Dynamics of Enterprise Resource Planning Software Total Cost of Ownership in Higher Education Environment

1. Total Cost of Ownership of Enterprise Resource Planning Software: Simulating a Dynamic Feedback Perspective in the Higher Education Environment Meg Fryling, Ph.D. Candidate Informatics Department University at Albany

2. Agenda • Enterprise Resource Planning (ERP) • Case Study Environment • Problem Statement • Research Questions • Research Process • Questions

3. Enterprise Resource Planning (ERP) • Based on a common database and a modular software design. • Student Records, Student Accounts, Financial Aid, Human Resources, Financials • Common database allows every department of a business to store and retrieve information in real-time. • Information more reliable, accessible, and easily shared. • Data for the various business functions are integrated. • Financial aid awarded => rebate check issued • Bill paid => hold removed • Deposit paid => eligible to register, advisor assigned, userid created, email account created

4. Pre-ERPDisparate Computer Systems (Data Silos) Human Resources Student Records Student Accts Student FinAid Financials Parking Mgmt

5. ERP Integration • Shared database • No Interfaces • All data is “real time” • No data redundancy • Standardized technology • Database • Software • Hardware Student Records Student Accts Parking Mgmt Student FinAid

6. ERP at UAlbany

7. ERP Lifecycle • Planning • Most important part • Fit-gap • Functional and technical parties must be involved and work hand-in-hand • Execution • KISS – Avoid customizations • Who makes decisions (Customize vs. BPR)? • Post-Implementation • The system will NOT be 100% when you “go-live” • Maintenance, upgrades and extension of capabilities • UPGRADE • ERP implementations average between 1 and 3 years - Source – Enterprise Resource Planning Research Center, www.cio.com

8. SD and ERP • ERP projects are dynamic problems arising from complex social, managerial and economic systems. • ERP projects are dynamic system characterized by interdependence, mutual interaction, information feedback, and circular causality • Need for improved policy analysis and design

9. Feedback Loops

10. 1. The Problem • The time and resources required to implement and maintain ERP systems farexceed original expectations • The purchase price for ERP software is the most visible expense, but implementation and maintenance contains many hidden costs • Organizations fail to recognize the true Total Cost of Ownership (TCO) of ERP systems and often make policy decisions early in the implementation plan that likely have long-term impacts on the TCO

11. 1. The Problem • Tend to make decisions with little solid information. This happens simply because we are running out of time! • Sometimes our decisions come back to haunt us in the long-term. • Have not fully extended the ERP capabilities (Stage 3) let alone create new capabilities (Stage 4). • The inability to move forward in the ERP lifecycle prevents realization of the full potential benefit of ERP (West and Daigle 2004). • Unable to get the decision makers to see the big (long-term) picture.

12. Lifecycle of ERP Benefits We are here Source: ECAR Research Bulletin “Total Cost of Ownership: A Strategic Tool for ERP Planning and Implementation”

13. Functional vision What can we do to make them see the entire picture? What they don’t see

14. 2. Hypothesis • Adding time and resources can complicate the issue • The major problem is scope related • The scope creep problem is significantly larger than anyone realizes with long-term recurring implications (feedback loops) • The dynamics over time are not known to the key decision makers – If this could be communicated more effectively earlier in the process different decisions would be made

15. Relationship between Time, Resources and Scope Resources Time Scope Diagram taken from IBM literature

16. Relationship between Time, Resources and Scope Resources Time Scope

17. Research Questions • Why after all these years are organizations still doing a poor job at estimating the time, cost and workforce resources required when implementing and maintaining ERP systems? • What cost drivers are we missing when estimating ERP cost? • What are the dynamic relationships between these cost drivers? • How can we better predict long-term total cost of ownership to implement and maintain ERP systems? • How do policy decisions upstream influence cost outcomes downstream? (e.g. deployment strategies, fit gap analysis, corporate governance changes, level of customization versus business process reengineering)

18. Study Purpose To develop a framework using system dynamics that will… • Enable organizations to better predict the long-term cost of ERP implementations • Identify key cost drivers • Reveal the impact of and justification for significant organizational changes in such a way as it can be easily communicated to key stakeholders • Improve IT and Functional communications • Improve decision making

19. Research Process • Phase 1 – Literature Review • Conduct literature review of the following domains: • Information Systems/Technology • TCO methods and components • ERP implementation case studies • Business Process modeling • Organizational Behavior and Management • Project Management • System Dynamics (as it relates to the domains above)

20. Research Process • Phase 2 – Model Prototype • Develop model prototype based on existing system dynamics project models. Model will specifically address pre-packaged software implementations; tying model constructs to literature. • Includes extending model/research that was developed as part of Ph.D. coursework and presented at the 2007 System Dynamics Conference in Boston, MA.

21. Research Process • Phase 3 – Case Study Data Collection • Qualitative • Observe decision making behavior in Steering Committee Meetings • Interview key decision makers (e.g. CIO, VP of Enrollment Management) • Quantitative • Survey project participants (technical, functional, steering committee) • Collect UAlbany ERP upgrade task tracking data from existing data source

22. Interview, Surveyand Observation • What factors drive/influence decisions? • Who do different parties see as the primary stakeholders? • Functional vs. technical perceptions • Resources required (long-term) vs. ROI

23. Task Tracking Data • Number of total tasks • Open, In-progress, resolved, closed • Number of customizations • Number of times customization reapplied • Expected effort • Actual effort • Rework (tickets reopened)

24. Research Process • Phase 4 • Calibrate model with UAlbany case study data • Validate model structure and behavior by interviewing UAlbany key players in original ERP implementation and/or upgrade

25. Research Process • Phase 5 • Re-interview key decision makers with model demonstrations • Anything surprising? • Would they make a different decision?

26. Dynamic Behavior to Consider • Customizations must be reapplied if that part of the software product is redelivered • TCO of a customization will increase indefinitely. Only way to stop growth is to eliminate customization. • Once a customization exists there is a customer expectation that it will remain • Once you customize one component it is difficult to justify not customizing another (political slippery slope)

27. Dynamic Behavior to Consider • Customizations can break other delivered components of the software (domino customization effect) • Vendors don’t support customizations • When preparing for an upgrade, tasks completed in the old environment must be completed twice • Resources tied up on upgrade work are unavailable for new projects (task backlog)

28. 3. Computer Simulation Model

34. 5. Test Policies Increase Work Hours Policy(40 to 65 per week)

35. 5. Test Policies No Customizations Policy

36. Importance • Do more with less • Allocate resources more wisely • Biggest bang for the buck - Low hanging fruit • Make better decisions - aligned with organizational goals

37. Issues with Existing Cost Estimation Models • Accuracy and Portability • Need to take into consideration managerial and organizational characteristics of the environment - not just technical aspects (Abdel-Hamid and Madnick 1990)

38. Research Goals • Improve communication between IT and functional decision makes • Develop model that will provide policy insights • Help institutions make better IT implementation decisions! • …leading to more effective resource allocation/utilization

39. Thank you! Questions?

40. Sources • Abdel-Hamid, T. and S. E. Madnick (1990). Software Project Dynamics: An Integrated Approach. Upper Saddle River, Prentice Hall. • Dodds, T. and R. Spencer (2007). "Next-Generation Administrative Systems: Philosophy, Principles, and Technology." ECAR2007(19). • West, R. and Daigle, S. L (2004). “Total Cost of Ownership: A Strategic Tool for ERP Planning and Implementation”. ECAR 2004(1). • Hammer, Michael (1990). Reengineering Work: Don’t Automate, Obliterate. Harvard Business Review. July-August. • Martin, M. H. (1998). An ERP Strategy. Fortune. February: 95-97. • Peterson, S. (2003). Lost Signals: How Poor Communication and Other Nontechnical Issues Hampered Arkansas’ Innovative Statewide ERP Implementation. Government Technology. February. • Richardson, George P. (2001). “ System Dynamics”. Encyclopedia of Operations Research and Management Science. 807-810. • Tapp, R. M., J. Hesseldenz, et al. (2003). The Role of Project Acceptance in the Successful PeopleSoft Human Resources Management System Implementation for the Kentucky Community an Technical College System. Ninth Americas Conference on Information Systems.