February 4, 2013Doug Hadden
Doug Hadden, VP Products
Do government organizations reduce risk by acquiring Tier 1 ERP solutions rather than alternatives? Many consultants and purchasing decision-makers seem to think that there is less risk when buying from the “Big 2” ERP vendors rather than, for example, a Government Resource Planning (GRP) specialist like FreeBalance. Yet, a 2012 study by Advanced Computer Software in the UK found low satisfaction with ERP in government Over half of the respondents were using Tier 1 ERP software. The survey showed that Tier 1 ERP satisfaction is far lower than with alternative solutions. Users of non-Tier 1 ERP solutions were 4 times more likely to rate their solution as exceeding expectations on any of 5 dimensions and half as likely to rate their solution as worse than expected.
- 63%: ERP system did not meet expectations in at least 1 area
- 60%: Would choose a different company to implement the ERP if had to do it over again
- 50%: Tier 1 ERP implementation costs higher than expected
- 45%: Tier 1ERP implementation took longer than expected
- 43%: Would choose a different software than the ERP implemented if had to do it over again
- 40%: Tier 1 ERP ability to meet government requirements without customization lower than expected
- 39%: Tier 1 ERP system ease of use worse than expected
- 25%:Tier 1 ERP ability to meet government needs after customization lower than expected
- 20%: ERP system had negative impact on organization
- 20%: Would go through a similar ERP implementation again
Where is the Risk?
There are numerous areas of risk identified in The Advanced Computer Software study and elsewhere:
- Over budget
- Not achieve expected results
- Difficulty to use
- High maintenance costs (TCO)
- Difficult to adapt to changing processes
After reading about yet yet another ERP failure in government , analyst Frank Scavo recommended that governments adopt a risk-based approach His 5 points about risk management in ERP are well worth adopting.
The ERP in Government Open Secret
We’ve been collecting more and more public stories about ERP failure in government by updating one of blog pages. The reaction to these failures from the technology community tends to focus on consulting or customer deficiencies. Rarely is the software itself under question. That might be a result of assuming that software so widely adopted across the public and private sector must be effective. Not to mention the hype coming from the Tier 1 vendors.
There is an observation in the Advanced Computer Software study that Tier 1 ERP was developed for the private sector and is not applicable to the public sector. There seems to be growing realization that Tier 1 ERP is highly risky and overly expensive, in government.
And, ERP is wasting public money in an era of budget austerity.
Why is GRP Less Risky than Tier 1 ERP in Government?
The GRP approach addresses the 6 risk elements directly:
- Budgets: GRP software is unencumbered with private sector functionality and requires less consulting effort and have smaller data centre need than the ERP software bloat
- Time: GRP software is developed for the government domain with set blueprints to enable more rapid implementations
- Expectations: GRP vendors, like FreeBalance, set proper expectations and employ PFM experts to help mentor government professionals
- Ease of Use: GRP software is developed for government usage and is more intuitive for commitment accounting functionality such as handling multiple aggregate budget controls
- TCO: the use of configuration rather than code customization accelerates implementation and reduces the maintenance burden making the software more financially sustainable
- Adaptability: configuration also enables change, or what we call progressive activation
In addition, governments deal directly with the GRP manufacturer in our case. That puts us in the governance structure and ensures that we are committed to implementation success. We also take part in all implementations to remove the incentive to drive customization revenue.
How should Governments Protect themselves during Procurement?
Government RFPs for financial management systems include requirements about vendors. This includes a minimum amount for total turnover, numbers of implementations or numbers of users. Many of these requirements do little to reduce risk. Some are irrelevant. Others ensure that the government will take a high risk. Here are some suggested Request for Proposal (RFP) alternative requirement to protect governments from high risk:
- Total amount of revenue from PFM systems (because private sector revenue isn’t relative)
- Do not specify the need for “ERP” or call the project “ERP” (because that’s what you’ll end up with and you will have reduced competition)
- Experience in PFM under similar circumstances (because “success” in more developed countries, different levels of government or in the private sector isn’t relative)
- Willingness of the software manufacturer to commit to feature requests (to reduce or eliminate the high long-term cost of customization)
- Demonstrated success with multiple configuration changes, upgrades and addition of modules (because TCO needs to be measured over time)
- Turnkey costs and 5 year TCO in fixed priced contract (so that the vendor cannot bid low and overwhelm the government with change order costs
- Study tour: go and see the software in action – you’d be surprised that a high number of publicized ERP in Government “success stories” are far from successful