Acquiring Software: Determining Requirements
Pat Delgesso, Maestro Technologies
Special Collaboration
This white paper explains the rationale and importance of determining requirements before acquiring new software.
The desire for change
After years of avoiding the issue, you realize that you will have to change the computer system that manages your company. Which system should you choose? This is an important question because if you find yourself in the same position as most companies, you are currently using more than one system. This does not even include everything that is done manually, or everything that you should be doing, but have never had a chance to set up.
Objectives
First of all, you must determine your corporate objectives in relation to the changes you want to make. There is a difference between objectives and requirements. Objectives are more general in nature. They may include reducing administration personnel, increasing collaboration or integration between departments, being able to determine the profitability of each department, teams and so on. These must all be in line with the corporate vision and requirements for a management and information system. Requirements are much more targeted. They can include bank reconciliations, preparing financial statements, managing procurement, etc. All of these tasks result from objectives.
Some objectives may also be legislated. Having a system that respects the U.S. Sarbanes-Oxley (SOX) law could be an objective or a requirement if the company is listed on the stock exchange. This does not necessarily make it a functional requirement.
Next you will need to make a decision about the selection approach. You have a choice between replacing what is currently done with your existing systems or finding corporate management systems specific to your field that usually include the best practices of the industry.
The first approach allows you to replace what you are currently doing, but with more advanced functions in the context of more up-to-date technology. This allows you to reduce the level of risk by quickly replacing the current system while planning the gradual implementation of new computer functions.
The second option involves more risk, but it can substantially improve your operations. As a general rule, software that is dedicated to vertical markets evolves based on requests from their customers, which includes companies like yours. Thus, they often include the best practices of the industry and allow you to quickly implement new methods that will optimize your operations. This said, the disadvantage with this approach is often that personnel will resist substantial changes to their daily work.
Planning for the replacement of the current system
Requirements grid
The first step consists of listing the software used and the requirements they meet. For example, it is not enough to specify an accounting software program. You also need to specify the functions used in the system.
Your list should also include everything that is managed using internal databases, Excel spreadsheets and others. You should also include any information that is entered manually into notebooks. Special attention is necessary for Excel spreadsheets. In fact, for many companies, the core of financial management information for operations is usually maintained in such spreadsheets. To fill the gaps of their existing accounting system, many companies use spreadsheets to enter information in the appropriate format, conduct analyses, print reports and so on. While this does help to fill a short-term requirement, over the long term, this method involves many risks and disadvantages. This can include multiple entries of the same information, discrepancies with official financial data and errors resulting from a lack of validation. Furthermore, this information is often not secure due to a lack of access rights.
Once this list is complete, check the relevance of each function. Too often, we see situations where tasks have been done for so long that nobody remembers the reasons for doing them in the first place. When we ask employees about actual requirements, we realize that this is no longer essential and that, although it was identified as a requirement at the outset, it is no longer a requirement.
We also need to identify computer functions that are unacceptable or that need to be improved. For example, you may have an invoicing system that lets you issue invoices to customers and monitor customer accounts. We can therefore conclude that this requirement has been met. However, difficulty with or limitations of the application can result in many errors or substantial time may be required to obtain the desired result.
The solution is to clearly identify what we like about a specific function. We often take it for granted that the function in question is available in all systems. This is not always the case. You therefore need to determine what works well to be sure that the new system has an identical or equivalent function.
To conclude, include all forms, reports and interfaces required by the various levels of government. Corporate integrated systems often allow you to generate these documents automatically. This can save a great deal of time.
Item classification
Once you have completed these evaluations, you need to classify each of these items into one of the following three groups:
- Financial: Functions that strictly relate to accounting and financial information (accounts receivable, financial statements, bank reconciliation, etc.).
- Financial operations: Administrative functions for managing the company, but that have an impact on the financial aspect. For example, inventory management is associated with good operational management, while having a significant impact on accounting.
- Operational: Administrative functions with no direct impact on the financial aspect. For example, estimates, quotations and documents can be managed very well without a link to the company’s accounting information.
Once you have completed the requirements grid, each item must be qualified according to the company’s actual requirements (High or Low requirements and Desired). There are some functions that can be easily met by other functions, while others would be interesting but not essential for management. However, it is very important to identify indispensable functions. For example, some companies may use an outside payroll service, but could not do without an invoicing system designed for their industrial sector. Your grid should resemble the following:
 Weighting is an exercise that can provide some helpful information for your final choice in a system. You should not lose sight of the essential functions that are indispensable for managing the company. A system with a good time keeping system may lack other important functions. This evaluation should be used as a guide rather than as selection criteria.
Strategic choice
Once this exercise is completed, you must determine to what extent you want or must have an information system combining two or three of the preceding sections. In fact, you will find software that not only matches each of the classes listed, but also one or two of the possible combinations.
This decision must not be taken lightly. A software program that only matches one class will be much easier to implement because the functions will be much more targeted. Also, if not integrated with other departments, you will have fewer constraints in using it and less people involved in implementing it. But dealing with multiple vendors also has its share of problems. If two products must share information, it may be more complex than anticipated. The technologies between the products may be significantly different, making communication difficult. New versions of either product may also make an existing interface non-operational or even obsolete.
Integrating various financial and operational functions would provide increase administrative performance, but could also be more complex to implement in the company. It is therefore very important to think carefully about this issue and choose the correct route.
Consultant
Consultants can sometimes provide predefined requirement grids. These grids often contain too much detail and include a set of functions that exceed your requirements. The preconceived notion is that two companies working in the same field would have the same requirements. Nothing could be further from the truth. Each company has its own culture, vision and administrative options that have been established based on employee requirements, location and the economic activities that define the company. It is therefore appropriate to validate our exercise by comparing it with a list from another company to make sure that nothing has been forgotten. However we do recommend against using such grids without adaptation. This could lead you to choose an information system that does not meet your requirements, and instead meets the requirements of the company for which the grid was prepared. It is therefore important to go through the exercise to determine the requirements that are specific to your company.
Enterprise Resource Planning (ERP)
There are information systems on the market that cover at least two aspects, if not three, for each industry. These software programs usually include the best practices of the industry and should cover most of your requirements. It might be helpful to attend a presentation given by a representative. You might be surprised at the richness of functions and advanced integration of information. These types of applications usually include the various interfaces, reports and forms required by government. It is nevertheless preferable to first prepare your list of requirements so the vendor can check that nothing is missing from the presentation.
Number of users
An important piece of information that usually has a significant impact on the cost is the number of users. Most software is provided in two formats in terms of the number of users. This would be per user or per concurrent user. The second format is interesting because it allows you to acquire a limited number of licenses that can be accessed by several people. However, the disadvantage is that one license cannot be used by two people at the same time. This is definitely an interesting option if you have multiple occasional users.
Communication
In this age of mobility, integration and communication, companies increasingly want to keep their employees connected to the corporate system in order to share information. In fact, with integrated operations, primary information (time sheets, work orders, change orders, etc.) is entered in the field rather than at the head office. The closer to the source information is entered, the more reliable it is. This also prevents the entry of duplicates, making more efficient use of time. This also prevents errors.
Technological solutions are becoming more common. Whether you need an Internet line installed on the job site or mobile Internet for laptops using Windows CE cellular phones or computers, it is becoming easier to stay connected at all times and the prices for doing so are coming down. Nevertheless, there is a cost for these emerging technologies and they can be complex. This makes it important to be sure that the requirement is real and that the investment will generate an interesting return.
On the other hand, some software developers provide on-line solutions. Think about Outlook. You can manage your e-mail off-line and synchronize with Exchange when an Internet connection is available. You might want to check for the availability of this type of technology with your supplier.
Other factors in making your decision
Budget
In addition to the preceding issues, you must think about your budget. The generally accepted rule is 2% of the annual sales figure. Some industries will invest more while others will invest less. But this proportion is a realistic amount in relation to the cost of integrated management systems currently on the market. Obviously, the 2% also includes costs related to the software, such as user adaptation, consultation, training, support and others. Implementation costs can represent 25 to 200% of the cost of the software acquisition. This is not a small price and you must pay careful attention during the acquisition.
In this sense, there is a huge difference between information systems for horizontal markets (Sage-Accpac, MS-dynamics, SAP) and corporate software for targeted vertical markets (maestro*). Targeted software programs usually include all of the functions required by the target industry, thus limiting any custom programming required given that they already support most of your requirements from the outset.
Term of the investment
You must also consider the evolution of the company and its current situation. The company may be growing, or it may be planning to diversify its commercial activities. It is therefore important to take these factors into account when evaluating your requirements. Software programs are not designed to adapt to companies of every size, or for an unlimited number of users. While some software programs are very powerful for two or three users, some are designed to support dozens or even hundreds of users. You must therefore take growth into account and determine future requirements.
Custom programming
Another approach involves taking a financial system designed for a horizontal market and having the portion that involves more specific requirements of the company developed. This approach results in an application that is designed specifically for your company. However, there is a risk that development will never end. The costs for this approach are often higher than planned because in most cases, the development will be done based on a cost plus contract, with little control over the total investment.
Also, this results in a company investing and developing expertise in a field other than its own. This can distract some administrative personnel from their primary responsibilities in favor of "managing" a computer project.
Furthermore, the company can find itself at the mercy of a small group of programmers. This is an unfortunate situation that many companies are facing.
Once development is completed, further investment will be required to update the software. You must therefore add significant maintenance costs to the initial development costs.
Choice of supplier
Currently, software is sold by two types of suppliers—consultants who sell and support applications developed by third parties and software developers who sell and support their products directly.
Consultants are often recommended as resellers of value-added products (value-added resellers). Their objective is to sell their consulting services in addition to the application. In some cases, they can modify the application supplied.
Software developers, who have direct control over the application supplied, will be able to update the software to meet your specific requirements, while offering the same services as a consultant.
Conclusion
A successful implementation of enterprise resource planning software starts with good preparation and careful thought about the objectives and requirements of the company. Most importantly, the relevance of the investment will be obvious if the enterprise resource planning software supports the vision and objectives of the company. This is why it is important to determine where you are going before you determine what you need.
All that remains is to find the best vendor to support you in implementing the system that will allow your company to move ahead.
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