Adding up the Numbers for U.N.'s $337 Million ERP Project

Ann All

IT Business Edge's Mike Vizard wondered on his blog last week whether it was time to throw out most existing softwareand start over. He wrote:

But the really hard question that everybody continues to ignore is whether the cost of making all this work in its current form is more trouble than it's worth. When you add up all the money spent on software licenses and the IT professionals needed to deploy, manage and support all these applications, the numbers become quite staggering.


How's $337 million for a staggering number? That's the current cost estimate for the United Nations' SAP ERP system.


Included in the cost, reports PCWorld.com, are $76 million for "2,597 work months" of system build and implementation services and $14 million for travel, which presumes 1,285 trips will be taken by "ERP team members, subject-matter experts and corporate consultants." Breaking down the travel, that's an average air ticket cost of $6,000, plus $202 for "terminal expenses" and $5,000 for 20 days worth of per diems, for a total cost of about $11,000 per trip. A $250-a-day per diem doesn't seem unreasonable, assuming it includes food and overnight accommodation. But $6,000 for air travel? Is it even possible to spend that much on air fare in today's depressed economy?


Add another $1.8 million for office furnishings to support 234 workers (about $7,700 per person); $6.7 million for office rental (annual rate of $14,300 per person); $564,200 for long-distance telephone calls, teleconferencing and videoconferencing; $18 million for hiring "limited replacements" for subject-matter experts involved in the project; and $16 million for software licenses and maintenance fees


These numbers are drawn from a U.N. document, which also predicts that, once up and running, the system should yield between roughly $470 million and $770 million in "ongoing annual capacity improvements, costs savings and cost recovery," plus $18 million to $27 million in one-time cost savings and "many other significant qualitative benefits."


Fox News broke this story, which almost guarantees the project will be under intense scrutiny by folks looking to expose government waste. And let's not forget that ERP projects routinely exceed both time and cost estimates. The scope of the project, as described in the PC World article, is also staggering, involving the consolidation of some 1,400 separate systems and elimination or streamlining of some highly manual, paper-based processes.


That's where the trouble will come in, predicts CIO.com's Thomas Wailgum. Zeroing in on a line in the U.N. document, which predicts no need for customization of SAP's code, he writes:

While I'm no fan of widespread customization, let's look at this logically: The U.N. is taking users who are accustomed to decades of manually intensive processes and asking them to use SAP's ERP suite, a piece of enterprise software that has its own issues with complexity and non-ease-of-use. Giving it to them out-of-the-box, with little or no familiar customizations that wean them off the old software, seems foolhardy.

Waste Management, the company that sued SAP for $100 million over a failed ERP implementation was also promised an "out-of-the-box" system.


SAP beat out other companies in terms of user satisfaction with ERP systems, according to a Panorama Consulting survey published earlier this year. But maybe that's because companies employ some strange ways of measuring satisfaction with ERP, writes Panorama's Eric Kimberling on Toolbox for IT. According to Kimberling, many executives consider an ERP implementation a success if it's up and running, regardless of whether it satisfies business needs. It's "like an amateur runner being thrilled to simply finish a marathon, regardless of where he or she places," he says.


Panorama's study also exposed "diverging views of satisfaction among executives relative to project managers and other non-executives." Executives are likely happy if they get improved reporting, writes Kimberlin, while other users want more efficient business processes and robust functionality. Perhaps most alarming, Kimberlin speculates some companies just may not develop a business case and/or measure post-implementation business results. The U.N. appears to have a solid business case for its ERP system, though admittedly that's largely because its existing system is such a colossal mess. Let's hope it's committed to measuring results.


Maybe the U.N. should look beyond ERP for possible solutions. Noting that ERP software has been useful "but at the end of the day, most companies use these applications to help automate rudimentary business processes," Vizard writes in his post on software:

Where we have seen some significant advances is in the rise of new business process management (BPM) platforms that are not only more customizable it terms of automating a business process, they also provide a whole lot more flexibility. That flexibility provides the business with more agility than what we're seeing from our existing application investments. So it's more than probable that emerging BPM software platforms will be deployed in a way that will obviate a lot of the functions we're currently relying on a cumbersome piece of ERP software to manage.

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Add Comment      Leave a comment on this blog post
Sep 9, 2009 11:18 AM Alan Bowling Alan Bowling  says:

To clarify "No customisation of core code". In SAP customisation of core code means the use of a developers key. This is something that you only use as a last resort, because it has severe implications for future upgrades and patches. However that's not to say that you can't customise SAP, because you can write thousands of lines of ABAP or Java without touching core code using user exits to amend the way SAP moves data or to enhance it.

So key in this is the word "core" - there will be lots of customisation but it won't be "core" cide.

Sep 9, 2009 11:28 AM Ann All Ann All  says: in response to Alan Bowling

Thanks for the clarification, Alan.  I am obviously not a developer. I am tweaking the wording of my post to reflect your wisdom.

Sep 10, 2009 1:34 PM Nash Nash  says: in response to Ann All

This is really a nice blog and the article is self explanatory. I think anyone will get to know a lot about this project who would read the whole article.


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