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San Diego Erp Implementation Analysis

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MEMORANDUM

To:                Jeff Wiemann

Date:                February 4, 2017

Subject:        ERP Implementation Analysis

Per your request, I studied the San Diego ERP project case. The following memo provides appropriate discount rate for a government agency, Return On Investment (ROI) for San Diego’s ERP system, and details the assumptions that I made for the calculation, the risks associated with the project, and my recommendations regarding to the implementation of ERP project.

Discount Rate and ROI

After conducting research of the historical use of discount rates for government agencies, I believe 4% is an appropriate discount rate for San Diego City Schools (SDCS) in 2002.

For ROI calculation, I took cost savings, productivity improvements, and soft benefits into consideration for benefits part. In order to quantify the soft benefits of the system, I made assumptions as follow. First, I assume SDCS will be able to reduce their spending on the internal audit team by 20% in a year. Second, I did not take employee morale improvement into account for soft benefit calculation, because of the significant uncertainty of the improvement. Third, I assume SDCS can save the cost for a hiring team with the success implementation of HR module. Thus, with $400,000 saving for soft benefits, $3,316,709 in hard cost savings, and $3,081,125 in productivity improvements savings, the total yearly benefits are $6,797,834. Because the projected incremental yearly cost is $1,820,000, the ROI of project is 2.74.

Risks

The school board should be aware of the risks associated with the project, and I will advise the board of the risks as follow. First of all, the risks that inherent in any ERP deployment, including scope creep, and wide-scale deployment, will drastically increase the timeline, costs, and failure possibility of the project. Second of all, they also need to pay attention to some risks that were specific to the education industry, for example, because education institutions normally have poor negotiation ability, they tend to have higher software costs and poorer service level agreements. Besides, the lack of qualified personnel will increase the possibility of ERP system breakdown after implementation. Last but not the least, the school board should understand the possibility that potential benefits would not be achieved. Moreover, even with the ERP project successful implementation, the risk of decreased productivity in implementing process can greatly decrease the projected benefits.

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