11 Most Common ERP Implementation Risks & How to Avoid Them
Know Your ERP Enemies: Understanding the risks associated with ERP implementation can help organizations minimize their impact and more effectively navigate potential pitfalls.
Preparation is Key: Carefully planning the ERP rollout and awareness of potential issues provides the best chance of success.
Implementing a new ERP system can be a mammoth undertaking for a company of any size. The whole process can take many months, the upfront costs are significant, and there are a number of erp implementation risks that come with the territory.
But the fact that almost half of all companies globally use some form of ERP solution is proof that, if you can manage those risks, it’s likely to be worth the effort.
11 Risks of Implementing an ERP System
The first step to limit the impact of these risk factors, is to understand them. This offers the best opportunity to avoid them altogether, or to know how to deal with them if they do occur:
1. Implementation Costs
There’s no getting around it; implementing an ERP is costly.
That represents a risk for reasons that are pretty obvious. If handled incorrectly, there’s a chance that the project will go over budget, or a large amount of capital will be allocated to an ERP implementation that doesn’t provide sufficient ROI.
Why
This risk occurs when there isn’t a clearly defined scope for the implementation. Implementing an ERP for vague ideas on ‘efficiency’ can result in a system that isn’t customized to create sufficient ROI for a company’s specific use cases, or a haphazard implementation process that costs far more than planned. In the worst case scenario, this can result in a ‘white elephant’ project that represents a substantial waste of resources.
Who's in Charge
- Project managers
- Project sponsor executive
- Implementation partners
How to Avoid it
Creating a clear outline of how the new system is going to improve efficiency and drive growth will allow for more tailored customizations and help to avoid scope creep and cost blowouts.
Avoiding the risk of an ERP becoming a huge waste of resources is to ensure that the project is well scoped and well costed before implementation begins.
How to Fix it
If costs start to get ahead of budget, project managers need to step in. This could mean reassessing the scope of the project, renegotiating with the ERP software vendor, or switching to a phased rollout over a longer time period.
2. Implementation Timescales
While implementation costs need to be carefully managed, timescales are equally important. Small to medium-sized businesses typically take 3–9 months for an ERP implementation, while multinational companies can spend multiple years to complete implementation.
Not only do costs increase the longer this process takes, but so do the chances that the project stalls, executive buy-in falters, or the implementation fails altogether.
Why
Much like the risk of cost overruns, timescale blowouts also come from failures in the initial project scope and the ongoing management of the project.
Who's in Charge
- Project managers
- Implementation partners
How to Avoid it
The initial implementation roadmap needs to be detailed and well planned to avoid this risk. There should be frequent meetings to review progress against the plan, with multiple milestone objectives built into the roadmap.
How to Fix it
If key milestones are not being hit, project managers and project team members need to make a decision on priorities.
- Is it acceptable to increase the timescale?
- If so, what is the tolerance and maximum length the project can take?
- If not, what changes need to be made to the implementation to bring it in line with the original timescale?
3. Customization Scope Creep
One of the fundamental components of an ERP is the ability to customize the system to a business's specific needs. It can be easy to get carried away in creating a fully bespoke software platform, but this can be a major catalyst for the first two risks we’ve listed.
Who's in Charge
- Implementation team
- Project managers
- Change managers
How to Avoid it
ERPs come with pre-built modules that have their own processes. Decision-makers need to carefully consider whether a customization is 100% necessary, or whether it makes more long term sense to adjust the business process to match ERP.
Limiting customizations will help reduce both initial and ongoing costs.
How to Fix it
Too much customization can be a core reason for cost and time overruns. Should this be identified, projects teams should reassess whether there are planned customizations that could be swapped out for pre-built ERP modules.
It may even be worth considering scrapping already customized modules for pre-built options, depending on the expected ongoing cost of maintenance and support for the customizations.
4. Underestimation of Ongoing Costs
Issues that occur on an ongoing basis often stem from the way an ERP was first implemented. Total cost is one such potential issue, as implementation costs are just one component of an ERPs total cost.
The average ongoing costs of an ERP over a five-year period can be in the region of $9,000 per user. That’s a sizable sum on an ongoing basis, and failing to plan adequately for the cost during the implementation phase can create a long term burden on company financials.
Why
Even if an ERP implementation project is managed incredibly well from a budget and timescale perspective, it can be easy to overlook the ongoing costs.
For example, certain implementations may necessitate ongoing support from third-party consultants, and highly customized systems can result in a significant amount of technical debt that will need to be managed consistently.
Who's in Charge
- Executive project sponsor
- Implementation partners
- Implementation team
How to Avoid it
Project leaders need to consider the total cost of the project. This shouldn’t be limited to the upfront implementation costs, but also how different options will impact the complexity and cost of the system on an ongoing basis.
How to Fix it
If ongoing ERP costs are becoming unmanageable, changes will need to be made. This could come in the form of moving customized modules to pre-built modules, removing lightly used integrations, or re-negotiating contracts with the ERP vendor.
5. Data Migration Issues
One of the key benefits to implementing an ERP is the ability to consolidate a variety of software onto a single platform; with that comes the need to migrate the data from one system to another. This migration process introduces the risk for data loss, corruption or accidental noncompliance with data regulations (e.g. CCPA, GDPR).
Why
Whenever data is transferred from one place to another, there’s a chance that the parameters used in the original dataset may not match with the new database. This can result in problems like incomplete data or archived data that is undifferentiated (for example, ex-employee data).
Who's in Charge
- ERP vendor
- Third party consultants
How to Avoid it
Time should be spent upfront to clean the data at the original source. Removing redundant data, normalizing categories and merging duplicates can improve the overall quality of company data, while also making it easier to match the new system with the data migration.
Many companies are also now using AI and machine learning to help automate data mapping and predict potential data transfer issues before they occur.
How to Fix it
If a data transfer fails or requires too much manual intervention to fix, it may be necessary to restart the process. I know, it sucks, but with the problem highlighted, implementation teams can go back to their original data source and improve it to align with the requirements for a smooth data migration.
6. Vendor Dependence
There are inefficiencies with using multiple software platforms across a company, compared to using a single ERP. However, that diversification also means that a vendor failure or drop in quality will only impact the business unit or area using that software.
With an ERP, a company will become dependent on that vendor for their enterprise planning. This represents a risk should the vendor fail to deliver as expected, and is particularly relevant for cloud-based ERPs without local backup.
Why
Vendor dependence is different to the other risks on this list; it’s a feature, not a bug. Consolidating software platforms onto a single platform can provide substantial efficiencies, and one trade-off for that is increased dependency on that vendor.
Who's in Charge
- Executive project sponsor
- Steering committee
How to Avoid it
This can’t really be avoided, but the risk that comes from it can be minimized. Senior leaders and project managers should conduct substantial due diligence prior to making a commitment to a vendor, to ensure they’re choosing the right software partner.
The research should consider the financial stability of the vendor, its corporate structure, position in the marketplace, and the contract SLAs relating to the ongoing delivery of the product and support.
How to Fix it
If there are concerns about the relationship with the vendor, a proactive approach is vital. Regular reviews of the vendor should be completed, and risk management teams should have plans in place to secure company data and ensure service continuity should any serious issues arise with the vendor's ability to deliver.
The Best ERP Systems We’ve Found
Our team literally analyzes financial systems for a living. In that process, these are the ERP systems that have come out on top:
7. Resistance to Process Changes
An ERP implementation isn’t just about software. It’s also about people. Even a flawless transition from a technical standpoint can flounder if the end users don’t embrace the change. A new ERP is likely to mean a new set of processes and workflows, and there’s a risk of pushback from employees — as well as genuine errors as they become familiar with the new methods.
Why
Organizational change is always a challenge. Using new software can create inefficiency in the short term, as employees sometimes take longer or make more mistakes than they did with the old system. Of course, over time this can be overcome, but it should be expected that some staff members may resist the change in the early stages.
Who's in Charge
- Change management team
How to Avoid it
The change management team exists to help limit the impact of this risk. Putting in place a comprehensive change management plan (combined with high levels of communication, training, and support) can help highlight the long term benefits of the new ERP, and smooth the transition process.
How to Fix it
If encountering resistance to change, change management teams need to assess where that resistance is coming from. Is it a lack of training with the new system, making it difficult for users to navigate? Is it a misunderstanding of the long term benefits of the new ERP? Getting to the root cause of the issue can allow it to be addressed clearly and transparently.
8. Lack of Management Buy-in
A successful ERP implementation requires cooperation from multiple stakeholders across the business. The needs of HR, engineering, finance, logistics, sales, marketing and every other aspect of the business need to be considered to ensure the ERP best aligns with business needs.
To get that, the project needs buy-in from the executives in charge of each function. Without that commitment, the project can fall down the priority list within their business unit, stalling or derailing the ERP implementation.
Why
Executives aren’t immune to being resistant to change. There may be competing priorities and demands on their time, they may fail to see the benefits to their department, or there may be a misunderstanding of why the implementation is taking place.
Who's in Charge
- Executive project sponsor
How to Avoid it
Buy-in from senior management should be secured before the project begins. The project sponsor is in the best position to achieve this, along with the support of the rest of the project management team.
Highlighting the long term benefits to the company as a whole — while also explaining the benefits to each specific department — can help achieve buy-in for the vision. This should be accompanied by an honest discussion on the potential short term discomfort that may come with the transition period.
How to Fix it
Should the project start to lose the support of senior leaders, project sponsors and the project management team should take a transparent approach to communicating with them.
Listen to their concerns, discuss plans to address them, and create a roadmap to achieve the original aims of the ERP implementation. After all, if the powers that be say no, it can’t happen.
9. Compliance and Regulatory Risks
Data security has received far more security in recent years, leading to a wide range of legislative and regulatory frameworks for companies to comply with. When migrating data from one system to another, there’s a risk that some of this data will be handled in a way that isn’t compliant with these regulations.
Why
An ERP may be replacing a wide variety of systems. This means that the single platform needs to comply across regulations that govern various different business units, as well as different legal jurisdictions.
For example, a multinational corporation may need the new ERP to comply with both GDPR and the CCPA, replacing individual software that only needed to comply with one or the other.
Who's in Charge
- ERP vendor
- Project managers
- Senior risk and compliance
How to Avoid it
There should be a focused approach to compliance and regulatory risk during the ERP screening process. Companies should have a comprehensive overview of their compliance obligations, and work with the ERP vendor to ensure that their system has the capabilities to meet them.
How to Fix it
Any issues that arise should be escalated to the internal compliance team, who will follow the best practice in relation to the specifics of the problem. This should continue to be a proactive discussion between the project management team and the ERP vendor, to eliminate the potential for future problems.
10. Ineffective Project Management
Most of the risks outlined in this article can be mitigated or minimized through effective project management. Of course, that creates a risk in and of itself, with poor project management almost certain to lead to poor ERP implementation outcomes.
Why
It requires high-caliber project management skills to keep an ERP implementation on track and avoid budget overruns. This is not only about helping all stakeholders stick to the original plan, but also to help guide the process when problems arise.
Without a clear driver of the ERP project, it has a high chance of failing.
Who's in Charge
- Executive project sponsor
- Steering committee
How to Avoid it
Senior decision-makers need to ensure that the project manager (and their team) has a high chance of success. This involves selecting a team with experience delivering projects of a similar scope, and providing them with sufficient resources to be able to repeat this success.
How to Fix it
The project sponsor and the steering committee need to ensure they’re conducting broad oversight throughout the project.
If it’s apparent that poor project management is leading to implementation problems, there needs to be an open and honest discussion about how to remedy the situation. This may require more frequent status updates, more detailed KPIs, and potentially even reallocating the project to alternative employees.
11. Increased Overall Complexity
The final key risk I want to bring attention to is that it’s possible all the effort and money you’ll spend on an ERP implementation could simply overcomplicate operations. The worst case scenario is a new ERP system that’s simply used alongside all the legacy platforms, increasing workload and cost without bringing any tangible benefit.
Why
Departments may hold on to their existing processes and systems for a variety of reasons. This could be user experience, analysis capabilities, data integrity or simply a resistance to change. It can lead to a struggle to move on from the old systems to fully embrace an ERP.
Who's in Charge
- Change management team
- Project managers
How to Avoid it
There needs to be a clear and specific plan for the rollout of the new ERP. Teams need to buy-in to the change, understand why it’s happening, and have a detailed timeline for when the change will be implemented. This sets the standard of what to expect, specifically stating that existing systems will be shut down on a specific date.
How to Fix it
Teams or leaders who are reluctant to change need to create a clear case as to why. From there, project managers and change managers can assess whether there is a training need that needs to be filled, or whether there is additional customization needed to allow the ERP to meet their needs.
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The ERP implementation process can seem pretty daunting, with a lot of potential risks along the way. But with the right forward planning and effective project management, all of those risks can be avoided or minimized.
Proper planning not only helps reduce the potential for problems along the way, but sets up the business to maximize the efficiency gains and growth potential that an ERP can offer to an organization.
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