In this infographic, we will try to give you an indicative reference price chart that you can use to scope the size of your ERP project and allocate a tentative budget based on the size of your organization (employees and turnover).
ERP implementation budget: How much should a business of your size spend on ERP implementation?
The following illustration breaks down ERP implementation cost by business size. This is based on our experience in implementing ERP systems for over 180 companies since 2005.
For simplicity, let’s consider three main category groups:
Tier 3: These are small businesses with up to 75 staff and $80 Million turnover. These organizations typically look at small office software and lower market ERP software. Prices may vary anywhere from $25k to $100k+ depending on the number of users, customisations and specific industry requirements.
Tier 2: For growing SMBs and medium-size organisations with approximately 75 to 500 staff the ERP implementation budget is around the $80k to $1M mark. Once again, the project scope and costing will vary significantly on a case by case basis depending on the requirements.
Tier 1: This is the larger end of town and more geared towards an enterprise software option. Business with 501+ staff and $250M+ turnover typically fall into this category.
Conclusion
If you want to get an idea of how much an ERP implementation will cost to your business you need to consider the number of users, Cloud or On-premise deployment, customisations and maintenance costs.
In this infographic, we have provided a breakdown of the indicative ERP implementation cost you can expect according to your business size in terms of the number of users and annual turnover. This may vary significantly depending on your specific requirements and circumstances.
Leverage Technologies have implemented ERP systems for more than 250 businesses since 2005. For more information or if you would like to get an exact estimate contact 1300 045 046 or email [email protected].
While the cost of implementing an ERP solution can be scoped out, it’s the cost of NOT implementing an ERP that you should be worrying about.
What do we mean by that?
Using your outdated ERP software, basic accounting package or running your business on spreadsheets can be a dangerous business. In this post, we are going to review the key reasons why the cost of not implementing an ERP system should be top of mind for your organisation.
Why the cost of not implementing an ERP solution should be part of your ERP ROI equation
Companies often ask, “what will my Return on Investment be when implementing an ERP solution?”
There are multiple different methods for calculating ROI including:
Increased cash flow
Staff retention
Better customer satisfaction
An often overlooked calculation and discussion is ‘what is the cost of doing nothing?’ When companies go to the market to find and implement a new ERP solution they do so for a number of reasons:
Islands of information – multiple solutions that are not integrated. This creates risk associated with separate silos of data and information. It becomes difficult to get a consolidated view of operations.
Reporting – manual or limited reporting options in legacy systems is often cited as a reason for considering a new ERP solution
Support – companies using an older ERP application have concerns associated with business continuity and support
Company growth – high growth companies outgrow their existing ERP solutions and go to the market to implement an ERP solution to cater for and assist with rapid growth.
New technology – wanting to make the most of technological advancements (mobility, cloud and big data analytics are a few examples).
Other key reasons for implementing an ERP system include things like functionality requirements, legacy systems and more.
From our experience in assisting Australian organisations chose and implement ERP solutions, we found out that:
When first entering the market for an ERP solution companies underestimate the budgetary requirements and the work required to implement ERP. This leads to organisations deciding to “do nothing”.
When companies make no decision (do nothing), they regret the decision and re-enter the market for ERP soon after making an initial decision to do nothing.
The question to be answered is “when it comes to ERP – what is the cost of doing nothing?”
The answer to this question will depend on your company’s current systems, growth patterns, geographies and plans. Consider the following scenarios:
1 – Considering ERP because of high growth and the fact that your business has outgrown your current solutions
Companies in this scenario often delay implementing an ERP solution because they are so busy growing their business that they can’t take the time to implement a new solution. This is a false economy.
As your business continues to grow your requirements for better reporting, faster decision making and a more holistic view of operations will increase exponentially. The longer you leave it, the worse the situation will become. The best-run organisations I have seen implement ERP ahead of the curve – before the business grows to a point where the business is desperate and crying out for better systems.
2 – Wanting better support for your ERP solution
Poor or limited options for your ERP support will put your business at risk. There are two elements to this – day-to-day business continuity and missing out on the advantages of a well-supported, modern solution. Business continuity is easy to quantify – not having a good support process and structure in place is like not having an insurance policy for your business.
You might not need the ERP support for many months or even years but, when something goes wrong you could put your entire business at risk. Remember that your ERP solution controls your debtors, customer relationships, suppliers, staff and more – ERP runs your entire business. Even if you do not have a major system failure that requires urgent support think of the day-to-day costs to your business of not having an ERP partner that you can trust to help streamline your operations. A good ERP support partner will be able to offer new technology enhancements, streamlining operations and financials and helping save time and money through the use of technology.
3 – Moving away from islands of information
As businesses grow so to do the number of systems that they use internally. Think of the core accounting system and multiple third-party solutions for CRM, manufacturing, estimating, reporting and more. As your business grows so to do the requirements for information to make faster, better decisions. Growing product ranges, new geographies and additional staff add to these complexities. The more your business grows the more you will want a single source of truth – one single ERP solution that consolidates information across all business units.
4 – You require better reporting for decision making
Modern ERP solutions offer integrated reporting platforms. Integrated KPI, dashboard and analytics to analyse large data volumes is only part of the picture. Modern reporting and analytics including in-memory technology allows two very important advantages –
Sorting through large data volumes to deliver instant reporting
Automated reporting – pre-written data analytics to allow users to write their own reports without the need for advanced technical knowledge or experience.
Delay implementing a modern ERP solution and you will almost certainly not have access to modern reporting platforms for instant decision making.
5 – Technology changes – take advantage of IT
Technology is advancing at a rapid pace – faster than ever before. Modern ERP solutions take advantage of these advances. Think of recent ERP developments including:
Cloud
Big data analytics
Mobility
In-memory technology
If you want to take advantage of these and other developments in technology you will need to act and implement a modern ERP solution.
6 – Missed opportunities
Modern businesses are changing the way they do business – at an ever-increasing rate of change. Marketing, sales, reporting, logistics and manufacturing are all evolving as technology advances. If you don’t implement modern platforms for the change you risk missing out on new opportunities. After all, you don’t implement an ERP solution purely for the new technology. You implement new systems for the advantages that the solution can deliver. Once again, think about:
Improved cash flow
Better customer service
Staff retention
Conclusion
While the cost of implementing an ERP solution can be scoped out, it’s the cost of NOT implementing an ERP that you should be worrying about. The reason is simple.
For growing businesses, using basic management technology may result in performance issues with clear repercussions on operations and cash flow. in addition, poor or limited support options for your outdated technology can really put your business at risk.
Consolidating your dispersed technology systems into one ERP platform can also help your business overcome information asymmetry and reporting/forecasting challenges, giving you the tools you need to gain a 360-degree view of your operations.
To find out more about how we can help your organisation leverage Enterprise Resource Planning call 1300 045 046 or email [email protected].
Considering implementing an ERP solution and wondering how to measure the ERP Return on Investment (ROI)?
With so many different perspectives on how to calculate the Return on Investment of an ERP solution, we thought we would give our own view on the topic.
In the last 12 years we have been involved in more than 240 ERP implementations of various size and complexity. A common question we are often often asked is;
“how do I ensure that I get the ERP Return on Investment and how do I measure it (with specific reference to my ERP implementation)?”
In this day and age most CFOs will want the ERP committee to justify the budget allocated to an ERP project by showing the Return on Investment.
The two main components to the ERP Return on Investment calculation
Required investment – what will the ERP project cost, fully implemented.
Let’s start by considering the required investment.
How to calculate the investment required to implement an ERP system
There are multiple components that make up the total investment picture for an ERP project.
When considering ERP Return on Investment, we suggest that you consider a five year budget that covers the initial investment and the total cost of ownership over the five year window. Items to consider:
Software – one off investment in a perpetual license or monthly SAAS or monthly cloud fees.
Annual maintenance and support – annual costs for access to help desk / support.
Upgrade investment – most vendors will provide at least one major system upgrade per year. The costs associated with this upgrade will vary based on whether or not your ERP solution is on premise or cloud based. Costs to consider include any investment required in the new software version – most software providers will make new versions of the software available providing you are current on annual maintenance and support – or your SAAS / Cloud investment.
Consultancy investment required to implement annual upgrades to the latest version. Once again these costs will vary based on you choice of on premise vs cloud. Each new version or system update will require an investment in consultancy time to implement the upgrade, user acceptance testing, training users in new functionality and support.
Initial system implementation – a substantial portion of your upfront investment in ERP will be allocated to the initial implementation project.
There are multiple different methodologies that can be used to implement an ERP solution. Whichever methodology you use you will want to work to an implementation budget.
This ERP implementation budget will include at least the following:
Software installation (not required in a public cloud environment);
Project Management Scope of Works / System Blueprint Scope of Works documentation;
System configuration;
Forms set-up;
Reporting configuration;
User training;
Super user / admin training;
Data conversion – test and live Integration / development;
User acceptance testing;
Go live preparation;
Go live;
Post go live support;
Month end support Hardware, internet and associated infrastructure.
As with many other investment factors when implementing ERP, the investment associated with server, back-up, internet and associated infrastructure will vary depending on your choice of on premise vs cloud.
Even if you choose a cloud based ERP solution you will need to check what’s included. Also check if your current Internet speeds and plan will be suitable for a cloud deployment.
Internal staff investment – When implementing an ERP solution there will be time required from internal team members.
Think of the time required from your internal team members for:
User acceptance testing;
Preparation of data from legacy solutions;
Attending user training;
Attending project meetings;
Helping with the scope of works and functional requirements.
DID YOU KNOW? For every day that your ERP implementation partner invests in your implementation you should expect to invest at least the same amount of internal time.
As an example of this, during the implementation of a mid range ERP solution the vendor might quote 40 days of implementation time spread over a period (elapsed time) of 4 months. You should be looking to allocate at least 40 days of internal staff time to the ERP implementation.
When you think about it, 40 days spread over 4 months and shared amongst multiple team members (40 day across the team – definitely not 40 days per team member) is not a massive investment.
Now that you have calculated the full required investment associated with you ERP solution let’s focus on the return side of the ERP equation.
Is the ERP solution worth the investment? Calculating the Return
We would argue the following are key factors of the ERP Return on Investment:
Improved customer service;
Improved cash flow;
Staff retention;
Better, faster decision making.
So, how do we evaluate the tangible benefits of an ERP system?
Staff costs – if you are able to re-purpose people’s time away from mundane tasks and towards more meaningful contribution then there is definitely a saving to be allocated to the ERP project.
Let’s consider an example – if statements were previously sent out manually (5 hour job twice a month) and through the implementation of an ERP solution this process is now automated (15 minute job) then this process has been re-purposed. The person originally responsible for sending statements can now focus on more meaningful tasks – chasing debtors etc.
Debtors – on the subject of debtors – a good ERP solution should give you the ability to expedite cash collection through more timely and meaningful information about debtors. Think about debtor call lists, automatic follow ups and notes. Take the value of your debtors book, work out the likely debtors days outstanding before and after implementation of your new ERP solution. Every day that money is collected ahead of schedule saves you money.
Quote to cash – on a similar topic to the debtors book raised above – will your new ERP solution help you expedite the quote to cash journey? The quicker you can get quotes to customers, deliver goods and get your invoices paid the more cash you will have in the bank for your next investment.
Cash flow – the above two topics, when correctly implemented will free up cash flow.
Financing costs – with a positive impact on cash flow an ROI can be measured based on the reduction in financing costs.
Customer satisfaction – can be measured through Net Promoter Score and other associated means.
Staff retention – going home early is the phrase that is often used. Implement a good ERP solution and you can “go home early”. There is no doubt that a well implemented ERP solution can help with staff morale and retention by helping team members get their jobs done quicker – allowing the team to focus on more meaningful, strategic jobs. We have seen examples of team members that used to spend 2-3 days a month manually preparing reposts for board meetings. After the implementation of an ERP solution these reporting times have been reduced to less that one hour per month. What’s more is that reporting accuracy improved.
Other benefits include;
Better, faster decision making;
Growth without the growing pains;
Growing without the associated people cost;
Customer goodwill;
Inventory holding.
Conclusion
Evaluating the ERP Return on Investment is a fundamental step to undertake before proceeding to rollout.
Over the last 12 years we have assisted many businesses in assessing their current environment and selecting the right ERP solution to ensure positive ROI.
How would you calculate the ROI of your ERP system?
Leave a comment below to let us know they key aspects that will contribute to your Return On Investment Evaluation.
