What do ERP project really cost? A well-known study in 2002 by the Meta Group (since acquired by Gartner) is probably now too old to be a really useful benchmark. A slightly later study, in 2007, by Aberdeen Group made the ‘remarkable’ finding that costs go up as the number of users go up.
There are so many variables when analyzing what an ERP project will cost that providing average values for a range of organization sizes is unlikely to be very helpful. However, the saying “forewarned is forearmed” can be applied to understanding what the various cost components of a project will be, and therefore enable better planning, management and execution of the project.
First, the obvious ones:
1. Software
Whether you are implementing on-premise or in the cloud, it is a given that you will have to pay for the software you select.
2. Implementation and testing
Even in small businesses, ERP projects are not simple. You need to install and configure the software so it works appropriately. However you don’t have to guess what this might be; if you are using a tool like SYSPRO Quantum Architecture you can get a good idea what is required to implement according to your business needs; it also assists in creating test plans.
3. Consultants
External ERP consultants are essential if a project is going to progress and deliver on its promise. A common issue though is whether the consultants are providing value the whole time. With Quantum Architecture, you can define more clearly what should be done, and decide what you want to implement when you need it; this will allow you to better manage what the consultants do and what they charge.
4. Data migration
This is an often under-estimated cost item. It’s the process of mapping data from old systems to the new ERP system, then converting and migrating the data, and then validating the data is correct. This can be hard to estimate accurately unless you have a good and up-to-date understanding of all existing data. Experts recommend only migrating what you need, but whatever you estimate it will cost, double that number.
5. Integration
Not a single company has only one system that it depends on. Whether you distribute or manufacture there will be a line-of-business system (e.g., bar-code scanning) that will need to be integrated with the new ERP.
6. Training
If training is discounted, the chances of the ERP project failing can explode. So don’t cut the training budget. These days training is highly adaptable – apart from standard training options, you can take a ‘train the trainer’ approach, use e-learning, or have a certification program.
7. Project management
Few organizations, except mega-corporations, employ dedicated project managers. If you want a properly run project, you need to invest in a professional project manager. Whether you use someone provided by implementation consultants, or hire your own, don’t miss this cost item; it will be money well spent upfront and save you in the long run.
The less obvious ones:
8. Change management
The major reason that many large IT projects fail is not due to the software, but the ‘wetware’ – the people who have to work with the new system. That means from the outset, when you start planning the system, you must involve and get buy-in from the people who will be the users of the system. This is not just a meeting, it’s an ongoing methodical process of winning hearts and minds.
9. New business processes and policies
If you are going to get value from an ERP system, you must use the opportunity to change your business so it is more effective. If your business changes, you must change the way you do things – the processes and policies you had in the past must be modified, which is obviously going to take time and money.
10. Upfront design and planning
The saying “Failing to plan is planning to fail” applies here. You must budget for time before the project to ensure that the objectives of the ERP project are clear, realistic and agreed. Then you must make sure that the plan to reach those objectives is feasible.
11. Scope creep
Why is scope creep a cost? Because if you are not careful, and don’t stick closely to the original project objectives and plans, it can easily get out of hand and project costs can skyrocket.
12. Report creation
Businesses rely on reports to track progress, check status, and monitor performance. While all ERP systems provide report templates, you will still need some customized to your requirements, as well as new ones created that are specific to your business.
13. Cost of staff and executive time
Expect some of your staff and executives to be pulled into the ERP project, either unexpectedly or for longer than planned.
14. Cost of office and equipment
It is good practice to set aside some space for a project office, e.g., so that issues can be addressed immediately without having to book a meeting room.
15. Ongoing training
At SYSPRO we have a term – application erosion. This occurs when you don’t maintain the knowledge and skills of your staff. Once the ERP project has gone live, you need to budget for ongoing training so you avoid the application erosion trap.
