ERP Costs: Can You Get a Handle on Total Costs of an Upgrade or New ERP System?

What are my expected ERP costs? That’s a typical question mid-market manufacturers and distributors ask as they head into an ERP project.

We well understand that an important part of justifying an investment in ERP is understanding the true required ERP costs and investment.

From the type of industry a manufacturer is in, the number of users and range of features needed, to the level of customization that will be required, careful analysis needs to go into a true ERP cost calculation.

ERP Implementation is a major part of ERP costs and it’s often difficult to get an accurate forecast of the investment needed. The ERP project team needs to fully document the anticipated transaction volume, scope and complexity of the implementation. Also important to document are the number of third-party integrations that might be needed, as well as any data mapping or conversion. What will be the vendor’s role during implementation? That is another key question that impacts total costs incurred.

We usually advise our clients to begin assessing typical costs of ownership for the various ERP options under consideration. Typical costs for an ERP implementation include, but are not limited to:

• Acquisition
• ERP Costs of expanding the solution
• Training
• ERP Data conversion
• Infrastructure/Hardware
• Third-party solutions
• Implementation
• Customizations
• HR costs
• Recurring costs such as licenses, subscriptions, maintenance, support

Of careful consideration are the ERP costs involved with administration, maintenance and infrastructure.

As an example, legacy ERP systems can drain resources when it comes to an ongoing effort to maintain the software. Over time, maintenance costs rise and many organizations we team with grapple with high annual fees, complex upgrades, customizations and other issues.

Likewise, deploying a SaaS, cloud or on-premise delivery model is part of the investment consideration. What is the subscription fee structure?

ERP costs needed for an internal IT department, or a third-party maintenance provider, also impact the organization.

Part of a Larger Justification

Assessing total costs is only one part of a justification process usually undertaken by manufacturers and distributors heading into an ERP project.

Typically, we suggest five areas to work through when justifying an investment in ERP:

The five critical areas involve:

• Performing an assessment of the company’s internal business environment
• Documenting the current state business challenges
• Clarifying the desired state and “value” of improved processes from ERP
• Considering total cost factors of an ERP upgrade/new selection
• Taking a close look at ROI of the ERP investment

ERP Costs: Next Steps

Wrestling alone through a complex ERP cost calculation process can be a challenge. Leading manufacturers and distributors work smarter by teaming with an experienced guide during ERP cost calculation rather than “go it alone.”

To help make the business case for ERP, download an informative white paper entitled “Five Considerations When Justifying and Investment in ERP.” You’ll learn about the importance of determining an expected return on investment, anticipating total costs and fully documenting the business case for investing in a new or upgraded system.