ERP stands for Enterprise Resource Planning. This type of application serves as a system of record. If implemented correctly, it will capture all company transactions and data to provide business insights and satisfy financial reporting requirements. The challenge is knowing where to draw the line on what processes should be managed as part of an ERP. And, where to store the associated data. Given the complexity of implementation, there is no single “right” answer. Here are some guidelines that can help you pick the right ERP for Oil & Gas companies – and then deploy it to achieve a return on investment.
Why Implement an ERP?
A company could operate without an Enterprise Resource Planning system. Under this scenario, it would be necessary to have separate accounting, financial, inventory, and supply chain management systems. The list of ERP functions could also include e-commerce management, Customer Relationship Management (CRM), Marketing Automation, Human Resources, and workforce management (source). All of the information collected by these systems could then be shared across these systems for decision support and business performance reporting. The challenge is that the complexity of maintaining such an ecosystem quickly escalates in difficulty.
Chief Financial Officers (CFOs) or the head of Finance/Accounting are responsible for ensuring the accuracy of financial reporting at their company. If the data behind these reports are not accurate, they can’t do their job and the company might operate at financial risk – or worse. An ERP provides a “single source of the truth.” This helps to ensure the accuracy of the reports generated.
What are the Benefits of an ERP?
An ERP system can benefit many roles at any company, but the CFO (or equivalent) stands to benefit the most. This explains why this role will typically be actively involved in any vendor selection process. Here are five values an ERP provides:
- Visibility to better data for informed, data-driven decision support
- Understanding of financial performance with deeper clarity
- Access to financial reporting that can provide insights to better improve performance
- Achieve corporate and regulatory compliance with a higher degree of accuracy
- Wider insights into financial performance to implement business process improvements
A Two-Edged Sword
To achieve these benefits, an ERP must be rigid in how data is collected, measured, and then reported on. Any variance or system modification puts at risk the requirement of providing the “single source of the truth.” This is both a blessing and a curse of implementation. Because of the incredible rigidity of deployment, it can sometimes take much longer to complete these types of projects. Future changes can also be quite painful.
For example, imagine an oil & gas company that operates both drilling rigs in the ocean and mines for oil shale, which is first extracted from the earth by underground mining processes. How do you estimate the inventory of future expected oil to be extracted on a balance sheet? What about the depreciated value of various capital equipment used in each process? The only way to ensure everything is accurate is to be quite strict with how transactions are recorded to ensure accurate financial reporting.
On the other hand, as operations grow in complexity, so too does the business logic necessary to ensure consistent, standardized financial reporting. Once an initial deployment or “go live” is complete, a new process must be established for future changes. By default, most ERP systems are quite difficult to change. These systems can be nearly impossible to make a fast change. New programming might be needed. New workflows or approvals might even be required. This new process will then require testing to ensure future reporting remains accurate.
Therefore, it becomes critical when tasked to pick the right ERP to evaluate what processes should be governed by an ERP – and which should not. An ecosystem will emerge whereby ERP is a “hub” or a system of record. Processes will then be run by different applications that “feed the beast,” as it is sometimes referred to. A balancing act is necessary that accommodates two competing needs:
- Do you add MORE systems and business processes to an ERP – leading to more rigidity and standardized business processes? Or,
- Do you add FEWER systems and business processes to an ERP – leading to greater business agility to respond faster to change?
How to Pick the Right ERP for Oil & Gas Companies
Here is the crux of the decision that will make all the difference in how successful your ERP deployment will be. What level of rigidity vs. flexibility do you need in your business? Helping to define where your organization sits on this continuum will then help define your optimal ERP deployment.
If we look at an extreme scenario whereby every business process is managed by an ERP, then we can see a draconian environment! This might include hundreds of custom “workarounds” built into every business process – also known as “Shadow IT.” Imagine a situation whereby a new type of rental equipment was needed at a drilling site that didn’t already exist. Let’s say it is electric, so needs to access power for charging. It might generate improved productivity – but tracking its actual cost could be difficult in the existing ERP. Other challenges could exist when it is purchased, starting with setting up a purchase order or rental agreement. If this modification required a systems integrator to visit every site where this type of purchase occurred, literally nothing would get done by this business!
Of course, this type of scenario would never occur – it was just shared to show an extreme situation. If modifications can not be made out in the field where change and unpredictable events often occur, then the staff will just not use the system and perform processes manually. This will then lead to inaccurate reporting – and a “war” will soon break out between operations and accounting. No one wins here.
How to Have Your Cake and Eat It Too
Today, we are experiencing extreme levels of uncertainty and volatility. Learn how to overcome VUCA with an IT systems and automation strategy. We also have many new technologies that can help standardize processes within uncertain environments. As reported in this article, AI investment by Oil & Gas companies is set to explode.
The ideal scenario is to deploy field systems for managing operations but to ensure that integration is maintained. This is a critical factor to understand in order to pick the right ERP. Data can then be tracked and identified consistently within each field application. It can then be shared with ERP systems consistently, in a standardized manner. This type of scenario is increasingly possible today. Anytime an automation and data architecture strategy can be applied to standardize how responses are managed and processes are executed, the likelihood of consistency with how data is collected and aggregated will increase significantly.
The same can be said of any data that is extracted in large volumes, such as how land lease agreements or title policies are reviewed. Business processes that take advantage of new technologies to drive performance and efficiency are usually good policies. You just need to be sure the rest of your systems infrastructure can support today’s dynamic environment. That way these benefits can be achieved. A systems integrator that works closely with you can help more than offset any integration challenges. In this case, you unlock the full value when data is captured and transferred accurately and consistently.