Enterprise Resource Planning: Selection and Risks

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Introduction

In the recent past, the business environment has experienced great change. To remain competitive in the new business environment, organizations have to review how they conduct their business processes. One factor that has enabled some organisations to remain competitive is the utilization of technological advancement in business. Many organizations have adopted information technology in managing their resources. A majority of the organizations are now keen on upgrading their capability in order to communicate accurate and timely information (Lambros-Sequr 2009, par. 4). Initially, many organizations applied management systems in isolation at departmental level. However, many organizations today have now resulted to the use of systems that integrate management of all departments. Enterprise Resource Planning (ERP) has attracted increased interest in the recent past. The Enterprise Resource Planning system is an integrated system that provides integrated support for various organizations activities such as logistics, accounting, manufacturing, finance, human resources, and sales and marketing (Sumner 2005, p. 13). Application of ERP in project management within organizations facilitate in coordinating and managing different resources used in project realization.

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Overview of Enterprise Resource Planning

Managing resources is a main concern for organizations. Organizations try to find ways that lead to effective resource management. Initially, each department in an organization would operate its own management system. The major challenge in independent resource management systems is separation of departments in an organization. Enterprises Resource Planning developed as a solution to the challenges encountered in isolated resource management systems. ERP is a computer based integrated system that is used to manage both internal and external resources. The main objective of this system is to ease flow of information between various departments in an organization. In most cases the system is developed on a centralized database and run on a common computer platform. Enterprise Resource Planning systems bring together all operations in an organization into uniform enterprise wide system environment. Use of ERP has been enhanced by technological advancement. Many ERP vendors have developed and organizations have a wide range of ERP systems to choose from.

Advice on Implementing ERP

Success in the new business environment largely depends on the use of technology within an organisation. Technological advancement has led to new and effective ways of accomplishing various issues. The main objective of ERP is to improve efficiency in resource management. The system integrates resource management from various departments in an organization. It provides better internal and external communication hence enhancing resource coordination. Implementing an ERP system means a paradigm shift to the organizations operations. The implementation of the systems leads to great changes in how an organization operates. Despite the efficiency that can be obtained from use of ERP, nonetheless, many organizations face challenges in their implementation.

There is need for every organization to complete its project on time. This helps in reducing costs associated with resource utilization as well as time. When using ERP to achieve this, there are various considerations that every manager ought to bear in mind. The manager need to understand the required resources for entire project realization as well as the duration the project is expected to take. It is from here that through ERP, the manager will be able to focus on the most relevant aspects of the project. Cases have been reported in the past where managers have been found to concentrate on least important issues affecting their projects. In the long run, they have ended up using more time than it is expected to attain their projects.

ERP implementation considerations can lead to great success in an organization but there is the need to consider a number of factors during its implementation. Before deciding to implement an ERP system an organization should evaluate its technological capacity. Enterprise Resource Planning requires high technological capacity. An organization should have enough and appropriate computer systems in order to implement enterprise resource planning. Before considering using ERP, an organization should evaluate its level of technology in order to determine whether to implement the system or not. The fundamental steps should involve upgrading the level of technology in order to support ERP implementation.

ERP is intended to enhance overall organizational resource management. Before implementing Enterprise Resource Planning, the various departments intended to be integrated by the system should be considered. Operations of different departments dictate the features that should be included in the ERP. Therefore, the operations of different departments should be well understood and the way in which they can be integrated well articulated. Understanding the processes in different departments helps in the choice of ERP software. The features and functionality of ERP should match with processes in different departments.

Choice of ERP software plays an important role in the success of Enterprise Resource Planning system implementation. Based on organization resources and number of departments, it is imperative for an organization to look for ERP software that has the capacity to well accommodate for its entire resources. This facilitates in resource coordination during project management. During project management, there may reach a time where managers would like to alter their operations so as to attain their objectives effectively. This calls for managers to ensure the flexibility if their ERPs. Effective implementation of enterprise resource management software within organization depends on the level of technology within the organization as well as knowledge by the available staffs. It may be heard for a manager to implement ERP in project management if he or she has little knowledge on its management and implementation (O’Leary 2000, p. 45). This calls for managers to have the relevant knowledge as well as educate their staffs before embarking on ERP implementation.

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Enterprise Resource Planning system vendor is an important factor in the choice of ERP software. Despite there being numerous vendors of the product, not all are capable of manufacturing software that meets all the organizational requirements. One may buy the software from a vendor only to realize that it does not cater for all resources within an organization. Others may have the required functionalities but they fail to rhyme with specific organizations. After having a clear information regarding all resources available within an organizations and functionalities required when undertaking a project, it is imperative for a manager to liaise with vendors to understand the most viable ERP software to use. This would save the organization overheads of having to stop the project due to poor resource coordination or deadlocks with respect to processes coordination.

Benefits of ERP

Before implementations of Enterprise Resource Planning, each department operates independently. After a department completes a particular function, little is done to mind what happens afterwards. For example, production, sales and marketing or accounting would carry out their functions in isolation. Little would be done to link these departments despite of them being of the same organization. Effort to integrate different departments in traditional systems was met with difficult. The fact that different departments operated different systems made information sharing quite difficult. For example, individuals in production could not access information from sales department. The disjointed management made sharing information difficult. Effort to integrate the different system used in different departments was faced by various challenges. The integration was mainly challenged by different procedures and software used in different departments. The main benefit of ERP is integration of management in various departments. With ERP, information from any department can be accessed (Leon 2007, p. 78). With ERP individuals in production can access information from sale and marketing or accounting. Likewise individual in finance department can access information from accounting, sales or any other department of their interest. Integration of management has great benefits to an organization. The integration makes decision making in various departments to be effective. Individuals in all departments are able to make informed decision because of shared information.

ERP also finds application in the filed of accounting. The ERP system can integrate cost, revenue from sales and profit (Leon 2007, p. 105). In addition, the information is presented in an easy way to understand. Enterprise Resource Planning can also be used to improve manufacturing. For example, a company can use ERP to inform it on the right time to upgrade products. This can help a company improve on its quality and remain competitive in the market. Use of ERP also allows an organization to keep track of its product, making and improvement or adjustment as needed.

Enterprise Resource Planning can improve security in an organization. Use of the integrated system helps to improve accountability in an organization. The fact that information is accessible by all departments makes internal embezzlement more difficulty. A well developed ERP system also protects an organization from eternal attacks.

Disadvantages

Despite of various benefits, ERP has various disadvantages. The major disadvantage of ERP is cost. Enterprise Resource Planning is relatively expensive to implement. Implementing ERP requires substantial investment in hardware and ERP software. The cost of implementing the system discourages many organizations from implementing the system. The system is usually only afforded by large organizations while small and medium enterprises failing to afford the system (Kumar, Maheshwari & Kumar 2002, p.513). Because of the cost, investment of ERP can lead to lack of enough resources to invest in other areas. A part from initial cost, implementing ERP involves a lot of investment on employees training. All the individuals using the system require continuous training that can be expensive to an organization.

Success of ERP highly depended on the experience of its users. The high technical knowledge required on user limits the use of ERP. Organizations implementing ERP have to invest a lot on training (Umble, Haft, & Umble 2002, p. 246). However, most organizations limit their investment on training leading to failure. Failure of ERP system because of low investment of training subsequently leads to failure of the whole project. In addition, most ERP are rigid and not easily adapted to organization needs.

Risk Factors

Many organizations experience failure while implementing Enterprise Resource Planning. There are various risk factors that can lead to failure. One of the major risk factors is technical risk factor. The success of ERP project highly depends of how the initial stages are conducted. If mistakes are committed during the initial stages, correcting the mistakes later in the project can be very expensive. Changes to the ERP software have to be done according to the processes of an organization. Changes to the software that are not compatible have great influence to various organizational aspects such as funds, policy, and allocated time. Such problems can occur when ERP consultants are denied the freedom that they require in their operation. The problem can also occur when immature, unreliable or outdated technology is used. Low standard infrastructure and facilities can also lead to failure.

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Business risk factors are other risks involved in implementing ERP. These are the risks associated with negative reactions by suppliers, customer or competitors over implementation of ERP. EPR systems are used to overcome various challenges in an organization’s department. However, the implementation should not loose focus on the objectives of an organization (Scott & Vessey, 2000, p. 217). Failure to focus on organization objectives may lead to the project going astray. This is where competitors may take the opportunity to lure customers from using organization’s products. For instance, ERP that does not enhance performance efficiency within an organization may lead to customer dissatisfaction. Competitors ay take this opportunity to expand their market share.

Organizational risk factors are the risks, within an organization, which can affect implementation of Enterprises Resource Planning. The major organizational risk is resistance by users (Sumner 2004, p. 319). Implementation of EPR calls for various changes in an organization. However, some organizations may fail to implement the necessary changes leading to failure. For example, an organization may be reluctant to reduce workforce, use improper training or be reluctant to acquire the necessary technology.

Conclusion

Enterprise Resource Planning systems have been instrumental in modern organizations. ERP systems help to reduce cost and improve efficiency in organizations. Before implementing ERP, business processes in various departments should be considered. The implementation should ensure that various operations in the departments lead to overall improvement in efficiency. Despite of the benefits of ERP, the cost of implementing the service is a major limitation. Technical, business and organizational risk factors should be evaluated in order to reduce chances of failure.

As a way of overcoming risk factors associated with ERP implementation, managers need to analyze their ERP and identify the various technical problems that may rock the system during its implementation. This will ensure that they take the necessary actions in advance. For organizational risk factors, it is imperative for organizations to educate their employees on the importance of ERP. This will ensure that its implementation is supported by all departments within the organization. Monitoring ERP implementation within organizations will ensure that it goes in accordance with organization’s objectives.

Reference

Kumar, V, Maheshwari, B. & Kumar, U. 2002. “Enterprise resource planning systems adoption process: a survey on Canadian organizations”. International Journal of Production Research. Vol.40, No 3, pp. 509-523.

Lambros-Sequr, R. 2009. “Factors to consider before buying an ERP Software Package”. Web.

Leon, A., 2007, Enterprise Resource Planning. New York: McGraw-Hill.

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O’Leary., D, 2000, Enterprise resource planning systems: systems, life cycle, electronic. Massachusetts: Cambridge University Press.

Scott, J, & Vessey, I. 2000. Implementing Enterprise Resource Planning Systems: The role of learning from failure. Information Systems Frontiers, Vol. 2 No. 2, pp 213-232.

Sumner, M. 2004. “Risk factors in enterprise-wide/ERP projects”. Journal of Information Technology, Vol. 15, No. 4, pp 317-227.

Sumner, M., 2005, Enterprise resource planning. New York: Prentice Hall.

Umble, E, Haft, R, & Umble, M. 2002. Enterprise resource planning: Implementation procedures and critical success factors. European Journal of Operational Research, Vol. 146, No. 2, pp. 241-257.

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