Risk management in ERP projects: reconciling rigor and flexibility

1. Risk management in ERP projects: reconciling rigor and flexibility Suzanne Rivard Holder of the Chair in Strategic Management of Information Technology HEC Montréal Bentley ERP Workshop 15 october 2004

2. Outline • Foreword – the practice of relevance • The Hydro-Quebec Distribution (HQD) project • Definitions • A two-tier risk management approach • Reconciling rigor and flexibilility

3. Foreword - the practice of relevance • The topic: enduring or current organizational problems • The implications: have to be implementable1 • The results: have to be implemented2 We shall use the term ‘implementation’ to refer to the manner in which the manager may come to use the results of scientific effort2 1 Benbasat, I., Zmud, R.W., « Empirical Research in Information Systems: The Practice of Relevance, » MIS Quarterly, March 1999. 2 Churchman, C.W., Schainblatt, A.H., «The Researcher and the Manager: A Dialectic of Implementation,» Management Science, Vol.11, No.4, February 1965.

4. The HQD project - objectives • Transforming HQD sales and customer service processes • Replacing 200 legacy applications with and enterprise system

5. The HQD project - size • 370 M $CDN • Approximately 250 team members • Four years • Sixteen « work packages » • 3600 employes • 3 Million customers

6. The HQD project - structure • Auditor • Risk mgnt advisor • Capgemini HQD Board of directors Board of directors Auditing committee Reporting twice a year President HQ-Distribution Monthly report Vice-president Sales & customer services Project Steering committee Every 6-8 weeks. Tactical committee Every other week Project director Mgnt committee S&CS Director IT Monthly report Leader IT Leader Change management Leader Development Leader Training Leader Project office

7. Definitions: Risk Exposure Where: URi: Undesirable results iP(URi): Probability associated with URiL(URi): Loss associated with URi Barki, Rivard, Talbot, 1993, 2001; Bernard, Rivard, Aubert, 2003

8. Definitions: Risk Management 7 8 1: Budget overrun 2: Not respecting schedule 3: Poor technical quality 4: Poor process/systemquality 5: User dissatisfaction with process or system 6: Unser dissatisfaction with project 7: Not obtaining benefits 8: Inability to institutionalize change 6 1 5 5 6 2 4 Loss due to occurrence of UR 3 4 3 2 1 0 0 1 2 3 4 5 6 7 Probability of UR

9. The issue of estimating probabilities F1 X1 UR 1 F2 F3 X2 UR 2 F4 F5 X3 UR 3 F6

10. A two-tier method for software project risk management Top tier - project risk exposure1 : «long term horizon»; ultimate and generic UR; generic risk factors Second tier - work package risk exposure : short term horizon (4 months); UR particular to a work package ; risk factors have to be identified 1 Barki, H., Rivard, S., Talbot, J., « An Integrative Contingency Model of Software Project Risk Management», JMIS, vol. 17, no 4, 2001 p. 37 - 70. Barki, H., Rivard, S., Talbot, J., « Toward an Assessment of Software Development Risk», JMIS, vol. 10, no 2, 1993 p. 203 - 225. Bernard, J.G., Rivard, S., Aubert, B.A., « Mesure du risque de ERP, » SIM, vol.9, no.2, pp.25-50, 2004.

11. Bernard, J.G., Rivard, S., Aubert, B.A., « Mesure du risque de ERP, » Systèmes d’information et management, 2004

12. Tier 1 - Risk map Likelihood Likelihood May 2004 May 2003 • ~Budget • ~Schedule • ~Technical adequacy • ~Functional adequacy • ~User satisfaction with system • ~User satisfaction with project • ~Tangible benefits • ~Harmonious implementation of change

13. Tier 1 – risk mitigation ledger

14. TIER 1 TIER 2

15. April 2003 January 2003 Tier 2 – Risk map

16. Reconciling rigor and flexibility • The risk management process « in vivo » • Prior to a new work package (tier 1) • Update risk assessment of global project • Update risk mitigation mechanisms in ledger • Validation by management committee • Report to steering committee • At mid-work package (tier 1) • Update risk mitigation ledger • Every other week (tier 2) • Update risk assessment of work package • Update risk mitigation ledger • Report during management committee meeting • The project management office • Every other week, report on budget, schedule, output

17. Reconciling rigor and flexibility « Laisser-aller » Project leaders adopting the behavior of the « grizzly man » of Northern Rodhesia ore mines1 Courtenay, B., The Power of One, Mandarin, 1992. « Rigidity » « Absurd decisions »2 Morel, C. Les décisions absurdes. Éditions Gallimard, Paris, 2002. Rigorous method, flexible use

18. Researching the reconciliation issue • A process analysis of the pendulum movement ? • Ethical issue : the external expert and the researcher