Maximizing ROI: A Guide to ERP Implementation Costs and Services

While the price of an ERP system can be a major capital expense and sometimes a significant recurring operating expense, it is only one part of the total cost of ownership for an ERP solution.

As the ERP implementation process became easier to navigate, personalize, configure and install, the ratio of services to software cost came down. And as more began choosing a subscription pricing model and ERP Software as a Service (SaaS) and/or cloud ERP systems, spreading the cost of the software out over time, this rule of thumb regarding implementation costs became even harder to apply. Whether you choose a cloud ERP System or an on-premise system, the costs of your implementation depend on your business needs and the services required to get the new system working up and running.

The type and amount of services required have changed, and it has become much harder to generalize ERP implementation costs. And therefore, it is more important than ever to understand what kinds of services you need, what questions to ask, and which services you should avoid for your ERP project.

The kinds of costs and services often needed in ERP implementations may include:

• Consulting services and fees
• Customization: Mapping business processes to your new software
• Assistance in configuration/setup
• Data migration assistance
• Education and employee training
• Ongoing costs of subscription models or perpetual license

For a successful implementation process, there are several kinds of consulting services you will most likely need to include:

• Evaluation and selection help
• Business process (re)design, which should include mapping business processes to your new software
• Assistance in configuration/setup
• Data migration assistance
• Education and training

The price you will pay for consultant services varies enormously by geographical region and size of the company delivering the services implemented. Large consulting firms will command a much higher price, partly because they have higher overhead and likely the most experience. Smaller consulting firms offer lower rates to appeal to smaller companies without the deep pockets of large enterprises. And often, very small companies will be the least expensive option, but they won’t have the bench strength of the larger firms.

Do an Internet search for your region and the type of service, and generally, you will get both an average and a maximum rate. You will pay much more in the United States than you will just about any place else in the world. Rates for ERP implementation services out of Asia, for example, might be a quarter of the cost of those delivered by resources in the USA. But not all services can be effectively delivered remotely, and if you need to engage directly with those providing the services, consider time zone differences and language skills.

Many of these services will be priced and delivered on a per-hour or per-day basis, so you need to understand both hourly rates as well as an estimate of how many hours or days are required. What happens when the original estimate is consumed and the job isn’t done? Try to avoid giving service providers a blank check. An ERP cost analysis should not be rushed and should account for multiple factors.

Several ERP software vendors and their partners offer some services on a fixed fee basis. This can be used to contain costs, but make sure you understand entirely what is included in that fixed fee and what is not included. Selecting an ERP solution that has built in vendor support through ERP implementation and beyond, more significantly reduce your overall total ERP costs, even if the system is priced more upfront.

ERP Evaluation and Selection

If you are currently shopping for a new ERP system, chances are it has been a long time since your last evaluation of these systems. A lot has changed in recent years and there are literally hundreds of systems to choose from. Get an understanding of different ERP pricing models. Don’t be afraid to seek guidance from technical experts and take time comparing and doing product research. Fit and functionality are essential, particularly within your industry and to match your specific business processes. But there is also danger in deciding based solely on what you need today.

We live in disruptive times, and the pace of change is truly accelerating beyond anyone’s expectations, bringing us into uncharted waters where you will either sink or swim. Change and disruption can have a cascading effect on your business applications requirements, making agility – the ability to innovate, evolve and change – equally, if not more important. For that, you need the right approach to innovation and the right architecture and platform to support it. Be sure you find a system you can grow with.

Experts can not only help you evaluate the fit, features, and function but also help you fully understand the technology and platform that will provide a strong foundation for your business. Make sure any ERP consultant you use is capable of understanding both your business and the technology. And that they are prepared to advise on ERP implementation cost factors.

And therefore, in selecting a service provider, look for someone with experience in implementing ERP software (experience with ERP implementations in your specific industry) and preferably someone with extensive experience with the ERP solution you have selected.

Business Process Engineering

Many ERP software solutions today offer templates or best practices, either for general (horizontal) functions like standard accounting practices or for more industry-specific (vertical) business requirements, or both. Don’t be afraid to ask yourself why you do things the way you do, and look critically at your business. Is it because of the limitations of your current solution? Is it simply because that’s the way things have always been done? Look for ways to automate some that are currently performed manually. Look for ways they might be improved/optimized with this new system.

Many ERP software solutions today offer templates or best practices, either for general (horizontal) functions like standard accounting practices or for more industry-specific (vertical) business requirements, or both. Don’t be afraid to ask yourself why you do things the way you do, and look critically at your business. Is it because of the limitations of your current solution? Is it simply because that’s the way things have always been done? Look for ways to automate some that are currently performed manually. Look for ways they might be improved/optimized with this new system.

Expect some redesign of business processes because if all you want to do is duplicate what you are already doing, only with a new ERP system, you must ask yourself, ​“Why bother?” This redesign effort should be made with your new software in mind. Use this implementation process as a time to optimize your business processes, and your new system and business should thrive together.

Configuration and Setup

There will always be configuration and setup activities associated with an ERP implementation. If you purchase new ERP software designed and developed specifically for your industry, your new ERP solution provider may promise a solution will be delivered pre-configured and ready to go ​“out of the box.” This is why ERP software selection is important, and you should take the time to compare ERP systems for your industry. Selecting the best ERP software will minimize the decisions you will have to make but make no mistake: There will still be some setup involved, and there can be related ERP installation costs. And any modern ERP today comes with the ability to personalize it, not only to your company but for different roles and specific individuals within the organization.

The ease of this ERP configuration and personalization will vary from solution to solution. But it can often save time and aggravation to contract with ERP experts to guide you early on in ERP projects. Most ERP solution providers will tout the ​“self-service” nature of this effort, and some of it is indeed very simple for a nontechnical business user to do. ERP dashboards are often the gateway into the software for business decision-makers. These dashboards are typically easily configured by dragging and dropping different functions (often in the form of charts and graphs) to create a customized view. This personalization may be a simple process of changing some labels on the screen to reflect your company’s terminology, removing unused fields, or adding some user-defined fields. For someone very familiar with how the data and the software are constructed, this is dead simple. For a typical non-technical business leader, it can be intimidating at first. And so, it may make sense to engage with some experts to guide you through this initial setup.

Depending on the solution, you may also be able to tailor workflows, perhaps even construct new ones. While often ​“sold” as very user-friendly, you will most likely need some technical expertise to do this ERP customization. Ultimately your IT staff and even some super users will be able to do this themselves, but early on, it may eliminate a lot of guesswork to engage with some experts up front. These experts are most likely employees that work directly for the solution provider or partners that are well-qualified. Look for solution providers that require their partners to achieve certification in the ERP product.

Data Migration

Part of the setup process will involve loading data during the configuration of your new ERP system and the final setup of ERP modules. Minimally it will entail loading master files like your general ledger chart of accounts, inventory items, customers, suppliers, etc. You will also need to load any kind of open items, such as sales orders, open invoices, and production or service orders that are a work in process. If you are migrating from an existing ERP system, you may decide to bring over some history. Consultants can help you decide what you bring over and leave behind during your ERP project. You may also need to design processes for subsequently accessing any data that is not brought over. 

Data ​“cleanliness” will be crucial to the success of your new system. This may involve searching for and identifying any duplicates or invalid data. If your old ERP solution didn’t ensure this kind of data accuracy, you would need to impose it now. Most solutions today will come with some utilities to help you ensure data you load is accurate, but you may need assistance extracting that data from your existing system.

Your current IT staff may have the necessary skills to perform this activity for you, but chances are they will be quite consumed by the new ERP implementation project scope.

Education and Training

New ERP solutions are much easier to navigate than ever before. Most ERP system vendors have completely redesigned their user interfaces (UIs), modeling them after easy-to-use consumer technology. Indeed, sometimes the best user interface is no user interface at all. Many have incorporated robotic process automation (RPA) to automate simple, repetitive tasks. But just because you don’t need a bulky user manual to figure out the navigation doesn’t mean you don’t need to train your ERP users. 

You might be tempted to skimp on ERP system training and education to save costs. But if you do, you will regret it and not get the most from your system, making your investment less cost-effective. According to a recent report by Software Path, the average usage of ERP systems amongst employees of surveyed companies was 26%. To get training started, ERP software vendors and/or their partners will offer training using a variety of different delivery models:

• Classroom training at their training facilities
• Classroom training at your company 
• One-on-one (private) training of individuals at your site
• Virtual self-serve courses (on demand)
• Virtual courses with live instruction
• Training videos embedded within the software

For traditional classroom ERP training, expect to pay on a per-attendee, per-class basis. The overall challenge will be to get your people trained and continue to have your business run smoothly. Be sure to budget for travel expenses for off-site training. If you can provide the proper accommodations, this can cut down on the cost, but it also prevents you from staggering the schedule to ensure your operations continue to run smoothly. A more cost-effective approach is to host your classes on-site, paying for the instructor to come to you, which often allows you to include as many attendees as you need.

Virtual self-service courses may be included in the price of your subscription or maintenance, or there may be a separate fee. Virtual courses with live instruction are typically provided for a fee. Embedded training videos are included in your subscription.

Make sure you budget enough to train all your users in the overall cost of implementing ERP. This includes your top-level executives, although you may want your own fully trained employees to deliver this type of training or coaching to reduce ongoing costs that lead to an increase in total ERP cost over time. 

In our introduction, we recommended avoiding invasive customizations entirely, as this can cause future costs to balloon. By invasive customizations, we mean those that involve mucking around in source code. Why? Because once you modify source code, you are likely to build barriers to consuming the innovation your ERP software vendor delivers as part of your subscription or maintenance agreement. And there is a high probability that if you upgrade to the new release, you will have to retrofit the customization.

So, does this mean you should never customize ERP systems? No. It just means you should never touch the source code. Back when an ERP system was developed as a rigid monolithic structure, source code modifications were the only means by which you could customize. What used to require customization might quickly be done through configuration today. Configuration capabilities range from the ability to personalize the look and feel to the ability to modify workflows and lots in between. Plus, today’s component-based microservices architectures let you add custom code as loosely coupled extensions, safely leaving the source code alone.

This type of loose coupling is often described as microservices. For the reader with a technical background, microservices, also known as the microservice architecture, is defined (by Wikipedia) as an architectural style that structures an application as a collection of loosely coupled services. For those nontechnical readers, think of it as constructing a solution from a set of Lego building blocks. While Legos come in various shapes, colors and sizes, all the components are designed to fit together easily to make unique structures. And the best thing – when you need to make a change, you just need to ​“unplug” one or more components without damaging the remaining structure.

By adding new functionality as a loosely coupled extension, the initial customization still may cost you, but the ongoing cost to maintain it is contained, and it will not prevent you from consuming the innovation you are already paying for. And even the initial customization might be far less expensive because developing it might be far quicker and more accessible and may not even require the high level of technical skill that has been required in the past.

You will hear many vendors touting ​“low code / no code” capabilities today. Low-code methodologies are highly visual (think ​“dragging and dropping” pre-built tasks and services). They largely automate software development. Built-in tools auto-generate much of the underlying code base. This makes it much easier for professional developers to develop functions very quickly.

Vendors often talk about enabling ​“citizen developers” with no code capabilities. Many of the configuration capabilities mentioned above could fall into this category. But don’t count on business users being able to develop new functionality with no technical skills. Listen carefully to the language the vendor uses to describe these capabilities. If you hear anything too technical, that’s a red flag that they are still talking to developers or perhaps highly skilled super users. When in doubt, ask to see a demonstration, or better yet, sit down with your device and ask them to walk you through an example of something you might want to do.

Overall, be sure you truly need the customization. The best reason is that this customization somehow differentiates you in your market and satisfies a legitimate business need that no commercial software addresses adequately.

You will want to select an ERP solution that meets most of your business needs right ​“out of the box” and fits your ERP budget. Don’t settle for the traditional 80% solution of days gone by. Today’s solutions can often get very close to 100%, even when you have specialized industry-specific requirements. Look for that ​“last mile” functionality, but if you have to customize, do it right. You will need a robust platform to avoid ever touching source code. But that is the goal.

Once you select a new solution, the actual cost of implementation services needed, upfront and ongoing, can be a significant percentage of the total ERP software cost of ownership. In the past, for small to midsize companies, the rule of thumb was to expect to spend at least a dollar on services for every dollar spent on software. Today the ability to spread the up-front cost over time by subscribing to ERP as a service (SaaS), coupled with the right architecture and advanced technology, has helped to reduce costs. But it has also made it less predictable.

With advanced technology and consumer-grade user interfaces, you might be tempted to try to do more on your own. But don’t ruin a good thing by skimping on services. Remember, the goal is to get the new system up and running so you can reap the powerful benefits as soon as possible.