Author: Dejan Pajk

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Fit/Gap Analysis

ERP systems such as Microsoft Dynamics NAV support the standard processes of an organisation. They integrate best practices that have provided an effective and validated way to perform business operations. To select and successfully implement an ERP system, the capabilities of that system have to be compared with a company’s business needs. Based on a comparison, all of the fits and gaps must be identified and further analysed. This step usually forms part of ERP implementation methodologies and is called fit gap analysis.

Fit gap analysis (also called gap analysis) is an important phase of an ERP selection and implementation. It determines the extent of business process change required for a particular solution as well as software customisation and interfacing requirements. Matching the ERP’s functionality to the way an organisation does business is a vital factor for the success of an ERP implementation.

Fit gap analysis is mentioned twice in ERP system implementation methodologies. High-level fit gap analysis is usually conducted in the pre-implementation or ERP system selection phase and a complete or detailed fit gap analysis is completed during system analysis phase. Fit gap analysis is usually built on a Functional Requirements Document (FRD). FRD provides a detailed list of the functional, non-functional, integration and interface requirements and the affected business process flows.

Matching the ERP’s functionality to the way an organisation does business is a vital factor for the success of an ERP implementation.

The main goal of fit gap analysis is to identify and document all fits and gaps, followed by an analysis of each gap, suggestions of possible solutions and closing of the gaps by selecting the most appropriate option. Possible options are:

  1. Standard ERP system capability: Standard capabilities are met by the system out-of-the-box, without requiring additional effort or configuration time.
  2. ERP system configuration: This entails choosing from among the reference processes and setting the parameters in ERP to reflect organisational features without changing the ERP source code.
  3. Adapting a company’s business processes: Best practices implemented in the software package are applied within an organisation (technology-driven approach).
  4. Adapting an ERP system through customisation: Adaptation of an ERP system is appropriate for those companies that believe their business processes are better than those implemented in an ERP system and do not want to lose their competitive advantage.
  5. Adding a new business solution and/or software vendor: A third-party vendor (independent software vendor, ISV) can provide a vertical or industry solution that supports a customer’s specific needs. For example, the enwis) waste managment solution.
  6. Providing a workaround so that the business can function: Business needs will not be supported and will be documented as out of scope or planned for future releases.

Fit gap analysis holds important consequences for project success. One of the output metrics of the fit gap analysis is the degree of fit. The degree of fit is an indicator of business alignment with the standard ERP system functionality. It is calculated as the sum of all business needs that fit, divided by all business needs. Besides standard ERP system capabilities, the business needs categorised as fit are ERP system configurations and adaptations of a company’s business processes. In addition, each business need should be weighted in terms of its importance (e.g. nice-to-have or critical).

Even though the metric is only an estimate, it provides a high-level overview and understanding of the project risk. A low degree of fit could also lead to a decision to select another ERP system or to redesign business processes to meet the standard system.

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An Introduction to Business Process Reference Models

Designing business processes from scratch is a daunting prospect and ensuring sufficient modelling quality can be time-consuming. The use of process templates significantly increases the efficiency and effectiveness of  process design. Process templates are generally called business process reference models.

Reference models have been defined as generic conceptual models that formalise state-of-the-art or best practice knowledge of a certain domain. They provide a set of generally accepted practices and processes that are developed with the goal of being reused. Such models have the following characteristics:

  • they represent business practices (providing practices for conducting business);
  • they have universal applicability (representing a class of domains, not a particular enterprise); and
  • they allow re-usability (they can be understood as blueprints for developing information systems, they can be structured to allow easy adaptation to company-specific situations).

Reference models play an important role in activities such as business modelling, information system development, implementing ERP systems, and training and research. In order to be able to use reference models, they must be adapted to the requirements of a specific enterprise.

Reference models represent the content of various domains. The most important types are:

  • industry reference models (representing the practices of a specific industry sector such as banking, pharmaceutical or retail);
  • software reference models (these can be enterprise applications such as ERP systems);
  • procedural reference models (e.g., a project management reference model); and
  • company reference models (containing specific practices within a company group).

The use of business process reference models has many positive economic effects – they lead to efficient process design, effective execution, and therefore, the increased agility of an organisation. However, you should also take into consideration that by applying general reference models you could lose the advantage of having a unique and perhaps better business practice.

The decision about following the best practice approach or innovating is strategic. It calls for a clear prioritisation and categorisation of business processes. It is especially important that process categorisation is done before implementing new ERP system, as it determines the extent of business process change required, as well as software customisation requirements.

In another blog, I will overview the process of comparing the capabilities of an ERP system with a company’s business needs. This step forms part of ERP implementation methodologies and is called fit gap analysis.

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