Looking at Knight Capital’s dramatic ERP failure, it becomes clear that organizations that don’t effectively handle their ERP implementations can (and often do) end up paying a price almost beyond comprehension. For those who haven’t followed the news, Knight Capital recently lost over $400 million in a matter of minutes because of a glitch in its trading software — trading software that wasn’t fully tested and properly deployed prior to production. In addition to the immediate impact of lost cash and profits, the software failure also caused the company’s stock to drop 68 percent the day following the glitch.
Although Knight Capital is a financial services firm, and thus has the ability to lose large sums of money in short periods of time, this failure does highlight and quantify some of the potential risks of ERP software initiatives for organizations in all industries. When most organizations consider the risk and cost of an ERP failure, they typically think about relatively smaller-scale risks (e.g., going over budget or not realizing business benefits) than what Knight Capital experienced. But while large companies implementing SAP, Oracle, Microsoft Dynamics, or any other ERP system may not need to worry about losing $440 million in 30 seconds as a result of their ERP failures, they do need to remember that the expense of budgetary overruns and lost business benefits alone can easily carry a multi-million-dollar price tag.
When you factor in other implementation risks, such as unaccounted-for assets due to the inability to accurately track data, lost customer orders because of botched inventory planning, and/or revenue shortfalls due to shipping problems, the damage caused by ERP failures increases dramatically. Both Shane Company and Lumber Liquidators, two companies that quantified the impact of their failed ERP implementations, discovered that the damage caused by their failures increased exponentially once opportunity costs and negative business impacts were taken into account. In addition, Panorama’s research shows that 54 percent of organizations have some type of material operational disruption after an ERP system goes live, oftentimes resulting in millions of dollars of additional costs.
So what lessons can we learn from Knight Capital’s dramatic failure, and what steps can your organization take to avoid similar challenges? There are a number of guidelines we incorporate into our implementation methodologies, which all apply whether we’re implementing SAP, Oracle, Microsoft Dynamics, Epicor, Infor or any other ERP system for our clients. Here are three things to keep in mind as you prepare to mitigate the risks of your ERP implementation:
These three guidelines alone won’t mitigate the significant costs of ERP failure as experienced by Knight Capital, but they will give a good start on the path toward ERP success.
For more tips on software implementation, check out the Implementation and Adoption section of the Business-Software.com blog. Or, if you’re looking for an ERP solution, browse the products featured in our Top 20 ERP Software comparison report.