Risk management in ERP projects: reconciling rigor and flexibility

Risk management in ERP projects: reconciling rigor

and flexibility

Suzanne Rivard

Holder of the Chair in Strategic Management of Information TechnologyHEC Montréal

Nottingham University School of Business April 19th 2005

Rivard - Nottingham University Business School – April 19th 2005

Outline

Foreword – the practice of relevance The Hydro-Quebec Distribution (HQD) project Definitions A two-tier risk management approach Reconciling rigor and flexibilility


Foreword - the practice of relevance

The topic: enduring or current organizational problems

The implications: have to be implementable1

The results: have to be implemented2

We shall use the term ‘implementation’ to refer to the manner in which the manager may come to use the results of scientific effort2

1 Benbasat, I., Zmud, R.W., « Empirical Research in Information Systems: The Practice of Relevance, » MIS Quarterly, March 1999.

2 Churchman, C.W., Schainblatt, A.H., «The Researcher and the Manager: A Dialectic of Implementation,» Management Science, Vol.11, No.4, February 1965.


The HQD project - objectives

Transforming HQD sales and customer service processes

Replacing 200 legacy applications with an enterprise system


The HQD project - size

370 M $CDN Approximately 250 team members Four years Sixteen « work packages » 3600 employes 3 Million customers


Project director

HQD Board of directors

Board of directorsAuditing committee

President HQ-Distribution

Project Steering committee

Tactical committee

Vice-presidentSales &

customer services

Mgnt committeeS&CS

•Auditor•Risk mgnt advisor•Capgemini

Reporting twice a year

Every 6-8 weeks. Every other

week

Monthly report

LeaderIT

Director IT

The HQD project - structure

LeaderTraining

Leader Development

Leader Project office

LeaderChange

management

Monthly report


Definitions: Risk Exposure

Where:

URi: Undesirable results iP(URi): Probability associated with URi

L(URi): Loss associated with URi

Risk exposure =

n

iii URLURP

1

)()(

Barki, Rivard, Talbot, 1993, 2001; Bernard, Rivard, Aubert, 2003


Definitions: Risk Management

0

1

2

3

4

5

6

7

0 1 2 3 4 5 6 7Probability of UR

Lo

ss d

ue

to o

ccu

rren

ce o

f U

R

6

5

43

2

1: Budget overrun2: Not respecting schedule3: Poor technical quality4: Poor process/systemquality5: User dissatisfaction with process or system6: Unser dissatisfaction with project7: Not obtaining benefits8: Inability to institutionalize change

81


UR 1

UR 2

UR 3

F1

F2

F3

F4

F5

F6

X1

X2

X3

The issue of estimating probabilities


Second tier - work package risk exposure : short term horizon (4 months); UR particular to a work package ; risk factors have to be identified

Top tier - project risk exposure1 : «long term horizon»; ultimate and generic UR; generic risk factors

A two-tier method for software project risk management

1 Barki, H., Rivard, S., Talbot, J., « An Integrative Contingency Model of Software Project Risk Management», JMIS, vol. 17, no 4, 2001 p. 37 - 70.

Barki, H., Rivard, S., Talbot, J., « Toward an Assessment of Software Development Risk», JMIS, vol. 10, no 2, 1993 p. 203 - 225.

Bernard, J.G., Rivard, S., Aubert, B.A., « Mesure du risque de ERP, » SIM, vol.9, no.2, pp.25-50, 2004.


Undesirable results

Risk factors

~Budget ~Schedule ~Technical quality

~Process -system quality

~User satisfaction /product

~User satisfaction

/project

Technological newness

X X X

Project size X X

Lack of internal expertise

X X X X X X

Technological complexity

X X

Process complexity X X X X

Organisational environment

X X X X

Software quality X X X X X

Process/software fit

X X X

Software vendor quality

X X

Lack of expertise integrator

X X X X X X

Lack of cultural fit with integrator

X X

Bernard, J.G., Rivard, S., Aubert, B.A., « Mesure du risque de ERP, » Systèmes d’information et management, 2004


May 2003May 2004

Likelihood Likelihood

1. ~Budget 2. ~Schedule3. ~Technical adequacy4. ~Functional adequacy5. ~User satisfaction with system6. ~User satisfaction with project7. ~Tangible benefits8. ~Harmonious implementation of change

Tier 1 - Risk map


Tier 1 – risk mitigation ledger


I ntérêts 5320 320 M$

300

+ intérêts 53 M$

280

267 M$

260

240

220

65.4M$ 29.7M$

200 avec int. avec int.

180 83.1M$

69.1M$ avec int.

160 avec int. Lot 11

Lot 10140

120

61,1M$

100 avec int.

80

60

40 * : tient compte du plein paiement des nouvelles

licences SAP, soit 24,4M$, en 2002. 20 Des pourparlers ont lieu actuellement pour

en déterminer les propriétaires et répartir

1 ce montant.

M J S D M J S D M J S D M J S D M2002

6,2M$ 7,1M$ 4,1M$ 8,0M$ 4,0M$ 4,1M$

2005 2006 20072003 2004

2,1M$ 1,3M$ 1,5M$3,3M$ 1,6M$1,9M$ 2,3M$

1

Lot 2

Lot 3

Lot 4

Lot 5

Lot 6

Lot 7

Lot 8

Lot 9

Lot 12

lot 13

Lot 15

Lot 14

Lot 16

PROJ ET SIC -LOT1 & 2 Réalisé Planif. 26.03.03Investiss. * : 212 M$ 32,5M$ Charges : 55 M$ 1,2M$ Sous-total : 267 M$ 33,7M$Intérêts : 53 M$ 0,7M$ Grand Total: 320 M$ 34,4M$

TIER 1

TIER 2


January 2003

April 2003

Tier 2 – Risk map


Reconciling rigor and flexibility The risk management process « in vivo »

Prior to a new work package (tier 1) Update risk assessment of global project Update risk mitigation mechanisms in ledger Validation by management committee Report to steering committee

At mid-work package (tier 1) Update risk mitigation ledger

Every other week (tier 2) Update risk assessment of work package Update risk mitigation ledger Report during management committee meeting

The project management office Every other week, report on budget, schedule, output


Reconciling rigor and flexibility

«

Lai

sser

-alle

r »

Projec

t lead

ers a

dopt

ing th

e be

havio

r

of th

e «

grizz

ly m

an »

of N

orth

ern

Rodhe

sia o

re m

ines1

Cou

rtena

y, B.,

The P

ower

of O

ne, M

anda

rin, 1

992.

«

Rig

idity

»

« A

bsur

d de

cision

s »

2

Mor

el, C

. Les

déc

ision

s ab

surd

es.

Éditio

ns

Gal

limar

d, P

aris,

200

2.

Rig

oro

us

met

ho

d, f

lexi

ble

use


Researching the reconciliation issue

A process analysis of the pendulum movement ?

Ethical issue : the external expert and the researcher

Documents

Risk management in ERP projects: reconciling rigor and flexibility