The Real Costs of an ERP Implementation

An ERP system is a vital component for a variety of industries and remains an important part of system operations. While the capabilities have evolved (like AI and machine learning advancements), the core of these technologies are crafted with one goal in mind: to optimize your business processes. However, with any technology implementation comes an investment cost, and if you aren’t careful, you could drain your wallet and resources simply through missteps in the planning and requirements-gathering phase. 

We’re going to go over the key costs of implementing a new ERP system as well as the hidden costs associated with this type of project that are sometimes overlooked until the project becomes a large financial burden. To help avoid those large cost overruns on your project, we’ll share some preventative measures you can take to actively avoid some of the most common ERP project pitfalls.

Cloud-based ERP implementations can vary in cost depending on your specific requirements. This includes how many users you plan on having, what functionality and customizations you’re expecting, subscription costs, and more. 

It’s best to go into a new ERP implementation project with a list of your “must-haves”. This will set the bar for not only expectations but also the cost going forward. You don’t want to be in the middle of the project and realize some features and customizations need to be added and bump up the cost as a result. This is a common issue known as “scope creep” which happens when the project requirements expand past what was originally planned and cause an unexpected strain on the budget. That’s why conducting clear communication between key stakeholders at the beginning of project planning is crucial. Go over the following costs and adjust accordingly depending on your needs:

Company Size & Complexity

Larger organizations may require more complex workflows and therefore incur higher costs. Conversely, smaller companies may not need as much complexity. The costs vary depending on the customization requirements and it’s different for each organization. 

Customizations may include changes to dashboards, workflows, or user interfaces, which often require development work from the vendor or third-party specialists. However, you want to make sure you aren’t over-customizing your system, as this will cause unnecessary complexity for your users as well as increase your project budget. While customizations are useful and needed sometimes, make sure you prioritize where and when it’s done.

In-House vs. External Teams

If you are equipped with a large team that has extensive technical expertise, you won’t have to invest in external support for your implementation project. Alternatively, if you don’t have technical resources, it may be worth it to invest in a third-party implementation firm that can fill your knowledge gaps efficiently. 

ERP Partners & Consulting Services

An ERP implementation partner is vital if you have a small team with limited technical resources. So, it’s really important to make sure you’re making a well-informed investment in the correct partner. Conduct research, schedule consultations, and compare pricing to solidify your decision.

Timeframe

Your implementation timeline significantly impacts the cost of your project. This is why it’s very important to establish a realistic timeline from the start so that you can minimize unexpected time delays as much as possible. 

Software Selection

Of course, you have to decide what platform works best for your business. This may be solutions such as Odoo, SAP, IFS, Accumatica, Oracle, etc. You shouldn’t choose solely based on cost, since you want the software to be a good fit for your operations and growth objectives, but it’s still a crucial factor to consider. Software licenses or any other subscription fees can take on a lot of money over time, so this part of your project is one of the most important to nail down. 

You have to consider your software and how much it will cost to manage, update, upgrade, etc. That’s why investing in a technology solution that is flexible and scalable for business growth is essential. 

Now let’s dig deeper into the costs that often get forgotten about when it comes to ERP implementations. 

Training & Change Management

One often underestimated cost of ERP implementation is training. Ensuring your team can effectively use the new system is critical to its success. Training can include both formal training sessions and ongoing support and may be provided by the ERP vendor or third-party training organizations. The scope of the training depends on the system's complexity and the users’ technical proficiency.

ERP implementation can be disruptive, and change management strategies are needed to help employees adjust to new workflows and processes. This may include internal communications, workshops, and ongoing guidance to reduce resistance and ensure user adoption. The costs associated with this often include consultants, training materials, and dedicated staff to facilitate the transition.

Business Downtime

Any downtime during the transitional period of your software implementation can impact your business’s productivity. While a seamless cutover to the new system is the goal, disruptions are often unavoidable, especially in more complex implementations. This can severely impact your revenue, resulting in some losses along the way.

Many businesses typically opt for a phased implementation approach, where the ERP system is introduced in stages, focusing on one department or module at a time. Incorporating thorough planning, testing, and communication with your users can help mitigate some of the downtime in between this major change. 

Misalignment

Choosing the wrong ERP solution can result in a poor investment, requiring you to switch to a different software or completely changing your approach. Additionally, investing in the wrong ERP partner can also result in detrimental business losses. 

Selecting the right ERP partner requires thorough research into your options to uncover what firm fully understands your industry and business needs. 

Maintenance & Support Costs

Maintenance and support costs are ongoing expenses that organizations must factor into their ERP implementation budget. These costs typically include periodic software updates, bug fixes, technical support, and system maintenance. The availability of dedicated resources for maintenance and support is crucial for maximizing the longevity and efficiency of the ERP system.

Now that we’ve covered all of the costs associated with ERP implementations, what are some ways you can save some money throughout this process? Let’s take a look at some of these silver linings you can uncover for your project.

Phased Implementation Approach

At OSI, we like to take a phased implementation approach. This requires careful planning beforehand in order to break down the project into manageable pieces. This technique allows you to have more control over your budget and stay proactive should any risks arise.

Instead of a full-scale rollout, we prioritize key business functions or departments and expand as the system stabilizes. This approach reduces the need for large, upfront investments and minimizes disruptions to ongoing operations. By deploying the system incrementally, you can adjust the strategy based on real-time feedback and performance, avoiding costly rework or large-scale system failures. Additionally, spreading the investment over time eases cash flow management and provides flexibility to allocate resources where needed most.

Open Source ERP Solutions

Open source ERP systems like Odoo offer significant cost-saving opportunities compared to proprietary software. These solutions typically eliminate the need for expensive licensing fees, offering a more budget-friendly option for companies seeking robust ERP capabilities. 

Open source systems also provide flexibility for customizations, allowing businesses to tailor the software to their specific needs without the high costs associated with vendor-specific solutions. However, it's essential to consider the costs associated with support, maintenance, and any necessary customizations to ensure the system aligns with long-term business goals.

Evaluate your technical resources and whether or not the open source route is feasible for your business. OSI is equipped to assist you in getting an open source solution up and running efficiently for your business should you need the guidance of expert Odoo specialists.

Vendor Negotiation

Negotiating with ERP vendors can be an effective way to reduce costs. One approach is to compare multiple vendors and use competitive offers as leverage to secure better pricing or more favorable terms. It's important to negotiate not only the upfront price but also the long-term costs, such as maintenance, support, and upgrades. Be clear about your requirements and look for vendors willing to customize their packages based on your specific needs. If working with an implementation partner or reseller, ask if they can help you negotiate a better deal on licenses and fees through their relationship with the vendor.

Keep in mind that you’ll want to invest in a vendor that provides the value you’re looking for, so don’t choose the cheapest option just because it’s convenient for the short term. Consider the long-term benefits and by taking that approach you’ll select the right option that promotes future growth.

With ERP implementations, it’s very easy to experience scope creep and budget overruns. By making yourself aware of the potential hidden costs, you can better prepare your finances for a large project like this. There are some ways you can save during the ERP implementation process, so you’ll want to consider some of the strategies we mentioned if they make sense for your particular project. 

OSI isn’t just any ERP implementation firm; We work with you to develop a system that’s tailored to your business requirements. Not sure what technology solution you need? We can help you determine the direction you should take. Simply schedule a consultation with one of our experts and we can help you build a successful and properly planned project from the start.