If you’re in the initial stages of the enterprise resource planning (ERP) evaluation process, you’re probably wondering, “How much is it going to cost my small business?” This is a fair question, yet unfortunately there is no simple or precise way to answer it. Estimating the total cost of an ERP system requires careful assessment of an array of variables which can vary wildly from one small company to the next. The size of your businesses, your unique requirements and your scope of use all play a critical role in determining the cost of the ERP system.
Understanding the factors that influence the cost of ERP will help give you a better idea of how much your business can expect to pay for an ERP startup. Moreover, it gives you the knowledge to carefully evaluate estimates that fall significantly below or above industry standards. Many companies began using ERP systems rather than accounting software applications. An ERP system differs from accounting systems in that accounting systems only perform accounting-related tasks. An ERP system, however, can handle not only accounting tasks, but general business management tasks as well. Overall, it's a more powerful platform. An ERP system is essentially a suite of software packages that can perform accounting, product planning and development, manufacturing, inventory management, sales management, human resources, and other business tasks.
Open source ERP systems support is priced on a per-user basis. Specifically, the number of users that will be using the system at the same time and the level of access they require. For example, a small-to-medium-size job shop may not require a Master Production Scheduling module or sophisticated warehouse management, and a large multi-national company would probably require more financial management applications than a make-to-stock manufacturer. Some ERP systems allow third-party software add-ins which for users to create customized documentation and reports, generate barcode labels and perform custom data extractions. You can expect third-party software licensing to be about 10-15% of the overall software cost.
Implementation costs are a significant consideration because you as the buyer can dramatically influence this expense. Implementation costs cover planning and organizing your project, training, prototyping functional areas of your business, installing the software, configuring the system, implementing process changes and completing conversions. Typically, an implementation to software cost ratio of .75:1 to 1:1 is considered a good planning goal but a ratio of 1.5:1 or 2:1 is not uncommon for more complex or customized ERP initiatives, especially if the implementation will cover multiple locations. It's necessary to have professionals install and configure your ERP system, so you will need to include these implementation costs in the total price of the ERP system. ERP systems are complex software applications, so you will likely need to change operating systems, upgrade or change servers, and change other hardware and software you use on your company’s network in order for the ERP system to run properly. You will also need to – or should – set up a test environment as part of the implementation so you can test the ERP system without affecting your company’s real data. This can save a lot of potential working hours if there an issue with implementation.
As mentioned, an ERP system is a complex software application that can be thought of as a suite of software applications that are simultaneously compatible. Your employees will need training on how to use the programs, because an ERP system is not as intuitive or easy-to-use like a basic accounting software program. Therefore. When you talk about enterprise resource planning and overall cost, you must also talk about training. Utilizing ERP software can be a learning curve, especially for those who are unfamiliar with utilizing an enterprise solution, or those who aren’t as technologically-savvy as others. There are initial costs associated with training your employees on in-depth tactics and ways in which to use the system. There’s also costs associated with continuing training, specifically on-site training when needed. Often, the ERP vendor will provide training upon request at a standardized hourly rate. There will be times when a consultant becomes necessary, in the case of specialized content or particularly difficult need arises. In any case, you will need to factor these additional costs into your analysis when reviewing ERP systems for purchase.
Implementation costs are one thing, but another major aspect of an enterprise resource planning software solution is customization. You want your new solution to work perfectly and uniquely for your business, and that usually requires some level of customization. If out-of-the-box functionality isn’t enough for your ERP users, you may need to incur some expenses regarding developing a more customized product. You will incur some expense in developing customized reports so that your employees can perform their daily and monthly tasks with ease. An ERP system can store a substantial amount of information, but users are limited in the ways that they can access the information. Therefore, it is not uncommon to have IT staff dedicated to developing customized reports for various departments so that business processes and analysis can be performed timely.
When new software releases of your enterprise resource planning solution are announced, you may want to consider upgrading. Software upgrades for any ERP system should be an expectation at some point down the line; the last thing you want is for your version of the solution to become obsolete. If your company is upgrading from an accounting software program to an ERP system, then you will certainly have a lot of processes that will need to be redesigned. For companies using accounting software, many tasks may be performed outside the software either manually in a paper format or a third party application such as MS Excel. The acquisition of an ERP system should, in theory, mean that many of these tasks are being automated by the software to increase both accuracy and efficiency in performing these tasks. Even if your company is changing ERP systems, no two are alike so you can expect to have some changes in your company’s business processes to coincide with the software’s processes. When an intriguing upgrade becomes available, you’ll have to pay an upgrade fee. In addition, there may be additional hardware or software needed to ensure the upgrade runs as seamlessly as possible.
Maintenance with on-premise ERP system is extremely important. You need your product working properly and constantly up-to-date. Costs associated with ongoing maintenance include any additional hardware needed, IT labour and any other departmental costs to ensure your enterprise solution is in perfect shape. You will need to maintain your ERP system so you will need to factor in these costs. Maintenance costs for an ERP system typically run between 15–20% of the initial purchase price. Like all software programs, ERP systems require periodic upgrades to avoid becoming obsolete. You should consider how often you expect to upgrade your ERP system, and what these costs will be when you go through with the upgrade. You should also consider that any upgrade may affect business processes, and require additional hardware or software so the system runs smoothly if your business is not run on a mirrored set-up while performing the updates or data transfer.
Your employees will run into trouble using the ERP system, and you will detect numerous bugs so you will want to ensure that your vendor will provide you with adequate technical support to resolve these issues. You should ask your vendor if this support is included in the fees or is an additional cost, as support can end up affecting your bottom line if not included in the initial purchase, and isn't closely monitored. Small-to-mid-sized businesses can expect the cost of software and services combined to be a significant investment, but a properly implemented ERP system will pay for itself quickly.
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