Risk assessment

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Proceedings of the World Congress on Engineering 2009 Vol I WCE 2009, July 1 - 3, 2009, London, U.K.

The ERP Project Risk Assessment – A case study
Päivi Iskanius

Abstract—Information and communication (ICT) technology related projects, such as enterprise resource planning (ERP) projects have a high failure rate. Planned and systematically adopted risk management procedure is crucial tokeep projects on time and within budget with all requirements fulfilled. In this paper, we have analysed the critical risks of ERP projects through the case study of three manufacturing small and medium size enterprises (SMEs). First, by using company-specific risk analysis method, the critical risks of the ERP projects have been identified and assessed. Second, by using characteristics analysismethod, the recommendations of how to divide the ERP projects into manageable sub projects have been given. Index Terms—Enterprise resource planning, risk analysis method, characteristics analysis method, small and medium sized enterprise.

I. INTRODUCTION Enterprise resource planning (ERP) systems, when successfully implemented, links all functions of an organisation including order management,manufacturing, human resources, financial systems, and distribution with external suppliers and customers into a tight integrated system with shared data and visibility [1]. The primary motive for ERP implementation is the potential for enhancing the firm’s competitiveness. ERP systems provide significant benefits, and companies adopted them with the goal of replacing inefficient stand-alone legacysystems, increasing communications between business functions, increasing information processing efficiencies, improving customer relations, and improving overall decision making [2]. Despite the significant benefits that ERP systems provide, the Statistics show that under 30 % of ERP implementations are successful [3], which means that projects are completed on time and on budget, with allfeatures and functions originally specified. ERP projects are major and risky exercises for any size of company. The average implementation time of ERP system is between 6 months and 2 years [4] and the average cost is between US$1,3M and US$70M [5], and they require disruptive organisational change [4]. ERP implementation requires the allocation of special competences, and a number of financial andhuman resources. Also, the implementation is usually carried out concurrently with the daily business, which already ties up the available resources [5]. Especially in small and medium size enterprises (SMEs), which employ less than 250 persons and an annual turnover is not exceeding 50 M€, and/or an annual balance sheet total is not exceeding 43 M€, scarce
Manuscript received March 2, 2009. P.Iskanius is with the Raahe Unit, University of Oulu, Oulu, Finland. (phone: +358 44; fax: + 358; e-mail: paivi,Iskanius@oulu.fi).

resources are badly needed in the daily business operations. Risks are part and parcel of ERP projects, but a planned and systematically adopted risk management procedure throughout the implementation project reduces the possibility of risks occurring. The risks arehigher for SMEs as the cost overruns during implementation may put financial strain on the firm and thus substantially impact firm performance [2]. In addition, SMEs have less of a chance of recovering from a failed ERP implementation attempt than large enterprises [6]. Several standardised tools and methods have been developed to help companies to better manage their ERP projects. In this study, wepresent experiences of company-specific risk analysis method (RAM) and characteristics analysis method (CAM) through the case study of three manufacturing SMEs. First, by using RAM, the critical risks of the ERP projects are identified and assessed. Second, by using CAM, the recommendations of how to divide the ERP projects into manageable sub projects are given. II. RISK ASSESSMENT A. ERP...
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