Pennsylvania delays portion of SAP project

State officials in Pennsylvania have put the brakes on a major piece of a US$160 million rollout of SAP AG’s enterprise resource planning (ERP) applications because of software customization, system integration testing and end-user training requirements.

Pennsylvania Secretary of Administration Bob Barnett last week said the state government has temporarily halted the installation of the human resources modules that are part of a planned statewide SAP R/3 implementation. The go-live date on those applications was pushed from next month to January.

The delay underscores the findings of a report that’s being released today by Nucleus Research Inc. in Wellesley, Mass. In the report, which was based on interviews with 21 of SAP’s customers, Nucleus said returns on investment can be hard to achieve on R/3 rollouts — especially when users customize the applications.

According to Nucleus, 12 of the 21 users said they hadn’t achieved an ROI after working with R/3 for an average of nearly three years. In particular, said Nucleus analyst Rebecca Wetteman, companies that customized R/3 slowed down their deployments and increased their costs.

But SAP users aren’t alone in facing such challenges, said Wetteman. Nucleus recently released similar reports about users of Siebel Systems Inc.’s customer relationship management software and i2 Technologies Inc.’s supply chain applications.

In Pennsylvania, work has bogged down on SAP’s payroll application. Barnett said the software itself isn’t the problem. But, he added, it required tweaking to handle thousands of work schedules and hundreds of pay grades for the state’s 80,000 employees.

The ERP system is also requiring more extensive training for end users than expected, Barnett said. In addition, more testing is needed to ensure that the payroll software can interoperate with a separate accounting system used by the state treasurer’s office.

Despite the payroll setback, Barnett said Pennsylvania “is going on a faster timetable than others doing a major project like this.” The project also involves the ongoing installation of financial, procurement and other applications to replace a variety of homegrown and third-party products.

William Wohl, a spokesman for SAP America Inc. in Newtown Square, Pa., said the software vendor was encouraged by Pennsylvania’s decision to slow down the payroll installation. “They are setting an example to other state governments to learn to take their time and do it right,” he said.

In response to the Nucleus report, Wohl acknowledged that R/3 projects can be complex — not because of the software itself but because ERP rollouts usually require “a whole new way of thinking” about business processes.