Why your ERP budget went wrong
While effectively understanding the ‘paper-needs’ of an enterprise represents an important element in the typical ERP failure puzzle, figuring out how to pay for the effort triggers an entirely different, and more critical, level of business confrontation.
In general terms, the effective employment of enterprise budgeting represents a significant challenge on a good day. However, when that discipline is applied to the financial needs of a costly systems platform, that demands near perfect operational performance day in and day out; cost risks can spiral out of control in the blink of an eye, and many times, without notice.
So, how do budget failures lead to threatening ERP problems at the operational level? Well, here are a couple of instances suggesting three areas of concern.
Missing out hidden costs from your ERP budget
ERP platforms are not cheap to launch, own, and operate. Even today’s more ‘reasonably priced’ cloud-variants encompass hidden costs that on first blush may offer a ‘good deal’ that in the end can cost a company more money than it ever dreamed of, blowing a hole in their ERP budget and setting the whole project up for failure
Typical impacts, here, are usually represented by the two black horses of time and cash over time. However, while these elements are largely obvious, if you take the time to look critically, other more subversive cost drivers can apply as well, including a sudden need to respond to some form of directly competitive threat, or poor cost management in general.
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In this case, the sad truth is that more companies than not simply don’t harbor enough capital strength to effectively launch and maintain an effective ERP effort; and getting half-way through an enterprise evolution only to finding itself out of project budget is usually worse than not beginning at all. If you don’t have the money available, don’t play at all. It’s as simple as that.
Failure to calculate operational costs across the entire enterprise
Another ERP budget ‘gotcha’ involves the inability to comprehend what an ERP system actually does to an enterprise at a practical level. Resources systems are built to ‘see and touch’ everything within an operation, even though it may appear that the company only intends to utilize a couple of ERP modules; say, integrated inventory and accounting.
In this event, inventory cost and revenue information typically accrues to both systems in parallel. However, while the process chain appears to be fairly straightforward, and largely stand-alone, as a practical matter, the more information the ERP platform creates and delivers to the enterprise, the more dependent the entire workforce becomes.
Over time, then; hidden costs begin to emerge in unexpected locations within the enterprise. These can come from just about anywhere, whether they’re increases in sales or marketing costs driven by the sudden demand for more accurate finished goods reporting, IT costs in terms of expanded support needs, or even fleet vehicle operators who want enhanced stock/cost/revenue schedules to prepare for freight demands in association with distribution or points-of-sale.
Regardless, as asserted earlier, ERP systems create enhanced volumes of information that everyone involved will want to take advantage of. However, if the enterprise doesn’t allow for these kinds of ‘soft costs’ a company can easily look up at the end of the year and find itself upside down financially.
Consequently, the only way to ensure that your budget planning will be accurate is to be as detailed as possible; then keep on being detailed going forward. Nevertheless, once you spin up an ERP platform the cost target will begin to move every day, so stay sharp and keep your eyes constantly moving on the bottom line. Next, we’ll identify some budget best practices to help you stay true to these caveats.
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