Setting a Budget for ERP? Keep These Top 10 Factors in Mind

1: Deployment Model

Setting a budget for ERP must take into consideration how the system will be deployed – whether via an on-premise or Cloud ERP model for example. There are benefits of each deployment model.  As a rule of thumb, we’ve seen that a yearly subscription fee for a cloud-based system will typically add up to about 20 to 30 percent of the cost of a similar system’s perpetual license.

With an on-premise deployment, users must still pay annual support and maintenance costs that run between 10 and 20 percent of the original licensing fee.

2: Software Licensing

Depending on the most appropriate deployment model, software licensing can be grouped into two main categories: perpetual on-premise license, and subscription-based SaaS license. Typically, SaaS licensing requires less cash up-front, with costs spread across the agreement. Cloud ERP licensing reflects that the system is hosted in the cloud, there is a low cost of entry.

Software licensing isn’t the only price point to consider. Understand all the costs – including hardware, database and middleware software, etc. – prior to making any decisions.

3: Number of Users

The size of the organization, the structure of business functions and responsibilities, as well as other structural considerations all come into play when assessing how many number of users will be on the system.

Obviously small and midsize businesses (SMBs) will generally require fewer user licenses, but should keep into mind partners, suppliers and extended enterprise users that might need access

4: Applications, Feature Sets

When it comes to setting an ERP budget, how does a team know what specific applications or feature sets will be needed from the vendor?  Setting ERP requirements is a key part of the software evaluation phase.

A strategic approach to setting requirements includes linking them to ROI, and envisioning the future state, also known as business process re-engineering.

Looking at each functional area, the project team reviews the problems in the current state and identifies best practices and ERP requirements for improved business processes in the future state that eliminate waste and improve productivity. The team thus develops a business case for change.

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. We see that proven methodologies help you align ERP requirements with the goals and objectives of your core business processes. So when setting a budget for ERP, a thorough approach to ERP requirements definition is vital.

5: Infrastructure (hardware, software)

The on-premise deployment model will impact the process of setting an ERP budget.  What are the hardware requirements of the new solution and what are the cost impacts? Are there infrastructure investments needed for reliability and security?

In addition, regardless of the deployment model, a new solution might necessitate additional software investments as well.

6: Integration and Third-Party Resources

Many ERP implementation projects require additional internal resources or external third parties to integrate with other systems, solutions and functional areas.

Setting an ERP  budget must take into consideration the resources to integrate and communicate with the ERP system, this may require additional software or development time with that company to facilitate.

7: Customizations, Development Initiatives

As with integration resources, there are budget implications to any customizations or additional development initiatives. 

Customizations and development initiatives might be needed around areas like automation and workflows

8: Training

From training demos and webinars to phased pilot training programs, the better trained a company’; s users  the better return from the ERP system.

User adoption and user acceptance of a new or upgraded ERP system must involve a thorough training program.  Setting an ERP budget must take into consideration building an extensive library of training courses, educational materials, and user resources  to develop an effective training strategy.

ERP system training is a process that doesn’t end with the formal kick-off training session, and so support for continuous training can be essential for ongoing ROI.

9: Support and Maintenance 

Studies have shown that the cost of ERP  support and maintenance is typically 15% – 20% of the investment in an ERP solution.   Setting an ERP budget must take into consideration the impact of support and maintenance.  Is this part of license costs or a separate fee structure?

A budget must reflect support and maintenance costs when calculating the total cost of the system.  It might be possible to put a cap on maintenance and support costs in the future – get the information up front for budgeting.

10: Scalability

When setting a budget for ERP, be sure to consider if the technology support future growth and competitiveness.

Does the current ERP system support the company’s plans for growth in areas of new distribution channels and e-commerce? Or in global markets?

Today’s organization can’t afford to be limited by ERP systems which are ill equipped to handle growth.  As an example, does the system limit number of data entries? Does the system update in real-time or correlate across applications? If these features are not in place, a company will find it difficult to scale and accommodate business expansion.