How to budget an ERP Implementation in 6 questions
Many C-level managers are tasked with finding new software solutions and developing an ERP software budget. There is a lot of work that needs to be done surrounding the implementation of a new ERP software program. Concerns typically range from employee downtime, potential data loss, time required for implementation, training of employees and finding an ERP solution that can be customized to meet the company’s individual needs. But perhaps a CIO’S and CFO’s biggest concern is determining the final cost of ERP implementation when all expenses are added together.
Assessing your needs
C-Level managers need to make sure that the solutions they consider will achieve their end goals:
• Will it provide up-to-the minute information across all departments including manufacturing, inventory, logistics, sales distribution, purchasing, accounting and more?
• Will it streamline work flows and enable employees to work more efficiently?
• Will it be available from any computer or mobile device 24/7?
• Will the ERP solution work synergistically with existing software solutions?
• Does the provider understand your business and the special nuances required in order for you to run your business efficiently? The metal industry itself has a number of specific nuances, so providers should be familiar with industry needs and adapt their ERP solution to those that best suit the organization, product and service.
• Can it be tweaked so that it will grow with you are your business grows?
Also, critical to the decision making process is finding out how long it will take after that investment to achieve the break-even point. This can be difficult to calculate considering all the variables that go into determining the final ERP software product expense and associated costs, making it challenging for CFO’s and CIO’s to calculate a realistic ERP software budget.
Accessing the variables affecting cost
According to a recent article from Gregg Kaupp, CEO of Archer Point, LLC, “there are a wide range of variables that can affect the cost of ERP software implementation”, these include:
1. Type of company
For example a manufacturing business will typically need a more comprehensive ERP program than a service based organization, therefore the cost may be steeper. Costs for a manufacturing business can run up to $4,000 per user, and a service company could be as low as $2,000.
2. Size of the company/number of users
3. Type of industry
4. Estimated transaction volume
5. Scope and complexity of the implementation
6. Number of third party vendors/integration’s required
No two companies are the same, so there will be some amount of customization needed to insure the product meets exact specifications.
8. Programming, testing and training
Estimating your ERP software budget
In order to come up with a realistic budget the CIO needs to meet with a couple ERP software providers to discuss specific software processes and goals in order to put together a rough estimate.
You can begin with this example. Most agree that the software and service costs for a traditional ERP implementation is a 1:1 ratio. So if the software list price is $10,000, the services would also cost close to $10,000 for a total of $20,000.
Below are some factors that could alter the 1:1 ratio: Answers to these questions will help you plan your ERP software budget:
1. User Count
How many users will you have? If you have less than 3 users, you will end up paying more for services than software; if you have over 10 users, you will pay more for software than services.
Can in-house staff handle any of the implementation? If you can reduce the time using the ERP provider it can lower your services cost.
How much customization/reconfiguration of software will you need? The more flexible you are, the lower your costs.
Does your company require distribution or supply chain management and the processes that go along with it such as inventory, purchase order processing, sales order processing? If so, budget at least a 1:2 ratio.
5. Reports Creation
Can you supply the reports and key documents the system needs to produce? If a partner needs to create these reports, instead of those “out-of-the-box” there will be increased costs for set-up time.
6. Data Conversion
How much data conversion will you need, and can it be done by the internal IT team? If the provider is tasked with manual data entry it will increase your services.
As you can see there are many variables to be determined in order to get a real idea of costs associated with ERP integration. Don’t get bogged down with this task, let the experts help you.
Call Ray Kimble to help, 713-357-6483 or email firstname.lastname@example.org.