It’s one of the most common questions we get from clients and others we talk with about ERP implementation is, “How do we budget for ERP?” A number of complex factors, time and knowledge that is involved in an ERP implementation means that the answer is not as cut and dry as most would like. The cost of venture software can vary so extensively partly because it is so versatile, it can serve businesses in a huge range of industries and organizations that employ thousands of team members or only dozens. Because of this, it can be extremely difficult to try and hash out a precise or precise budget and calendar for an ERP project, and even harder to justify your initial estimates to the executives of the organization. It’s one of the major reasons so many modern ERP implementations still seem to go over budget and take months beyond their scheduled go-live date to actually complete.
Schedule and budget for ERP are two of the most important starting points and guiding lights on your ERP implementation project, so you can’t just brush them aside as impossible to estimate or risk becoming one of those distended projects that cross the finish line short on cash and looking nothing like it did at the starting line. Instead, you need to look at the scope of your project, the pattern your unique system needs and how you plan the business to grow along with ERP in the future to start setting a ballpark budget for ERP. From that figure, you can then work on narrowing it down and allocating investments for the implementation. Read on for your key tips on setting a schedule and budget for ERP and sticking to it.
If there’s one thing to be wary of at the beginning of an ERP project, it is the quick numbers you’re going to hear from a software vendor, or an outside consultant trying to sell you their services. These are often the result of basic guesstimates without serious consideration of your company’s unique processes, employees or necessary ERP customizations. There’s simply no way to reach precise or feasible goals without an idea of key cost-affecting factors like potential company growth, ERP hosting location or the amount of time needed to complete all the requisite customization, training and installation necessary. If you’re going with an outside partner for your ERP implementation, then there needs to be a thorough, in-depth conversation about planned budget and calendar for the project before anything is signed. If keeping the ERP project in-house, then the considerations should be made before there is ever an official executive pitch of your proposed calendar and budget for ERP.
Your budget for ERP will be significantly impacted by the hosting option you choose for the software. For example, on-site hosting will require a significant investment in middleware and server space. It will also require the significant licensing fee up front that your team will no doubt have to budget for. However, after the license fee, you essentially will own the software and pay no monthly fees until it comes time for maintenance or a software upgrade. You might then want to include room for extra IT employees for training and server maintenance, as upkeep will entirely be up to you. If you’re opting instead for a cloud-based ERP system, then your pricing model (and therefore, your budget) will look much different. You won’t have to pay to install all the requisite hosting servers and machinery on-site, or even to upgrade the software as necessary. Instead, you will pay a journal subscription fee, which includes the maintenance and upgrade costs and the cloud server space hosted by your vendor. That subscription fee will usually be contingent on the number of seats your company will be taking up. This means that your budget will need to be set over a longer period of time to include that monthly subscription fee, and to account for any intended growth and extra seats which will increase that fee. In the end, cloud-based ERP usually averages at a lower TCO (total cost of ownership) than on-premise and will likely be the best option for smaller businesses looking to keep their budget tight and their calendar schedule short.
It’s hard not to get overwhelmed by all of the options software vendors can offer you. What with all the modules and new innovations available, it will seem like a buffet of ever-improving options and add-ons. Say you’re being sold on a predictive analytics feature that allows you to forecast future demand based on client buying history. "Sounds great, add it to the package!" you say. However, this kind of attitude is common for any first-time implemented, and can be harmful to your ERP project. Every single module and customization is tempting and can seem like a benefit to your business, but there is a problem; every add-on and customization will cost you. It’s like a mini-bar at a luxury hotel first you were just going for the mixed nuts and then you find the whole thing emptied and hundreds of dollars on your bill. Set a specific customization plan before you even start your ERP implementation process. That way, you know how to target your vendor search towards systems that can support the functionality you need