Seven Hidden Costs of ERP

Posted by James on September 1, 2016 at 10:59 AM
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Hidden ERP Costs

You've received a quote from your preferred Enterprise Resource Planning system vendor. Now you know the costs for hardware, software, implementation assistance, and training. So that's the total cost, right? Unfortunately, that's probably not the entire cost of your system, and companies that aren't made aware of this fact frequently find themselves with the unwelcome surprise of additional fees and expenses that were never anticipated - and therefore weren't included in the budget plan.

Here are the obvious system and implementation costs:

  • Hardware: servers, printers, workstations, networking equipment
  • Software License Fees: ERP, operating systems, database, peripheral applications
  • Maintenance: recurring software fees, hardware upkeep, communication services
  • IT Overhead: technical staff, space, utilities, equipment
  • Initial Implementation Project: ERP installation and configuration, data conversion, training, planned customizations

(Note that in Software-as-a-Service (SaaS) implementations, the up-front costs for most parts of the first four items are replaced by monthly subscription fees. Use these consolidated monthly costs - and benefits - over a reasonable period of time to develop a fair return on investment analysis.)

In order to prepare a realistic and comprehensive budget plan that avoids mid-project shocks, consider these seven sources of potentially additional expense.

  1. It takes considerable time for your existing employees to implement the system, learn how to use it, and develop/document their new procedures. Furthermore, a successful implementation includes your best people, and their time and effort might redirect significant value away from current day-to-day activities. Companies sometimes deceive themselves into thinking that - already being on the payroll - these employees come at no additional cost. Of course, there is a cost for what doesn’t get done - or done as well - while they are active on the implementation. Additional staff or temporary help might also be required, depending on the involvement of your A-team.
  2. Similar consideration should be given to the value of the executive sponsor's time. The implementation project must remain at the top of the company's priority list so as not to become a perpetually unfinished liability. It takes significant attention and effort from the project's executive champion to provide the essential leadership and motivation that keep the project on time and on track.
  3. A cross-functional team implements the system by learning the capabilities of the software followed by mapping those new functions into regular (and expanded) daily procedures. This group also cooperates on data conversion, validation testing, and process documentation. Because this will be your company's first group of experts, they will also likes perform training and work to inspire acceptance of the new system. All of these necessary activities take time from a broad cross-section of employees pulled from multiple departments.
  4. In addition to the initial round of basic training for everyone, some users will inevitably earn education on advanced functionality, while others may require reinforcement training for earlier lessons that might have been forgotten or not fully absorbed the first time around. Subsequent training engagements will also be needed for new hires and people whose responsibilities in the organization shift.
  5. Your business will change, and your ERP system should be flexible enough to grow along with it. Although you can't know exactly what that will equate to in terms of future customizations, it's smart to include some money in your budget for general future tailoring. Your Trusted Advisor can help you anticipate what you might need for additional applications, follow-on consulting, and custom programming.
  6. You will undoubtedly be paying recurring fees for support and maintenance, including periodic updates - and new functionality - for your ERP software. Yet, unless you're in a SaaS situation, those updates won't install themselves. Depending on your company's technical staffing, you may want to plan for professional services' assistance with updates as well as the training that will help your teams take full advantage of the new capabilities.
  7. As your company grows, you may eventually want to use more of the application's functionality than you initially planned on when you purchased the system. Depending on your projections for expansion, budget for additional consulting so that your system keeps pace with your prosperity.
Remember that this is not a comprehensive list of additional costs you may encounter. Yet including these kinds of less-than-obvious costs in your justification will make your ROI projection more realistic. You'll also find that you and your staff remain happy and productive with your ERP system years down the road.

Topics: ERP

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