ERP Failures in Government

Updated October 2021

There are high incidents of failure of ERP implementations in government from late delivery, over budgeting to inability to achieve expected benefits. Many ERP implementations, even in the most advanced countries, fail.

Contents

  1. Overview
  2. Large ERP Project Failures in Developed Countries – Government
  3. Large ERP Project Failures in Developed Countries – Public Sector
  4. Large ERP Project Failures in Developing Countries – Government
  5. Are Major ERP Vendors Ethical?
  6. Large IT Projects are Risky
  7. Evidence of Large IT Project Problems in Government
  8. Evidence of Limited Success Rates With ERP Implementations Across Multiple Industries
    • Success Rates
    • Costs
    • On Time Delivery
    • Need for Customization
  9. Analysis of GRP vs. ERP 5 Year Total Cost of Ownership

1. Overview

  • Governments are increasingly adopting Commercial-Off-the-Shelf (COTS) software to replace legacy and custom developed software applications for financial, budget, expenditure, tax, treasury and civil service management.
  • A major impetus for recent COTS projects is to replace multiple applications within a government organization with one integrated solution or to support numerous government organizations with a hosted shared service or private government cloud.
  • Government organizations can choose to acquire Enterprise Resource Planning (ERP) software from large software firms whose software is used in multiple “vertical” markets or Government Resource Planning (GRP) software designed exclusively for governments.
  • FreeBalance, with the FreeBalance Accountability Suite™, is a GRP provider. FreeBalance does not build or provide software to the private sector.
  • IT projects, in general, have experienced poorer results in the public sector. The United States Government Accountability Office has “reported and testified that federal IT projects too frequently incur cost overruns and schedule slippages while contributing little to mission-related outcomes.”
  • Complex rules and political considerations in government add to the general reasons for large IT project problems.

2. Large ERP Project Failures in Developed Countries – Government

Canada

In Canada, the use of ERP for payroll modernization (Phoenix Pay System) resulted in more than 1/4 of public servants having pay errors and some have gone months without receiving salaries as the system has “repeatedly gone haywire” as the New York Times reported. The total cost to overcome the ERP problems may cost as much as C$2.6 billion.

An explanation of the “Phoenix Pay System” Government of Canada ERP failure by Macleans Magazine:

Australia

The Government of Australia is investigating high ERP costs and the practices of the leading vendors. Over half the budget recent upgrade to a new version of ERP in Australia (GovERP) was quickly consumed by consultants because a “lack of expertise“.

France

A large ERP shared services project in France was estimated to be $200 million over budget by the audit office and more than one year late(1) and resulted in late payments of more than $2.2 billion to defense contractors(2).

Germany

The German government tried to deflect responsibility for a 55-billion euro accounting blunder that has exposed it to charges of ridicule for being inept and hypocritical after its steady criticism of Greek bookkeeping practices(3).

United Kingdom

The National Audit Office in the United Kingdom found the use of ERP shared services added expenses rather than reducing costs(4).

And 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

Another analysis from the Cabinet Office  in the UK found inconsistent software license pricing in government for the same Tier 1 ERP package where the two leading vendors had “the most inconsistent prices for ERP licence and maintenance support across central government departments.”

Another UK study found low satisfaction with ERP in government where over half of the respondents were using Tier 1 ERP software. The survey showed Tier 1 ERP satisfaction is far lower than alternative solutions.

  • 63%: ERP system did not meet expectations in at least one 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 1 ERP 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

Users of non-Tier 1 ERP solutions were four times more likely to rate their solution as exceeding expectations on any of five dimensions and half as likely to rate their solution as worse than expected.

United States

In the United States, reports by the United States Government Accountability Office (GAO) and the Department of Defense (DoD) Inspector General (IG) found that:

  • 11 of 13 ERP projects were over-budget costing American taxpayers billions of dollars
  • One ERP project resulted in $1 billion “largely wasted”(5)
  • Another project stopped after seven years and $1 billion invested would require an additional $1.1 billion for about a quarter of the original scope
  • And that cost estimates for on-going projects are wildly inaccurate.

A report from 2017 from the DoD IG found that “the Navy and Defense Finance and Accounting Service spent $2.5 billion over the last decade and plan to spend an additional $823.4 million over the next 5 years on maintaining and developing new functionality for Navy financial management systems that are not compliant with the standards that might not support auditable financial statements and not meet the congressional mandate to have auditable financial statements.”

Our own study of ERP contracts with the US Department of Defense (DOD) show that projects with the world’s two largest ERP vendors run over budget most of the time.

  • Only three implementations were delivered close to budget
  • Three implementations exceeded the budget by more than 5x
  • And one by more than 11x – this one may have wasted $5.2 billion and never really worked.(6)

Tier 1 ERP overspend

An analysis of the US Navy $1B ERP failure by Eric Kimberling from Third Stage Consulting:

3. Large ERP Project Failures in Developed Countries – Public Sector

ERP failures and cost overruns in the public sector have resulted in difficulties, contract cancellations and lawsuits, although lawsuits are rare because vendors would rather do what it takes to make the situation right than face potential public-relations damage from a high-profile legal battle:

KPMG found some ERP in public sector patterns:

  • Budget overruns particularly in implementation where additional software customization was needed: typically six months to a year
  • Only 57% of implementation projects stayed on budget
  • Many survey participants could not recall the original budget

Panorama Consulting research shows 78% of public sector ERP implementations are over budget and over schedule and 35% simply fail!

In reviews of top ERP failures journalist Chris Kanaracus found that slightly over half came from the public sector despite representing only 20% of the market size. The majority of IT disasters involved ERP implementations.

4. Large ERP Project Failures in Developing Countries – Government

While it is common ground that an FMIS is critical to PFM reform in developing markets, there are ongoing issues with these large scale IT projects. A recent survey of 46 countries by the IMF showed that many face severe challenges in transforming their FMIS into an effective tool of fiscal governance. These challenges relate to:

  • Weaknesses in the system’s core functions
  • Its institutional coverage
  • The information technology platforms it uses
  • The ease of sharing data with other IT systems 

IMF FMIS Survey Findings

Examples of ERP in government implementation problems in emerging economies include: AlbaniaAzerbaijan, Bulgaria, CambodiaCayman Islands, Costa Rica, Croatia, Ecuador (more), Ghana, Kazakhstan, Kenya (update), Lesotho, Malawi, Malaysia, MaldivesMoldovaNigeriaPanama, Papua New Guinea (update), Russia, Rwanda, Serbia, South Africa (+municipality), Tanzania,  UgandaZambia (update) and Vietnam.

5. Are Major ERP Vendors Ethical?

There is mounting evidence that major ERP vendors are using unethical means including:

6. Large IT Projects are Risky

All large IT projects are risky. A McKinsey and University of Oxford study concluded “that 71% of large IT projects face cost overruns, and 33%  of projects are around 50% over budget. On average, large IT projects deliver 56% less value than predicted.” Many of these projects involve ERP.

Worst IT Failures

 

The implementation of GRP systems in government can be more challenging than typical IT projects. GRP projects combine general IT risks with ERP and reform transformation.

ERP Risks

7. Evidence of Large IT Project Problems in Government

An analysis of many studies shows that capacity is more likely to be a project issue in government than in the private sector. Our view is that organizational change management is under-reported as a contributor to failure in World Bank studies, likely a core contributor to project management problems.

It’s not all bad news. David Eaves observed from Standish reports that IT success in government has improved over time.

8. Evidence of Limited Success Rates With ERP Implementations Across Multiple Industries

While there are some reports of improved satisfaction levels with ERP implementations, this CIO feature shows that there still are noteworthy issues in the industry:

  • Leaseplan abandoned its SAP-based Core Leasing System (CLS), writing off €92 million ($100 million) in project costs, and millions more in related restructuring and consultancy fees. It managed to salvage just €14 million it had spent on separately developed IT modules that it expected would generate economic benefits in the future.
  • Revlon’s SAP HANA implementation “essentially sabotaged” its North Carolina manufacturing facility leading to millions of dollars in lost sales and sending the share price into tailspin – which in turn led to the company’s own shareholders suing 
  • The SAP implementation at Target Canada was so riddled with errors that an investigation found that only about 30% of the data in the system was actually correct.

An analysis by Price Waterhouse Coopers found no ERP project that achieved all success criteria.

A survey from Oakton Applications found “most organisations have dug themselves an ERP hole with overstretched teams, complex customizations and a backlog of expensive upgrades.” The survey also found that “customization is strongly driven by ‘improving business processes’ or ‘unique industry requirements’ for more than 80% of organizations.” This points to the fallacy that general purpose ERP packages can effectively support multiple industries.

Success Rates

  • Between 55% and 75% of all ERP projects fail to meet objectives(1)
  • 58% of ERP implementers judged their implementation as unsuccessful(2)
  • Nearly 70% of large projects were found to be improbable of achieving project success(3)
  • 80% of customers are unhappy with their current ERP(4)
  • 90% fail to deliver any measurable ROI(5)
  • 5% of failure companies dedicate less than 10% of total budget to education/training/change management(6)
  • 32% of ERP executives are unsatisfied(7)
  • 39% of ERP workers are unsatisfied(8)
  • 66% of ERP implementations experience at-large operational disruption(9)
  • 41% of enterprises fail to achieve more than half of the expected benefits(10)
  • 75% of organizations experienced a productivity dip after implementing ERP(11)
  • 40% of CIOs do not find it easy to access, analyze, or even use enterprise and customer data for better decision making(12)

Costs

  • 80% of organisations do understand licensing models when purchasing their ERP software(1)
  • 64% of ERP systems exceed projected budget targets(2)
  • Average ERP implementation takes 23 months, has a total cost of ownership of $15 million and with an average negative net present value of $1.5 million(3)
  • Users of Tier 1 ERP vendors will experience higher Total Cost of Ownership (TCO) than users of Tier 2 vendors(4)
  • ERP upgrades cost about ½ the value of the original license fee and 20% of the original implementation costs(5)
  • Experts warn that organizations should expect to pay as much as 3 times the original ERP software cost to upgrade to new technology(6)
  • 57% of SAP reference customers have not achieved a positive ROI(7)
  • Cost overruns of the 2 major ERP packages by 13% and 18%(8)
  • 43% of customers neutral – very dissatisfied with ERP implementation costs(9)
  • 43% of budget overruns caused by unrealistic budgets being set up front (10)
  • Only 4% recouped their costs within one year(11)

On-Time Delivery

  • 79% of ERP implementations take longer than expected(1)
  • ERP implementations on average take 30% longer than anticipated(2)
  • The top two problems noted during implementation were inadequate testing and inadequate business process reengineering(3)
  • Exceeding estimated time by big three ERP software by 47%, 28% and 17%

Need for Customization

Code customization increases implementation, support and upgrade costs. Organizations customize code in order to achieve functionality that is not provided by ERP vendors “out of the box”.

  • 47% organisations heavily customise their ERP(1)
  • 34% of organisations believe greater customisation is the right way to get more value from their ERP solution(2)
  • 11% of organization with no customization, 38% minor customization (1-10% of code modified), 32% some customization (11-25%), 12% significant customization (26-50%), 9% extremely or completely customized(3)

ERP Statistics

9. Analysis of GRP vs. ERP 5 Year Total Cost of Ownership

FreeBalance competes internationally against major ERP providers. Price quotations are often made public during bid openings in many countries. Most of the international requirements call for all costs over a three or five year period including software licenses, implementation, support, training, middle-ware and hardware. Our analysis shows that:

  • ERP prices average 175% of FreeBalance’s price
  • The median ERP price is 225% of FreeBalance’s price

ERP - FreeBalance price comparison

Additional References:

A 2003 study by the World Bank found a lack of success in government FMIS implementations whether ERP, GRP COTS or Custom developed:

  • 43% delivered as specified
  • 50% delivered on budget
  • 21% delivered on time
  • 25% unsustainable
  • 69% likely to be sustainable
  • 6% highly likely to be sustainable

A 2011 study by the World Bank found that IFMIS implementation sustainability has improved but that 18% remain unsustainable. The lack of capacity and leadership in the public service has been shown to be more critical to failure for IFMIS when compared to general implementations of enterprise software.

Topics

Cookies help us deliver our services. By using our services, you agree to our use of cookies. Learn More

Contact