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Chapter 3: ERP System Options

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Fast, inexpensive, efficient. Full vendor system. If expand, inefficient and higher total cost. Less risk, fast, ... Discounted cash flow. Cost-benefit analysis ... – PowerPoint PPT presentation

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Title: Chapter 3: ERP System Options


1
Chapter 3 ERP System Options Selection Methods
  • Alternative ERP project forms
  • Budgeting methods

2
IS/IT Projects
  • Typically
  • Late
  • Over budget
  • Fail to satisfy design specifications
  • ERP projects
  • Are larger than normal
  • Can be expedited (if you do it vendors way)
  • Cost range 5 million to over 100 million ()

3
Alternative ERP Options
4
Changing Nature of IT
  • Technology is highly dynamic
  • ERP projects often take years to install
  • Vendors are responding by expediting
  • As long as you do it their way
  • Improved versions may be on market by the time
    you install your system
  • This is one advantage of an ASP

5
IT Selection Practice
  • Hinton Kaye 1996
  • IT tends to be viewed as capital budgeting
  • Implication is that clear financial return is
    expected
  • Sound thinking, but benefits often intangible
    (yet real)
  • Some strategic investments require bold judgment
  • Conversely, companies have gone broke buying IT

6
Financial techniques for Capital Budgeting
  • Payback
  • Discounted cash flow
  • Cost-benefit analysis
  • These are the more formal mechanisms implied by
    Hinton Kaye as capital budgeting
  • Anything with as great an impact as ERP needs to
    have some estimate of cost, benefits
  • Need to recognize that precise numbers not worth
    obtaining

7
Bacon 1992 survey of IT project selection
methods
  • Financial Criteria
  • NPV, IRR, payback
  • profitability index
  • budgetary constraint
  • Management Criteria
  • Requirements, respond to competition, etc.
  • Development Criteria
  • Technical/ learning new technology, probability

8
Bacon findings
  • More formal methods often not used
  • Why waste effort if know you will do it?
  • Many numbers used inaccurate anyway
  • More formal methods reserved for larger project
    (like ERP)
  • Management criteria focus on intangible
  • Technical a matter of maintaining
    state-of-the-art systems

9
Survey of ManufacturersMabert et al. (2000)
Olhager Selldin (2003)
10
Expected Installation TimeMabert et al. (2000)
Olhager Selldin (2003)
11
Estimated Installation CostMabert et al. (2000)
Olhager Selldin (2003)
12
Cost ProportionsMabert et al. (2000) Olhager
Selldin (2003)
13
Mabert et al. 2000Survey of 400 manufacturers
  • Even for ERP systems, only 53 used formal
    methods
  • For smaller IT projects, payback most popular
  • Most systems expected to take years to install
  • Trend is to make much faster
  • Cost varies widely
  • You have a choice as to where you spend
  • Training tends to be underbudgeted
  • Not all expect big return

14
Points
  • A variety of evaluation techniques available
  • Pure monetary analysis hard, expensive,
    inaccurate
  • Payback a commonly used shortcut
  • Other methods exist
  • Value analysis
  • Multicriteria analysis
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