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Budgeting for ERP

September 12 2017

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Top Tips on Budgeting the Cost of ERP Implementation

Enterprise Resource Planning technology is an important part of any business’ digital management, but like most things it becomes obsolete over time. You need to update or possibly replace your ERP software, which means going to the market and looking for the most effective option. But how do you determine the best value for ERP? There are several things to consider. Here are some tips on what to look for when buying new ERP.

Costs

There are 4 costs to ERP. Software licensing is just one of them. There are also maintenance fees, hardware costs and implementation fees. The license fee for a particular ERP can be found online. The maintenance fee for the software in the first year is normally around 18% of the software list price. Depending on whether or not you need to purchase a new server or an upgraded workstation, you will need to add these costs to your budget as well. Implementation services are hard to cost, as the term covers a wide range of services which you may or may not require depending on what you need to make your new ERP compatible with your current digital management suite.

Services

First you need to undertake requirements analysis, finding out your specific business requirements, scope and project plan. This is the stage to determine what exactly you want your ERP to do. Then you may need services to install, configure and integrate, as well as migrate saved data onto the new system and customise the source code if necessary. You may also need to create or change custom reports, so that you can use invoices or checks based on your business aims. Finally, the new system will need testing and training for users, as well as the proper documentation. The project itself will also need to be included in the budget, under project management.

Ballpark

So, now’s the time to calculate a ballpark figure. You should expect services cost to at least equal the software cost. This means that if the software costs £10,000, the service cost will be at least that, £20,000 all in all. There are 8 additional factors to think about:

  1. Number of users
  2. If you have a large number of users, software will cost more than services. If you have a small number of users, services will cost more than software.

  3. Time dedicated to implementation
  4. If you can dedicate more time to implementation this will reduce service costs as well as the potential for counterproductive errors.

  5. Amount of customisation and reconfiguration
  6. If you’re able to be flexible about the customisations you need, and adapt the way you do business to the software, this can reduce service costs.

  7. Is it “core” software?
  8. So-called ‘vanilla’ software packages normally have a service:software ratio of 1:1.

  9. Distribution and supply chain management
  10. If you have a complex distribution and supply chain organisation, the service:software ratio will be closer to 2:1.

  11. Supply of documents and reports
  12. If you’re willing to reports out of the box, this can also cut down on costs.

  13. Data migration work
  14. Many companies, instead of migrating historical data onto the new system, simply keep the old system as a backup until the data they hold becomes unnecessary. That way they can save on the costs of data transfer.

  15. Staff training
  16. Staff that have experience on similar systems won’t require as much training as staff new to the system.

In the end, the cost ratio will range from 1:1 for ‘vanilla’ software with low service costs, through to 2:1. It’s advisable to err on the side of caution when budgeting, as it’s better to have more than you need left over than less.