What Are Typical ERP Costs and How Should You Manage Them?
Many of our competitors will quote a project cost quickly, based on a bit of research on a potential customer’s estimated total sales revenue. This sort of top-down approach is quick and easy, but not helpful.
The cost of an ERP implementation can vary significantly depending on a number of factors such as the size of the company, the complexity of the business processes, the number of users, and the type of industry. Therefore, it is important to carefully plan and budget for an ERP implementation in order to ensure that all necessary resources are available and that the project is completed on time and within budget.
So, how do ERP projects go over budget?
ERP projects often exceed their budgets for reasons that are both common and preventable. One of the biggest issues is failing to account for all the associated costs; many organizations underestimate just how much a project of this scale demands. To stay on track financially, it’s important to identify and plan for these often-overlooked expenses by:
1. Lack of proper planning: ERP projects are complex and require careful planning to ensure that all business processes are captured and integrated into the new system. If proper planning is not done, it can lead to delays, budget overruns, and ultimately project failure.
2. Insufficient training: Proper training is essential for the success of any ERP implementation. If employees are not properly trained on how to use the new system, it can lead to a lack of adoption and ultimately a failure to realize the expected benefits.
3. Resistance to change: Many ERP projects involve significant changes to business processes, which can be difficult for employees to accept. If there is resistance to change, it can lead to a lack of adoption and a failure to realize the expected benefits.
4. Poor vendor selection: It is important to choose a vendor that has a track record of successful ERP implementations and can provide the necessary support and resources. When seeking advice or selecting a partner, find the partner you can trust the most. You will be letting them into the inner workings of your business, and you need to feel trusted and listened to. If the wrong vendor is chosen, it can lead to project failure and a lack of realization of expected benefits.
5. Incomplete scope: ERP projects often involve the integration of multiple business processes, which can be complex. If the scope of the project is not properly defined or is incomplete, it can lead to misunderstandings and a failure to realize the expected benefits.
6. Unclear project goals: It is important to have clear, measurable project goals that all stakeholders understand. If these goals are not clearly defined or are not aligned with the overall business strategy, likely, your project will not deliver the benefits you are looking for.
Determining Your ERP Budget
In order to accurately calculate the budget you'll need for an ERP project, you have to:
1. Identify the scope of the project: Determine the business processes that need to be integrated into the ERP system and the features and functionality that are required.
2. Determine the resources required: Estimate the time and resources needed to complete the project, including the number of employees who will be involved and the amount of training that will be required.
3. Work with an implementation partner to develop a detailed project plan and budget: Collaborate with an implementation partner to develop a plan and budget that includes the cost of the software, customization, implementation, and ongoing maintenance and support.
4. Review the total cost of ownership (TCO): Carefully review the TCO of the ERP system, including ongoing maintenance and support costs, to ensure that the system delivers long-term value for the business.
By taking these steps, you can develop a far more accurate and realistic ERP budget. But even the most detailed budget can fall short if you're not accounting for the hidden or indirect costs that often accompany ERP projects. These include the following
Change Management
Rolling out a new ERP system isn’t just a technical project; it’s an organizational change initiative. The time and resources needed to help employees adapt to new workflows and tools can be significant. Budgeting for internal communications, additional support staff, and training refreshers is essential.
Customization and Integration Challenges
Even if you start with an off-the-shelf ERP solution, customizations are often needed to fit your business model. Integrating with existing systems like CRM, eCommerce, or supply chain platforms can introduce additional complexity and costs that aren't always obvious at the outset.
Data Migration and Cleanup
Migrating legacy data to the new system is a major task. It often requires more time, effort, and technical resources than anticipated, especially if the data is disorganized, inconsistent, or needs to be transformed to fit the new structure.
Delays and Scope Creep
Without strong project governance, ERP implementations can easily grow beyond the original scope. New feature requests, shifting requirements, or delayed decision-making can all push timelines and budgets beyond their limits.
Post-Implementation Support
The work doesn’t stop after go-live. Continued optimization, performance tuning, and user support are part of the long-term cost. Organizations that fail to allocate budget for this phase often struggle to realize the full ROI of their ERP system.
Planning for these less-visible costs up front can mean the difference between a project that drains resources and one that drives measurable business improvement. The more comprehensive your planning, the more confident you can be that your ERP investment will deliver lasting value.
Key Takeaways on Managing ERP Costs
Managing ERP costs can be complex, but with the right approach, you can gain clear visibility into where your budget is going and how to keep your project on track. Also, partnering with an experienced ERP implementation provider can make a significant difference, especially one that understands the often-overlooked costs and knows how to align technology with your business operations. With the right expertise and planning, you'll be better equipped to deliver a successful project that supports your long-term goals.
