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May 01, 2011

ERP project risk assessment

One reason often cited for any software project failure is that managers do not properly assess and manage the risks involved in their projects. Most project managers perceive risk management processes as extra work and expense; thus, risk management processes are often expunged if a project schedule slips.

In the past, several ways were proposed in order to improve the success rate of ERP introduction, unfortunately without great effect. The nature of IT project risk is determined by the risk factors and by the strategic need for the project, innovation, repetition of failed experience, etc. Many processes have been developed in recent years to address the need for a more effective risk management, though they are often too general for ERP application, models including PMI 2001, Standards Australia 1999, SAFE methodology, and Risk Diagnosing Methodology are typical iterative approaches to risk management problems . Main phases are: 1. context analysis; 2. risk identification; 3. risk analysis; 4. risk evaluation; 5. risk treatment; 6. monitoring and review; 7. communication and consulting.

However, ERP projects are interdisciplinary; they affect interdependencies between business processes, software and process reengineering. Critical factors include technological and management aspects, both psychological and sociological. To be effective a risk assessment method should consider several potential aspects (technology, market, financial, operational, organizational, and business) and link them to the project life cycle. This ensures the selection of the most appropriate risk treatment strategy.

Risk management strategy consists of two approaches. The first aims at reducing risky circumstances, while the second deals with risk treatment after a risk appears.

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