How to justify your project to your board
Most companies have a gut feeling about when to replace their ERP systems. The software may be reaching its end of life. They may be opening a new office in another country with a different language and localization requirements. They may be getting into a new channel that requires new business processes that their current system can not support. Whatever the main driver is, the companies rush into looking for quick fixes to address their most urgent problems assuming that the new system will automatically be justified. Well, that is one big assumption. For such large initiatives to be blessed by the powers to be, four things need to come together; namely value, cost, time, and risk. Let's dive into each area.
You need to always start with value first. I talked about the value in another post (Please refer to this blog). If there is not enough value, there is no project to start with. Among the four considerations, value is the least articulated. Companies focus on features and benefits but find it hard to quantify the value. For example, your users may lack inventory visibility during the sales order-taking process. The new solution may provide you with better visibility with a new sales order form. You can state that the new user interface (feature) may give you better inventory visibility (benefit). Yet, this is not a value statement. You need to take it one step further. The value can be stated in terms of increased sales and decreased excess inventory - which can have a big impact on the company. Imagine a $100 M company with a 20% margin and a $30 M in finished goods inventory. If you can bump the sales by 1% while reducing the inventory by 1%, that one feature may result in $100 M x 20% x 1% = $50 K + $30 M x 1% = $300 K = $350 K per year savings. In three years, that is roughly $1 M. That’s why it is important to quantify the value. It puts everything in perspective.
Next is cost. This is one area companies obsess about. They get multiple quotes from several vendors and compare them to get a feeling about the cost. The key point here is the amount of cost relative to the value. The higher the return (value minus cost), the more likely your initiative will move forward. Most companies are surprised by how costly the new implementations can be. That's another reason to get to the value point upfront to have a fair comparison. If the return is low, the initiative will stall.
That brings us to the next point which is time. Imagine a case where you have high value and low cost, yet it is going to take too much time to deliver the solution. Would you do it? Even if you try, you may not finish it. Thus, new solutions should deliver their proposed value sooner, otherwise, they may not have their shot. Here, phasing strategies may play a big role - which was discussed in another post (Please refer to this blog).
Finally, it comes all down to the risk. This is a tough one. Over years, I witnessed that fear won over greed most of the time. Imagine a high-value low-cost solution that can be delivered in a short time, but the risk is very high. Would you pull the trigger? Most companies won't. Nobody is going to put their neck on the line. You need to have risk mitigation strategies to handle such situations.
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My name is Cem and this has been another gem.
