GAO: Navy sinks $1B into failed ERP pilot projects

But the Navy claims the projects yielded important knowledge

The U.S. Navy has wasted $1 billion since 1998 on four flawed ERP pilot projects based on SAP AG software, according to the Government Accountability Office.

The GAO said in a September report to Congress (download PDF) that 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 GAO said.

The latest project, an $800 million ERP project that was begun in 2003 and slated to go live in 2011, is also in jeopardy, the GAO said -- unless best practices are adopted and followed.

The Navy vigorously disagreed with the charges and recorded its dissent with the GAO. "Both the [Department of Defense] and the Department of the Navy are quite happy with how the pilots have gone," said Tim Holland, 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 said. Now, the Navy is comfortable it can do them. "We think we got a lot of value," said Holland.

He said there was minimal overlap among the various applications' functions and added that the pilot projects allowed the Navy to take 89 legacy systems off-line.

The implementations involved different Navy system commands and a number of systems integrators, including IBM, Electronic Data Systems Corp. and Deloitte & Touche LLP. The pilot projects were meant to help modernize 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 optimize forecasting, repair scheduling and inventory management for aircraft (see "Navy Embarks on Supply-Chain Mission"). That program was retired after it served its educational purposes, while the others continue to have limited deployment, according to Holland.

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

Still, the GAO said 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 and challenges involved. For instance, the Navy must craft 44 separate software interfaces with other Navy and Defense Department systems, and it must convert legacy data for use in the new software, the GAO said.

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

Overall, the Navy agreed with those recommendations, said Holland, since it has already completed its first validation with SAP 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 U.S. Navy is an overwhelming undertaking," said Michael Taffe, an analyst at Boston-based AMR Research Inc. "A project of that 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."

For its part, SAP said in a statement that it "applauds the GAO efforts to assist the Department of Defense to create economies of scale to integrate disparate systems. The pilot projects prove that the U.S. Navy could successfully use commercial off-the-shelf ERP software to improve business processes and gain return on investment."

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