Asset Management Software – Solving the Build vs. Buy Dilemma

NPMA National Education SeminarLas Vegas, NV

July 26, 2011

Presented by:

Brian E. Thompson, CPPM CF

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Explore the critical decision points in evaluating:– Commercial-Off-The-Shelf (COTS) software applications– Building custom asset management software– Customizing enterprise resource planning (ERP) systems

Discuss a sample matrix listing functional goals, IT preferences, risks, resources, cultural basis and other decision factors including weighting criteria

Objective: Ability to apply this framework to perform an analysis and quantify the ideal path for deploying asset management technology for a given project

Learning Objectives

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Commercial-Off-The-Shelf (COTS) softwareAn already developed readily available application which can easily be obtained from a vendor

Custom “home-built” softwareA solution that is custom built from scratch internally or by a vendor

Customized ERP systemAdding custom code for an ERP solution (SAP, PeopleSoft, Costpoint, etc…) to perform functions not present in the current application

Definitions

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The Dilemma

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* Business Requirements

The Dilemma

* Budget/Costs

* “Bet Your Job”

* Politics

* Risk

* Compliance/Regulatory Updates

Due diligence is the key to Due diligence is the key to help you determine the help you determine the

best option!best option!

* Upgrades and Support

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Benefits & Advantages– Add structure to poor business process

– Support Voluntary Consensus Standards (VCS)– Collaborate with User Groups and peer organizations

– Higher quality application– Possibly dozens or hundreds of installations– Errors tracked, corrected, tested and released by vendor

– Implemented faster– Best of breed asset management functionality with the

ability to interface to/from ERP systems

Commercial-Off-The-Shelf (COTS) Software

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Challenges & Risks– Key business requirements may not be supported by

available COTS solutions– Uncertainty regarding long-term vendor viability and/or their

ability to enhance and support the application– COTS technology is not consistent with your IT organizations

policies (e.g. system uses a proprietary database, is not web-based, etc…)

Commercial-Off-The-Shelf (COTS) Software

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Cost Considerations– Negative

– Higher short-term (application and database license costs)– Positive

– Development and maintenance costs spread across entire customer base – many vendors invest millions in R&D

– Vendor responsible for adapting to advances in technology and changes in regulatory reporting and interfaces (DD250/DD1149 updates, UID Registry, PCARSS, EPEAT, etc…)

– Vendor responsible for correcting any technical operating issues

– Vendor provides a clearly defined data migration and upgrade plan for continuous product enhancements

Commercial-Off-The-Shelf (COTS) Software

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Benefits & Advantages– Your business is unique. Based on the unique way your

business operates, a custom solution is the best or only option

– Your asset management requirements are unique. It is also possible that after surveying industry for asset management solutions, you have not found one which addresses at least 85% of your requirements

– You have documented potential cost savings, new revenue opportunities or a unique competitive advantage through creating your own asset management software

– Interface challenges. COTS applications may not be able to share information to/from other existing systems

Custom Built Software

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Challenges & Risks– “We’ve always done it this way” mindset

– Operating in a vacuum– Need to research best practices and innovations in asset

management technology and operations– Could result in competitive disadvantage– No “lipstick on a pig”!

– Lack of available personnel with proper skill sets (technical and functional) to design, develop and deploy

– Risk of project failure – audit concerns– Expensive to maintain and what happens when the programmers leave?– Training current and future staff – need to develop comprehensive

training curriculum materials for current and future users

Custom Built Software

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Cost Consideration

Weighing the initial minimal costs for custom application development against the higher initial costs associated with a COTS solution

Custom Built Software

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Advantages & Benefits– Eliminate the need for another system which would most likely

necessitate software and database licenses as well as additional IT support

– No need for interfaces– High degree of customization could be supported– Typically lower costs than custom solution but less than COTS

solution

Customized ERP System

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Challenges, Risks & Costs– Time and resources needed to create custom code. IT resources in

conjunction with functional subject matter experts to write the specifications and code are needed

– Costs to develop, test, QA, document and support will be high– Similar costs as Custom Built Solution (development, testing,

training, etc…)– Code dependent on the current ERP system. What happens

when the organization needs to upgrade to a more current version? Custom code may need to be entirely rewritten.

– Might interfere with other ERP projects/priorities. Asset management must compete with other functional areas for attention and resources which could include production, finance, procurement, HR and other significant areas of the organization

Customized ERP System

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Document Need– Outline specific goals (i.e. reduce inventory loss, reduce risk of non-

compliance, increase equipment availability, etc.)– Quantify each benefit and all costs– Compare benefits to the estimated costs, if the payback is less than three

years, you probably have a project worth pursuing and should move forward

Construct Analysis of Software Alternatives Matrix– Internal Project Team (IPT) defines business needs of all areas including

property and material management, IT, finance, compliance, shipping/logistics, etc. are represented across all potential sites in scope for a specific project

– Risk, IT Culture and Resources (budget/people) should also be included– Weight all questions – result should give you insights in recommended path

Analysis of Software Alternatives

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Analysis of Software AlternativesSample Analysis of Software Alternatives

Decision Criteria Weight

Score (1-5)

Weighted Score

Functionality

1. Desire a solution which incorporates “best practices” from peer organizations

8 4 3.2

2. Desire an industry “proven”, low risk solution 10 4 4

3. Desire vendor to provide functional and technical updates7 5 3.5

4. Able to address functional requirements in available COTS solutions

12 4.5 5.4

5. Don’t have unique requirements or want to create a competitive advantage

12 4 4.8

Risk

6. Need to implement a solution quickly (next 6-9 months) 9 4 3.6

7. Low tolerance for project failure 8 4 3.2

8. Desire to work with a stable vendor who has long-term viability

7 5 3.5

IT Culture

9. Wants to control system development, support and training 5 1 .5

10. Adverse to bringing in another system – attempting to consolidate on existing systems

5 2.5 1.25

Resources

11. Prefer lower overall costs – even though up-front costs may be higher

5 5 2.5

12. Lack the IT staff to develop, test, Q/A, deploy and maintain a custom system

6 4 2.4

13. Lack the resources needed to train current and future users6 4 2.4

Totals100% 40.25

Scoring Legend:5 = Very important/Strongly Agree4 = Important/Agree3 = Neutral2 = Not Important/Disagree1 = Least important/Strongly Disagree Results Analysis:41-50 = Scoring supports COTS solution best satisfies business requirements

31-40 = Scoring supports COTS or possibly Hybrid ERP solution best satisfies business requirements

21-30 = Scoring does not support any clear recommendation

11-20 = Scoring supports Custom or possibly Hybrid ERP solution best satisfies business requirements

0-10 = Scoring supports the development of a Custom solution best satisfies business requirements

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Each organization and business needs are unique - tailor the Analysis Matrix to your issues, goals, and preferences

Consider all benefits, challenges, risks, and costs in conjunction with internal organizational characteristics such as culture, budget and long-term strategic goals

The business is a driver for making this decision and taking too much or too little time to do so can have poor long-term effects for the business

Always be willing to modify a decision based on new information and changes in the environment

Summary

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Questions and Open Discussion

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Brian E. Thompson, CPPM CFSunflower Systems(m) 805.630.4000

BThompson@SunflowerSystems.com

Contact Information