The Pareto principle (also known as the 80-20 rule), states that, for many events, roughly 80% of the effects come from 20% of the causes. The principle was developed to explain income and wealth distribution in Italy. This principle has evolved into a “rule of thumb” in business. In the software industry the Pareto principle has been to applied into several areas:
- Fixing the top 20% software errors would result in addressing 80% of reported software issues.
- 80% of the value customers receives from software comes from 20% of the software’s functionality.
ERP Selection Case Study
I recently completed a software selection project for a mid-market discrete manufacturer. A key activity of software selection is gathering, validating, and prioritizing business requirements. Following is a summary of the presentation made to the customer’s software selection team for requirements prioritization.
What Are We Trying to Accomplish?
- Validate and prioritize business requirements
- Identify potential opportunities for benefits realization
- Identify organizational change management (OCM) efforts to ensure benefits realization
- Requirements management is both requirements gathering and requirements validation.
- Keep the end in mind when prioritizing requirements. In general, the greater the business value the higher the priority.
- Only when technology and the organization are aligned is when benefits are completely realized.
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- Gathering requirements is an iterative process. Our objective during software selection is defining business requirements to a level where the customer can make an informed decision on potential ERP solutions. The business requirements must be further elaborated during the implementation.
- Pains are limitations or barriers that keep business from meeting their objectives. Pains may result in additional requirements or opportunities for quick wins.
Prioritizing ERP Requirements
- Individuals should consider their top 3-5 business requirements
- As a group, we discuss and give feedback into the priority and demonstration
- Must Have: This feature will provide significant business improvements for our team
- Valuable: This feature will be beneficial to improving our business process, but not critical
- Nice to Have: This feature will help make my job easier, but it won’t provide significant business process improvement
- Need to be demonstrated?
- “Must Have” requirements include competitive, strategic, compliance, and what I call “keep the lights on” business needs. The majority of “Must Have” requirements should be in the revenue-generating business processes.
- “Valuable” requirements are usually not “show stoppers” however; they will add quantifiable benefits to the customer.
- “Nice to Have” requirements are convenient but do not provide a significant or quantifiable benefit to the customer.
- The majority of requirements that should be demonstrated should come from the “Must Have” category.
Example of Prioritizing ERP Requirements
- Pareto’s Law
- 80% of benefit is generated from 20% of effort (functionality)
- Applying Pareto’s Law to prioritization and demonstration
- Approximately 138 requirements should be marked as “Must Have”
- Approximately 28 requirements should be marked as “Demonstration Required”
- Prioritization should be solution-based, not functional-based
- Not every requirement should be marked as “Must Have” or “Demonstration Required”.
- Requirements ranking should be across the entire ERP solution and not functional based. I encourage this solution ranking by having all functional areas represented during the requirements prioritization session.
Prioritizing business requirements for an ERP selection project is both an art and a science. Sorry to say that there is not a simple formula that can help you magically produce appropriate rankings. There are heuristics like Pareto’s Law and that can provide you “signs” that you are heading down the right path.
Blog entry written by Brett Beaubouef, Senior ERP Selection Consultant, and adapted from his book titled Maximize Your Investment: 10 Key Strategies for Effective Packaged Software Implementations.