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Our last post addressed the fact that our ongoing ERP Benchmarking Study reveals that 100% of participants went over budget, most of them by 10% or more. But what we didn’t address is why projects go over budget.

I recently blogged about some of the hidden costs associated with ERP, which is one big reason why companies go over budget. Simply put, they often forget to identify all the “real” costs associated with any ERP project, such as hardware, training, organizational change management, hiring temporary contractors to replace project team members, customization, etc.

However, I think the problem goes much deeper than this. Too many times, I have seen CIOs who are so in awe of the whole ERP concept that they want to implement it, no matter how much it costs or how little of an ROI it delivers. Other companies get involved in what I call the “ERP sales trap;” in other words, they let the software vendors convince them that the cost isn’t going to be as high as they might think. Other times, the project team just doesn’t know any better and they overlook costs.

Important Steps to Contain ERP Projects and Stay on Budget

  1. Ensure executives outside of IT are involved in the vendor evaluation and planning process. Having more executives involved will help the management team identify all the hidden costs and benefits of implementing ERP.
  2. Take your time during the ERP evaluation and project planning phase of the process. Too many companies rush into ERP as if the world is going to end without it, and they don’t take the time to clearly lay out their business requirements, thoroughly evaluate the various vendors, and plan for a successful project. Any company that is serious about making their ERP project successful should spend at least 3-6 months on the selection and planning process, and possibly even more for companies that take longer to make decisions or are over $200 million in revenue.
  3. Develop an actionable, realistic business case. A business case should be used for more than just convincing top management to approve the project. It should also be used to identify and manage operational business benefits and key performance indicators during and after the implementation.
  4. Develop a realistic project plan and implementation timeframe. It may seem obvious that you won’t know your true costs until you develop an implementation plan, but too many companies try developing an estimate before a plan has been identified. This is a huge recipe for a significant cost overrun.
  5. Be open to the fact that it might not be time for ERP. Many may find this concept blasphemous, but even companies with the most manual processes and outdated technologies may not be suited for ERP. Perhaps a better and more cost-effective solution will help, such as business process improvements, best of breed software, etc.

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