Kingdom of Saudi Arabia

Ministry of Higher Education

Al-Imam Muhammad Ibn Saud Islamic University
College of Computer and Information Sciences

Chapter 5 : ERP Life Cycle: Planning and

Package Selection
IS 395: Enterprise Resource Planning
Objectives of the chapter
• Know why organizations change their information system
• Describes activities that take place in the planning stage
of the ERP life cycle
• Identify rationales used by companies for investing in
ERP
• Recognize the cost components of an ERP system
• Describe activities that take place in the package
selection stage of the ERP life cycle.
Why Organization Change their Information Systems

• Research has suggested today’s information system

has an average life span of about 5 years.

• Replacing or upgrading an information system is

motivated by many factors.
Why Organization Change their Information Systems (1/4)

• Obsolescence: As systems age, they

may become incapable of taking
advantage of advancing technology.
• High operational costs: As systems
age, they often become very expensive
to operate, requiring more patches and
custom code to maintain their
usefulness.
 Why Organization Change their Information Systems (2/4)

• Lack of vendor support: Software vendors may

go out of business or be acquired. Additionally,
software vendors will cease supporting older
versions and providing technical assistance.
• Lack of compliance: Government and
institutional compliance requirements continue
to grow and evolve. It needs upgrades or
replacements to Information system.
Why Organization Change their Information Systems (3/4)

• Different or enhanced functionality: A

company may delve into a new line
of business, go global, or need more
internal controls and procedures in
their system
• Changing business model:
Organization’s new business model
or practices result in upgrading or
replacement of IS
Why Organization Change their Information Systems (4/4)

• Lack of scalability: New information

systems are often needed to support
planned or unexpected growth.
Systems must be able to scale up to
increased numbers of users and
transaction volume
• Too many business problems and
unanswered questions
The ERP Life Cycle

• Planning (Chapter 5)
• Package Selection (Chapter 5)

• Implementation (Chapter 6)
• Maintenance (Chapter 6)
 ERP Life Cycle: Why Planning? (1/9)

• An ERP system is one of the most costly

investments a company will make.
• There is significant risk of failure if a company
approaches an ERP implementation without the
priority, commitment, and attention to detail
required.
• Proper planning is imperative to the financial
and operational success of ERP.
• Poor planning can lead to missed opportunities,
mistakes, or total failure.
 ERP Life Cycle: Planning .. Rationales (2/9)

• Need a rationale grounded in a business case (high level

reason why a company undertakes an ERP implementation)
• Types of rationales:
1. Technology rationale – IS are failing, desperately need new
technology.
•Too expensive to patch and maintain old,
•outdated systems,
•need better visibility of data.
• A technology rationale can include:
• upgrading systems to a client-server model,
• better visibility and utility of data across the company
• extending information to speed customer and supply chain
communication.
ERP Life Cycle: Planning .. Rationales (3/9)

2. Competitive rationale – adopting a

system because the competition has
it, need to keep up to maintain
competitive parity
ERP Life Cycle: Planning .. Rationales (4/9)

3. Strategic rationale – reasons why ERP is needed to support

the organization’s strategic direction
• Examples of strategic rationales include:
• Drive growth,
• support mergers and acquisitions,
• market diversification,
• globalization
4. Business process rationale – benefits in key processes
(KPIs)
• Attain targeted,
• specific
• measureable performance improvements
Management can use any or all of these rationales to
justify their company's decision to implement an ERP
system.
 ERP Life Cycle: Planning (5/9)

• Executive Leadership – The ERP champion..

• rally support
• distribute resources
• delegate management of implementation to team
• CEO, CFO, or other high level sponsor should
take ownership of the project and be actively
involved in its activities .

chief executive officer (CEO),

chief operations officer (COO),
chief financial officer (CFO)
ERP Life Cycle: Planning (6/9)

• Project Scope – project team should determine the

scope and the procedures to enforce against the
“never ending project” syndrome
• Project scope includes:
• business processes that will be included in the
implementation,
• the ERP functionality that will support these
business processes,
• the divisions or business units that will be included
in the roll-out.
• the technical infrastructures that will be replaced
ERP Life Cycle: Planning (7/9)

• Scope management –
• define and control what is and what is not
included in the project;
• guard against scope creep – changes to the
scope of the project.
• Project charter should be drafted
 ERP Life Cycle: Planning (8/9)

• Project Team
• Given the discretion to make all important decisions
regarding the implementation
Consists of :-
• key process owners,
• end users,
• managers,
• IT people,
• executives who span functional boundaries,
• business units,
• organizational levels.
ERP Life Cycle: Planning (9/9)

 Project Manager
 Understand both technology and
business processes
 Knowledge of the effect of ERP on the
business
 Work with professionals to organize a
smooth transition from the “as is” state to
the “to be” state
 Envision the end results and make tough
decisions
ERP Costs (1/6)

• Total cost of ownership (TCO) – total

costs that will likely be incurred throughout
the system’s life cycle.
• TCO is influenced by:
• Transaction volume
• Number of users
• Functionality
 ERP Costs (2/6)

• Application license – govern the software’s use

• Named users – company identifies the total number
of users who will access the system
• Site license – blanket contract covering the use of
the ERP system at a particular location
• Concurrent users – maximum number of users who
would potentially access the system at a given time
• Heavy users – those who use more of the systems
functionality and may be charged a higher license fee
than casual users who may only view reports or run
occasional queries
ERP Costs (3/6)
• Database License – based on
• the number of simultaneous users that will log
into the system or
• the number/type of database servers required
• Hardware – varies depending on the scope of
implementation and platforms
• Will need database and application servers,
• storage systems,
• network components,
• wiring,
• power,
• user workstations,
 ERP Costs (4/6)

• Implementation Services – Budget overruns due to

them most of the times.
• Prepare before consultants arrival
-> Maximum their productivity
-> Minimize the cost
• Consultants can be:
1. implementation specialists,
2. Subject matter experts
3. project managers
4. testing or training specialists.
• Implementation services expenses can be difficult
to estimate.
ERP Costs (6/6)

• Internal HR Costs – varies among companies and projects

• Full time equivalents
• Ongoing Maintenance –
• typically 20 – 30% of the software license costs per year
• Hidden Costs –
• scope creep,
• training,
• customization,
• data conversion,
• developing interfaces between the ERP system and other
systems
ERP Benefits

• Integrate financial information – creates one version of the

truth, which can not be questioned because everyone uses
the same system
• Integrate customer order information – customer order
travels from the salesperson through credit, picking,
packing, shipping, invoicing and cash receipt
• Standardize and speed up manufacturing processes
• Reduce inventory – help manufacturing process flow more
smoothly, improving visibility of the order fulfillment process
• Standardize human resource information – consolidates
employee information into a single system and provides
self-service accessibility to manages and employees
ERP Life Cycle: Package Selection
• Package selection  Key steps in selecting an
presumes that a high- ERP system:
level organizational 1. Market Survey
group has approved 2. Request for Information
funding based on the 3. Narrowing Down the
business case outlined by Choices
the project team 4. Site Survey
• Choosing the “best” 5. Requirements Analysis
application for a company 6. Request for Proposal
is based on: 7. Demo Days
1. functionality, 8. Reference Visits
2. affordability, 9. Fit-Gap Analysis
3. user-friendliness, 10. Implementation
4. customizability, Methodology Discussion
11. Proposal
5. vendor support
12. Decision and Negotiations
ERP Life Cycle: Package Selection

• Market Survey – to determine which vendors’ systems

might be potential alternatives
• Websites, industry magazines, trade exhibits, suppliers,
competitors, etc.
• Request for Information – issue a request for information
to the vendors indentified in the market survey
• Request for information (RFI) – vendors supply written
information about the capabilities of their solutions and the
skills they offer
• Narrowing Down the Choices – project team should
narrow down the ERP vendor candidates based on criteria
important to them
ERP Life Cycle: Package Selection

• Site Survey – invitation for each of the prospective vendors

to meet with the project team on-site so that the vendor’s
sales team can better understand the buyer’s functional
requirements and the peculiarities of their business .

• Requirements Analysis – detailed analysis to determine all

the functionalities they need and desire

• Request for Proposal – formal document developed by the

potential buyer that details requirements in order to seek
vendor offerings
• Enables the requestor to evaluate and compare various
proposal fairly
ERP Life Cycle: Package Selection
• Demo Days – vendor must “walk the walk” and “talk the talk”
• Must be detailed, showing how key business process work using the
prospective customer’s own data

Table 5-2: 10 Rules to Make an ERP Demo as Smooth as Possible

Use the same team to view all vendor demonstrations
Agree the agenda with vendor well in advance and stick to it
Confirm the “must haves” first and then the “nice to haves” and lastly the
“bells and whistles”
Compare fits and identify gaps
Focus on the system’s operation avoiding the influence of freebies, a
flashy appearance, and slick suits
Notice their culture
Allow the vendors to share their new ideas
Leave enough time for a post-demo Q&A
Use a weighted score sheet for scoring and ranking vendors
Cover implementation and support/maintenance separately
 Figure 5-2: ERP Weighted Score Sheet
Vendor
A B C

Weight

Weight

Weight
Import

Rating

Rating

Rating
Rating

Rating

Rating
(1-10)

(1-10)

(1-10)
ance
(1-3)

ed

ed

ed
ERP Selection Criteria

Manufacturing Functionality 3 8 24 10 30 7 21
Planning Functionality 2 6 12 7 14 8 16
Distribution Functionality 2 6 12 5 10 4 8
Financials Functionality 3 4 12 7 21 6 18
Ease of use 3 6 18 9 27 3 9
Customizability 1 5 5 9 9 6 6
Compatibility with Existing Applications 2 6 12 7 14 8 16
Matched to Our Growth 3 4 12 6 18 5 15
Pricing Structure 2 6 12 5 10 4 8
Implementation Costs & Time 3 2 6 8 24 6 18
Single Source - Total Solution 2 6 12 7 14 8 16
Integration with Third Party Applications 1 4 4 6 6 8 8
Commonly Used in Our Industry 2 8 16 5 10 3 6
Quality, Accessibility & Cost of Support 3 3 9 5 15 7 21
Partnership Potential 1 3 3 8 8 10 10
Understands Our Business 3 7 21 7 21 2 6
Understands Our Processes 3 5 15 9 27 4 12
Business Stability 2 5 10 8 16 9 18
R & D Resources 1 5 5 8 8 7 7
Implementation & Training Resources 3 4 12 8 24 10 30
ERP Life Cycle: Package Selection

• Reference Visits – visit to a “like” customer site of the final

short-lived vendors
• Before making a decision the project team should visit one or
more of the vendor’s customer sites to observe how the ERP
system works in real life
• Issues to discuss with “like” customers include:
• Satisfaction with functionality and performance
• Satisfaction with look and feel of the system
• Implementation time and cost
• Impression of the vendor as an implementation partner
• Local vendor support
• Lessons learned from issues that were not anticipated but arose after the
implementation began
 ERP Life Cycle: Package Selection

• Fit-Gap Analysis – used to compare the company’s

requirements with what the ERP systems under
consideration offer
• The more functionality “gaps” the less attractive a system is to
the customer; however process gaps are opportunities to
reengineer to best practices
• Requirements gaps must be closed by customization or bolt-
ons.
• Example: if package A has 50 major gaps and package B has
15 major gaps, package A will likely create more problems
implementing.
• The project team should provide an unbiased analysis of the
alignment of the software to org.
 ERP Life Cycle: Package Selection

• Implementation Methodology Discussion – discussion of the

understanding of implementation needs
• Project team and implementation team should agree on project
scope, roles and responsibilities of customer and
implementation team, implementation methodology and
defined deliverables that will be used to guide the project and
gauge its success
• Proposal – includes the recommended modules for the defined
scope, annual fees for support and software assurance(that
provides rights to future release of the system at little or no
cost), a high level project plan, and the defined hardware,
network, and software requirements necessary to support the
new ERP systems
ERP Life Cycle: Package Selection
• Decision and Negotiations – the team should discuss all critical
information obtained from demos and reference visits, then rate
each vendor, a selection is made, and a contract is signed by
both parties
• Role of CIO: compares the suitability of the technology and
its cost.
• Role of CFO: Evaluates the vendor’s financial health and the
contract as well as consider purchasing, leasing, and
outsourcing options.
• Communicating clearly and openly about needs, budget, and
challenges is often the best way to reach a “win-win”
solution.
• After whole exercise,… the contract is signed by both parties
and the ERP journey begins!