It’s often said that ERP implementations are bound to go over budget. In fact, according to a recent report, 45% of them end up costing more than initially budgeted.
If you don’t want your ERP project to meet the same fate, how can you budget for a successful ERP implementation?
Here are some tips for creating an ERP implementation budget and a look at the pitfalls that could derail your plans.
Setting Your ERP Budget: What to Include
When it comes to devising the budget, there are varying suggestions to be found online. Some say you can expect to spend around 1-3% of your annual revenue. Others estimate that the cost is typically around $9,000 per user.
But there are different scales of projects and each company is different. We recommend that our customers carefully consider what they need – and what they don’t need.
You may be keen to have an all-singing, all-dancing system that does everything. But it’s more prudent to choose the minimal essentials and the add-ons that you require, rather than implementing an entire system. Otherwise, you will be left with extras you have paid for but will never use.
At NoBlue, our approach is to have our consultants review our prospective customers’ businesses carefully. This ensures they give the best advice as to what is right for your company.
While an individual approach is obviously best, here are the typical costs you need to factor in.
Software and Hardware Costs
These technical costs firstly include the software, including any additional modules and add-ons, plus user licences.
If you are not using cloud software, then you also need to account for the costs of hardware, hosting and networking to facilitate your on-premises system.
Project Management, Consulting and Development
There will be costs for your external provider to run the project and to conduct the implementation.
These will include the technical implementation, configuring the database and customising the software according to your business needs. You may also need specific integrations to be developed so that your ERP software communicates effectively with other software that your company uses.
It might be that you can undertake the data migration yourself. But if your data is more complex, requiring formatting and optimising before it is imported, then there will be costs for your implementation partner to do this for you.
Extracting your data from your legacy systems and then transferring it into your new ERP system could be a lengthy task, with many stages, so do not underestimate the costs associated with it.
To get the best results, your employees must embrace your new system.
To transition them to your new system and new business processes them requires robust change management. This includes a solid programme of training, even before your system goes lives. With high levels of user acceptance, you will achieve a smoother changeover.
Your Staff’s Time and Opportunity Costs
While they are planning and running the implementation, your internal project management team are a cost. Although their costs are not sunk costs, so do not have an explicit figure on your profit and loss statement, while they are dedicated to this project, they cannot be deployed elsewhere. So, they are still an opportunity cost.
And don’t forget to account for your staff’s time in testing and learning to use the new system.
Ongoing Support and Maintenance of the Software
Your future spend can increase too. Here, you need to anticipate what might change, and budget accordingly.
One expense is software upgrade costs. Most software is upgraded on a regular basis. This can entail one or two updates a year. If you choose on-premises ERP, then this will mean you need to budget annually for your system to be taken offline and updated periodically.
Other costs after you have deployed your new ERP system might include ongoing user support or training. And as you grow, you may want to add new business entities or have further configurations developed.
Avoiding Going Over Budget
Even the most carefully budgeted ERP projects can go wrong. These are some of the pitfalls to avoid if you want to keep your budget on track.
If you expand the scope of the project as you go along, then it will necessarily take longer to implement and cost more. It’s best to fully understand what you need before you start – so that you stick to it. This means having your implementation partner thoroughly audit your business, allowing them to choose the right components of your new ERP system and then configure it accordingly.
Growing the scope means you will need more developers on the project, as well as longer time to implement the software and to train your staff how to use it.
Be aware of less scrupulous vendor partners who might suggest you include extra modules in case you need them in the future. This obviously increases the amount of money they earn from selling the software, as well as additional time they can bill to implement it. But it may not be right for you to future-proof your software in this way. It may be better to only add extra modules and add-ons when you need them.
Running Over Schedule
Running over on time is a huge contributor to escalating ERP costs. Some ERP implementation projects can take many months. If something goes wrong or there is a delay for any reason, then going over time has a knock-on effect on other aspects of the project. So, despite your careful planning, delays will change the milestone dates of the project. It can seriously derail everything if your project manager is now on annual leave, or the training rooms are booked out, or the lead developer is busy with another project.
NoBlue Now – NetSuite for Start-ups and Small Businesses
If you are a start-up or a small business looking to implement a new ERP system, we have designed a NetSuite package that can save you 60-80% on your implementation costs.
What’s more, we guarantee that you can be up and running on the NetSuite platform within 30 days. So, there’s no chance that your ERP project will drag on or run over time.