Hidden Costs of ERP Software

You have a quote from your new ERP provider so that you know the costs for software, hardware, support for implementation and training. However, many companies are still surprised by certain unexpected additional costs - and therefore are not included in your plan and budget.The implementation of the ERP software creates a key shift in how a company works after implementation. It is often an intimidating initiative for most companies and often is one of their largest technology projects. ERP software packages promise great advantages if done correctly. If it does not do so properly, the company, its operations and its finances can be seriously harmed. 

The majority of ERP projects cost more than the amount budgeted and there are many reasons behind this. Companies should draw up realistic ERP project budgets on a carefully detailed plan based on all the factors that affect the pre-, during and post-implementation scenarios. 

Here we identify hidden costs often overlooked in  an ERP project : 

Training Cost

Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface.   Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system.  Remember that with ERP, finance people will be using the same software as warehouse people and they will both be entering information that affects the other. To do this accurately, they have to have a much broader understanding of how others in the company do their jobs than they did before ERP came along.

Unexpected Customisation Cost

Add-ons are just the start of ERP's integration costs. The actual customization of the core ERP software is much more costly and something that is avoided if at all possible. The upgrade of ERP becomes more complex with such customizations. You may also need to reprogram it to work with an upgraded ERP system version. It costs money to recognize this and provide full-time resources for customization and work with customers on all aspects of custom software during upgrades. 

Data Analysis Costs

Often, the data from the ERP system must be combined with data from external systems for analysis purposes. It is wise to be clear on all your data analysis needs before signing off on the budget.  It costs money to carry out Data Analysis within the BI team as part of the project and to understand when data has changed, all data is held in memory and is current with the information heartbeat of the organisation to make sure we get only needed a piece of data

Data Conversion Costs

For the transfer of corporate data such as Customer and supplier records, product design etc., from old systems to new ERP system costs money. Although few CIOs admit it, most of the data are not very useful in most legacy systems. Companies often deny that their data is dirty until they have to move it to the new client/server setups required for popular ERP packages. Those companies are therefore more likely to underestimate transfer costs. However, even clean data may require some revision in order to match process changes required–or inspired–by ERP implementation. 

Ongoing support and maintenance costs

The money you pay is a down payment only. ERP providers typically charge maintenance fees for support calls that will be needed by your users. Bug fixes and continuous upgrades to the basic system are also included in support costs. Many projects require hardware and infrastructure upgrade costs to enable the ERP to deliver the advantages it wants. That hardware wears out and requires constant care and maintenance over time. 

I hope, it'll  help you in planning your project's budget when you identify these ERP costs. It's costly and will give you a valuable tool to assist your business.

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