ERP Costs and the Danger of Underfunding
Lack of sufficient funding does not generally cause the type of ERP failure that creates newspaper headlines or prolonged litigation. Lack of funding usually results in projects that either don’t make it to the finish line, or limp across so emaciated and exhausted that the original benefits list is a distant memory.
Learn How to Say “No”
Asking for the correct amount of money for an ERP implementation, and then managing within that budget, are two enormously difficult tasks. On the capital request side, you are depending heavily on the advice of your software vendors, implementation consultants, and local IT people with experience in IT project management. Still, with a project as big as ERP, it is impossible to anticipate everything, and every surprise ultimately costs money. Managing within that budget is difficult, because wants always exceed funding, and few days will go by during which a project manager doesn’t have to say “no” to an idea or request that may be perfectly reasonable. Unfortunately, the basis for monetary approval ends up being a negative one. That is, if you decide to spend money simply based on improving the ERP project, you will run out of money very quickly, because there are infinite ways to improve a project. After you have established a spend rate that is appropriate for the scope and budget of your project, the correct question to apply to requests for additional funding becomes, “Will failure to spend this money likely put the quality or implementation date of the project at risk?” Examples of requests that you will field during the course of the ERP project include: (1) sending team members, end users, or IT support people to training classes, or conferences. Establish a strategic approach to training early on and stick to it (2) adding ERP consultants, or extending the scheduled stay of consultants. (3) Purchasing additional ERP software or third party software. Software doesn’t install and run itself, and there will be additional people costs as well. But you may discover surprises in technical compatibility in things like document management, EDI, Business Intelligence, or Web applications that necessitate unexpected software purchases. The goal is to limit these types of requests to unquestioned necessities.
If you are underfunded, or have not spent your money wisely, you will cut muscle in an attempt to make it to the finish line without asking the company for more money. Cutting ERP consultants reduces the spend rate rapidly, but often leaves the project – especially in its early stages – technically weak. Cutting ERP implementation team members is even riskier; the same total amount of work has to be done by fewer people. Reducing scope in midstream sounds good but is a risky proposition; too many decisions have been set in motion with a specific scope in mind.
Make sure you have a project plan you believe in, sufficient funding to support the plan, and then make certain you execute the plan. That’s all you can do.
Featured white papers
9 hidden ERP costs that can blow your implementation budget
Discover critical cost areas of your ERP project that can wreck your budget
Building an ERP budget: a step-by-step guide
A process-focused approach to calculating an ERP budget for new software
5 steps to successful ERP requirements gathering
Are you ready to start your ERP requirements gathering journey? These steps are here to help you ...