ERP promises to improve efficiency, revenue and customer service. What business doesn’t need and want these benefits? It might be tempting to think that cost is the only thing standing between a company and an ERP solution, but the fact is that ERP implementation is a complex endeavor with many pros and cons.
ERP is all about enabling businesses to efficiently and effectively manage daily operations. If a company is doing that now, without an ERP, then they don’t need one. However, those struggling to manage and coalesce information from different departments and databases, and those finding that these processes are getting in the way of key business functions, will likely benefit from an ERP system.
ERP systems require proper planning, selection, implementation and training to achieve benefits and ROI, which is why they are not ideal for every business. Here are the primary Pros and Cons of ERPs.
All these Cons can be overcome by better understanding a company’s strengths and weaknesses, but if a company will struggle with these issues, additional considerations need to be taken before launching an ERP solution.
Change Management -- Workplace culture can make or break ERP implementation and demands can seem steep in firms with legacy mindsets where change is seen as negative.
Time Consumption -- A company-wide deployment represents a major investment in time, effort and capital. Deployment also can lead to production disruption as employees go through a learning process to adjust to the new system.
Flexibility Required -- No software solution, that is not entirely customized, is going to be 100% ideal. There are times where process may have to be modified slightly to meet the software. Engineers and managers need to acknowledge and accept this reality. The organization itself requires flexibility as well. In companies where every department is a stand-alone silo -- with separate missions, resources, and chain of command -- ERP systems require integration that may be significantly challenging.
Non-Instant ROI -- Companies with difficult cash flow issues must understand that the full benefits of a company-wide system, especially ROI benefits, will not be instantaneous. In fact, performance can sometimes temporarily decline after the initial implementation as a result of employees adjusting to the new system.
Most companies considering ERP see that the benefits far outweigh the challenges. Plus, having the right consultant and software provider as a partner means having support through every step.
Coming Together -- Yes. The culture must shift and flexibility is required. The good news: successful ERP implementation will help the culture shift and departments become more flexible. ERP gets everyone on the same page and working together for the benefit of operations as a whole and this means better efficiency, lower cost and better customer service. So while ERP is often a catalyst for difficult change, it also makes necessary change happen when it’s most needed.
Efficiency for All -- Duplication is eliminated, processes are streamlined and employees are ultimately freed up for better use of their skills and time. This also leads to decreased inventory, reduced costs and increased productivity and response time. Everyone wins when they work more efficiently -- employees, owners and customers.
Better Information & Better Access -- Consistent information, in one place, streamlines process, but also makes for better decisions company wide. Debates about the validity of projects can be argued from data points instead of intuition or poor estimates. This increases growth and stability at a firm, which lets the company develop and reach new objectives.
ROI = Profits -- Better teamwork, streamlined efficient processes and access to accurate data will all ensure higher profits . . . IF the ERP is optimized and challenges are faced head on. Optimizing ROI depends on two key factors: effective implementation and accurate measurement of objective metrics. If risk analysis is done and a business process model is created, most ERP initiatives will generate very positive operational and financial results.
Considering the Pros and Cons of ERP for your business? Give us a call at (440) 498-9920. Our Accounting Software division represents multiple ERP Software Solutions allowing us to assess your software needs and match the "right" software to your business. Being a full service solutions provider offers you peace of mind, knowing that every aspect of your investment will meet your expectations. Our team will implement, train and support your company every step of the way.
So what’s this going to run me? The common answer in the ERP industry, “it depends,” can be frustrating for clients. There are some benchmarks, although they also represent a variable range as well. The typical process has end users select an ERP vendor and then both firms work together to determine costs and terms. This doesn’t mean going into the process without a budget or without understanding the factors determining price.
Here are more details about the main factors influencing ERP cost:
Software Costs: Per user cost typically ranges between $1,500 - $4000. Third party software add ons to boost functionality will also add cost.
Service Costs: Software to service ratio is at least 1:1. Meaning double the software cost for budget so that you have the money set aside for installation, customization, configuration, implementation, training and troubleshooting. If a firm needs more software customization, a 1:1.5 ratio is more realistic. Service costs cover planning and organizing the project, training, installing software, configuring the system, integrating existing business information and understanding reporting. Annual Software Maintenance is additional. Some software publishers have a mandatory annual support fee.
Hosting & Hardware Costs: This includes the server and server software, security and firewall configurations, database backup needs and recovery solutions. There is a difference in cost between operating on-site systems, versus hosting systems in The Cloud.
Price guarantees and fixed costs are not the industry standard for good reason. Implementation is never 100% predictable and even a fixed-price contract rarely, if ever, guarantees a true cap on cost. Those contracts typically guarantee price on what’s detailed in contract, but project scope creep still incurs additional cost. Fixed price quotes also typically build in a lot of cushion, so while it offers insurance against vendor incompetence, it may cost more if the project takes less time than anticipated. So is risk really mitigated? It depends mostly on the selected solution provider.
Look for a vendor that specializes in your industry or has expertise meeting your specific ERP needs. Be sure the solution provider takes the time to get to know your business and gets a complete picture of how your business works and what needs must be met with the new ERP system.
We would like you to consider Parallel Solutions? Give us a call at (440) 498-9920. Our Accounting Software division represents multiple ERP Software Solutions allowing us to assess your software needs and match the "right" software to your business. The Secure Network Solutions division of Parallel Solutions also provides expertise in choosing the correct hardware platform for your business system. Being a full service solutions provider offers you peace of mind, knowing that every aspect of your investment will meet your expectations. Our team will implement, train and support your company every step of the way.
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:
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.
Mary Jo O'Neill