Cost of troubled SAP project will skyrocket to nearly $1 billion, audit says

The cost of finishing a massive SAP software overhaul at a New York gas utility will rise to nearly $1 billion from an original estimate of $383.8 million, a newly released audit report has found.

National Grid's SAP upgrade went live in November 2012, nearly simultaneously with Hurricane Sandy, the massive storm that ravaged the East Coast.

Immediately upon the go-live, the SAP system was wracked with issues, particularly related to payroll, with the chaos wrought by Sandy and the subsequent cleanup effort only exacerbating the situation.

National Grid ended up bringing in 450 additional contractors to work on the payroll problems, along with 400 to help out with issues related to supply chain and financial closes, according to the audit, which is dated July 25 but was released this week by the New York Public Service Commission.

Now the total cost for the project through the utility's fiscal 2015 is expected to be $945.1 million, the audit states. The system, which replaced multiple Oracle systems at National Grid, was supposed to be stabilized as of September, with updates to bring various modules up to current versions completed by the end of this year.

The audit goes into significant detail about the root causes for the implementation's woes.

For one thing, National Grid "did not use vendors with a strong track record of US utility industry experience in SAP platform implementation," it states.

Initially, the utility hired Deloitte but later decided to switch partners, bringing in Ernst and Young along with Wipro.

Also, in choosing SAP as the new platform, National Grid had only "very limited discussions" with other U.S. utilities about their experience with it, relying instead on assertions of National Grid UK, which had already moved to SAP, according to the audit.

Moreover, "while Wipro had extensive experience in Europe, it had virtually no experience at the time implementing an SAP platform for utilities regulated in the US," it states.

Overeagerness on the part of National Grid also led to recklessness.

Some groups within National Grid raised questions about "problems with system and company readiness" before the switchover to the new system, but "that information was subsumed by a push to go live," according to the audit.

Even now, National Grid is failing to take full advantage of the SAP system's capabilities, relying on "complex Excel spreadsheets" for management reporting, it states.

A Wipro spokesman didn't immediately respond to a request for comment Friday.

"We recognize the challenges National Grid faced and have worked continuously with the customer to address them," SAP spokesman Andy Kendzie said in an emailed statement Friday.

"It's important to understand that many of the issues referenced in the audit report date back to November 2012 when we initially launched SAP," National Grid spokeswoman Jackie Barry said via email. "There were many factors that led to those issues, but the system is now substantially stable."

In a letter released with the audit, National Grid said it didn't agree with all of its conclusions but "generally accepts" its recommendations.

The audit also includes a number of reasons National Grid gave for why the project stumbled, including an "overly ambitious design," lack of accountability, poor data quality from the legacy systems and ineffective training.

Company shareholders, and not ratepayers, will absorb the extra costs of fixing the system, according to the Public Service Commission.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

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