Failures in ERP selection can almost always be traced to avoidable root causes. Your task is to identify and deal with harmful root causes before they cause damage. And that’s not as hard as it sounds.
Even though your organization operates within its own unique set of circumstances, you face the same common risk factors and threats during your ERP selection projects. Here are the top-four threats, their consequences, and tactics to prevent (or manage) them.
Risk Category 1: Business Risk
Risk Factor: An ERP Project that Doesn’t Produce Positive Value
- Cause: Pursuing an ERP project that isn’t tied to business goals.
- Consequences: An expensive, disruptive ERP investment that fails to generate a positive return.
- Cure: Start the project by analyzing your organization’s strategic objectives, business goals and operational performance. Then, identify areas where ERP drives value. Only then will you be in a position to design a procurement process capable of delivering a value-producing ERP project.
Risk Category 2: Project Management Risk
Risk Factor: A Runaway ERP Selection Project
- Cause: Inadequately defined project structure or ineffective project management.
- Consequences: Cost overruns, delays, unresponsive proposals.
- Cure: Clearly define the project plan, schedule and vendor participation requirements. Use an experienced procurement or project If one isn’t available internally, look for external help.
Risk Factor: Unduly Influenced or Biased Process
- Cause: A vendor has influence over the procurement process, the substance of the RFP or the list of potential vendor participants.
- Consequences: The biased process directs the buyer away from a well-suited vendor or solution.
- Cure: Prevent vendors from influencing the procurement process. If outside assistance is required, ensure that the advisor is vendor-agnostic and independent from RFP respondents.
Risk Factor: Unresponsive Proposals
- Cause: An RFP that fails to define the requirements with sufficient particularity. A failure to deliver the RFP to an appropriate set of vendors.
- Consequences: Vendors deliver vague, unresponsive or proposals that can’t be compared apples-for-apples with other proposals.
- Cure: Use the RFP process to define your needs. At a minimum, specify your business objectives, project scope, functional requirements, technical/technological requirements and user requirements. Perform a market analysis (including landscape of vendors and solutions used by competitors) to identify well-suited vendors.
Risk Category 3: Evaluations Risk
Risk Factor: Poor Decision Making
- Cause: A poorly defined decision-making process.
- Consequences: You select an ERP system based on subjective criteria or alignment with a salesperson instead of based on a reasoned analysis relative to business needs. Or you can’t decide what to do.
- Cure: Before assessing alternatives, define your evaluation criteria. Define a process for resolving conflicting views and breaking ties.
Risk Category 4: Contractual and Legal Risk
Risk Factor: Poor Implementation Performance
- Cause: A contractual relationship that fails to drive ERP implementation success.
- Consequences: Implementation delays, cost overruns and project failure.
- Cure: Negotiate terms that give the ERP services vendor an incentive to deliver a successful project. For example, link payment obligations to the successful completion of key project deliverables.
There will always be risks that threaten the success of your ERP selection project. I’ve only highlighted the four most-common risks. If your company is starting an ERP selection project or is in the middle of one, take a step back and see if you are avoiding these top risks.
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