A large number of assets are trading hands as companies in the E&P industry adjust to the new price of oil. Such sales include a due diligence period, typically followed by a transition period between the two parties. During this time, the purchasing party is responsible for identifying and implementing an ERP system as their long-term solution.
Although this article is directed towards heavy E&P activity currently taking place, the same approach can be applied to other ERP selections and implementations. Particularly for the E&P industry, an ERP selection process should be straightforward and catered to the unique aspects of the business. Many companies spend too much time and money analyzing detailed requirements before choosing a new ERP system rather than identifying the unique aspects of their operation and industry. The critical business requirements for E&P, though unique to E&P companies, are known and predictable. The point of a rapid selection is not to rush the process, but to simplify and streamline the planning and implementation processes. Knowing the industry drastically speeds up the selection and implementation.
Note: It is unwise to assume you must implement a new system. If the current system is in the appropriate tier, the new company can address the current functionality and include the current system in the selection process to be compared to the other options. If the current system is identified as the best option, the conversion would be more simplified, and training and testing would be minimal. Word to the wise: do not choose the existing system without assessing all other options. Determine the best fit for the new company in terms of functionality and processing power. A system that was sufficient before may not meet the new company’s needs.
Pre-planning (3-4 Weeks)
Pre-planning takes place during the due diligence phase of a sale—sometimes even beforehand—and is a time for the buyer to take a deeper dive into the details of the sale and to determine if it’s the best fit for the buying company. It is during this stage where a Transition Service Agreement (TSA) is established, outlining the transition timeline, tasks each of the two parties are completing, and how to transition data and knowledge from the seller to the buyer. Many activities are performed in the back office or spent waiting for the lawyers to review and return documentation. Although the project team is not able to begin implementation or transition, the pre-TSA period should be spent gathering internal data and organizing the project resources and the budget. Determining the cost and timeline of a system selection and implementation will be assessed as part of the due diligence period.
During the early due diligence period, some companies do not have the approval required to bring on a project team or consultants to help. Fortunately, several sets of information must be identified and compiled in house prior to bringing on help:
- First, the finance and accounting processes must be established to map system capabilities, which can be accomplished by compiling existing or creating new process documentation (e.g. master data management for wells and decks and owners, chart of accounts, AFE processes, etc.). Then, the new company can use these documents to compile the master data specifications and critical reports most important to the business. When the critical processes have been documented, it’s easy to identify which processes need to be automated and which can be performed manually. Listening to the accounting group will help leadership understand major pain points and identify the best qualities of the current ERP system. The process documentation should include which processes steps are automated versus manually executed.
- Secondly, an overall budget must be established. An organization chart can be quickly drafted based on the current organization and estimating how many new full-time employees will be required. Systems base their pricing on the number of user licenses required, and the budget can easily bust if the final number of licenses is higher than the number originally quoted. Other aspects to consider in the project budget include the cost for system and conversion consultants. The cost for the consultants will vary based on the complexity of the data, gaps in full-time employment, travel and expenses, and potentially temporary accounting staff.
- Then, the project team must select the best-fit management consultants. Dependent upon management approval and budget, bringing on a management consulting company as soon as possible is critical to perform overall PMO activities, gather process and data requirements, and establish the budget. It’s important to select the management consultants based on proven project and industry success.
System Selection (3-4 Weeks)
Assuming the pre-planning phase was completed correctly, a consulting company should be engaged to execute a quick and concise ERP system selection mini-project. The consultants should be able to clearly identify which tier system the company requires through overall company information (current size, services, long-term growth plan), brief interviews with the accounting staff, and the pre-planning phase documentation.
Tiers one through three are assigned to proven ERP systems by industry, with tier one being the most robust and expensive. For example, if the company is very small yet has a complex deck and hierarchy setup, the company may need a tier two system like OGsys. A multi-billion-dollar company that owns and operates all domestic properties without other Working Interest Owners may be able to run on the same tier two system. However, if the company with a complex hierarchy and deck setup also intends to make several major acquisitions with various products and complex agreements in the coming years, a tier one system such as P2’s EU system may be needed to account for growth.
The project team would then schedule the vendor demos. The new company can immediately eliminate all systems outside of the selected tier and contact vendors within the tier early on. Coordinating demos and receiving pricing as soon as possible is important, as scheduling and contract negotiation typically take time. As the checklist in the system demos, the project team should use the system and process requirements determined in the pre-planning phase—and only this list of requirements. It’s a waste of time to review basic ERP functionality such as general ledger, accounts receivable, and accounts payable. Any credible tool in the marketplace has the basic ERP functionality.
Implementation and Post-go-live (Min. 12-16 Weeks)
Now, the best fit-for-purpose system is selected, the contracts are in place with vendors, and the project team is ready to begin implementation. The following four steps are foolproof for the implementation and post go-live phases:
- Immediately, the software should be installed and the environments needed for testing should be set up. This step always takes longer than originally expected.
- Next, conversion activities must be prioritized based on “day 1” functionality. Through the TSA, the buyer may only be processing invoices and GL transactions immediately, but revenue and JIB processing the following month. For this example, the company would need to set up the chart of accounts, vendor information, AFEs, and validation rules for “day 1” processing. They would then be able to continue working on loading JIB and revenue decks, royalty and working interest owners, and revenue agreements. The project team must identify critical items for go-live and prioritize accordingly. Note: Integration between systems is considered a “nice-to-have” and should not be a priority for “day 1” functionality. Building interfaces is complex and must be thoroughly tested before being released to end users. The backlash of a bad integration is immeasurably worse than making do with disconnected systems for the short-term.
- Then, the project team must establish an issue resolution plan. There will always be issues with a new ERP system. With a rapid timeline to plan, select, and implement an ERP, the likelihood of issues increases. Issues must be prioritized in the same way the implementation tasks were prioritized. The responses should be based on critical due dates, focusing on issues which directly impact key deadlines. Most critical issues are identified in the first month of processing, so it’s important to retain management consultants, system consultants, and full-time accounting project staff for a few weeks after go-live.
- Lastly and very importantly, there must always be open lines of communication between the project team and upper management, and between the project team and end users. There are endless moving parts, because resources work independently on various aspects of the project. Of course, it’s unrealistic to include everyone in all decisions and timelines. Even so, it’s important to communicate clearly and often to set management expectations and to obtain end user buy-in. In these critical communications, a strong consulting company can wrangle all moving parts to ensure the success of the implementation.
Many E&P companies don’t focus on the unique aspects of their company when going through the planning, selection, and implementation of a new system. They end up with a system that is either too simple for their operations or too robust and expensive, leaving them with buyer’s remorse for the unforeseeable future. There is a “right system” for each company, so it’s important to plan, select, and implement by prioritizing functionality and tasks, by making quick decisions, and by coordinating all moving parts. Overall, long system selections are costly, cause delayed project timelines, and don’t increase the likelihood of a successfully implemented system. Doing it right can still mean doing it fast.
Trenegy is a non-traditional consulting firm that helps changing companies make quick, simple decisions with lasting benefits. There is always a fit-for-purpose answer, and Trenegy is here to find it. For more information, contact firstname.lastname@example.org.