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Introduction ATLAM, Akademi Teknikal Laut Malaysia is an educational institution focused on training and preparing Malaysians for maritime

industry. It was established on 15 August 1891 and on 1 st January 1997 it was privatized and brought into the field of Petra Group of Companies. It was then realized, the IT infrastructures were outdated compare to its competitors and they were asked to upgrade their accounting system to PETRA group-wide SAP system. SAP was an integrated business application package that covered most functions of an organization like Financial Accounting, Controlling, Asset Management, Sales & Distribution, Material Management, Human Resource and so on. Implementing SAP for ATLAM was not easy as they were previously relied on a customized single user system. They had to change almost everything of their previous system. Additionally SAP was costly, time consuming (in terms of implementing), and many employees were resisting against it. Then there was an alternative solution by the name of ACCPAC. Keeping all these issues under consideration Zulkifli, the finance manager decided to imply SAP and he asked for assistance from his team.

Feasibility Study Feasibility study represents how practical the project is and it could be studied from different perspective of feasibility Economic Feasibility- Economic Feasibility can be referred as a core feasibility study as it represents the cost-benefit analysis. It is difficult to identify precisely about the cost and benefit during the introductory stage of project. However this study is conducted to have an idea about expected cost and benefit. We will further stretch the cost-benefit analysis later to find out how economic feasible ATLAM is in terms of implementing SAP Technical Feasibility- It represents whether ATLAM has present technical resources and how these resources could be applied or additional resources be applied to cope with proposed SAP system. Implementing SAP will be a big project for ATLAM within a short period of time. It will definitely have a high risk but it is possible to carry out the project considering the project team and related people will go through a stress time. The developer of the system may have high risk but the user will have low risk as SAP will be well structured and organized. Despite all these PETRA is there to support the system and availability of training is always there to introduce the system to its user. Operational Feasibility- It represents the possibility of attaining the desired objectives and look for opportunities. The current system in ATLAM cant produce financial reports but SAP can do it and produce complex segmental reports. Additionally SAP will fit well with ATLAMs business model also. Schedule feasibility- It concentrates on the deadlines of pre-implementing of SAP system. It ensures whether each tasks related to introducing SAP are met within the time frame or not. A better review could be drawn from the Pert Chart.
Author: Mior, Asif, Stephanie

Cost-Benefit Analysis The cost-benefit analysis is a crucial indicator before making an investment. And this analysis can be better understood utilizing capital budgeting which will include Initial Investment, Cash flow, Payback period, Net present value and Internal Rate of Return. Initial Investment This is the investment that ATLAM has to make to introduce SAP in their accounting system. Details initial software(including project expenses & PIFS & MMM modules) the hardware software license training cost customization work Total RM RM 1,000,000 2,000,000 1,000,000 1,271,550 72,840 5,344,390

So the total initial investment is RM 5344390 which is the major capital expenditure for the year of 2001. Compare to ACCPAC the price is quite high but if you consider the benefits & savings and the internal funds coming from PETRA group, the implementation of SAP system looks worthy. After Tax Cash flows for Year 1-6 Details Year 0 Accountant's time & efficiency Technical expertise cost saving Process & Procedures cost saving Total cash in flow Average SAP license cost Cost to convert old
Author: Mior, Asif, Stephanie

Year 1

Year 2 400,000

Year 3 800,000

Year 4 1,200,00 0 1,600,00 0 1,200,00 0

Year 5 1,600,00 0 1,800,00 0 1,500,00 0

Year 6 2,000,00 0 2,000,00 0 1,800,00 0

600,000

1,200,00 0 500,000

1,400,00 0 900,000

600,000

2,100,00 3,100,00 4,000,00 4,900,00 5,800,00 0 0 0 0 0 150,000 200,000 225,000 250,000 250,000 160,000 180,000 560,000 600,000 640,000

100,000

data to new data Cost of overheads cost of system maintenanc e & firewalls cost of hardware expansion cost of training Depreciation (34%) Total cost

300,000 60,000

420,000 120,000

490,000 130,000

560,000 140,000

600,000 150,000

640,000 160,000

260,000

300,000

340,000

380,000

400,000

500,000

800,000

900,000

1,000,00 0

1,100,00 0

1,300,00 0

1,817,09 3

1,199,28 1

791,526

522,407

507,042

507,041

(5,344,39 (2,777,09 (3,109,28 (2,991,52 (3,347,40 (3,587,04 (3,897,04 0) 3) 1) 6) 7) 2) 1) EBIT (5,344,39 (2,177,09 (1,009,28 0) 3) 1) 108,474 Tax (26%) 0 0 28,203.3 0 6 (1,009,28 1) 80,271 1,199,28 1 1,200,00 0 1,390,00 0 169,674. 22 341,369. 08 494,769. 34 1,408,19 0 652,593 1,312,95 8 1,902,95 9

Net operating (5,344,39 (2,177,09 after tax 0) 3) (+) Depreciation 1,817,09 3 working capital savings 900,000 Total Cash inflow/outfl (5,344,39 ow 0) 540,000

482,919

971,589

791,526 1,500,00 0 2,371,79 7

522,407 1,500,00 0 2,505,32 6

507,042 1,500,00 0 2,978,63 1

507,041 1,500,00 0 3,415,23 1

Based on the information above we can say that the cash flow after tax for year 1 is 54000, followed by year 2 is 1390000 up to year 6 is 3415231 for the implementation of SAP system. From the 1st year of introducing SAP, ATLAM will have positive cash flows whereas there existing cash flow at Dec 2001 shows a negative balance.
Author: Mior, Asif, Stephanie

Discounted Payback Period & NPV Details Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 NPV Cash Flow (RM) -5,344,390 540,000 1,390,000 2,371,797 2,505,326 2,978,631 3,415,231 PVIF (10%) 1 0.909091 0.826446 0.751315 0.683013 0.620921 0.564474 PV Cumulative PV -5344390 -5,344,390 490909.14 -4,853,481 1148759.94 -3,704,721 1781966.66 -1,922,754 1711170.23 -211,584 1849494.54 1927809.1 3565719.613 1,637,911 3,565,720

As per the above table cumulative present value cash flow turned positive on year 5. So the payback period will be [4+(211584/1849494)]= 4.114 years. Additionally the NPV comes to RM 3565719 after deducting the initial investment from present values.

Internal Rate of Return Internal Rate of Return (IRR) is the rate at which the NPV becomes zero. The higher the IRR from the required rate of return the better it is. Cash Details Flow (RM) PVIF (25%) PV PVIF (27%) PV

25% Year 0 5,344,39 0 540,000 1,390,00 0 2,371,79 7 2,505,32 6 1 -5344390

27% 1 -5344390.0

Year 1 Year 2 Year 3 Year 4

0.8 0.64

432000

0.78740157 5

340157.5 551553.1 592838.4 394465.8

889600 0.62000124

1214360.06 0.48818995 0.512 4 3 0.4096 1026181.53 0.38440153 8

Author: Mior, Asif, Stephanie

Year 5 Year 6

2,978,63 1 3,415,23 1

0.3276 976037.806 0.30267837 8 1 6 0.2621 895282.315 44 3 0.23832943 89071.7149 4

295425.5 213372.1 -2956577.6

Total

Through Interpolation: (25-IRR)/(25-27)= 89071.72/[(89071.72-(-2956577.6)] IRR= 25.58%

Working Schedule via Pert Chart Appendix A depicts the working schedule and activities involve before the implementation of SAP in ATLAM. From the pert chart, management should aware of critical path (activity 1-3-4-67-8) in this project before the implementation can be done on 1 st April 2002. The critical path will alert the management about the progress of the training to make sure to be ready for the real situation. The IT team also can determine the cause of delay of the project. Staff Resistance One of the many challenges in implementing SAP is definitely overcoming the staff resistance towards change in the system. Some identified cause of this challenge was already discussed by the board. 1) 2) 3) 4) 5) Every users need to be trained The change of work processes, culture and habit The change of attitude and job roles Conservative and non-tech savvy staff Insecurity of staff due to cutbacks in the past

How do we face the employees with the big news of change? There are 2 ways to break the news to the employees. 1) Do not introduce the project as a merely a company/ IT project but a people project 2) Promote projects as self-improvement project and to encourage employees to learn
Author: Mior, Asif, Stephanie

As much as it is impossible to overcome staff resistance to new systems entirely, there are few measures that could be taken to reduce staff resistance 1) 2) 3) 4) Provide more time for employees to get familiarised with the system Encourage employees by providing moral support Encourage employees by providing assistance Segregate employees according to level of experience/ knowledge in the matter and provide training accordingly 5) Come up with a mentor-mentee system where less experienced employee would be paired up with an experienced employee for full assistance Conclusion If we go through the entire case starting from feasibility to cost benefit analysis it could be measured that the pros of implementing SAP is way heavier than its cons. In terms of economic, technological operational and schedule feasibility the project has the viability. In cost-benefit analysis, SAP is aiding to positive cash flow from 1st year. The payback period is attractive where the investment will be withdrawn within 5 years. Additionally more cash flow of RM 3565719 (in terms of PV) will be generated. The IRR 25.56% is slightly higher than RRR 25% indicating it is a good investment. So we would like to conclude that ATLAM should implement SAP as the benefits way exceeds its cost. Finally we would also like to raise the issue about terminating LIM where we disagree with Zulkiflis decision. Lim is an experienced user representative whose decision cant be ignored by termination. Rather he should have resolved the problem by many techniques like accommodating, collaborating, compromising etc. In a company when conflict arises, you dont run away rather you try to solve.

Author: Mior, Asif, Stephanie

References

Nazirul Azreen Uda. Sap for atlam. Retrieved from http://www.academia.edu/5540740/Case_7_complete

Author: Mior, Asif, Stephanie

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