What Are the Extra Costs of ERP?
30/11/2011 6:24 PM

Enterprise Resource Planning (ERP) software aims to integrate all functions and departments of a business into a single software solution. Traditionally, separate departments such as finance, human resources, operations and so forth have each had their own computer system tailored to support their individual needs. ERP does away with this separation, eliminating the inefficiencies associated with redundant data, human error and the inevitable delays in accessing information from another department. However, while ERP software promises to save your company money, there are always unexpected costs that should be allowed for in your budget.

1. Training costs
Most companies that have successfully implemented ERP will tell you that training was the number one cost threatening to force them over budget. It's not just a matter of learning how to use a software interface; employees will need to learn a whole new set of processes, and this takes time. Warehouse workers, for example, will need to enter all data into the software in order to allow customer service representatives and other departments to know what's going.

2. Integration testing
Before jumping head first into your new ERP software, you'll need to test it to make sure it integrates tightly with the processes you've put in place. This may involve entering dummy data into the system and moving it from one application to the next, but it also pays to run a real purchase order through the system, ideally with all of the staff who will participate in the job taking part. The process of testing and ensuring the software runs smoothly will inevitably take additional time.

3. Customisation
If the ERP software is unable to handle one of your core business processes, you'll need to have it customised to suit. These customisations may affect other modules in the business software, as they are all tightly linked and integrated. The possibility of having to upgrade or customise your software is another potential cost to ask your ERP provider about.

4. Data conversion
Old corporate information such as customer records, supplier records, product design data and so forth will need to be transferred from old systems to the ERP software. This is another time-consuming and costly process. And that's considering that the data is 'clean' – that is to say, it has been kept properly in the past. If the data is 'dirty', it's going to be harder to complete the conversion process.

5. Post-implementation downturn
Since your entire company is going to be getting used to a new system, there's a good chance you may experience a downturn in productivity as you adjust to the new ERP system. A survey performed by Deloitte found that 64 of the Fortune 500 companies that implemented an ERP system experienced a drop in performance immediately after (though we reckon the true percentage is higher). In general, people don't like change, and your employees may buck a little as they reconcile themselves with the new system. Overall, however, it pays to think long-term and consider the benefits your business will experience in the future when the ROI associated with ERP software kicks in.

Leave a Comment:
Name (required)
Your URL (optional)
Comments (required)
Add Comment