An ERP implementation project is a significant investment of time and money. From planning to complete roll-out, a typical project can take up anywhere from 12-24 months. During this time, you may have experienced some scope creep, or you may have managed to keep the requirement under control and even come in under budget. Whatever the case, one of the most important activities to undertake following the implementation is to demonstrate a return on investment (ROI) to the business. And a return you will have, if you do it right.
That being said, how do you go about accurately and effectively measuring the ROI of your ERP investment? Whether you’re a manufacturer or a distributor, the software touches so many parts of the business – how do you nail down where and how it’s having an effect?
Here are a few tips for effectively measuring the return on your ERP investment.
Establish where you are now
Before you embark on your ERP project, or deciding on what you want to achieve, and what a good ROI looks like (see the next section), you should establish a clear picture of exactly where you are now. This should hopefully be a part of your general reporting process, but you’ll want to record all the performance metrics most relevant to ERP and key business functions at the very start of the project. That way, hopefully you’ll be able to book-end it with the same report at the end of the project, with some noticeable increases (or decreases) in the numbers.
Set goals early
You can’t measure success if you don’t know where you’re going. Very early on before you begin your project, you should set out clear objectives. These should be broader-reaching objectives for the entire business, not necessarily specific metrics for the project – e.g. avoid things like “to deploy a new ERP system within 18 months”. Sure, you can measure this, but what does that mean for the business? Think about reducing costs by x%, increasing gross profit by y%, and establish an expectation of how quickly you expect to see the return. These are not only useful for making sure you’re always steering the implementation ship in the right direction, but they’re also what’s going to help you truly measure the return on your investment.
Think big picture
Realistically, an ERP implementation, no matter how effective, isn’t going to have that much of an effect on your top line. Where it’s going to make the biggest impact is the bottom line – helping you address internal inefficiencies and keep costs down by implementing automation and methodologies like lean manufacturing for example. Remember that any efficiency improvements within or across departments could and should be attributed to the ERP investment – a significant part of the project will have been looking at process, identifying bottlenecks and opportunities for streamlining. Even if ERP is just on the periphery of this particular task or process, the project bought value and insight to it and therefore any cost or efficiency savings can be counted as a return.
It’s an ongoing process
An easy mistake for many a business to make when measuring the success of an ERP implementation is picking an arbitrary point after the end of the project, doing a big piece of analysis on performance, and making a judgement call on the success therein. Instead of approaching it like this, consider reviewing performance more frequently, perhaps on weekly, bi-weekly or monthly basis (whatever works best for you). Keeping track of performance in this way allows you to continually plan and improvements along the way and stands you in much better stead for success overall. This ethos also applies after you’ve done your big ROI analysis piece – it’s just good practice to keep reviewing and refining your approach to get the most out of your system.
The phased approach
On a related note, continuous, incremental improvement is something which can be applied during the implementation process – not just after it. As we’ve alluded to throughout this blog post, many businesses choose the “big bang” approach – plan, develop and test their ERP system for as long as 1-2 years before rolling out to the whole business in one fell swoop. Depending on the size of your business and project, we often recommend the phased approach. This involves implementing and deploying the system in – you guessed it – phases and testing, reviewing and refining as you go along. Not only does this help you make sure you’re getting the absolute most out of your ERP software business-wide, it also helps you much more easily keep an eye on the all-important ROI as you go, as well as helping with user adoption which will also have a significant impact on your ROI. Rinse and repeat until the system are business-wide, then look at our previous point around reviewing and reporting.
Which specific KPIs not only crucial to your industry, however, but also improve ROI on implementing a new ERP?
To answer this question, we have produced a free download of the 10 most crucial KPIs for companies operating within the manufacturing sector. Click here to download today.
Getting a positive return on investment for your ERP project starts with the right implementation plan. If you would like to discuss a potential ERP project with us, get in touch.