Case Study: Information Systems SAP Project at NIBCO, Inc.

NIBCO established an incentive pay bonus that was tied to a number of criteria for every salaried NIBCO associate who worked on the project. One of the incentive pay benefits included a criterion to meet the go-live schedule. The incentives and the impacts on pay were one of the control mechanisms for NIBCO to make sure the project was completed in time and on budget.

NIBCO used a set of simple metrics to track, monitor, and manage the ERP project. The metrics included monitoring cost, schedule, and resources over the progress of the project

Table 9-7 Metrics for the ERP Project

Project Success Factors Metrics

Project Scope Will the project deliver planned scope?

Is scope being effectively managed?

Is the project following its plan?

Are there specifications for each deliverable in the project?

Is the project meeting technical specifications?

Project Performance Project Risk

Project Cost

Effectiveness Cost of Quality

NPV, IRR, ROI, Payback

Project Value Project Value

Project Resources Resource Utilization Efficiency

Project Team Morale

Project Cost and Schedule Cost Variance

Schedule Variance

Project Controls

Rex Martin was the executive sponsor for the executive leadership team and also the project champion. Rex supported the project wholeheartedly and empowered the project leaders to make decisions. The executive leadership team was expected to respond quickly to its decisions. The project leaders informed Rex of key issues, and he eliminated all the roadblocks posed by the organizations and its stakeholders. Of all the project success factors, the time schedule was not negotiable: the project was to be completed by year-end 1997.

Controlling the scope of the SAP project was one of the major factors in whether the project met its objectives, budget, and schedule. If the scope changed at any point in the project, project costs and schedule would have increased tremendously. The real key in controlling scope was to ascertain it during the business blueprint phase and stick to it. During the blueprint phase, the business process teams worked on the as-is analysis of all processes at NIBCO. At that time, IT experts under Gary Wilson developed a 250-page technical document that became the blueprint for building the new technology infrastructure, which included the PCs, servers, and networks for all NIBCO locations. The SAP project was also given number-one priority at NIBCO in such a fashion that all maintenance support for legacy systems was essentially shut down by the summer of 1997 and the entire IS group focused on the R/3 implementation.

Total Cost of Ownership

The total cost of ownership (TCO) of a project is a financial estimate that includes both its direct and indirect costs. This is one of the most difficult metrics to establish, and some organizations even use a metric, cost per user, which is often misleading. Well-designed IT solutions often decrease the number of users needed to support business processes but typically create a higher cost per user, which is undesirable. High cost per user may also be due to unnecessary implementation and use of IT processes and systems. But if the organization has many users with inadequate training or if there is a lack of effective and efficient processes, low cost per user will be estimated, which is also undesirable. This inconsistency in the estimation of TCO makes it a difficult metric to estimate. Organizations require multiple metrics to make valid, balanced business decisions. Organizations need to understand how to manage TCO instead of focusing on calculating and reducing it. The management of TCO depends upon the following costs incurred by an organization:

- Cost of IT practices including cost to formulate and achieve IT strategy, processes, support, organization, and automation;

- Costs of hardware and software invested; Costs of IT projects;

- Cost of IT operations;

- Cost of end-user usage of the results of IT practices;

- Number of users of IT projects;

- Amount of data being stored or expected to be stored;

- and Costs of maintaining all applications in the organization.

A study found that the secret of managing TCO is through business alignment, which means developing a full understanding of the project lifespan and business impact of each IT solution. SAP analyzed the IT operations performance of a number of companies and introduced a number of metrics to be identified and monitored for TCO, including:

- Number of support full-time employees per 100 active users who are licensed and current users;

- Number of support full-time employees per 100 concurrent users who access the system during peak times;

- Cost per active end user excluding depreciation;

- Cost per concurrent user excluding depreciation;

- Cost per active end user including depreciation;

- Cost per concurrent user including depreciation;

- IT spending as a percentage of revenue;

- Cost per SAP support full-time employee;

- and Cost per transaction in a SAP system.

What advice can you give the executive leadership team and Gary Wilson on monitoring the project?

Based on the above question, recommend the end metrics of the project.