Why Bad Implementations Can Disrupt Budgets Across Fiscal Years


Though no one can deny the great importance of digital transformation, it can also be a rocky path with plenty of challenges, large and small, along the way. Implementing new and complex solutions like ERP, CRM, and digital commerce always carries a degree of risk, but it is also vital for staying relevant in a rapidly evolving market.

According to ERP Focus, around 60% of new system implementations fail, and more than half exceed their original budgets. These impacts are often felt across fiscal years as funds need to be reallocated, and limited budgets hinder future innovation. There are also indirect costs to consider, such as those associated with decreased client satisfaction and staff productivity.

The root cause of failed implementations usually comes down to migration-related issues. A lot of established businesses are still dealing with old, unreliable, and disparate systems. This makes it notoriously tricky to migrate customer data and routine business operations over to newer and more agile systems without facing costly downtime and other challenges.

Here are the top three mistakes that finance teams make and how to avoid them:

1. Failing to assign dedicated resources

In today’s hyperconnected, digital-first world, IT teams have considerable responsibilities and are also expected to manage budgets. For large projects, assign a dedicated financial resource to maximize the allocated budget’s value for the effort.

There should also be a dedicated team to monitor the project scope, budget, and timeline to ensure it stays on track. If there is a lack of proper oversight, it is easy to overspend and not realize it until it’s too late.

When costing out a project, finance leaders must collaborate closely with IT leaders to better understand the project’s scope and its intended business impact. IT teams will usually be responsible for determining the cost of a given project, but they must justify these expenses.

2. Focusing too much on edge cases

The reason many implementations end up going over budget is so-called scope creep. This occurs when companies focus too much on edge cases and other one-off situations. It is also why many technology solutions end up with extra features that no one in the organization will ever use. This hinders productivity, therefore harming your bottom line.

One of the first and most essential steps is defining the system’s requirements, whether a new digital commerce platform or any other mission-critical solution. The requirements phase should segment business needs based on priority. A good starting point is to follow the tried and tested 80/20 rule, in which you capture 20% of the requirements that make up 80% of business activities. Addressing these requirements will add value to your business, while others just cost money and provide little or no return.

3. Not planning for unexpected expenses

The importance of strategy in any IT project cannot be underestimated. That said, even the most carefully planned projects can yield some unwanted surprises. This is why finance teams should always be prepared to fund a contingency plan that adds 20% to the original budget.

Planning for unexpected expenses provides a degree of financial flexibility should issues arise. These could include unforeseen security or compliance issues that only come to light during the implementation process. Other common challenges concern compatibility problems, unscheduled system downtime, or disruptions to dependencies like third-party suppliers or technology partners.

While strategic planning will minimize the chances of such problems occurring, it is impossible to account for every possible eventuality, hence the need for a degree of financial flexibility.

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Originally published November 2, 2021

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