The average ERP implementation cost ranges from $150,000 to $750,000, while nearly 64% of implementations last more than six months. Why does an ERP implementation cost so much, and what are the consequences of an extended implementation process? This article will provide you with information on the possible ERP implementation effects on the expenses of your company in the future, as well as the costs incurred by the implementation process itself.
ERP Implementation Cost Breakdown
As mentioned earlier, the cost of implementing an ERP system varies widely and depends on several factors, which are discussed below.
Licensing Fees
To implement an ERP system, you will obviously have to pay for the software. This fee can differ a lot depending on the exact suite you would like to purchase. The number and frequency of payments included in licensing plans also vary. For some ERP systems, especially cloud software, monthly or quarterly payments are common. In addition, certain ERP products, such as Microsoft Dynamics 365 Finance and Supply Chain Management (FSCM), offer their users the flexibility to choose the exact number of users and their access to software features, which determines the final costs. Furthermore, these costs can be changed anytime the requirements of an organization are updated.
For on-premises ERP software, upfront payments are more typical, although this is not a rule.
Cooperation with Implementation Service Provider
Even though seeking the assistance of an implementation service provider specializing in Microsoft Dynamics 365 FSCM, such as XPLUS, is not mandatory, the help of such specialists can significantly shorten the time needed for the implementation process, eliminate many errors and potential problems, and select the optimal software configuration to meet a company’s needs.
The work of implementation experts requires additional investment, but in return can reduce the overall ERP implementation cost.
Software Customization
ERP software customization naturally prolongs the implementation process and incurs additional costs associated with software development, testing, and deployment. However, it is not obligatory and in many cases, companies’ needs are satisfied by the standard features of their ERP systems.
Establishing Infrastructure
The issue of setting up an efficient infrastructure and investing in hardware arises to an even greater extent for companies that have opted for an on-site ERP system. Depending on the exact needs of a company, infrastructure can be quite costly, as it may also be necessary to create a separate room with advanced security measures to house the servers.
Adequate Internal Resources and Training
Involvement in the ERP implementation process will require significant effort from some of your employees, and their work should be adequately rewarded. Often, internal resources are not sufficient and companies have to hire new employees temporarily or permanently. Investment in training which will accelerate ERP system adoption and ensure that the new software is used effectively is also necessary.
How Can ERP System Implementation Impact Your Business in the Long Term?
The prospect of significant process optimization naturally leads to the expectations of a high ROI. Proper selection of an ERP system combined with smooth implementation can significantly reduce the company’s costs and accelerate the positive return on investment, even if initially the company had to bear quite high upfront costs.
However, not all scenarios are equal, and companies should be prepared for varying financial outcomes of software implementation. Here are the most common factors that lead to financial losses after initial ERP implementation costs are recovered.
Delays in implementation
First of all, the implementation project may be less successful for some companies than for others. Most often, the problem lies in delayed implementation, which can occur for a variety of reasons, such as lack of preparation for the process, failure to obtain professional support from ERP implementation service providers or other specialists who can contribute to the process, or as a result of changes in the organization’s requirements that took place when the implementation was already underway.
As a rule, the longer the implementation process takes, the more companies have to pay for it.
Testing and Maintenance Expenses
Testing and maintenance costs are an absolute must for any company that has implemented an ERP system. Yet, the more complex the system and the more frequently it is updated, the more extensive and frequent testing is required. The size of a company also determines the cost of testing and maintaining an ERP system, while ERP software that has undergone advanced customization can drive these costs even higher.
Further Customization
Even if your company initially forgoes adjustments, they may be required in the future. The initial configuration may not ensure alignment of business processes, and it is also possible that your company will change its requirements after implementing the ERP system. This may result in the need for redesigning and reengineering your solution.
Financial Strain
Sometimes the implementation of a particular ERP system, or ERP systems in general, is simply not cost-effective for certain companies and can be a significant financial burden for the company. This is especially typical for organizations that underestimate the costs associated with implementing and using an ERP system.
The Bottom Line
Implementing an ERP system can seem lucrative to many companies, but they should thoroughly calculate the associated costs which have to be covered not only during the implementation process itself but also in the future. Detailed calculations can show companies in which areas savings can be made, or a cost estimate can reveal that investing in such software is not a feasible decision in the first place.