Tips to calculate ERP implementation Costs

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Assessing the actual costs and arriving at the right budget while embarking on a License-based On-premise ERP initiative is both cumbersome and a tricky affair.

Let’s look at the various cost components that need to be considered in the planning stage.

License fees: Probably one of the most significant costs in an ERP project goes towards buying the product licenses. Identifying the right users who will input data and handle reports in the ERP is important since this can increase the overall costs substantially.

Implementation fees: About 30-40% of the total ERP project costs can be attached to implementation and go-live. Deep customization on the product, which is nonetheless best avoided, will also sky-rocket the implementation costs drastically.

Hardware infrastructure: On-premise ERP solutions demand substantial investments in hardware that include computing, storage, backup devices, network and security equipment and various non-IT hardware like power & cooling infra, lighting, temperature control etc.

Ancillary software: Besides the ERP software, spending on other supplementary software like a database, operating system, middleware, APIs and connectors, reporting tools, infra management software etc. are inevitable while planning a robust, highly available and scalable on-premise ERP system.

Support: AMC and support fees payable to the product and third-party support vendors will also total up to a fairly large amount in the overall context of ERP costs.
Another key cost component will be towards deployment of skilled manpower who are trained and certified on the product.

Cost of money: Where the initial spending is close to 50% or more of the overall 3-year ERP project costs, the CFO would be constrained to seriously consider borrowing funds from banks or other external sources. At current market rates, the interest component of borrowed capital can very well be a noticeable cost component in the ERP budget.

Incidental costs: The flip side of an on-premise ERP system is that there could be many “hidden” costs that keep coming up unpredictably and hence warrant project cost overruns.

It will be interesting to know from CFOs how much they ended up spending in the first 12 quarters of an ERP deployment vis-à-vis the budget they allocated.

A cloud-based ERP solution will, of course, spare the top management all the trouble of setting up and then running this complex ERP system themselves, and instead, assist them to quickly go live and adopt the solution across the enterprise in the shortest possible time-frame.

The cloud will not only help the CEO/CFO cut total project costs by half, but it also removes the ambiguity and unpredictability from the whole exercise by committing to a clearly defined cost regime.

About the Author

Dev Narayanan has over 20 years experience in sales and business leadership. He presently leads the Strategic Business of iON Manufacturing Vertical.

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