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The Path to ERP for Small Businesses, Part 2: Evaluation of ERP Software

Written By: Gabriel Gheorghiu
Published On: April 6 2010

Part 1 of this series of articles described the process of research, the first important step in any software selection project. Part 2 will describe the evaluation of the products available in the market to determine which one fits best for the needs and requirements defined during your research, which will help you create the shortlist that will be used to make the final decision.

Once you have the list of main processes and the workflows that describe your business processes, you’re off to a very good start. Given a basic grasp of the different functional requirements for your ERP software, you can begin to evaluate ERP software vendors and put together a shortlist of products for further in-depth analysis.

Important steps involved in this phase include the following:

• gathering and prioritizing requirements
• transforming requirements into a decision model
• publishing your request for information (RFI)
• collecting RFI responses
• performing preliminary qualifications, resulting in a working list of ERP vendors
• validating and analyzing RFI responses
• creating a ranked short list of ERP vendors

Creating Your ERP RFI/Request for Proposal (RFP)

The basis for any enterprise software purchasing decision is the criteria used to define the needs of a company, depending on its specific characteristics. The most widely used tool for this is an RFI, which is a way to enquire about a vendor and its offering. Some software vendors and companies that provide software selection services offer more or less detailed RFI templates. These templates are usually pre-defined, depending on the industry and the type of software required. You can use one of these templates as a good starting point because it will reduce the time it takes for you to discover the functionality available by a particular type of software. Whether you use a template or not, it’s a good idea to customize and organize the functional requirements so that software vendors respond to your unique needs.

Small businesses looking for a software solution can create their own hierarchy of criteria. This can be done internally or with the help of software selection consultants. Depending on your needs, an RFI can have hundreds and sometimes even thousands of criteria. You want your RFI to be comprehensive so that it addresses all of your needs. You can always decide to prioritize some ERP functionality as unimportant later in the process.

Starting with a high level hierarchy of functionality that can be as detailed as needed is probably better for a small business. A list of the main activities and the workflows (as described above) is the structure on which you can build your own detailed hierarchy of functional ERP criteria. Consultants and software vendors can sometimes use existing RFI/RPFs and customize them to your needs—be aware, however, that vendors (and consultants that implement specific products) will be motivated to present their strengths and downplay anything that might be deemed insufficient for your requirements. It’s better to develop your RFI independently of a vendor.

Do not go into more detail than you really need—especially if you’re a small business. Having a list of criteria that you don’t need can be as bad as having no list at all, as vendors will eventually be bidding on your project for things you don’t want, at a higher cost. And remember to prioritize (must-have versus important versus nice-to-have, etc.).

Most ERP vendors provide the main functionalities, and sometimes the difference between them is not obvious at all. There is no general rule that you can use to find these differences, but they usually depend on the industry you’re in, or the specific characteristics of your business. Also, a very good product might not have some of the functionality that is critical to your needs. Make sure to carefully evaluate the vendors’ responses to your RFI.

Using Decision Support Systems

A decision support system (DSS) is a computer program that helps users model their decision criteria, prioritize their requirements, evaluate their options, and make decisions. It’s one thing to compare options based on ten or twenty criteria, but when you’re evaluating complex software like an ERP system, it’s likely that you’ll have too many criteria to consider to compare vendors using a simple spreadsheet.

Instead, you can model your decision in such a way that using a DSS will help you evaluate and select the best option. Most software selection DSSes use data gathered through RFIs or RFPs—the main advantage to this is that you can easily manipulate hundreds or thousands of criteria, and you don’t need to chase vendors for the ratings. Comparisons between different products can be performed, and graphical tools allow decision makers to understand the main differences between several options.

Best Practices when Using DSSes

In order to efficiently use DSSes, there are a few things that you should take into account:

• When comparing products, always start at the high level of functionality and, if necessary, go down to lower levels (remember to concentrate on functionality that you really need for your company).
• Priorities should be defined for each module or major functionality type—make sure you understand how priorities affect the final result of your comparison.
• If available, what-if scenarios can be very useful, since they can show you how the products you’re comparing will fit your future needs (e.g., if human resources is not very important now, but will be in the future, the best product for your current needs may not fit your future requirements).

In addition to what has already been described above, a DSS can help you take into account factors like vendor training and support methodologies, pricing structures, different options for storing and accessing the database, etc.

Taking Advantage of Other Resources

There are thousands of articles and blog posts and hundreds of books on ERP evaluation, which makes it quite a challenge to find relevant information for your needs. Most of the information available is reliable, but may only cover a specific product, market segment, or product type. Research and analysis companies like Gartner, Forrester, AMR, and TEC publish valuable reports describing ERP products, industry trends, etc. (for a listing of analyst companies, please visit http://analystfirms.tekrati.com/).

The result of the evaluation phase should be a shortlist of vendors that best fit your company’s needs. To make sure you get the most relevant shortlist, RFIs/RFPs and DSSes are the most important tools; the other resources mentioned above should only be used as a complement to these tools.

Final Thoughts: Avoiding “Analysis Paralysis”

According to decision theory, the paradox of choice states that the more choices you have, the more likely you are to make a poor decision or fail to make a decision. Gathering information and comparing different products and solutions is essential when selecting business software, but make sure you don’t drown in unnecessary data, which will make the decision process more difficult.

The third and final part of this series will describe the steps involved in the selection process. In this final phase, you will learn what to do with your shortlist of ERP vendors and products.

For more information about ERP systems, or to start comparing ERP solutions side by side, visit TEC’s ERP Evaluation Center.




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