Whether it’s an ERP, OMS or WMS conversion, your company will spend many months selecting a new system. You’ve written your user requirements; sent the RFP to a short list of vendors; had software demos; called references and made several site visits. Your selection committee has reviewed all the findings and you’ve selected a finalist. The next step normally will be to negotiate the contracts for licenses, professional services, support and hardware.
While quantifying costs and timeframes is part of the selection process, there are major unknowns if you don’t conduct a gap analysis with the selected vendor. You won’t have a final proposed solution for all modifications and workarounds or estimated hours and costs and a detailed implementation schedule until a gap analysis is completed. This is where most implementation issues occur in terms of overruns.
Benefits of Early Gap Analysis
Traditionally you don’t do gap analysis without a signed agreement and after having made a sizable deposit – up to 30%-50% of the license and professional service costs. But here’s a novel concept: Do it before signing the contract, reducing uncertainty over customizations, file conversations and system compatibility. This will help you ensure the software conversion is an organizational fit while determining implementation costs and time/manpower requirements.
The Gap Analysis Process
Here’s how this process works. From your two vendor finalists, select one as the preferred provider but negotiate pricing with both to keep the runner-up in the bidding process. Perform gap analysis based on the assumption of going with the preferred firm, review the results and revise the budget and timeframe before signing the contract.
Because of the effort and cost to the vendor, your company should be prepared to pay for the gap analysis. This cost is included in the vendor’s original proposed implementation estimate. In practice, you’re paying for a portion of the implementation cost in advance in order to develop more accurate costs and plans.
As a result of the gap analysis you now know what the gaps are, the modifications required and how much the preferred vendor will charge for it. If it results in considerably higher professional services costs, and the timeframe is longer than proposed, you can use this as leverage for price concessions before signing the agreements.
If you wait to perform the gap analysis until after signing the agreements and it reveals the costs of additional functionality are higher than originally proposed, your options are limited. You can still agree to the modifications and increase your budget or elect not to have them done. Either way you’re not going to easily terminate the software conversion without further costs or penalties. Obviously the tolerance for overage will vary from one company to another.
How long the gap analysis takes depends on the type of the application (e.g. ERP, OMS or WMS) and the complexity of your operation. Typically it takes one to three months, involving your staff and several of the vendor’s personnel. This can be a considerable cost but we have found it has tremendous value in terms of providing more definitive costs and timeframes for planning purposes.
Gap Analysis vs. Itemized Changes
How is the gap analysis different from itemization of changes and schedule in the vendor’s proposal? First, most vendors don’t have implementation personnel assigned to your account until the contract is signed. In our experience, the implementation team ends up revisiting all the changes and processes that were itemized in the selling process. Fixed cost projects are not generally agreeable to both sides because of unknowns.
Gap analysis of a software conversion project requires the vendor to have onsite personnel to demonstrate all system functionality and walk through how it provides the needed functionality. From this the vendor can determine whether a programming change is necessary; whether a function can be provided through configuration setup or changes in tables; what workarounds will be necessary; and what functionality the vendor cannot or will not provide.
These discussions are at a detail level so you should be prepared to have subject matter experts in each department involved in the gap analysis. They need to know current processes and company functions. Out of this the vendor should produce a detailed set of proposed solutions in terms of functionality, prioritization and costs and effort involved. Based on your approval, they can then write the program change documentation.
Performing a comprehensive gap analysis of software conversion upfront validates the changes required and costs in advance of signing the contract. It also gives you much more accurate estimates of professional services costs, the single biggest category. You and your senior management team will have much greater confidence in moving ahead with the system investment.
Paul Sobota is Vice President of F. Curtis Barry & Company