What are the hidden costs of ERP?

Sep 26, 2013
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ERP implementations are something that the service provider works on over and over again during a year.  ERP service providers work to make costs as clear as possible, so why are there still hidden costs?  There is a knowledge gap where information technical needs to be understood by clients and correspondingly a depth of business understanding by Project Managers.  CIO.com carried out research that showed different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated more often that others.*  We would like to arm you with this information, ERP professionals vote the following areas as most likely to result in budget overrun.

Training

Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface.   Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system.  Remember that with ERP, finance people will be using the same software as warehouse people and they will both be entering information that affects the other. To do this accurately, they have to have a much broader understanding of how others in the company do their jobs than they did before ERP came along.

Integration and testing

If you can buy add-ons from the ERP vendor that are pre-integrated, you’re better off. If you need to build the links yourself, expect things to get ugly. As with training, testing ERP integration has to be done from a process-oriented perspective.

Customisation

Add-ons are only the beginning of the integration costs of ERP. Much more costly, and something to be avoided if at all possible, is actual customization of the core ERP software itself.  Upgrading the ERP package—becomes a more complex with these customization.  They also may have to be re-programmed to work with an upgraded version of your ERP system.    Endeavour recognises this and provides for customisation with full time resources, the Development Department works with clients to support them through all aspects of customised software during upgrades.

Data Conversion

It costs money to move corporate information, such as customer and supplier records, product design data and the like, from old systems to new ERP homes. Although few CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated—or inspired—by the ERP implementation.

Data Analysis

Often, the data from the ERP system must be combined with data from external systems for analysis purposes. It is wise to be clear on all your data analysis needs before signing off on the budget.  Endeavour carry out Data Analysis within their BI team as part of our project scoping we ask a lot of questions here to make sure customers get what they need.  To make sure the price is the best we use QlikView that means we don't have to setup a separate data warehouse or understand when data has changed, all data is held in memory and is current with the information heart beat of the organisation.

Project Finish

Clients need to have staff training in project management of an ERP system to take over once the suppliers finish the main implementation and move the client into a Business As Usual support mode.

Replacing your best and brightest

It is accepted wisdom that ERP success depends on staffing the project with the best and brightest from the business.  The software is too complex and the business changes too dramatic to trust the project to just anyone. To retain these well trained staff and keep them motivated in a high stress project, look to offer higher salaries and bonuses that you can afford.

Implementation Teams can never stop

Most companies intend to treat their ERP implementation as they would any other software project. Once the software is installed, they figure the team will be disbanded and everyone will go back to his or her day job. But after ERP, you still have so much to do. The people involved in the implementation are too valuable, because they have worked intimately with ERP, they know more about the sales process than the salespeople and more about the manufacturing process than the manufacturing people. Companies can’t afford to send their project people back into the business because there’s so much to do after the ERP software is installed. Just writing reports to pull information out of the new ERP system will keep the project team busy.  And it is in analysis—and, insight—that companies make their money back on an ERP implementation. Make plans to cope with the frenzy of post-ERP installation activity, train internal staff and build it into your budgets.

Wait in for ROI

Most of the systems don’t reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system.

Post-ERP depression

In a Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP system went live.  The most common reason for the performance problems is that everything looks and works differently from the way it did before.  Don't underestimate the value of training!

Endeavour is here to take the hard out, one of our primary focusses is to come within budget on all our projects. We believe in C-ABC, Client - Acceptance Before Charging, putting our clients in the driving seat.

*Reference www.CIO.com What are the hidden costs of ERP systems.

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