There are so many variables when analyzing what an ERP project will cost that providing average values for a range of organization sizes is unlikely to be very helpful. However, the saying “forewarned is forearmed” can be applied to understanding what the various cost components of a project will be, and therefore enable better planning, management and execution of the project.
The key difference that influences ERP Implementation cost between organizations is process maturity. Process maturity underpins how the ERP project plays out including how the project is approached, what is done, and how it is done.
A business that has already invested heavily in refining processes specific to their business; and iterated on these processes many times over will generally be more expensive to implement as the ERP system will likely need to be heavily customized to meet these business requirements. Even just finding and documenting these specialized requirements is a lot of work. The opposite is true for businesses that typically have not invested so much in refining their processes. Business processes in these companies have typically evolved organically or expediently. In such cases, the implementation cost will be less because of the limited customization required
On premise or in the cloud
Another factor to consider is how your business chooses to implement the software: will the software be on premise or in the cloud. Deploying your ERP in the cloud reduces risk, increases productivity potential, and saves money. True cloud ERP deployments means the management of the application software and hardware are the responsibility of the vendor so you don’t have to build that competency in-house.
This typically is a significant part of your ERP costs, but it is often difficult to get an accurate forecast of the investment that will be needed. Your ERP project team needs to fully document the anticipated transaction volume, the scope, and complexity of the implementation. It’s also important to document the number of third-party integrations that might be needed, as well as any data mapping or conversion.
These are costs associated with system administration, maintenance, and infrastructure. Again, if you go with a cloud deployment all of the application software maintenance and infrastructure costs are covered in your subscription fees so these become more predictable. Your IT costs are also more easily brought under control. And finally, traditional IT tasks are managed by the cloud vendor, so the need for a database administrator, a network expert, a web security expert, a disaster recovery expert and beyond, the need for all of these is reduced.
Mapping data from the old system to the new system
This is an often under-estimated cost item. It’s the process of mapping data from old systems to the new system, then converting and migrating the data, and then validating the data is correct. This can be hard to estimate accurately unless you have a good and up-to-date understanding of all existing data. Experts recommend only migrating what you need, but whatever you estimate it will cost, double that number.
If training is discounted, the chances of the ERP project failing can explode. So don’t cut the training budget. These days training is highly adaptable – apart from standard training options, you can take a ‘train the trainer’ approach or use e-learning.
If you want a properly run project, you need to invest in a professional project manager. Whether you use someone provided by implementation consultants, or hire your own, don’t miss this cost item; it will be money well spent upfront and save you in the long run.
The less obvious costs:
Change management:The major reason that many ERP projects fail is not due to the ERP software, but because of the people who have to work with the new system. That means from the outset, when you start planning the system, you must involve and get buy-in from the people who will be the users of the system. This is not just a meeting, it’s an ongoing methodical process of winning hearts and minds
New business processes and policies:If you are going to get value from an ERP system, you must use the opportunity to change your business so it is more effective. If your business changes, you must change the way you do things – the processes and policies you had in the past must be modified, which is obviously going to take time and money.
Upfront design and planning:The saying “Failing to plan is planning to fail” applies here. You must budget for time before the project to ensure that the objectives of the ERP project are clear, realistic and agreed. Then you must make sure that the plan to reach those objectives is feasible.
Scope creep : Why is scope creep a cost? Because if you are not careful, and don’t stick closely to the original project objectives and plans, it can easily get out of hand and project costs can skyrocket.
Report creation: Businesses rely on reports to track progress, check status, and monitor performance. While ERP systems provide report templates, you will still need some customized to your requirements, as well as new ones created that are specific to your business.
Cost of staff and executive time: Expect some of your staff and executives to be pulled into the ERP project, either unexpectedly or for longer than planned.
What it all boils down to
The results you achieve and the progress you make in running a successful business always come from a combination of people, processes and technology, including the software that runs your business. But you simply can’t take full advantage of that software unless you actually use it. The more you use it, the more value you derive. And by “you” we don’t mean just a select few. It takes a full complement of employees to run your business. And therefore, a full complement must actively engage with the software. But it also takes business partners to optimize your supply chain, and of course, customers managing their own orders from you. The easier it is to engage with you, the stronger the supply chain and the happier the customer.
In conclusion, remember that the success of an ERP Implementation will boil down to whether or not your employees really use the ERP Software. You can spend a small fortune getting an ERP solution for your business but if you can’t get your people to actually use the ERP system, then why bother? If your team does not use the ERP System, it will generally be because of these very simple reasons: