Risk management in ERP projects: reconciling rigor
and flexibility
Suzanne Rivard
Holder of the Chair in Strategic Management of Information TechnologyHEC Montréal
Bentley ERP Workshop15 october 2004
Rivard - Bentley ERP workshop – October 15 2004
Outline
Foreword – the practice of relevance The Hydro-Quebec Distribution (HQD) project Definitions A two-tier risk management approach Reconciling rigor and flexibilility
Rivard - Bentley ERP workshop – October 15 2004
Foreword - the practice of relevance
The topic: enduring or current organizational problems
The implications: have to be implementable1
The results: have to be implemented2 We shall use the term ‘implementation’ to refer to the manner in which the manager may come to use the results of scientific effort2
1 Benbasat, I., Zmud, R.W., « Empirical Research in Information Systems: The Practice of Relevance, » MIS Quarterly, March 1999.
2 Churchman, C.W., Schainblatt, A.H., «The Researcher and the Manager: A Dialectic of Implementation,» Management Science, Vol.11, No.4, February 1965.
Rivard - Bentley ERP workshop – October 15 2004
The HQD project - objectives
Transforming HQD sales and customer service processes
Replacing 200 legacy applications with and enterprise system
Rivard - Bentley ERP workshop – October 15 2004
The HQD project - size
370 M $CDN Approximately 250 team members Four years Sixteen « work packages » 3600 employes 3 Million customers
Rivard - Bentley ERP workshop – October 15 2004
Project director
HQD Board of directors
Board of directorsAuditing committee
President HQ-Distribution
Project Steering committee
Tactical committee
Vice-presidentSales &
customer services
Mgnt committeeS&CS
•Auditor•Risk mgnt advisor•Capgemini
Reporting twice a year
Every 6-8 weeks. Every other
week
Monthly report
LeaderIT
Director IT
The HQD project - structure
LeaderTraining
Leader Development
Leader Project office
LeaderChange
management
Monthly report
Rivard - Bentley ERP workshop – October 15 2004
Definitions: Risk Exposure
Where:URi: Undesirable results iP(URi): Probability associated with URi
L(URi): Loss associated with URi
Risk exposure = ∑=
∗n
iii URLURP
1
)()(
Barki, Rivard, Talbot, 1993, 2001; Bernard, Rivard, Aubert, 2003
Rivard - Bentley ERP workshop – October 15 2004
Definitions: Risk Management
0
1
2
3
4
5
6
7
0 1 2 3 4 5 6 7Probability of UR
Lo
ss
du
e to
occ
urr
ence
of
UR
6
5
43
2
1: Budget overrun2: Not respecting schedule3: Poor technical quality4: Poor process/systemquality5: User dissatisfaction with process or system6: Unser dissatisfaction with project7: Not obtaining benefits8: Inability to institutionalize change
81
Rivard - Bentley ERP workshop – October 15 2004
UR 1
UR 2
UR 3
F1
F2
F3
F4
F5
F6
X1
X2
X3
The issue of estimating probabilities
Rivard - Bentley ERP workshop – October 15 2004
Second tier - work package risk exposure : short term horizon (4 months); UR particular to a work package ; risk factors have to be identified
Top tier - project risk exposure1 : «long term horizon»; ultimate and generic UR; generic risk factors
A two-tier method for software project risk management
1 Barki, H., Rivard, S., Talbot, J., « An Integrative Contingency Model of Software Project Risk Management», JMIS, vol. 17, no 4, 2001 p. 37 - 70.
Barki, H., Rivard, S., Talbot, J., « Toward an Assessment of Software Development Risk», JMIS, vol. 10, no 2, 1993 p. 203 - 225.
Bernard, J.G., Rivard, S., Aubert, B.A., « Mesure du risque de ERP, » SIM, vol.9, no.2, pp.25-50, 2004.
Rivard - Bentley ERP workshop – October 15 2004
X
X
X
X
X
X
~User satisfaction /product
X
X
X
X
~Process -system quality
Lack of cultural fit with integrator
Lack of expertise integrator
Software vendor quality
Process/software fit
Software quality
Organisational environment
Process complexity
Technological complexity
Lack of internal expertise
Project size
Technological newness
Undesirable results
Risk factors
~User satisfaction
/project
~Technical quality
~Schedule~Budget
XX
XXXX
X
X
XXXX
XXX
XXX
XX
XXXX
XX
XXX
Bernard, J.G., Rivard, S., Aubert, B.A., « Mesure du risque de ERP, » Systèmes d’information et management, 2004
Rivard - Bentley ERP workshop – October 15 2004
May 2003May 2004
Likelihood Likelihood
1. ~Budget 2. ~Schedule3. ~Technical adequacy4. ~Functional adequacy5. ~User satisfaction with system6. ~User satisfaction with project7. ~Tangible benefits8. ~Harmonious implementation of change
Tier 1 - Risk map
Rivard - Bentley ERP workshop – October 15 2004
Tier 1 – risk mitigation ledger
Rivard - Bentley ERP workshop – October 15 2004
Intérêts 5
320 320 M$
300+ intérêts 53 M$
280267 M$
260
240
22065.4M$ 29.7M$
200 avec int. avec int.
180 83.1M$
69.1M$ avec int.
160 avec int. Lot 11
Lot 10
140
12061,1M$
100 avec int.
80
60
40 * : tient compte du plein paiement des nouvelles
licences SAP, soit 24,4M$, en 2002.
20 Des pourparlers ont lieu actuellement pour
en déterminer les propriétaires et répartir
1 ce montant.
M J S D M J S D M J S D M J S D M2002
6,2M$ 7,1M$ 4,1M$ 8,0M$ 4,0M$ 4,1M$
2005 2006 20072003 2004
2,1M$ 1,3M$ 1,5M$3,3M$ 1,6M$1,9M$ 2,3M$
1
Lot 2
Lot 3
Lot 4
Lot 5
Lot 6
Lot 7
Lot 8
Lot 9
Lot 12
lot 13
Lot 15
Lot 14
Lot 16
PROJET SIC -LOT1 & 2 Réalisé Planif. 26.03.03Investiss. *: 212 M$ 32,5M$ Charges : 55 M$ 1,2M$ Sous-total : 267 M$ 33,7M$Intérêts : 53 M$ 0,7M$ Grand Total: 320 M$ 34,4M$
TIER 1
TIER 2
Rivard - Bentley ERP workshop – October 15 2004
January 2003 April 2003
Tier 2 – Risk map
Rivard - Bentley ERP workshop – October 15 2004
Reconciling rigor and flexibility
The risk management process « in vivo » Prior to a new work package (tier 1)
Update risk assessment of global project Update risk mitigation mechanisms in ledger Validation by management committee Report to steering committee
At mid-work package (tier 1) Update risk mitigation ledger
Every other week (tier 2) Update risk assessment of work package Update risk mitigation ledger Report during management committee meeting
The project management office Every other week, report on budget, schedule, output
Rivard - Bentley ERP workshop – October 15 2004
Reconciling rigor and flexibility
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Rivard - Bentley ERP workshop – October 15 2004
Researching the reconciliation issue
A process analysis of the pendulum movement ?
Ethical issue : the external expert and the researcher