An ERP software implementation is a massive digital transformation and a serious undertaking for any organization. However, it can also provide immense value when done right. We’ve all heard the scary numbers about ERP failures, but there are some strategies you can take. To avoid becoming a statistic, and to help speed up your return on investment, you must sufficiently plan for the project. In this post, we’ll walk you through some of the costs, time commitments, and resources needed that you might not be aware of, but should consider, before committing to a new ERP system.
There are two main types of software costs. The first is subscription-based pricing, which you might know as Software as a Service or SaaS. With SaaS, you’ll be purchasing the ERP software through the cloud, and you will pay for its services once a month. Then there’s the on-premise model pricing, where you purchase everything you need, like the IT infrastructure, equipment, and licenses, all upfront in a one-time fee. It should be noted that the on-premise model cost usually does not include any future maintenance costs or upgrades.
SaaS usage has significantly grown over the years from 38% in 2016 to a predicted 86% of businesses expected to rely on it in 2022. No matter who’s leading in terms of growth, what you choose for your business is entirely up to you. Most small to mid-size companies go with the SaaS model because they would prefer to avoid the larger capital cost upfront and can spread the cost out. With SaaS, you’ll be paying as you go, so to speak, which can also include any planned or unexpected future maintenance costs that may arise (and usually they do) with on premise models.
Estimating implementation costs is a more complex question. It really depends on the size of your company. It depends on the number of users that need access, the number of entities and/or locations you have, along with how many modules you need, for finance and ordering, etc.
Generally speaking, the bigger your business, the more complicated the ERP project is. During the preparation of an ERP project, map out your users, the number of locations, and all the possible modules you’ll need. Outlining these ahead of time will give you a more realistic, and accurate, representation of what your implementation costs might be, so there won’t be any surprises.
3rd Party ISVs
When we talk about ERPs, you most likely will also hear the acronym ISV, or Independent Software Vendor, at some point. That’s because not all ERPs come equipped with everything we need built in. To potentially lower operation costs and add customizations to your ERP system, you’ll look to an ISV to leverage a 3rd party add-on. Some examples of what an ISV can offer that may not be included in your ERP solution are customized reporting, business analytics, tax management, or AP automation. Which add-ons you may or may not need right away will depend on your business goals. In addition to some of these advanced system capabilities, they can also increase customer satisfaction, improve business operations, and optimize the user experience.
There are lots of 3rd party add-ons that integrate with ERP systems, but not all of them are compatible with every ERP. So, before selecting an ERP system, make sure that if you need any specific additional features or functionalities, that those can be easily integrated with the business management solution you select. The costs of these add-ons can vary substantially, but they still need to be included in the total cost of the ERP project (should you choose to use them in your business). That includes the cost of the software, its integration, plus any labor or maintenance fees after its integrated with your system.
One thing to keep in mind with add-ons though, is that they can also be added later. You can certainly implement a new ERP and keep add-ons as a “Phase Two” for additional functionality once your team is already getting the benefits of a new system.
Resources (aka Internal Time aka Staff Costs)
While the time it takes to deliver a successful ERP solution varies widely due to business size, you can expect it to take on average from 6 months to 12 months – from the start of project discussions to a successful go live. Keeping this in mind, what people will be leading this implementation this entire time? If the implementation takes one year, do you have enough staff to manage this project for that long? Or do you need to hire other staff to cover your team while they’re busy with it?
You also have the possibility of factoring in opportunity costs to have someone spend 50% of their time not doing their usual job. All these internal costs contribute to the overall cost of the ERP project and, should be factored in during the planning so you get an accurate estimate of what an ERP project costs for your business. This doesn’t mean you shouldn’t look at a new ERP, but to figure out an accurate ROI of the solution afterwards, you need an accurate total cost of ownership.
Thinking ahead to the future, you’ve successfully passed the implementation phase of an ERP project, and now you’re in the post-implementation phase. What supports should be provided during this phase of an ERP project? Our experts recommend planning for at least two months of support post-go-live. In addition, we suggest a high-level allotment of staffing hours for 12 months post-implementation. This is for a couple of reasons. One, so new users are trained properly. Second, so your team has full support to retain and actually apply the training knowledge to their everyday processes. Organizations that incorporate training with a new ERP system reap better benefits, such as improved employee adoption and performance, which leads to faster ROI.
Another advantage is to help your team can better embrace the change. Change management is often the most challenging but also the most important aspect of a business transformation. Change takes time, and we all know not everyone is a fan of it, so it’s imperative to have an effective change management strategy in place that isn’t rushed. Otherwise, you run the risk of staff resistance, or worse staff insubordination, which is a major impediment in the achievement of an organization’s goals and objectives.
Just like any other project, planning is critical to a successful roll-out, and there are no exceptions to a business management software project. A whole lot of planning needs to happen in determining the cost, resources, and time requirements that your business needs to launch a new ERP system. Take advantage of the free tools out there that can help you figure out your own company’s cost.
Clearing up any uncertainty ahead of time lets you uncover hidden costs that might jeopardize the success of your ERP project. All businesses are different, and we at IntelRise appreciates that. We can help you focus on your unique business needs and work with you to map out an effective ERP implementation plan that is practical, realistic, and attainable.