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Federal agencies modernizing their enterprise resource planning (ERP) systems face challenges that go beyond replacing aging technology.

Modernization efforts require agencies to rethink business processes, manage organizational change, improve data quality and prepare for future innovations in artificial intelligence — all while maintaining mission-critical operations.

Sandeep Dorawala, president of enterprise systems and solutions at SMX, said that for agencies beginning ERP modernization efforts, success starts with long-term planning.

“Especially at the scale that we think about, with the amount of transactions that the federal government does and the agencies that have to do those, you really have to do a lot of planning,” he said.

Dorawala said agencies should focus on three key areas: governance, requirements management and return on investment.

“As we think about modernization planning, it takes funding, it takes commitment to be able to put those dollars in place,” he said. “When you think about getting a budget in place, it’s really about not just licensing and not just system integration, but really think through that roadmap, that journey until you go fully live.”

Because ERP modernization efforts span years and sometimes multiple administrations, agencies need strong executive sponsorship and governance structures that can sustain momentum over time.

“You’re going to need senior-level buy-in. You’re going to need a strong champion to work through even administration changes, because these are 10, 20-year modernization efforts at times,” Dorawala said.

Agencies must also gain a clear understanding of existing requirements and business processes before attempting to move to a new platform.

“Getting your hands around the requirements from a long-term transition planning is looking backwards,” Dorawala said. “What have I done to my system? How have I planned for it, and what is modernized?”

Modernization efforts require agencies to account for more than software licenses and implementation costs. Dorawala said agencies need to plan for ongoing updates, quarterly software releases and the unique requirements that often emerge during implementation.

“The last-mile requirements — the very unique, custom agency-specific requirements — they tend to be sometimes the bottleneck, and we didn’t think through the dollars that are necessary to take those last-mile requirements to implementation,” he said.

While ERP modernization is often viewed as a major technology project, Dorawala emphasized that agencies should avoid trying to replace everything at once. Instead, agencies should identify opportunities to migrate functions incrementally and understand dependencies among systems before making changes.

“You don’t want to go big bang, you want to take your time to do these migrations,” he said.

A marketplace for modernization

The Treasury Department’s Bureau of the Fiscal Service plays a significant role in helping agencies navigate those decisions through its role as the government’s financial management Quality Service Management Office (QSMO).

Cait Gehring, associate commissioner for debt servicing and financial solutions at the Bureau of the Fiscal Service, said the QSMO model evolved from earlier government efforts to standardize financial management systems and increase transparency across agencies.

“There’s always been interest in shared services in standardization of financial management,” she said. “From a transparency perspective, we owe it to the taxpayers to show how money is spent.”

The QSMO established a marketplace of vetted financial management solutions that comply with federal standards while still allowing agencies flexibility to address mission-specific needs.

“These solutions are about 80% standard to make sure that there’s government-wide consistency, while also allowing that extra 20% for agency-specific needs,” Gehring said.

Reducing technical debt

A major goal of the marketplace is helping agencies avoid the accumulation of technical debt that often accompanies decades-old systems. Dorawala said agencies frequently blur the line between truly unique requirements and capabilities that could be standardized.

“The gray line has gotten wider and wider, where the standard and sort-of unique get blended over time,” he said. “Shared services allow agencies to standardize at a level that’s consistent across the federal government, and that’s such an important aspect of moving in the right direction.”

Standardized platforms help agencies take advantage of investments already made by major software providers while reducing the need for custom development. Gehring said the QSMO was intentionally built around common standards before providers were added.

“We created that baseline foundation for what every one of these software providers needed to do, so that we are making sure that anyone who adopts that is using their, speaking the same language, basically, and we’re seeing a lot more adoption recently,” she said.

AI creates new opportunities

AI is becoming an increasingly important component of ERP modernization. Dorawala said modern cloud-based ERP platforms already incorporate AI capabilities that improve usability and provide deeper operational insights.

“AI is already getting embedded in these products, and it’s an incentive. When you think about a modernization strategy, ultimately the product needs to serve the end user. AI is everywhere for us in our personal lives,” he said. “The advent of AI has accelerated the ability to get insights into your business.”

Dorawala added that AI can help agencies generate and validate requirements documentation, a task that traditionally requires extensive effort from employees.

Navigating change management 

Getting buy-in from the workforce remains important to successful modernization. Dorawala said agencies often underestimate the resources required for organizational change management.

“You could spend a billion dollars on a modernization. What happens if no one uses it?” he said.

He urged agencies to identify change champions early and ensure leadership consistently communicates the reasons behind modernization efforts.

“Leadership alignment on a modernization initiative is non-negotiable,” Dorawala said. “You will not succeed without leadership alignment.”

Gehring agreed, and said agencies must involve stakeholders from the beginning.

“If you don’t have your stakeholders in there early, you’re going to be halfway down a path, and you realize nobody’s with you,” she said. “Bring in all the people who are day-to-day in the system, and get their input into that.”

Ultimately, modernization is about positioning agencies for greater transparency, auditability and adaptability in the future. While modernization remains a complex undertaking, agencies that focus on governance, standardization and change management can reduce risk and build a stronger foundation for future innovation.

“A modernization is never an easy lift. There will always be a significant amount of work that goes into it,” Gehring said.

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