Building A Cost Benefit Analysis For An ERP Acquisition & Implementation Project
Cost Benefit for an ERP System
Investing in an ERP system presents a compelling opportunity for organisations that are wanting to centralise their business information management and bring all their business functions together into one system. Although, like any significant business investment or new technology project, a business case should be consolidated and presented to justify the venture.
A cost-benefit analysis (CBA) for an ERP will help build a case for the investment, it will ensure careful considerations have been made to realise whether the project is worthwhile for your organisation. Conducting a thorough investigation of the potential costs and benefits will not only help to ensure the success of your project but will help to guide your decisions about which solution will best fit your “whole of business” needs.
Cost-benefits for ERP systems are typically categorised as tangible and non-tangible.
Choosing a Single ERP System
A cost benefit for an ERP will help identify the solution or solutions your business may implement to help create smarter business operations, although when considering ERP systems, it’s important to note that there are clear advantages and disadvantages to adopting a single or multiple solutions, both of which, will be dependent on your business objectives for implementation.
A single solution provides complete and centralised software for the entire business, managing multiple departments from a single database, supporting automated and streamlined operations and data flow. Stake holders have a single point of contact throughout the implementation phase and your implementation partner can also provide ongoing support into the future, ensuring your staff are trained in the use of your system ensuring high end user adoption and reducing the likelihood of project blowout.
Single ERP systems like NetSuite, provide consistency through departments in the business, with highly customisable, fit for purpose departmental business applications, pre-defined workflows, and dashboards. Staff in their respectful areas will have standard processes for operations and information flow, to reduce the risk of discrepancies and any associated costs.
Implementing multiple systems may still have their benefits too, it will just depend on the specific needs of the business. Other factors like these will still need to be carefully considered when building costs benefit for an ERP. Its worth noting here that often a single “point” solution, such as a stand alone CRM, can cost as much, or nearly as much, to implement and run as a whole of business system such as MYOB Acumatica or NetSuite. (Both of which provide functionally rich CRM applications within their suites.)
How to Build A Cost Benefit Analysis For An ERP System
A cost-benefit analysis (CBA) is a systematic process for calculating and comparing the benefits and costs of a project or decision: The necessary outgoings and desired incomes.
What are the costs you need to consider, and does it go beyond just calculating the ERP licensing costs?
This guide gives you a step-by-step process for building a cost benefit analysis for an ERP system helping you to put an actual dollar amount or value on the benefits to your business of an ERP system.
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Quantifying the Tangible Benefits of ERP Investment
Quantifying the value of the potential gains for an ERP investment is an important factor of any business case. Tangible benefits are the easily measured dollar based benefits that are realised through different avenues of the business post ERP implementation. These benefits include things such as;
- Consolidation of point systems into a single system, which may reduce your overall IT costs.
- The ability to avoid increasing head count across different functional areas to handle growth.
- Improved inventory management – reducing your inventory management and handling costs.
- Automating and streamlining manual business processes such as staff onboarding, inventory fulfillment processes and many others.
- Time savings, manual data entry error reduction, or eliminating double handling of information.
- Ordering and payment automation, decreasing payment processing and paper costs.
These sorts of benefits from ERP investment and implementation are usually straight forward to calculate and measure.
Measuring Non-Tangible Benefits of ERP Investment
ERP technology delivers many non-tangible benefits that should be calculated and included in any cost-benefit for an ERP system. Intangible benefits apply to those benefits to which you can’t readily apply a dollar value to, which can make building a cost-benefit analysis more challenging. They would include things like;
- Improved efficiency of operations
- Well defined business processes
- Reducing or eliminating human error
- Reducing business risk and risk from fraud
- Reducing manual tasks
- No more games of “Find the Spreadsheet”.
- Always viewing and operating from a single source of live data
- Improving HR and staff management processes
These are the sorts of things that might, for example, result in happier staff, reducing your rate of staff turnover, which reduces your replacement and onboarding costs. Despite not being able to assign a dollar value to these kinds of benefits it is important to include these benefits in your CBA. Improvements like these, allow your business to scale and grow, improve skilled staff retention, and set you up for future success.
Including the Tangible Costs of an ERP in Your Cost Benefit Analysis
Don’t neglect to build in the tangible costs associated with deploying an ERP system across your organisation. Comprehensive consideration of these costs will ensure accuracy in the final analysis of your project. Costs can also be tangible and non-tangible and can be realised at implementation or later when the system is more established with the business.
There are the obvious costs that can be easily identified and estimated in monetary terms. Tangible costs are often plainly listed in a statement of work or proposal document, and include such things as,
- Initial investment or monthly SaaS licenses fees
- Implementation project costs
- Integration costs if you are retaining any of your third party or custom software
- Ongoing maintenance and support expenses
- Training (initial training is part of your implementation project, but will you need ongoing training?)
Non-tangible Costs for an ERP System
Alongside the tangible costs there are non-tangible costs that can be more difficult to identify and assign values to. These costs will need to be considered for a comprehensive cost benefit and mitigation strategies can be developed to help prevents excessive intangible costs rising. Intangible costs include such things like,
- Operation disruptions.
- Time and effort for training your end users.
- Change resistance across your staff or management team, who can derail your project.
- Long term support or software maintenance agreements.
