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Chapter 3: ERP System Options & Selection Methods. Alternative ERP project forms Budgeting methods. IS/IT Projects. Typically Late Over budget Fail to satisfy design specifications ERP projects Are larger than normal Can be expedited (if you do it vendor’s way)

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Chapter 3 erp system options selection methods

Chapter 3: ERP System Options & Selection Methods

Alternative ERP project forms

Budgeting methods


Is it projects
IS/IT Projects

  • Typically

    • Late

    • Over budget

    • Fail to satisfy design specifications

  • ERP projects

    • Are larger than normal

    • Can be expedited (if you do it vendor’s way)

    • Cost range $5 million to over $100 million (+)



Changing nature of it
Changing Nature of IT

  • Technology is highly dynamic

  • ERP projects often take years to install

    • Vendors are responding by expediting

      • As long as you do it their way

  • Improved versions may be on market by the time you install your system

    • This is one advantage of an ASP


It selection practice
IT Selection Practice

  • Hinton & Kaye [1996]:

    • IT tends to be viewed as capital budgeting

    • Implication is that clear financial return is expected

      • Sound thinking, but benefits often intangible (yet real)

      • Some strategic investments require bold judgment

      • Conversely, companies have gone broke buying IT


Is it project risk factors simms 1997
IS/IT Project Risk FactorsSimms [1997]

  • Project manager ability

  • Experience with this application type

  • Experience with programming environment

  • Experience with language or system

  • Familiarity with modern programming practices

  • Availability of equipment, software, language tools

  • Completeness of project team

  • Personnel turnover

  • Project team size

  • Relative control of project manager over project team


Financial techniques for capital budgeting
Financial techniques for Capital Budgeting

  • Payback

  • Discounted cash flow

  • Cost-benefit analysis

    These are the more formal mechanisms implied by Hinton & Kaye as capital budgeting

    Anything with as great an impact as ERP needs to have some estimate of cost, benefits

    • Need to recognize that precise numbers not worth obtaining


Bacon 1992 survey of it project selection methods
Bacon [1992] survey of IT project selection methods

  • Financial Criteria

    • NPV, IRR, payback

    • profitability index

    • budgetary constraint

  • Management Criteria

    • Requirements, respond to competition, etc.

  • Development Criteria

    • Technical/ learning new technology, probability


Bacon findings
Bacon findings

  • More formal methods often not used

    • Why waste effort if know you will do it?

    • Many numbers used inaccurate anyway

    • More formal methods reserved for larger project (like ERP)

  • Management criteria focus on intangible

  • Technical a matter of maintaining state-of-the-art systems


Survey of manufacturers mabert et al 2000 olhager selldin 2003
Survey of ManufacturersMabert et al. (2000); Olhager & Selldin (2003)


Expected installation time mabert et al 2000 olhager selldin 2003
Expected Installation TimeMabert et al. (2000); Olhager & Selldin (2003)


Estimated installation cost mabert et al 2000 olhager selldin 2003
Estimated Installation CostMabert et al. (2000); Olhager & Selldin (2003)


Cost proportions mabert et al 2000 olhager selldin 2003
Cost ProportionsMabert et al. (2000); Olhager & Selldin (2003)


Mabert et al 2000 survey of 400 manufacturers
Mabert et al. [2000]Survey of 400+ manufacturers


Expected roi mabert et al 2000 olhager selldin 2003
Expected ROIMabert et al. (2000); Olhager & Selldin (2003)


Mabert et al 2000 survey of 400 manufacturers1
Mabert et al. [2000]Survey of 400+ manufacturers

  • Even for ERP systems, only 53% used formal methods

    • For smaller IT projects, payback most popular

  • Most systems expected to take years to install

    • Trend is to make much faster

  • Cost varies widely

    • You have a choice as to where you spend

    • Training tends to be underbudgeted

  • Not all expect big return


Points
Points

  • A variety of evaluation techniques available

  • Pure monetary analysis hard, expensive, inaccurate

    • Payback a commonly used shortcut

  • Other methods exist

    • Value analysis

    • Multicriteria analysis


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