For any business with a production environment, like manufacturers, distributors, or wholesale companies, ERP projects tend to take a steep climb as you move towards implementation. For C-suite executives, it becomes a challenge when they are budgeting. CFOs need to have a solid cost planning blueprint in place before the project begins. It is not uncommon for companies to go over budget. Some estimate that as many as 50% of companies implementing a new ERP go over budget.
Creating an ERP project blueprint before the project begins will prevent you from going over your estimated costs. A project blueprint will also yield significant results to your bottom line.
The Reason Why ERP Projects Go Over Budget
There are a multitude of reasons why ERP projects go over budget. Knowing those possibilities, in the beginning, will help you plan on how to avoid them.
Once implementation of the ERP system begins and you or your team will start seeing all of the cool and interesting customizable functions. Like a kid in the candy store, you might want to get all of those functions, as well. When you add on customizable features after the initial proposal and scope of work is in place, they will cost extra money, thus sending you over budget. You may have to exert some will-power to abstain from adding all the cool goodies on at implementation if you want to stick to a strict cost. You can always plan on adding them in the future.
Your ERP strategy likely included training for your employees. So, if in the blueprint you set aside 10 hours for your ERP solution provider to train one of your employees, but the employee is a slow learner and it winds up taking them 14 hours instead of 10, all of the sudden you have extra training costs. Or perhaps the ERP vendor was training an employee and 5 hours into the training the employee quits their job. Well now, not only do you have to find a replacement, but that replacement has to be trained from scratch. They will still require 10 hours of training.
If you failed to mention a report that you need to your ERP partner because you automatically assumed that the report would be included, then this may result in an added expense. A truly good ERP consultant will always explain and educate you in the very beginning. You should know and understand everything that is or isn’t included in the initial proposal.
Methodically Plan out Your ERP Strategy
Before you make any decisions or even start really evaluating your ERP options, make sure that all executives are on board and know what it is you want to achieve, as well as what resources it will take to get there. The more senior management is involved with planning and executing your ERP strategy, the less likely you are to have unexpected costs.
Don’t rush the process. Make sure you take time to really plan out each phase of the project. A successful ERP project requires at least 3 to 6 months; more if you have a larger organization or cannot dedicate sufficient time and attention to the project.
Make sure that you map out your entire project from beginning to end. When setting up timelines and deadlines, make sure that they are reasonable. Creating a legitimate schedule and adhering to it through the entire implementation process will help you prevent costs from escalating with unnecessary extensions. If during the implementation phase, you discover that you do need to add to your scope, then the entire project plan/timeline should be evaluated and updated prior to actually approving the scope change.
Investigate All of Your Options
Once you know what you want to accomplish, you should take the time to investigate all that the market has to offer. You should vet possible VARs on quality, price, and a match to your needs. You need an experienced ERP vendor that will give you the solutions that best fit your business. Make sure you tell the prospective partner all of your needs to ensure that you have a seamless rollout. Things like phased rollouts and assessments should be determined in the beginning to avoid any headaches during implementation.
A poorly planned and poorly executed ERP software purchase may have you throwing money out of the window. Aside from the replacement costs, you may be faced with dual system costs, customization costs, second upgrade costs, third-party product costs, re-implementation costs, retraining costs, business disruptions costs, and so on. This is why it is imperative that you have a well-planned out strategy with much consideration for just about any road bumps you might incur. A good ERP solution provider will talk you through everything, educate you on expectations, and hold your hand as much as you require.
Get Everyone On Board
A successful ERP implementation will always require commitment from your entire organization. Everyone at your business still has a job to do and daily tasks that go along with it. ERP implementations will require hard work, time, and commitment. If an employee has to make a choice between preparing a purchase order and studying an ERP document, it is likely the employee will stick to what they know and what they’re familiar with. Not only will the employee have to commit to the implementation, their manager will also have to commit to allowing the employee time to learn the necessary skills for successful ongoing use. During the implementation process, you may want to hire temporary staff to help with daily operations; don’t forget to budget for that either.
Aside from training employees when new ERP solutions are being deployed, your ERP consultant will also do a lot of testing. They have to test to make sure that all of the users are receiving and benefiting from full functionality. This will also require some time and involvement from your staff, and will affect even the lower level employees.
Consider Every Detail
In the beginning of your planning process, you should determine if you want your ERP to be onsite or in the cloud. If you decide to have your ERP hosted, it could save you a lot money from the get-go, especially if you need to upgrade servers and network infrastructure as part of your ERP implementation. Just like any other service hosted in the cloud, hosting your ERP system will only usually require a monthly usage fee.
If you are going to need new hardware for implementing your new ERP software, then make sure you know exactly what those systems are and calculate them into your blueprint. Likely if you are still running on legacy systems, you may have to do a complete systems refresh in order to have your ERP onsite.
Don’t forget to take conversions into consideration. You will have to some of your old data to the new ERP system. You will have to determine what the financial impact of phasing out your old procedures will be when moving to the new system.
You should establish all of your cost in a worst and best case scenario for ERP spending. This should be documented in your timeline both for monthly and annual expenditure. This will assist you in benchmarking ROI. Benchmarking will establish the financial benefits that you should be raking in through your upgrade.
Most importantly, have your ROI calculated on the front end. Budget impact does not rest completely with your up-front cost savings. Look at the long-term impacts of your decisions and how they will affect your organization. Usually, efficiency and future savings matter as much or more as immediate cost. When you are calculating ROI, you also should determine if a new ERP system is needed or is now the time to add on customizations and upgrades, like SalesPad. Sometimes, you may see a higher ROI with sticking with your current system and adding functionality that completely revamps its usage.
Stick to What You Actually Need
Highly customizable ERP packages are fantastic and can give you some really good options; however, you may find that sometimes customization can be pricey or unnecessary. You have to keep open communications with your VAR. This will ensure that they aren’t inflating the ERP’s capabilities while downplaying the different types of customizable options you have. Generally finding a solution that already exists is better than creating a new one.
You will find that most ERP systems are packaged in different ways; skipping out on the functionality that you don’t need in your business model can be a money saver. The ERP that you should choose is probably widely used by many types of companies in all different types of industries; they are specifically designed with the flexibility to work with a wide range of processes. Always learn what the standard processes with the software are before considering any type of customization. You will probably find that the standard processes fit your business needs well.
When you move through your timelines, assess with care options that arise. Return to your initial planning stage and determine what, if anything, additions would do to improve your ROI or overall impact on your organization. Never change your scope without reaching a purposeful conclusion that it will improve what you are doing.
Always Negotiate Your Deal
Remember that the ERP vendors with operate in a service focused industry and you have options. When purchasing licensed software, be only sure to buy what is required for your company’s needs. That’s why it is so imperative to pick the right ERP consultant from the beginning. Talk to your vendor to make sure that any unnecessary functionality and architecture won’t be driving up the costs. If the desired functionality is driving up the costs, then negotiate with the partner. You might be able to lower the scope and price to make it more budget-friendly.
Custom Information Services has been in business since 1989 implementing ERP systems and other business technology for decades. Over the years we have implemented hundreds of successful ERP systems. We specialize in the manufacturing, wholesale, and distribution sectors. If your business is running in a production environment with complex networks, we know your platform. We can speak your language. Contact CIS today to get a free consultation on your upcoming ERP project.