Introduction
A
1995 Standish Group research study based on over 8000 software implementation
projects found that nearly one third of the projects were canceled before completion.
And over 50% of the projects cost nearly twice their original estimates. The
study further concluded that only 16% of all software projects are completed
on time and on budget (only 9% for large companies)1.
With
these grim statistics firmly in hand, a plethora of books, white papers, and
articles have been written on implementation success factors and software implementation
methodologies.
While
these publications offer sound and sage advice, the problems remain and the
project failure statistics have not improved.
One
area receiving little scrutiny, however, is the software evaluation, selection,
and procurement processes employed by most organizations. This article reviews
common problems associated with software evaluations, and introduces several
ideas for improvement.
This
is Part One of a two-part article. Part Two will make Recommendations for Improvement.
1
- Standish Group International, Inc., The CHAOS Report, December
1, 1995.
The Capital Investment Paradigm
Financially, GAAP requires companies to account for most software license and implementation costs as capital investments. This makes perfect fiscal sense, as the software lifecycle is long and depreciating the investment over multiple years is sound financial practice.
Unfortunately,
the software procurement process does not follow a similar, long-term capital
investment approach. Instead most companies handle software purchases like departmental
operating expenditures. This flawed paradigm is the root of many implementation
failures and the cost overruns cited above.
To
illustrate the capital investment approach, let's use the example of production
machinery for a manufacturing firm. When considering an investment in new machinery,
multiple departmental teams with varying requirements participate in the decision
making process. Typical activities might include:
| Team |
Activity |
Manufacturing
Management
|
Build business
case for investment in new machinery
Investigate
alternatives to new machinery purchase (i.e. outsourcing, continued use
of existing machinery, etc.)
Investigate
the service and warranty support provided by the candidate vendor(s)
Investigate
the financial viability of the candidate machinery supplier(s)
|
| Engineering |
Test the machine
to confirm it will produce the necessary product within tolerance |
| Factory
Operations |
Test the machine
to make sure it fits within the allocated floor space, is easy to operate,
and will improve productivity as expected |
| Quality
Assurance |
Test actual
runs of product through the new machine to confirm the error rate is within
requirements |
| Customers |
Manufacturing
process changes may need to be reviewed by external customers to ensure
they conform with agreed to specifications |
| Suppliers |
Raw materials
will need to be confirmed on the new equipment and possibly alternative
suppliers must be evaluated |
| Procurement |
Negotiate
final contract terms |
| Finance |
Arrange for
acquisition of needed capital |
Other
forms of capital investment (such as facilities or real estate) generate similar
analysis and due diligence activities from a variety of internal and external
teams. This model recognizes the fact that a capital investment must serve the
organization well for multiple years. Spending time and effort up front to ensure
a smooth transition to the new machinery (facility, etc.) is simply good business
practice.
Software Evaluation Challenges
Most companies do not treat software procurement in a similar manner. A series of common flaws can be found in most selection processes. The following table outlines the most common software evaluation and selection flaws, and the associated risk.
| Flaw |
Leads to... |
Project Risk |
| Insufficient time devoted to evaluation and selection |
|
- Poor software "fit" against business requirements
- Improper expectations on implementation cost, time, resources, etc.
- Erosion of project support
- Increased user resistance
|
No business case
or
Poorly defined business case
|
- Inaccurate projection of:
- Costs
- Benefits
- Alternatives
- Risks
- Assumptions
- etc.
|
- Cost overruns due to poor planning
- Lack of business benefits
- Lack of "Ownership" of each individual benefit
- Erosion of project support
|
| Affected departments not part of selection team |
- One-sided evaluation of software fit
- Unidentified software gaps
- Poor software "fit"
|
- Cost overruns due to unplanned work to resolve new software gaps
- Erosion of project support
- Increased user resistance
|
| Incomplete or inaccurate set of business / technical requirements |
- Unidentified software gaps
- Inability to sufficiently "test" the system
|
- Cost overruns due to:
- Unplanned work to identify new requirements at a later date
- Unplanned work to incorporate additional functionality
- Unplanned work to perform additional testing
- Erosion of project support
- Increased user resistance
|
| Insufficient testing of candidate solutions |
- Unidentified software gaps
- Unidentified integration issues
- Poor software fit
|
- Cost overruns due to:
- Unplanned work to resolve new software gaps
- Unplanned work to build interfaces
- Erosion of project support
- Increased user resistance
|
| Insufficient verification with external customers/suppliers |
- Customer/supplier discontent with new system
|
- Lost sales
- Lowered customer service
- Supplier cost increases
|
| Insufficient due diligence of software vendor (i.e. references, viability,
future development, support, etc.) |
|
- Poor support
- Lack of future functionality for upgrade, enhancement
- Increased total cost of ownership
|
The
software evaluation and selection process builds the foundation for the entire
implementation project. A foundation that includes one or more of these flaws
will inevitably crack under the pressure associated with a mission-critical
software implementation. A structured and disciplined software evaluation and
selection approach will mitigate this risk and establish a solid foundation
from which to move forward. The following section outlines our recommended guidelines
for such an approach.
This
concludes Part One of a two-part article. Part Two makes Recommendations for
Improvement.
About
the Author
Paul
Winandy is a founding partner of Spinnaker Management Group
(www.spinnakermgmt.com), a management
consultancy guiding small and mid-sized businesses along the entire journey
from strategy creation through technology implementation. Mr. Winandy has over
15 years experience transforming organizations through business process and
technology solutions. He specializes in the planning, selection, and implementation
of mission-critical ERP and supply chain related systems. Mr. Winandy has assumed
project leadership roles on several major strategy and systems implementation
projects for multi-national manufacturing and distribution enterprises in industries
such as semiconductors, CPG, food & beverage, wholesale distribution and transportation