ERP Overview 5 — Questions and Answers
Question 1: What does 'total cost of ownership (TCO)' include when evaluating an ERP system?
- Only the initial software licensing fees
- Licensing, implementation, training, customization, maintenance, and ongoing support costs (Correct answer)
- The cost of hardware servers only
- Annual subscription fees charged by the vendor
Correct answer: Licensing, implementation, training, customization, maintenance, and ongoing support costs
TCO encompasses all costs associated with an ERP over its lifetime, including hidden costs like training, upgrades, and internal IT support.
Question 2: How does ERP support demand planning in a retail company?
- By automatically placing orders with all registered suppliers
- By analyzing historical sales data and inventory levels to forecast future product demand (Correct answer)
- By generating marketing campaigns based on customer demographics
- By setting retail prices based on competitor analysis
Correct answer: By analyzing historical sales data and inventory levels to forecast future product demand
ERP demand planning modules use historical data, seasonality, and trends to forecast future demand and optimize inventory levels.
Question 3: What is 'exception-based management' in the context of ERP reporting?
- Managing projects that fall outside the ERP's standard modules
- Focusing management attention on metrics that deviate significantly from targets or thresholds (Correct answer)
- A reporting style that excludes financial exceptions from audits
- Bypassing standard approval workflows for urgent transactions
Correct answer: Focusing management attention on metrics that deviate significantly from targets or thresholds
Exception-based management uses ERP alerts and reports to highlight only the data points that fall outside acceptable ranges, saving managers time.
Question 4: Which ERP implementation strategy involves running the old and new systems simultaneously during transition?
- Big bang implementation
- Phased rollout
- Parallel running (Correct answer)
- Pilot implementation
Correct answer: Parallel running
Parallel running means both the legacy and new ERP systems operate simultaneously so results can be compared and verified before fully switching over.
Question 5: A company using ERP notices that purchase order data entered in the procurement module automatically updates the general ledger. This illustrates which core ERP principle?
- Workflow automation
- Module isolation
- System integration (Correct answer)
- Data encryption
Correct answer: System integration
ERP system integration means that a transaction entered in one module automatically updates all related modules, eliminating duplicate data entry.
Question 6: Which factor most commonly drives a mid-market company to replace its existing ERP system?
- The ERP vendor discontinuing customer support for the current version
- Business growth that causes the current system to lack scalability and functionality (Correct answer)
- Government mandates requiring all companies to upgrade to newer ERP versions
- Security breaches that make the old system permanently unusable
Correct answer: Business growth that causes the current system to lack scalability and functionality
The most common ERP replacement driver is outgrowing the current system—it can no longer support the company's expanded complexity, volume, or new business requirements.
Question 7: What is the purpose of 'role-based access control' (RBAC) in an ERP system?
- To limit the number of users who can log into the system simultaneously
- To ensure each user can only access data and functions relevant to their job role (Correct answer)
- To automatically assign tasks to employees based on their department
- To restrict ERP access to senior management only
Correct answer: To ensure each user can only access data and functions relevant to their job role
RBAC grants ERP permissions based on job roles, so an accounts payable clerk, for example, cannot access payroll or HR records.
ERP Overview 5
What does 'total cost of ownership (TCO)' include when evaluating an ERP system?