How Small and Medium Enterprise Can Plan For ERP?

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Information about How Small and Medium Enterprise Can Plan For ERP?

Published on September 26, 2014

Author: jenifellows8

Source: slideshare.net

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In this article, we describe some SMEs can take steps to mitigate the risk of failure of the implementation of ERP in the next phase of implementation: the planning phase

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ERP System for Small and Medium Enterprise How Small and Medium Enterprise Can Plan For ERP? In the first article, we discussed how a dash of well-structured evaluation system can help small and medium enterprises (SMEs) to mitigate enterprise resource planning (ERP) risk [1] the failure of the implementation of the acquisition phase of the system. In this article, we describe some SMEs can take steps to mitigate the risk of failure of the implementation of ERP in the next phase of implementation: the planning phase. In short, the planning stage is the stage during which the organization is preparing to "ERP-ize" its activities. An ERP project requires much more than simply installing a system of computer software. It requires organizational restructuring. In general, SMEs need to restructure their operations to meet the parameters of the flow of business as defined by the ERP software. These days, most ERP packages are pre-adapted to areas based on some of the best industry practices. The extent of organizational restructuring that is needed depends on the structure of existing business processes, and the technical and functional requirements of the ERP software. As with any complex project restructuring, the implementation of ERP is accompanied by certain risks of project failure. For example, failure can result from implementation runaway that causes the project becomes profitable. It can also result in the rejection of the restructured organization where such rejection hinders the achievement of efficiencies projected environment. In the following sections, we will focus on these specific risks of the failure of the implementation and effectiveness of the implementation planning can mitigate these risks. Default Risk 1: Implementation of running outdoors If an SME is planning to implement ERP, the main reason for doing so is likely to achieve cost savings. According to 2009 research by the Aberdeen Group, the need to reduce operating costs and administration continues to be the main driver of the acquisition of ERP in the SME segment. [2] For financial reasons drive the decision to implement ERP, it is essential that the implementation will be completed in the budget. A failure to deliver implementation will be economic failure of the project.

Since this section deals with finances ERP-related, it is important to briefly discuss some of the underlying principles. On the cost side of an ERP budget is based on a total cost of ERP ownership (TCO) calculation. TCO is the total present system costs, maintenance and service values. The costs and maintenance of the system are largely fixed and determinable in advance. However, maintenance costs are generally very variable and difficult to predict accurately. In addition, the service costs are proportionately large. In 2007, the costs of services accounted for 45% of total cost of ownership for SMEs. In other words, for every $ 100 spent on small business ERP software, it spent an additional $ 81 of service. [3] As you probably guessed, the service costs primarily reflect the costs of implementation. Poor planning, allocation of resources, incorrect, project delays and scope creep (i.e. unexpected increase in the scope of the project) are the usual culprits for the costs of implementing the run. The first three are generally well understood. Drift deserves a little more attention. During the implementation, there is a temptation holy grail for "ERP-ize" some business processes that have not been included in the original project plan. The justification for additional reach that the additional efficiency will be achieved by "ERP-izing" the additional tasks. The implementation seems the perfect time to broaden the scope of application: the project is underway; the consultants are on site and are dedicated teams. These temptations must be resisted. The implementation is rarely a good time to broaden the scope (except for unexpected expenses that must be addressed). The reason the temptation must be fought because the argument changes unexpected perimeter is only part of the benefits of the financial equation. Additional costs are also to be taken into account. These costs include direct costs of services and the opportunity costs of delay. Regarding the latter, every day unplanned that the SME is not able to operate under the new system is a day of lost efficiency. It is fair to assume that the scope of the ERP project is designed to maximize the net benefits of ERP (net profit = cost savings - costs). This means that all the project components that give a positive net benefit payments. This also means that all the elements which give a negative net benefit (including the additional costs exceed the additional efficiency gains) are rejected. The scope unforeseen increases are usually components that produce negative net profits, i.e. they would not be profitable. Since they reduce the return on investment ERP, these components must be rejected. The following chart (omitted) shows the relationship between the cost of a raw project, the gross costs and net profits (net income = gross costs - gross costs). As shown by the line of net benefits, in terms of project is ideal in A. At this point, all cost components are accepted and all unprofitable components are rejected. Any project plan that is to the left of point A means that the plan could be expanded to profit. Any project plan to the right of point A means unprofitable components are accepted. Scope increases are generally components that are to the right of point A.

The profitability analysis above explains why changes additional perimeter is both unnecessary and unbeneficial to the project. As time passes, these incremental changes will be either ignored or implemented as part of a cost optimization plan. In summary, a well-structured plan can mitigate the financial risks associated with too broad a definition of the scope and extent of creep. This plan will help keep the ERP project within budget and on time. However, while financial risks are mitigated, other types of failure risks still threaten the success of the project. Such a risk is that some key people will reject the new ERP system and / or business processes restructured.

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