6 Hidden ERP Costs You Should Watch Out For

You probably already understand that the cost of your ERP system will be a lot more than whatever wonderful quotation you just received from your ERP vendor. Many of the additional costs are easily estimated. Hardware upgrades, ongoing maintenance of the ERP system through upgrades and bug fixes, and basic implementation support are usually estimated by your vendor and are somewhat accurate usually. There are hidden costs too you need to be aware of and watching for.

1. Labor costs

There are several categories of ERP cost here. Training time, people will have to be trained in the operation of the new ERP. Testing time, you will need to thoroughly test the ERP with your own data to ensure all the switches are set to model your business. These configuration switches are complex and they work together so setting one to a value that makes sense might not work as expected because another switch is set to a value making sense there. Data conversion time, you will find that not all data can be converted easily from your legacy system to the new one. Some data will be more economical to enter manually because the conversion rules will be too complex. You know up front you will spend a lot of money on labor for the implementation but it is unlikely you will guess right.

Recommended Reading: ERP Pricing Guide - Understand and compare the upfront ERP costs

2. Retraining and retesting

Someone will quit during the ERP implementation and another person will need to be trained before the implementation is complete. These ERP costs, and the cost of recruitment, will be laid at the feet of you and your project.

3. Re-engineered processes

You swore at the beginning that this would not be part of the scope of work, but you will find at least one process that has to be re-engineered in order to avoid the costly roulette wheel of ERP customization.

4. Fear

A cost that cannot easily be quantified. You have your own fear about the future of your ERP project. Multiply your fear by the number of your employees. Somebody will fight the change. Somebody else will work slower than you hope. All that adds up to hidden costs.

5. Customization

Customization and new customized reports will cost more than you estimate. Remember your employee Murphy and his law? He resides in every department and will help you spend money you hadn’t planned on, customization is no exception. When processes cannot be re-engineered, customization will be the only option, and it is a costly business.

6. Hoped-for cost reductions

Many will not be realized. Some of your justifications for the new ERP are reduced costs. Those costs are personnel usually and unless you actually let someone go, there is no actual reduction in cost.

I hope that identifying these ERP costs will help you budget for your project. It will be expensive and will provide you with a valuable tool to help your business. Remember too, there are some hidden benefits to cancel out some of your hidden costs.

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Tom Miller

About the author…

Tom completed implementations of Epicor, SAP, QAD, and Micro MRP. He works as a logistics and supply chain manager and he always looks for processes to improve. He lives near San Francisco Bay in California and can be found on the water in his kayak or on the road riding his motorcycle. Contact Tom at customerteam@erpfocus.com.

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Tom Miller

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