Three ongoing ERP costs you must add to your software budget
Let’s face facts; ERP platforms are expensive to own and operate.
On the face of it, and based on empirical experience alone, this assumption should be expected. However, when it comes to real-world budgeting, many folks still fall prey to what some refer to as ‘soft or indirect costs’ that can drive annual budgets underwater.
Consequently, we thought we’d look at a couple of ways you can find yourself in trouble, and as one might expect, they all involve people over systems.
1. Remedial training
Whether you are in the midst of an ERP launch, or you’ve been operating a system for some time, effective workforce training remains the hallmark of a successful, and long-term, enterprise business process. According to statistics provided by a 2008 report produced by the Department of Labor Conference Board, 46% of all enterprises cite training effectiveness as being critical to achieving long-term growth.
While this metric can be largely accepted even today, these statistics do not describe the whole story since necessary ‘after-the-fact’ training activities usually trigger recurrent costs that most ERP operators fail to account for.
Consequently, when you are considering any kind of go-forward budget plan, it’s always best to factor the cost of training do-overs, and/or recurrent education programs; usually on the order of 25% – 40% of your original training budget on an annual basis.
Once again; if initial training programs are successful, and your workforce represents a group of ‘happy campers’ operationally, you may not have to spend these monies at all. However, more times than not, true effectiveness only comes from ‘constant improvement’, rather than an expectation based on a single, ‘execute and forget’ evolution. As the old saying opines, ‘measure twice, cut once’, and when it comes to remedial training costs, it’s best to assume a worst rather than a best case scenario, particularly when it comes to real budgeting.
2. Systems customization
Have you ever pulled a single thread out of piece of linen, and the more you pull, the less the fabric holds together?
If so, you have a pretty good idea of what badly-planned ERP customizations can do to the stability of a perfectly acceptable, yet vanilla, platform.
This type of failure can not only cause problems operationally, but it can also turn a well-understood budget into Swiss cheese, unless you properly account for the potential cost of this kind of technical ‘cleverness.’
Oh, I understand; today’s technologies are ‘designed’ to allow enterprise ERP operators to ‘tailor everything’, particularly when it comes to cloud-based platforms. But, anytime you alter what exists as baseline code, by mating or integrating some third-party algorithm, in order to create ‘something better’, you’re running a chance of falling off the road. That means costs upfront, in the middle, and in the event that something goes really wrong, cleaning up the mess after the whole thing blows up in your face.
Consequently, should you believe that customizations are the way to go within your own ERP infrastructure; my advice would be to allot an additional 25% to any annualized budget plan to cover potential customization failures. After all, forewarned is forearmed, and it’s a whole lot easier to ask for more money upfront, rather than having to show up at the CFOs office and ask for more budget after the fact.
3. Demand-based consulting
This is another little budget gotcha that many ERP managers fail to account for. This lack of foresight is colloquially known as the ‘I need a consultant right now’ cost.
Any resources-based platform is going to give you budget problems, since they are typically expensive to own, and the more pervasive the system becomes, the chances of experiencing more, rather than fewer spontaneous challenges, tend to emerge.
In budget terms, this means that you’re going to be facing daily operational issues as a regular requirement, on top of hosts of unknowns that are probably going to be even worse than ‘normal’. Consequently, the most effective way to cover yourself is to be budget-ready when you need to call an ‘expert’ to deal with some threat overflow.
When you are working a budget plan, apply an additional 20%-30% to your cost projections as a financial fall back. Of course, you may not need the workaround, but chances are you will – after all it’s ERP, and it’s just the way it is.
Featured white papers
ERP Software Pricing Guide
Get your comprehensive guide to the cost of ERP softwareDownload
60-Step ERP Selection Checklist
Get the comprehensive checklist for your ERP selection projectDownload
ERP Implementation: 9 steps to success
The 9 proven steps you should follow when implementing ERPDownload
Funding an ERP: how and why?
What funding is available for ERP including loans and grants
How much does ERP cost? (Free ERP cost and budget guide)
How much does an ERP system cost? Everything you need to make an ERP software budget
Can your small business afford an ERP?
ERP costs to bear in mind for small businesses when selecting ERP