ERP Project Risk Management
Risk, as it pertains to projects, is defined as “an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives.” (PMBOK Guide, Fourth Edition).
In order to protect their investment in a project, an organization only needs to consider a practical approach to planning, identifying and analyzing potential risks in order to put a reasonable and viable risk management plan in place. Having a risk management plan in place will significantly increase the likelihood that an organization will achieve the objectives of their project.
Warren Buffett believes that risk in investment is when one has no knowledge about it. He goes to the extent of suggesting that when you do not know, you should not invest because the risk factor is too high. Conversely, if you are financially literate and have a clear idea of what you are doing, you will be able to evaluate whether an investment has potential. And with this ability, you reduce the risk of choosing a losing side. Thus, learn before you invest, not after.
The same is true for Risk Management for ERP Projects also. In this article we will explore some of the best practices and approaches for the Risk Management in ERP. Please note that ERP Risk management is a highly evolving theory, and risks could be related to almost any managerial or technical procedure, hence the strategy should be to identify the risks as earlier as possible, which can be used in order to help project managers in knowing where to focus their management attention.
Start with a Risk Management Plan
Risk is inherent in the process of any ERP implementation or any project management activity, whether we choose to acknowledge it or not. It is not that the risk is always detrimental to our projects; it could be beneficial too in some specific circumstances. The first step towards an effective risk management planning is to accept the fact that risk exists, and can have both good and bad consequences on any projects. Planning for risk well in advance can save you of unpleasant consequences and surprises at a later stage.
Risk in ERP Implementation: Planning and Identification
What are the best approaches for a project manager to master the fear of the unknown risks surrounding projects? The only solution to this problem is that Project Managers should plan for it and tries to mitigate them as early as possible. Risk identification and mitigation thereof is done iteratively, and never at a single point in time throughout the life cycle of ERP implementation.
Understanding the risks in ERP Environment:
Simple approaches to identify risks are even very effective in ERP implementations. The process of conducting a risk identification session using a round table approach can create the foundation for cohesion amongst the members of a project team. As ideas and suggestions are solicited from project contributors, they have a heightened sense of making a substantive contribution to the project at hand. Similarly, Risks that are specific to and inherent to ERP implementations can be identified through published risk catalogues and from experience gained from the earlier ERP installations, with specific factors concerning a particular domain like pharmaceutical, publishing, oil or wood processing industries. Risk identification should follow a typical decomposition structure, starting from the overall ERP operating risks and ending down to specific risks, like loss of data. Effort has been made to list down some risks that are generally seen in an ERP environment:
- Inadequate financial management - Exceeding the planned and allocated Budgets
- Ineffective project management techniques - Not meeting the planned timelines
- Poor business or system performances
- Inadequate system reliability and stability
- Low Organizational Process mapping
- Low user friendliness
- Failures in integrations
- Flexibility
- User Change Management Failures
- Organizational fit
- Failure to redesign business processes
- Insufficient training and reskilling
- Lack of top management support
- User involvement and training
- Ineffective communication
- Technological bottlenecks
- Inadequate selection
- Poor project team skills
- Complex architecture and high number of implementation modules
- Inadequate BPR
- Inadequate legacy system management
- Ineffective consulting services
- Inadequate IT system maintainability
- Inadequate IT supplier stability and performances
- Ineffective strategic thinking and planning
Project Management Office:
Establishing a viable Project Management Office (PMO) can help perform risk planning by following an ERP Project Risk Management methodology. In the absence of such resources, a project manager should document a risk management plan with a defined approach. This includes how risks will be identified and scored, along with how contingencies and their owners will be determined and assigned.
Developing a Risk Response Plan
Risk response planning is the next logical step. This process combines our efforts thus far into a viable risk response for each threat and opportunity we’ve identified as falling within the range of our risk tolerance threshold, identifying the impact of each of those risks and also deliberating and documenting the risk mitigation approaches for each of the threat and opportunities identified. Risk response planning increases the preparedness of the team to mitigate the impact of any threats by timely identification and deliberations. Some of the mitigation approached to be taken are how to response to threats, avoid the risks or make suitable changes in the project plans, reduce the probability and/or impact of the threat on the project or to transfer/assign the risk to someone else.
Conclusion
ERP projects have often been found to be more complex and more risky to implement in business enterprises when compared to traditional IT Projects. The organizational relevance and inherent risk in ERP projects make it important for organizations to focus on ways to make ERP implementation successful by addressing and analyzing each risk factor and its relevance during each of the stages of the ERP project life cycle.
All ERP projects face risks. This risk can be mitigated to some degree by taking the time to develop a project risk management process to help ensure threats have a limited effect on project outcome, while maximizing opportunities. A skilled project manager understands the potential effects that risks can have on their projects, and manages them timely and accordingly.
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