US Audit Office questions Navy’s $1.45 billion spend on SAP software

Four pilot ERP projects worth more than a billion dollars have been put under the microscope by the US Government Accountability Office

The US Navy has wasted US$1billion (NZ$1.45 billion) since 1998 on four flawed ERP pilot projects based on SAP software, according to the US Government Accountability Office (GAO).

In a report to the US Congress in September, the GAO noted the installations were redundant and incompatible and failed to meet Navy requirements because of their limited scope. “In short, the efforts were failures and $1 billion was largely wasted,” the report says.

The most recent project, a US$800 million ERP project that began in 2003 and was slated to go live in 2011, is also in jeopardy, the GAO says unless best practices are adopted and followed.

The Navy vigorously disagrees with the charges and has recorded its dissent with the GAO. “Both the [Department of Defence] and the Department of the Navy are quite happy with how the pilots have gone,” says Tim Hollande, deputy director of Navy ERP programming. “We’ve gotten a tremendous amount of knowledge in how to do an enterprise solution in a military environment.”

Prior to the pilot projects, Navy officials were uncertain whether such implementations were feasible, he says. Now, the Navy is comfortable it can do them, he says. “We think we got a lot of value.”

Hollande says there was minimal overlap among the various applications’ functions and says the pilot projects allowed the Navy to take 89 legacy systems offline.

The implementations involved different Navy system commands and a number of systems integrators, including IBM, EDS and Deloitte. The pilot projects were meant to help modernise the Navy’s supply chain, acquisition and financial management operations, among others. For example, the Naval Air Systems Command and Naval Supply Systems Command wanted to optimise forecasting, repair scheduling and inventory management for aircraft. That programme was retired after it served its educational purposes, while the others continue to have limited deployment, says Hollande.

The three pilot systems still in use will ultimately be retired in favour of a single SAP implementation that will keep the best-of-breed functions developed from them. When live, the converged application will operate in a single datacentre designed for easy upgrades and cost effectiveness, says Hollande. It will have 90,000 end-users globally and extend to nearly every facet of operations, supporting acquisition, production and management scheduling systems and other processes. It will also replace 280 legacy mainframe and minicomputer-based applications, some of which are 20 years old.

However, the GAO says the overarching ERP system won’t provide an “all-inclusive, end-to-end corporate solution for the Navy”. The implementation doesn’t include aviation and shipyard operations and there are a variety of risks involved. For example, the Navy must craft 44 separate software interfaces with other Navy and Defence systems and it must convert legacy data for use in the new software, the GAO says.

As a result, the Navy must create metrics to assess project performance and risks, the GAO says. There must also be independent oversight to verify and validate system performance and provide the Navy with unbiased reports. Semi-annual reviews of the programme should also be implemented, the GAO says.

Overall, the Navy agreed with those recommendations, says Hollande, since it has already completed its first validation with SAP, a process that was completed in September. It’s also in discussions with shipyard and aviation operations officials to ensure they are eventually included in the converged ERP rollout.

“Trying to implement ERP on the scale required by the US Navy is an overwhelming undertaking,” says Michael Taffe, an analyst at AMR Research. “A project of this scope is orders of magnitude larger, harder and more expensive than the largest of corporate giants would encounter. Simply stated, it’s a project that has a high degree of risk under the best of circumstances.”

“[SAP] applauds the GAO efforts to assist the Department of Defence to create economies of scale to integrate disparate systems. The pilot projects prove that the US Navy could successfully use commercial off-the-shelf ERP software to improve business processes and gain a return on investment.”

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