You are on page 1of 19

Contents

EXECUTIVE SUMMARY............................................................................................ 1
PROBLEM STATEMENT............................................................................................ 2
Issue 1: Will SAP be suitable for ATLAM..............................................................2
Issue 2: Termination of Lim................................................................................. 3
Issues 3: Resistance to Change..........................................................................3
FEASIBILITY STUDY................................................................................................ 4
Economic Feasibility........................................................................................... 4
Initial Investment............................................................................................. 5
Cash Flow after tax.......................................................................................... 6
Net Present Value.......................................................................................... 10
Payback Period.............................................................................................. 10
Initial Rate Return.......................................................................................... 11
Operational Feasibility...................................................................................... 12
Technical Feasibility.......................................................................................... 13
Scheduling Feasibility....................................................................................... 13
Gantt chart....................................................................................................... 14
Termination of Lim............................................................................................ 16
Overcome Staff Resistance............................................................................... 17
Factor 1: Afraid in using new system.............................................................17
Factor 2: Resist to change............................................................................. 18
Factor 3: Less competence in using computer..............................................18
RECOMMENDATION.............................................................................................. 19

EXECUTIVE SUMMARY
Akademi Teknikal Laut Malaysia (ATLAM) was established on 15 August 1981 that
located in Melaka and Terengganu. The need is to train and prepare Malaysians for the
maritime industry. ATLAM was wholly owned organization of MICT Berhad. Its vision was
to be a leader in maritime education and training while its mission was to facilitate value
added learning via a conducive environment and provide excellent services to its client. A
study on ATLAM was conducted in 1997 by the World Maritime University and it had
deemed ATLAM to be behind its other compatriots in Europe and Japan in terms on
infrastructure. It had been in a very poor state. This is because ATLAM was relied on a
customized single-user system which was solely for accounting entries, and it is not
functioned to generate financial reports.
It was then privatized on 1 January 1997. The 1997 privatization of ATLAM to
become a subsidiary of PETRA Group of Company has provided it with an access to better IT
facilities. Thus, ATLAM overhauled its Information Technology (IT) facilities in 2000. In
year 2001, the management had been asked to upgrade accounting system with the PETRA
group-wide SAP system. SAP was an integrated business application package that covered
most functions of an organization. This system included comprehensive functions of financial
accounting, controlling, asset management, sales and distribution, materials management,
human resources, plant maintenance, project system and BASIS system. ATLAM IT
solutions are based on three objectives such to link core buildings into the network, to
establish networked Office Automation and to link ATLAM to the PETRA Network. (Jaafar,
2011)
Therefore, the Finance and Accounts Manager of ATLAM, Zulkifli Osman, has been
asked to review the plan of implementation the SAP in ATLAM and decide whether they can
upgrade their accounting system. He had to assess the risk associated with the decision as the
1

implementation of SAP system seems to be giving big impact on the companys financial
status.
PROBLEM STATEMENT
Issue 1: Will SAP be suitable for ATLAM
One of the important issues we need to be discussed is making the right choice by
ATLAM whether to choose SAP to establish the campus-wide network. ATLAM need to
consider their fund, facilities and expertise in order to make good decision making. The
implementation of SAP will create many challenges, risks and higher cost said by Zulkifli
and Lim in the article. Despite from that, there is lack of assets, such as Personal Computer
for install the SAP. Lastly, the key personnel of ATLAM involved in implementation phase do
not have expertise in using SAP. In order to success in implementation phase expertise person
need to assess on issue might occur during the phase. Those three problems should be
considered by project team before proceed with the project.
Issue 2: Termination of Lim
In the case, Lim was having conflict in opinion with Zulkifli when discussing the
matter of SAP system in ATLAM. Lim disagreed to implement the SAP system in ATLAM
because he felt that there are extreme factors will be faced by ATLAM such as low of fund,
lack of expertise, and short of facilities. He relies on his experience in ATLAM then suggests
that need to use ACCPAC system rather than SAP system. These contribute to the conflict
when Zulkifli was very dissatisfied with Lims behavior and intended to kick him out of the
project team. Kamal advise him that the critical ideas of Lim is good for organization since he
was very experienced in such related industry. He, advised Zulkifli to reconsider on the
termination of Lim.

Issues 3: Resistance to Change


This resistance to change issue refers to developing a new accounting system with the
PETRA group-wide SAP system. Zulkifli as Finance Manger concern that whether ATLAMs
employee would be ready to embrace the new system. We found that there are several reasons
the ATLAM is resistance to change at that time. Most reasons are their lack of information
about SAP system and also lack of knowledge about this system. This is, creating the
misunderstanding between Lim and Zulkifli. Lim understanding is SAP system is only
suitable for manufacturing industry and this system was costly compared to ACCPAC.
Besides, ATLAM can be said to be resistance to change because they are facing the lack of
resource to implement SAP system which are need a lots of funds, equipments, spaces, and
intelligence resources. The project team members were complaint there are not enough
Personal Computers in the departments to make these practical to them. Then, they do not
even have the space available to house the system and some of the employees in ATLAM
have never used a Personal Computer before and they are lack of knowledge about
information technology.
ATLAMs employees are fear of loss of the power to control the system operating and
their old job also will be separately divided to each others. They are worried that may change
their role and responsibilities.

FEASIBILITY STUDY
ATLAM need to do further study in the feasibility to implement new system. The new
system which is SAP need to consider to be implemented from several perspectives not only
about deadlines but also its economical, technical, operational, political, and scheduling.
Economic Feasibility
Due to economic feasibility it is done to assess the benefits that can be
received by ATLAM in implementing SAP. This assessment goes through the identification
of costs in proposing SAP whether can obtain benefit costs. When comparing SAP system
with ACCPAC there are some benefits in the fast and flexible accessing data in terms of it has
provision for integration data, allow for complex segmental reporting, and ability to resolve
such audit points raised during procurement. The advantages of SAP compared to other
systems can lead to cutting cost that can be considered as benefit costs. Not only in monetary
terms, but it also has non-monetary which is benefit to improve the system of SAP in its
employees to have the knowledge regarding the new system, even though the cost in the
beginning may in a very high amount. Economic feasibility to implement SAP can be
assessed from Capital Budgeting analysis which can be referred from initial investment, net
cash flow after tax, net present value, payback period, and internal rate return.

Initial Investment
Initial Investment

Amount (RM)

Hardware

2,000,000

Initial Software license

1,000,000

Training Costs

1,271,550

Customization work

72,840

total

4,344,390

From the table above, the initial investment to implement SAP is RM 4,344,390
which is more expensive than ACCPAC. Even though its more expensive there are other
things that can be seen to accept SAP to be implemented. The amount RM 4,344,390 is the
cost incurred in the beginning of SAP implementation, and can be referred to the range of
amount of SAP implementation.

Cash Flow after tax


Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

800,000.00

1,200,000.0

1,600,000.0

2,000,000.0

1,800,000.0

2,000,000.0

1,200,000.0

1,500,000.0

1,800,000.0

1,500,000.0

1,500,000.0

1,500,000.0

5,500,000.0

6,400,000.0

7,300,000.0

Accountant
-

's time and

400,000.00

efficiency
Technical
600,000.00

expertise

1,200,000.00

1,400,000.00 1,600,000.0

cost savings
Process
-

and

500,000.00

900,000.00

procedures
cost savings
Working
1,200, 1,500,000.00

900,000.00

capital

000.00

savings
Total
1,500,000.

Savings

3,300,000.00

4,600,000.00

00
Costs:
Average

SAP licence
cost
Cost

150,000.00

200,000.00

225,000.00

250,000.00

250,000.00

160,000.00

180,000.00

560,000.00

600,000.00

640,000.00

560,000.00

600,000.00

640,000.00

140,000.00

150,000.00

160,000.00

to

convert old 100,000.00


data to new
data
Cost

of

300,000.00
overheads
Cost
of
system

60,000.00

420,000.00
120,000.00

490,000.00
130,000.00
6

maintenanc
e

and

firewalls
Cost
of
hardware

260,000.00

300,000.00

340,000.00

380,000.00

400,000.00

800,000.00

900,000.00

1,000,000.0

1,100,000.0

1,300,000.0

2,825,000.0

3,080,000.0

3,390,000.0

2,675,000.0

3,320,000.0

3,910,000.0

expansion
Cost
of
500,000.00

training
Total Costs

960,000.00

1,910,000.00

2,200,000.00

Earnings
before

tax 540,000.00

1,390,000.00

2,400,000.00

and
depreciatio
n
Depreciatio
n

cost 1,477,092.

974,881.12

643,421.54

424,658.21

280,274.42

184,981.12

1,892,416.28

1,248,994.75

824,336.53

544,062.11

359,080.99

2,250,341.7

3,039,725.5

3,725,018.8

60
(34%)
Net book
value after 2,867,297.
depreciatio

40

n
Earnings
before tax

4
(937,092.6

15,118.88

1,
756,578.46

0)

Tax

rate
(262,385.9

(28%)

116,233.29

491,841.97

630,095.70

851,123.16

3)

Earnings
after tax

1,043,005.2

1,
(674,706.6

298,885.60

1,620,246.0

2,188,602.4

2,682,013.5

643,421.54

424,658.21

280,274.42

184,981.12

1,908,158.03

2,044,904.3

2,468,876.8

2,866,994.7

264,736.49

7)
Depreciatio
n reversal

1,477,092.

974,881.12

60
After-tax
cash flows

802,385.93

1,273,766.71

Based on the cash flow, it shows that the cash keep increasing by the year, by using
cash flow after tax budgeting, the project can be taken into further action.
Net Present Value
Year
1

Cash Flow
802,385.9

PVIF 10%
0.9091

Present Value
729,449.05

3
2

1,273,766.7

0.8264

1,052,640.81

1,908,158.0

0.7513

1,433,599.13

2,044,904.3

0.6830

1,396,669.64

2,468,876.8

0.6209

1,532,925.63

2,866,994.7

0.5645

1,618,418.52

1
3
3
4
0
5
4
6
1
Total Present Value

7,763,702.77
8

In six years, the net present value shows the positive amount which means the
proposed project can be acceptable.
Payback Period
In the six following years, the information gives value of initial investment of
RM 7,020,696.52, this positive value can be considered that this project is acceptable.
Year

Cash Flow

Cumulative Cash Flow

(4,344,390.00)

(4,344,390.00)

802,385.93

(3,542,004.07)

1,273,766.71

(2,268,237.36)

1,908,158.03

(360,079.33)

2,044,904.30

1,684,824.97

2,468,876.84

4,153,701.81

2,866,994.71

7,020,696.52

Payback Period

= 3 + (360,079.33 / 2,044,904.30)
= 3 + 0.18
= 3.18 years

The payback period which is 3.18 seems to be fast, it can avoid such risk due
to economic changing that cant be predictable.
Initial Rate Return
Year

Cash

27% (Rate 1)
PVIF
Presen

29% (Rate 2)
PVIF
Presen

Flow
0

t Value
(4,3

44,390.00)
1

1.000
0

8
02,385.93

44,904.30

888,884.24

8
0.3611

786,064.36

738,438.19

0.302

0.279
747,275.63

7
2,8

66,994.71

0.465
931,543.58

68,876.84

765,438.80

0.384

2,4

622,004.60
0.600

789,736.94

,344,390.00)

0.488

2,0

691,115.88

0.238
3

(4

0.775
631,799.94

08,158.03

1.000

0.620

1,9

,344,390.00)

73,766.71

(4

0.787

1,2

t Value

0.217
683,289.22
225,319.67

622,140.72
(16,367.56)

Operational Feasibility
The question arises from operational feasibility is on whether the operating system is
feasible. SAP gives some of benefits rather than previous system especially in terms of
complex segmentation. Previously, ATLAM with previous system cant produce financial
report while with SAP it can produce financial report. But, since the staffs still not familiar
with the new system there must be training to be provided. Training is very important because
the implementation of SAP may be harmed
Technical Feasibility
SAP is a big project; the group project is very important to have commitment
to proceed the new system. This group project consists of five persons which is Sani as
Project Manager, Gopal as User Project Manager, Lim as User Representative, Kamal as
10

Functional Analyst and Zulkifli as Finance Manager. Although theres argument between
Zulkifli and Lim, the implementation of SAP seemed to be proceeded because of the decision
to change its sytem. The well-structured is needed and for current situation, the technical is
feasible to proceed SAP.

Scheduling Feasibility
Seven weeks seemed to be short for the implementation of new system. As
drawn in Gantt chart although it can be scheduled but it very risky due to understanding of
staffs that kind of really to understand fast the new system because normally people are
different in accepting the new knowledge. It also will give stress and work under pressure
from the project team to implement the new system because of rushing with the time whereby
rushing in time sometimes cant obtain good result.
Gantt chart
AKADEMI TEKNIKAL LAUT MALAYSIA (ATLAM)
GANTT CHART
SAP SYSTEM IMPLEMENTATION
Task
SAP workplan and budget developing
SAP development team and executive forming
Feasibility study of SAP and capital budgeting analysis
Configuration of the system
Pilot Testing
Employee training (process and system)
Organization Implementation
Analysis Report Preparation

11

Start Date
01/22/02
01/24/02
01/27/02
02/01/02
02/16/02
02/18/02
02/23/02
03/27/02

Duration(days)
5
4
5
15
3*
5
32
6

End Da
26/1/20
27/1/20
31/1/20
15/2/20
18/2/20
22/2/20
26/3/20
1/4/200

As the requirement to prepare a working schedule to ensure a timely and successful


SAP implementation. We prepared the Gantt chart which able to provide a graphical
illustration of a schedule that helps to plan, coordinate, and track specific tasks in the
implementation project. The Gantt charts for ATLAM was created in simple version by using
Microsoft Excel.

*Pilot testing issue will be discussed in the statement below.


01/22/02

02/11/02

03/03/02

03/23/02

SAP workplan and budget developing


SAP development team and executive forming
Feasibility study of SAP and capital budgeting analysis
Configuration of the system
Pilot Testing
Employee training ( process and system )
Organization Implementation
Analysis Report Preparation

To ensure the successful implementation of SAP for ATLAM, the Gantt chart above
shown the tasks that need to be followed in order to complete the process in the time period
given which is start from 22nd January of 2002 and end at 1 st April of 2002. The chart was
constructed with a horizontal axis representing the total time span in days of the SAP
implementation project in each task and a vertical axis representing the tasks that make up the
SAP implementation project.
There are 8 tasks that need to complete in order to make the implementation
successfully in ATLAM. First, developing the work plan and budgeting of SAP within 5days.

12

04/12/02

Second, forming a development and executive team of SAP not more than 4 days. Third,
analyze the feasibility study and calculating the capital budget of SAP. Fourth, configuration
the new system in half month which is not more than 15 days. It needs more duration in
configuration the system compares to previous tasks to ensure the system is applicable and
suitable for the organization in the correct path.
The pilot testing normally takes a longer time to complete. Usually it takes around a
year or half year in order to have a complete testing. The given date for implementing the
system with only two months seem unavailable to apply the test due to insufficient of time.
Since the management still considering the pilot test for the new SAP system, the
management should extend the implementing time. The Gantt chart is designed for two
months as requested but the issue of insufficient of time will be presented.
Next is employees training that focus on process and system of SAP within 5days
maximum to ensure the employees able to run the new system. After the training process had
been done, the organization starting implement the new system in one month which is around
32 days. After that, the team must prepare the analysis report of new SAP system and send to
management team as the feedback before 1st April of 2002.
Termination of Lim
Lim is the User Representative in the discussion about new system implementation
SAP in ATLAM. He has different opinion toward the new system and disagree for the
implementation of the system in the company. Example, he believes SAP system costlier and
has a lot of disadvantages for the employees and organization. He said the system is
impractical because lack of resources and skilled workers in their company. So, it is risky if
company implemented SAP system rather than ACCPAC system that is more suitable for the
company.
13

While Zulkifli Osman, the Financial Manager is strongly believing that is a must to
implement SAP in the company as the requirement from the upper management and the new
system is better than another choice named ACCPAC system for the company. When comes
to argument due to the differ opinion, Zulkifli terminate Lim because Lim raised too many
issues and asked too many questions into the reliability of the SAP system that could affect
the others with his negative views. We will discuss whether Zulkifli does a right decision or
not in terminating Lim from the project team.

We believe that terminate Lim is a wrong decision because Lim is very experienced
and contributed to the case as said by Kamal, the Functional Analyst of ATLAM. As we can
see from their discussion for few meeting, Lim raised up a lot of ideas and critical point of
the new system which is very useful in contributing the successful of implementation the new
system. In order to produce a perfect and applicable result of the new system, the company
needs to understand the constraint and weaknesses of the project that could spoil the
implementation. Therefore, the negative opinion from Lim is very contributing if the
company able to overcome all the issues that raised up and turn it to positive way to ensure
the system is applicable with advantages are more than disadvantages.
Besides that, it seen like Zulkifli is autocratic and non-rational manager to terminate a
worker so easily due to different opinion. Sometimes, the opinions and voices from the lower
workers are the best solution and ideas to ensure the successfulness in company operation.
Zulkifli should encourage the openness ethical working environment and does considering
the employees opinion in doing the decision. A healthy competitive and openness working
environment is contributing to the successful of a company directly.

14

Overcome Staff Resistance


Before the new system SAP can be implemented in ATLAM, there is a must to ensure
all the staffs are confident in the new implementation because it will change the operation
system and skills that what they used to do in their tasks. The manager, Zulkifli had to deliver
the message and confident all the employees that new system has a lot of benefits like
increase the effectiveness and efficiency of the business process and transactions. Once the
message is delivered, the manager needs to overcome the problems that might occur during
the implementation of new system like SAP system training and staff resistances.
From the discussion between Zulkifli and Lim, we can list out few factors that
contributing to the staff resistances toward new system. Example like, the employees are
afraid in using new system due to lack in the skills and knowledge about SAP system, unable
to change because they used to complete the tasks with old routine, they have less
competence in using computers and not able to learn new system in short time which the
implementing period just around 2 months. Below are the steps to reduce the staff resistance.
Factor 1: Afraid in using new system
The staffs or employees fear to use new system due to the lacking in skills and
knowledge about SAP. In order to reduce this resistance, the company should provide
adequate training for the new system and well communication so the staffs able to cope
well with the changes and make a smooth transition to the new order. The staffs will be
confident in using the system once they understand the importance of new system and has the
skills in using it.
Factor 2: Resist to change
The staffs and employees unable to change because they used to complete the tasks
with old routine. Change is difficult for people especially when it involves areas of expertise
15

and prerogative. Thats why Zulkifli and the other steering committee need to make sure they
are being as open as possible and communicating consistently about whats happening. There
are some ways to increase the information and communication between the management and
staffs like official website, email and information board in the company. The resistance to
change can be reduced with often and early communicate to ensure the staffs have
awareness to the change.
Factor 3: Less competence in using computer
The staffs and employees have less competence in using computers since the
company is seldom exposes to the electronic system in daily routine and there is problem
with not enough PCs in the department to implement the new SAP system. The company
should prepare to the change physically and mentally and measure there is no lacking on
resources when implementing the system. First, the company should increase the number of
PCs in the office and provide a series of computer training programs for the employees
to enhance their computer skills and knowledge. Besides, the management team should
consider the learning period in order to ensure employees have enough of time for learning
the new skills for the system. Since the implementing period just around 2 months, a proper
training whether in mentally or technically is needed to make sure all the employees can
manage to the changes.

16

RECOMMENDATION
As being discuss before, cash flow after tax, payback period, net present value (NPV)
and internal rate of return (IRR) all shows that the decisions made by ATLAM financial
manager, Mr. Zulkifli Osman to stand and support the implementation of SAP system is the
right decision. Different ratios give perspective from different aspects. Since all ratios
calculated results in favorable to implement SAP system, the issue of choosing ACCPAC
system instead of SAP system should not be an issue at all. Moreover, comparing SAP system
and ACCPAC system from the theoretical aspects also results in choosing to implement SAP
system for ATLAM.
Next, the termination of Mr. Lim, the user representative was an unethical action. This
is because he has a lot of experienced and able to speak out on behalf of other users. He
knows the resistance that will arise if ATLAM still going to implement SAP system. On the
other hand, Mr. Zulkifli does take into consideration to calculate ratios as an evidence to
support the idea of implementing SAP system. He also should pay attention to the problem
stated by Mr. Lim as he acts as a user and the problem listed can be overcome with proper
planning. This will then improve the implementation of SAP system. Mr. Zulkifli should
encourage openness ethical working environment. He should apologize and hire Mr. Lim
back into the team to ensure the implementation of SAP is successful.
Lastly, regarding the employee resistance, the manager should provide adequate
training to the employee together with proper and well communication. This could reduce the
17

level of unprepared mind set of the employee to change and use the new system. Regarding
the factors that employee is resist to change, manager should implement the new system
phase by phase or use pilot testing and have early communication so that employee can be
well prepared to adapt to changes. Since the employee have less competence in technology,
the manager should consider to have more PCs and change the daily process of operation and
also provide some training in using new technologies for improvement of the company in the
future.

18