ERP

IMAGINE THAT you're a farmer. On your farm, you have three barns: one for cattle, one for sheep, and one for feed and equipment storage. From an office in the house, your spouse does the bookkeeping on the operation, while three hired hands manage the three barns, each taking full responsibility for one area.

Pricey, complex, a hot new fad? Or is Enterprise Resource Planning the long-awaited answer to project management getting the respect and visibility that it deserves?

Sounds like a neat little operation. Unfortunately on closer inspection there's something weird about the setup of the place: none of the hired hands speaks English, for one thing, although they are fluent in Portuguese, Yoruba, and Hindustani, respectively. Luckily your spouse has a smattering of all three languages … still, all the information you get is filtered and translated through this single, somewhat questionable, source. The three hired hands don't think much of each other and go out of their way to avoid one another, each managing his barn like a small fiefdom. Thus at any given time, the cattle manager has no idea how much grain is left, the sheep manager does not know where the shearing equipment is or if it's in working order, and the feed/equipment manager hasn't the foggiest notion how many livestock are on the place or how much drainage tile will be needed to clean up that sloppy barnyard … if he even knows there's such a problem.

What a stupid way to run a business! I can hear you exclaiming. No joke. On a daily basis, it's bad enough, but when a major project needs to be done—installing a wind-driven generator to supply all four buildings, for example—it becomes downright impossible.

Jeannette Cabanis ([email protected]) is acting editor-in-chief of PMI's Headquarters Publishing Division.

By now most of you are getting the joke here, and the joke is on us. Mid-size to large businesses are regularly set up and managed in ways that closely mirror our poor farmer's crazy situation. The traditional compart-mentalization of responsibilities in an organization has meant that accountants watch over the money and maintain financial standards, while functional managers allocate human resources and maintain technical standards. Project managers direct the allocated money and other resources while striving to meet project objectives. Each discipline has its own business rules, its own practices, its own set of data and means of communication, and each of them have an inherent distrust for the other disciplines.

The result? A serious disconnect between the various data sets and a crippling delay in the flow of information. The enterprise is unable to get a macroscopic view of itself. They don't know what their commitments are or how their projects are doing. The global economy exacerbates this situation by adding multiple currencies, time zones, business rules, and languages to the mix.

In the past, being slaves to bureaucracy, we have tried to solve the problem through bureaucratic means: establishing more rules, procedures, and required reports—a solution that worked about as well as most bureaucratic solutions, which is to say, not at all. Then, in recent years, as we've become slaves to technology, who attempt to solve organizational problems by installing more software, we've come up with numerous attacks on this inefficient system with varying degrees of success.

Enterprise Resource Planning software is one such attack.

ERP … And I Don't Mean Wyatt. Managing projects and corporate resources, says PM Network's Software Forum columnist Harvey Levine, is nothing new. But the corporate frustration level with managing these areas in a vacuum is soaring. Says Levine, “Each of these essential management areas has its own set of business rules, its own set of managers, and its own set of data. We have all of these data, so why don't we know where the money and people are being applied with regard to the firm's projects? Why can't we tell which project endeavors are effectively using resources, where the cost overruns are and, more importantly, what led to those cost overruns? And why can't we operate in a more proactive manner to help ensure the projects in our enterprise stay on time and on budget?”

Levine and others say that it is possible to integrate these interrelated functions, minimize the duplication of data entry, reduce data discrepancy and provide a “real time” snapshot of operational performance. “We can efficiently assign resources and manage project costs, and feed project data into our accounting and HR systems, without being slaves to the software,” he insists. “Furthermore, we can integrate these processes across the entire lifecycle of each project, and across the enterprise, even when crossing international borders.”

The key, they say, is ERP

Enterprise Resource Planning (ERP) software products are designed to help companies control, monitor and coordinate activities in all of their locations. ERP management methodology builds on the theory that an enterprise can maximize its returns by maximizing the utilization of its fixed supply of resources. As a concept, ERP was initially developed by the Gartner Group to describe the next generation of manufacturing business systems and manufacturing resource planning (MRP II) software. But as ERP software companies have grown, and tested their ideas and products in the marketplace, it's become clear that ERP is not for manufacturing only. While, at present, the three largest ERP market segments in terms of installed base are electronics (32 percent), fabrication/metal/machinery (17 percent) and chemical/pharmaceutical (14 percent)—still with a heavy bias to manufacturing concerns—those most familiar with the applications say their full potential has barely been comprehended.

Bringing Project Management Into the Fold. In the past few years, four of the five major ERP vendors (Baan, JD Edwards, Oracle, PeopleSoft, SAP) have developed a projects application within their ERP tools. What sparked this interest in integrating project management into these systems? Business realities, pure and simple. They recognized that, while their tools were designed to manage ongoing businesses, business today has a project spin. Yet despite all the data their software collected, they still lacked the ability to tell where resources were, whether they were making or losing money, and the impact of projects on human resources.

Oracle's Kimberly McDonald (senior product director, Oracle Applications for Projects) says that for her company the spark ignited close to home. “In 1991, we were trying to do project management internally and we saw for ourselves that you had project managers doing project management with best-of-breed solutions but they had trouble when trying to communicate their status and results with the central system. Plus we had customers who did not want to do what project managers have to do … manage costs and schedules in one system and then reenter costs into a central system. You waste a lot of time and create opportunity for errors that way. The information doesn't get back to corporate management. Our customers asked us to solve this need.”

In the spirit of alliances, partnering, and not reinventing the wheel, the majority of ERP developers who offer project management modules are working with the leading project management software vendors to integrate those packages with project modules of ERP software. “In a way,” says McDonald, “it's the best of both worlds: project managers can continue to use their familiar tools but it all ties into the central system.”

With the new systems, McDonald says, project managers can track plans and schedule in a familiar project management application that gets its information from validated corporate information. When they assign resources, it's from valid data downloaded from the corporate system. Estimates and budgets are based on valid cost rates. When a project manager completes a plan, it's sent back to the corporate server. Since the numbers come from the same central repository, you can slice and dice the information any way that's useful, for the first time getting a true picture of projects in process throughout the enterprise.

The Downside? The Dollars, the Hours. Of course, Utopia isn't built in a day, or for peanuts, and these are two of the biggest arguments against ERP. The high cost and long implementation process have caused the market for these products to soften; sales have slowed down, as mid-sized companies express their resistance to spending all that money and time—it takes about three years to complete an ERP implementation project, according to Levine.

In response, some vendors are developing shortcut versions of their software. SAP has just come out with ASAP, an “express” ERP product that sells for a lesser price and operates more readily out of the box. Levine looks askance at this solution. “The whole idea is to automate an existing process to carry out the business rules of the client, so bringing in a packaged system not designed to follow those rules just will not work … or rather, it will only work if the organization is willing to accept the business rules defined into the software. This defeats the purpose of an ERP system, in some cases.”

Implementation consultants are also looking for ways to make ERP more affordable. Design and implementation of an ERP solution almost always requires the employment of a consulting firm, at a cost that vastly exceeds the cost of the software license.

The upside of this is that the user firm has the opportunity during this exercise to review its business practices. Improvements in processes and communication along with the sought-after gains in data integration should eventually bring benefits that cover the ticket price. But that ticket price has meant that only large, solid firms could afford ERP solutions. Candidates for ERP have traditionally been companies with revenues in the $50 million-and-up range.

But that could change. Dwight Harry, a consultant with KPMG in Dallas, dreams of ERP software simplified and scaled down so that it's available for use by small firms. In his practice he has seen the pool of users expand laterally from manufacturing concerns into nearly every sort of business, from financial services to health care. Now he hopes to see some expansion down into the middle market. “Yes, it's expensive to implement, but how expensive boils down to your methodology,” he insists. Like many things, consulting practice around ERP may simply be waiting for market pressure to force it to reinvent itself. When ERP was a megabuck, mega-organization phenomenon, naturally consultants in the field leaned more toward the quality side of the triangle. But market pressures may yield both software and implementation methodologies that are more responsive to the cost and time constraints required by smaller, leaner organizations.

Kimberly McDonald thinks that leaner, faster ERP systems are within our reach. “Implementing an ERP system does take a fair amount of planning. But it isn't necessary to change your entire organization. That might be true with a solution developed for a big system as opposed to individual modules.” McDonald stresses that, with modular solutions, companies can choose not to operate in an extremely complex manner. “You may not need all the bells and whistles; maybe you can get by with the a plain vanilla implementation, what we call a fast-forward implementation.”

The Cost of Cultural Engineering. Traditionally, the high cost of implementation has been fueled by—surprise!—the human factors involved in integrating systems across an enterprise. “When you bring the project and operational parts of an organization together,” says Harvey Levine, “you are bringing together different cultures, crossing boundaries that have been pretty strictly protected.” Integrating project management with an ERP system requires an organization to break down these self-serving and self-protective practices, and that can be tough.

“Organizational culture either supports change or creates a barrier,” says Dwight Harry. “Yet overall, it's win-win, because accounting and finance has visibility into project performance measurements. Suddenly, everybody is playing from the same sheet music. This provides tremendous productivity enhancements. From a cultural perspective, that can have an impact, but it's a positive one: now the engineer can do engineering and the accountant can do accounting. There's minimal reconciliation needed between the two, and what there is, is automated.”

As a former project manager of complex heavy engineering projects, McDonald thinks project managers just need to know these systems to love them. “I'd advise project managers to get out to some trade shows, like PMI's, and kick the tires, ask the ERP providers to show them how it flows with their present tools. What they'll see,” she predicts, “will put a big smile on their faces. There are no more islands … everything is integrated but they don't have to change from the tools they know and love; they will just get better data and know that their boss's boss will be happy.

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“If you use an ERP system as the backbone for your project management system,” McDonald continues with the zeal of a convert, “you get real-time data; you can act in a proactive manner instead of waiting for the ‘rear-view mirror’ the end of the month.” Her initial response when she realized that integrating ERP and project management would do that for her, as a project manager: “That's it, I'm in love.”

One of the best ways for project managers to get acquainted with ERP is through the user groups of the various software vendors, many of which are accessible on the Web (see sidebar).

Of course, converting resistance into romance calls for a project in itself: the change management project. The key ingredient in this project, according to Dwight Harry, is a solid methodology for identifying the business rules within a company. Not surprisingly, this process involves all the familiar project management steps of involving the stakeholders and communicating expectations clearly. “It's the consultant's responsibility,” he says, “to alert the users to change early in the process in order to resolve resistance issues. We explain: Here's how you do business today, here's how it will be in the future, here's the change that we need to get out to the community.” Because all this is based on business rules identified through stakeholder involvement, it eases the process.

The ROI of PM? It's on Your Desk, Boss. So, if the data on projects both derives from and feeds into the information that executives have in their hands, does that mean that an ERP system can finally answer the question that has plagued the profession since its inception: What's the ROI on project management? “Absolutely!” McDonald and Harry chime enthusiastically. Using an ERP system as the backbone, project managers can directly impact the entire top-line revenue growth as well as bottom-line profits. It enables them to allow their work to be seen as directly related to the company's profit.

Dwight Harry elaborates: “What the ERP solution does is actually facilitate a better communication path. Project managers can continue to run the project as they see fit, but in communicating to the executive team they eliminate subjectivity and the need to excel at ‘corporate speak’ because the business rules have been identified and agreed on. Suddenly project management and executive management are talking the same language.”

TRANSLATION: WE CAN stop trying to justify ourselves, let the numbers speak for themselves, and get some work done. And wouldn't that be, in Kimberly McDonald's words, “a quantum quality of life improvement for project managers.”

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