The hidden costs of ERP Implementation
When you are looking into getting a superior quality ERP system, you need to be aware that the upfront price may not be all it costs. You want to make sure that you are aware of the total cost of ownership of the product, and how it will affect your organisation on an on-going basis. Here are some of the expenses of which you might not be aware that you need to plan for during implementation.
Licensing Costs
There are several different models used to license the product that you are going to be using. It may be tempting to jump right in with an initial low cost. However, this has zero upfront cost, but may be very expensive when your business grow.
When selecting licensing fees make sure to check the following
● Affordable license per user and flat if possible. Thus, it won’t increase with the total number of users. By example using Jira pricing model it costs you 1$ per user up to 10 users and as soon as you grow beyond 10 users the price per user grow up to $7, so you’ll find yourself the next day paying 7 times more.
● Flat licenses per module; by example you pay a fixed cost for using the payroll whether you have one or fifty users using it. By example with Odoo pricing model, you pay $6 per user no matter what modules they use and you pay $4 for an HR module whether it is used by 1 or 100 users.
All of these will attract different costs, and you need to plan not just for your day one implementation, but for how the product will grow. You may only have a limited number of users initially, but in the future, this could be a lot more, particularly if take up of the product proves popular.
On-Prem vs Cloud Hosted
You also need to be aware of things like whether you go for cloud-based solutions or a hosted solution, as this can also affect the licensing cost. With a cloud-based solution, it can be easy to scale up quickly in case of sudden growth, but the cost per user can be prohibitive. You also need to be aware of the hardware costs of going on-prem, as these can be expensive upfront if you don’t have the infrastructure in place to start with.
You also need to look at whether the license ties to parts of your other infrastructure. Sometimes, ERP systems can be licensed based on the users in your active directory structure, or your exchange server. If you have a large organisation but a small number of users, this can be prohibitively expensive.
Implementation Costs
You also need to bear in mind what it will take to implement the new system in terms of your organisation. Not only will there be costs for licenses and hardware, but you need to allocate time for the project team. They will work on the implementation, and this will have a bearing on how you roll out. Will you get some contractors in to do the implementation? Can the vendor provide the contractors for you, so your team is only needed on a minimal basis? Regardless of how you do it, there will be an impact on the organisation, and all of this needs to be taken into account, mainly how it affects your bottom line.
Training Costs
With any new system, your staff will need to be trained on how to use it. This process is achievable in several ways:
• Sending all staff for certified training
• Getting a trainer into your organisation
• Sending specific team members for a train the trainer session
• Hiring new skills into the organisation
When implementing the training you will also need to look at how this can impact on other areas of the business as your staff take time out for training. If you have to put every user through a week’s training to learn the system, then this is going to cause a lot of lost working hours in productivity. You should also plan for refresher training and mop-up sessions. Some staff will invariably miss the initial training, or there will be a gap between training and using the system, and this will cause skill fade.
Integration Costs
Whether you are going for on-prem or cloud-based, you will want to integrate the system into your existing infrastructure, and this may require additional services. You may require many physical systems in place for on-prem such as database servers and application servers, as well as product servers. These will all add to the cost if you don’t have a robust infrastructure in the first place. Be aware that if you need specific cloud services to support your ERP system, then this can prove more costly. You could require any of the following cloud-based services:
• Exchange or Email Services
• Database Services
• Active Directory Services
• Web Hosting Services
• Application Servers
If you are buying the ERP system on a SAAS basis, then this may well help to reduce the total cost of ownership and so you will need to explore it.
Development Costs
With any new system, you will want to integrate it with your existing systems. There may be specific touchpoints between systems that require development to implement the interfaces. It may also be that the system you buy doesn’t exactly meet your requirements. In this case, you will require development to get the features that you need. Most ERP systems start as a ‘one size fits all’ policy. However, this is more accurately ‘one size fits no-one’ and will require some adaptation to be ideally suited for your needs. Therefore, you will need to make sure you have a budget for these changes, and this can be the costliest part of your new system.
Support Costs
Let’s face it, at some point, your new system is going to break, or part of it will go down, or something will not work as you planned, and you will need to get things fixed. You will need to take account of this when you look at a support contract to go along with your new system. If there is an extended fix time, then what impact is this going to have on your business? Particularly if the system embeds into the organisation; can you afford to have your staff being unproductive while you are getting the system fixed? This consideration is particularly crucial if you go with an open-source system and generally the support side of things can be less robust than with a commercial product. You also want to look at how large the vendor is, and whether you will get priority if there are issues.
Maintenance and Upgrades
Every system will need on-going work to it, to ensure that it operates correctly, and you will need to factor this into your costing; whether this is backups, or database maintenance to ensure that your system remains running at peak performance. You will also need to take into account any hotfixes, patches, or other system upgrades that the vendor rolls out. Will it cost you to take an update, or will you have to go through another implementation phase anytime a new version of the product is released? It is a good idea to get a handle on how upgrades perform as this can impact the total ERP system cost
Conclusion
On your next ERP proposal make sure to verify that all costs are taken into account and think of the total cost of ownership.
Some vendors, performing ERP implementation in Lebanon, use the “Calling price” (or in French called “Prix d’appel”) to lure business to sign on a deal where the real price is 10x more than the proposed price. The end result is a frustrated business and risking the whole solution failure or paying a very expensive cost.
Azkatech is an Official Odoo partner in Beirut with a full mature team for ERP Implementation in Lebanon following the latest software project management practices to achieve predictable outcomes and cost effective ERP implementation