ERP audit

The objective of the ERP audit is to help senior management to decide or more precisely evaluate the implementation of complex information systems. Due to increased material and labor cost and an increased competitive market pressure the management is more and more confronted with requirements to increase  or at least maintain productivity, contribution, capacity utilization.

On one hand there are operational chalanges and on the other hand  managemnt faces technical chalanges like EDI, security, portals etc. The aim of the ERP audit is to verify to what depth  the current or planned ERP system supports strategic business objectives. In many cases the ERP system is implemented only partially – often independently of the finance system, with heavy interfaces to add-on applications like MS-Excel or custom developed applications.

In this situation the information provided by system may be incomplete, inaccurate and delayed. The discrepancies further causes, that departments like the production  may decide to prepare MS Excel production plans, purchasing  may decide to issue POs only by email. As a result the finance department cannot trust the data on the system and decides to conduct the financial agenda in a separate software package.

At this point the company, unhappy with the ammount of work required to keep thing in order eventually decides to change the system. As mentioned the departments may not cooperate together.The average selection procedure is focusing on either technical requirements or functional needs raised by these non cooperating departments. The management has only seldom the time or energy to provide this proces with its or the hareholders‘ strategic objectives. Typically the process is delegated down or recently fairly often out.

This typicaly means that instead of dealing with specific requirements tof the management or shareholders, the process focuses on generic requirements - an this doesn’t‘ lead to success. The objectives expected by management are missed. IOur internal research and international publications show a failure rate of up to 75% .

Reasons for failure – missing the target

1. The organization doesn’t realistically know/understand the current level and depth of implementation. The company underestimates that the current system has not been implemented fully. Eventually it is not clear what was sooner – the misaligned organization or incomplete implementation. Transitioning to a new system or technology often does not resolve the issue.

2. The organization is not able to formulate or describe how the system should support the desired objectives. This seems to be almost impossible due to the project implementation length. The project may affect 2 financial years with basically no positive recognizable impact. Considering the project costs it may be very difficult to formulate an ROI to the board.

3. Top management delegates the project leadership to line management. Though the implementation of an ERP system is a fairly technical endeavor. The ERP is the backbone of the entire organization and implies strategy in logistics, sales, purchasing, production and finance.

4. The client expects that the implementation partner brings the expected expertise to the table to address. It is critical that partner has the right project experience in a relevant line of business and has the acumen to discuss the objectives with senior management.

Conclusion - ERP audit should help the client to:

1. Determine where the company actually is in terms of system implementation - compared to international best/accepted practice  - clients often get lost in sophisticated vendor road maps, loosing site of fundamental needs
2. Identify potential risks of future organization evolution with regards to competitors – implementations that do not target critical competitive criteria, run a risk to defocus the organization
3.  Support senior management in transition from business strategy to implementation objectives regarding the best possible ROI – ERP is only useful if it supports the company’s strategy – senior management and IT need to agree on this.
4. Design a concept for successful implementation, identify priorities and potential sources for improvements – the implementation needs to be driven by business priorities, identify business milestones
5. Establish a concept for maximizing project ROI within the shortest possible time.