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In business, Enterprise Resource Planning (ERP) failure essentially happens if one or more of the goals set when making the choice to implement the ERP are not met. Types of failure include financial failure, time line failure, and company interruption or slowdown. Usually a failure in a part of the implementation planning process, ERP failure can happen for a number of reasons, and can stem from problems in any part of the company or planning process. Reasons for ERP failure include communication breakdowns, budget miscalculations, and inflated sales figures.
If the ERP does not give the company the financial returns promised in the investment, this a type of financial failure. An ERP does not by nature generate money, but is designed to facilitate company processes, like accounting, human resources and data exchange, to improve the efficiency of the company. When deciding whether to implement the ERP, company management usually creates estimates of how much they expect the efficiency to increase after the implementation of the ERP. This efficiency data can be translated into approximated dollars and cents to estimate what the ERP means to the company financially. If the return on the system falls significantly short of the estimated value of implementing the platform, it is considered to be an ERP failure.
Another type of financial failure of an ERP can occur if the ERP implementation does not happen within the set budget for the ERP. Before implementing an ERP, management should have figured an estimated cost, including necessary physical resources, like money, manpower and space, as well as the cost of retraining and preparing employees for the newly implemented system. If ERP implementation costs greatly exceed the projected costs, this can be a type of ERP failure, though an ERP that goes over budget can still be a partial success if it succeeds in meeting the other goals of the ERP.
An ERP implemented significantly later than projected is considered to be a time line failure. When an ERP implementation does not meet the projected completion date, the delay can be caused by variables, like how long it takes employees to learn a new system. Time line delays can also occur as a result of inaccurate time estimates during ERP implementation planning, like if computers were not ordered to arrive on time for training.
Severe failures in ERP implementation can cause company processes to slow, which can affect employee work as well as production and shipping of company orders. Usually, catastrophic failures of ERP occur due to lack of communication. Sometimes, a lack of communication occurs among management, but poor communication with company employees responsible for parts of the ERP can also end in catastrophic failure. When a complete failure of an ERP causes a company to come to a screeching halt, on-site employees should be given the power to make necessary changes to get production back online as quickly as possible, including reverting back to the system that was used before the ERP.
Good article. Many sources speak to the symptoms that result in ERP implementation failure but few speak to the root cause of these failures. The root cause has more to do with the wrong implementation strategy. Today, the majority of ERP implementations follow a traditional, “build-from-scratch” approach that is not adequate for implementing packaged software like ERP.
What is required is an approach that addresses both the inherent advantages and challenges associated with ERP.
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