How to Determine the ROI of an ERP Upgrade

PostedOn: 2016-05-13 12:25:48

Choosing to upgrade ERP software systems to a more complicated model and shouldn't be taken lightly. A well planned ERP project is often a major investment of both time and money. However, when done correctly with the right training and partner support, your organization should start seeing results very quickly. Like any big investment, cost-benefit analysis should be calculated to examine just how this upgrade will be affecting your business. Before you decide to take the plunge, it is wise to consider both the tangible and intangible assets of this ERP project. This ultimately will help you determine your ROI from this investment.  

IT Costs: 

The cost of an ERP implementation project should be expected to cover the expenses of the software, training, subscription costs, personnel and change managements. We get it; no one wants to break the bank for a project if they can cut corners. At Logan Consulting, we understand that every company has unique budget and cash flow considerations which are why we often suggest that the ERP implementation project is integrated in phases to be more budget friendly. While cost is an important factor to consider in any ERP implementation, it shouldn't have to be making or break. Often the investment is outweighed greatly by the tangible and intangible assets now available to your company. Hardware, replacement, personnel, software and subscription costs are the simplest factors to calculate, but shouldn't be the only prices taken into consideration. Don't sacrifices the quality of your ERP project for cost effectiveness; training and effective planning are crucial for getting it right the first time around.  

Tangible Assets: 

Understanding the tangible and quantifiable benefits that a new ERP system can bring your organization is crucial for seminal which system is your best fit. A new ERP system, either cloud or on premise, can help reduce your inventory levels through improved and control as well as reduce the overall materials costs by cutting waste and improving procurement and AP processes. You will also be able to fine tune your allocation of worker time to reduce overtime costs. Scheduling and production planning will be enhanced through better scheduling of critical equipment and subcontracting operations to minimize shortages and rework as well as a reduction of costs after the sale/service.  

Intangible Assets: 

While an enhanced workflow and accounts payable operations are comparatively straightforward to measure after an implementation, the intangible benefits are just as important for day to day operations. Implementing the right ERP system will reduce error brought by unorganized methodology and increase accuracy as well as enhance audit and compliance processes. Improved controls and repeatable processes increase your ROI by lowering audit and oversight costs. Regardless of your industry, compliance requirements are easily followed with a new ERP system. ROI will increase with lower oversight and lower review costs and the demonstration of quality controls will boost your reputation within your customer base. Customers appreciate a company that is able to follow up on their word with a shorter shipment cycle and your managers will appreciate the improved accounting control.  

Risk: 

While there perceptibly is risk with any large investment, the benefits of a new ERP software system in the cloud or on-premise drastically lessens the risk that accompanies such a large investment. Your implementation partner will be sure to work with your organization to decrease the likelihood of budget overruns and slow adoption times. Having the right support system is crucial.  If you are still hesitant to take the plunge, it is important to consider the possibility of an older system crashing, especially when it is running a version not supported by your provider.