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ERP in Government: A Cautionary Tale

 

November 25, 2012

Doug Hadden, VP Products

As we prepare for another Financial Management Institute of Canada conference: Focus on Value word comes of a canceled government Enterprise Resource Planning (ERP) project in the United States. (Speaking of value – or lack thereof.)  $1 Billion spent so far, estimated that it “would require an additional $1.1B for about a quarter of the original scope to continue and fielding would not be until 2020.” The original contract in 2005 was for $88.5M.  That’s a serious redefinition of “over budget”. Sadly, ERP failure in government is not uncommon.

$1,000,000,000 in Context

Let’s look at the numbers for a second. $1B buys about 5,000 person years.  It’s a decent research and development budget – probably more than any Canadian software manufacturer spends in a year. Or, multiple years, for that matter.

$1B buys about 250,000 named users for a typical core ERP application, at list price.  Maybe a million users at competitive rates for government. That’s more than enough licenses for every public servant in the Government of Canada. Twice over.

$1B represents between 50 to 150% of the annual revenue of well-known mid-tier ERP vendors.

It would have been sufficient to buy Instagram , almost enough  to handle an Apple IP lawsuit.  Pay for more than 2 years of the government contribution to PBS.

It might even be enough to buy off Dr. Evil.

The blameless ERP manufacturer

There is a tendency in these situations to blame the victim, the integrator or both. Rarely is the ERP software manufacturer directly blamed. Surely, the manufacturer knew that something was amiss. How?

  • Proposal phase: ERP manufacturers support systems integration partners during the proposal period. Manufacturers know whether the ERP software meets government requirements and whether these requirements are unrealistic.
  • Partner certification: Systems integration firms need to be certified to support ERP software. The software manufacturer should be blamed for certifying unqualified partners.
  • Risk Management: ERP manufacturers develop and sell Governance, Risk and Compliance (GRC) software. You’d think that the ERP companies would use risk management processes internally to mitigate risks of failure.
  • Implementation: ERP manufacturer representatives work with systems integration partners. There are frequent meetings, conferences, events. Therefore, the software manufacturer will have early warning about implementation problems.
  • Customer Relationship Management: Yes, all major ERP vendors develop CRM software. They have customer analytical tools. Social media sentiment analysis. They promote “best practices” in customer relationship management.  You’d think that they track feature requests and bug reports from customers generating millions of dollars every year.
  • Lobbying and listening: ERP manufacturers have strong lobbyists in Washington. It’s difficult to not hear about problems in the course of listening to implementation problems that become political.
  • Inspector General and Government Accountability Office reports: Reports about ERP problems have surfaced publically over the past two years.  These reports are public and damning. And, it doesn’t take much effort to discover which ERP manufacturer products are failing to live up to expectations.  And, thanks to social media, the marketing noise created by ERP vendors cannot drown out these reports of failure.

We hear numerous horror stories about ERP in government financials. FreeBalance is a Government Resource Planning (GRP) vendor. Our software is designed exclusively for government. The evidence suggests that our approach results in much higher success rates than custom-developed software or ERP for Public Financial Management (PFM).

What should ERP manufacturers do?

The DoD ERP failure was for a logistics application. One would think that software developed for private sector manufacturing, logistics and fulfillment would adapt reasonably well for the government context. Even the military context.

In my opinion, ERP company management needs to smarten up. Spend less time arguing about which company packages “engineered systems” better or acquires better companies or has superior cloud solutions. Fix billion dollar mistakes. Create SWAT teams. Build-in escalation procedures for projects gone wrong.

Yes, this would cost money. My view is that if a company can afford to sponsor an America’s Cup yachting competition, they can afford to sponsor a government project or two.  And, it would help to improve their software and practices. Because, if this is what “best practices” look like, I shudder to see the results of “bad practices”

What should governments do?

It’s not a mystery that there is high risk for failure in large government IT projects. Governments try to reduce risk by more stringently following practices that have failed in the past. As Einstein suggested, the definition of insanity is “doing the same thing over and over again and expecting different results”
It’s high time that government IT procurement professionals question conventional thinking:

  • Bigger is better: Conventional thinking states that there is less risk in buying from the largest ERP manufacturers. Evidence suggests that the opposite is the case. The largest ERP manufacturers are involved in too many lines of business.
  • Integration certification: Conventional thinking states that certification is the key to success. Large system integration companies leverage strong project methodologies. They win large complex projects because they meet stringent requirements. These companies are MIL-SPEC and CMMi certified. Project managers are experienced. Yet, these companies fail to deliver.
  • Governance: Conventional thinking states that systems integration companies add value to ERP software and there is no need for ERP company commitments. That results in highly customized code with high upgrade and maintenance burden to governments. My sense is that there is an IT governance gap in government. ERP manufacturers typically operate at arms-length creating asymmetrical incentives. Government organizations are expected to adapt processes to the limited “out-of-the-box” functionality in ERP packages or face the consequences of massive customization.  Systems integration firms can generate more money through customization.
  • Risk: A Government Accountability Office report found that the Department of Defence has yet to rate any IT project as “high risk.” A recent article concludes: “Auditors single out the performance of Defense enterprise resource planning projects, which outside observers–and even DoD officials–have characterized as troubled. For example, the Air Force’s Defense Enterprise Accounting and Management System, which is at least 2 years behind schedule and $500 million over its $1.1 billion budget, has never had a rating greater than “moderately low risk” on the IT dashboard. Similarly, the Army’s Global Combat Support System-Army, which is also at least 2 years behind schedule and $300 million over its $3.9 billion budget, has never had a rating greater than “moderately low risk.”

We’re at booths 23 and 24 at FMI this year. Come by and give us your views on our ERP vs. GRP survey.

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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