How to Budget for a New ERP System

  • 24 August 2016
  • CTND
Categories: ERP


So your company wants to implement a new enterprise resource planning (ERP) system. A question likely being asked quite a bit is: How much will it cost?

The short answer is: it depends. To arrive at a figure, you need to examine all the costs associated with ERP implementation, including software, hardware, staff resources, and third-party vendors.

As you create an estimate for ERP costs, resist the temptation to cut corners. Training and project management need to be properly resourced to ensure the implementation process and adoption of the new system go as smoothly as possible.

Here, you’ll learn how to budget and what costs you can expect when purchasing and implementing a new ERP system.

Conduct a Business Process Review

Before talking dollars and cents, conduct a business process review to determine what your company’s requirements are for the new ERP system. Consider:

  • What your company wants to get out of updating your ERP system. What are the processes you want to improve? What are your goals?
  • Which departments will be using the system? How will they use it?
  • Should the new ERP system be in the cloud or on premises? This will have a big impact on costs.

As you conduct the review, make sure to assemble a team of people from each department to share the perspective of their departments and assess critical needs. This team should review all business workflows to provide a clear understanding of system requirements. Later, as you assess particular ERP products, this list of system requirements will help you assess which product is best for you, and if customizations need to be made.

Map Your Costs

Now that you know your system requirements, you can put some hard numbers behind different types of costs. To account for the many different costs in your budget, break it down into technical costs, human resource costs, and data costs.

Technical Costs

Technical costs vary depending on the ERP product. They will also depend on whether you choose a cloud or on-premises solution, and how much technical expertise you have in-house. Make sure to consider the costs of:

  • Hardware
  • Software licensing
  • Database
  • The operating system
  • Customizations
  • System validation, if required in your industry
  • Network and technical communications
  • Maintenance and support
  • Hosting

Human Resource Costs

Companies sometimes fail to properly account for, or underestimate, human resource costs. Make sure to consider both the internal and external human resources you will require. Consider the costs of:

  • Education and training
  • Project management, and associated software and tools
  • Change management
  • Support from external ERP consultants

Many companies underestimate the true human resource costs because they do not account for opportunity cost. For example, if you pull two members from your sales team to be part of your ERP project team, they will not be able to make sales, which means your company will not net the same sales in that quarter.

Similarly, even an hour-long training session with every member of a particular department has a huge cost if you consider the hourly wage of each staff member.

This is not meant to discourage you from including salespeople on your project team or conducting training. Rather, it is to show that implementing a new ERP system has a tremendous number of costs, and each should be accounted for in the budgeting process.

Data Costs

Lastly, don’t forget about your data costs. The three main data costs are:

  • Extracting data from legacy systems
  • Cleaning and ensuring the data’s accuracy
  • Entering data into the new system

Account for all these costs and you will have a robust picture of what your new ERP system will cost your company.

If you need help determining your system requirements and coming up with a budget that suits your needs, get in touch. We are always happy to help.

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