[Infographic] Risks Involved in Choosing and Implementing an ERP System

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Priya

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Parul Saxena

Chief editor

Last updated: July 3, 2020

Updated 20/06/2019: This post has been updated with risks involved in choosing and implementing an ERP System.

It is definitely not wise to expect immediate results soon after the implementation of the ERP System. This software actually takes time to offer exclusive results. Thus, there is a need to efficiently select and scrutinize, before making it come into execution. This can actually help experience the desired outcome.

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An Insight into the ERP Risks that cannot be ignored

Then there are many inherent risks attached to ERP Software. In most of the cases, the risk is associated with the scale of the ERP project. The more is the area of business touched by an enterprise system, greater is the threat attached to it.

ERP systems are the soul of almost every business today. Since these systems are so much important, identifying and finding a perfect solution to the specific threats is the chief task. Then, there are a lot of disciplines throughout the implementation that helps recognize the plan or lessen risks at every step of the way.


Risks Involved in Choosing and Implementing an ERP System

An Insight into the ERP Risks that cannot be ignored

1. Selection of Software

Selection of software is the major task entitled to the ERP system installation. Today, every enterprise software has its own specifics which may or may not fit well with your business requirements. So, there is a strict need to check to work of the software.

This is important because in case you experience failure at a later stage, your whole business goes at stake. Hence, make sure that you are not investing in an ERP that is not going to bear any fruits for you.

2. Transformation in Business requirements

No business is static. With changing trends, change in business schemes and strategies is obvious.

This change actually helps to keep pace with your competitors and take it to the next level. However, in such a situation, it is important for your ERP system to be dynamic in nature.

Most of the organizations often encounter a change in the management system. In such conditions, it is important to have the best technicalities, experience, and principles. So, while finalizing an enterprise system, spend a lot of time and see, if it will support the changes you are likely to experience in the future. Doing this actually helps you have a very clear vision and make the right choice.

3. Compatibility between New Business Techniques and ERP

No institution or market accepts changes in the policies or system at once. In this case, it is important to ensure that the new ERP solution is compatible and adhere to your business techniques. Because when a new system is advanced than the previous one, adoption and adherence rate become higher.

Looking for ERP Software? Check out SoftwareSuggest’s list of the best erp software solutions.

4. Delay in Software Update

Updating your ERP solution timely is very important. Most of the marketers neglect to renew when an update is released which is wrong. But here it is important to note that every update has got additional features which make it important. In case you resist doing it on time, there is every possibility of bearing some loss whereas your competitors enjoy profits with the same.

Although the software update is necessary and offers plenty of benefits, yet there is some risk associated with it. There are chances for the projects going over your budget. In case you experience a failure in creating exact business processes or updating it successfully, that adds to the loss of your business. Hence it is important to consider several factors when approaching to integrate an ERP solution for your enterprise.

5. Choosing a Startup or Bleeding Edge Technology

Choices make a great difference. Likewise, if you choose the less trodden software, you are taking a big risk. There are chances of standing exclusively higher from the crowd and there is also the scope of falling down badly. In such a situation, if your organization or business is ready to take the risk, you can proceed with the bleeding edge technology.

However, before making the final choice, research and read about that less mentioned product. Low market penetration is simply the sign of lower quality which generates the need to think about it seriously. But the contrast of this is also possible. So, it is better to have proper knowledge of the system and then choose the right one.

6. Software Stability

Software stability is another risk to consider, before proceeding with the final installment of an ERP solution. With so many ERP software in the market, no system can be judged as perfect or imperfect. There may be many which are not appropriate for your business.

So, the biggest task is to check the stability of the particular software. To make it easier: it is better if one goes with some renowned brand or chooses a specific system for proper research. In case you fail at the process, ask an experienced developer to assist you in finalizing the best ERP solution for your business.

7. More the Integration Points more is the risk

The number of integration points of an ERP is another important thing. Higher the number, higher is the chance of facing adverse results. This is because of the complexity and number of interdependencies increase. A very simple solution to this problem is to focus on the easy and quick implementation of ERP.

8. Future State Possibilities of ERP system

It is definitely not a good idea to ignore the risk related to the process. So, check out the process capabilities and possibilities. Actually, understanding these expectations help ensure that the project team delivers the results, achieve productivity objectives and offer business efficiency.

9. ERP Risk Emerges from Unexpected Changes

There may emerge many unexpected transformations in the company like process requirements or unplanned business policies. At such a moment you need to be concerned about your ERP system as well. Make sure that the policies or the sudden changes you are bringing in your organization are accessible on your installed software.

This is literally the biggest risk because changes are obvious and each ERP system has its own specifications to suit best to different niches. Eventually, alterations in the main work plan involve extensions and multiply the risk for project success.

10. Set Realistic Goals

Every organization set some goals, but it is important to assure that these goals are achievable. While having a perfect estimate of your integration system, you are supposed to target such business goals that are realistic. This can be perfectly done while ensuring that your goals are not dependent on manual programming.

Simply aim at a single track and make your integration system work completely after that goal to make it happen. In case there are some confusions, one can hire some professional to get a perfect idea of how the associated system can work and what goals will suit the best.

11. No clear Vision and Poor Functioning

Another biggest risk with an ERP solution is an absence of clear vision. The foremost task in such a situation is to set a clear goal. Since every business has got its own specifications, do not think what suits another will suit yours too. Your business may have different requirements.

No doubt, an ERP system helps enhance your business, but it happens only when you have a clear vision. The clear goal and strategy for installing the perfect ERP system. It also eradicates all the possible risks that you may encounter in the future.

12. Unidentified Requirements

Since you are not a technician, the actual necessities associated with an ERP system would not be known to you. However, that is a drawback for us. Technicalities are somewhat important to know. The risk factor decreases to a great degree when you have knowledge of this subject. This further assists in the proper functioning of your business and its entire system.

13. Inadequate testing plans

Neglecting consideration on the ERP system testing adds to the additional risks for a company.

The users thus need to ensure that they are going through complete testing and clear integration of the system. In case you fail doing so, your company is at the risk of getting trapped in a poorly managed project.

14. Software Limitations

Each software has got some limitations. So, we cannot expect a single system to deliver a lot of features. In this situation, it is important for a client to check the requirements. Simply make a list of required characteristics and then choose the software.

Make sure it can be customized and help meet the desired needs of your business. Such an analyzation let you take all the benefits of the integrated software. With so much clarity the risk factors turn almost negligible.

15. Wrong Choice of Vendor

Just like the choice of system or software, the choice of vendor also matters a great degree. It is better if you go with some reputed ERP provider like Oracle, Microsoft, etc. But, with positives come negatives too. Most of the large vendors neglect to try their hand at innovations while smaller ones do it efficiently. Thus, for the wisest choice, it is better if you look for reliable references.

You can also go through the proper analyzation like checking previous work of specific vendors. Apart from that, it is suggested to look for the reviews online, the prominence, etc. It is also important to check if the company has a proper physical address or not. In case you are doubtful at any point, avoid going with that particular ERP vendor, because it is no less than putting your business at stake.

16. Data Management Risk

Another risk associated with ERP systems is the data management problem. It may be because of lack of planning the available resources, the time or the overall mapping of data structures. However, the biggest responsibility of the companies is to test the programs thoroughly. If the data risks are assessed constantly the major losses can be prevented.

17. Required Flexibility

Another biggest question about ERP systems is the flexibility of the system. Switching from one system to another, certainly, leave you with doubts. Here you need to be clear with the point that your present system has the freedom and possibilities like the previous one.

In actual sense, when you are choosing an ERP specifically for your business, there is no question to compromise with the features that your business requires.

18. Unused Features

When software is complex and has plenty of features, 50% of them remain unused. So, this needs to be ensured that you are not choosing such a complicated system for your business. And if doing so understand all the functionalities to its core and bring use it to the best for your business.

19. Satisfaction with the Chosen ERP

ERP systems are changing every new day. The addition of payrolls, slips, billing system, inventory management, and many other features is increasing the competition. This leads to the desire to have more and more features in the installed ERP system.

As a result, this adds to the risk involved in selecting an enterprise system and make users dissatisfied. For this, it is suggested to already choose the advanced and multi-functioning enterprise system for your trade.

20. Underrating Time and Cost of the Implementation

Once the enterprise software is purchased, you can start with its implementation. You can ask your vendor to offer you access to it. No there are fair chances for you to have expectations from the ERP you are installing. So, do not forget to mention the expectations that you wish to achieve.

After that, the vendors can give you an exact idea of the implementation time and cost. And in case, he fails to do so, your business can be a loss. Your expected budget for implementation may exceed. Thus, a little wrong estimation can leave a big impact on your industry and the contrary may bring the boom in it.

21. Security

This is one of the major risks associated with the implementation of an ERP system. In every technical business, the storehouse of information is a network system. Thus, when someone wants to check in your business, a door is not the way for them. It is the network system that let them peep into your business. Hence, while choosing an ERP system for your trade, security must be the major factor to be kept in mind.

22. Technical Risk

The risk associated with the technical issues is very broad. In fact so much wide that some are not at all found through formal risk assessments. However, with continuous standardization and customization of ERP systems, the risk factor is shrinking greatly.

In addition to this, every individual does not possess the technical knowledge which means understanding all its terms at once is not as easy as ABC. Thus whatever ERP system you plan to integrate, there remains some risk in choosing a perfect one.

23. Do not take it simple

Most of the business entrepreneurs take this task of installing an ERP system very lightly. It may, however, prove to be a hazard for your business. Actually, it is wrong to underestimate the difficulty in choosing this software.

So, it is better if you take proper guidance and ask people. While doing this, there are certain chances of coming across the facts that you don’t even know. However, when this happens you are able to make a better choice and hence choose the right option.

24. Job Risk

Choosing the wrong software not only offers you worthless results but at the same time puts your job at risk. In case it does not work properly or the project fails, it directly affects your reputation.

25. Engagement Factor

Regardless of the ERP you have integrated or chosen, interests of people need to be focused on. It is better if you involve them in the selection process and ask for their contribution in making choices.

Though there are maximum chances of not accepting any change in the system, an indication of benefits wins the engagement of your people. This actually reduces the risk of facing any opposition from your employees and ultimately helps you turn it into a success.

26. Improper Maintenance Plan

It definitely takes a lot of time to implement and install an ERP system. However, the work does not end, once the system is installed in place. Businesses need to come up with the maintenance strategy. This assures that the workers are aligned properly and know what is required to be done.

Doing this, also prevent it from getting obsolete or outdated. In case you fail at maintaining an ERP system, there are fair chances of putting your business at risk. Improper maintenance put your enterprise system in danger, further contributing to the loss of your business. However, this can be avoided with time to time maintenance of the ERP software. It also keeps the software up to date and makes it function properly.

27. Time Consuming

Choosing an ERP system undoubtedly consumes a lot of time. It can take months to years because there is a lot that needs to be checked in the entire system. And if seen factually, it is good to devote so much time to make a choice. The more you explore, the better is the output!

28. Improper Business Process Re-Engineering

Proper BPR exercise is the best way to reduce the risks associated with the implementation of an enterprise system. When this task is performed efficiently, the users and vendors both get to know about the functional requirements of a particular system. While such an approach helps completely eradicate the risk of ERP, there are many other risks that altogether go out of the picture.

29. Avoidable Cost Cuts

While trying to eliminate the costs of implementation, you may try on some unnecessary elements too. Doing that can fulfill your desire of paying less but at the same time, you put yourself at risk. There are fair chances of eliminating some particular phases of ERP implementation.

Risks that may emerge this way can actually prove to be drastic. With such risks, you are not aware of the unforeseen situations which may further become the reason for business failure.

30. The absence of Executive Sponsor

ERP functions within a company and it certainly needs some knowledgeable person to look into the things. People are required to give time and resources both to the ERP project so that the functioning and its management is not interrupted.

31. The risk with the different testing phases of ERP

There is also some risk with the testing of ERP system. As the nature of testing is super flexible and vary vendor to vendor, most of the vendors prefer using shortcuts and make it go live as soon as possible. This may offer you a temporary functional ERP system. However, to control this situation, it is important for the buyer to have proper knowledge of the phases involved in testing an ERP system.

Here are the phases explained to make it easier for you and keep you on the safe side when implementing an ERP in your organization.

Uni-Testing: This is a stand-alone test which checks on the individual transactions and subprocesses. Integration Testing – It is end-to-end testing which checks on the real business transactions.

User Acceptance Training: This is the next phase of ERP testing. It offers the end users to be concerned about the learned training skills and also give feedback.

With these testing phases, it becomes the responsibility of the project managers to ensure timely unit testing. Doing this actually let avoid the time restrictions and thus test the firmness.

32. Lack of Internal Resources Associated with the Project

It is important to associate some useful resources with the project. Implementing an ERP, actually, take a lot of time and effort from people within the organization. This is one such project which should be kept on top. This also needs to be given priority so as to maintain its worth and avoid the risk elements.

33. Understanding the complete Import of Going for ERP

It is very important to have a proper understanding of the imports for an ERP system. This may include the understanding of functionalities, the requirements if the ERP offer enough flexibility and organizational research. With this, undertaking the processes and functions of the project become flexible. When the user has a proper understanding of this subject, it becomes easier to process all the functionalities of the project.

34. Differences between the Management Goals and the Organizational Expectations

When two working teams have different aims and paths to follow, the risk of achieving the destination is a common problem. Similarly, a mismatch between the organizational expectations and management goals, make it hard to achieve the respective objectives.

Implementing a new ERP solution is one of the complex tasks performed in an organization. This takes in plenty of time and it is also an expensive project to undertake. Moreover, when we see so many costly results and potential delays associated with the ERP implementation, making out the reason behind the failure is not complicated.

However, as a solution to this problem, it is better if you shake hands with experienced teams. It is better if you take the assistance of the vendors or the technicians. Professionally expert people help in recovering the ERP projects and possess the knack of lifting up a failing project. To make this point more vivid below are the ways that can help you avoid ERP implementation failure.

35. Plan for a Perfect Fit for your Business

Most of the companies fail at enterprise implementation due to the improper planning of the product for their business. It can be a failure at outlining the requirements, often leading to the confusions down the line. However, this can be improved while bringing in the entire team together. They give suggestions and opinions. Note them down and choose the best out of the list.

36. Getting People on Board when Implementing an ERP

Undoubtedly even a minor change in the implementation of an ERP solution will affect the people attached to it. So, it is better if you develop a very clear picture of the benefits that the organization will have. Once you are clear about it, get in touch with people one to one, and take notice of all the possibilities.

At the same time, it is important that you assign the exact roles and responsibilities to the resources available to you. With the development of the project, the implementations become a major task. There also emerges a need to handle the business changes, resolve conflicts and overall management.

37. Avoid Excessive Customization with your Project

People think more about the customization, more functional it will be. However, this is nothing less than a poor myth. Excessive customization of a project can literally break it. It adds to the time consumption, the risk factors, added costs and a lot of other pitfalls.

In most of the cases, an enterprise fails for falling short of the customer’s expectations. This being said, it is better if you do not play around with the customization of an ERP solution. Just include the chief areas that are necessary for your business. It will actually enable you for new operational efficiencies.

38. Risk Accounting to your Financial Budget

A financial budget is important to consider when giving away to design your ERP to any company. This risk factor basically comes out with improper projection or budgeting, concrete profits, and a wrong measure of targets. Additionally, budget allocation leads to serious problems. However, the only solution to avoid this risk factor is to avail proper guidance and realize the value of the projects while keeping them on priority.

39. Improper Training

If you are not professionally trained about the usage of an ERP system, there are rare chances of getting exact benefits from the software. So, this is the major responsibility of a manufacturer to impart the proper lesson about how particular ERP system works. Until proper knowledge of its working is delivered, the user will not be able to avail the exact benefit of the software. As a consequence, your business may suffer a lot.

40. Staffing and Competency

This project includes risks to staffing, competing priorities, individual competencies, resource allocations, and organizational stability.

41. Business Disturbance

Since all your business is dependent on this ERP system, it has to be perfect. In case you find some disturbance with the software, the whole business, and its working will be disrupted. So, it is important to look for the risks and have the best ERP as well as mitigation strategies. Any business diversion is not admired due to the wrong selection.

42. Political interference

Another risk factor emerges when some forces interfere in software selection. This is possible when some senior or some unknowledgeable get into the stuff. Such seniors may insist on installing a particular system. Though it is not true that the choice will always be bad, there is a great risk factor involved.

So make sure that you are doing a proper research of things associated with an ERP system. Simply check on all the features required for your business. Once you are satisfied to proceed with the purchasing. After all the analyzation if you still have doubts, seek some guidance and avoid the pressure.

With so many companies investing in ERP systems, implementing them but not achieving the desired results leaves a negative impact of the systems on them. However, the problem is not with the solution but it is with neglecting the risks involved in the installation. Once a user is acquainted with all the risk factors involved in these systems, achieving success with its implementation is not at all complicated.

With changing trends and advancement in business technology, ERP system has fetched the major space. In fact not having an ERP solution in the industry leads to major losses. But at the same time, if it is not installed or is inappropriate, the loss doubles to infinity. Hence, installing and using an enterprise solution is not a big deal, but choosing is. A powerfully integrated system allows interactions of sales, marketing, product processes, and many other areas.

Now that it has such a great role in your business, it is important to be aware of the risks involved. If you properly manage the business from all aspects, there is a great possibility to reduce the risks. It is important that you do complete financial and technical management of the ERP system. Once you have all these factors in place, there can be no bar in smoothly implementing and processing an ERP for your business.

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Priya is a writing coach and blogger at Impinge Solutions, an IT company which provides web development, designing, digital marketing and mobile application development services.

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