ERP budgets: Reduce risk and prepare for successful implementation
Planning for a new ERP solution is a major decision for CIOs and other enterprise C-level executives. Everyone acknowledges the benefits a new technology can deliver. Today’s manufacturing and distribution companies find that accessing data instantly throughout the enterprise is a compelling rationale for moving in a new direction. The overriding question is, when is the expense worth the effort and potential disruption that implementing a new solution may bring?
Fortunately for enterprise decision-makers, a template exists that defines how to determine the costs to the organization – and when the benefits outweigh potential costs and the hassle of undergoing a business transformation process.
Top factors to consider before making the leap
A new fiscal year presents opportunities. It is a valuable time to assess the current situation and determine if there are better ways to operate more efficiently, increase profitability and leverage emerging technology to work smarter.
It requires a careful analysis of the current state and what the aspirational future state may look like.
When developing a realistic budget, major considerations include:
Deployment model: Which provides the best model for the organization: on-premise, cloud or a hybrid version using the best of what both models offer?
Yearly subscription fees for a cloud-based system typically add up to 20-30 percent of an on-premise system’s perpetual license. On-premise deployments typically require annual support and maintenance costs that average between 10-20 percent of the licensing fee.
Software licensing: Software licensing can be grouped into two major categories: perpetual on-premise licenses and subscription-based SaaS licenses. SaaS requires less cash up front with costs spread throughout the agreement’s time frame. Cloud ERP solutions offer an attractive, lower cost-of-entry.
However, software licensing costs aren’t the only costs to consider. Hardware, middleware and database costs should be factored in before making solution decisions.
Number of users: The size of the organization and number of users are important considerations. SMBs require fewer user licenses but partners, suppliers and other enterprise users may need access which can affect the total cost.
Applications and feature sets: Setting ERP requirements is a key part of the process and enables companies to assess how potential solutions may compare. Teams must look at each functional area and identify best practices to improve business processes. This enables the enterprise to develop the business case for change.
A statement of requirements which is too broad can stall the process and lead to indecision. Adopting a thorough approach to ERP requirements definition is critical and will help maintain momentum in deploying a new solution.
Infrastructure: An on-premise solution will require hardware – what are the costs? Are additional investments in infrastructure needed for security, reliability and other considerations? Regardless of the deployment model, new software investments may be required as well.
Integration and third-party resources: Many ERP solutions require integration with internal resources and external third-parties to integrate with other solution areas.
The budget must take into consideration the costs and requirements associated with integrating with third-parties.
Customisation initiatives: No off-the-shelf solution will be able to meet the needs of your organization without some degree of customization. Costs associated with customizing the solution to deal with your company’s unique workflow and automation solutions have to be factored into the budget.
Training: The best results are attained when the workforce is adequately prepared for how to function with the new solution. User adoption and acceptance are enhanced when a thorough training program is delivered to the affected workforce.
Training shouldn’t stop with the initial kick-off session; ongoing training is essential for achieving a robust ROI.
Support and maintenance: Support and maintenance of an ERP program typically is 15-20 percent of the initial investment. This a significant expense which should be factored in when considering the total cost of ownership.
It may be possible to cap the cost of future support and maintenance but it’s critical to have that understanding in place prior to committing to the purchase.
Scalability: It’s important to consider the ramifications of future growth and potential acquisitions. Don’t get fenced in by a solution which is ill equipped to handle new growth areas and distribution channels. If the solution doesn’t accommodate business expansion, it will be difficult to scale and a new solution deployment may be required much earlier than anticipated.
One final caveat
Pricing isn’t as straightforward as one may think. Any ERP budget must anticipate extensive ERP contract negotiations which include software as well as maintenance and other contract details.
An independent third-party can assist in selecting the right solution, negotiating an appropriate contract and helping to design and execute a business process improvement strategy that will drive optimum results from the new solution.
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