For many organizations, implementing an ERP system can be overwhelming. The technical challenges are high, and managing a project with limited staff and resources requires meticulous planning. Following these best practices will bring a winning result — and reduce your stress along the way.
ERP implementations can be daunting, especially if you’re replacing a decades-old system. Back in 2018, Oracle estimated that the average age of on-premise ERP solutions is approaching 20 years, and many of these installations weren’t the current version. If this sounds like your organization today, the good news is you may have an opportunity to leapfrog your current ERP capabilities and adopt cloud-based options, opening the door for significant benefits. Here are 10 best practices to help guide you through each step of your ERP upgrade.
1. Develop a robust contract
Ensure your organization has the right contractual protections. This often means not signing the initial contract provided by the vendor. Ensure that the proposal and request for proposal (RFP), as well as any clarifications, are incorporated into the contract. If the solution is cloud-based, make sure performance expectations are codified in strong service level agreements.
Your contract should also include disentanglement language and the ability to replace the vendor’s project staff if needed.
Lastly, the contract should cover data protection. Your organization should know where its data is housed throughout the project, and have the ability to confirm that appropriate data protections are in place.
Your organization should know where its data is housed throughout the project, and have the ability to confirm that appropriate data protections are in place.
2. Establish a robust project structure
Your project management and governance structure is paramount for project success. It ensures that issues are raised to the appropriate executive level, and that risks and associated mitigation plans have executive support. It also facilitates timely and effective project decision-making. Your project structure should include:
Senior executive sponsorship.
Project leads who represent your organization’s core departments, such as human resources, finance, and technology.
Functional leads who represent the core department functions, such as payroll, budget, procurement, and benefits.
Experienced project managers.
This structure should be supported by a project management office that has the tools for tracking issues, risks, decisions, and a mechanism for pushing critical items to the leadership team.
3. Form the “right” project team
The project team is a critical foundational element of any ERP project. Many organizations put a large focus on project management resources, and while strong project management is important, so is identifying team members who bring strong subject-matter expertise based on the needs of the project — whether that’s technical, functional, or change management. Also focus on identifying staff who are empowered to make decisions and have availability to participate meaningfully in the project.
Identifying team members who bring strong subject-matter expertise based on the needs of the project — whether that’s technical, functional, or change management. Also focus on identifying staff who are empowered to make decisions and have availability to participate meaningfully in the project.
A major challenge is that selected team members typically must balance project responsibilities with day-to-day work requirements. This may require backfilling roles, or cross-training staff, so that others can take up portions of the key individual’s job. It’s important to continually monitor your team to avoid staff burnout or lack of staff capacity to achieve project timelines.
4. Plan and execute change management activities
The impact of a new ERP solution shouldn’t be underestimated, especially if you’re replacing an antiquated system. Early in the project, consider the impacts the new solution will have on internal and external stakeholders and develop and execute a comprehensive plan to address them. Your change management activities should include:
Communications planning: Your communications plan should include a comprehensive description of key stakeholder groups, the mechanisms that will be used to reach those groups (i.e., website, newsletters, departmental meetings, etc.), the frequency of communications over the duration of the project, and who’s responsible for the various communications.
Project collaboration site: This site is where project staff collaborate and share project documents. It forms the “glue” of the project by providing a single source of information for team members, documenting the project’s history, and providing version control over critical documents.
Impact analyses: Here you analyze in detail the impact of a new payroll, time and attendance, and leave management system. It’s likely that a new ERP system will have significant processing differences in these critical areas, and it’s a common source of confusion for staff. It’s critical to take the time necessary to analyze the differences between the old and new systems, and decide how the impact will be addressed.
Prepare a comprehensive change management plan and execute these tasks in conjunction with other project activities.
5. Trace functional specifications
Establishing comprehensive functional specifications is critical during the selection process, and later they’ll become a cornerstone in the implementation and testing processes. It’s essential that they’re fully reviewed and vetted by module, which can be a time-consuming process. These functional requirements live on through traceability — from RFP and demonstrations, to implementation, testing, process and procedure manuals, and training materials. They must be detailed, clear, and paint an accurate picture of your future-state needs. It’s a best practice to incorporate the vendor proposal and response to the specifications into the final contract to ensure contractual recourse in the event the vendor’s solution doesn’t meet all functional specifications.
Establishing comprehensive functional specifications is critical during the selection process, and later they’ll become a cornerstone in the implementation and testing processes.
6. Examine data conversion requirements thoroughly and develop comprehensive inventory of system interfaces
Consider what legacy data will be needed in the new system so the vendor can accurately predict the cost of conversion and impacts to the schedule. Data cleansing and preparation activities are often the customer’s responsibility, as is the validation of converted data, therefore it’s critical that you understand the staff and/or external consulting effort required. Organizations generally aim to convert one to three years of budget data and general ledger balances, but this varies with business need. With other items such as invoices, purchase orders, etc., frequently only open items will be included. The scope can vary depending on each functional area, for example human resources, and each will have different requirements. Take a critical examination of the amount or history of data to be converted; the value may not be worth the effort and cost.
Sharing information between systems is one of the biggest challenges in an ERP implementation. Taking a comprehensive inventory of the systems that will remain after the upgrade — along with the information that flows in and out of them, the type of data, and the frequency of transfer — will help your systems integration vendor accurately estimate these costs and the impact to schedules.
7. Redesign the chart of accounts
The foundation of any ERP system is the chart of accounts (COA), which establishes the framework for the entire system. If your COA is outdated or misaligned, it can lead to inefficiencies, limited functionality, and user frustration. To maximize reporting capabilities, system functionality, and return on investment, it's advisable to undergo a COA redesign when migrating to a new system. The redesign should be completed prior to implementation to ensure adequate time and resources are dedicated to the effort.
8. Conduct comprehensive system integration and user acceptance testing
The most thoughtfully planned and executed implementations can suffer significant challenges if the new solution isn’t thoroughly tested prior to go-live. Provide adequate time for your subject-matter experts to conduct testing prior to go-live: build a testing schedule into the project plan, identify the internal resources, and be prepared to pull in additional resources as needed. Testing activities should include:
Unit testing: This covers testing of specific functionality configurations such as creating a requisition, accruing leaves, hiring an employee, etc. It’s the first step in a testing plan, and often requires multiple iterations to get it right. Unit testing typically doesn’t include automated workflows or produce custom reports.
System integration testing: This includes testing of the configured application, using multiple, defined scenarios and detailed scripts (including automated workflows, interfaces, and reports) to verify the behavior of the software. This testing evaluates the system’s compliance with your organization’s business requirements, such as “hire to retire” and “req to check” processes, and creation of reports.
User acceptance testing: This testing verifies system works as expected from the perspective of the end users who use the system every day.
The most thoughtfully planned and executed implementations can suffer significant challenges if the new solution isn’t thoroughly tested prior to go-live.
In all cases, testing needs to be structured. This includes having defined scenarios, detailed scripts, expected outcomes, tracking of testing results, issues identified, resolution plans, and retesting as needed.
9. Allocate contingency funding
Over the history of ERP implementations, organizations often need to extend the timeline, exceed the original budget, or both. This may be due to unforeseen technical issues, scope expansions, underestimated staffing expenses, or other risk factors. It’s important to identify a source of contingency funds during the initial planning process to account for these expenses. Typical cost overruns include the need for additional training, staff backfill, or new interfaces or reports that may be identified during the implementation. Your steering committee and executive leadership should be fully engaged in sourcing and approving the use of these contingent funds.
10. Require project oversight
Experienced project management is a key factor in a successful ERP project. Oversight teams should regularly assess project health, report their findings, and advise the steering committee and executive leadership on proposed actions. Reports should include project status, budget, risk and schedule reviews, along with comparisons to best-practice approaches. Larger organizations should expect significant challenges in enterprise application integration and data conversion and should strongly consider (or require) professional project oversight, and include the costs and benefits in their business case.
Many organizations are resource-challenged, and most will say they lack the level of resources needed to allocate financial and human resources for an ERP implementation. But with thorough planning and budgeting — and prudent staffing that includes advisors experienced in ERP implementations — you'll avoid cost overruns that can overwhelm a project, and reap the cost benefits associated with utilizing modern, more efficient technologies, and optimized staffing in your organization.
