ERP implementations, at what cost?

ERP | Peter Tönnäng

ERP implementations, at what cost?

The ERP implementation projects you’ve heard most about the latest twenty years have been going on for years and years, especially if they involved a global roll-out. Does it have to be that way?

The business environment for most companies changes faster than ever before. Upon that there are disruptions like the financial crash in 2008 or the pandemic in 2020. The only thing we can be sure of, is that an ERP roadmap laid out for the next five years will hit a different target than what the changed business would find optimal at that future date.

Customers might have decided to rent equipment instead of buying it, or even pay for the service of having equipment available. The Swedish Air Force have a contract for jet trainer aircraft where they pay for availability and flight hours, which is a drastically different business model for the aircraft manufacturer.

So, any ERP system – and ERP service provider – needs to be able to rapidly reconfigure or deploy new functionality to support the business.

The purpose of having an ERP system is to increase productivity, yet the main performance measure for ERP systems is Total Cost of Ownership (TCO). But the lowest cost is always achieved by doing nothing and keeping the existing setup, so either new ERP implementations are unnecessary cost or other cost measures are needed.

Cost of Delay

Every day your business process and support systems are not updated or reconfigured for an optimal business support, the organization is burden by an unnecessary cost. Every day this is not corrected, is a delay that accumulates cost. Identifying Cost-of-Delay gives incentives for continuous improvement, with the starting point of a fast implementation of out-of-the -box functionality. Even if the out-of-the-box supports the business a bit less than the old ERP system, it might have platform capabilities that supports fast continuous development that will quite fast surpass the existing system support.

 Total Benefit of Ownership

We’ve already concluded that the purpose of an ERP system is to support the productivity of the organisation. The ownership of an ERP system enables having the General Ledger electronically stored and not in paper hardback books, so there is an alternative cost of being without an ERP system. The benefits for each process differ, but with a quantification of each benefit and effort to achieve it, would be a good start for prioritization of the improvement pipeline.

Cost of Agile continuous development

Even though a Waterfall project implementation approach is necessary as a baseline (sic!) for legal reasons around accounting, an agile development approach can be used both in different stream during an implementation and post go-live. Together with ERP software-as-a-service (SaaS) cost, it is just as important to budget for agile continuous improvement of business support systems. Not the least because the world changes increasingly rapidly. Even though this can be considered to be a part of the Total-Cost-of-Ownership, it seldom has from either side. It is more of a necessity in an evergreen SaaS environment that introduces new functionality several times a year, when new potential improvements can be identified and put up on a list of Cost-of-Delay items. Sprint cycles should then be shorter than releases of new standard ERP functionality.

The conclusion is that the new ERP SaaS eco-systems need a radically different calculation model for ROI with the shift from CAPEX to OPEX and the need for continuous improvement throughout the ERP lifecycle.

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