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CIS 3001: IT Project Management

CIS 3001: IT Project ManagementGroup Paper: Case study on an IT Project Failure“A Risk Analysis of the ERP Implementation Failure at Hershey Food Corporation”IT Project Failure: Hershey Food Corporation1 of 15SummaryThe purpose of this paper is to analyze and illustrate the failure of Hershey Food Corporation’sERP Project. By analyzing the risks of the project through an analysis of the Project TimeManagement, a One Minute Risk Assessment Tool, and a SWOT analysis we identified the majorcontributing factors of the failure. Compression of the schedule did not allow enough time fordelays, which put them implementing all three systems in the busy season. The compressedschedule did not allow for adequate testing or training, which led to most of the problemsencountered after implementation.The most prominent way most of the issues could have been avoided was if the schedule hadnever been reduced. This would have allowed for adequate slack for delays, crucial testing andtraining. When the project was ultimately delayed, management should not have pushed forthe “Big Bang” implementation in the middle of their busy season. A phased roll out may havedelayed the project in the short run, however they wouldn’t have been entering their busyseason with untested systems and untrained employees. They would have been able toaddress bugs in individual modules instead of all modules at once. They should not have takendown their legacy systems before the new systems were running well. Another possibilitywould have been to make their legacy systems Y2K compliant, since this seemed to be a majordriver in their need to compress the schedule. After this project was complete, then they couldhave updated their other systems.BackgroundIT Project Failure: Hershey Food Corporation2 of 15In 1996, the Hershey’s Chocolate Company decided to take on a major IT project- theimplementation of a new integrated ERP system to replace its legacy systems. (Gross, 2011) AnERP system, or Enterprise Resource Planning system, is management software that integrates asystem of applications in an attempt to manage the business more efficiently. (ERP) Theapplications are generally purchased from other companies and are specialized for certaintasks, like “materials purchasing, inventory control [and] distribution,” (ERP). Hershey’s legacysystems worked, but were outdated, and with the approach of Y2K, management at Hershey’sdecided to not to “fix” the legacy systems, but to upgrade with new hardware and software. TheIT Project, named Enterprise 21, was given the green light in late 1996. (Perepu, 2008)Hershey’s purchased three major software components for its ERP system. These includedSAP’s Enterprise Resource Planning Suit and supplemental software from Manugistics andSiebel. SAP’s Suit included software modules for “finance, purchasing, materials management,warehousing, order processing, and billing” while Manugistics software was for “transportmanagement, production, forecasting and scheduling,” (Perepu, 2008, p. 6). Siebel’s softwarewas intended to support management of customer relations and in evaluating the use ofmarketing. (Perepu, 2008)IT Project Failure: Hershey Food Corporation3 of 15Hershey’s planned for its new ERP system to go live in April, 1999, but experienced delays anddecided to go for a “Big Bang,” releasing all the delayed modules at one time. (Perepu, 2008)Hershey’s “Big Bang” occurred in July, 1999, and afterwards Hershey’s experienced someserious problems. (Perepu, 2008) Hershey’s new ERP system was having trouble fulfillingorders due to issues with processing, shipping and inventory management. (Perepu, 2008)Subsequently, Hershey’s was 15 days late fulfilling orders (on average), failed to deliver $100million worth of Hershey’s kisses, lost $150 million in sales, and saw its third quarter profitsdrop by 19%. (Perepu, 2008) In reaction to Hershey’s inconsistent order fulfillments, retailersreplaced Hershey’s shelf space with competing brands. (Gross, 2011) When Hershey’s finallyacknowledged its IT problems publically in September, 1999, its stock prices fell by 8% in oneday, and dropped by a total of 35% by late October. (Perepu, 2008) Although Hershey’s wasable to correct the system errors over time, the damage to the company’s reputation wassevere, and the ERP implementation failure has become infamous.AnalysisProject Time Management – the WBS and ScheduleIT Project Failure: Hershey Food Corporation4 of 15Project Time Management is defined by PMBOK as the area that “focuses on the processesnecessary to develop the project schedule and ensure that the project is completed on time,”(Marchewka, 2012, p. 156). After the project Scope is determined, PTM endeavors to defineand sequence the activities required to achieve the scope, estimate the time it will take tocomplete the activities, and develop a schedule. (Marchewka, 2012) The Work BreakdownStructure is closely related to PTM in that it outlines the activities that need to be completedand subdivides them into logical, smaller units of work. (Marchewka, 2012) Developing acomplete and accurate WBS can take a long time, but is crucial to building a realistic projectSchedule. (Marchewka, 2012) If the project Schedule is hastily constructed or irrational, the ITProject is likely to fail. (Marchewka, 2012) This was the case when Hershey’s implemented itsnew Enterprise Resource Planning System.Having decided to replace its legacy systems with a new ERP system, Hershey’s purchasedthree software packages from SAP, Manugistics and Siebel, and hired IBM to do the integrationand implementation. (Perepu, 2008) IBM proposed a 48-month project Schedule to create theintegrated platform at a cost of $110 million. (Perepu, 2008) Hershey’s, hoping to avoid a Y2KIT dilemma, demanded the project be completed in 30 months. (Perepu, 2008) As T. CapersJones said, “Once a project blindly lurches forward toward an impossible delivery date, the restof the disaster will occur almost inevitably,” (Marchewka, 2012, p. 162). So it was withHershey’s.In order to meet Hershey’s 30 month Schedule demand, several changes were made to the WBSand Schedule that in turn, helped cause the project’s failure. Although the details of Hershey’sWBS are not readily available, analysts have claimed that upper management and projectmanagers overseeing the ERP implementation did not do sufficient groundwork at the start ofthe project. (Perepu, 2008) This may have been partially due to the fact that no one on theboard of directors was knowledgeable about IT and that the project didn’t have a CIO. (Perepu,2008) Either way, the lack of solid groundwork upfront undeniably reduced the accuracy of theWBS and consequently, the Schedule.IT Project Failure: Hershey Food Corporation5 of 15To reduce the Schedule from 48 to 30 months, testing and training periods, as well as buffers,were removed from the project Schedule. (Perepu, 2008) Because the buffers were removedand the project was pressed against a hard deadline, the Schedule had no slack to reduce theimpact of slippage. (Perepu, 2008) By January of 1999, Hershey’s had implemented severalmodules of SAP’s ERP Suit, including the “financial, materials management, purchasing, andwarehousing” units, (Perepu, 2008, p. 6). Unfortunately, several more components were behindschedule and unable to meet the April deadline. (Perepu, 2008) These modules included thecritical order processing and billing systems of SAP’s suit, “the pricing and promotions packagefrom Siebel and [the] planning and scheduling modules from Manugistic,” (Perepu, 2008, p. 6).These modules were not implemented until July of 1999. (Perepu, 2008) At this time,Hershey’s Halloween orders were beginning to come in and the legacy systems were beingdismantled. (Perepu, 2008) Hershey’s became desperate.In an attempt to meet all of its Halloween orders, Hershey’s fast-tracked the project. In anapproach Hershey’s called the “Big Bang,” all the modules were brought online at once, right atcusp of Hershey’s peak season, and without an interval for testing. (Perepu, 2008) At first,things went smoothly, but all too soon errors started piling up. Within three weeks, Hershey’sbegan falling behind on its order shipments. (Perepu, 2008) Instead of the usual five days,orders were taking 15 days to be fulfilled, if they were fulfilled at all. (Perepu, 2008) Untrainedemployees were unable to access order data from the new system and had to call customers toask for order details. (Perepu, 2008) The new inventory module was flawed, as developers hadfailed to list all of the places where inventory was stored. (Perepu, 2008) As a result, somelocations were overloaded with inventory while others were empty, and the module reportedthat orders could not be filled due to insufficient inventory. (Perepu, 2008) Due to the chaos, itwas not until the next year that analysts determined the cause of the problem and correctedthe inventory software’s database. (Perepu, 2008) In the end, Hershey’s failed to deliver $100million worth of Hershey’s kisses and lost $150 million worth of sales due to “bugs” in the newERP system. (Perepu, 2008) What is so unfortunate about this is that it could have beenprevented with proper Project Time Management.IT Project Failure: Hershey Food Corporation6 of 15It was unrealistic for a four-year project to be condensed into 30 months. Hershey’s shouldhave left its legacy systems in place to handle the Halloween and Christmas orders, while theProject team brought the modules online in succession, fixing bugs and other integrationproblems as they arose. Employees should have been trained by department or business uniton each module separately and over time, instead of being expected to operate a complexsystem without any training, in the midst of their busiest season. Keeping the legacy systemsrunning would have added crucial slack to the schedule, making fast-tracking unnecessary.Perhaps Hershey’s should have even delayed the ERP project, and chosen to implement asimpler IT solution to mitigate its Y2K concerns. Had Hershey’s chosen to do this, they couldhave scheduled for the four years that their integrated ERP platform required. Regardless, it isclear that Hershey’s IT Project failure was due in no small part to poor Project TimeManagement and an unrealistic Schedule.The One Minute Risk AssessmentThe One Minute Risk Assessment Tool assigns a value and weighted risk that provides a quickevaluation of the overall project risk. The characteristics are given a rating between 1 and 10,which are then weighted based upon their relative importance. The total of the weightedratings will give you the total score between ten and one-hundred. The higher the score, thelower the project risk.This simple tool allows for what-if comparisons. It can help open dialogue between developersand stakeholders, which can identify problems between expectations and how they can“proactively reduce software project risk”. (Tiwani, 2004, p. 76)IT Project Failure: Hershey Food Corporation7 of 15Fit of methodology to projectThe methodology applied to the project and whether it is appropriate for the given task at handis weighted as the highest relative risk.Complex projects are best approached with astructured methodology. A simpler or smaller project, or one which may have changingrequirements, is well suited to an Agile approach.Hershey’s was a very large and very complex project, essentially overhauling their entirebusiness process. However, methodology has not been indicated as a large contributing factorin the risk of the project.Level of customer involvementA customer including their knowledge improves a system’s development. Through the use ofworkshops, walk-throughs, prototyping and other tools, the developer receives “feedback andideas for refinement from involved customers can clear up misunderstandings and help aligndevelopers’ and customers’ visualizations of the system”. (Tiwani, 2004, p. 74)Top management at Hershey’s did not do enough groundwork before going into the project.(Perepu, 2008) It also did not have processes in place to keep executives informed of theproject, nor did the board have good knowledge of information technology, and there was noChief Information Officer. (Perepu, 2008)One of the best examples of how user input could have changed outcomes is a major fault of theinventory management module. During peak season, some inventory is stored off site intemporary storage facilities; however, the SAP software did not identify the facilities as storagepoints, and did not account for the inventory. This key part of the existing business practicewas missed and not identified to the developers.IT Project Failure: Hershey Food Corporation8 of 15Use of formal project management practicesIn a large and complex implementation like this project, formal project management practices—schedules, budgets, and milestones— reduce risk by improving communication, setting uproutines for coordination, and better avenues to address problems as the project progresses.(Tiwani, 2004, p. 75)Though Hershey’s project failure exhibits problems with schedules, budgets and milestones, itis less by project design and practices, than by executives’ unrealistic decisions and demands.IT Project Failure: Hershey Food Corporation9 of 15Similarity to previous projectsA company that has experience with projects of a similar nature or complexity they are moreknowledgeable of how to prepare for the project and what to expect during the project.Especially, “experience in implementing large-scale integrated packages… provides a betterunderstanding of the challenges associated with commercial, off-the-shelf softwareimplementation.” (Sumner, 2000, p. 319)Hershey had been through implementations of just a few customized systems, which weremuch smaller. (Perepu, 2008) In addition, they had implemented a CRM solution previously,so they had experience with an off-the-shelf product. However, they had never been through aproject of this magnitude.Project simplicity (lack of complexity)Complexity of the system can take the form of technical or organizational complexity. Technicalcomplexities cover the system and its interactions, interfaces and applications. Organizationalcomplexities come from how many different business processes, how many departments andthe communication and coordination breakdowns that can happen in the organization.(Tiwani, 2004, p. 76)Without a doubt, the project was extremely complex, involving the entire organization, alldepartments, and almost all of their business processes. ERP projects are unique because oftheir size, scope, and organizational impact. They require redesigning of the business processitself to conform to the design to support data integration across the organization. (Sumner,2000)IT Project Failure: Hershey Food Corporation10 of 15Stability of project requirementsThis factor is ranked the lowest in the scale because shifting requirements have become anexpected risk, but can still be costly. Even the project with well-dictated requirements can havechanges as the project progresses. However, volatile or frequently changing requirements arecostly in both schedule and budget. (Perepu, 2008)Though this issue is not addressed in the information available, there are clues thatrequirements weren’t fully developed, resulting in needed changes. The inventory module thatdid not account for inventory in the temporary storage facilities could have been a problemwith requirements not being discovered.However, evidence of frequently changingrequirements is not documented.Overall project riskOverall risk10-2829-4647-6465-8283-100HighModeratelyMediuModeratelLowHighmy LowscoreProject risk levelIT Project Failure: Hershey Food Corporation11 of 15The analysis shows that Hershey’s overall score is 49.8, which is only a medium risk. Thebreakdown of the drivers shows a very wide range between what risks are relatively low andwhich ones are very high.The tool also shows where you can use this for what-if analysis, and where improvements canbe made to reduce the overall level of risk. Some are out of control of the project manager, suchas the project simplicity and similarity to previous projects. However, knowing where the mostof the risk lies is where attention can be paid to avoid potential pitfalls.IT Project Failure: Hershey Food Corporation12 of 15SWOT Analysis“SWOT analysis is an analytical method which is used to identify and categorize significantinternal (Strengths and Weaknesses) and external (Opportunities and Threats) factors facedeither in a particular arena, such as an organization, or a territory, such as a region, nation, orcity” (forlearn.jrc.ec.europa.eu). It provides information that is helpful in matching the firms’resources and capabilities to the competitive environment in which it operates(forlearn.jrc.ec.europa.eu), and it allows a project team to identify threats and opportunities aswell as their nature in terms of project or organizational strengths and weaknesses(Marchewka, 2012). SWOT Analysis is one the most effective and most commonly usedbusiness tool in evaluating the risk of a project. Furthermore, in addition to its effectiveness, itis relatively easy to perform. In the analysis below, I will perform a SWOT Analysis of the riskfactors associated the 1996 enterprise resource planning (ERP) implementation failure atHershey Food Corporation.Generally, there are a number of factors that would explain why the implementation of an ITproject failed. Some of these would include: lack of knowledge and poor oversight, lack of usercommitment and ineffective communications with users, conflicts between user departments,lack of infrastructure, technological newness, and strained technical capabilities; the list isinfinite. In this particular case, the two overarching factors that led to the implementationfailure of project were system testing and scheduling, but it was the problems that this failurecaused that led to the decline in revenue.According to the initial plan, Hershey’s newly integrated platform was expected to becompleted by April of 1999 before Hershey’s high volume sales during Halloween andChristmas. In order to meet that deadline, almost an entire year of the project’simplementation process was cut. As a result, the software was implemented in “one go” asoppose to a phased approach of implementing one module at a time, testing it, and then takingup the next module which would have allowed Hershey to find and correct bugs before movingon to the next phase resulting in the failure of the implementation process (Perepu, 2008).IT Project Failure: Hershey Food Corporation13 of 15Then, as a result of the failed implementation process, came the warehouse, customer service,and order fulfillment issues. “Several consignments were shipped behind schedule, and evenamong those, several deliveries were incomplete” (Perepu, 2008). As a result, Hershey productdeliveries that usually took five days took fifteen days; Hershey distributors could not supplyretailers in time and lost credibility; Hershey products lost “shelf space” in the market whichwere replaced by its competitors; and Hershey warehouses were backed up in stock.Consequently, Hershey was incapable of processing one-hundred million dollars’ worth ofHershey product, even though it had most of the inventory in stock.Strengths:In 1996, when Hershey’s management first set the plan and budget into action to upgrade itslegacy systems to a more modern and standardized platform, they had three essential internalattributes (strengths) that were very helpful in achieving the goal of the project: money, talent,and a plan.Weaknesses:There were two internal weaknesses that led to the failure of this project: an unrealisticdeadline and lack of systems testing.Opportunities:An opportunity for Hershey’s Information Systems Team to capitalize on the external elementsthat could have been useful for the success of this project would have been seeking third partyassistance to help with the overall planning and implementation of the project.Threats:A significant external threat to the success of this project was the third party ERP products thatwere purchased. If the products are not compatible with the existing legacy systems, it couldpose significant threat to achieving the goal the goal of the project.IT Project Failure: Hershey Food Corporation14 of 15IT Project Failure: Hershey Food Corporation15 of 15

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