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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
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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