Risk management in ERP projects: reconciling rigor and flexibility
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Transcript of Risk management in ERP projects: reconciling rigor and flexibility
Risk management in ERP projects: reconciling rigor
and flexibility
Suzanne Rivard
Holder of the Chair in Strategic Management of Information TechnologyHEC Montréal
Nottingham University School of Business April 19th 2005
Rivard - Nottingham University Business School – April 19th 2005
Outline
Foreword – the practice of relevance The Hydro-Quebec Distribution (HQD) project Definitions A two-tier risk management approach Reconciling rigor and flexibilility
Rivard - Nottingham University Business School – April 19th 2005
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 - Nottingham University Business School – April 19th 2005
The HQD project - objectives
Transforming HQD sales and customer service processes
Replacing 200 legacy applications with an enterprise system
Rivard - Nottingham University Business School – April 19th 2005
The HQD project - size
370 M $CDN Approximately 250 team members Four years Sixteen « work packages » 3600 employes 3 Million customers
Rivard - Nottingham University Business School – April 19th 2005
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 - Nottingham University Business School – April 19th 2005
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 - Nottingham University Business School – April 19th 2005
Definitions: Risk Management
0
1
2
3
4
5
6
7
0 1 2 3 4 5 6 7Probability of UR
Lo
ss d
ue
to o
ccu
rren
ce o
f U
R
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 - Nottingham University Business School – April 19th 2005
UR 1
UR 2
UR 3
F1
F2
F3
F4
F5
F6
X1
X2
X3
The issue of estimating probabilities
Rivard - Nottingham University Business School – April 19th 2005
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 - Nottingham University Business School – April 19th 2005
Undesirable results
Risk factors
~Budget ~Schedule ~Technical quality
~Process -system quality
~User satisfaction /product
~User satisfaction
/project
Technological newness
X X X
Project size X X
Lack of internal expertise
X X X X X X
Technological complexity
X X
Process complexity X X X X
Organisational environment
X X X X
Software quality X X X X X
Process/software fit
X X X
Software vendor quality
X X
Lack of expertise integrator
X X X X X X
Lack of cultural fit with integrator
X X
Bernard, J.G., Rivard, S., Aubert, B.A., « Mesure du risque de ERP, » Systèmes d’information et management, 2004
Rivard - Nottingham University Business School – April 19th 2005
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 - Nottingham University Business School – April 19th 2005
Tier 1 – risk mitigation ledger
Rivard - Nottingham University Business School – April 19th 2005
I ntérêts 5320 320 M$
300
+ intérêts 53 M$
280
267 M$
260
240
220
65.4M$ 29.7M$
200 avec int. avec int.
180 83.1M$
69.1M$ avec int.
160 avec int. Lot 11
Lot 10140
120
61,1M$
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
PROJ ET 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 - Nottingham University Business School – April 19th 2005
January 2003
April 2003
Tier 2 – Risk map
Rivard - Nottingham University Business School – April 19th 2005
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 - Nottingham University Business School – April 19th 2005
Reconciling rigor and flexibility
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Rivard - Nottingham University Business School – April 19th 2005
Researching the reconciliation issue
A process analysis of the pendulum movement ?
Ethical issue : the external expert and the researcher