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ERP Selection Methods

ERP Selection Methods. INFSY 489 / IST 402. ERP Selection. Cost range of ERP system is enormous Range anywhere from $5 million to $100 million Training employees may cost as much as 20% of ERP system’s cost Project begins with project proposal. ERP Selection.

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ERP Selection Methods

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  1. ERP Selection Methods INFSY 489 / IST 402

  2. ERP Selection • Cost range of ERP system is enormous • Range anywhere from $5 million to $100 million • Training employees may cost as much as 20% of ERP system’s cost • Project begins with project proposal

  3. ERP Selection • Analytic methods support the decision process • Provide decision makers with expected outcomes • Provide a basis for communication on the reasons for a selection

  4. How to Build an ERP Adopt only a few ERP modules from a vendor Rent an ERP product from an application service provider Adopt a vendor product completely Develop an ERP in-house Customize a vendor product

  5. Best-of-Breed Approach • Modules considered to be competitively strong selected from multiple vendors • Custom interfaces developed to allow exchange of data

  6. Measurement of Project Impact • Information Systems projects are often difficult to justify solely based on concrete monetary benefits • Cost-Benefit Analysis includes • Tangible Factors • Intangible Factors • Lead to competitive advantage

  7. Measurement of Project Impact • Intangible Factors: • Increased market share • Improved customer service • Better corporate image • Improved employee satisfaction • Supply-chain integration • Ability to support e-business operations

  8. Measurement of Project Impact • Large IT projects often change organizational power • Change the communication structure • Experienced employees may feel threatened by new system • Change work roles making some workers feel less productive

  9. Information Technology Selection • Hinton and Kaye surveyed 50 members of a professional organization to identify how IT projects were selected • Treated IT projects as: • Capital investmentusing cost-benefit analysis to establish profitability • Revenue-related projectexpected to benefit organizational goals

  10. Information Technology Selection • Since most organizations treat IT projects as capital investment • Have to have measurable profit benefits • Most commonly cited justification for IT projects: • Reduction in expenses, i.e. Payroll • Accomplishing a strategic objective

  11. Information Technology Selection • IT projects involve multiple risks • Abilities of project manager • Experience with this type of application • Experience with programming environment • Experience with language or system used

  12. Information Technology Selection • Familiarity with modern programming practices • Availability of critical equipment, software, programming language • Completeness of project team • Personnel turnover • Project team size • Relative control of project manager over project team

  13. IT Project Approval

  14. Evaluation Techniques • Cost-Benefit Analysis • Accurate measurement of the benefits and costs in monetary terms of project • Uses the ratio benefits/costs

  15. Evaluation Techniques • Net Present Value • Uses present value of the cash flows expected from a proposal • If the present value of the net cash flow expected from a proposed investment, at the selected rate, equals or exceeds the amount of the investment, the proposal is desirable

  16. Evaluation Techniques • Payback • Identify cumulative net cash flow and identify how long it will be before it turns positive

  17. Evaluation Techniques • Value Analysis • Used when projects’ benefits are heavily intangible • Separate the benefits measured in intangible terms from costs • Present decision maker with the intangible comparisons in performance • Are the improvements provided by the new system worth the price?

  18. Evaluation Techniques • Multiple Objectives • Profit • Minimize Risk • Develop markets • Capital replenishment • Labor policies • These items pose conflicts for decision makers in today’s businesses

  19. Evaluation Techniques • SMART (Simple Multiattribute Rating Technique) • Considers benefits of a system on a variety of scales without converting them to a common scale like dollars • Provides a means for decision makers to quantify their preferences • Scores and Weights are used to compute a Value Score on each project

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