An ERP implementation is often a significant investment for a business. The scale and level of that investment will obviously vary from business to business, depending on your size, the scope of the project, and how much you need to customise the system to meet your needs. One thing which is consistent is that it’s not particularly cheap – and all sorts of internal and external factors can lead to an ERP budget getting out of control pretty quickly.
With this in mind, we wanted to put together a guide to budgeting for an ERP implementation project, and maybe give you a few cost-saving tips along the way.
The key costs to consider when planning your ERP project are as follows:
- Software licensing
- Infrastructure changes required to support the new system (hardware, software)
- Resource – you will likely need to bring in additional internal resource or external third parties to implement, maintain and support the system
- Integration and other third party tools – if you need a specific piece of software to integrate and communicate with your ERP system, this may require additional software or development time with that company to facilitate
- Customisation and other development around things like automation and workflows
- Ongoing support costs
- Future updates and scaling up as your business grows
A number of these should – hopefully – be fairly predictable, fixed costs. Once you know the cost of licensing the software, and have pinned down the number of users you want to license for, there’s your licensing cost. You should easily be able to assess what investment you need to make in the infrastructure of your business and supporting hardware to facilitate the new software. Other costs such as resource (particularly third party consultancy/support hours) and customisation, can creep up if your project starts to stray from the core objective. For more tips on how to avoid this, read this blog post.
This is where looking at the total cost of ownership (TCO) of the software comes into play. With ERP (and pretty much all enterprise software), you have the choice between two purchasing options: perpetual on-premise license, and subscription-based SaaS license. Which one is right for you depends on the nature of your business and what you need from your ERP system. SaaS licensing requires less cash up-front, and you can spread the cost of the software across the agreement or the time you are using it for. Also, because the software will be hosted in the cloud, it’s easier to scale as you do. For on-premise, larger business may actually find it more cost-effective over the lifespan of the software to purchase the licenses upfront. Once again, this all depends on the size of your business, whether you have the infrastructure to support on-premise, and what you’ll save over the period of use of the software.
A phased approach?
The next conversation we would recommend having is about how you will approach the project. The more “traditional” approach is the “big bang” project plan – i.e. develop and hone the system until it is ready, and then roll it out all one go to the whole business. While this does give you chance to make sure the software is ready and fully meeting the needs of your business, this approach is an absolute prime candidate for scope creep – and scope creep means budget creep. You might actually consider a phased approach – chunking up the project into logical pieces and rolling out in various business functions in a staggered way. This gives you more control over the ERP budget as you go along, as well as giving you the opportunity to review return on investment (ROI) following the implementation of each phase. Of course, to return to our previous point, this is all about looking at the TCO of the software and ultimately, what you are trying to achieve by undertaking this project.
Have a watertight statement of requirements
Your statement of requirements document is an important one in the process of setting up your ERP budget – it is basically a list of features – and if relevant, customisations – you need for your ERP system. This is then used to send out to prospective vendors, resellers and implementation consultants to build a proposal, cost estimate and project plan off the back of. It’s important to get this process right, as a statement of requirements which is too broad or even too specific could potentially prove to be a drain on budget later on in the project. The way to nail this part is to make sure you ERP requirements align with the goals and objectives of your core business processes. The best way to do this is to start with business process review/mapping – find out more about how to do that here.
Where do you want to get to?
Setting a budget for you ERP project is all about knowing where you want to get to and carefully building a plan around that. Keeping overall objectives and business goals front of mind should help you keep budget and time overspend to a minimum. If you would like any more advice on how to keep your ERP implementation project cost-effective, get in touch.