2011 ERP survey: New IT failure research and statistics

2011 ERP survey: New IT failure research and statistics

Summary: A new survey of small business ERP projects sheds light on project success and failure.

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Panorama Consulting's new 2011 ERP report (registration required), covering the year 2010, offers worthwhile reading to anyone interested in understanding small business ERP projects.

The survey covers a variety of ERP-related issues; however, we will focus on several points with a direct bearing on the successful outcome of projects. In summary, the survey shows a substantial increase in over-budget and late projects, relative to the previous year.

Project size. The average project size reported by the survey is about $5.5 million. (See notes below for discussion of project size.)

Success and failure metrics. In general, the simplest definition of failure consists of projects that are late, over-budget, or do not deliver planned benefits.

The following diagram tells this part of the story for 2009 and 2010:

We see a dramatic increase in late and over-budget projects in 2010, as compared with 2009. Significantly, survey respondents reported improved achieving a higher level of expected benefit than in the prior year.

One interpretation of this data suggests that companies prioritized project results over maintaining the budget or schedule plan. While that's a positive sign, the survey commentary points out these numbers also indicate that executives did not plan their ERP implementations in a sufficiently realistic manner. These results definitely show good news and bad mixed together.

Implementation rollout approach. From a project failures perspective, implementation approach is a significant condition to examine. As the diagram below shows, more than half of the implementations surveyed used a phased rollout, in which the system go-live occurs in stages. Surprisingly, 35% of the projects went live in a "big-bang" (all modules going live simultaneously), which increases risk.

Although the report does not supply sufficient data to draw any conclusions on this point, it would be useful to correlate implementation rollout approach with budget or schedule overruns.

The diagram also shows that some implementations use a hybrid rollout, which incorporates both phased and big-bang for different parts of the system.

Customizations. ERP customizations can add complexity to implementations, increasing project cost and risk. In addition, customized code can make downstream upgrades more difficult and expensive. Despite these risks, only 15% of survey respondents installed "plain vanilla" software without any customizations.

Vendor selections. The following table shows the vendors that survey participants chose for their implementations; Oracle, SAP, and Microsoft top the list:

STRATEGIC ANALYSIS

The Panorama study is a useful indicator for understanding success and failure on ERP projects. For that reason, we must commend Panorama for its research contribution.

Related: 2010 ERP survey: New research and statistics

That said, the survey reporting contains gaps. Although the report describes average project size, it does not characterize variation around that average. Without this additional data, we must make assumptions about the results.

Since Panorama is a consulting company serving the small- and mid-sized market, we can assume a preponderance of survey respondents are small organizations. These smaller companies are probably most likely to arrive at Panorama's website, which is where the survey is located. If this assumption is accurate, then most projects in the survey may be smaller than the reported average; a few very large projects could skew the average substantially.

Given this uncertainty, we should consider the Panorama survey to be useful only in the context of small ERP projects, valued at a few million dollars; the survey does not provide useful data about mid-sized or larger projects. Panorama was unwilling to go on the record and disclose additional data to clarify this point.

My take. Small business ERP projects continue to face implementation challenges and difficulties; misplaced expectations around time and budget drive dramatic overruns on many projects. At the same time, more companies experienced benefit from the ERP implementations, suggesting increased priority on this critical point, which is ultimately the most important of all.

Topics: Software, Enterprise Software

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7 comments
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  • RE: 2011 ERP survey: New IT failure research and statistics

    This biggest reason for a project failing is because it has not been scoped properly in the first place. The customer has not explained clearly enough what the outcome should be. This is true for both the largest project or the smallest.

    It's that simple!

    David
    http://webbgear.co.uk/gis_a_job.html
    dawleylad
  • Are you kidding - $5.5m for a small business ERP!

    Small businesses spending average of $5.5m on ERP!? I don't think so.... Gartner defines a small business as employing 1 to 100 people. A bit of reality distortion going on here.....<br><br>Salesorder.com small business ERP costs $34 per user per month, it can be self implemented (and normally is) and the most I have known anyone to spend is sub $30K. <br><br>Nick <br><br><a href="http://www.salesorder.com" target="_blank" rel="nofollow"><a href="http://www.salesorder.com" target="_blank" rel="nofollow"><a href="http://www.salesorder.com" target="_blank" rel="nofollow">http://www.salesorder.com</a></a></a>
    salesorder.com
    • RE: 2011 ERP survey: New IT failure research and statistics

      @salesorder.com yes, no way a small business such described above could afford this ERP. I own a <a title="used corvettes for sale" href="http://usedcorvettesforsale.biz">used corvettes for sale</a> and now way.
      esm2012
  • RE: 2011 ERP survey: New IT failure research and statistics

    good one. two points:
    1.does the report refer only to the US markets? the challenges may change from a global perspective.
    2. benefits realization has improved in 2010 Vis-a-vis 2009 but for costs and schedule are folks still referring to the 2009 baseline?
    PreethiKutty
  • RE: 2011 ERP survey: New IT failure research and statistics

    Hi Michael. Thank you for the article. Many sources speak to the symptoms that result in ERP implementation failure but few speak to the root cause of these failures. The root cause has more to do with the wrong implementation strategy. Today, the majority of ERP implementations follow a traditional, ?build-from-scratch? approach that is not adequate for implementing packaged software like ERP. What is required is an approach that addresses both the inherent advantages and challenges associated with ERP. Following are 10 principles to assist you in build the right ERP implementation strategy.

    http://gbeaubouef.wordpress.com/erp-business-solution-manifesto/
    beaubouef
  • bibliography

    Could you please provide some references for the information above?

    thank you in advance
    monakazzi
    • re: bibliography

      ohhh !! sorry!!

      i didn't pay attention that ERP report was a hyperlink to: http://panorama-consulting.com/resource-center/erp-industry-reports/

      Excuse me
      monakazzi