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CRIC Consulting
Enterprise Resource Planning : Ongoing maintenance and cost benefit analysis
2
Integrated Management
System
Finance & Accounting HR Admin &
PlanningSales & Services Operational
Enterprise Resource planning (ERP)
Software application to facilitate the flow of information
3
ERP
ERP Providers
Oracle SAP GEMS BI-Tech
ERP Implementer
s
Accenture
TommorowNow
Legacy mode
ERP (Continued)
Tier II
41% Failure: Implementation
Tier I
4
• Metropolitan city in Central valley, California
• 26.2% living below the poverty line
General
• Currently use PeopleSoft ERP• Recently spent $2M to upgrade
PeopleSoft• IS department has 70 employees
Information systems Environme
nt
Big Valley City
5
Oracle takes over
PeopleSoft in 2005
Peoplesoft customers facing possible upgrade to Oracle's Fusion in 2008
The Problem
6
PEST Analysis
7
Pressure on
Government to
• Increase Taxes• Job creation• Infrastructure
Investment, including IT
Political
8
Econom
ic challenges
• Budget deficit• Increase in labor
cost• Shrinking tax base• Liquidity Crunch
Economic
9
Social challenges
•High poverty rate (about 26%)•High unemployment rate•Cost and absence of quality Healthcare•Lack of skilled manpower•Influx of illegal immigrants
Social
10
Technological
challenges
•Improvement in Healthcare facilities•Outsourcing of back-office jobs•City infrastructure requirements•Modernization of existing Educational system
Technological
11
Key Issues
High existing costs & spending Inappropriate revenue collection
methods Quality of life of citizens Vague data
12
Importance
Urgency
Low Importance High Importance
Low Urgency Quality of life
Analyze plans, performance for sound
decision making
High Urgency
Inappropriate revenue collection methods High Costs
Key Issues Matrix
13
Suggested Alternatives
Upgrade to Oracle Fusion Outsource Oracle support services to
3rd party Vendors Replace PeopleSoft with ERP Tier II
products
14
Pros
Known commodity
Feature-rich functionality
Easy to customize as per customer requirements
Stable vendor/Less change
Alternative 1: Upgrade to Oracle Fusion
15
Pros
Capable of meeting Big Valley functional needs
Lower long term costs
Enhanced quality of support
Quick resolution time of issues
Flexibility in selection of ERP implementer vendors
Negotiable contract terms
Alternative 2: Outsource Oracle support Service to 3rd party Vendors
16
Alternative 2:Comparison of 3rd party support vendors
Accenture TomorrowNow LegacyMode
Pros • Leading IT service provider
• Expertise in PeopleSoft & Oracle ERP products
• End-to-End help desk services
• Large provider of SAP
• Highly experienced with PeopleSoft products
• Resolves issues immediately
• Flexible contract agreement
• Flexible contract term: 1,3,5,10-year
• Maintain legal compliance without costly upgrades
Cons Charges premium cost Face pressure to switch to SAP
Only one year of help desk support
17
Pros
Lower long term costs than PeopleSoft
Specialized in public sectors
Good support services
Simpler technical environment/faster learning curve
Alternative 3: Replace Peoplesoft with ERP Tier II products
18
SunGard Bi-Tech
•Specialized in public sector•Availability of all ERP modules•Extensive training services offered•Roughly 37 % savings over 5 year period
GEMS•Specialized ERP provider for public sector•Offers Property Management Systems ERP module•29% savings over 5 year period
Alternative 3: Tier II ERP Products
19
Financial comparison Analysis
20
Current annual maintenance fees: $260,000
Assuming another 5% increase in the future 3-year maintenance fees total at $975,000
Alternative I
PeopleSoft
• Total cost: $450,000• Cost saving: $330,000Accenture
• Total cost: $390,000• Cost saving: $390,000
TomorrowNow
• Total cost: $303,000• Cost saving: $477,000
LegacyMode
Alternative II3rd Party
Implementors
Bi-Tech:
• Total cost for 3 years: $725,400
GEMS:
• Total cost for 3 years: $983,000
Alternative III
Switching cost be 30% of current 3-year maintenance fees
Tier II Products
23
Alternative I Alternative II Alternative III
Total cost in 3 years ($)
Oracle Fusion
Accenture TomorrowNow
LegacyMode
SunGard Bi-Tech
GEMS
780,000 450,000 390,000 303,000 725,400 983,000
Oracle
Fusion
Acce
ntur
e
Tom
orro
wNow
Lega
cy M
ode
SunG
ard
Bi-T
ech
GEMS
0
200000
400000
600000
800000
1000000
1200000
24
Evaluation criteria
Best Long Term Position Best Functional Capability Lowest Cost Lowest technical skill requirement Best technical architecture
Alternative I
Score
Alternative IIScore
Alternative IIIScore
Best Long Term Position
4 6 7
Best Functional Capability
9 8 5
Lowest Cost 3 7 9
Lowest technical skill requirement
2 8 7
Best technical architecture
8 7 5
Total 26 36 33
Decision making Matrix (scale of 10)
26
Does selection help-resolve our Key issues?
Key issues Alternative II
High existing costs & spending
Inappropriate revenue collection methods
Quality of life of citizens
Analyze plans, performance for sound Decision making
27
Meeting cost-saving purpose(appx $477,000 for 3yrs)
Improving the quality of service Freeing up cash flow and human resources to focus
on core business
Vendor selection(Accenture/TomorrowNow/LegacyMode)
LegacyMode
28
Define measurement of efficiency
Sign contracts with
LegacyMode
Business process change and
reengineering
Assessment of new
transactions
Post-implementati
on review
Implementation Steps of Alternative II
29
Efficiency of bug fixes & patches Quality of support to major application releases Quality of technical support Compliance with federal government standards
and regulations
1 2 3 4 5 6 7 8 910
1. Define measurement of efficiency
Legacy Mode
30
Begin Phase I of terminating the maintenance contract with PeopleSoft
Sign contract with LegacyMode Negotiate with LegacyMode on the contract
terms(3 years), and charges of help desk services during contract period
2. Sign contracts with LegacyMode
31
3. Business process change and reengineering
Employee Commitm
ent
Reduction in IT staff
Change in process
Education & Training
Maintaining long-term
relationship
32
Test the services provided at initial period Improve the process before final implementation Schedule for complete termination of existing
contract
4. Assessment of new transactions
33
5. Post-implementation review
Assess the performance of LegacyMode according to the measurement of efficiency
Arrange a team to solve the identified issues
34
One-time costs:Signing the contract
Est. 101,000* 5% = $5,050
Transition Est. 101,000* 2% = $2,020
Possible downsizingEst. (64-14) * (29,415/2)= $735,375
Unexpected cost
$500,000
Cost Considerations
Long-time costs:Maintenance cost
101,000*3= $303,000Help desk support after 1-year Est. 101,000* 9%*2 = $18,180 Total costs:
$1,563,625
35
Cost Considerations (Continued)
Savings from lower Maintenance cost ( 3-year) (260,000-101,000)* 3= $477,000
Savings after possible downsizing Est. 50 * 29,415 * 3 = $4,412,250
Total Savings: $4,889,250 Benefits=
$3,325,625
36
Decrease Negative Impacts
Possible conflicts with Oracle
•Accessing the existing contracts•Involve Legal teams for best possible actions•Including extra cost for handling of potential Lawsuit
Employee Dis-satisfaction
•Communicate with staffs honestly and constantly•Reinforce the vision and benefits•Include severance costs in the budget
Collaboration Challenges•Focus on smooth knowledge transfer•Support process for cross-training vendor support staff•Appropriate documentation of escalation matrix
37
Timeline
August 2006 • Define measurement of
efficiency
July 2007• Business process change
and reengineering
April 2008• Post-implementation
review
38
What after 3years?
Reassess the performance of
PeopleSoft & LegacyMode after every 6 months
Contingency Plan
39
Thank you
Improvements in quality of life of citizens
Improvements in quality of life of citizens
Improvements in quality of life of
citizensReduction in
existing costs
Transparency & Improvements in
revenue collection methods
Analyze plans, performance for sound Decision
making
Relation between Key Issues
41
In reality only 41% of ERP implementation projects are successful
Main reasons for failures: ERP system misfit Poor project management effectiveness Too tight project schedule Users’ resistance to change
Reason for Failures
42
Accenture
•Annual maintenance fees: at a premium cost $150,000•Annual costs saving: 260,000 – 150,000 = $110,000•Total costs in 3 years: 150,000 * 3 = $450,000
TomorrowNow
•Annual maintenance fees: 260,000 * 50% = $130,000•Annual costs saving: 260,000 – 130,000 = $130,000•Total costs in 3 years: 130,000 * 3 = $390,000
LegacyMode
•Annual maintenance fees: approximately $101,000•Annual costs saving: 260,000 - 101,000 = $159,000•Total costs in 3 years: 101,000 * 3 = $303,000
Cost calculation —— Alternative ii
43
Bi-Tech•Annual Costs: 260,000* (100-37%) = $163,800•Total maintenance costs for 3 years: 163,800 * 3 = $491,400•Assuming switching fees will be 30% of current 3-year maintenance fees, •Total costs for 3 years: 491,400 + 780,000*30% = $ 725,400
GEMS•Upfront licensing + training + consulting: $575,000•Annual maintenance fees: $87,000•Total licensing etc. and maintenance costs for 3 years: $575,000 + 87,000 * 2 = $749,000•Assuming switching fees will be 30% of current 3-year maintenance fees, •Total costs for 3 years: 749,000 + 780,000 * 30% = $983,000
Cost calculation - alternative III
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