5 1 5 37 3 7 21 3.47 (3.35) ERP system initially lacked adequate control. 0 32 32 33 18 3.32 Poorly designed. it did not adequately mirror required processes. 2 12 39 36 26 3.63 Technical problems with new version. 4 3 23 58 27 3.88 Choice of operating system may influence the knowledge and people required. 18 36 39 12 10 2.65 Extensive reliance on computer and internet connectivity. l 26 53 23 12 3.17 Implementation Lack of proper top management support. 0 0 8 49 58 4.43 team (3.76) Lack ofChampion and proper project management structure. 0 7 34 44 3 0 3.84 Failure to redesign business processes 0 7 28 39 41 3.99 Network capacity to allow proper access to ERP system. 1 52 35 24 3 2.79 Business process System does not meet business plan criteria. 5 23 42 41 4 3.14 design (3.76) Increasing variety and fragmentation of processes 0 4 4 54 53 4.36 Every new versions Changes processes. 0 22 25 47 21 3.58 Large R&D effort as percentage ofrevenues. 0 I 35 47 32 3.96 Journal oan'vances in Management Research vol. 3(1) pp. 59—67, 2006 63 MANAGING RISK FACTORS IN ERP IMPLEMENTATION AND DESIGN: AN EMPIRICAL INVESTIGATION OF THE INDIAN INDUSIRY 7,, a Table 4: Ranking of ERP system risk factors as tested in PUNCOM and PTL (N=115). Implementation Risk Factors Risk Factors Score Ranking Project Management 4.29 1 Implementation constraints 3.87 2 Business Process design 376 3 Implementation team 3 .76 4 After going live 3.43 5 System design 3.35 6 System migration 3.25 7 ERP Software 3. l 3 8 RESULTS AND DISCUSSIONS The thus collected data were subjected to various types of statisti...
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