On the surface, it’s simple. Maximizing a return on investment, for any business technology, is about aligning the solutions that technology offers to the problems the business needs solved.
Below this grandiose ideal, however, lies a quagmire of detail. ERP buyers need to know, not only the overarching business objectives for the ERP, but also the specific processes that need optimized and the plan for measuring that optimization. Add to that the need to fully understand the functionality details of the software itself, and it’s no wonder choosing the right software provider becomes essential.
Glossing over these details means a company won’t truly understand what the ERP can deliver. In this scenario, ROI will be anecdotal at best and intuitive at worst; neither of these options allows for optimal ROI. That’s because optimizing ROI depends on two key factors: effective implementation and accurate measurement of objective metrics.
The Right Implementation Methodology
The best way to deep dive into the objectives behind ERP implementation is to create a Business Process Model. Think of it as a business plan for your ERP. Essentially this means analyzing the ERP software to identify what functionality meets which processing need, and then reverse engineering the ERP and organizational process to align how these systems work together.
Once this is accomplished, there is some high level strategy work to be done with management, so that executives and their staff understand why ERP implementation is an essential win/win. Buy in on a company wide transformation means better knowledge transfer and that means a smoother, higher-ROI rollout.
Another key management task is assigning the team for implementation and project management. Make them solely responsible for both knowing the software in depth and getting it implemented. This team must understand the ERP’s functionality and its limits along with understanding the company’s objectives and key performance indicators (KPIs). In other words, this team must know what problems the ERP should be solving and what processes it will be optimizing.
At that juncture, it becomes all about training. Train all of the staff about the ins and outs of the ERP piece that affects their job and department’s processes, and do it in a way that makes the implementation a win/win and not just a painful learning curve. This is no small task.
For a more in-depth look at ideal implementation, download our free ebook: 10 Tips for Successful ERP Implementation.
Measure, Report, Revise
Ideal implementation goes a long way, but to truly tap into high-level ROI companies have to embrace the ongoing cycle of measuring and refining process. If homework was done initially, then objectives and key performance indicators (KPIs) have been defined.
The biggest objective that comes to mind for most is time saved through more efficient company-wide processes with less errors, but ROI calculations need the more refined KPIs, which take a granular look at the efficient-process objective. KPIs, defined simply, are any specific desired result or improvement a firm expects to see from implementing ERP.
Here are some examples of KPIs to measure:
- Sales: Sales margins, lost accounts and new accounts
- AR: Overdue receivables - 30/60/90, past due receivables
- Operations: Inventory turnover, return volume, delivery errors
But these are only skimming the surface of the type of metrics which can be refined and measured in an ERP system.
Once the KPIs are established, companies must assign a value to each to calculate ROI. Some KPIs have numbers baked in, while others can be estimated from historical data and other insights. Once KPIs have assigned value, ROI can be calculated. It’s that simple.
But ROI won’t happen overnight, especially after initial rollout, when everyone is navigating that learning curve. After the first few months, once the progress is measured and calculated, ROI is probable. Then the cycle of measuring, calculating and refining begins. The core team can tweak systems to optimize ROI according to KPI performance.
It comes as a relief to many, that this process need not be navigated alone. Choosing the right ERP provider means getting help with both implementation and optimization of ROI. If you are interested in ERP, give us a call at (440) 498-9920 today and see how we can help optimize your investment.