The Hidden Costs of an ERP Software Implementation

Implementing ERP (enterprise resource planning) software creates a fundamental shift in the way a company operates after the implementation. It is often a daunting initiative for most companies and is often one of the largest technology projects they will ever undertake.

When done right, ERP software packages promise great benefits. When not done right, it can seriously harm the company, its operations, financials and leave a mess. Several executives and their careers often get a significant bump or get bruised depending on the success or failure of an ERP project.

What about the costs of an ERP implementation?

Most ERP implementations cost more than the budgeted amount and the reasons are many. To successfully execute these projects in a way all stakeholders feel good about and meet all the objectives, the leadership must have certain qualities that are hugely important – strategic vision, process and best practice oriented operations, technology aware, and have prior experience with similar large projects.

Companies should establish realistic ERP project budgets based on careful detailed planning, taking into account all the factors that impact the pre-, during and post-implementation scenarios.

Here we examine the areas that ERP project sponsors must account for in their budgets and identify hidden costs that most inexperienced implementers often overlook.

Strategic executives buy ERP software to implement a structured and process oriented organization that is based on industry best practices to position the company to scale up for organic and inorganic growth. ERP also eliminates information silos and eliminates proliferation and duplication of systems – thereby improving effectiveness and efficiency while reducing long-term costs as the company scales up.

Major cost categories in an ERP implementation:
1. Software licensing
2. Hardware and storage
3. Implementation related (mostly people and travel)
4. Training and change management related (often overlooked by inexperienced executives)
5. Post-implementation productivity impact (often not understood and overlooked)
6. Short-term and long-term maintenance

In the next series of blog posts, I will peel the onion and discuss each of these costs in detail to help you think through your planning and budgeting efforts.

Photo by 401(K) 2013.

Update: Read Part 2 here.

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