How is the cost of ERP implementation built up?
The cost of ERP typically includes costs of hardware, software, training, data conversion and reengineering.
Hardware is a one-time cost. Hardware typically includes computers, servers, peripherals, network cables, hubs etc. The decision makers have to decide on implementing the best and most sophisticated hardware possible, at the same time keeping in balance with the costs so that the investment certainly results in benefits in the long run.
Software includes the range of different ERP packages available in the market. The cost of software would vary great on the ERP brand or vendor, the functionalities it covers, special options available, competitors markets, and so on.
Training cost is not only the cost of training the people to use the software but also the cost of correcting the mistakes while performing the job in ERP. Secondly, the person using ERP has to adapt a whole new process to get used to ERP. Quite often, it takes a year for people to learn this, which may have considerable impact on bottom line of the organization.
Data conversion includes costs in moving corporate information such as customer and supplier records, product design data, etc. from the old system to the new ERP system. These costs will generally be higher for enterprises that haven’t managed their data efficiency and concisely. Most of the time companies prefer to use some middle-level software to append the data into the ERP system. Those costs have to be considered as migration costs.
Reengineering as the name suggests, is a process of engineering everything again. As a result, it comprises a majority of the total cost of implementing ERP. It typically includes consultancy charges, process change costs, costs of removal of old policies and practices.
Costs of ERP should not be viewed as an expense but an investment towards an ability that provides better profitability, market share or customer service through integration and automation.