ERP Failures in Government

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.

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.

1. 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.”

  • Only three 3 implementations were delivered close to budget while 3 implementations exceeded 5 time budget in the United States Department of Defense, including one ERP project which between 2004 and 2010 may have wasted $5.2 billion and never really worked.(6)

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

2. 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.

3. 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.

 

Are Major ERP Vendors Ethical?

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

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.

 

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.

Evidence of Large IT Project Problems in Government

End of year IT disaster stories from Chris Kanaracus in 2012 and 2013 showed a disproportionate number of government failures.

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.

Evidence of limited success rates with ERP implementations across multiple industries

An analysis in 2014 by Price Waterhouse Coopers found no ERP project that achieved all success criteria.

A 2014 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

Costs

On-time Delivery

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”.

The FreeBalance survey comparing ERP and GRP experience in the Government of Canada

FreeBalance completed a survey at the Government Technology Exhibition and Conference (GTEC), Nov. 5 to 8 2012 and the Financial Management Institute of Canada (FMI) Professional Development Week, Nov. 27 to 30 2012. Both of these conferences were held in Ottawa. We received 207 responses.

Over 70% of respondents believe FreeBalance software has a much lower TCO in government financial management than ERP. Almost 70% suggested that the FreeBalance TCO was between 10 and 50% that of ERP.

Analysis of GRP vs. ERP 5 Year TCO

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. Although some of the proposals were not this five Year TCO, ERP prices average 175% FreeBalance prices where the median price is 225% FreeBalance prices.

Opinions from Social Media

FreeBalance is active on social media. We’ve had some interesting feedback from twitter on the issue of ERP and IT failure in the public sector:

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.

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