ERP failures in government

Posted on in Government Technology, PFM

Overview

Large ERP project failures in developed country governments

In Canada, the use of ERP for payroll modernization resulted in more than 1/4 of public servants having pay errors and some have gone months without receiving salaries as the system  that has “repeatedly gone haywire.” The total cost to overcome the ERP problems may cost as high as C$2.6 billion.

An explanation of the “Phoenix Pay System” Government of Canada ERP failure by Macleans Magazine:

A large ERP shared services project in France was estimated to be $200 million over budget by the audit office and more than one year late and resulted in late payments of more than $2.2 billion to defense contractors.

The German government tried to deflect responsibility on Monday for a 55-billion euro accounting blunder that has exposed it to charges of ridicule for being inept and hypocritical after its steady criticism of Greek bookkeeping practices.

The National Audit Office in the United Kingdom found the use of ERP shared services added expenses rather than reducing costs.

In the United Kingdom, a Cabinet Office analysis found:

  • Average cost to deploy a Tier 1 ERP is £160 per employee using the traditional method
  • Theoretical cost to deploy via shared services is  £93 per employee
  • Use of lower cost solutions at £52 per employee

Another analysis from the Cabinet Office  in the UK found inconsistent software license pricing in government for the same Tier 1 ERP package where the two leading vendors had “the most inconsistent prices for ERP licence and maintenance support across central government departments.” Meanwhile, the Government of Australia is investigating high ERP costs and the practices of the leading vendors. Over half the budget recent upgrade to a new version of ERP in Australia (GovERP) was quickly consumed by consultants because a “lack of expertise“.

A 2012 study in the UK found low satisfaction with ERP in government, over half of the respondents were using Tier 1 ERP software. The survey showed Tier 1 ERP satisfaction is far lower than with alternative solutions. Users of non-Tier 1 ERP solutions were four times more likely to rate their solution as exceeding expectations on any of five dimensions and half as likely to rate their solution as worse than expected.

  • 63%: ERP system did not meet expectations in at least one area
  • 60%: Would choose a different company to implement the ERP if had to do it over again
  • 50%: Tier 1 ERP implementation costs higher than expected
  • 45%: Tier 1 ERP implementation took longer than expected
  • 43%: Would choose a different software than the ERP implemented if had to do it over again
  • 40%: Tier 1 ERP ability to meet government requirements without customization lower than expected
  • 39%: Tier 1 ERP system ease of use worse than expected
  • 25%:Tier 1 ERP ability to meet government needs after customization lower than expected
  • 20%: ERP system had negative impact on organization
  • 20%: Would go through a similar ERP implementation again

In the United States, reports by the United States Government Accountability Office (GAO) and the Department of Defense (DoD) Inspector General (IG) found that 11 of 13 ERP projects were over-budget costing American taxpayers billions of dollars with one ERP project resulting in $1 billion “largely wasted” and another project stopped after seven years and $1 billion invested would require an additional $1.1 billion for about a quarter of the original scope while cost estimates for on-going projects are wildly inaccurate. A report from 2017 from the DoD IG found that “the Navy and Defense Finance and Accounting Service spent $2.5 billion over the last decade and plan to spend an additional $823.4 million over the next 5 years on maintaining and developing new functionality for Navy financial management systems that are not compliant with the standards that might not support auditable financial statements and not meet the congressional mandate to have auditable financial statements.”

An analysis of the US Navy $1B ERP failure by Eric Kimberling from Third Stage Consulting:

Major difficulties experienced in ERP implementations in the public sector in developed countries

ERP failures and cost overruns in the public sector have resulted in difficulties, contract cancellations and lawsuits, although lawsuits are rare because vendors would rather do what it takes to make the situation right than face potential public-relations damage from a high-profile legal battle:

KPMG found in 2011 some ERP in government patterns:

  • Budget overruns particularly in implementation where additional software customization was needed: typically six months to a year
  • Only 57% of implementation projects stayed on budget
  • Many survey participants could not recall the original budget

Panorama Consulting reported in 2014 research shows 78% of public sector ERP implementations are over budget and over schedule and 35% simply fail!

Reviews of top ERP failures in 2010, 2011, 2012 and 2013 for IDG journalist Chris Kanaracus found that slightly over half came from the public sector despite representing only 20% of the market size. The majority of IT disasters involved ERP implementations.

Are major ERP vendors ethical?

There is mounting evidence that major ERP vendors are using unethical means including:

What is the evidence of ERP success in emerging economies?

A 2003 study by the World Bank found a lack of success in government FMIS implementations whether ERP, GRP COTS or Custom developed:

  • 43% delivered as specified
  • 50% delivered on budget
  • 21% delivered on time
  • 25% unsustainable
  • 69% likely to be sustainable
  • 6% highly likely to be sustainable

A 2011 study by the World Bank found that IFMIS implementation sustainability has improved but that 18% remain unsustainable. The lack of capacity and leadership in the public service has been shown to be more critical to failure for IFMIS when compared to general implementations of enterprise software.

A 2019 IMF Study found little difference in success rates between implementing ERP or fully custom-developed systems.

Examples of ERP in government implementation problems in emerging economies including: Albania, Azerbaijan, Bulgaria, Cambodia, Cayman Islands, Costa Rica, Croatia, Ecuador (more), Ghana, Kazakhstan, Kenya (update), Lesotho, Malawi, Malaysia, Maldives, Moldova, Nigeria, Panama, Papua New Guinea (update), Russia, Rwanda, Serbia, South Africa (+municipality), Tanzania,  Uganda, Zambia (update) and Vietnam.

Large IT Projects are Risky

All large IT projects are risky. A 2013 McKinsey and University of Oxford study concluded  “that 71% of large IT projects face cost overruns, and 33%  of projects are around 50% over budget. On average, large IT projects deliver  56% less value than predicted.” Many of these projects involve ERP.

The implementation of GRP systems in government can be more challenging that typical IT projects. GRP projects combine general IT risks with ERP and reform transformation.

Evidence of Large IT Project Problems in Government

End of year IT disaster stories from Chris Kanaracus in 2012 and 2013 showed a disproportionate number of government failures.

An analysis of many studies shows that capacity is more likely to be a project issue in government than in the private sector. Our view is that organizational change management is under-reported as a contributor to failure in World Bank studies, likely a core contributor to project management problems.

It’s not all bad news. David Eaves observed from Standish reports that IT success in government has improved over time.

Evidence of limited success rates with ERP implementations across multiple industries

An analysis in 2014 by Price Waterhouse Coopers found no ERP project that achieved all success criteria.

A 2014 survey from Oakton Applications found “most organisations have dug themselves an ERP hole with overstretched teams, complex customizations and a backlog of expensive upgrades.” The survey also found that “customization is strongly driven by ‘improving business processes’ or ‘unique industry requirements’ for more than 80% of organizations.” This points to the fallacy that general purpose ERP packages can effectively support multiple industries.

Success Rates

Costs

On-time Delivery

Need for Customization

Code customization increases implementation, support and upgrade costs. Organizations customize code in order to achieve functionality that is not provided by ERP vendors “out of the box”.

The FreeBalance survey comparing ERP and GRP experience in the Government of Canada

FreeBalance completed a survey at the Government Technology Exhibition and Conference (GTEC), Nov. 5 to 8 2012 and the Financial Management Institute of Canada (FMI) Professional Development Week, Nov. 27 to 30 2012. Both of these conferences were held in Ottawa. We received 207 responses.

Over 70% of respondents believe FreeBalance software has a much lower TCO in government financial management than ERP. Almost 70% suggested that the FreeBalance TCO was between 10 and 50% that of ERP.

Analysis of GRP vs. ERP 5 Year TCO

FreeBalance competes internationally against major ERP providers. Price quotations are often made public during bid openings in many countries. Most of the international requirements call for all costs over a three or five year period including software licenses, implementation, support, training, middle-ware and hardware. Although some of the proposals were not this five Year TCO, ERP prices average 175% FreeBalance prices where the median price is 225% FreeBalance prices.

Opinions from Social Media

FreeBalance is active on social media. We’ve had some interesting feedback from twitter on the issue of ERP and IT failure in the public sector:

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