Financial System Selection
Financial System Selection: 7 Steps to Success
By Aaron Crowell and Larry Weiss, CPA
Accounting and ERP (Enterprise Resource Planning) systems are crucial tools for any growing and successful business. If you have one or more of the following issues, an evaluation of your current processes and systems are in order:
- You are experiencing significant growth or a change in your business environment.
- Tracking your real-time financial performance is difficult or non-existent, or you need information that is not currently available.
- There is, or is believed to be, a duplication of efforts by your team. This results in a substantial loss in business efficiency, and can potentially cause critical errors and loss to the business.
- The business has poor forecasting capabilities (sales, production, cash flow, etc.)
- Limited information to track operational performance. This could be a software or process issue. Both are crucial to creating efficiencies and controlling risk.
- Current technology does not provide the speed, reporting, redundancy and accuracy that the business requires to stay competitive.
We all know that large-scale systems are expensive and ripe with risk. In fact, Gartner Group states that 66 percent of projects fail to achieve their stated business objectives, are delivered late, or are substantially over budget. What causes well thought-out projects to still miss the mark? Primarily, it is not having a formalized approach to creating the selection criteria and to controlling the implementation process.
Selecting the right financial system is a process of eliminating the wrong packages and vendors, not of trying to find the “perfect” system. The steps below are designed to help assess your accounting/ERP system needs and to mitigate the risks in selecting the right software, vendor, and on-going support requirements.
Step 1: Business and Functional Analysis
Goal: To clearly define and prioritize business, functional, and technical requirements
Properly defining the scope is the foundation for any successful project. A formal evaluation of needs is imperative to determining current issues, future needs, primary and secondary requirements, participants, budgets and timeline parameters.
Many times this analysis uncovers more operational and process improvement needs than actual software feature and function requirements. This is a very good thing, as this will become the basis for defining requirements and selecting the right system. The single most common error organizations make in selecting technology is focusing on features and functions before agreeing upon specific business and functional requirements. A tool can have all the bells and whistles in the world, but if you haven’t defined how to maximize its use in your unique business, its value will decrease and its cost to implement and manage will increase unexpectedly.
General tips for a successful analysis:
- Provide an organizational chart for the company and have a person from each functional area or division involved in the Step 1analysis
- Confirm the organization‘s core competencies and competitive differentiators, and how a new system should support and strengthen these attributes
- Involve any person, regardless of job title or responsibility, who may delay or cause the project to fail if their input is not captured in Step 1
- Involve IT management
- Involve subject matter experts (internal or external resources) to answer questions and/or audit the processes and results
- Standardize an interview process
- Assure senior management’s commitment to the project
General tips for a successful interview process:
- Use the same interview person/team for each meeting
- Review current and future business strategies and how they support departmental and/or global (parent organization) needs
- Review processes in place and plans for future methods that will be utilized to support internal and external stakeholders
- Identify which people and parties are involved in any current strategies or methods. This will help confirm the interview pool and current workflow and process methodologies.
- Identify information needed by individuals and departments to support decisions and monitor the business
- Review current technology tools and systems used, and explore needs and desires in business terms that departments and individuals feel would help the organization
Step 2: Software selection criteria and RFP Creation
Goal: To create documentation that defines and prioritizes system and business needs
Once requirements have been determined, formal documentation should be created to confirm consensus and deliver to vendors for proposals, demos and project plan creation.
Determining the business requirements for the software is as important as defining the specific features and functions. Firms should evaluate the importance of such items as local support, financial commitment to ongoing product development, support options, and reseller relationships. Cost is always a significant selection criterion and should be evaluated considering the following:
- Software and licenses
- Hardware (servers, network upgrades, etc.)
- Implementation and conversion (costs can range from 1 to 3 times the cost of the software)
- Training (costs can range from 1 to 3 times the cost of the software)
- Ongoing support costs (product upgrades, service level agreements, etc.)
Step 3: Package evaluation
Goal: To select a short-list of qualified accounting packages
Through the use of the RFP (Request for Proposal) and supporting documentation, the next step is to search, qualify, and select packages that will make the first cut for acceptable packages. The time, experience, and effort required to successfully manage this step is often overlooked.
It is crucial to use a weighted scorecard to quantitatively evaluate each potential package. This will allow for a short-list of one to three packages to be determined. Once completed, the implementation and support vendor (which could also be the manufacturer) is the next step.
Step 4: Vendor evaluation
Goal: To evaluate vendors through a formal weighted scorecard approach
Many software manufacturers will sell directly to the end-user, but you should also consider looking for local, certified vendors in good standing with (recommended by) the software manufacturer or independent consultant. The selection criteria in Step 2 should be applied to a weighted scorecard for the vendors as well. It would be wise to include such criteria as:
- Financial strength
- Size of the customer base: total customers and those of similar size and industry
- Strength of the reseller channel: important for ongoing support and viability of most software manufacturers
- Technology used: a common development platform created on a standard relational database
- Depth and breadth of software modules available: will allow for scalability of the system if your business grows, diversifies or changes focus
- Ease of use: end-user interface (reporting, data entry, inventory control, etc.) and administrative (IT support, security, interoperability with other business systems)
- Built-in tools allowing you to develop customized processes and features to meet your specific business needs
- Number of certified engineers and support staff for the package they are recommending
- Bios of specific staff assigned to this project (and confirmation that they will be on your project)
- Local and/or similar client references
If done correctly the scorecard should provide the company with a 90 percent objective rating and a 10 percent subjective rating.
Step 5: Vendor selection and contracts
Goal: To select a finalist, agree to project, and support terms and conditions
An appropriate and effective approach to negotiations (and a natural by-product of the process) is to show the finalist how they rated on the selection parameters. Emphasize concessions you are willing to make in terms of features, vendor strength, etc. in return for cost and term considerations.
Be sure to discuss and include legal issues such as on-going support contracts (can they increase rates, etc.), who owns the code, do you retain the right to modify the software, etc.
Finally, consider financing options from the vendor or a third-party firm specializing in technology leasing programs. This might provide you the means to procure the right system today while paying for it over time; not to mention it will free up lines of credit and/or cash for other business investments.
Step 6: System implementation
Goal: To achieve projected timelines, budgets, and stated objectives
The key to system implementation is a well thought-out and detailed project plan that the vendor, the internal project sponsor, and the project manager have all committed to. Implementation is all planning and execution.
An important point on project management: do not make it an afterthought, or an “implementation-only” process. Defined and controlled collaboration, task assignment, status management, and centralized timeline and budget accountability must start in Step 1 to be successful. Good project management should include:
- Experience leading projects of similar size and scope
- Experience in measuring progress
- Regular status review with vendors, functional team members, and sponsors
- Periodic written communication covering progress and the next steps
- Escalation of critical issues to all vested team members and senior management
- Managing change control and acceptance
Step 7: Training and System Acceptance
Goal: To properly train your team and officially close the project
The reason most often cited by Gartner for large projects failing is inadequate training. Training is the final step to effecting change, using the new software, and successfully achieving the efficiencies expected. Inadequate training can negate all your flawless planning and execution.
Congratulations, if you follow this 7 step process, you will successfully implement a new ERP solution.
Aaron Crowell is managing partner of Core Solutions, Inc., a technology selection and certified project management company. Aaron can be contacted at aaronpc@core-inc.com or 314.450.5864.
Larry Weiss is CFO of Keller Group Inc. and Co-Chair of the
