Akademi Teknikal Laut Malaysia (ATLAM) was established on 15 August 1981 as to train and prepare Malaysians for the maritime industry which was located in Melaka and Terengganu. ATLAM was wholly owned organization of MICT Berhad. Based on the study conducted in 1997 by the World Maritime University, they found that ATLAM had a poor IT infrastructure compared to Europe and Japan. This is because ATLAM was relied on a customized single-user system which was solely for accounting entries, and it is not functioned to generate financial reports.
The 1997 privatisation of ATLAM to become a subsidiary of PETRA Group of Company has provided it with an access to better IT facilities. In year 2001, the management had been asked to upgrade accounting system with the PETRA group-wide SAP system. SAP was an integrated business application package that covered most functions of an organization. This system included comprehensive functions of financial accounting, controlling, asset management, sales and distribution, materials management, human resources, plant maintenance, project system, BASIS system and so forth.
Therefore, the Finance and Accounts Manager of ATLAM, Zulkifli Osman, has been asked to review the plan of implementation the SAP in ATLAM and decide whether they can upgrade their accounting system. He had to assess the risk associated with the decision as the implementation of SAP system seems to be giving big impact on the company’s financial status.
Issue 1: SAP or ACCPA for ATLAM
One of the important issues we need to be discussed is making the right choice by ATLAM between SAP and ACCPA to establish the campus-wide network. ATLAM need to consider their fund, facilities and expertise in order to make good decision making. The implementation of SAP will create many challenges, risks and higher cost said by Zulkifli and Lim in the article. Despite from that, there is lack of assets, such as Personal Computer for install the SAP. Lastly, the key personnel of ATLAM involved in implementation phase do not have expertise in using SAP. In order to success in implementation phase expertise person need to assess on issue might occur during the phase. Those three problems should be considered by project team before proceed with the project. In order to evaluate the sufficiency of implementation of SAP system project, we are advised that ATLAM could throughout feasibility study and capital budgeting analysis to evaluate and analysis the valuable and feasibility of SAP system project in organization.
Issue 2: Termination of Lim
In the case of SAP for ATLAM, Lim was having conflict on opinion with Zulkifli when discussing the matter of SAP system in ATLAM. Lim was disagreed to implement the SAP system in ATLAM because he know there is extreme factors will faced such as low of fund, lack of expertise, and short of facilities. He relies on his experience in ATLAM then suggests that need to use ACCPAC system rather than SAP system. These contribute to the conflict when Zulkifli was very unsatisfied with Lim’s behaviour and intended to kick him out of the project team. Kamal advise him that the critical ideas of Lim is good for organization since he was very experienced in such related industry. He, advised Zulkifli to reconsider on the termination of Lim.
Issues 3: Resistance to Change
This resistance to change issue refers to developing a new accounting system with the PETRA group-wide SAP system. Zulkifli as Finance Manger concern that whether ATLAM’s employee would be ready to embrace the new system. We found that there are several reasons the ATLAM is resistance to change at that time. Most reasons are their lack of information about SAP system and also lack of knowledge about this system. This is, creating the misunderstanding between Lim and Zulkifli. Lim understanding is SAP system is only suitable for manufacturing industry and this system was costly compared to ACCPAC. In other hands, ATLAM is resistance to change because they are facing the lack of resource to implement SAP system which are need a lots of funds, equipment’s, spaces, and intelligence resources.
The project team members were complaint they are not enough Personal Computers in the departments to make this practical to them. Then they do not even have the space available to house the system, some of the employee in ATLAM have never used a Personal Computer before and lack of the knowledge about information technology. Furthermore, employees are also fear of loss power when change the system in ATLAM operation. For information, ATLAM is a PETRA subsidiary and has to link its system to PETRA’s to match with their group reporting structure. Due to this reason, ATLAM’s employees are fear of loss of the power to control the system operating and their old job also will be separately divided to each other’s. They are worried that may change their role and responsibilities.
First of all, we can found that most of the information system project has budgets and deadlines. For ATLAM, it is not exception. Assessing project feasibility is required for the implementing of new system. So, for implementing the new system that is SAP is requires a system analyst, evaluate a wide range of factors. For implementing on SAP, our group decides choose several feasibility factors that are important toward the implementation.
Economic feasibility is required for baseline project plan. The purpose for assessing economic feasibility is to identify financial benefits and costs associated with the implementing SAP. Economic feasibility is often referred to as cost benefit analysis. During project initiation and planning, it will be impossible to define precisely all benefits and costs related to implementation. Yet, it is important that identify and quantify benefits and costs, or it will be impossible for conduct a sound economic analysis and determine whether SAP is more feasible than another. Next we review worksheets that can use to record costs and benefits and techniques for making cost benefit calculation. These worksheets are used for decide whether the SAP is valuable for implementing. Meanwhile, for determining the implementation benefits, we determine whether the SAP can provide benefit for ATLAM.
A new or renovated IS which is SAP allow complex segmental reporting, provision for integration of data, system maintenance and support were possible, audit points raised during procurement process might be resolved with provision of Materials Management Module. Thus, SAP could improve ATLAM to be more efficiency, speed and flexibility because can access data quicker and good for decision making. Beside, the implementation benefit has been dividing into tangible benefit and intangible benefit. Tangible benefits are benefit which can be measured in dollar. Tangible benefit can be seen for the implementing SAP is increase speed of activity and reduction on error because there is a segmental reporting such divisional profit and loss, variance analysis. For intangible benefit, it means that benefit cannot easily measured in dollar.
The intangible benefit can get for ATLAM such improvement of employee morale, broader societal implication, promote of ATLAM learning and understanding and more timely information. Other than determine the benefit, we also have to determine SAP cost. The cost that include in the development of SAP such implementation of SAP that cost RM5,000,000; new hardware that cost RM 1,000,000; training costs RM 1,272,550; and customization work RM 72,840. Meanwhile, we can also dividing out the cost into tangible cost and intangible cost. Tangible cost is hardware costs, labor cost, and operational costs from employee training. Intangible cost is loss of customer goodwill, employee morale and operational inefficiency.
Operational feasibility is a process of examining the likelihood that the project will attain its desired objectives. The goal of this study is to understand the degree to which the proposed system will likely solve the problem or take advantage for the opportunities outlined in the system service request or project identification study. For ATLAM, when SAP is implementing, it can fit the business model in ATLAM. As ATLAM current is using system that cannot produce financial reports. Thus, when ATLAM is implementing SAP, it can make the system be more efficient because SAP allow complex segmental reporting.
But, Gopel has said that the implementing SAP system is about not only change on technology, it also about a change in work processes, culture and habits. The change is work processes and culture is hard because employee already familiar with the work scope they do every day. In addition, it is about change mind in employee for employee job roles that has been in their mind for few years. The existing operations and support infrastructure of ATLAM cannot handle the SAP system. It has show that the implementing SAP system has high risk in term of operational risk and impact on ATLAM operation. So, the support from PETRA and appropriate training is important in order to affected staff in ATLAM to make the implementation be operationally feasible.
Technical feasibility understands the development organizations ability to construct the proposed system. This analysis should include an assessment of the development group understanding of possible target hardware software and operating environment to be used, as well as system size, complexity, and group experience with similar systems. As for ATLAM in implementation of SAP system, it is a must for identify and evaluate whether SAP system will perform effectively, reliable and capability of resources to utilize SAP system. In addition, the risk assessment to access technical risk level of SAP system will be based on the following:
a) Project size
For implementing SAP system, it is said that it is a large project for ATLAM. As Zulkifli who is Finance Manager also said that this is a unique and challenges on implementing SAP system. As the large the project is, there will be a high risk on the project. The project will have an impact for ATLAM when implementing it. As the project is large and left limited time which is around 7 weeks for the project team member to manage it, it will have high stress on it. The project team member consists of five persons which is Sani as Project Manager, Gopal as User Project Manager, Lim as User Representative, Kamal as Funtional Analyst and Zulkifli as Finance Manager.
b) Project structure
For the requirement of SAP system project, it is highly structure and is well define have a lower risk. When ATLAM is implementing SAP system, PETRA group will provide applicable system to ATLAM. Even the user representative, Lim whose is disagree and refuse for the implementation of SAP system, it still need follow what have been decide because it is under control as ATLAM management have highly commitment through the system.
c) Development group and User group
When ATLAM implement SAP system, it will have two group of people related to it’s which is development group and user group. The project will have a high risk on the development group meanwhile the user will have low familiar with the SAP system because never use it before. But, ATLAM can conduct training for employee to reduce the risk of implement SAP system.
Schedule feasibility is consider the likelihood that all potential time frames and completion date schedule can be met and that meeting these date will be sufficient for dealing with the needs of the organization. For ATLAM, there should access schedule feasibility before implement SAP system. Schedule should with the duration of SAP system before it is fully implement at ATLAM. The gantt chart should be use on schedule the activity that need complete within 7 weeks. Other than Gantt Chart, the user and support infrastructure should available for feasible project scheduling.
The most important for them to deal with is the resistance of staff to change. Other than Gantt Chart, a time frame also needed for implement of SAP system that involve in 7 week. The scheduling risk should also evaluate for the possibility of happen of improper function of SAP system since the project is lack of time. Since the cost is significant, ATLAM staff should be prepared well to accept SAP system.
Political feasibility is about understanding how key stakeholders within the organization view the proposed system. This is due to an information system may affect the distribution of information within the organization, and thus the distribution of power, the construction of an IS can have political ramifications. Those stakeholders not supporting the project may take steps to or block disrupt or change the project intended focus. For ATLAM, the key stakeholder is their own staff. The most important thing is to overcome the resistance change of ATLAM staffs. Because staff is the parties whose will do their job with SAP system. If they refuse to change will disrupt the project that implement.
Capital Budgeting Analysis
Implementation of a new system is not a simple process. A company should have proper planning before implementing a new system and consider whether it is a desirable project that can bring benefits to the company. In this case, ATLAM plan to upgrade its accounting system with the PETRA group-wide SAP system. So, ATLAM has to plan and analyze to ensure that the implementation of SAP is feasible and can bring maximum benefits to the company. To determine whether implementation of SAP in ATLAM is a desirable project, we decide to perform a feasibility analysis in capital budgeting.
Capital budgeting is the process of planning for purchases of long-term assets. This technique focuses on cash flows rather than profits. This is means that it will identify the cash inflows and cash outflows rather than revenues and expenses flowing from the investment.
In order to determine whether ATLAM should implement SAP, we will do some capital budgeting analysis which is including:
1. Initial Investment
2. After-tax Cash Flows for Years 1 through 6
3. Payback Period
4. Net Present Value (NPV)
5. Internal Rate of Return (IRR)
In this analysis, we assume:
* Depreciation is 34% for six years based on reducing balance method.
* Required internal rate of return is 25%.
* Discount rate is 10%.
* Marginal tax rate is 28%.
Initial investment is the cost incurred to enter a project. It is important to understand how much it cost to start and run a project in order to determine the feasibility range. Below show the calculation of the initial investment that would incur by ATLAM in the implementation of SAP:
The initial investment that need to pay for the implementation of SAP is RM4,344,390 which is more expensive if compared to ACCPAC. Although the initial investment is huge and it is impossible for ATLAM to bear the SAP implementation costs, but it gives a lot of cost saving in term of accountant time and efficiency cost, technical expertise cost saving and, process and procedures cost savings as well for long-term period.
A gantt chart is a horizontal bar chart developed as a production control tool in 1917 by Henry L. Gantt, an American engineer and social scientist. Frequently used in project management, a Gantt chart provides a graphical illustration of a schedule that helps to plan, coordinate, and track specific tasks in a project. Gantt charts may be simple versions created on graph paper or more complex automated versions created using project management applications such as Microsoft Project or Excel. From this case, we are using excel as a tool to create ATLAM gantt chart. The reason we choose this tool since by using excel it is more affordable rather than use a software like smart sheet which will be costly toward company.
Based on the above table, we already show steps that involve in ensuring the successful implementation of SAP. The Gantt chart above constructed with a horizontal axis representing the total time span (days) of the SAP implementation project in each task and a vertical axis representing the tasks that make up the SAP implementation project. There is 8 step involve in this project which is first is they have to develop work plan and budget. This task take about 1-5 days to finish and next is follow by forming SAP development team and executive which will handle this project and person to refer to. This takes about only 1-3 days and then they must perform feasibility study of SAP and capital budgeting analysis to get understanding regarding SAP which takes 1-6 days.
After that they have to make a configuration of new SAP system to ensure that the system able to give best benefit and suitable with the current operation in the organization. It takes 1-15 days to finish it. Next, the most important task that needs to be done is pilot testing to ensure that this system can be run and able to increase top management trust toward the decision. It only takes 5 days and same with training employee task. This task is needed, so all of these people will have required SAP knowledge and skills or even SAP certifications. Then, the system that already complete will be implement stages by stages within organization which takes the longest period which is 1-30 days. This is to ensure that the system can be implementing successfully. Last step is preparing an Analysis Report to give feedback regarding new system toward top management which only takes 1-7 days. The time frame is from 22 January 2002 and must be finished before 1 April 2002.
Is Termination Lim is a Right Decision?
Zulkifli Osman is the Financial Manager in ATLAM since 1995 while Lim is User Representative in the discussion about the new system upgrade. When having the meeting for discuss the implement SAP as ATLAM new accounting system, Zulkifli and Lim have different opinion. Zulkifli believed the implementation of SAP is better than ACCPAC but Lim strongly disagree with this opinion.
Lim thinks the SAP got a lot of weaknesses while the ACCPAC can bring benefits to the company. Lim argues the implement of SAP costs the company a lot (include the implementation costs and accompanying operational costs). Company are unable to afford the costs due to the deficit in year 2001. Besides that, Lim also argues that the SAP is suitable for manufacturing industry but not education industry. Additional, lack of resources (PCs) in department and staff there are lack of PC’s knowledge and skills also make the SAP impractical in ATLAM. However, Zulkifli strength with his opinion and conclude the SAP will be implement in the company because even SAP involved unique risks and challenges, it also bring benefits to the company.
In the case SAP for ATLAM, Zulkifli was terminate Lim from the project team because Zulkifli thinks Lim is a time waster and the time waster cannot be in the project team. Other than that, Zulkifli terminate Lim because Lim raised too many issues when having the meeting and Lim was bring too many questions that justify the reliability of the SAP system. Zulkifli was afraid that Lim would influence the others with his views.
Zulkifli terminate Lim is a wrong decision because Lim was contributed a lot when having the discussion. Lim is very experienced and he brought the issues that are important and should be take into consideration. Zulkifi cannot simply terminate Lim because Lim has some specify knowledge that other people don’t have. If Zulkifli terminate Lim because Lim disagree with his opinion, the staff wouldn’t contribute their opinion in the other meeting because they will scary the thing happen in Lim will happen for them also. Zulkifli become autocratic, so even decision by Zulkifli was wrong, no people will speak out. This will give the serious effect to the company.
How to Overcome Staff Resistance
To ensure that SAP system can be implementing in ATLAM, Zulkifli need to confident all the staffs that SAP system will help them in the term of business process and all transaction will be more effective and efficient. This is because when a company wants to implement changes in business process and job duties, the most resistance that need to overcome is from the staffs or the users of SAP system. There are a few ways on how to overcome the staff resistance.
i. Communicate Early
Before implementing the SAP system, Zulkifli first and foremost need to communicate with the ATLAM’s staffs. This is because human is the element has to be a key part of the SAP system project planning. Managers have a tendency to underestimate how upsetting this type of change can be. Zulkifli should begin preparing the staffs for a major change months before, not when it’s occurring.
ii. Communicate Often
Change is difficult for people to accept especially when it involves areas of expertise and prerogative. That’s why Zulkifli and the other steering committee need to make sure they are being as open as possible and communicating consistently about what’s happening. Newsletters, town hall meetings and email updates are just a few of the tactics they can use to make sure ATLAM’s staffs are well informed, and the rumor mill isn’t taking over. Other than that, Zulkifli also need to seek their feedbacks.
iii. Explain What’s in the SAP System For Them
It is important to explain why SAP system need to be implemented and discuss how it will affect ATLAM’s staffs. Focus on how the changes will improve the company’s performance and help ATLAM’s staffs perform their work. At the same time, Zulkifli shouldn’t shy away from talking about the bad and the ugly. If it will make things more difficult for individual ATLAM’s staffs, consider offering incentives or additional support.
iv. Ensure Management Buy-In
A successful technology implementation starts with the whole-hearted commitment of the steering committee. Therefore, Zulkifli need to have the motives for implementing the SAP system. Then rally the support of your managers and the steering committee. This is because, during the implementation, there will be lots of room for interdepartmental discord. Therefore, Zulkifli need to make sure that everyone is all pulling in the same direction and delivering the same message.
v. Provide Adequate Training
Not all ATLAM’s staffs are savvy about technology. Therefore, to implement SAP system into ATLAM, it needs to have effective communications and high quality training. Training is a must for ensuring that ATLAM’s staffs cope well with the changes and make a smooth transition to the new order.
vi. Get Them Involved
Every system such as SAP has many users that will use the system. One of the ways to overcome the resistance in ATLAM is by involved the key users in the steering committee. Ask for their opinions on the system requirement and then involve them in system demonstrations. Not only will you be benefitting from their expertise, but you will be bringing them on the side. They can even be your champions, helping fellow ATLAM’s staffs become comfortable with the new technology.
vii. Block the Exits
Once the project director of SAP system had communicated with the ATLAM’s staffs, sought their feedback, it’s time to proceed. This means that any requirement requests from the users will be vetoed. It is necessary to achieve a successful implementation of SAP system into ATLAM. Other than that, if there to be any changes during the implementation it will increase the duration of time and increase the cost.
After we do for the analysis and evaluate the usefulness of SAP system project, we recommend that ATLAM should implement the SAP system as soon as possible. The implementation of SAP system would bring a lot of benefit for ALAM in the long term view.
From the discussion, we can conclude that SAP should be implemented in ATLAM due to several perspectives. First of all, the calculations of after-tax cash flow are positive in these 6 years show that this system will generate more cash than the cost of its initial investment. Besides that, the net present value shows a positive value and the implementation of SAP systems requires 3 years and 3 months only recovering the initial investment which is acceptable due to the useful life is 6 years. In addition, the internal rate of return is 28.86% which is greater than the required rate of return of 25% shows that the company should accept this project.
Hence, we can conclude that it is feasible to carry on the implementation of SAP system in ATLAM as the benefits of implementing the system exceed its cost. In the case of SAP for ATLAM, issue Lim was having conflict with Zulkifli in the SAP implementation matter. In our group opinion, when a team has difference of opinion to resolve this conflict requires a lot of respect and patience from both side. We hereby recommend that Zulkifli must make the best decision to maintain the expertise in their organization. Zulkifli need to resolve the conflict in good manner. He needs to prepare for the solution first by acknowledge the conflict and find ways to communicate and discuss with Lim properly. Then Zulkifli need understanding the situation by clarify Lim positions, and also need to make assumption if they in Lim side.
Last but not least is in preventing conflict, the teams can be used such skill and behaviour that very work on, such as dealing with conflict immediately, being open, practicing clear communication, practicing active listening, not letting conflict get personal, encouraging different points of view, not looking for blame, demonstrating respect, as well as keeping team issues within the team. Lastly, Lim is expertise person in organization and as a good asset to ATLAM, we are not suggesting Zulkifli to kick Lim out from the project team.The key stakeholder for ATLAM is it very own staffs, therefore the project teams cannotexcluded the user representatives and most important is to overcome the resistance of ATLAM’s staffs to change. (Hoffer, George, and Valarich, 2011)