ERP System – How much does it cost to implement an ERP system?
This is the most common question asked in the initial stages of an ERP implementation project.
Whether or not you engage a software implementer to help in your journey is the first key step in answering this question.
When you are considering implementing a new system for your business and the complexity of matching system to processes means an ERP system is required to provide depth of functionality, there will be cost involved. How this is managed at each step of the process can be the difference between a successful or unsuccessful installation.
Whereas a simple system with no flexibility and strict processes could be undertaken without assistance (although some guidance is always helpful) at a comparatively lower cost. The ultimate solution will depend on your individual business and the specific set of circumstances and processes undertaken on a daily basis.
But how much does it cost to implement ERP software? We will look at the main cost components and the influencing variables. In this article we will touch on some areas where cost savings can be introduced and what to look out for when embarking on this project.
Most companies who implement software systems will start with a scoping process. For a project to be successful, the quality of the scoping exercise will make a significant difference to what is produced as an end result.
During the scoping exercise your team can discuss and agree on:
• What the implementation project for the new system will entail
• Proposed future works not covered in scope
• Works not to be included
• Who is responsible for which elements of the work
• The expected outcomes
At this point a documented plan with the accurate cost of the system can be provided.
Infrastructure (Where will the Software Run)
Where the system runs will have a big impact on the cost. Many systems run on a Software as a Service (Saas) basis where the cost of the infrastructure is built into the monthly or ongoing cost. Generally, in these situations the split of cost for software and cost of infrastructure are not separated. If you are looking at running the software on your own or hosted servers then this cost for infrastructure is clear.
For comparison to SaaS you should consider the costs of servers required over 3 to 4 years. You may link this to the amount of extended warranty you can get on the equipment which may even go as high as 5 years. It gets more difficult to genuinely understand the costs to service and maintain those servers over many years. If you can get a fixed service cost to maintain the servers over 4-5 years that will certainly help. This will then give you a per month value over the time period to use as a comparison.
Just when you thought we had finished with infrastructure there is another important consideration, security. If you don’t know someone who has had an attack on their computer network, then it’s likely they just haven’t told you about it. Security is an important but necessary cost when implementing an ERP system.
If you have your own computer network and it is already very secure, then you have a great base to build on. If you are choosing a SaaS or Cloud solution then you will expect a high level of security, but this shouldn’t be taken for granted, and analysis of the systems is recommended. If you are building servers and introducing external access to your new system, then you will have to consider the security costs.
The Software Implementation
Finally, after choosing a platform on which to run your software, the project can begin. But what are the different parts to an ERP Implementation:
Both the software vendor and the business have roles to play in managing a new software implementation. Clear communication on progress is essential, adherence to budgets and management of issues or obstacles. Paying for this process can be seen as unneeded or superfluous but the old adage you get what you pay for has never been more valid. Effective management and control on a project is in everyone’s interest.
Data Preparation and Migration
Most systems currently implemented are not built from scratch. Plus, there is legacy data often from multiple sources.
• Where are the records of your customers and suppliers,
• Who are the people you deal with in these organisations,
• How much history do you hold and
• How much is useful for planning and normal day to day operations.
• How accurate is that information,
• Will it need some cleansing before it is loaded (those suppliers you haven’t dealt with for 2 years might be best left behind).
• Once you have this data identified and cleansed if necessary, how will it be loaded into the new system.
Using experienced experts will add to the cost but the alternative of performing it internally and making mistakes or taking too long could be costlier in the long run.
Lastly part of this process requires timing, cutting over from one system to another needs careful planning and efficient processes to ensure business interruption does not become an issue.
Configuration and Customisation
Most ERP systems are very configurable “out of the box”. So much so that the cost for this exercise needs to be managed. Some guiding principles are:
• Having a clear vision of the final system
• Lleave some of your old practises behind if they don’t fit
• Getting consensus on decisions
• Taking advice from experts and not overanalysing everything.
• If a configuration can be made later and will not be compromised by a decision now, decide later, you will know more then.
Customisation is both powerful and dangerous. The ability to put in extra capability that is fundamental to your business is very powerful and often will be a major reason for implementing new systems in the first place. Clarity around what is expected is key when considering customising the software. Testing as soon as possible is a key to success with customisation.
The dangerous side is doing too much customisation. Firstly, the temptation to replicate processes in your old software needs to be avoided. Sure, there will be some things that need to be achieved but be careful about holding onto the way the old system made it happen. Secondly, customisations that are not vital might be better left until later. Often when you learn more about the system the need for customisation is mitigated by how the new system works.
Ideally you are considering an ERP system to reduce the total number of systems so integration does not become the main project and main ongoing cost. There are however essential integrations such as with banks, government institutions and other key organisations that may need to be part of your system implementation. Whatever the integrations, make sure the need is worth the cost.
Once you have determined that the integration is either mandatory or has cost justification, cost control is critical. It is easy with more parties involved for this to get away on you very quickly.
Have clarity around the following:
• Who is responsible for ensuring the solution is going to work
• Testing it and making sure it works when you go live
• Integration is great when it works smoothly but it is certainly an important consideration when managing cost.
Training and Super Training
Most organisations appreciate the need for training but often the time for this is not considered in a plan. When implementing a new ERP system there is a great opportunity to align business processes and ensure people know what they need to in order to effectively perform their job. Our experience shows that the practice of building a few “super users” who understand the system very well will lead to huge cost savings. Money spent on this process will reduce the overall cost every time.
When all new users of the system are well trained, and it is done at the appropriate time, an ERP system goes in more smoothly. This is a cost that should not be overlooked. (Tip – don’t train people too early as they may forget by the time they use the new system).
Somewhat overlooked is the cost of user acceptance. At first glance it may appear that this would not be a cost, surely it is just checking everything is working as specified. If systems are complex enough then interpretation is also complex. Before you submit your business to a new system you need to make sure it will operate as you expected. There needs to be room for tweaking, revising and resetting of expectations in any system implementation.
At this stage cost can be forgotten but here is the best chance to both maximise the benefit of the new system and go into using it with confidence. Allow some cost for this process, it will pay back many times over.
Be prepared for some cost at this stage on rework and retraining and hand holding. Getting your people to accept a new system needs confidence and for some people this comes slowly. We often say the people who follow fixed processes day after day are our greatest asset, however this can be a very challenging time for them. Getting help, at a cost, is going to get the system in quicker and with more acceptance.
Most systems have daily, weekly and monthly cycles. Part of the process is to make sure you have allowed for checking these are going well and there is budget allocated to adjust the system to maximise efficiency. Once you have cleared these cycles then implementation can be closed off and normality should prevail.
Throughout this article we have outlined the areas where costs will be involved and hopefully given you some guidance on where extra cost may appear and where being vigilant will save cost. When considering costs, you will no doubt be focussed on the reason for needing a new system in the first place. Sometimes there are very tangible returns on investment, sometimes the business has been constrained and cannot continue to grow without a new system and sometimes you are forced to move as support for software is withdrawn. Whatever the reason, manage your costs well and you will be looking after the businesses interests and expanding your expertise as well.