An Enterprise Resource Planning (ERP) system refers to the organizational management software used by the business companies to manage and control essential business sections. For instance, these sections of the business include marketing, inventory management, planning process, financial management, and human resource management. The Enterprise Resource Planning system integrates these business aspects in one database and makes sure that the company’s operations are running smoothly. Along the implementation of the ERP, there are several software programs and applications have been utilized in the success of the ERP. The report will address how ERP helps the company in making decisions and risk mitigation. Additionally, the paper shall explain why improved decisions and risk reduction are significantly crucial for operational efficiency.
Risk mitigation is the process of decreasing the effects of the risk in an organization. This is also known as risk reduction. Enterprise Resource Planning is significantly crucial in the mitigation of business risks. To ensure that the planning is successful, software applications and programs are developed. As indicated by Leon (2014), the ERP programs are structured in a way that business activities are operating smoothly. Effective planning enhanced by ERP ensures that operations within the organization are conducted in the right manner. When the services and events in the organization are done rightly, the risks for the business failure becomes low. Through the application of the ERP, the organization can strategically plan the management of prospective and potential organizational risks such as theft, hacking, fires and employee accidents.
According to Tian & Sean (2015), the ERP ensures that the organization mitigates business performance risks by hiring the rightful individuals. Job description directs the organization on suitable personnel to handle the required job duties and responsibilities. Through the application of the Enterprise Resource Planning systems, business organization effective hire people with the required technical knowledge and skills in the performance of the duties needed. Besides, the system makes sure that the organizational workforce is suitably managed/controlled and the operations are effectively monitored during the working durations. The ERP critically manages the customer relationship within the organization. Therefore, ERP is primarily vital in reducing the vulnerability of the company losing customers and reduction of the performance.
Enterprise Resource Planning (ERP) system is used in mitigating asset management risks through the control and management of the organizational inventory. Effective inventory management ensures that the company keeps the right track of the assets thus reducing the risk of losing essential business assets (Leon, 2014). Through the application of the ERP systems, the business processes are streamlined, and the organizational assets are tracked effectively. With the implementation of the ERP in an organization, any missing asset in the business organization can be identified. Therefore, with an ERP system in place, the risk of losing a business asset is reduced.
Tian & Sean (2015) suggests that ERP is essential in managing business finances. Business finances directly affect the company. Any mismanagement of the finances in an organization cause significant loses in an organization. The application of the ERP help in the management of the funds and finances in an organization. As a result, Enterprise Resource Planning System is importantly used in the reduction of the financial risks in an organization.
Decision making is a critical process in any of the business organization. With the inadequate or ineffective decision, organizations suffer loses, however, with effective and excellent choices, business organizations experience good performance and outcomes (Hoch & Dulebohn, 2013). The effective decision-making process is enhanced by enough and reliable data/information derived from the ERP shared databases. In the decision-making process, the company strategic management team and the human resource management team needs information about marketing, planning, inventory management, financial management, and human resource management. All these types of data are stored in the ERP’s database. Therefore, during the process of decision making, the company retrieved the information to make an informed decision. For example, the human resource can apply such knowledge in the planning of how, when and whom to recruit based on the finances and workforce data in the database (Sumner, 2014).
Significantly, ERP is mostly relevant in the development of business intelligence (BI) (Sakhare & Anupama, 2015). Business intelligence assists in the identification of the organization’s new opportunities that can be used in improving the performance and the productivity of the organization. Also, through the help of the ERP programs, the company understands the marketing tactics and production strategies used by other competitors. As a result, the organization can make right and effective decisions (Sakhare & Anupama, 2015).
Operational efficiency is the ability of the business organization to produce products that are of high quality in a cost-effectively way. Operational efficiency is enhanced by effective decisions and mitigation of potential risks in an organization. This is the reason why mitigating risks and making the right decisions in an organization is essential in ensuring operational efficiency (Hoch & Dulebohn, 2013).
When risks within an organization are mitigated or reduced, the operations and business activities are run smoothly. For instance, with effective risk management strategies, an organization ensures quality products and excellent customer relationships. In addition to risk management, making better decisions is a factor that increases the operational efficiency of the business organization. The effective decision-making process is enhanced by enough and reliable data/information derived from the ERP shared databases.
Hoch, J. E., & Dulebohn, J. H. (2013). Shared leadership in enterprise resource planning and human resource management system implementation. Human Resource Management Review, 23(1), 114-125.
Leon, A. (2014). Enterprise resource planning. New Delhi: McGraw-Hill Education (India) Pte Ltd.
Sakhare, & Anupama. (2015). Business Visibility with Enterprise Resource Planning. Partridge Pub.
Sumner, M. (2014). Enterprise resource planning: Pearson new international edition. Harlow: Pearson Educational Limited.
Tian, F., & Sean Xin, X. (2015). How do Enterprise Resource Planning Systems Affect Firm Risk? Post-implementation Impact. MIS Quarterly, 39(1), 39-A9.