When dealing with clients who want to short-cut their ERP implementation process, one of the Project Managers at our company likes to state that “you can pay now, or you can pay later.” This may seem self-promoting since we are consultants earning a living on helping clients with their ERP implementations, but the reality is that it’s a true statement.
We see many companies that spend hundreds of thousands or millions of dollars on ERP software licenses, only to devote limited resources to implementation. Some think they can do everything themselves with team members that lack implementation expertise, while others simply want to minimize their budgets as much as possible.
The reality of ERP projects is that 86% go over budget, and a full 60% of implementations cost 10% or more than planned (according to Panorama’s ERP benchmark study). We suspect that a big reason for this is that many companies try to cut corners, only to find themselves in a mess that costs more to get themselves out of than if they would have spent the time and money to do it right in the first place.
Obviously we don’t recommend unlimited or unmanaged implementation budgets, but we also like to be realistic about how much time, effort, and cost it really takes to implement ERP successfully. Here are some tips for ensuring you have a realistic and manageable ERP implementation budget.
Tips for Staying on Budget in ERP Implementions
- Leverage experienced resources. Whether they are internal employees or external consultants, it is important to ensure you have team members that have navigated their way through implementations in the past.
- Fully define your business processes and requirements. Most of today’s ERP software options are very flexible and provide many options for improving your business processes. However, it’s up to you to decide what those new business processes will look like. Too many companies expect the software to drive their business processes, but the reality is that most software is very flexible and requires definition on how the processes and workflows should look for your particular business.
- Don’t skimp on training or organizational change management. While these are often viewed as “soft” activities, ERP organizational change management is extremely important to the success of your project.
- Take the time to get it right. Make sure you budget time to thoroughly test new business processes, security roles, customization, etc. Too many companies rush to slam in their ERP systems because they didn’t adequately budget time for these key activities.
- Choose the right software. This is arguably the most important one. Companies that choose software that isn’t a good fit for their business or requires significant customization to support their key requirements are the ones that are most likely to overspend on their implementation budgets. A diligent ERP software selection process minimizes the risk of choosing a solution that is not a good match for your situation.
A good rule of thumb that we share with our clients, and one that is confirmed in our ERP benchmark research, is that software licenses will likely consume only 25% of your total ERP implementation budget. In other words, implementation will likely cost three times what you spend on the software itself. Understanding this early in the process will save you a great deal of heartburn later on.