SAP project put on hold yet again by Alaskan city

An ailing SAP software implementation project in the city of Anchorage, Alaska, has been put on hold again, Mayor Ethan Berkowitz announced late last week, and this time, its future is far from certain.

Originally launched in 2011, the enterprise resource planning (ERP) software implementation is tens of millions of dollars over budget and years behind schedule. With this latest “pause,” as it’s being called, all options are being considered, said Myer Hutchinson, a spokesman for the mayor’s office and the municipality of Anchorage.

“We are not going to be spending any capital on this project for an indefinite time,” Hutchinson said. “We are not taking anything off the table at this point. We’re not sure we’re going to move forward.”

At the time of its launch, the project was intended to replace Anchorage’s legacy PeopleSoft system with ERP software from SAP. It was originally planned to cost $9.8 million and to go live at the start of 2013.

In October 2014 officials began an independent review of the project, and early this year it missed its second “go-live” date. Anchorage has spent $35 million so far and budgeted another $11 million for the project, but a further $20 million to $30 million is expected to be required to complete it. The municipality is currently spending $250,000 per week to keep it going.

“The end is not in sight,” Hutchinson said.

Complicating the situation is the fact that Berkowitz, the current mayor, just took office on July 1.

Another “pause” in the project was ordered early this year, but then the purpose was primarily to reorganize to reflect the results of the review that had just taken place a few months prior, Hutchinson said.

The current suspension appears to be much more significant.

“We could decide to proceed with a scaled-down version,” Hutchinson said, “but another option could be to scrap all that has been done.”

Earlier this month, Berkowitz announced the hiring of a deputy CFO whose primary focus will be formulating a plan for the troubled project.

Now, he has requested assistance from community members with expertise in business IT and ERP implementations to serve on an external review committee dedicated to finding ways to build project momentum, add fiscal accountability and provide maximum return on the investment.

SAP software is used successfully by tens of thousands of government agencies, including the U.S. Department of Agriculture, financial departments in the states of Florida, Pennsylvania, and South Carolina, and counties such as Howard County, Maryland, SAP said.

“In a world of major IT failures, this is a big one,” said Michael Krigsman, an industry analyst and founder of CXOtalk.com. “You’re talking about essentially a 600 percent overrun.”

Large ERP projects can be a challenge in any organization, but municipal governments seem to have “more than their fair share of failures,” noted Frank Scavo, president of Strativa.

One problem is that cities often pick systems and consultants on the basis of lowest cost, which “too often results in change orders and missed deadlines,” Scavo said.

Another problem is that major decisions are often made by committees, because “you can’t fire a committee for a bad decision,” he added.

“If I were the mayor at the beginning of this project, I would have asked, ‘what is our history with large organizational change projects?’” Scavo said.

Given that the city’s legacy PeopleSoft system was apparently never fully implemented, the right approach would have been to break down the SAP implementation into smaller, manageable bites, he suggested, and manage them carefully.

“I’d be concerned that at this point, the project has become toxic, and that it is going to be difficult to get the best people to come to work on it,” Scavo added.

In the meantime, the suspension of the project—while “healthy”—doesn’t come without costs of its own, Krigsman noted. “When you put people on hiatus, the labor is going to pulled onto other projects instead,” he explained.

While some could probably be brought back if the project continues, it likely wouldn’t be all of them, he added. “That means they’ll lose the benefit of all that training.”