28 Jun Justifying the costs of ERP system
One of the main worries when businesses are thinking about implementing a new Enterprise Resource Planning (ERP) solution is the cost. The cost of purchasing a new platform, the cost of migrating all of the information between the old and new applications, and the cost of implementing and servicing the new ERP system.
The effort involves determining an expected return on investment, anticipating total costs and fully documenting the business case for investing in a new or upgraded system. It’s critical to document the business reasons for an investment in ERP, as well as the expected value to offset the cost. Identifying risk is part of the process, as is putting in plans to mitigate risk․
The truth is that well implemented ERP solutions will always deliver an ROI. Because business management software such as Acumatica and Sage 100 cloud touches all areas of a business, the impact on productivity, system efficiency and business outcomes can be huge.
So when justifying spending the money, it would be useful to look at a few considerations:
The cost of doing nothing
It sometimes costs to do nothing. The speed of change within the technology industry means that there are always newer and better ways of delivering services. When organizations neglect to refresh legacy ERP systems, they incur an opportunity cost; the cost given up by not pursuing a refresh to a newer, more efficient solution.
Reacting to demand changes
Is your revenue and sales forecast just a little off from actual? Of course it is! Forecasts, by definition, are wrong. A good ERP balances supplies and demands continuously and suggests changes to purchase orders and production schedules.
What was the cost of the last customer order you missed? How much overtime was required to stay on schedule last month? There are hard and soft costs related to supply and demand variability that ERP will help reduce your future expenses.
A simple ROI calculation is the cost of your new system’s licenses, versus ongoing support costs and license renewals for your legacy software. As software gets older and more difficult to manage (alongside needing to be run on legacy hardware), the support costs can escalate at an alarming rate, and it can often make sense – on software support renewal costs alone – to move to a new system.
The cost of risk
Over time, legacy software solutions that fall out of warranty become harder and harder to support and the individuals within your business who implemented the software in the first place may leave or retire, leaving you in a difficult position if things go wrong. And as new applications are deployed across your business, the ability to integrate new apps with legacy software solutions is reduced – creating an even bigger headache around staff productivity and operational efficiencies.