ERP implementation has become an utmost necessity for most of the business organizations; therefore the cost of ERP implementation must be seriously considered. The implementation cost varies with different ERP systems and depends upon a number of constant and variable factors. Different vendors offer different types of ERP systems with varied features suitable for different types of organizations. Cost of ERP implementation includes installation of hardware and software, time period of installation, software license renewal, training of in house staff, customization and integration of additional applications, consultancy, testing, maintenance and other future costs.
Every organization should plan and analyze the implementation cost carefully before selecting an ERP system. It is easy to estimate the fixed costs related to hardware installation and license renewal, but the expenses related to customization, training and adding new features often deviate a lot from the estimation and are considered as variable costs. Customization and integration depend on the future requirements of the market and customer. Accurate prediction of variable costs is near to impossible, but an efficient planning will help to make an approximation of the variable costs.
Direct Costs Involved in ERP Implementation
Preliminary expenses on hardware and software license: Cost of hardware installation, software modules, database and software license, third party software license and the operating systems come under the direct cost and can be estimated. Hardware cost also depends on the number of workstations, users, servers and networking systems. With addition of extra features, the total cost of ownership increases. Indirect costs also depend on the software and technological features adopted.
Implementation cost: ERP systems with complex integration features meant for big sized organizations require more time for implementation involving huge costs. ERP software systems with simple basic features meant for small and medium sized organizations require lesser implementation time and are less expensive. One tier ERP systems require lesser implementation time reducing the TCO (Total Cost of Ownership) to about 50%.
Indirect Costs Involved in ERP Implementation
These include training of employees, transportation, expenditure on consultancy and maintenance. It is tough to estimate these costs as these factors are likely to vary widely according to the situation.
Customization: Customization of the existing ERP system is essential to ensure efficient running of the business processes and expenses related to it vary according to the changing market scenario. Lack of customization can impede the business functioning while excessive customization may damage the product. Customization often results in heavy expenditure.
Expenses on training and data migration: Data migration is the most vital stage of ERP implementation that demands a higher level of expertise. Employees not used to new features may not deliver according to expectations, and that raises the TCO. Hiring consultants can also prove to be expensive. Expenses on training the in house staff depends on the time period and contributes significantly to rising TCO.
Post Implementation expenses: Annual Maintenance Cost (AMC) should be included in post implementation expenses and buyers can negotiate a favorable deal with the vendors to minimize this expenditure.