January 9, 2013Doug Hadden
Doug Hadden, VP Products
The evidence mounts – ERP has a high failure rate in government. ERP vendors, whose software is written for multiple industries, suggest that combining multiple ERP instances into a single shared service will result in “economies of scale” savings. And, it has a grain of truthiness, but, as I’ve written before, it is very much the promise of “free beer tomorrow”: this magic point at which ERP provides a better value than using best-of-breed like the FreeBalance Accountability Suite never happens.
KPMG found in 2011 some ERP in government patterns:
- Budget overruns particularly in implementation where additional software customization was needed: typically 6 months to a year
- Only 57% of implementation projects stayed in budget
- Many survey participants could not recall the original budget
A recent article from the UK describing a Cabinet Office analysis found:
- Average cost to deploy a Tier 1 ERP is £160 per employee using the traditional method
- Theoretical cost to deploy via shared services is £93 per employee
- Use of lower cost solutions at £52 per employee
The Total Cost of Ownership (TCO) should be a critical concern in government technology procurement. Although “portfolio management” is a value proposition presented by ERP companies, our experience shows that up-front costs have little bearing on the total cost. Tier 1 ERP packages generate high costs for customization, maintenance, change and training. It’s not a good business case as I described back in 2009 (and tried my best to explain the value proposition of ERP in government as objectively as I could.)
And TCO is often not tracked, as KPMG found, “Participants in the study also struggled to provide an accurate estimate of the ERP’s total cost of ownership.”
Turning this state of affairs into shared services deployment increases the opportunity for failure.