Unit topics:-

Unit 2:- Building Business cases for ERP

 Roles of ERP
 Need for ERP
 Gap analysis, Competitive Environment
analysis
 Strategic needs analysis,
 Feasibility analysis
 ERP Project life Cycle
 Cost elements
Reference Book:
01. Enterprise Resource Planning –Mahadev
Jaiswal and Ganesh Vanapalli (Macmillan)
02. ERP – Ellen Monk and Bret Wagner,
Thomson
03. ERP – Alexis Leon, Leon Publishers
REVIEW…..CONCEPT
DEFINITION OF ERP (Enterprise Resource Planning)

 Tool to integrate enterprise across its

business functions as well as with
outside business partners to manage
the enterprise resources efficiently.
Vendors Enterprise Customers
. Dept1
. Dept2….
ERP (Enterprise Resource Planning)
Customers

Sales
Mfg Financial
Accounting
Cap
plng Controlling
Demand
plng
HR
MM

Vendors
3-Tier Client-Server
Architecture
Presentation Server
(SAP GUI, Web interface)

Application Server
(Application Programs/Processes)

Database Server
(RDBMS like Oracle)
 R/3 Integration Model
SD -Sales & FI -Financial
Distribution Accounting

MM - Materials CO -
Mgt Controlling

PP - AM - Asset
Production R/3
R/3 Management
Planning
Client/Server
Client/Server
QM - Quality PS - Project
Management System
ABAP/4
ABAP/4
PM -Plant WF -Work
Maintenance Flow

HR -Human IS -Industry
Resources Solution
 System Landscape

Transport

Development Test /QA Production

System System System
 3-Tier Client-Server
Architecture
Presentation Layer: Collects user input and creates
process requests and presents the results back to the
user. Systems capable of providing GUI are used.

Application Layer: Uses the application logic of SAP

programs to collect and process the process requests.
Servers providing an optimal processing env are used.

Database Layer: Stores and manages the retrieval of

the data. Servers with very large and fast storage
space are used.
SAP R/3 BASIS SYSTEM

SAP

Logical Collection of R/3

R/3 Basis software components
System

Hardware
ROLE OF ERP
Enterprise Resource Planning

Production Integrated
Planning Logistics
Sales Customer/
Distribution, Employee Accounting
Order and Finance
Management Human
Resources
 Enterprise Resource Planning
Enterprise resource planning (ERP) is a
cross-functional enterprise system that
serves as a framework to integrate and
automate many of the business
processes that must be accomplished
within the manufacturing, logistics,
distribution, accounting, finance, human
resource functions of a business.
ERP software is a family of software
modules that supports the business
activities involved in these vital back
office processes.
 Enterprise Resource Planning
ERP is being recognized as a necessary
ingredient for the efficiency, agility, and
responsiveness to customers and suppliers that
an e-business enterprise needs to succeed in the
dynamic world of e-commerce.
Companies are finding major business value in
installing ERP software in two major ways:
1. ERP creates a framework for integrating…
and improving…???
their back-office systems that results in major
improvements in customer service, production,
and distribution efficiency.
2. ERP provides vital cross-functional
business processes and supplier and
customer….???
Information flows.
What is an Enterprise Resource
Planning System or Enterprise
System?
An Enterprise Resource Planning (ERP) system is an
integrated system consisting of integrated
applications with a common database which
coordinate business activities and support the flow of
information across the enterprise. Laura Hotzler,
Deloitte Consulting
Includes financial, operational and strategic systems
Often features e-commerce capabilities
 How is ERP Different?
Types of Data Maintained
 Maintain Financial and Non-Financial data about a wide range of activities
 Events Orientation -- Record events other than financial accounting
events; record additional, non-financial information about accounting
events
Method of Data and Program Organization
 Organize information more efficiently and provide tools to make information
accessible to a wide variety of individuals/applications
 Database Organization -- All data is stored separately from the
programs that manage it. This allows for (but does not assure) more
seamless integration of subsystems and easier development of
systems and processes that use cross-functional data (as compared to
file-based organization – see Murthy Ch 1)
Level of Enterprise-wide Integration
 Integrate and link information from a wide variety of subsystems
 Enterprise-Wide Integration -- Across subsystems and transaction
cycles and across financial and non-financial lines
 Systems Integration
Note: All systems are divided into subsystems, either
conceptually or physically to facilitate ease of understanding
and maintenance. These subsystems are often divided
 Along transaction cycle lines (revenue/expenditure)
 Along financial/operational lines (sales management, A/R)
No integration – Data is physically separate, must be
separately keyed into different subsystems
Interfaces – Data is physically separate and is transferred,
using a special program, from one system to another
 Transferred by directly populating data tables
 Transferred by creating transactions which are then processed
automatically into the other system
Integration – All programs utilize the same set of data – an
subsystem divisions are conceptual only
DEFINITION:
 Software solution that addresses the

enterprise needs taking the process view of

the organization to meet its goals by
integrating all functions of an enterprise.
 ERP POTENTIAL
 Software solution that addresses the enterprise
needs taking the process view of the
organization to meet its goals by integrating all
functions of an enterprise.
 Characteristics:
 Flexibility
 Modular
 Open architecture
 Comprehensive
 Beyond the org
 best business practices
 Simulation
UNIT…02

DEMAND OF ERP
ERP System - a necessity ?
? Imagin a typical business situation of a sales
order without ERP & its disadvantages.
ERP solution and it’s advantages.
 Accountability

 Responsibility

 Effective communication

 Information flow

 Standard processes

 Less redundancy

 Improved man power utilization

 More decision support tools

Cont’d
 Challenge for mfg. (global, distributed,

new product)
 Aggressive cost control initiatives

 Need to analyze costs/rev

 Flexibility to respond to chg bus

requirements
 More informed management decision

making.
 Mergers/Acquisitions.

 Need accurate and timely information

not just DATA.

Proper ERP Implementation
Process Can Yield Successful
Output
NEED FOR ERP……………….
 Four Steps to Conducting a
Needs Assessment
Step 1. Perform a "gap" analysis.
Step 2. Identify priorities and importance.
Step 3. Identify causes of performance
problems and/or opportunities.
Step 4. Identify possible solutions and
growth opportunities.

Knapp Associates 25
 Perform a "gap" analysis
Compare the actual performance of your
organizations to existing standards, or to
set new standards.
The difference or the "gap" between the
current and the necessary will identify
our needs, purposes, and objectives of
selecting new MRP/ERP Software

Knapp Associates 26
 Identify priorities & importance

Specify their importance and urgency in

view of your organizational needs and
requirements
 Executive pressure: Does top management
expect a solution?
 Customers: What influence is generated by
customer specifications and expectations?
 Cost-effectiveness: How does the cost of the
problem compare to the cost of implementing
a solution?
Knapp Associates 27
 Identify causes of performance
problems and/or opportunities
Prioritize and focus on critical
organizational and personal needs
Identify specific problem areas and
opportunities in your organization

Knapp Associates 28
Identify possible solutions and
growth opportunities
Determine what are the gaps the business
is trying to fill
Establish what functions the software must
provide to fill these gaps
Determine what re-engineer is required to
the existing process to remove/minimize
any functional weaknesses.
Determine how the benefits provide
growth opportunities
Knapp Associates 29
IMPLEMENTATION……………………
Pre-screening of the chosen packages
Preparing for the venture
Project Planning
Analysis
a) GAP Analysis
b) Competitive environment analysis
c) Strategic Need Analysis
d) Feasibility analysis
Designing the System
Reengineering
Team training
Testing
Post implementation
UNIT…02

GAP ANALYSIS

How it differs with MIS analysis….?

 Process Mapping
1960….
Flow Chart-
Graphical representation of the
movement and flow of Concrete or
abstract item.
FOR What…
a) Workflows
b) To fix Functional responsibilities.
Process Mapping(Contd…)
Today…
Process Mapping…
Specifically Targets the activities
ocuring within an existing business
process.
This process does what…
Develops an “as-is” representation of
process with goal of exposing weaknesses
that need to be addressed.
This facilitates what….
GAP ANALYSIS…
 a) Gap Analysis
This is a stage in which the company
identifies the gaps that needs to be
traversed to make the company's
practice in sync with ERP environment.
A major success of ERP lies in this
most IMPORTANT stage…….
ORACLE-Steps in Gap
analysis.
The primary step will be to make a note of the
existing business system and list out the flaws and
positive aspects. This is an attempt to have an
idea of what is currently happening given the
scenario in question so as to help in ERP
implementation.

Evaluate and decide the additions that need to be

made to the business in view of ERP
implementation. The aim is to make sure that there
is not even a thin line of difference between ERP
and the organizations commercial activities. It will
be oriented to ERP function.

Rating the existing level of performance to set a

benchmark or standards for the business as on
date. This will help in finding out the benefit of ERP.
Having an in-depth study of the regulations and
statements in the organizations and suggesting
modifications. This also will decide ERP
implementation.
Clearly defining the roles of individuals in the
organization so that the priorities are met and
the structure remains undisturbed. This is to
make things clear for ERP function.
Checking if the objective in discharging duties
are met because it is the ultimate solution to any
issue. If they are not met the gaps should be
made known and corrected. Only then the
organization can achieve the benefit of ERP.
Ensuring that functions are executed
properly and if need be personnel can be
rewarded to boost up and encourage
performance.

Similarly comparisons are to be made for every

other factor that draws relation in one way or
other. These results are to be complied for ERP
gap analysis.

The gap analysis takes into account all the

factors of study and gives the results. It either
recommends the implementation of an ERP
system or rejects the idea in totality.
b) Competitive Environment Analysis….

Putting organization itself in competitive disadvantage..?

By not having an ERP in its place while competitors do

An ERP package built upon the reengineering of

business processes around best practices and provides
advantage of data integration and standardization…gives
better competitive environment.

By implementing an ERP an organization can keep up

with competitors.
 c) Strategic needs analysis…….

Why a Strategic View…..

Its How You use it – Stupid
 It not whether a company has an ERP system
 Not the cost or time spent implementing
 Not if it’s a vanilla or customized system
It how a company benefits from the
implementation
How an ERP System Supports
Strategic Alignment
A ERP system can provide the visibility
necessary to ensure that departmental
activities are in line with the overall
corporate strategy.
Analysis & reporting tools can be used to
provide a centralized, unified view of all the
company’s critical information
Provide the visibility necessary to ensure
that departmental activities are in line with
the overall corporate strategy
Knapp Associates 46
Strategic View of MRP/ERP

Knapp Associates 47
 Determining Strategic View
Analyze company’s requirements
Review existing business systems
Prepare a Gap analysis that highlights the
present weaknesses of the existing
software.
Prepare a Needs analysis that defines
what Gaps the business is trying to fill & is
required from a new software system.
Knapp Associates 48
Align business activities with corporate
strategy
Business activity alignment is the ability to take
the strategic plan & translate it into tactical steps
using an ERP system’s data.
Respond faster and smarter to market challenges
with better decision-making capabilities
Adjust daily activities and long term strategy
together, as required by the business plan and
shifting market conditions
Achieve a balance between cost & investment in
satisfying organizational goals
Enhance collaboration for better decisions &
departmental alignment
Knapp Associates 49
 Strategic Goals
1. Place emphasis on three critical factors
for driving improved business value from
enterprise systems
 Integrating the organization
 Optimizing business processes
 Using and analyzing system data to improve
decision making
2. Aggressively use information and
analytics to improve decision making and
business performance
Knapp Associates 50
Unit topics:-
Unit 2:- Building Business cases for
ERP

 Feasibility analysis
 In Systems Investigation of
MIS….
Economic Organizational
Feasibility… Feasibility
Can we afford it? Is it a good fit?

Technical Operational
Feasibility Feasibility
Does the Will it be accepted?
capability exist?
Unit topics:-
Unit 2:- Building Business cases for
ERP

 ERP Project life Cycle

Some facts on transformation….
 Booz Allen & Hamilton study…on time
1. On time & within budget 10%
2. Cancelled after taking off 35%
3. Over run on time and cost 55%
 Mckinsey & co study…on cost
1. H/W 10%
2. S/W 10%
3. Transformation 80%
 Approaches
1. Cross functional Integration
2. Functional Automation
3. Technology enabled reengineering
4. Clean state reengineering
( For Student to place in quadrants…X- Process Change
Y- ERP change(customization)
 System Design Traditional Approach
Steps Activities Tools & Technique
Problm Deftn. Identify with current system Interviewing & data collecting

Feasibility study Tech.,economic & managing fsblty Preliminary cost analysis

Systems analysis Detailed analysis of current system Logical process model, Logical
data model,Organisation charts
Systems design Reengineering process & informatn. --Same—

Detailed design Design of present sys.specication --Same—

Implementation Software design & conversion Program design specifications

Output/Input design, DB design

Maintenance Ongoing technical support,

Upgrade and enhancement
 System Design ERP Approach
Steps Activities Tools & Technique
Planning . Conduct a need assesment, provide Interviewing, Cost justification
a business justification
Requirement Analyse current process & specify Use best practices models

analysis process to be supported.. Justifying what company can

Selection of ERP system gain by implementing the new.

Design Reegineer business processes Interactive prototyping

around the best practices model
or customise the software

Implementation Configure the system, migrate Work with vendors for any bugs
data from old to new system & in the S/W, Clean processes
develop interfaces. And data, use reporting tools
Also, implement report system
conduct testing, implement control,
security & train end user.

Maintenance Ongoing technical support, Add enhanced frunctionality

& Improvement Upgrade and enhancement to existing model
 Designing the System
In this stage, a lot of microscopic
planning and deliberate action are carried
out.
The step helps to decide and resolve
which areas is important for
restructuring.
It is chosen from the ERP….. …
implementation models.
Installation Conversion Methods
Old System

New System

Old System New System

Old System New System

Old System New System

Installation Conversion Methods
Old System
Parallel
New System

Old System New System

Old System New System

Old System New System

 Installation Conversion
Methods(Contd..)
When the development of a system will replace or
improve a current system, a conversion process will
be needed. Conversion methods are used for
managing system change and managing both the cost
and risk associated with a failure of the new system..
Four major forms of system conversion are common:
Parallel. This involves operating both the old and the
new system at the same time for some period until the
project development team and end user management
agree to switch over completely to the new system.
This is the least risky approach but the most costly,
since resources must be used to keep both the new
and old system operational.
Installation Conversion Methods
Old System
Parallel
New System

Old System New System Pilot

Old System New System

Old System New System

 Installation Conversion
Pilot. Methods(Contd..)
Here one department or often an off-site
office gives the new system a trial run to
see how it works and to catch any problems
before the system is implemented company-
wide.
This is a less costly approach.
Risk of failure is isolated to the department
or office which receives the new system.
Installation Conversion Methods
Old System
Parallel
New System

Old System New System Pilot

Old System New System Phased

Old System New System

 Installation Conversion
Phased. Methods(Contd..)
Here the new system is implemented
gradually throughout the organization
according to some diffusion plan, such as
department by department, section by
section, or even floor by floor.
This approach exposes the organization to
more risk, but is less costly.
Installation Conversion Methods
Old System
Parallel
New System

Old System New System Pilot

Old System New System Phased

Old System New System Plunge

 Installation Conversion
Methods(Contd..)
Plunge.
This "cold turkey" approach ends use of the old
system and begins use of the new system all at
once.
This approach has the highest risk, but is the
least costly to implement.
Can be considered for non-critical applications,
or application improvements that are marginal.
Installation Conversion Methods
Old System
Parallel
New System

Old System New System Pilot

Old System New System Phased

Old System New System Plunge

When the development of a system will replace or
improve a current system, a conversion process
will be needed. Conversion methods are used for
managing system change and managing both the
cost and risk associated with a failure of the new
system..
Four major forms of system conversion are
common:
Parallel. This involves operating both the old and
the new system at the same time for some period
until the project development team and end user
management agree to switch over completely to
the new system. This is the least risky approach
but the most costly, since resources must be used
to keep both the new and old system operational.
Pilot. Here one department or often an off-site office
gives the new system a trial run to see how it works and
to catch any problems before the system is implemented
company-wide. This is a less costly approach. Risk of
failure is isolated to the department or office which
receives the new system.
Phased. Here the new system is implemented gradually
throughout the organization according to some diffusion
plan, such as department by department, section by
section, or even floor by floor. This approach exposes
the organization to more risk, but is less costly.
Plunge. This "cold turkey" approach ends use of the old
system and begins use of the new system all at once.
This approach has the highest risk, but is the least costly
to implement. Can be considered for non-critical
applications, or application improvements that are
marginal.
 Redesigning
ERP implementation involves an evident
change in the number of employees and
their job responsibilities, which results due
to a more automated and efficient system.
The human factors are taken into account
in this stage.
 Training
This stage is all about preparing the
employees to use ERP. The employees in
the organization are trained to handle the
system on daily and regular basis.
 Testing
The phase is marked by attempts to break
the system. At this point, the company
tests the real case scenarios.. This phase
is performed to find the weak links, which
could be rectified before implementation.
 Post Implementation
Finally, the process of implementation
would be complete when there is a regular
follow up and proper instruction flow
thereafter and along the lifetime of ERP.
This involves the entire efforts and
measures taken to update and attain
better benefits, after the system is
implemented..
 PITFALLS
1.Modifying ERP Software Prior to Pilot
Testing
2. Inadequate Training
3. Insufficient Implementation Support
Unit topics:-
Unit 2:- Building Business cases for
ERP

Cost elements
 Reengineering and ERP
 Whole is more than sum of the parts, synergy.
 Reengg is the precursor to ERP implementation.
 Study of current system and processes
 Design and develop new systems
 Define process, org structure, procedures.
 Train people, implement new system
 ERP with re-engineering through all cycles.
BENEFITS OF ERP
 Customization and ERP
ERP requires a matching of business processes and
information processes with those embedded in ERP
Change your business processes - Reengineering
 Benefit – matches to ‘best practices’ embedded in the ERP
(which can be a major benefit of ERP implementation)
 Cost – May not lose strategic advantage
Customize ERP
 Benefit – reduces business process change, maintains any
strategic advantages from unique processes
 Cost – takes time; reduces ease of upgrade
 Even if they customize, companies will probably reengineer their
processes
Single Vendor versus Best of Breed
ERPs can be implemented using all modules
from one vendor, or by selecting individual
modules from different vendors
Best of Breed – Select modules from different
ERP vendors (as well as non-ERP systems) that
meet specific needs in each area and integrate
Would have once been impossible, but vendors
are developing excellent integration solutions
Weakness – Time consuming to develop and
update
Strength – Strategic value
BENEFITS…..A CASE
 ERP Capabilities Expected
Improve Quality/Visibility of Data 70% 70%

Integrate Business Processes or Systems 37%

Improve Business Processes 37%

Standardize Info Systems/Platform 31%

Improve Customer Responsiveness 29% Companies expect

Achieve Year 2000 Compliance 25% that implementing
ERP will improve
Reduce Cost or Improve Productivity 24%
the quality and
Support Supply/Demand Chain Processes 20% visibility of data
Support Globalization 17%

Construct Technology Infrastructure 15%

Source: Deloitte Consulting and Benchmarking Partners 0% 10% 20% 30% 40% 50% 60% 70% 80%
(Based on a study of 62 companies that have gone live with an ERP system) Note: Based on multiple answers per respondent
% Respondents

Laura Hotzler, Deloitte Consulting

 ERP Targeted Tangible Benefits
Personnel Reductions 44%

Inventory Reductions 42%

IT Cost Reduction 27%

Productivity Improvements 23%

Order Management/Cycle Time 19%

Cash Management 16%

Revenue/Profit 15% The main

anticipated benefit
Procurement 12% of ERP: cost
Financial Close Cycle 10% reduction

Maintenance 8%
Source: Deloitte Consulting and Benchmarking Partners
(Based on a study of 62 companies that have gone live with an ERP system) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Note: Based on multiple answers per respondent
% Respondents

Laura Hotzler, Deloitte Consulting

Maximizing the Benefit of ERP –
Reengineering (Hammer)
Technology investments like do not yield
desired results if companies mechanize
old ways of doing things – Reengineering
must happen
Ineffective approach – efficiency and
control (unskilled workers)
Effective approach – innovation, speed,
service and quality (knowledge workers)
 Reengineering is (Hammer)
Fundamental rethinking and radical
redesign of business processes
Fundamental improvements in cost, time
(speed), defects (service, quality)
Focus on why things are done, not how
they are done (core economic events)
ERP Benefits: Overcomes inefficiencies of
independent systems (Sumner)
ERP
Outcomes
(Sumner)
 ERP Benefits (Summary)
Tangible Intangible
 Inventory reduction  Information/visibility
 Personnel reduction  New/improved processes
 Productivity improvement  Customer responsiveness
 Order management  Integration
improvement  Standardization
 Financial close cycle  Flexibility
reduction
 Globalization
 IT cost reduction
 Supply/demand chain
 Procurement cost reduction
management
 Cash management
improvement
 Reengineering Challenges
(Romney)
Resistance
 Dislike for change
 Concern about job losses
 Tradition and culture
 Skepticism
 Poor retraining
Cost
 Financial
 Time Requirements
Lack of Management Support
 Resistance
 Costs
 Risks to Managers of Failure
SELECTION
ERP Selection and Vendors List
 Functional aspects of business and gap analysis
 e-commerce compatability and complexity.
 Customizing and implementation
 Cost and ROI.
 Short List
 SAPR/3
 Oracle
 BAAN, People Soft etc.
 Small List of Industries
supported by SAP R/3
 aerospace, defense, chemical and
process, consumer goods, healthcare,
pharma, banking, automotive, services,
public sector, retail, IS.
 Implementation of Enterprise
Systems
Major investment
 Cost between $50,000 and $100,000,000+
 Take 3 months to 5 years to implement
Requires careful project management and involves many
people across organization; may use consultants
Companies may choose to implement all modules from
one vendor or select modules from different vendors and
integrate (best of breed)
Companies must choose whether to customize the ERP
to their needs or adopt the ERP as is
Bolt-Ons – Additions to ERP offered by third-party
vendors for specialized functionality
 ERP Challenges
On-time, on-budget implementations (90% are over
budget)
Realization of benefits – takes time, usually requires
implementation of advanced modules
1. Productivity decline
• Jobs redefined, new procedures established, ERP fine tuned,
organization learns to process new information streams (3-9
months)
2. Productivity gain
• Develop new skills, structural changes, process integration, add
bolt-ons/advanced modules
3. Payoff
Transform organizational operations to efficient level
Testing – Massive amounts of testing needed to
examine every function, different data combinations,
appropriate data load
 ERP Concepts
Company Data – Organizational structure
Setup Data – Default processing, default GL accounts,
access control
Master Data – Customers, Vendors, Inventory items,
Cash Accounts; Basic data for recording transactions,
historical data tracking
Transaction Data
Transaction Capture – Different methods for capturing
the same transaction, i.e. data entry screen, e-
commerce entry, automatic interfaces (i.e. with vendor),
point of sale scan
Workflow – Specify the sequence of the business
process, set rules to trigger appropriate information
processes (recording, maintenance, control) and
facilitate short cycle time by triggering business process
Inquiry/Reporting – Standard inquiries and reports,
customized report writing by end user, by programmers
 Great Plains and SAP
ERP Concept SAP Great Plains
Company Can have different Sales One company, any
Data Divisions, Warehouses; divisions are created
consolidate companies through general ledger
into larger enterprise codes
Setup, Master, More options, richer data Same general concepts,
Transaction tracking, more controls just fewer options, easier
Data ; available, greater to manage
Inquiry/ historical tracking
Reporting available
Transaction More options, especially E-commerce achieved
Capture e-commerce through bolt-on products
Workflow Many options, part of Achieved through bolt-ons
system