Preventing an ERP Heart Attack

Suppose you go in for your annual checkup and discover that your cholesterol level is 210.  Is that good news or bad news?  Most doctors will probably tell you that while 210 is not a cause for immediate concern, it is still higher than it should be.  This diagnosis is based upon experience and years of research, studying cholesterol’s role in the development of heart disease.

Nevertheless, your doctor is thrilled with 210.  Why?  Because your previous level was 265!  So even though you may not feel any different than you did at your last checkup, and even though your current level is still higher than your doctor would like, you can be happy that things are moving in the right direction.

This simple example illustrates the importance of baselines from two perspectives:

• Objectively – Baselines provide a standard “yardstick” that helps you put individual measurements into the proper context
• Subjectively – Baselines enable you to track changes / movement over time and can help keep you accountable

Furthermore, just as doctors look at cholesterol in conjunction with other factors like age, blood pressure, and weight to get a more complete picture of your health, it’s always good to have multiple perspectives.

Evaluating from several angles helps you avoid misleading or even dangerous conclusions, a principle that holds true for your health, for the economy, and even for your ERP projects. 

Cholesterol and Other Quantitative Measures

Perhaps the most tedious part of launching any transformational initiative like an ERP implementation is the process of selecting a Systems Integrator (SI).  You write the RFP, send it out to a number of potential partners, get the responses back, then sift through a veritable mountain of information as you make your final selection.

And while there is certainly a significant amount of common ground between the proposals, they each will typically have different process descriptions, development object counts, RACI matrices, onshore hours, offshore hours, and hours required from your company…just to name a few.

How do you know if a given proposal is “good”?

For the sake of simplicity, let’s assume you’ve narrowed the field to the final two SIs. You’ve already eliminated one firm from consideration due to “sticker shock,” and another was rejected based upon the firm’s perceived capability – even though it was by far the lowest priced bid.

What you are left with are two seemingly equal options: both SIs have strong teams, relevant industry expertise, robust project methodologies, and a set of proprietary tools and templates to help you leverage best practices.  So how do you make the call?  More often than not, it comes down to price:

• Provider “ABC” – $31M
• Provider “XYZ” – $27M

So which Systems Integrator would you pick?  All things being equal, the cheaper option would always win the business…but things are rarely that simple.

What if “ABC” is an incumbent SI who has worked on other big projects for your company and is perceived to be a less risky choice because they already understand some of the “nuances” of your organization?  Is your Board of Directors going to agree to the premium?  Or assume that “XYZ” is the incumbent.  Given the lower price tag, does that make the decision a “no-brainer”?

Just as trying to interpret your cholesterol level in isolation is at best pointless and at worst dangerous, without some frame of reference for these proposals, you could be shooting in the dark.   You might get lucky and hit your target, but often you are just setting yourself up for change orders and budget overruns down the road.

Consider the value of knowing the answers to these questions during the evaluation process:

• Are you really getting competitive bids?  What if you knew that both of your finalists were 15-20% above typical “best in class” proposals?
• What if you knew that projects of similar size and scope typically are 50% “bigger” than either of the two finalists?  Would you be inclined to take a second look at the previously rejected high-priced proposal?
• Assume that the difference in price is due to fundamentally different assumptions regarding your company’s level of participation / responsibility on key areas of the project.  How would you know what levels are “reasonable” and which are “aggressive”?
• What if both proposals have made aggressive assumptions regarding your company’s level of participation, and as such, are both inherently risky?  How would you know?

These are just some of the questions you need to consider during the evaluation process — without the benefit of an external benchmark, you are basically keeping your fingers crossed.

Staying on Track

Apart from having benchmark data during the RFP process, many companies still fall short when it comes to leveraging the subsequent SOW (Statement of Work).  The SOW formalizes the details of the SI relationship and effectively becomes your project’s baseline.  It establishes the foundation for the project and serves as the means to hold your SI accountable once the project is in flight, but its value is only as good as the level of detail that you build into it before it’s signed.

Requesting and including the right level of detail during the SOW / RFP process is vital to ensuring you don’t get blindsided by changes later on. 

Follow me on Twitter @sstamp_ue find my other UpperEdge blogs and follow UpperEdge on Twitter and LinkedIn

Related Posts

• The Bay of Pigs: Mitigating ERP Project Risk 
• CIOs: It’s OK to Always Believe You’re Right, Just Don’t Believe You’re ALWAYS Right
• Sleepless Nights for Select Comfort – Rough ERP Go-Live Leads to 25% Hit on Stock Price 
• The Value of Experience – What You Don’t Know Will Cost You
• Risk Happens – How to Keep Your Project on Course for Success