How Overconfidence Can Derail Your ERP and Supply Chain Projects
The Dunning-Kruger Effect on ERP Projects
The other day, I was visiting a prospect and encountered a common experience when discussing ERP systems. The business owner was conscious of keeping costs as low as possible and was having difficulty understanding what it takes to succeed when implementing a complex manufacturing ERP system.
The dialogue between us reminded me of the Dunning-Kruger effect.
The Dunning-Kruger effect is a cognitive bias in which individuals with limited skills in a task overestimate their abilities because they lack the awareness to recognise their shortcomings. This phenomenon can significantly impact complex business environments, notably in ERP (Enterprise Resource Planning) and supply chain improvement projects.
The Dunning-Kruger effect can lead to substantial challenges in an ERP implementation. Typically, these projects require precise expertise in integrating diverse business processes into a cohesive system. However, individuals suffering from this cognitive bias might underestimate the complexity of the task, leading to overly optimistic project timelines, budgets, and outcomes.
For instance, a project sponsor or manager with limited exposure to ERP systems might assume that their general IT knowledge suffices, neglecting the need for specific skills such as the data migration process, user training, or system configuration efforts. This can result in poorly defined project scope and underestimation of resources needed, as in this recent discussion.
The impact on supply chain improvement projects can be equally detrimental. These projects often involve optimising logistics, inventory management disciplines, reconfiguring the ERP system and supplier relationships. An overestimation of one’s understanding of these intricately linked components can lead to decisions that do not consider all operational realities, potentially causing disruptions in supply chain continuity and service level failures.
Financially, the costs of such miscalculations are significant. According to industry reports, failed ERP projects can cost companies millions in lost investment. For example, a failed implementation due to poor planning and expertise can lead to additional costs in re-implementation, further training, and lost business opportunities during the downtime. The effects of supply chain disruptions are similarly expensive, with companies potentially facing increased inventory costs, emergency freight charges, and lost sales. In some cases, the business interruptions from a failed go-live can be catastrophic.
If you are considering an ERP or supply chain project, reach out for a confidential chat so that we can help you start on the right foot.
cognitive bias, Dunning-Kruger Effect, ERP consulting, ERP implementation, supply chain improvement