How to Evaluate the Cost of an ERP?
An ERP solution can transform the way you manage your business. Introducing a new tool that can reach across your entire business will require time and resources. If you are considering an ERP solution for your business, you’ll need to assess the costs as well as the benefits, and this article will give you the tools to make the right choice.
Firstly, the good news. Traditional ERP systems were hugely expensive to license, install, configure, and maintain. This is no longer the case and all businesses, regardless of size, can benefit from the broad advantages an ERP solution can offer. Modern ERP solutions, both SaaS (Software as a Service) and hosted using either cloud or local infrastructure, are much cheaper (to install, configure, license, and maintain) and can offer a more straightforward modular pathway to full implementation that was true in the past.
Why are modern solutions cheaper while still offering great functionality? The main reason is that modern ERP solutions provide vast flexibility and are offered by a wide range of vendors catering to different market sectors. This is a very positive change, but it does add risk to any ERP project. The flexibility in hosting and configuration along with the wide range of vendors mean that you do need to make choices that will directly impact the success or failure of the project for your business.
The decisions will have an impact on cost, speed of implementation, change management requirements, and many other factors. The perfect solution for one business will be a disaster for another. Using an experienced and independent ERP consultant can be an excellent investment, saving you time and money, and allowing you to exploit the best capabilities for your business.
What are the key considerations in selecting an ERP solution that suits your business?
ERP License and subscription costs
Once you have answered the key considerations, you can assess the offering of ERP providers.
Your ongoing costs will be a monthly or annual subscription/license fee. The standard way to calculate this fee is based on the modules you are using and the number of users that need to access the system. When calculating user numbers, there are three conventional models.
Named users. The license is tied to a specific person or PC. This model often has a cheaper cost/license.
Concurrent licenses. This model is where your organization can connect a certain amount of people/PCs to the ERP at any one time. These licenses may be more costly as you may require fewer of them.
Enterprise. You pay a set fee regardless of the number of users accessing the system.
Understanding how your business will use the ERP over time will allow you to choose the correct model. Costs vary significantly between providers and can sometimes be negotiated. A valuable implementation partner will be able to highlight the best opportunities for you to get maximum value.
ERP Implementation costs
With a system that impacts as many areas as an ERP, a well planned and managed implementation is essential to deliver excellent outcomes. Not investing sufficient money at this stage of the process can have very costly consequences and mean that you will not achieve the expected ROI on the ERP project.
You’ll need to budget for:
- Planning and audit. A goal and scope that suits your business and team are necessary to start the project off on the right path.
- Process review and updates where necessary. A clear understanding of the processes that will be impacted by the project, and which processes will change as a result will allow your team to know how to deliver their responsibilities after the change.
- Implementation, development, customization. There will be a cost associated with the delivery of the project and embedding the ERP solution into your business. Tailoring the capability to best suit your needs will usually have an associated cost.
- Any new hardware requirements. You may need better PCs, local or cloud infrastructure, or an increased quality of internet service to cope with the new solution.
- Training and documentation. A lack of investment in time and money to bring staff up to speed on the new ways of working is one of the most common reasons for an implementation to fail to deliver the expected ROI.
- Change management. Managing cultural change, as well as process change, is critical for your success. This piece is about winning the hearts and minds battle so that your team sees the benefits for them and the business in the new systems and ways of working.
Ongoing maintenance costs of your ERP
To get a clear picture of your total cost of ownership, you need to plan for the ongoing support of your new system. Will you manage issues with an internal IT team, a partner/consultant, or a licensed maintenance agreement with your ERP provider?
A well-implemented ERP will become central to the successful functioning of your business, and you need to have an effective plan in place to deal with issues in a way that will not impact the smooth running of the business.
There will also be ongoing upgrade costs as you keep your ERP current or add new functionality that will deliver additional benefit. As your ERP system becomes part of your way of working, you’ll see new opportunities arising.
Conclusion : Your next steps
The benefits of an ERP solution are clear, and millions of business rely on an ERP as a core tool for their businesses. Historically these tools were out of reach for most small and medium businesses, but technology advances mean that there is almost no business that cannot benefit from some level of automation, centralization, or standardization.
Take into account licensing/subscription, implementation, and ongoing maintenance, and you will be able to get a clear picture of the total cost of your chosen ERP solution.
Working with a qualified and independent ERP consultant can ensure you select the right parts of your business to change, you choose the right ERP to suit your business, and that you manage the implementation in a way to deliver lasting positive change.