The best way to understand the difference between Enterprise Resource Planning (ERP) software and Project Portfolio Management (PPM) software is to think of the latter as having evolved out of the former.
The history of Enterprise Resource Planning
Production scheduling models were first used in the US at the very beginning of the 20th century and were originally known as Economic Order Quantity (EOQ) and Economic Purchase Quantity (EPQ) systems. That evolved into Material Requirements Planning (MRP) in the 1950s, and then MRP II in the 1980s.
Once all that began to be integrated into computer systems people started referring to it as Enterprise Resource Planning, which was first used in the 1990s by the Gartner group. But over the next decade or so, companies using ERP systems saw their costs spiral, as the servers they needed to run them got bigger and bigger. So with the turn of the 21st century, ERP moved to the cloud and became part of the software-as-a-service (SaaS) world.
What is ERP software?
One of the core challenges that every organization is faced with is the natural tendency for businesses to organize themselves in silos. There, decisions get made because of the immediate goals within those units, without factoring in the strategic and tactical aims of the organization as a whole, or the departments they’re a part of.
What ERP does is to connect each of the separate areas where you organize and distribute your different sets of resources. Giving you a view into all the different elements that feed into your financial management, human resources, and manufacturing departments, and linking them all together.
This gives you that all-important visibility into your day-to-day business activities around procurement, project management, accounting, finance, and supply chain planning. That visibility means you can track the different stages of your product’s journey, through development, production, and distribution, monitoring each aspect of the logistics process.
So the goal of doing everything you can to optimize supply chain synchronization is one that can be genuinely realized. Because all the data that every stage along your supply chain produces is now being processed through the one central hub. And everyone within your organization has access to that data in a way that was never possible in the past.
PPM is ERP 2.0
Once businesses began using ERP software to track and consolidate their data, they quickly came to appreciate how useful a tool it was. But they also began to realize what some of its shortcomings were. Effectively, what ERP is so good at is in providing you with a general overview of where everything is. What’s it’s less good at is giving you a detailed, granular understanding of exactly where a project is, in relation to where it was due to be. Which is where PPM comes in.
PPM software is basically a much more flexible version of what ERP was originally. The principal difference being that PPM is much more configurable. Meaning companies that use it can mold it to suit their specific needs. This makes PPM much better at collecting, analyzing, and distributing data sets to all the people who need to have access to them. Both within the organization, and to any of the different suppliers that the business works with. (See our ERP Comparison matrix for more details)
PPM with EVM
What the best PPM software gives you is the ability to apply Earned Value Management metrics across each of your projects. So at any given moment, you can compare where a project was planned to be, with where it actually is, and how much it has cost so far. Which puts you in a much better position to take action early, and prevent any overruns in costs and schedules.
PPM software was therefore designed around being able to marry a project’s plan for its work breakdown structure (WBS) with the financial resources available. Because the Gantt charts and different graphs that PPM provides you with give you a constant stream of updates, which get updated in real time. All of which helps you to avoid waste, minimize delays and maximize margins.
These days, most large organizations use a combination of PPM, ERP, and other software tools to help them manage their data. The big difference being, that the best PPM software can comfortably be integrated with any existing ERP software. Whereas most ERP systems make that process extremely cumbersome.
All of which explains why so many large organizations have been turning increasingly to PPM software. For, as the Project Management Institute’s conference paper, Next Generation Project Management Software, puts it:
“Organisations demand greater project collaboration capabilities to deal with more challenging projects and improved portfolio analytics to better manage portfolio risk.”
And the best way to be able to do that is to make sure you’re using the right PPM software.