CRIC Consulting

Enterprise Resource Planning : Ongoing maintenance and cost benefit analysis

2

Integrated Management

System

Finance & Accounting HR Admin &

PlanningSales & Services Operational

Enterprise Resource planning (ERP)

Software application to facilitate the flow of information

3

ERP

ERP Providers

Oracle SAP GEMS BI-Tech

ERP Implementer

s

Accenture

TommorowNow

Legacy mode

ERP (Continued)

Tier II

41% Failure: Implementation

Tier I

4

• Metropolitan city in Central valley, California

• 26.2% living below the poverty line

General

• Currently use PeopleSoft ERP• Recently spent $2M to upgrade

PeopleSoft• IS department has 70 employees

Information systems Environme

nt

Big Valley City

5

Oracle takes over

PeopleSoft in 2005

Peoplesoft customers facing possible upgrade to Oracle's Fusion in 2008

The Problem

6

PEST Analysis

7

Pressure on

Government to

• Increase Taxes• Job creation• Infrastructure

Investment, including IT

Political

8

Econom

ic challenges

• Budget deficit• Increase in labor

cost• Shrinking tax base• Liquidity Crunch

Economic

9

Social challenges

•High poverty rate (about 26%)•High unemployment rate•Cost and absence of quality Healthcare•Lack of skilled manpower•Influx of illegal immigrants

Social

10

Technological

challenges

•Improvement in Healthcare facilities•Outsourcing of back-office jobs•City infrastructure requirements•Modernization of existing Educational system

Technological

11

Key Issues

High existing costs & spending Inappropriate revenue collection

methods Quality of life of citizens Vague data

12

Importance

Urgency

Low Importance High Importance

Low Urgency Quality of life

Analyze plans, performance for sound

decision making

High Urgency

Inappropriate revenue collection methods High Costs

Key Issues Matrix

13

Suggested Alternatives

Upgrade to Oracle Fusion Outsource Oracle support services to

3rd party Vendors Replace PeopleSoft with ERP Tier II

products

14

Pros

Known commodity

Feature-rich functionality

Easy to customize as per customer requirements

Stable vendor/Less change

Alternative 1: Upgrade to Oracle Fusion

15

Pros

Capable of meeting Big Valley functional needs

Lower long term costs

Enhanced quality of support

Quick resolution time of issues

Flexibility in selection of ERP implementer vendors

Negotiable contract terms

Alternative 2: Outsource Oracle support Service to 3rd party Vendors

16

Alternative 2:Comparison of 3rd party support vendors

Accenture TomorrowNow LegacyMode

Pros • Leading IT service provider

• Expertise in PeopleSoft & Oracle ERP products

• End-to-End help desk services

• Large provider of SAP

• Highly experienced with PeopleSoft products

• Resolves issues immediately

• Flexible contract agreement

• Flexible contract term: 1,3,5,10-year

• Maintain legal compliance without costly upgrades

Cons Charges premium cost Face pressure to switch to SAP

Only one year of help desk support

17

Pros

Lower long term costs than PeopleSoft

Specialized in public sectors

Good support services

Simpler technical environment/faster learning curve

Alternative 3: Replace Peoplesoft with ERP Tier II products

18

SunGard Bi-Tech

•Specialized in public sector•Availability of all ERP modules•Extensive training services offered•Roughly 37 % savings over 5 year period

GEMS•Specialized ERP provider for public sector•Offers Property Management Systems ERP module•29% savings over 5 year period

Alternative 3: Tier II ERP Products

19

Financial comparison Analysis

20

Current annual maintenance fees: $260,000

Assuming another 5% increase in the future 3-year maintenance fees total at $975,000

Alternative I

PeopleSoft

• Total cost: $450,000• Cost saving: $330,000Accenture

• Total cost: $390,000• Cost saving: $390,000

TomorrowNow

• Total cost: $303,000• Cost saving: $477,000

LegacyMode

Alternative II3rd Party

Implementors

Bi-Tech:

• Total cost for 3 years: $725,400

GEMS:

• Total cost for 3 years: $983,000

Alternative III

Switching cost be 30% of current 3-year maintenance fees

Tier II Products

23

Alternative I Alternative II Alternative III

Total cost in 3 years ($)

Oracle Fusion

Accenture TomorrowNow

LegacyMode

SunGard Bi-Tech

GEMS

780,000 450,000 390,000 303,000 725,400 983,000

Oracle

Fusion

Acce

ntur

e

Tom

orro

wNow

Lega

cy M

ode

SunG

ard

Bi-T

ech

GEMS

0

200000

400000

600000

800000

1000000

1200000

24

Evaluation criteria

Best Long Term Position Best Functional Capability Lowest Cost Lowest technical skill requirement Best technical architecture

Alternative I

Score

Alternative IIScore

Alternative IIIScore

Best Long Term Position

4 6 7

Best Functional Capability

9 8 5

Lowest Cost 3 7 9

Lowest technical skill requirement

2 8 7

Best technical architecture

8 7 5

Total 26 36 33

Decision making Matrix (scale of 10)

26

Does selection help-resolve our Key issues?

Key issues Alternative II

High existing costs & spending

Inappropriate revenue collection methods

Quality of life of citizens

Analyze plans, performance for sound Decision making

27

Meeting cost-saving purpose(appx $477,000 for 3yrs)

Improving the quality of service Freeing up cash flow and human resources to focus

on core business

Vendor selection(Accenture/TomorrowNow/LegacyMode)

LegacyMode

28

Define measurement of efficiency

Sign contracts with

LegacyMode

Business process change and

reengineering

Assessment of new

transactions

Post-implementati

on review

Implementation Steps of Alternative II

29

Efficiency of bug fixes & patches Quality of support to major application releases Quality of technical support Compliance with federal government standards

and regulations

1 2 3 4 5 6 7 8 910

1. Define measurement of efficiency

Legacy Mode

30

Begin Phase I of terminating the maintenance contract with PeopleSoft

Sign contract with LegacyMode Negotiate with LegacyMode on the contract

terms(3 years), and charges of help desk services during contract period

2. Sign contracts with LegacyMode

31

3. Business process change and reengineering

Employee Commitm

ent

Reduction in IT staff

Change in process

Education & Training

Maintaining long-term

relationship

32

Test the services provided at initial period Improve the process before final implementation Schedule for complete termination of existing

contract

4. Assessment of new transactions

33

5. Post-implementation review

Assess the performance of LegacyMode according to the measurement of efficiency

Arrange a team to solve the identified issues

34

One-time costs:Signing the contract

Est. 101,000* 5% = $5,050

Transition Est. 101,000* 2% = $2,020

Possible downsizingEst. (64-14) * (29,415/2)= $735,375

Unexpected cost

$500,000

Cost Considerations

Long-time costs:Maintenance cost

101,000*3= $303,000Help desk support after 1-year Est. 101,000* 9%*2 = $18,180 Total costs:

$1,563,625

35

Cost Considerations (Continued)

Savings from lower Maintenance cost ( 3-year) (260,000-101,000)* 3= $477,000

Savings after possible downsizing Est. 50 * 29,415 * 3 = $4,412,250

Total Savings: $4,889,250 Benefits=

$3,325,625

36

Decrease Negative Impacts

Possible conflicts with Oracle

•Accessing the existing contracts•Involve Legal teams for best possible actions•Including extra cost for handling of potential Lawsuit

Employee Dis-satisfaction

•Communicate with staffs honestly and constantly•Reinforce the vision and benefits•Include severance costs in the budget

Collaboration Challenges•Focus on smooth knowledge transfer•Support process for cross-training vendor support staff•Appropriate documentation of escalation matrix

37

Timeline

August 2006 • Define measurement of

efficiency

July 2007• Business process change

and reengineering

April 2008• Post-implementation

review

38

What after 3years?

Reassess the performance of

PeopleSoft & LegacyMode after every 6 months

Contingency Plan

39

Thank you

Improvements in quality of life of citizens

Improvements in quality of life of citizens

Improvements in quality of life of

citizensReduction in

existing costs

Transparency & Improvements in

revenue collection methods

Analyze plans, performance for sound Decision

making

Relation between Key Issues

41

In reality only 41% of ERP implementation projects are successful

Main reasons for failures: ERP system misfit Poor project management effectiveness Too tight project schedule Users’ resistance to change

Reason for Failures

42

Accenture

•Annual maintenance fees: at a premium cost $150,000•Annual costs saving: 260,000 – 150,000 = $110,000•Total costs in 3 years: 150,000 * 3 = $450,000

TomorrowNow

•Annual maintenance fees: 260,000 * 50% = $130,000•Annual costs saving: 260,000 – 130,000 = $130,000•Total costs in 3 years: 130,000 * 3 = $390,000

LegacyMode

•Annual maintenance fees: approximately $101,000•Annual costs saving: 260,000 - 101,000 = $159,000•Total costs in 3 years: 101,000 * 3 = $303,000

Cost calculation —— Alternative ii

43

Bi-Tech•Annual Costs: 260,000* (100-37%) = $163,800•Total maintenance costs for 3 years: 163,800 * 3 = $491,400•Assuming switching fees will be 30% of current 3-year maintenance fees, •Total costs for 3 years: 491,400 + 780,000*30% = $ 725,400

GEMS•Upfront licensing + training + consulting: $575,000•Annual maintenance fees: $87,000•Total licensing etc. and maintenance costs for 3 years: $575,000 + 87,000 * 2 = $749,000•Assuming switching fees will be 30% of current 3-year maintenance fees, •Total costs for 3 years: 749,000 + 780,000 * 30% = $983,000

Cost calculation - alternative III