As we consult with multichannel companies on system selection and implementation, our experience is that about 50% of the larger installs (those spending over $1 million) are not delivered on time or within budget.
For many companies, project failure is generally defined by the degree of cost over-run. Schedule slippages go hand-in-hand with added costs since there is considerably more complexity to the total change than originally planned. Many times, the newly installed system does not live up to the functional expectations of the user community and does not deliver the desired benefits.
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Why do projects go over budget?
International studies validate our experience and show, depending on the study, from 40% to 60% companies fail to meet their project goals. Project Management Institute – the international standard and leader in project management – interviewed 5,402 professionals and summarized their findings in a 32-page called “The Pulse of The Profession 2018”:
The top reason for failure 41% of the time is inadequate project sponsorship. “Effective project sponsors use their influence within an organization to actively overcome challenges by communicating the project’s alignment to strategy, removing roadblocks, and driving organizational change. With this consistent engagement and support, project momentum will stay steady and success is more likely.”
The PMI report says “Scope creep” potentially enters every major project and is the #2 reason for failure. “Organizations that control project scope can save money, increase customer satisfaction, and improve their project benefits.”
The third factor in failure is the “Mature value delivery.” PMI says, “Organizations with mature project management capabilities have the ability to minimize risks, control costs, and are better able to adapt to changing market conditions. Companies that do not have a strong delivery track record for IT projects have overly optimistic expectations for changing out systems they may only do every 15 years or more.”
Some clients spend upward of two times the initial budget because of “scope creep”. Often, the systems don’t meet the users’ expectations after spending considerable capital and extensive time - often 12 to 18 months – selecting and implementing a system.
Additionally, after Go Live the users of the new systems typically spend an additional 6 to 12 months absorbing and understanding how to do their jobs with the new system. Often company productivity and earnings suffer during this transition period.
There are no contractual guarantees as far as schedule or cost by the vendor. The non-refundable advance may be 35% to 50% of the contractual estimate. The devil is in the details of implementing. As a consequence, companies have a false set of expectations of the cost and schedule required.
Companies that choose to customize and modify systems add further cost, risk, and schedule slippage to the project. In large and complex systems projects, some modifications will be an absolute requirement, especially as companies move off legacy systems. But scope creep often takes over – “Wouldn’t it be better to add this while we are at it?”
Insufficient time is spent thinking through the magnitude of the complexity of the changes. These include combining the system change with a new facility; or a phased in approach over a longer period of time rather than a “big bang” approach to implementation.
Another area of insufficient planning is unplanned and supportive internal costs. Will there be additional costs for overtime for employees or a need for contractors to support the current system? In addition to their regular jobs, managers and employees will require time for implementation meetings; making process changes; conference room pilot testing; training, helping people with change management; writing and approving project specifications; file conversion validations; and status meetings – to name a few duties.
Successful project management aims to:
- reduce these types of problems
- remove obstacles that get the project off track
- create buy in among team members
- open up communications with all stakeholder
- deliver better results.
Who should project manage a system implementation?
Should it be a senior manager, the vendor, your IT department, or an external project manager? First of all, the implementation of an ERP, WMS, or OMS system is not solely an IT responsibility. In our experience from a project management perspective, IT generally does not have the experience and skill sets to lead the problem solving and management of a project of this magnitude.
The project manager should have a broad understanding of your business, the departments’ functionality, and senior management’s expectations and goals. IT will have their plate full as they address specifications and programming of modifications, interfaces and integrations, testing and setting up a new operational environment.
We believe that you should have someone who works for you give an independent perspective and make the change management that this project requires. Only your management can direct employees on how to train employees; make change management decisions; and determine the changes that will be required to accounting based systems or customer service based decisions. However, the overall responsibility is yours to meet budget and schedules in the end.
The project manager must have the respect of management and employees to do their job properly. This includes being given the authority to make decisions daily while keeping management up to date weekly. We have seen some real success stories in small companies where the CFO or CEO takes on the added role of project manager. This is a heavy workload, in addition to their daily responsibilities, which can take at least 3 to 5 days per week during the 8 to 12 months implementation time. In the last couple months, project management duties will be 40 hours or more per week.
The vendor will have a project manager for the technical aspects of systems implementation and to make recommendations in terms of process changes, use of systems, conversion of files, etc. The VAR will have a project management software you should adopt to plan and track the project.
For larger companies, the full ERP implementation will require 18 months or longer. Implementation planning is often more involved because it is implemented at the same time as opening a new distribution center.
18 responsibilities of the project manager
The project manager must delegate and get the departmental cooperation and buy-in of people within the organization to implement successfully. This person should also provide project leadership for all department team members and the vendors on behalf of the senior management and all stakeholders.
To detail the key responsibilities that management should expect from the project manager, we developed the list below:
- Develop a complete written project plan for the entire project early on. Define detail project plans at the task level with estimates, task dependencies, task elapsed time duration and responsible party.
- Recruit and assemble a technical team with the VAR and internal IT department personnel. This may involve outside contractors and software vendors.
- Determine resource and skill requirements to complete project tasks for team members and all vendors. For example, the project manager will need to coordinate the availability of programmers to write specific conversion programs. The project may also require trainers and managers to write procedures and training materials.
- Implement and gain usage of project scheduling and collaboration software tools. The software vendor generally has a tool they use to keep track of progress and updates can be made through them.
- Lead the change management that takes place with major system and process changes. It is a huge change for companies to move from legacy systems to a different technology platform. It often means dealing with new IT skill sets and classroom training to be able to implement and support the new system. Management should put a priority on retaining experience and knowledge in the IT area.
- Coordinate and communicate the implementation planning, completion of tasks, and weekly status updates with all stakeholders. In addition to weekly updates for management, update the Project Steering Committee on the overall system and change management on a monthly basis. Consult with Steering Committee on specific obstacles that need immediate resolution, as necessary. It is the responsibility of the project manager to set realistic expectations.
- Daily follow up on tasks, including touching base with team members and vendors as needed.
- Develop and review specifications for program changes, interfaces and integrations, configurations, and training materials.
- Provide project leadership to eliminate obstacles. This includes determining if modifications are absolutely necessary or if they can be considered after implementation. Also, gaining buy-in for system and process change among all team members.
- Gain sign-offs with department project members, vendors, and management at key milestones. Examples of where you may need a sign-off include user specifications, vendor programming specifications, file/database conversion plans, conversion validation, and readiness to convert.
- Provide leadership for configuration setting and system changes from quality assurance, test plans, conference room pilot, and review of test results.
- Planning for files/data base and history conversion; review of results and validate data integrity.
- Determine if the company is ready for the Go Live. Determine that all modifications, interfaces, and integrations pass data correctly. Also, review file conversion. What unnecessary risks is the company taking?
- Work with managers to be sure their people are available to meet implementation tasks and dates. This includes ensuring staff is available to review specifications, test programs, review converted files, train, and write procedures.
- Provide leadership in conjunction with the IT department in procurement process for IT server and software configuration considering response time, disaster recovery and technical training to support the configuration after implementation.
- Update of actual to initial cost estimates and budget for implementation. Review of invoices for payment. Keep management updated as to status.
- Perform project risk analysis throughout the project. This should include minimizing modifications in initial implementation that are not absolutely necessary. Communicating to owners and managers the complexity of the change management. Thinking through what if costs are double or implementation is twice as long as expected?
- Perform post implementation audit of initial planned tasks not completed. These may include program modifications and system functions not working correctly; continued training for individuals that need it; review and further change of processes, review of IT tasks to issue response time and data integrity, etc. Prioritization, estimation, scheduling and completed implementation.
The PMI report cited above says, “More than 2/3 of organizations report using outsourced or contract project managers”. External project managers are hired because there is not sufficient available time from senior management to assume these responsibilities.
Companies are taking some of the biggest infrastructure steps in their history. A significant percentage of the time, companies fail to implement on-time and within initial budget. These project management principles should be used to guide successful implementation of process changes, design, construction and expansion of fulfillment centers, installation of material handling and automation systems. As you consider these types of strategic changes, what changes in project management does your company need to make.
For the future, one of the most valuable human resources you can develop in your company are certified project managers. There are many online courses that are available. We would recommend developing some key project managers that can guide major company projects in the future.