Building a better ERP

Defense Department officials were ready two years ago to put the stamp of success on the Enterprise Software Initiative (ESI), which started in 1998 as a way to improve the coordination of software purchases.

But then they found a problem. DOD agencies spent an average of $15 to implement software for every $1 spent to acquire the software. That 15-to-1 ratio was three times more than the ratio reported by commercial organizations.

To resolve the angst produced by this discovery, DOD officials awarded blanket purchase agreements (BPAs) last year to five service integrators for enterprise resource planning (ERP) projects. If program managers adopt the concept, it could revolutionize the way officials implement large software projects throughout the military and at other agencies.

ERP programs will be the largest expense in DOD’s anticipated $12 billion budget for software and related services during the next five years.

“It’s all about good discipline in program management,” said Chris Panaro, an independent consultant in the Office of the Assistant Deputy Undersecretary of Defense for Logistics Systems Management and a principal adviser to ESI. “The idea is that, if the intention is to modernize the department around commercial off-the-shelf software, then it would be better also to incorporate industry best practices” in the implementation.

The BPA competition stipulated that officials would award contracts to companies with proven methodologies for implementing ERP projects. The five integrators eventually chosen — Accenture, BearingPoint, Computer Sciences Corp., Deloitte Consulting and IBM — bring the collective experience of more than 18,000 business systems projects, Panaro said.

This best practices approach to ERP might be a shock to those who have followed a more traditional path in the past. With time-and-materials task orders, for example, agency officials can choose an integrator after an open competition and then negotiate the program details. But this practice often leads to “scope creep,” Panaro said.

Programs might start out as ERP projects. But officials would add new requirements, and over time, projects would become hybrids in which ERP is just one component.

Inevitably, such programs would cost a lot more than the original estimate, and the loss of focus might mean a less-than-desirable ERP implementation.

Under the new approach, the five BPA contractors compete with one another on fixed-price terms. Although some leeway is built into most programs to account for variables, agency officials are required to closely follow the ERP methodology of the integrator they eventually choose. The goal is a far more efficient, cost-effective and ERP-only implementation.

“In a way, we are commoditizing these implementation services,” Panaro said.

Although agencies can theoretically choose a services contract vehicle to use, DOD officials already know which approach they prefer. Army officials, who initially wanted to use the time-and-materials path for their General Fund Enterprise Business System program, recently agreed to use the new BPAs after a lengthy discussion with DOD officials.

Rex Bolton, chairman of the DOD ESI Working Group, said the decision was “about using the right contracting tool” to update the Army’s financial systems.

The BPAs have their critics. Bob Guerra, a partner at the information technology consulting firm Guerra, Kiviat, Flyzik and Associates, believes fixed-price solutions contradict the realities of government needs.

DOD officials are “trying to get the least price with this program, but what it should be aiming for is best value,” he said. “Competition is what’s supposed to provide least price. That’s what you get when you go out to industry with your proposal.”

DOD agency officials have been successful in procuring software with this type of contract, and so they probably think they can do the same with services, Guerra said. But buying solutions is different because agencies have many different missions, which complicates any effort to mandate a fixed price.

“You can’t commoditize solutions,” he said. “With products you can do that, but not with solutions.”

However, integrators believe the new contracts will be good for them and their government clients as long as the intentions of the contracts are followed closely.

The onus is on agency officials to be clear and precise about their needs, said Chuck Prow, vice president of IBM Business Consulting Services’ Defense Industry practice. Once that happens, he said, IBM “will be happy to deliver against fixed price because it allows us to leverage commercial best practices.”

Because companies such as IBM need to identify potential changes during implementations early in the planning process, both government and industry officials should vigorously engage in that process, Prow said.

The problem with the traditional method was not necessarily a lack of desire on the federal side, said JoAnne Boutelle, a partner in Deloitte Consulting’s federal practice and formerly DOD’s deputy chief financial officer. But the need to implement a

solution sometimes crowded out other considerations.

“We all knew we needed to spend a little more time on developing the requirements,” she said. “But often the desire to acquire the solution pushed people into not doing as good a job on the requirements side that they should have done.”

She thinks a firm, fixed-price structure is something agencies will increasingly welcome, even though it will be hard for them at first.

From Deloitte’s point of view, it definitely is a good thing, she said, because it will allow the company to better manage their clients’ expectations.

“We see it as a good mechanism to get a more satisfied customer,” Boutelle said.

Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources, said the new ERP BPAs could eventually influence practices beyond DOD, which is one of the most experienced agencies when it comes to dealing with financial systems.

It costs a lot of money to run defense programs, and that has created an effective bureaucratic discipline for running them, he said. That expertise is something that civilian agencies such as NASA, the Federal Aviation Administration and the Transportation Department have taken advantage of in the past, he said.

New organizations, such as the Homeland Security Department, which could be more complicated to run than DOD, could adopt lessons learned from DOD programs and apply them effectively departmentwide, Bjorklund said.

“If DOD is successful with these ERP implementations, then many of the best practices produced from that could translate to civilian agencies,” he said.