Seminar-1 2009

SEMINAR-I

APPLICATION OF
ENTERPRISE RESOURCE PLANNING
IN CONSTRUCTION INDUSTRY
(Pre Implementation Phase)

Submitted By:
HEMAL SHAH, CP1908

Guided By:
Mrs. JYOTI TRIVEDI

M.Tech. Programme in Construction & Project Management

CEPT University
Ahmedabad-380009

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INDEX

INDEX....................................................................................................................................................... 2

ACKNOWLEDGEMENT......................................................................................................................... 5

CERTIFICATE.......................................................................................................................................... 6

CHAPTER-1 INTRODUCTION............................................................................................................. 7

1.1 Introduction to ERP....................................................................................................................................... 7

1.2 Need for study.............................................................................................................................................. 9

1.3 Objective....................................................................................................................................................... 9

1.4 Methodology............................................................................................................................................... 10
1.4.1 Literature Review:...........................................................................................................................................10
1.4.2 Data collection:...............................................................................................................................................10
1.4.3 Data analysis:.................................................................................................................................................10
1.4.4 Conclusion:......................................................................................................................................................10
1.4.5 Scope of work:.................................................................................................................................................10

CHAPTER-2 LITERATURE REVIEW............................................................................................... 11

2.1 Critical factors for successful ERP implementation.......................................................................................11

2.2 ERP system selection:.................................................................................................................................. 12

2.3 ERP implementation strategies:................................................................................................................... 13

2.3.1 Pre-Implementation (planning) strategies:.....................................................................................................13
2.3.2 Implementation strategies:.............................................................................................................................13
2.3.3 Post-implementation strategies:....................................................................................................................14

2.4 Cost & Payback Period of ERP implementation:........................................................................................... 15

2.5 Benefits of ERP implementation:................................................................................................................. 16

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2.6 Research Gap.............................................................................................................................................. 16

CHAPTER-3 DATA COLLECTION.................................................................................................... 17

3.1 SAP AT JAI HIND PROJECTS, INDIA........................................................................................ 17

3.1.1 What Was The Problem?.......................................................................................................................... 18

3.1.2 Solution & Implementation...................................................................................................................... 18

3.1.3 Pre-requisites study for ERP Implementation:........................................................................................... 19

3.1.3.1 Risk Identification.........................................................................................................................................19
3.1.3.2 Selection of Implementation Consultant:....................................................................................................19
3.1.3.3 Vendor selection Criteria:............................................................................................................................20
3.1.3.4 Total Cost of Ownership:.............................................................................................................................21

3.1.4 Current Information System:.................................................................................................................... 22

3.1.5 Benefits:................................................................................................................................................... 22

3.2 JMC PROJECTS INDIA LTD........................................................................................................ 23

3.2.1 Company History:..................................................................................................................................... 23

3.2.2 Problem & Solution.................................................................................................................................. 24

3.2.3 Current Information System..................................................................................................................... 24

CHAPTER-4 DATA ANALYSIS.......................................................................................................... 26

4.1 ERP Pre Implementation Parameters........................................................................................................... 26

4.2 ERP Pre Implementation Process Charts....................................................................................................... 29

4.3 Various Types of Functional Modules of ERP Software:................................................................................31

4.3.1 ERP Production Planning Module...................................................................................................................31
4.3.2 ERP Purchasing Module..................................................................................................................................31
4.3.3 ERP Market in Module....................................................................................................................................31

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4.3.4 ERP Inventory Control Module.......................................................................................................................31

4.3.5 ERP Sales Module............................................................................................................................................32
4.3.6 ERP Financial Module......................................................................................................................................32
4.3.7 ERP HR Module...............................................................................................................................................32

4.4 ERP implementation Methodologies:........................................................................................................... 33

4.4.1 The Big Bang....................................................................................................................................................33
4.4.2 Modular Implementation................................................................................................................................33
4.4.3 Process-Oriented Implementation.................................................................................................................34

4.5 ERP Software Selection Criteria:................................................................................................................... 34

4.6 Total Cost of Ownership:............................................................................................................................. 35

4.6.1 Costs of Software............................................................................................................................................35
4.6.2 Costs of Hardware...........................................................................................................................................35
4.6.3 Costs of Professional Services.........................................................................................................................35

4.7 Causes of ERP Failure:.................................................................................................................................. 37

4.7.1 Failure of ERP Software Implementation........................................................................................................37
4.7.2 Failure of Accommodating Evolution of Business Processes..........................................................................37
4.7.3 Failure of User Acceptance.............................................................................................................................38

4.8 Most Common Ways of Successfully implementation of ERP:.......................................................................38

4.8.1 Critical stakeholders to accept or get involved with the implementation...................................................38

4.8.2. Adequate user input......................................................................................................................................38
4.8.3. Specifications and change control procedures to be properly defined.........................................................39
4.8.4. Expectations to be realistic and defined........................................................................................................39
4.8.5. The presence of an outside consultant..........................................................................................................40
4.8.6. Good Communication....................................................................................................................................40
4.8.7 The implementation methodology should be clear and tested.....................................................................40

APPENDIX-A......................................................................................................................................... 42

REFERENCES:....................................................................................................................................... 43

Research Papers:............................................................................................................................................... 43

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ACKNOWLEDGEMENT

I would like to thank Mrs. Jyoti Trivedi, Faculty of Technology, CEPT University, Ahmedabad
for her valuable guidance and continual encouragement throughout the entire duration of seminar
preparation. I am heartily thankful to her for her timely suggestions and the transparency of the
concepts of the topic that helped me a lot in concluding this study.

I would also like to thank Mr. Mahendra Patel, IT Head, JMC India Pvt Ltd. & Mr. Keyur
Shah, SR Manager,Jai Hind Projects for spending their precious time for guiding me and make
aware of present scenario of ERP as well as giving me very effective guidance to my topic.

Hemal S Shah
CP1908

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CERTIFICATE

This is to certify that the Comprehensive Report on the “Application of ERP In Construction
Industry (Pre Implementation Phase)”, carried out by Hemal Shah (CP1908), towards the partial
fulfillment of the requirements for the degree of M.Tech in Construction & Project Management
of CEPT University, Ahmedabad, is the record of work carried out by him under my supervision
and guidance during II-semester (Jan/April-09). In my opinion, the submitted work has reached a
level required for being accepted for Seminar-1 Final Jury examination.

Mrs. Jyoti Trivedi

Lecturer,
CEPT University,
Ahmedabad.
_________________________________
_____________________________

Report Examined By

` Examiner

Examiner

Date of Examination

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CHAPTER-1 INTRODUCTION

1.1 Introduction to ERP

ERP is the contraction of Enterprise Resource Planning. ERP utilizes ERP software applications
to improve the performance of organizations' resource planning, management control and
operational control. ERP software is multi-module application software that integrates activities
across functional departments, from product planning, parts purchasing, inventory control,
product distribution, to order tracking. ERP software may include application modules for the
finance, accounting and human resources aspects of a business.

ERP (Enterprise Resource Planning) is the evolution of Manufacturing Requirements Planning

(MRP) II. From business perspective, ERP has expanded from coordination of manufacturing
processes to the integration of enterprise-wide backend processes. From technological aspect,
ERP has evolved from legacy implementation to more flexible tiered client-server architecture.

The following table-1 summarizes the evolution of ERP from 1960s to 1990s

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Table-1 Evolution of ERP

Timeline System Description

1960s Inventory Inventory Management and control is the combination of
Management & information technology and business processes of maintaining
Control the appropriate level of stock in a warehouse. The activities of
inventory management include identifying inventory
requirements, setting targets, providing replenishment techniques
and options, monitoring item usages, reconciling the inventory
balances, and reporting inventory status.
1970s Material Materials Requirement Planning (MRP) utilizes software
Requirement applications for scheduling production processes. MRP generates
Planning (MRP) schedules for the operations and raw material purchases based on
the production requirements of finished goods, the structure of
the production system, the current inventories levels and the lot
sizing procedure for each operation.
1980s Manufacturing Manufacturing Requirements Planning or MRP utilizes software
Requirements applications for coordinating manufacturing processes, from
Planning (MRP product planning, parts purchasing, inventory control to product
II) distribution.
1990s Enterprise Enterprise Resource Planning or ERP uses multi-module
Resource application software for improving the performance of the
Planning (ERP) internal business processes.ERP systems often integrates business
activities across functional departments, from product planning,
parts purchasing, inventory controlto product distribution.

1.2 Need for study

As explained earlier ERP is tool for integrating whole information system through ERP software.
Various ERP software vendors are available in market. This software’s consist of various
modules. Each of this module cost around 40 lacs per module. Also company spends lots of

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money over hardware as well as over consultant for operation & maintenance of this modules. In
some company they use their in house IT experts as well as their employee for operating this
modules. For training of employees also company have to spend lots of money as well as time.
According to survey done by META group in US in year 2002, It states that average cost for
implementing ERP in top fortune listed company was around 15 million dollars and average time
for implementing this system company take on and average 24 months.

So from above facts its clear that company have to invest huge amount of money as well as time
for implementation of ERP and after all if it fails to meet companies requirements and goal than
company can sunk in huge losses. So before implementing ERP in any company it’s better to
check whether is it feasible for their company or not?

1.3 Objective
 To study the effectiveness of ERP in the feasibility phase for contracting organization.
 To identify basic parameters for implementation of ERP in feasibility stage.
 To propose a model for implementation of ERP in feasibility stage for contracting
organization who are still to implement ERP.

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1.4 Methodology

1.4.1 Literature Review:

As ERP comes in to existence since 1990 so lots of literature is available for past few years
in the area of ERP implementation, so based on that literature reviewed from published paper
of journals and standard books have been done.

1.4.2 Data collection:

Data collection pertaining to subject has been done through discussion with industry experts
from construction organization like:

JMC India Pvt. Ltd.

Jai Hind Project Ltd.

1.4.3 Data analysis:

Based on the collected data, analysis have been done regarding Pre requisites for
implementation of ERP in construction firm through framework.

1.4.4 Conclusion:

Based on the analysis relevant conclusions have been made and scope for the future work
have been suggested.

1.4.5 Scope of work:

In this seminar scope of work will be limited up to obtaining basic knowledge regarding ERP
and to identify prerequisites for implementing ERP in any construction organization.

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CHAPTER-2 LITERATURE REVIEW

2.1 Critical factors for successful ERP implementation

Implementing an ERP system is not an inexpensive or risk-free venture. In fact, 65% of
executives believe that ERP systems have at least a moderate chance of hurting their businesses
because of the potential for implementation problems. It is therefore worthwhile to examine the
factors that, to a great extent, determine whether the implementation will be successful.
Numerous authors have identified a variety of factors that can be considered to be critical to the
success of an ERP implementation. The most prominent of these are described below [1][4][5]
[9].

a) Clear understanding of strategic goals.

b) Commitment by top management.
c) Excellent project management.
d) Organizational change management.
e) A great implementation team.
f) Data accuracy
g) Extensive education and training
h) Focused performance measures.
i) Multisite issues.

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2.2 ERP system selection:

An estimated 50–75% of US firms experience some degree of failure in implementing advanced
manufacturing technology. Since an ERP system, by its very nature, will impose its own logic on
a company’s strategy, organization, and culture, it is imperative that the ERP selection decision
be conducted with great care. Based on the available sources and our own experiences, the
authors recommend the following thirteen-step selection process [1].

1) Create the vision.

2) Create a feature/function list.
3) Create a software candidate list.
4) Narrow the field to four to six serious candidates.
5) Create the request for proposal (RFP).
6) Review the proposals.
7) Select two or three finalists.
8) Have the finalists demonstrate their packages.
9) Select the winner.
10) Justify the investment.
11) Negotiate the contract.
12) Run a pre-implementation pilot.
13) Validate the justification.

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2.3 ERP implementation strategies:

Based on success of implementing SAP at the Water Corporation, Australia, Purnendu Mandal,
A. Gunasekaran has suggested following strategies to be considered while implementing similar
type of projects. [2][8]

2.3.1 Pre-Implementation (planning) strategies:

• Incorporate the risk and quality management plans in the change management plan.
• Breakdown the project into natural phases or subsystems for modular planning and for
development of cross-functional communications.
• Consider a phase-based approach for gradual implementation rather than radical approach.
• Use appropriate planning styles for different tasks, detailed task plans for tangible tasks,
iterative plans for evolving tasks, and personal communications plans for change
management.
• Prepare plans for the recruitment, selection, and training of the necessary personnel for the
project team.

2.3.2 Implementation strategies:

• Formulate a network for collecting user requirements and user feedback..

• Prepare to handle expected or unexpected crises and deviations from plans.
• Provide a strong leadership with concerns for the welfare of people and resource commitment.
• Provide a professionally stimulating work environment.
• Promote client consultation and user participation and obtain approval from parties for what is
being undertaken throughout the project.
• Use pro-active communications to establish more realistic expectations about the technology
capabilities while communicating in tailored way to each division or unit.
• Promote collaborative system development between users and developers.
• Use multi-functional project teams to bring complementary capabilities together during the
total life of the project.
• Use intra-project teams and intra- and inter industry networking for technology transfer.

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• Provide stakeholders with a detailed plan of the implementation process, explain how it
achieves business objectives, and keep them informed about the system and progress of its
implementation.
• Propose possible ways for restructuring personnel and systems to accommodate the new
technology including maximizing of system integration and interfacing.

2.3.3 Post-implementation strategies:

Post project evaluation strategy could be followed in measuring the effectiveness of an ERP
system, where questions such as listed below could be used for further improvement:
• Whether the objectives of the ERP system were realized fully;
• Whether the scheme options were considered adequately;
• Whether the estimates and project information were accurate;
• Whether or not the agreed practices and techniques were complied with any other factors which
are considered appropriate.

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2.4 Cost & Payback Period of ERP implementation:

Meta Group recently did a study looking at the Total Cost of Ownership (TCO) of ERP,
including hardware, software, professional services, and internal staff costs. The TCO numbers
include getting the software installed and the two years afterward, which is when the real costs of
maintaining, upgrading and optimizing the system for your business are felt. Among the 63
companies surveyed—including small, medium and large companies in a range of industries—
the average TCO was $15 million (the highest was $300 million and lowest was $400,000).
While it’s hard to draw a solid number from that kind of a range of companies and ERP efforts,
Meta came up with one statistic that proves that ERP is expensive no matter what kind of
company is using it. The TCO for a “heads-down” user over that period was a staggering
$53,320.
Don’t expect to revolutionize your business with ERP. It is a navel gazing exercise that focuses
on optimizing the way things are done internally rather than with customers, suppliers or
partners. Yet the navel gazing has a pretty good payback if you’re willing to wait for it—a Meta
group study of 63 companies found that it took eight months after the new system was in (31
months total) to see any benefits. But the median annual savings from the new ERP system was
$1.6 million per year.
Source: Darwin Publications.

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2.5 Benefits of ERP implementation:

Deloitte Consulting (1998), and discussed in O’Leary (2000), that investigated the rationales and
benefits for why firms choose to implement ERP. That study broke benefits into two broad
categories: Tangible Benefits (Table 1) and Intangible Benefits (Table 2). Deloitte Consultant’s
(1998) study was based on interviews with 62 client firms of the Fortune 500. As part of a large-
scale project, client firms were asked which tangible and intangible benefits had been realized.
The results in Tables 1 and 2 present the percentage of the firms that indicated which benefits
would be realized, allowing for multiple responses for each firm. [3] [6]
Table_2: Tangible Benefits Realized Maintenance Reductions 7
On-Time Delivery 6
Inventory Reduction 32
Personnel Reduction 27 Table_3: Intangible Benefits Realized
Productivity Improvements 26
Order Management Improvements 20 Information/Visibility 55
Financial Close Cycle Reduction 19 New Improved Processes 24
IT Cost Reduction 14 Customer Responsiveness 22
Procurement Cost Reduction 12 Cost Reduction 14
Cash Management Improvement 11 Integration 13
Revenue/Profit Increases 11 Standardization 12
Transportation/Logistics Cost Reductions 9 Flexibility 9
Globalization 9

2.6 Research Gap

As per the literature survey done for past 10 years, the research done by eminent researchers
have been limited to identification of various factors responsible for success and failure of ERP
system for manufacturing industries. But very nominal work has been done to study prerequisites
for implementation of ERP in construction industry.

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CHAPTER-3 DATA COLLECTION

Data collection regarding Prerequisites for implementing EPR in any organization has been
collected through questionnaire survey with experts of two organizations like JMC India Pvt.
Ltd. and Jai Hind Projects Limited. In case of JMC questionnaire was conducted with Mr.
Mahendra Patel, Head of IT Dept. While in case of Jay Hind Projects questionnaire was
conducted with Mr. Keyur Shah, Sr Manager, SAP.

3.1 SAP AT JAI HIND PROJECTS, INDIA

Jaihind Projects Ltd. is an engineering, procurement & construction (EPC) company focused on
the hydrocarbons, water & infrastructure sectors. It provides EPC services ranging from:

Jaihind owns one of the largest task force of Pipeline equipment in south Asia. Jaihind is
continuously investing in equipment to expand it project capabilities and increase the number of
spreads & projects it can simultaneously work on. Jaihind Projects Limited is a Public Listed
Company with its shares listed on the Bombay (Mumbai) Stock Exchange (BSE). As of March
31, 2008, it employs just under a 1,000 full time and contractual employees and it’s annual
turnover is around 225 crores. Its head office is located in Ahmedabad (Gujarat), India.

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3.1.1 What Was The Problem?

Jai Hind group has several projects running at various locations throughout the country also they
are planning for international market. Each project had its own database and information system,
which was not connected to head office.

One of the biggest challenges for a construction company like the Jai Hind is in estimating cost
of construction. Since the projects are usually spread over many years, aligning the projected
cost with the actual cost becomes difficult. At any given time there would be at least 20-25
construction projects running concurrently. The departments were maintaining different files in
different excel charts. The accounts department was maintaining a separate software package but
materials and purchase was not linked to those. Moreover much of this data was lying in site
offices, which was not connected to the head office in Ahmedabad.

The entire process of collecting information from various departments was being done manually.
Whenever there was a quarry, each department would have to pull out information and
consolidate it for report. This not only slowed down the decision making process but also created
power centers within the company. This made it very difficult to do real time cost estimation of
different projects.

3.1.2 Solution & Implementation

To solve the above problem company decided to go for ERP implementation based on success of
various organization successes. For that company first of all go for ERP need analysis review
and found that Real time data and Data Transparency, this are the two main benefits for
implementing ERP. Real time data means accurate & present data regarding any item can be
obtained at any time about any of their construction site. The main value ERP systems provide is
the opportunity to integrate an entire organization through common data base and the
information flow is much more efficient & clear.

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3.1.3 Pre-requisites study for ERP Implementation:

3.1.3.1 Risk Identification

Before implementing ERP company first of all focused on three main parameters which are
people, Process changes and Technology.

3.1.3.1.1 People:
As employee are the ultimate users of new system and if they do not agreed upon the new
system then whole investment can ruin the business,
So company first gave them training in three various stages of implementation.
During first Stage Company make aware their employee what is ERP and basics of ERP.
During second stage employee were given “On Hand Training”, in this employees were
given demonstration about various modules according their departments and then
assignments were given to solve.
During third stage employee were given “On job Training”, In this stage now employee
were asked to phase real time situation and they use software on site and if they want
help then consultant are there to help them.

3.1.3.1.2 Process & Technology Change:

Due to implementation of new technology there is always resistance to new system as

employee required to learn new things also it makes employee uncomfortable. Also there is
myth about ERP that it will reduce man power requirement and employee will lose their jobs.
Due to implementation of ERP role of the many employee may be changed and organization
structure will change. So for that company ensures their employee that there won’t be any lay
off due to new system.

3.1.3.2 Selection of Implementation Consultant:

When asked about selection criteria about consultant they say, there are no special selection
criteria for consultant but based on their experience and their market value organization
should select consultant. Also organization should contact the companies who have dealt
with those consultants and based on their experience, consultant should be selected. Jai Hind

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had approached many consultant like IBM, ORACLE, WIPRO etc. for vendor selection
as well as operation & maintenance of various modules and all were asked for their
presentation, in the end management decided to go with WIPRO.
Because WIPRO was the most economical while other two were charging ten times higher
due to their market position, so company hired WIPRO as consultant on contract basis.
Company can hire consultant as per requirement. Generally consultants are available on call
basis as well as contract basis. Per call consultant generally charges around 10000-15000
per call while on contract basis they charge around 1-1.5 lacs per month per module.

3.1.3.3 Vendor selection Criteria:

When asked how vendor selection process takes place they say,
At the time of ERP vendor & software selection, first of all company should discuss the
functionalities of organization with consultant as well as implementation stratergies and
based on consultant view about particular player vendor selection is done.
For example,
For Real estate developer no of modules requirement will be less as compared to contracting
or infrastructure firm. Because in real estate firm organization perform similar kind of work
for their various projects also they give work on contracts so except supervision and billing
most of all activities are performed by contractor. While contracting firm remains involved in
all material purchase to construction activities so they definitely require more no & types of
modules.

Also based on degree of customization provided by any vendor with their software, selection
is done.
For Example:
If all IS of organization are working smoothly and company does good business with that
system than these system’s can also integrated with new ERP system.

Various ERP vendors are available in market at domestic as well as international level. Based
on company budget and requirement vendor should be selected.
Domestic ERP vendors: In-house Software etc.

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International: SAP, People Soft, JD Edwards, Oracle.

These are the major players in the ERP market.

In this case, main requirement was to integrate various departments like Operations,
Accounting and Finance, Asset Management (equipment), Procurement and HR. So we had
decided to go for phase wise implementation. So after discussion with consultant various
vendors like SAP, People Soft, JD Edwards, Oracle were contacted and asked for their
presentation of their software.

In the end management decided to go with SAP,

i. Because of its acceptability and popularity in market.
ii. Due to its functionality & flexibility, SAP allows integration of PRIMAVERA with
new system also its functions provides huge amount data and reduces processing time.

3.1.3.4 Total Cost of Ownership:

When asked about cost & time required for ERP implementation they say,
Most common factors contributing to TCO are
i. Software licensing fee,
ii. No of end users,
iii. Software customization,
iv. Cost of hardware,
v. Consultant fees,
vi. Employee training.
ERP cost can vary from few lacs to crores, it totally depends upon organization need (no of
modules) and end users.
And about time for implementation of ERP, there is no fix time duration that ensures that
within this ERP will be implemented in organization but from experience it has been seen
that approximately time for implementation takes around 2-2.5 years for full ERP
implementation. For implementing SAP at Jay Hind Projects we had started our planning in
2002 and by the end of year 2004 we were ready for testing for new system and it cost goes
in to crores, approximately 7-8 crores.

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3.1.4 Current Information System:

Today Jai-hind has the best of breed Management Information Systems for its Operations,
Accounting and Finance, Asset Management, Procurement and HR. For its core operations and
accounts such as FICO, Materials Management, Sales & Distribution, Tendering, Accounts,
Document Management Systems, Jaihind runs SAP. It uses other segment specific software and
systems for Human Resources, Procurement Portal, Employee Self Service, etc. and doing
wonders!

3.1.5 Benefits:

(1) The first and most important benefit of this solution is that information has now become
transparent and seamless.
(2) With a smooth information flow, decision making has also become much quicker.
(3) All departments and site offices are now connected on a single platform.
(4) The management team gets a complete overview of the projects and instant availability of
data and reports.
(5) Information flows freely between departments.
(6) Tremendous improvements have been made in fund management .
(7) Also process like purchasing materials have been automated and have seen immense
benefit from the solution.

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3.2 JMC Projects India Ltd.

3.2.1 Company History:

JMC Projects(India) limited(JMC) was incorporated on 5th June,1986 as Civen Construction

Private Limited, subsequently the name was changed to Joshi & Modi

Construction Private Limited on 10th December ,1989 and to JMC Projects

(India)Private Limited on 21st January, 1994, thereafter converted into Public

Private Limited on 4th February, 1994 under the name JMC Projects (India) Ltd.

The company was popularly known as JMCPL among the corporate clients. In

order to capitalize on the same, the company changed its name to JMC Projects
(India)Ltd. The company entered the field of Industrial construction with the prime motive of

servicing reputed clients with very high quality of construction work. The
company has achieved substantial growth during the last 3 years and is one of the leading
construction companies in Gujarat. It has registered as class `A ' Contractors with Government
of Gujarat. The list of prestigious clients includes Tata telcom Ltd, Videocan International Ltd,

Videocan Narmada Electronics Ltd. The

company tends to enter real estate business as part of its diversification programme.

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3.2.2 Problem & Solution

Main problem for company was also same as Jay Hind Projects Ltd., to integrate information
(database) of all various sites running throughout the India. The departments were maintaining
different files in different excel charts. The accounts department was maintaining a separate
software package but materials and purchase was not linked to those. Moreover much of this data
was lying in site offices, which was not connected to the head office in Ahmedabad.The entire
process of collecting information from various departments was being done manually. Whenever
there was a quarry, each department would have to pull out information and consolidate it for
report. This not only slowed down the decision making process but also created power centers
within the company. This made it very difficult to do real time cost estimation of different

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projects. Thus need arises for integration of various functional departments by one common
platform.

To solve the above problem company decided to go for ERP implementation based on success of
various organization successes. For that company first of all go for ERP need analysis review
and found that Real time data and Data Transparency, this are the two main benefits for
implementing ERP. Real time data means accurate & present data regarding any item can be
obtained at any time about any of their construction site. The main value ERP systems provide is
the opportunity to integrate an entire organization through common data base and the
information flow is much more efficient & clear.

3.2.3 Current Information System

Based on organization need as well as risk identification & cost of ERP implementation;
management decided to develop their own in-house software for ERP implementation.
Approximately time for implementation for ERP was around two years and cost for
implementing ERP is approximately 70 lakhs.
The cost for implementing in this case was far less then Jay Hind Projects Ltd.
Main reason for this is due to reasons described bellow.

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JMC has developed the best Management Information Systems modules for its Operations,
Accounting and Finance, Asset Management, Procurement and HR also for its core operations
and accounts such as FICO, Materials Management, Sales & Distribution, Tendering, Accounts,
Document Management Systems, JMC decided to run in-house software. By end of July ’09
Company targeted to implement ERP at their all over sites in India. It uses other segment
specific software and systems for Human Resources, Procurement Portal, Employee Self
Service, etc. and doing wonders!

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CHAPTER-4 DATA ANALYSIS

4.1 ERP Pre Implementation Parameters

For successful implementation of ERP first do need analysis review, then based on requirement
select appropriate consultant based on their experience, then follow the selection criteria for
vendor selection and based critical success factor try to implement those factor and based on
critical failure factor try eliminate those factors also find out total cost of owner ship so it
becomes clear for organization that how much they will have to spend. Based on this criterion
ERP implementation should be done to reach organization goal through ERP.Bellow is the
model provided to make one understand how various people are associated at various stages and
how they perform their role in to organization and which are the parameters they consider at pre
implementation stage.

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STAGE ISSUE PARICIPANTS PARAMETERS

1 ERP NEED  Implementation Determine

ANALYSIS teams.  How new system can increase
 Organization and organization value?
methods specialist.  What are the benefits of ERP?
 Head of each  What are the needs for implementing
department. ERP instead of existing information
 IT division. system?
 What are the risks associated with ERP
implementation?
 What is the total cost of ownership?
 Which are the critical success factors?
2 IMPLEMENTATION  Top management Determine
CONSULTANT  Head of each  Major consultant in the market.
department.  Select based on Experience and
Performance.
 Also determine the organization where
they have served.
3 VENDOR  Top management. Determine
SELECTION  Consultants.  Major players in the market.
 Method specialist.  What are the specialties in them?
 Head of particular  How flexible & user friendly software
department. is?
 Degree of integration of other IS.
 Total cost of license and end users.
 Select based on functionality and
Performance.
STAGE

ISSUE PARTICIPANTS PARAMETERS

3 VENDOR  Top management.  Also determine the organization where

SELECTION  Consultants. they have served.
 Method specialist.
 Head of particular
department.

4 TRAINING IN  Implementation  System overview- what’s ERP?

PROCESS Consultant.  Demonstration of versions and
RE-ENGINEERING  Implementation handbooks
Team.  Training to implementation team

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 IT division. leaders.

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4.2 ERP Pre Implementation Process Charts

Based on identified parameters here is the proposed ERP (Pre) Implementation Process Chart for
any organization who wants to implement ERP.

Assemble Project
Teams & End Users
Assemble

Analysis Determine ERP

Software Organization Needs Implementation
Life Cycle Cost & Budget Risk

NO
Is ERP STOP
Feasible ?

YES

ERP Software Vendor Software Type

In-house Software

Design Software
A

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Draft Criteria
Draft Criteria For
for
Software
Selection

Hire
Software
Selection

Consultant
Advice

Vendors Vendors Customization Need

Organization Budget
Performance Market Value
Vendor
Selected
Implementatio Management
n Consultant Decision
Implementatio
n Methodology
B

Customization Testing End User

Training

Going Live-
ERP
Implementation

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4.3 Various Types of Functional Modules of ERP Software:

ERP software is made up of many software modules. Each ERP software module covers a major
functional area of an organization. Common ERP modules include modules for product planning,
parts and material purchasing, inventory control, product distribution, order tracking, finance,
accounting, marketing, and HR. Organizations often selectively implement the ERP modules that
are both economically and technically feasible.

4.3.1 ERP Production Planning Module

In the process of evolution of manufacturing requirements planning (MRP) II into ERP, while
vendors have developed more robust software for production planning, consulting firms have
accumulated vast knowledge of implementing production planning module. Production planning
optimizes the utilization of manufacturing capacity, parts, components and material resources
using historical production data and sales forecasting.

4.3.2 ERP Purchasing Module

Purchase modules streamline procurement of required raw materials. It automates the processes
of identifying potential suppliers, negotiating price, awarding purchase order to the supplier, and
billing processes. Purchase module is tightly integrated with the inventory control and
production planning modules. Purchasing module is often integrated with supply chain
management software.

4.3.3 ERP Market in Module

ERP marketing module supports lead generation, direct mailing campaign and more.

4.3.4 ERP Inventory Control Module

Inventory module facilitates processes of maintaining the appropriate level of stock in a

warehouse. The activities of inventory control involves in identifying inventory requirements,
setting targets, providing replenishment techniques and options, monitoring item usages,
reconciling the inventory balances, and reporting inventory status. Integration of inventory
control module with sales, purchase, finance modules allows ERP systems to generate vigilant
executive level reports.

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4.3.5 ERP Sales Module

Revenues from sales are live blood for commercial organizations. Sales module implements
functions of order placement, order scheduling, shipping and invoicing. Sales module is closely
integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront as
part of the sales module.

4.3.6 ERP Financial Module

Both for-profit organizations and non-profit organizations benefit from the implementation of
ERP financial module. The financial module is the core of many ERP software systems. It can
gather financial data from various functional departments, and generates valuable financial
reports such balance sheet, general ledger, trail balance, and quarterly financial statements.

4.3.7 ERP HR Module

HR (Human Resources) is another widely implemented ERP module. HR module streamlines the
management of human resources and human capitals. HR modules routinely maintain a complete
employee database including contact information, salary details, attendance, performance
evaluation and promotion of all employees.

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4.4 ERP implementation Methodologies:

Different companies may install the same ERP software in totally different processes. The same
company may implement different ERP software in the same approach. There are three
commonly used methodologies for implementing ERP systems.

4.4.1 The Big Bang

In this Companies layout a grand plan for their ERP implementation. The installation of ERP
systems of all modules happens across the entire organization at once. The big bang approach
promised to reduce the integration cost in the condition of thorough and careful execution. This
method dominated early ERP implementations, it partially contributed the higher rate of failure
in ERP implementation. Today, not many companies dare to attempt it anymore. The premise of
this implementation method is treating ERP implementation as the implementation of a large-
scale information system, which typically follows SDLC (Systems Development Life Cycle).
But an ERP system is much more than a traditional information system in the fact that the
implementation of ERP continuously calls for the realignment of business processes. Many
parties involved in ERP software systems are not IT professionals. ERP more than automates
existing business processes. ERP transforms the business processes.

4.4.2 Modular Implementation

The method of modular implementation goes after one ERP module at a time. This limits the
scope of implementation usually to one functional department. This approach suits companies
that do not share many common processes across departments or business units. Independent
modules of ERP systems are installed in each unit, while integration of ERP modules is taken
place at the later stage of the project. This has been the most commonly used methodology of
ERP implementation. Each business unit may have their own "instances" of ERP and databases.
Modular implementation reduces the risk of installation, customization and operation of ERP
systems by reducing the scope of the implementation. The successful implementation of one
module can benefit the overall success of an ERP project.

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4.4.3 Process-Oriented Implementation

The process-oriented implementation focuses on the support of one or a few critical business
processes which involves a few business units. The initial customization of the ERP system is
limited to functionality closely related to the intended business processes. The process-oriented
implementation may eventually grow into a full-blown implementation of the ERP system. This
approach is utilized by many small to mid-sized companies which tend to have less complex
internal business processes.
4.5 ERP Software Selection Criteria:

Certain packages are regarded as having an exceptional functionality in some of their modules,
for example in the case with PeopleSoft’s Human Resources module. Other vendors are regarded
as specializing in certain industries, supporting industry-specific best practices, as for example
SAP in Chemicals and Pharmaceuticals, Oracle in Energy and Telecommunications and Baan in
Aerospace and Defense industries (Aberdeen Group, 1997).

Criteria for evaluating ERP software:

1) Should be compatible with the Company’s business processes.

2) Should have enough degree of integration with the various components of the organizations
existing system.
Example: It should be able provide integration with software like MSP, Primavera, Tally etc.
3) It should be flexible.
Means according to organization needs it should be modified.
4) It should not be Complex means it should be user friendly.
5) Quick implementation; shortened ROI period,
6) Ability to support multi-site planning and control,
7) Technology; client/server capabilities, database independence, and security,
8) Availability of regular upgrade, means it should be able to customize as company expand
their operation and business function.
9) Amount of customization required.

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4.6 Total Cost of Ownership:

The total cost of ERP ownership includes the costs of packaged software, hardware, professional
services (for ongoing maintenance, upgrades and optimization) and internal costs. Based on the
ERP survey conducted by Meta Group in 2002, the average cost of ERP ownership was $15
million ranging from half millions to $300 millions. The average cost per user per year could be
as high as $20,000.

4.6.1 Costs of Software

The cost of packaged ERP software depends on the scope of implementation (the license of ERP
modules and the number of end users), complexity of software and ERP vendors. ERP software
that involves the integration with external business entities generally costs more. ERP vendors
offer discount for organizations who invest in a suite of ERP software systems. Mid-sized
organizations typically commit a few million dollars to packaged ERP software.

4.6.2 Costs of Hardware

Implementation of ERP systems routinely requires purchase of new computer hardware, systems
software, network equipment and security software. The costs of hardware vary in a wide range
dependent on the scope of implementation and platforms. The hardware typically costs about
half million dollars for mid-sized organizations that implements ERP systems.

4.6.3 Costs of Professional Services

Customization The big chunk of costs of Professional Services is customization. The cost of
customization can easily out-run the cost of packaged ERP software, but it is the customization
of ERP software that makes an ERP a success or a failure.

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Integration ERP systems won't demonstrate its full potentials unless they are properly integrated
with other enterprise software application:

1. The integration of various functional ERP modules,

2. The integration of ERP with other e-business software applications, and
3. The integration of ERP with legacy systems.

Data Conversion The cost of data conversion depends on the format and the media that store the
historical data. Data conversion from legacy systems to RDBMS is a time-consuming process.
Data conversion may lead to further data gathering to fill the missing links in data requirements.

Testing ERP systems are thoroughly tested before they go into production. ERP testing includes
unit testing, component testing, regression testing, performance testing and user acceptance
testing.

Training ERP training is expensive because workers almost invariably have to learn a new set of
processes of doing their daily tasks besides learning how to use the ERP software. To reduce the
cost of ERP training and to ease the transitions from old processes to new, organizations often
seek the help from training companies which are specialized in coaching workers on using ERP
software from particular vendors.

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4.7 Causes of ERP Failure:

In ERP Definition - A Systems Perspective, we have identified the four components of an ERP
System:

1. ERP software,
2. Business Processes that ERP software supports,
3. Users of ERP systems, and
4. Hardware and Operating Systems that run ERP applications.

The failures in one or more of those four components could cause the failure of an ERP project.
The failures in hardware are more easier to identify and to fix, we'll examine the failures in
software implementation, business process and user acceptance.

4.7.1 Failure of ERP Software Implementation

Module-based ERP software is the core of ERP systems. Most ERP projects involve significant
amount of customizations. Packaged ERP software modules have built-in functionality that work
in a standard and simplified enterprise environment. However, every organization is unique in
data requirements and business processes. It is the customizations that transform packaged ERP
software into ERP software that meets organizations' individual business processes and
operations. Long and expensive customization efforts often result the pass of release deadline
and budget overrun. Customizations make the software more fragile and harder to maintain
when it finally goes to production. Major changes may be required in the later stage of the
implementation as a result of incomplete requirements and power struggles within organizations

4.7.2 Failure of Accommodating Evolution of Business Processes

Business processes fall into three levels - strategic planning, management control and
operational control. Organizations continuously realign their business processes of all levels in
response to the ever-changing market environment. Many ERP systems aren't flexible enough to
accommodate evolution of business processes.

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4.7.3 Failure of User Acceptance

The users of ERP systems are employees of the organizations at all levels. ERP projects usually
modify the company's business processes which create extra workload for employees who use
them initially. They may not think that the workflows embedded in the software are better than
the ones they currently use. Ongoing end-user involvement and training may ease the difficult in
organization's adaptation of new systems and new processes.

4.8 Most Common Ways of Successfully implementation of ERP:

The seven most uncommonly common reasons have been identified which would ensure that the
project does not miss its budget, timeline and performance improvement goals.

4.8.1 Critical stakeholders to accept or get involved with the implementation.

ERP implementations are “pervasive”. They impact most departments and impose changes on
the way people handle their day-to-day functions. If middle managers sense a lack of senior
management support, they may introduce roadblocks that will adversely affect a project’s
performance. Many senior executives regard ERP implementations as simple, costly, technology
upgrades. It is imperative they understand the end result will be a significant change to the way
the organization looks and operates. By the very nature of ERP systems, departments are forced
to share information that they considered proprietary in the past. Stakeholders must insist that
silos, constructed over the years for hoarding information, be dismantled. Senior managers must
facilitate negotiations among the various parties when disputes or disagreements erupt. They
must keep their focus on the overall objectives and contribute sufficient time to the endeavor
while avoiding being bogged down with the project’s finer details.

4.8.2. Adequate user input.

Lack of user input will likely contribute to a bad ERP implementation. Introduce the project to
those who will be affected by the outcome. Include not only the users, but also the business
partners and other internal departments whose cooperation will be needed. Even though this may
slow things down, the project management team must identify all the key resources needed to
implement and support the ERP project. As mentioned above, information must not be hoarded.
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Convince middle managers to be forthcoming about the way their departments run and alleviate
their fears that the new software will reduce their influence. Senior managers must reinforce the
project's benefits and stress the importance of sharing
information. They must make sure three broad groups contribute before the project gathers
steam: those who will be affected by it, those who will implement it, and those who will pay for
it.

4.8.3. Specifications and change control procedures to be properly defined.

Poorly defined specifications and a lack of change control procedures are prime causes of ERP
project failure. Requirements must be well defined up front to obtain the required consensus
among the stakeholders. One of the keys is to secure input from the stakeholders through a series
of planning meetings to define in clear terms what the project can, and cannot do. Senior
management must ensure project scope changes are managed in a formal manner. This includes,
but is not limited to, delays in the schedule or requests for additional money.

4.8.4. Expectations to be realistic and defined.

Estimating ERP project schedules and resource requirements has always been a hit-and-miss
affair. Stakeholders, less knowledgeable about what the technology can really do, create their
own expectations — even fantasies. If expectations are not set, scope creep is inevitable. An
initially straightforward project can evolve into an unmanageable one, violating schedules and
consuming resources.
A formal project charter must be established to set expectations. Project management must
ensure that formal budgeting and risk assessment happen while senior management makes sure
the culture is in place for a strong project management discipline. Projects fail, not because the
tasks are insurmountable, but because they're engendered by an effort to transform the company.
Information Technology is used as the catalyst for that change and makes a very convenient
scapegoat if things turn ugly. When a project falls short, it may look like IT failed—but it's
almost always because the organizational change was unsuccessful.

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4.8.5. The presence of an outside consultant.

At times the employees feel that they are the best in house consultants to decide what processes
to follow and what not to follow. This can become a death trap for the organization. The
organization should do introspection and decide whether they have enough resources to
implement the ERP or they need to take an external help. And when working on the consultant’s
contract, it's important to negotiate toward a reasonable, achievable agreement. These aren't
adversaries; these are partners.

4.8.6. Good Communication.

The everyday communication problem is worse when IT is involved, simply because it's hard for
a lay person to grasp the lingo. Use non-technical terminology whenever possible, especially
when communicating outside the project team.The project manager must be forthcoming with
any news good or bad. Line workers don't want to be the bearers of bad news, and senior
managers contrive to not hear bad news if it’s ever delivered. As a result, nobody sounds the
alarm on IT projects that have "disaster" written all over them until it's too late. Ensure that
senior executives are available when they’re needed and that they stay in constant
touch with the project management.

4.8.7 The implementation methodology should be clear and tested.

But perhaps the biggest – and deadliest – mistake organizations make when implementing ERP
is relying on an unrefined, and even untested, methodology. Too often, the key players in ERP
implementations – VPs, CIOs, CFOs, controllers, and the like – assume that they can get by on
their own. They dive into the project only to discover that implementing ERP is more complex
than any garden variety project-management style or approach can handle. An alternative
scenario, which will become more common as smaller companies begin using ERP, is that the
personnel in charge of the implementation mistakenly believe that because their organizations
are small, their implementations won’t be complex and, therefore, don’t require as much “fuss”
as a big business implementation would demand. Both of these beliefs are false and could lead to
the downfall of your project. ERP implementations are complex, regardless of the company size.

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CHAPTER-5 CONCLUSION

Not all of ERP implementations are entirely successful. In fact, about half of ERP
implementations fail to meet expectations. Most of them suffered from over-budget, over-time,
user dissatisfaction, failed to introduce all planned modules, or the big and horizontal ERP
systems pulling back into beta testing. So it’s essential for any company before going for ERP
implementation they should do feasibility study. Also company should follow the proposed basic
pre implementation parameters as well as process chart described in data analysis.

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APPENDIX-A

1. What’s the reason for implementing ERP?

2. Which are the major tasks that are required to take care before going live?
3. Which are the probable risks associated with ERP implementation?
4. Which are the strategies required/formed before implementation?
5. What are the criteria for ERP vendor and software selection?
6. Who are the major ERP vendors in market?
7. Which are the various ERP modules used in construction industry?
8. Which existing information systems can be integrated with ERP?
9. How the functions of new ERP system can be handled?
10. What are the selection criteria for consultant?
11. What are the responsibilities of consultant?
12. Who is the consultant for your company?
13. What’s the approximately time required for implementing ERP?
14. Which are the main components contributes to Total cost of ownership?
15.

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References:

Research Papers:

1) Elisabeth J. Umble a, Ronald R. Haft b, M. Michael Umble (2003) “Enterprise resource

planning: Implementation procedures and critical success factors”
European Journal of Operational Research Vol 146 , pp.241–257
2) Purnendu Mandal , A. Gunasekaran (2003) “Issues in implementing ERP: A case study”,
European Journal of Operational Research 146 , pp.274–283
3) O’Leary, Daniel E. (2004), “Enterprise Resource Planning (ERP) Systems: An Empirical
Analysis of Benefits”, Journal of Emerging Technologies in Accounting, Vol. 1, pp. 63–72
4) S.M. Jafari, M.R. Osman, R.M. Yusuff and S.H. Tang (2006), “ERP systems implementation
in Malasiya : The importance of Critical success factor.”
International Journal of Engineering and Technology, Vol. 3, No.1, 2006, pp. 125-131
5) H Akkermans, and K van Helden (2002), “Vicious and virtuous cycles in ERP
implementation: a case study of interrelations between critical success factors”
European Journal of Information Systems.
6) Ashim Raj Singla (2002), “Impact of ERP systems on small and midsized public sector
enterprises.”, Journal of Theoretical and Applied Information Technology
7) Young B. Moon (2007), “Enterprise Resource Planning (ERP): a review of the literature”, Int.
J. Management and Enterprise Development, Vol. 4, No. 3
8) Rebstock, M., Selig, J. (2000). "Development and Implementation Strategies for International
ERP Software Projects", ECIS, Vol. 2, Vienna, pp-932-936.
9) Nah, F. F-H., Lau, J., L-S., Kuang, J,( 2001): “Critical factors for successful implementation
of enterprise systems”, Business Process Management Journal, vol 7, no 3, pp 285-296.
Books:
1) Alexix Leon, “ERP DEMYSTIFIED”, Second Edition,
Tata McGraw-Hill, New Delhi
2) Jagan Nathan Vaman, “ERP in Practice-ERP Strategies for Steering Organizational
Competence and Copetitive Advantage.”
Tata McGraw-Hill, New Delhi

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