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Cost and accountability shape lessons learned from ERP system implementations: how does one go forward to ensure increased financial management accountability in the department of defense? One option is to look to the past. ...

Introduction

For the past decade, the Department of Defense (DoD) financial management community has planned, developed, and implemented Enterprise Resource Planning (ERP) systems to address a wide range of business functions, including maintenance, procurement processes, supply chain management, time and attendance tracking, and financial reporting.

A crucial benefit derived from ERPs--one frequently overlooked because it isn't accounted for in the metrics--is the positive impact of these systems on decision making that drives warfighting capability. ER Ps enable DoD leaders to get the right resources in the right place at the right time. Conversely, the lack of resources--from equipment to supplies to funds--greatly impacts our warfighters, who end up confronting shortfalls and using resourceful adaptations that add to risk. It therefore is essential that any ERP implementation is done right!

Unfortunately, several ERP projects have incurred significant expense while producing limited results. This outcome has prompted Federal Government officials to take a hard look at the efficacy of and funding for those implementations. Despite the challenges associated with launching and operating successful ER Ps, their potential to deliver operational efficiencies and significant cost savings likely will continue to drive the Pentagon's pursuit of these systems.

In a recent report titled "Department of Defense Financial Management Improvement and Audit Readiness Efforts Continue to Evolve," the Government Accountability Office (GAO) addresses the Defense Logistics Agency's (DLA) Enterprise Business System (EBS). Formerly known as Business Systems Modernization, the GAO notes that EBS is the only fully implemented ERP of the 10 ERPs that are essential to DoD's efforts to transform its business operations. (1)

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How can the DoD keep ERPs on schedule and within budget? And how can ERPs help reduce costs, streamline operations supporting the mission and, most importantly, help keep warfighters out of harm's way? To answer these questions, it's helpful to assess the lesSons learned from both effective and ineffective programs and identify best practices that enable data and process visibility across the enterprise, thereby laying the foundation for new management practices.

What Are ERPs, and Why Do We Care?

Properly implemented ERPs have tremendous potential to yield standardized, integrated systems that improve financial reporting and streamline processes. Assuming a willingness and an ability to effect necessary process change, ERPs are faster and less costly to implement than custom solutions because they incorporate standard modules developed from commercial best practices. ERPs enable new management practices that previously were impossible or difficult to implement. These new management practices, as well as more robust data reporting, are necessary for significant cost savings and productivity gains. For the DoD, which now is facing significant resource constraints, aging equipment, and spending cuts, these systems promise savings in time, money, and--ultimately--lives.

ERP systems generally consist of commercial off-the-shelf (COTS) software suites for a particular business process or a group of related processes. Within the DoD, most of these systems use either Oracle/PeopleSoft or SAP products to handle financial management, procurement, real property asset tracking and valuation, and supply chain processes and functionality. In defense financial management, ERP applications focus on general and working capital fund systems to achieve the goals of the Chief Financial Officers Act of 1990, the DoD Financial Improvement and Audit Readiness Plan, and compliance with related laws, regulations, and policies.

Strong Governance and Committed Executive Leadership Go Hand in Hand

The foundation for successful ERP implementations is strong governance, dedicated executive leaders, and a commitment to managing change. Successful implementations require changes in management practices to achieve the goals of the system. Early and continuous involvement of senior leadership, whether for a federal or a commercial effort, is essential--and necessary in order to promote proper program governance and ensure positive change. Senior leader involvement

* demonstrates the strongest possible executive sponsorship of the business case and implementation;

* promotes leadership by example in driving change management and gaining the support of supervisors and employees across the enterprise; and

* promotes and ensures a strong program management structure necessary for timely and effective analyses and for making and enforcing decisions.

Committed leadership includes the appointment of a dedicated, full-time project manager responsible for the implementation. Lack of leadership has been cited in many system implementation lessons-learned reports, most recently in a December 2010 report from the U.S. Chief Information Officer (010) titled "25 Point Implementation Plan to Reform Federal Information Technology Management." (2)

That report recommended that program management be strengthened by

* designing a formal information technology (IT) program management career path;

* scaling the IT program management career path government-wide;

* requiring integrated project teams with dedicated resources available throughout the program life (and co-located whenever possible);

* launching a best-practice collaboration platform;

* launching a technology fellows program; and

* enabling IT program manager mobility across government and industry.

The U.S. CIO report also recommended "streamlining governance and improving accountability." The report suggested that this be accomplished by reforming and strengthening investment review boards; redefining the role of agency CIOs and the federal CIO Council; and rolling out the TechStat model at the bureau level. (3) TechStat sessions are face-to-face, evidence-based reviews of agency IT programs with Office of Management and Budget (OMB) and agency leadership. Using data from the Federal IT Dashboard, investments are analyzed with a focus on problem solving, leading to decisive actions to improve performance.

Incorporating change management into the design and implementation of ERPs catalyzes the introduction and adoption of new ways of doing business that can contribute significantly to cost savings and increase an organization's productivity. It's not about making the ERP look like the legacy system, but about changing the organization itself to be more productive and cost-efficient and faster overall.

Don't Forget the Benefits!

The realization of benefits also is the responsibility of executive and senior leadership. Many ERPs start with a good business case and defined business benefits; but as the system development evolves, achieving some business functionality becomes the end product instead of the means by which to achieve the original benefits and business case. Technology alone will not create a successful program. Rather, the technology serves as the platform for management changes that result in cost savings and productivity gains.

Agency executive leadership must drive the establishment and reporting of key business and operational benefit metrics. An early implementation of metrics reporting in the ERP life cycle is key to a successful ERP program. Leaders should strive to get critical system functionality on line early in the project to gain momentum for the implementation. Early critical capabilities for users enable feedback to be incorporated in subsequent releases and training, dramatically improving system effectiveness and user acceptance over time.

In June 2010 OMB issued Memorandum M-10-26, calling for immediate review of financial systems IT projects. That memorandum included three significant guiding principles:

* Split projects into smaller, simpler segments with clear deliverables.

* Focus on the most critical business needs first.

* Have ongoing, transparent project oversight. (4)

In this context, it's easier to understand how DLA's EBS implementation serves as a prime example of realized benefits. In 2007 the DLA distributed a revised business case to articulate the benefits that the system would generate over the next decade. Included among key metrics were a calculated system investment payback period of nine years, a reduction in the logistics response time of six days, and a reduction of 7.7 percent in the cost recovery surcharge rate charged to customers.

To date, EBS has achieved more than $72 million in cost savings over legacy systems and 99.7 percent system availability. Additionally, the system has achieved 100 percent supply chain interoperability with its Military Service customers. The EBS has enabled DLA to implement leading supply chain best practices, such as customer-centric demand planning and sales and operations planning. These practices have resulted in well over $100 million in cost savings/cost avoidance while improving service to the warfighter. (5)

Get--and Keep--Subject Matter Experts Involved

An organization cannot rely solely on technical experts and external consultants to implement and fully integrate an ERR Rather, the early and continuous involvement of the subject matter experts who work with the ERP-supported legacy business processes is essential to long-term success.

The Army's General Fund Enterprise Business System (GFEBS) Program, while in the first year of field deployment, incorporated this best practice. As the system was rolled out, it quickly became apparent that user organizations needed the support of GFEBS experts beyond the time frame of budgeted, contractor-provided, on-site support. The team developed and implemented a program to identify and train "power users"--experts in the legacy processes who can augment on-site support and serve as an organizational ERP cadre to facilitate system adoption. The GFEBS Power User Program has been a major success and is credited as a key component of the successful system fielding to date. Currently, there are approximately 14,000 GFEBS users; that number is expected to double in a year's time.

Standardization Is Your Friend

Successful ERP efforts leverage the power of the best business processes inherent in the software and avoid customization. This is a critical point, since ERPs serve as the platform to reform and transform organizational business processes, reduce costs, and adopt best practices that have been proven in both the public and the private sectors.

Organizations that adopt this vision will

* more readily incorporate sound business best practices;

* require less development by the system integrator, which reduces cost and speeds development and fielding;

* increase system reliability by limiting custom code to the maximum extent possible; and

* ensure the successful adoption and integration of subsequent COTS system software updates and upgrades.

Too often, when users or developers of a custom-developed legacy application are enlisted to implement a new COTS solution, they seek to make the COTS to mirror the legacy application in terms of functionality. Of course, this defeats the purpose for which the COTS was intended. When customization occurs, implementation costs rise dramatically and benefits are reduced. To avoid these pitfalls, executive leadership should focus on change management efforts that help the organization adapt to and incorporate best practices that drive successful ERPs, as opposed to changing the ERP to fit the organization's current practices.

Data Domination

The decision regarding legacy data will drive success or failure, depending on how those data are used. Any organization undergoing a large-scale ERP implementation will have years of legacy system data that stakeholders insist must be incorporated into the new system. This can be a recipe for disaster if not well thought out during the planning process because legacy data almost always are prone to inconsistencies, whether through inadvertent duplication, inaccuracy, or omission.

If legacy data must be incorporated, it is critical that those data be correct and consistent to the maximum extent--possible usually a time-consuming and expensive process. The more successful ERPs implementations have excluded as much legacy data as possible--and have vetted what data remained. If legacy data are required, it is better to incur the cost of cleansing than putting at risk the data integrity of the new enterprise-wide system. Absent a compelling business case, we highly recommend that data not thoroughly analyzed for accuracy be excluded from the new system.

Properly vetted and incorporated data will help ensure that the ERP dominates from the first day of going "live" and each following day. Conversely, "dirty" data will dominate in the wrong way--requiring hundreds (if not thousands) of hours and dollars on the back end to fix the problems they will generate.

Perfection Is the Enemy of Good Enough

Every ERP effort encounters people who criticize the ditching of seemingly sound legacy processes, the time and effort it takes to adopt the system while performing their day jobs, and the inevitable compromise in initial system functionality. They often ask, "Why are we adopting a system that can't give us everything we need?"

Perfection rarely is achievable in any system, let alone ERP efforts constrained by money and time. Striving for perfection inevitably leads to diminishing returns, cost overruns and--after enough delay--system obsolescence. On the other hand, a quality ERP solution is achievable if the program is properly scoped, resourced, and managed. The gains achieved across most of the processes should more than outweigh the few steps backward one might have to take in select areas to accommodate fully the movement from the legacy systems.

To counter the inevitable naysayers, executive leadership should convey early the message of positive change and reinforce it often as part of the overall program governance and change management. Often a legacy system is perceived as easier because it did not incorporate all the processes or data it should have, or it operated using non-compliant processes. While easier for an individual (who is comfortable with the missing or noncompliant processes), the organization or enterprise now must deal with the omissions.

Final Thoughts

System implementation discipline and rigor will be paramount in the future. Smaller, less complex, "go-live" events with specific deliverables and measurements will ensure increased accountability as well as user and taxpayer satisfaction. In this era of significant DoD budget cuts and a renewed focus on accountability and transparency, it is more important than ever for DoD leadership to set realistic goals and meet them in a timely, cost-effective manner. Consideration for--and implementation of--the lessons and practices cited in this article could go a long way toward future funding of ERP systems that deliver tangible, measurable results.

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ENDNOTES

(1.) U.S. Government Accountability Office (GAO), "Financial Management Improvement and Audit Readiness Efforts Continue to Evolve," GAO- 10-1059T (Washington D.C.: September 29, 2010).

(2.) Vivek Kundra, "25 Point Implementation Plan to Reform Federal Information Technology Management." The White House, (Washington, D.C.: December 9, 2010).

(3.) Ibid, pp. 27-29.

(4.) Memorandum, Executive Office of the President, Office of Management and Budget, Subject: Immediate Review of Financial Systems IT Projects (Washington, D.C.: June 28, 2010).

(5.)Defense Logistics Agency (DLA), Enterprise Business System (EBS) Business Case Summary 2007.

BY JOHN GOODMAN; KEVIN GREER; AND CHRIS BABCOCK, CDFM-A JOHN GOODMAN, PH.D.

BY JOHN GOODMAN, PH.D.

John Goodman is managing director of Accenture's U.S. defense portfolio. He also currently serves as the chair of the Defense Business Board, a federal advisory committee that supports defense transformation by offering management advice to the Secretary of Defense based on leading practices from the private sector. He is a former Deputy Under Secretary of Defense (Industrial Affairs & Installations) and served as senior director on the staff of the National Economic Council in the White House.

KEVIN GREER, CPA, PMP

Kevin Greer is executive director of Accenture's federal finance and performance management practice. He has extensive experience supporting federal financial management projects for the Army, Air Force, Navy, DFAS, and other defense agencies. He also served as an auditor with a major accounting and audit firm. Mr. Greer is a member of ASMC's Washington Chapter.

CHRIS BABCOCK, CDFM-A, CGFM, PMP

Chris Babcock is a senior manager in Accenture's U.S. federal practice and a retired Army financial management officer. He currently is supporting deployment and transformation efforts for the Army's GFEBS program and previously supported DIMHRS activities for both the Army and the DFAS. Mr. Babcock is a member of ASMC's National Guard Chapter.
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Author:Goodman, John; Greer, Kevin; Babcock, Chris
Publication:Armed Forces Comptroller
Date:Mar 22, 2011
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