Amanda Lewis and Mark Watmough tell utilities how to reduce the risk when implementing enterprise resource planning systems.

The transformation of utility businesses today is, more often than not, enabled by enterprise resource planning (ERP) systems, which provide leading practice business processes. Consequently, package-based ERP implementation has moved to the centre stage in delivering major business change, and the specification and control of projects is more critical than ever in achieving the desired business outcome.

Because ERP systems are modular, utilities do not need to implement them all at once. Implementation involves three stages: specification (or blueprinting), implementation (or realisation) and rollout. Failure to initiate ERP projects correctly can lead to delays in implementation and, more importantly, failure to achieve the desired business objectives.

It is important to realise that an ERP project is not an IT implementation, but a business transformation project enabled by IT. Such projects involve the utility making important decisions about the extent to which it will either adapt its business processes to fit the ERP software or customise the ERP software to fit its business processes (the former is, in general, preferable).

In particular, utilities can avoid problems by ensuring they adopt the following when initiating the project:

l Clarify project scope, estimated cost and predicted benefits. If the utility is appointing an external supplier to implement the ERP system, it must carry out adequate due diligence.

It is helpful if the supplier has a blueprint gleaned from implementing the ERP system in a similar business. Utilities must clarify which actions they are responsible for and which actions the supplier is responsible for. Otherwise suppliers may make additional charges for extra work and the utility may not appreciate the extent and resourcing requirements of its obligations. Moreover, the agreement with the supplier should include sufficient contractual incentives to ensure that the project is implemented on time and within budget.

l Ensure the implementation team is sufficient for the task in hand, and that the relevant business and IT people are empowered to make informed decisions in line with the project plan. Moreover, the project must be adequately project managed. Project deadlines should be realistic and changes to the project plan should be managed under strict change control.

l Contractual documentation must reflect the particular nature of an ERP implementation and the particular risk transfer envisaged for the specific project. It must also protect the utility from cost overruns. Generic IT implementation contractual documentation is not helpful.

l Ensure there is adequate consideration of communication, change management and training issues for all stakeholders.

l Data migration ultimately determines the exposure to risk of the operating business, as the ERP solution delivered by the project takes on live data. The cleanliness of the data determines the degree of "after shock" felt by the business once the data has been migrated and is being used in the live environment.

l Other general issues must also be considered, such as what the utility will do if the supplier experiences financial difficulties or breaches its obligations, and whether the utility needs the right to terminate the agreement for convenience.

These rules distil the authors' experiences of avoiding project delays, gained from multiple projects undertaken over many years. Adhering to them will help to reduce the risk of implementing ERP systems.

Amanda Lewis is a partner at Denton Wilde Sapte and Mark Watmough a director of Barnsnape Consulting. Email: Amanda.lewis@dentonwildesapte.com.

ERP software comprises a single integrated package (such as SAP or Oracle) that attempts to cover all of the core functions of a business (such as purchasing, customer relationship management, sales order processing, online sales, financials, human resources, asset management, field force and decision support systems). The software manages the information and functions of a utility from shared data stores and promotes the seamless integration of all the information flowing through a company.ERP in brief