The top 4 questions we ask a company who calls us about ERP solutions or selection support tend to be around the following:
- What is your need for a system at this point in time?
- Do you have management authority to buy a system?
- Do you have a timeline in mind when you want to go-live?
- Do you have a budget?
The last of these stumps everyone and the most common answer we get is “we don’t know yet, we want to get some proposals and see”… When you do not have a request for proposal (RFP) document ready it is hard for anyone to give an idea of costs as a large part of the ERP deployment can be dependent on custom requirements. You might try to give a user count here but that’s only part of the picture and won’t inform you of the total costs of ownership and that too over time.
Sometimes we hear “we want to interview several ERP vendors or implementors about our requirements and then see based on their proposals”. This question also leads firms down rabbit holes as a significant amount of time is required to assess vendors and if there is no budget in mind you can spend a lot of time going through a selection process with vendors you can’t afford anyhow.
Why is it so important to have an idea about a budget for your ERP solution?
Essentially selecting and deploying an ERP solution in Sri Lanka or wherever is a time consuming energy draining task and you don’t want to lightly enter that time commitment..
ERP systems range in prices although functionality is largely the same. Bells and whistles aside, getting the core functionality you need should be your priority VS fancy features and the platform should have add-on capabilities for whatever else down the line. The modes of operation be it cloud or on-premises can impact your cost structures enough too when you look at the total costs of ownership vs initial investments. Having a budget or range in mind allows you to focus your selection process and be highly time efficient whether you are looking for a solution in the short or medium term.
Let’s say you don’t have a budget, but want to include a range in your next financial year calculations to account for a system you still need to know what your company can afford and not! This will have to factor in your existing IT budgets and also other solutions you may require in addition to an ERP solution to run your business.
“this also involves the analysis of the value you get out of the ERP system. If the ERP system covers 80-90% of your most profitable business processes you can afford a more expensive software whereas if you need multiple software solutions to cover your needs you need to spend less.”
A. Schwarz, CCSchwarz GmbH
What goes into your ERP budget?
The ERP budgeting process needs to factor in several key elements namely:
- Licensing driven by user counts
- Deployment costs to localize/customize, install and train your staff
- Infrastructure charges once off or recurring if cloud based
- Annual maintenance charges typically as a % of the total deployment or license value
A lot of people add this up and say I can build my own ERP for half or less. Please don’t make this mistake as no single company has ever been successful doing so and eventually end up deploying a standard solution at many multiples over. Standard software takes a lot of effort over time to maintain and update and this is not a small task for your internal or external IT team to handle. Should anyone of your core team of developers leave, this would put your company at high risk!!!
The user count is fairly straight forward, however several vendors have multiple user categories which are priced differently. Some have view only licenses, mobile only, or professional full access licenses. These ambiguities mean you have to precisely determine your users and what they need in order to access and utilize the system. Again that would require a sit down with each vendor and work out a cost effective user plan.
A factor that can drive up costs here is where Sri Lankan firms have numerous levels of approvals to ensure accountability and transparency which they then try to replicate on an ERP. This is ill advised and the correct way to think is designing new ‘ERP ready’ processes first which leverage the capabilities of the solution VS trying to automate outdated manual processes.
The most complex part of the budget and often the largest being the implementation portion. To fine tune numbers in this area (beyond ballparks) you must spend time with vendors in screening requirements and assessing how they would handle processes. Companies may not know what they need right now or for the future and it is important to assess current processes and apply tools and technology where the value can increase over time. This can ensure higher returns on ERP investments compared to vanilla implementations. Keep in mind that each vendor approaches problems based on their own solution’s capabilities – some solutions are easier to customize and therefore are lower cost whereas others are more expensive and require significant efforts to maintain as well.
Infrastructure charges are fairly straight forward and need not be a showstopper for a solution. Largely it is a question of where you want to keep your data and whether you have inhouse IT personnel to manage on-premises infrastructure or do you need this done as a managed service for you and perhaps on a cloud. Increasingly the storage and use of client data by companies is coming under regulations such as GDPR and this trend will only increase over time.
Maintenance charges are a given in ERP budgets and you need to factor this in for ongoing services and upkeep of your solution. Upgrades are sometimes included however you would need to pay for the services to perform it properly. A system that isn’t updated becomes a huge liability in terms of performance and data security – upgrading an ERP is no longer an optional extra.
and Finally…
An inherent truth of deploying ERPs is the redundancy factor in some manual roles which get automated. This factor needs to be planned in advance so that there is ample notice and opportunity to re-allocate those resources. Please note that this may not mean headcount reductions as your ERP will boost your efficiency by virtue of added transparency and efficiencies and help grow your business – this means you need more people not less!
Contact us for an obligation free discussion of how to take your ERP requirements forward and with the right vendors! 0770415387 info@erpservices.lk