With the emergence of technology, you would have heard of the term ERP for sure! Enterprise Resource Planning, abbreviated as ERP, is a type of software used by organizations to manage and streamline their business processes, including accounting, human resources, inventory, and supply chain management. ERP solutions provide an automated system for integrating and managing operations of the business from various aspects resulting in improving efficiency, minimizing costs, and enabling organizations to stand out amongst their peers.
Adapting to change is never easy as it brings along many risks, and this statement applies to the investment in an ERP solution. There are several risks associated with ERP implementation but for every risk, there is a solution. An organization that is business savvy will always be smart and find out that solution and the right ERP partner!
However, the question remains, what are the common risks associated with the implementation of ERP and how can such risks be mitigated? Read on to learn more.
Risk# 1: Excess Costs
ERP implementation is an expensive exercise for businesses. If the technical and human resource needs of the project are not thoroughly assessed, it can cause a budget overrun. Cost can also escalate because of inefficient project management, lack of communication, and underestimating the complications associated with the integration of an ERP system with existing systems. Because of all these issues, an ERP solution, instead of providing benefits, will become problematic and a cost center for businesses rather than an investment for future profitability.
Mitigating the Risks: Cost-Benefit Analysis
Organizations need to perform an in-depth cost-benefit analysis before beginning the project. It is important to have a clear project plan and smooth communication among all stakeholders so that a clear budget for ERP implementation is estimated and realized accordingly. Any changes during the project implementation phase must be closely monitored, and the impact on costs and resources measured and confirmed.
Risk# 2: Resistance to Adapt Change
Tech-friendly people can easily and effectively use ERP systems. The biggest mistake businesses make is to implement the system and forget to train staff who will have to use the system in day-to-day operations. This makes it difficult for the staff to operate the system leading to errors, and ultimately a lack of productivity which makes employees disengaged and disgruntled, and ultimately resistant to change.
Mitigating the Risks: Adequate Training
Employers must ensure that their employees undergo comprehensive training according to their user group and skill level before the implementation of the ERP system. Open communication also plays a very important role in enabling employees to freely let their supervisors know their concerns. Supervisors are required to assist employees in such a way that the issues are resolved then and there. This will make the employees feel valued and keep them engaged, motivated, and flexible to change. In addition to training, it is beneficial to have pilot tests conducted to identify the areas of the ERP system that require further training.
Risk# 3: Data Migration Problems
While implementing an ERP system, data migration also brings challenges to an organization. There is a chance of data being lost or corrupted during the migration process. This may be because of errors in the migration script, issues with data quality, or improper testing and validation. Loss of data can cause a decrease in productivity as employees may not have access to the required data to perform their routine tasks smoothly.
If the data is not properly mapped or translated during the migration process, it may result in inconsistency or inaccuracy of data resulting in improper reporting, unsatisfactory decision-making, and terrible business processes. Data migration may take longer time than expected which can cause disruptions and delays in business operations bringing along additional costs for the organization.
Mitigating the Risks: Design a Comprehensive Data Migration Plan
To mitigate the risks regarding data migration, it is important to have a well-defined data migration plan with proper data profiling, data mapping, and data translation. Data cleanup is also a must to sort out relevant data to be migrated. For instance, there might be some past invoices and purchase orders that are no longer required due to various reasons, so migrating such obsolete data to the ERP system will not add value to the system and simply take away from the effectiveness of the system. After the migration of data, tests should be conducted to ensure that the data is properly migrated, and that the system is in line with the needs of organizational reporting.
Risk# 4: Security Breach
Implementation of ERP systems can pose several security risks to an organization such as cyber-attacks resulting in the loss or theft of crucial business and customer data.
Improper maintenance of the ERP system or usage of outdated software can also be a cause of lost information. If employees use weak passwords or misuse each other’s login credentials, it may also lead to security breaches.
Mitigating the Risks: Strict Controls
The solution to security risks lies in having a proper security plan with smart access controls, data encryption, regular software updates, and security patches to ensure that the system is up-to-date with adequate security measures placed within the ERP system. This will also require the effort of a dedicated and experienced IT security team and cyber security experts.
Risk# 5: Scope Creep
Scope creep means the tendency for the scope of the project to expand beyond the originally decided time. This is a risk that occurs while implementing an ERP system. This issue arises because of sudden changes in the requirements of the ERP system, such as adding new features or functionalities to the system, or unclear project goals and objectives. This not only causes a delay in the completion of a project but also leads to budget overruns, decreasing productivity, lack of user adaption, and disrupted business operations.
Mitigating the Risks: Accurate and Aligned ERP Project Plan
All a business requires to mitigate scope creep risk is to have a clear project plan which is signed off by all stakeholders. The project plan should include a detailed description following a justification of what should be included and excluded from the project. The project plan must be clear and in line with organizational goals and objectives, on schedule, and within the allocated budget.
Risk# 6: System Instability
Customization in an ERP system can be challenging if it is done without proper business analysis that does not align with the organization’s business processes. Too much customization may result in instability and breakages in the system. Customization may sometimes be a too complex process and costly to maintain, resulting in increased costs that result in faulty or lagging processes.
Mitigating the Risks: Customize Wisely
Business processes need to be analyzed thoroughly to ensure that customization requirements align with the organization’s needs. The problems identified while implementing an ERP system must be configured through proper testing before execution. The customization plan must be regularly reviewed and amended, as required, to ensure that it is up-to-date and does not affect the system’s performance or scalability.
Risk# 7: Inappropriate Vendor Selection
Last but the most important is to choose the right vendor to partner with for an ERP systems implementation. Choosing a vendor is crucial for the success of operating the right fit ERP system. Organizations must evaluate the vendor based on various factors including experience in developing and customizing cloud ERP systems, after-sales services, technical support, knowledge-sharing, and training provided. An experienced ERP vendor with a proven track record of successful ERP implementations must be chosen.
Choose IBB-ERP: A One-Window Solution
You are now able to understand that most of the risks associated with ERP implementation are the result of inadequate or no planning. IBB-ERP is here to help you plan smartly and invest in the right-fir ERP solution for your wholesale or retail business.
Our ERP system has a range of integrated modules with in-build security measures to safeguard data and privacy. We will support you to streamline your business operations from managing inventories to order management and keeping a track of deliveries. As customers are the lifeblood of every business, our customer relationship management module provides a customer-centric frontage for your business.