MIS ERP solution can be applied to an organization Essay

Abstract

This paper demonstrates how an ERP solution can be applied to an organization that has a semi computerised work environment to effectively Management Information System. Detailed information on a medium sized construction company is utilized to propose an Oracle Financial ERP system. The existing system at the company is analysed along with the technical and non technical problems. Solutions to these problems follow. Finally, an investment appraisal of the proposed system is undertaken by taking into consideration the tangible and the intangible benefits. The paper concludes with a discussion of aligning the business strategy with IS/IT strategies to gain competitive advantage.

Introduction

Overseas Construction Company (OCC) is an established name in commercial and residential construction. The company was registered in 1982 and has been going from strength to strength ever since.

Historically, the company was a small scale construction company with a permanent staff of 25 employees which has now grown to 45 employees. The management team primarily consists of the founder and his family members. Currently, with the construction boom coming in the Middle East and Asia, the company has new plans to expand globally. This would require hiring more staff and developing new software applications to support the expanding operations.

The current IT infra structure is sufficient enough to handle the day to day operations of the company. The company has outsourced its Information Systems requirements for software development to a third party. This saves the cost of maintaining a large in house IT/IS department and helps the company to focus on its core competency i.e. construction.

OCC is now looking into exploring new options for upgrading its Information Systems. Recently the company has installed Microsoft Project on an Enterprise project Management (EPM) platform and is very happy with its results. Now it wants to explore the option of installing Enterprise Resource Planning software for its other divisions which are experiencing huge backlog of work due to expanding operations and would face even more problems once the company establishes its 3 overseas offices in Middle East and Asia. The current users are 45 and would be scaled up to 200 in 2 years time. This requires a focused approach to developing the life cycle of information systems at OCC. This information system analysis begins with studying the current system and ending at implementation as noted by Carlos J.C.,& Manuela A (2006) Various models could be used such as the spiral model developed by Boehm (1981a) (1981b) or the waterfall life cycle.

Research Methodology

A sample size of 40 employees was interviewed so that the findings could be generalized over the organization’s workforce. As per our findings nearly all employees agreed upon the fact for the pressing need of an Enterprise Resource Planning system as the existing set up is not up to the mark and does not meet the organizational needs.

70% of those interviewed, rated the effectiveness of the existing IT structure as “average. Networking has so far been completed only in the Engineering department to support the EPM. The company out-sources its software requirements. The company currently has a skeleton IT staff to support the day to day operations.

Description of the Information Flow

Accounting System
The company is currently using semi-computerised general ledger system, which is based on preparing manual vouchers. These vouchers are then fed into the system. The cashier uses them to make all Debit and Credit vouchers.

The user departments open a work order for each quotation that gets converted to a customer order. Materials are requisitioned in bulk quantities without any reference to these work orders. Labour hours on projects are monitored by using job cards, and sometimes if the supervisor is not present the workers do not even prepare these.

Once a project gets completed, it has to be invoiced as per the contract terms for progress billings. Currently, user departments invoice the customers directly without informing finance which causes backlog of work and duplication of data at finance so as to facilitate annual financial audits and preparation of monthly management reports.

 

Existing Information Systems

The existing IT structure of OCC is based on semi-computerized system. The company does not have a defined IS strategy. Presently the existing systems have a low technical quality whereas the business value of the Information systems is high as identified by the systems audit grid (Earl, 1989). They have obsolete Pentium 2 computers.  The OS used on these computers is Windows ME and Office 2000 due to which computers become very slow and reduces user efficiency.

They have unstructured networking environment, without having proper domain. They have Fox Pro database on Pentium II computers with 128MB RAM and 4GB HDD, which causes unnecessary delays during processing of data and reports. This causes problems to clients as well.  The company is not able to chase its accounts receivable as the current system is semi-computerized, thus causing problems for both the employees and the clients.

Apart from focusing on finance and accounts, the company wants to develop its HR function into a Human Resources Information System (HRIS). Currently, the company has only 45 employees and whenever need for information regarding any employee arises; the information retrieval process slows down. This is due to the manual systems involved as it increases the cost, paper work and simultaneously decreasing employee efficiency along with increased time consumption. Due to lack of automated system they are unable to effectively maintain employee records with regards to their compensation packages, succession planning, performance appraisal etc. Finally, if we analyze OCC on the guidelines of the Boston Consultancy Group’s matrix developed by McFarlan & McKenney  (Gerald A., 1976), we find that the business needs a turnaround in its IS/IT strategy as IT would play a strategic role in the future compared to the low strategic importance of IS currently. Therefore it is proposed that the company renews its current IS/IT infrastructure.

Problems/ bottlenecks in the current system

As far as the current system is concerned, it has several aspects that have been identified as major problems areas for the company. These include both non technical as well as infrastructure led i.e. technical bottlenecks.

Non-Technical Problems

Increased cost and time:
Due to the procedure followed, the entire work is being done on stand alone computers and then print outs are filed manually, which increases the cost of record keeping and further its maintenance for future reference.

The current procedure has added difficulties for the company because every process takes more time to be completed. For example, processing payroll can take up to 5 working days due to the activities involved i.e. finalizing time sheets, entering salary information in the system, getting the salary transfer approval from director finance and finally issuing employee pay checks. Similarly, accounts receivable and payable face their own delays due to the process oriented culture of document management

Recalling documents for future references:
As everything is done manually, it is really very difficult for the Human Resource Manager to retrieve the information of the current employee, as he has to go through the whole stack of papers to take out any particular employee’s information.

 

 

Communication Gap:
Due to outdated communication systems, processing information in real time is not possible. This creates noise in employee communications and further delays execution of certain projects.

Updating Problems:
Documents amended by one department have to be amended separately by others due to lack of a networked environment. This further leads to documents not being organized properly.

Technical Problems

OCC will firstly have to decide whether to take the In-house development approach or to hire an I.T. company to design the required program on software for them. We would suggest them to hire a network administrator who should further provide training to all the employees at OCC and also provide user manuals for them. The training should be of at least 1-2 weeks.

The issue here would be the conception and implementation of the software and hardware platforms, i.e. what software programs are to be installed and how they’ll work, as well as the hardware components involved. These issues should be compared with the existing system and how the existing system is being run and how different is it from the proposed system.

The proposed system should also be able to maintain integrity over a longer/required period of time.

It should also be easy to use when making internal and external decisions. The proposed system should have security which is a feature of Oracle Financial. Another very important issue when acquiring the proposed system here would be that of ensuring that the users are trained on system options to facilitate their navigation. Their perception of the proposed system is very important. Questions like, ‘Is the proposed system user friendly?’ and ‘Is it difficult to use?’ or ‘Will the users have to change their working habit and timings to use it?’ are questions, which need to be answered during the change management workshop that would be conducted.

The proposed ERP needs to remove the bottlenecks presently causing delays. This means that separate modules would have to be created. These would include modules for Administration function, finance, service management and finally engineering services.

Detailed system study needs to be undertaken to understand the workflow so that customization, if required, can be done to map the organizational requirements to system design.

Non technical solutions

Accounts and Finance
Using the new proposed system the company will be able to over come all above inefficiencies.

They will be able to get correct reports from their accounts department. The company will also be able to see cash flow on daily basis and quarterly basis. They will be able to generate trial balance on daily basis and will be able to generate Profit and Loss accounts on monthly basis. The balance sheet can also be seen on monthly basis. The new financial accounting system will prevent them from entering wrong entries and the user would not be able to change data in the prior periods that have been finalized. Our new proposed system will not allow unauthorized access to the various reports. All vouchers would be entered directly into the new system to facilitate processing of monthly accounts by 3rd of each month compared to the 15th day previously.

Billing System
Billing system will also be connected to the accounts system. Once the bill is generated it will be posted automatically to Customers account. Simultaneously a Receivable and Payable account will be maintained too. These bill and sales tax invoices will be generated by the system and complete track of billing will be kept until and unless the payment is not received.

Purchases (Services and Maintenance Contracts)
Purchasing system will follow a pre-designed system that will manage all purchase records and stock controlling. The department through departmental head will request any thing that is need in the company. That request will be handed over to purchase department and purchase department will get approval of request from Director. If it is approved purchases will be made and issued to concerned department. All this process will follow few requisites, which the computer will generate automatically.

Technical Solutions

The current IT infrastructure would need to be upgraded to support the proposed ERP system. This would include advancement in hardware, software and networking.

Proposed Hardware

Compaq Server Rack Mountable 40 GB HDD Application server;
Compaq Server Rack Mountable 150 GB HDD Database server;
Compaq server rack Mountable 40 GB HDD Event Server;
4.   Current desktops should be upgraded to the following minimum specifications :

·         Pentium –III 700 Mhz.

·         Intel-processor 1.3 Ghz.

·         256 MB Ram

·         40 GB Hard disk

·         56k Modem

·         CD- Combo drive ( DVD/CD-R/CD-RW)

·         SVGA Monitor 15 inch.

·         Keyboard, Mouse and other small Accessories.

·         LAN Card – 1/100 Ethernet

Proposed Software

1.      Windows 2003 server with 5 CAL

2.      Oracle Database with 200 user licenses including product support

3.      The Share ware or group ware software is Microsoft Exchange. All the incoming and outgoing emails are checked in Microsoft Outlook and secured by the server. (Microsoft, 2007)

Proposed Networking

3com Switch 24-port 10/100 Mbps
Face Plate single I/O with box Lucent
Drop cable 9ft Lucent
Patch cable 3ft Lucent
Patch Panel 24-port
Installation, Connectivity & Termination
Setup Windows 2003 Server, Proxy & Mail Server
Lucent cable giga speed, channel & labor
The implementation process would include the implementation of the base Oracle financial (oracle.com, 2007) migration of data from legacy systems; payroll information for employee to be setup along with a HR interface. Customizations may be required as a result of the system study so that organizational requirements could be mapped to system output.

 

Cost Analysis

The costs have been categorized as (a) one-off costs i.e. hardware, software and communication costs,(b) one-off revenue costs which might include consultancy fees, systems development and testing, file conversion, use of temporary staff during system development and implementation and finally (c) ongoing running costs. These would include staff salaries; ongoing training costs; lease of equipment and depreciation of purchased items. The running costs of a system would be around 70% of the total cost.

Proposed hardware would cost about $60,000.00 whereas the software and its requisite licenses would cost about $350,000.00. The cost estimates are mere approximations as products in the IT industry have very short life cycles that are replaced by advanced technologies.

To conduct a cost benefit analysis, we need to consider the benefits of the proposed system. The tangible along with the intangible benefits need to be quantified to calculate a return on investment. Tangible benefits such as increased revenue or decreased cost due to better control are easier to measure compared to the intangible benefits such as employee motivation, future benefits of the proposed system and its ability to identify new business opportunities leading to competitive advantage. The final intangible benefit is the ability to adapt to change.

IT projects deliver intangible benefits that cannot be quantified using mathematical equation like NPV, IRR, ROI, such as better information access, improved workflow, and increased customer satisfaction which are listed among the key attributes of ERP systems. (Murphy & Simon 2001).

Therefore, if we use the conventional methods of investment appraisal to evaluate such investments, it will almost always yield negative returns. However, when additional factors such as, employee satisfaction and profitability in future periods is quantified and measured, the results are positive NPV and IRR. The proposed system would help the company boost its revenues by 65% in the next 2 years. However, the intangibles should be considered here, as improved user confidence by 55% or improved information provision by x% would be again a source of gaining competitive advantage. An index should be calculated to convert these percentages to absolute numbers.

Such calculations are outside the scope of the current paper and therefore are not shown here.

Benefits Derived

Because of the introduction of the new information system, there will be an increase in business. This will be due to the fact that the organization will expand and will be able to work more efficiently.

The target market for the organization will also increase due to the fact that the increase in the number of employees will enable them to cater more clients and that too effectively.

There will be an increase in the motivation of the employees. This always results in an increase in productivity and the performance level of the employees and the organization on the whole.

The new system would ensure timely and accurate reports, thus ensuring smoother operations of the organization. There will also be a boost in the current business as greater level of customer satisfaction is achieved

The human resource information system will simplify the hiring and training issues of the organization.

Conclusion

Overseas Construction Company started its business as a small real estate development company, until recently when it changed its operations strategy and decided to enter the global market. This paper has revealed its current Information Systems problems and has also suggested technical and non technical solutions along with a cost benefit analysis.

The aim of the proposed system is to encourage other companies within similar industry to adopt such measures. The system would also promote the image of the company as a go getter organization. Some specialist hardware and software would be required to enhance the present systems as opposed to starting from a zero base. The company has successful experience of implementing an Enterprise Project Management tool to control its project management activities, hence, the company will not be pioneering technological development, but merely applying technology to the solution of a business problem i.e. falling revenues and ad hoc management procedures. Therefore, the new system would address this most important bottleneck before the company expands into regional markets.

There is a business requirement to halt the decline in revenues earned by retaining the customer base and to gain a larger share of the market. The proposed system would enable the company to reach a wider market by harmonizing the roles of its engineering, marketing, finance, purchasing and quality control divisions to increase organizational productivity.

Overall, the proposed system is a viable solution to the company’s current problem and meets the objectives of both the business and IS strategies.

 

References

[1]        Gerald A., (1976), “A note on the Boston Consulting Group Concept of Competitive Analysis and Corporate Strategy”. In P. Costa, Carlos J. & Manuela A., (2006). Information System Life Cycle: Applications in Construction and Manufacturing, International journal of information technology, 3:3,Prague:IEC. 3-5

[2]       Boehm, B. (1981a), “A spiral model of software development and enhancement”. In P. Costa, Carlos J., & Manuela A., (2006). Information System Life Cycle: Applications in Construction and Manufacturing.  International journal of information technology. 3:3.Prague: IEC. 2-4

[3]        Boehm, B. (1981b). Software engineering Economics. Englewood: Prentice-Hall

[4]        Costa, Carlos J. & Manuela A. (2006). Information System Life Cycle: Applications in Construction and Manufacturing, , International journal of information technology. 3:3. Prague: IEC. 1-6

[5]       Earl, M.J., (1989). Management Strategies for Information Technology, Prentice Hall

[6]       Murphy, Kenneth E. & Simons, S.J., (2001). Using Cost Benefit Analysis for

Enterprise Resource Planning Project Evaluation: A Case for Including Intangibles,

Florida International University. 6

[7]       Retrieved August 29, 2007 from the World Wide Web: http:// www.microsoft.com.

[8]       Retrieved August 29, 2007 from the World Wide Web: http:// www.oracle.com.