In a tech-driven market where everybody uses tools like enterprise resource planning (ERP) solutions to advance their market shares, small and medium enterprises (SMEs) have no choice but to keep up with the competition.
However, due to their limited budgets and resources, they need to be particularly sensitive to the cost of implementing such solutions. The problem is that many don’t know how to accurately estimate the cost of ERP implementation.
To help with that, we’ve listed our top ten ERP cost drivers right here in this article.
Why Are These Factors Important?
One of the biggest dangers in any technology investment is the risk of being oversold. You may see many exciting features that’ll never be helpful for you while others may be necessary later. If you intend to carefully plan your ERP budget, you should only go for features you really need.
Accounting, financial planning tools, and inventory management are typically required, although not everyone will need features like a B2C interface or a CRM module.
You may also find features that aren’t applicable right now but maybe essential after a while. For instance, you may not need a multi-currency finance module today. Nevertheless, if you plan to expand to new regions soon, it may be sensible to incorporate these features from the outset rather than retrofit them later.
ERP Cost Drivers
Hereinafter, we’ve provided a long list of factors that can individually affect the cost of an ERP solution. Let’s go through them one by one.
Perhaps the biggest factor driving ERP implementation costs higher is the hardware or the infrastructure cost. This is particularly exorbitant with on-premise ERP solutions and includes buying machinery, setting up storage spaces and servers, and getting sufficient bandwidth.
It’s key to have a good Internet Service Provider (ISP). Many businesses that transition to Saas will have two ISPs: one with a high bandwidth (hardwired) and a cheaper provider like a satellite.
SaaS/Cloud solutions may often run on any desktop or Internet-connected device, with no need for servers to support the software. One question you should ask your ERP vendor is whether their mobility covers offline database access. Most ERP packages offer mobile apps, and some work offline while others won’t.
On-premise ERP solutions can be expensive to purchase. Consider all of the infrastructure required to keep the system working. First and foremost, you’ll need a server to house the ERP and its data.
A single server runs between $3,000-$5,000 on average, with some more premium models being as high as $12,000. Then there are databases and security measures to consider. Some of these costs are so subtle they may sneak up on you if you’re not careful.
After you’ve spent a fortune on initial hardware, don’t forget to plan for backup in case of failure. This means spending more cash on data storage. It’s almost as if you’re purchasing data insurance. If you want to save money on IT, this isn’t the place to do it. A backup solution is required for every on-premises system.
Meanwhile, suppose you’re running a third-party cloud ERP solution. In that event, all expenses are absorbed into the monthly fee, allowing you to control your software costs with greater flexibility without maintaining or buying servers.
If it’s the first time you’re considering ERP, you’ll most certainly require more specialized technical assistance than a company that has previously deployed this type of technology. In your ERP search, it’s vital to determine whether vendor-provided support or a consultancy service is more optimal for your business.
Based on your own team’s technical knowledge, you may decide to hire an ERP consultant to help simplify ERP implementation. Most vendors provide assistance, which may or may not involve setup and consultation.
Some ERP solutions recommend specific consultants who have the most expertise in helping businesses successfully implement the solution. Moreover, some suppliers provide additional consultative assistance, but this costs extra.
4. Human Resources
Human resources take up a good chunk of the ERP setup budget. Staff training and customer support are two vital factors to consider when assessing the cost of an ERP solution and how effectively a system will fit with your company’s objectives.
As previously stated, an ERP system is a complicated software platform that can include many different components working simultaneously. Since an ERP system isn’t as intuitive or simple to use as basic accounting programs, your staff will require training on how to utilize the solution.
Your workforce will require training. The ERP vendor will frequently provide additional training at a specified hourly rate upon demand.
In some instances, such as when dealing with specialized material or a particularly demanding issue, you may need to bring in external experts for tasks such as quality assurance where you and your team don’t have sufficient experience or expertise. In any event, while evaluating ERP systems, you must account for these added costs prior to purchasing.
Your staff will encounter issues when using the platform, and you’ll discover various faults with any ERP system, so be sure your supplier will provide you with the proper technical support to handle these issues.
You need to ask the ERP solution provider if tech support is included in the subscription fee or is extra. It can impact your bottom line if it’s not, and it won’t be adequately monitored.
6. Licensing Costs
You’ll not own the ERP solution by paying licensing fees. You’re essentially paying for the right to use the platform and related services. The cost of licensing is determined by the options you select.
Do you want to purchase a software license outright, or do you prefer to pay a monthly subscription fee for the ERP license? The license could be for the entire organization or a specific division or department. The ERP license may be temporary or perpetual, based on your budget and requirements.
Since you need to maintain your ERP system, you must factor in these costs. ERP costs can include the maintenance of hardware, networks, and other areas to ensure the system runs smoothly. Maintenance usually accounts for 15-20% of initial ERP costs.
Like any software package, ERP solutions require regular maintenance and upgrades to avoid becoming outdated. You should consider how frequently you plan on performing maintenance checks and calculate the costs.
You should also keep in mind that any maintenance may impact business activities and may require more hardware or software to ensure the system operates smoothly.
Too often, business owners overlook the importance of customization. Most companies endeavor to keep customizations to a minimum, even if they have objectives that the current standard system cannot meet. What they don’t understand is they’re only putting off the inevitable.
Every organization and its structure is unique. ERP implementation requires significant organizational changes in order to integrate the solution on every level. If your ERP solution doesn’t truly represent all of your business operations, you may need to add some custom features.
9. Business Process Management
Proper business process management and improvement are two of the most common ERP deployment risks companies encounter. The conventional wisdom is that the existing business processes will work with the new ERP system. However, this is unlikely.
Even though it’s challenging for businesses to alter their established procedures, you must realize that it’s a must, and it’ll cost money to tailor the new ERP solution to your current processes.
10. Change Management
If your organization is transitioning from a simple software package (like an accounting system) to an ERP solution, you’ll almost definitely need to modify multiple processes. In fact, many accounting-related tasks may be handled manually on paper or via Excel spreadsheets.
In theory, purchasing an ERP system should imply that many of these processes will be automated by the software, increasing both efficiency and accuracy in undertaking these tasks.
Even if your firm is switching ERP systems, no two are alike. Therefore, you can expect certain modifications in your business operations to align with the software’s processes.
So, there you have it. These are ten factors we believe will dramatically impact the cost of ERP implementation. Most, if not all, of these costs, are significantly hiked when employing an on-site system.
Therefore, it’s not wise to spend a lot of time and money as well as sacrifice your team’s productivity to develop such systems. Hence, we recommend utilizing cloud-based solutions to significantly reduce the costs and possibly even do away with them.
Of course, with such a wide range of ERP options out there in the market, you require a flexible solution like IMTS’s cloud-based ERP solution that can be tailored to your specific needs and goals. All you need to do is contact us and enable us to handle everything.