Plan and Budget For ERP Implementation
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It’s one of the most common questions we get from clients and others we talk with about ERP implement is, “How do we budget for ERP?”. The amount of complex factors, time and technology involved in an ERP implementation mean that the answer is not as cut and dry as most would like. The cost of enterprise software can vary so widely partly because it is so versatile, it can serve businesses in a huge range of industries and organizations employee thousands of team members or only dozens. Because of this, it can be extremely difficult to try and hash out an accurate or precise budget and calendar for an ERP project, and even harder to justify your initial estimates to the executives of the organization. It’s one of the major reasons so many modern ERP implementations still seem to go over budget and take months beyond their scheduled go-live date to actually complete.
Schedule and budget for ERP are two of the most important starting points and guiding lights on your ERP implementation project, so you can’t just brush them aside as impossible to estimate—or risk becoming one of those bloated projects that crosses the finish line short on cash and looking nothing like it did at the starting line. Instead, you need to look at the scope of your project, the configuration your unique system needs and how you plan the business to grow along with ERP in the future to start setting a ballpark budget for ERP. From that figure, you can then work on narrowing it down and allocating investments for the implementation. Read on for your key tips on setting a schedule and budget for ERP—and sticking to it.
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Beware Instant Numbers
If there’s one thing to be wary of at the beginning of an ERP project, it is the quick numbers you’re going to hear from a software vendor, or an outside consultant trying to sell you their services. These are often the result of basic guesstimates without serious consideration of your company’s unique processes, employees or necessary ERP customizations. There’s simply no way to reach accurate or feasible goals without an idea of key cost-affecting factors like potential company growth, ERP hosting location or the amount of time needed to complete all the requisite customization, training and installation necessary.
If you’re going with an outside partner for your ERP implementation, then there needs to be a thorough, in depth conversation about planned budget and calendar for the project before any signatures are signed. If keeping the ERP project in house, then the considerations should be made before there is ever an official executive pitch of your proposed calendar and budget for ERP.
Your budget for ERP will be significantly impacted by the hosting option you choose for the software. For example, on-site hosting will require a significant investment in middleware and server space. It also asks for a significant licensing fee up front that your team will no doubt have to budget for. However, after the license fee, you will be responsible for the software until it comes time for maintenance or a software upgrade. You might also want to include room for extra IT employees for training and server maintenance, as upkeep will entirely be up to you. If you’re opting instead for a cloud-based ERP system, then your pricing model (and therefore, your budget) will look much different. You won’t have to pay to install all the requisite hosting servers and machinery on-site, or even to upgrade the software as necessary. Instead you will pay a monthly subscription fee, which includes the maintenance and upgrade costs and the cloud server space hosted by your vendor. That subscription fee will usually be contingent on the number of seats your company will be taking up. This means that your budget will need to be set over a longer period of time to include that monthly subscription fee, and to account for any planned growth and extra seats which will increase that fee. In the end, cloud-based ERP usually averages at a lower TCO (total cost of ownership) than on-premise and will likely be the best option for smaller businesses looking to keep their budget tight and their calendar schedule short.
For more on the difference between cloud and on-premise ERP, read here!
The need to manage expectations partly stems from the initial budget and schedule setting, but the objectives must be properly regulated throughout the entire project. Money can have a way of sneaking away from you when implementing ERP, so it’s important that your initial budget is firmly kept in mind with every important, bottom line-affecting decision made. If the budget is changed, it must be signed off by the very executive board that approved the first number, and your project team should be able to explain the exact reasons behind the request. Did your consulting partner run into a snag and need more billable hours to complete a deliverable? Give your project stakeholders a detailed heads-up, and they won’t be shocked and angry when that final project total does come in.
By managing expectations and backing every change in your proposed schedule or budget for ERP with concrete reasoning, you will prevent runaway spending and keep the project team focused on completing the next step towards implementation success, instead of worrying constantly about staying under budget.
Pick Your Customizations; And Stick To Them
It’s hard not to get overwhelmed by all of the options software vendors can offer you. What with all the modules and new innovations available, it will seem like a buffet of ever-improving options and add-ons. A predictive analytics feature that allows you to forecast future demand based on customer buying history? “Sounds great, add it to the package!” you say. However, this kind of attitude is common for any first-time implementer, and can be harmful to your ERP project. Every single module and customization is tempting, and can seem like a benefit to your business, but there is a problem; every add-on and customization will cost you. It’s like a mini-bar at a luxury hotel—first you were just going for the mixed nuts and then you find the whole thing emptied and hundreds of dollars on your bill.
Set a specific customization plan before you even start your ERP implementation process. That way, you know how to target your vendor search towards systems that can support the functionality you need. Prioritize the end users and workflows that will be operating within the system the most, and customize only up to budget. Make your desired operations and budget for ERP work in tandem—balance the development you need with the investment you can stretch. Obviously, budget should not restrict crucial functionality, but you also shouldn’t be signing up for the latest shiny new (and expensive) tools if there’s no space for them in your books.
ERP projects are somewhat notorious for going over budget and lasting beyond schedule—particularly the big name failures that make the news. However, it doesn’t have to be that way when it comes to your own implementation. With careful consideration of your current business processes, the kind of ERP system you will need to support them, and the current size and complexity of your organization, it is possible to come a ballpark figure and go-live date that can then structure and guide your project to completion. Naturally, it is nigh impossible to predict every twist or turn of an implementation and your budget for ERP needs to reflect this variability. Be precise in your planning, but leave wiggle room in the event of any major changes in your implementation. Your project team should also have completed a comprehensive risk assessment at the beginning of the implementation that outlines where your budget for ERP might need to be stretched, and by how much, in the event that something does happen.
For more help on planning out your own budget for ERP along best practices, contact an expert at Datix today! We have over 18 years of experience in helping our clients implement the best enterprise software for their business. With our vast expertise, we know how to balance the fine line between budget, time constraints, and the ideal ERP for your organization.