Businesses looking to consolidate management information and disperse it throughout the company know that Enterprise Resource Planning (ERP) is an excellent solution. However, no intelligent company adds a new system just because it makes life easier, and financial justification is always needed.
The Need for a Cost-Benefit Analysis
Interestingly, 90% of manufacturing firms implemented ERP solutions to improve resource planning, drive efficiencies, and boost organizational growth. A Panorama Consulting study showed that 92% of firms felt that implementing their ERP project was a success, and the other 8% were neutral.
Although Aberdeen Strategy & Research found that the total cost of ownership ranks third in top ERP selection criteria, business leaders still must establish an economic case for implementing ERP across their organization. Any significant business purchase must be weighed against the expected return on investment (ROI).
Introducing a new ERP system is likely to increase profitability when the ROI exceeds the total cost of ownership (TCO). Still, there are a few considerations one must take into account beforehand.
What Are the Costs?
Acquiring ERP systems and deploying them across the workforce involves costs businesses need to consider. If existing systems are in place, integration work must be performed to sync them with the new technology. It may also be necessary to allocate capital resources to adapt the solution to new business models. Invariably, conversions and consolidations of management information occur, but phasing out legacy procedures and systems involves costs and time-consuming data migrations.
Upon installation, there are ongoing testing costs to ensure the full functionality is available to the user. It may be necessary to review and upgrade your ERP periodically, and there may be a need to develop the team to adapt to the new procedures. Risk management best practices include accounting for unexpected expenditures.
What Are the Benefits?
A business should consider the benefits of an ERP purchase before spending money on it, as it is a long-term investment.
Implementing ERP solutions and streamlining resource management processes can simplify procedures and reduce rework and manual handling costs. Information is more readily available to decision-makers, who can monitor performance in individual departments and across the organization as a whole, which allows for better decision-making.
Manual tasks can be automated to make deliveries faster and reduce errors on the floor. By recognizing inaccuracies and mistakes, all-encompassing systems ensure a high level of reliability, enabling key workers to focus on value-adding tasks.
The most significant advantage of ERP systems is that they bring together all parts of the business into one system. Using an ERP system makes it simple to record and report data across various tangibles, thereby allowing monitoring and troubleshooting to run more efficiently. Organizations can set realistic expectations regarding cost and timeframes with precise data in their hands.
Setting Expectations
ERP systems won’t change business performance overnight, and they may not be the solution to business problems, but they can facilitate change. A conservative approach to projecting the economic benefits of new ERP systems and processes makes sense because unrealistic goals can adversely affect perceptions of the implementation’s success.
In today’s challenging economic climate and with budgets being constrained, it is crucial for businesses to calculate a worst-case scenario and a likely estimate of the cost of ERP investment. Executives can decide whether to invest in ERP based on the strategic context of project goals.
Getting the Most Value from Your ERP
The ROI from implementing ERP systems is obvious if business processes are constantly evaluated and updated. Utilizing quantitative data and feedback from resource planning personnel, regular reviews of processes should ultimately yield ROI that exceeds the TCO, creating value for the business. Ready to learn more? Schedule your free consultation with ASI today. We’ll help you choose the software solutions and strategies you need to achieve your business technology goals.