Changing management software is a delicate moment for the company and often causes headaches for entrepreneurs. Today’s article discusses the costs associated with changing ERP: how to predict them, how they differ, and how to avoid surprises. In a company’s life cycle, we often have to implement a new ERP system, perhaps because we are installing management software for the first time or because we want to upgrade the functions available.
On these pages, we have repeatedly dealt with the delicate process of implementing ERP software: today’s theme is instead the costs of changing the software and how to avoid unpleasant surprises in this sense. It happens more often than one might think: this is because it is challenging in the design phase to foresee all the needs that will emerge during the implementation and start-up of the solution. In our experience, these costs represent an unfortunate eventuality for companies. That’s why it’s essential to be aware of it and make an estimate as accurate as possible.
The Change Of Management In The Company
First of all, a little honesty is needed: changing a management system is by no means a simple process, which can be costly in terms of time and resources. In the face of these premises, before taking the big step, companies evaluate at length all the different factors that could impact company operations. Many points need to be clarified before starting the absolute management change phase. For example, activities such as data migration, training resources on the new tool, or implementing functions not covered by the standard package may fall into this category.
The advice we always give to customers and partners who face a change of management software in their organization is to plan the objectives, forecast their budget, and effectively estimate with the selected software house the times foreseen for the installation and start of the new package. Above all, clearly define the budget to invest in the project, analyze the costs and expenses to be incurred, and consider any ‘unforeseen events.’ In this article, we shed light on the different cost items that must be considered when deciding that the time has come to change your management software. Essential premise: accurately predicting the costs to be incurred for changing ERP software is complicated for two main reasons:
- Because it is often challenging to predict all the cost items necessary to achieve the objective set by the project.
- Because many of these costs can take on variable dimensions, contributing to the increase in the overall costs of the ERP project.
The problem is that, without precise cost estimates, we have exhausted the available budget when it is too late, i.e., when the project has started. Large sums have been invested to reach the final stages of the project, those close to going live. The emergence of unforeseen problems during the execution of the project could lead to an increase in the days of intervention required (in addition to those defined in the planning phase).
A suitable solution to these critical issues is ceiling project management. By establishing an estimate as precise as possible of the days required for implementation in advance, the project will progressively erode the days defined in the analysis phase, allowing for more effective control of consumption of the budget due to the works carried out gradually.
The Costs Associated With The Implementation Of A New ERP Software
So how do you make an effective estimate? First, we must understand the cost elements, distinguish between fixed and variable, and bring out all the expenses, even those that could result from unforeseen events or unforeseen needs. We then begin to define the main cost elements of an ERP project. The cost items we must consider when we economically evaluate a project for changing ERP software are basically of 4 types.
The licenses, i.e., the costs relating to activating the temporary permits for using the ERP Software. They are calculated based on various factors, including the number of users connected simultaneously, the number of functions or modules included in the package, in some cases, the type of server processor or the number of active cores. These costs are then invoiced in two different ways:
- One-off activation costs for software user license if sold in On-Premises mode (therefore installed on company servers);
- Monthly / annual fee for Cloud hosting if the user licenses are provided in Saas (Software-As-A-Service) mode through a provider or server in the Cloud.
The costs relating to the technological infrastructure must be incurred to adapt one’s hardware and software infrastructures to guarantee the correct functioning of the desired solution, as well as in relation to operational criticalities. These could include the purchase, upgrade, and replacement of:
- servers and clients (such as IBM Power-i series, Amazon AWS, Oracle, Microsoft, etc.)
- data storage and backup devices ;
- network infrastructure (Network);
- bandwidth upgrade (connectivity);
- operating systems;
- databases necessary for the functioning of the ERP;
- Other basic hardware or software required for services connected to the system (electronic invoicing platforms, Business Continuity software in HA, graphic conversion software of the ERP package, etc.).
Among the costs attributable to the start-up and Management of the project, it is good to consider the following:
- the initial analysis, necessary to focus on processes, any customizations, and parameterizations of the software, objectives, and timing;
- the system services necessary to install and configure the essential software, the database, and the necessary hardware;
- the migration of data necessary for operation on the new database;
- the parameterizations necessary for the system to ensure its functioning;
- application development of the missing functions and reporting activities;
- testing and testing activities necessary to fine-tune the solution;
- Training of the operators – it is not enough to consider only the out-of-pocket costs of the consultants but
- The time that internal resources must dedicate to this activity;
- Post-go-live support and coaching services, the moment of the effective transition from the old system to the new one.
We must also remember that the time necessary for the analysis and coordination of the project with the Management must be added to the costs listed above. These activities should be considered as they have as their objective the verification of the progress of the works, ensuring adherence to the required requirements and objectives, as well as the control of project timing.
Maintenance, And Updating Of The Solution
These are costs to be incurred for the assistance and updating of the ERP software release for reasons ranging from a new version of the system, new regulations on tax management (as regards accounting software), or problems that have arisen while using the solution. These expenses may include the following:
- upgrade fees and installation tasks for new releases;
- expenses relating to the help desk and maintenance, also as remote assistance interventions;
- Costs relating to interventions by consultants and systems engineers for company activities may include analysis and implementation of new procedures, personnel training, development and installation of new functions, including customized ones, etc.
How To Reduce The Cost Of The ERP System
At this point, it should be clear that the adoption of a management solution does not only involve the purchase of software licenses and the days of consultants and technicians for the installation of the package but also include a series of costs that we could not correctly define ‘accessories’ and which concern services, in particular, are often underestimated or even not considered. For this reason, it is often difficult to make a reasonable estimate, especially if it is the first time a management change has been undertaken.
For this reason, it is advisable to divide the project into several phases: installation to parameterization up to implementing the functions to be developed from scratch. It is therefore advisable to include in the evaluation parameters of a project for the adoption of ERP software an estimate that is as inclusive as possible of the services necessary for the implementation and correct functioning of the system, calculating it based on the reasoning presented today. We would also like to dispense a series of practical tips which come directly from all these years of implementation:
- Evaluate the possibility of allocating project costs to fixed assets to divide the expenditure over the years. This allows you to reduce the initial outlay by spreading the price that will affect different periods.
- Involving and motivating key users right from the initial stages of the project: this point is essential, as it is precisely those who use the solution themselves who must become the ‘internal’ sponsors of the software change project.
- Establish and predict a series of moments following the go-live to verify that everything works perfectly: this is probably one of the most underestimated steps by those preparing to implement a new ERP. Ensuring that all procedures work perfectly is essential to ensure the return on investment of the solution adopted.
Above all, remember to take a deep breath: changing the ERP is not child’s play, so tackling these activities with all the necessary calm and concentration is better.
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