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ERP Cost Benefit Analysis

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October 25, 2022

If you’re considering investing in an ERP system for your business, a cost-benefit analysis can be a good starting point for your thinking. When conducted properly, it will prevent you from obtaining a system that costs more money than it earns. When you enter into the analysis, you will find that it’s as much about the journey through the process as it is about the document you produce at the end.

The decision of whether to bring in an ERP to replace dated legacy systems is a common quandary. Technology advances, competition increases and consumers begin to expect a certain standard of service. But how much will it cost you to keep on top of those concerns? Before you let the numbers scare you off, consider the following.

 

Myths Around Software Selection

 

Before we start, here’s a quick reality check to give you some perspective:

 

Myth 1: The IT department should manage the software selection process. The ERP implementation team should also include stakeholders and people who will use the new software daily.

 

Myth 2: Cost is everything. The best ERP system will meet your requirements right now and in the future – this may not be the cheapest option, but ROI is about value over time.

 

Myth 3: Selection should be left to consultants. Your internal teams are the ones who need to use the software and their knowledge of the company will be invaluable in finding the right software.

 

Myth 4: More capabilities equals better software. You may simply need to streamline operations rather than be dazzled by the most fully-featured software. Focus on what your business actually needs.

 

Myth 5: Research is finished once a vendor is contacted. The software you choose may not actually be right once you get down to the nitty-gritty. Failed ERP implementations are disturbingly common so keep an open mind.

 

What are the costs associated with implementing an ERP system?

 

1. The Acquisition Price

This is what you pay to purchase licences to use the system – it may be a single upfront cost or a regular monthly fee.

 

2. Business Analysis Resources

ERP vendors know their systems but not your business. You will need to document the base processes and requirements of your business and this takes analytical people with the skills and experience to build a foundation for your evaluation and selection process.

 

3. Data Analysis

This will require an individual or team that can supply the new system with good, clean data that fits the formats and standards of the new system.

 

4. Maintenance

If you subscribe to a cloud-based system (SaaS) then updates and support are typically included in the monthly fee. But if you purchase a perpetual licence, you will need to pay for ongoing maintenance.

 

5. Infrastructure

If your system is not a SaaS one, you will need to review the server capacity you have and consider whether it needs upgrading or replacing. You also need to think about desktop and mobile devices, shop floor consoles, networking and more – everything must be ready to meet your needs with the new system.

 

6. Customisation

No two ERP deployments are the same because the system settings will be customised to meet the specific needs of the organisation in question. This can be time-consuming and laborious, requiring the input of consultants and your own members of staff who understand the way your company operates.

 

7. Testing

New systems must be tested comprehensively once installed. The supplier can handle technical testing but experienced staff will be needed to do the more functional testing, and it is likely things will need to be tweaked.

 

8. Training

Your teams need to be trained to use the new system and this may require specialist resources.

 

9. Change Management

A new ERP project is an exercise in change management and some people may need to change roles. You might even need to bring in some new employees in some cases.

 

10. Other Costs

These can include:

 

  • Transition costs like retiring old systems and recycling old hardware.
  • You may need to commit to a maintenance contract.
  • You should make allowances for other unforeseen costs.

 

It is down to you to quantify all of the above and calculate the total monthly costs for the short and long term.

 

What are the benefits of an ERP system?

 

The section on costs may have felt like a discouraging read but the reality is that the right ERP system could yield benefits that outweigh the costs over time.

 

1. Increased Efficiency and Cost Savings

A well-customised ERP can make operations in the organisation far leaner and more streamlined. Removing lots of manual processes and errors can significantly reduce labour costs.

 

2. Better Stock Management

In a manufacturing environment, you can take advantage of just-in-time deliveries. This reduces the need for keeping lots of stock, freeing up capital to be used elsewhere and reducing the cost of your warehouse operations.

 

3. Attracting Business

ERP systems bring built-in intelligence that can make your organisation more reliable. This can help win loyal clients and also attract potential partnerships. Remember that retaining clients is far cheaper than winning new ones.

 

4. A Reduction in Labour Costs

With more automation and systems intelligence, you may be less reliant on expensive skilled workers, so you can reduce labour costs by having more low-cost workers.

 

5. Scalability

A high-quality ERP system will enable your company to keep on top of growth and expansion easily. This way, you won’t need to keep adding integrations, finding workarounds and bringing in extra manpower to accommodate growth and capture new opportunities for revenue.

 

6. Future-proof Systems

Modern systems are designed for upgrades and incorporating future technologies. By integrating data streams from various disparate areas of the business, you can take advantage of ever-evolving automation and analytics to continually optimise and improve your operations.

 

Bringing It All Together

 

Quantify the benefits you reveal in your analysis and convert them into overall monthly benefits. It is wise to be a little conservative with your estimates as being overly optimistic can lead to problems later on.

Once you have these estimates, you can compare total monthly costs with monthly benefits to get a strong metric to underpin your decision about upgrading to ERP. It is not a simple process and the costs are likely to feel more definitive than the benefits, but it gives you a platform to answer questions from stakeholders and negotiate with potential vendors. Eventually, everyone will need to upgrade to more modern systems, so getting in early could really be advantageous in the long term.

If you’re considering ERP implementation, the following articles will no doubt be of use to you;

 

Why choose Eventura as your ERP implementation partner?

 

Eventura has been providing robust business solutions to countless organizations for over two decades. We are ERP experts and can identify all of your business needs, and deliver a comprehensive ERP solution that works for you.

As Sage 200 Partners and NetSuite Solution Providers, we can help you identify which solution will fit your business needs the best. Our expert team of business analysts, developers, consultants, technicians and support staff can guide you through your entire project, from initial scoping through to implementation and on-going support.

We’re also managed IT service providers meaning we can help you identify your entire IT infrastructure requirements from day one. If you would like to speak to one of our ERP experts, you can request a free call back here.

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