imlementaiton of erp in construction industry

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

1 Application of ERP in Construction Industry (Pre Implementation Phase)

Seminar-1 2009

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 Management & Control

Inventory Management and control is the combination of information technology and business processes of maintaining 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 Requirement Planning (MRP)

Materials Requirement Planning (MRP) utilizes software applications for scheduling production processes. MRP generates 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 Requirements Planning (MRP II)

Manufacturing Requirements Planning or MRP utilizes software applications for coordinating manufacturing processes, from product planning, parts purchasing, inventory control to product distribution.

1990s Enterprise Resource Planning (ERP)

Enterprise Resource Planning or ERP uses multi-module application software for improving the performance of the internal business processes.ERP systems often integrates business activities across functional departments, from product planning, parts purchasing, inventory controlto product distribution.


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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

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

Inventory Reduction 32

Personnel Reduction 27

Productivity Improvements 26

Order Management Improvements 20

Financial Close Cycle Reduction 19

IT Cost Reduction 14

Procurement Cost Reduction 12

Cash Management Improvement 11

Revenue/Profit Increases 11

Transportation/Logistics Cost Reductions 9

Maintenance Reductions 7

On-Time Delivery 6

Table_3: Intangible Benefits Realized

Information/Visibility 55

New Improved Processes 24

Customer Responsiveness 22

Cost Reduction 14

Integration 13

Standardization 12

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

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


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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!


Reasons for less

cost

No Need for Vendor Selection

No Need For Implementation consultatn

No Need For Customizati

on

No Need for Vendor

SelectionConsultant

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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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ST

AG

E ISSUE PARICIPANTS PARAMETERS

1 ERP NEED

ANALYSIS

Implementation

teams.

Organization and

methods specialist.

Head of each

department.

IT division.

Determine

How new system can increase

organization value?

What are the benefits of ERP?

What are the needs for implementing

ERP instead of existing information

system?

What are the risks associated with ERP

implementation?

What is the total cost of ownership?

Which are the critical success factors?

2 IMPLEMENTATION

CONSULTANT

Top management

Head of each

department.

Determine

Major consultant in the market.

Select based on Experience and

Performance.

Also determine the organization where

they have served.

3 VENDOR

SELECTION

Top management.

Consultants.

Method specialist.

Head of particular

department.

Determine

Major players in the market.

What are the specialties in them?

How flexible & user friendly software

is?

Degree of integration of other IS.

Total cost of license and end users.

Select based on functionality and

Performance.


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ST

AG

EISSUE PARTICIPANTS PARAMETERS

3 VENDOR

SELECTION

Top management.

Consultants.

Method specialist.

Head of particular

department.

Also determine the organization where

they have served.

4 TRAINING IN

PROCESS

RE-ENGINEERING

Implementation

Consultant.

Implementation

Team.

IT division.

System overview- what’s ERP?

Demonstration of versions and

handbooks

Training to implementation team

leaders.


YES

NO

STOP

Assemble Project Teams & End Users

Determine Organization Needs

& Budget

Analysis Software

Life Cycle Cost

ERP Implementation

Risk

In-house SoftwareERP Software Vendor Software Type

A

B

Design Software

Is ERPFeasible ?

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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


Vendors Performance

Vendors Market Value

Organization BudgetCustomization Need

Testing End UserTraining

Customization Testing End UserTraining

Customization

B

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Draft Criteria For

Software Selection

Consultant

Hire

Software Selection

Consultant

Vendor

Selected

Going Live-

ERP Implementation

Consultant

Advice

Implementation

Methodology

Implementation

Consultant

Management

Decision

A

Draft Criteria for

Software Selection

Consultant

Hire

Software Selection

Consultant

Vendor

Selected

Going Live-

ERP Implementation

Consultant

Advice

Implementation

Methodology

Implementation

Consultant

Management

Decision

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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,


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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.

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.

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:

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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


imlementaiton of erp in construction industry

Documents