Organizations going for ERP implementation often fail to gauge the hidden costs of ERP that can result in huge expenditure in the long run. Underestimation of the hidden costs can be disastrous, and even efficient planners admit their inabilities in its proper estimation. Direct costs can be easily evaluated, but the hidden costs vary posing tough situations for the organization. Many a times, a 20% increase in the hidden costs have been noticed than the estimated amount. So, a careful analysis of the organizational strength and requirements is absolutely necessary before selecting any ERP package.
The hidden costs of an ERP system can be listed as follows:
Training: Cost involved in training the in house staff has often been underestimated by many organizations. Training the staff to adopt a new system is preferred by most organizations and it takes ample time for the staff to get acquainted with ERP. This raises the cost in indefinite amounts.
Installation of new hardware: Organizations going for ERP implementation have to install new hardware discarding the old one. This is one of the hidden costs of the ERP.
Testing and Integration: Costs mount during testing and stepwise ERP integration. Testing and linking the ERP system with the existing corporate software links incurs heavy expenses that are often underestimated.
Customization: Customization of ERP is necessary keeping in terms with the market demands, but it should be avoided as far as possible. This requires a change in the ERP modules that turns out to be very expensive. Customization can also damage the functioning of the ERP. Often during implementation, the organization may feel the necessity of minor customization and that turns out to be very expensive. Any minor modification in one module can also affect other modules.
Implementation time: ERP implementation is time consuming in most cases and this can extend beyond prediction. The staff takes time to get acquainted with the new system which slower the business and productivity.
Data migration: Migrating valuable data into the new implemented ERP avoiding redundancy requires time and is one of the hidden costs.
Expenses related to travel and communication: This is one of the hidden costs often overlooked by the organization. Expenses related to communication equipments like telephone, fax and mobiles are not negligible. The seller often has to travel to different units of the business like manufacturing sites, retail stores and other departments during ERP implementation.
Cost on employee performance, maintenance and consultancy: Hiring a consultancy in case of urgency can be very expensive. The organization should fix their goals and objectives before selecting the ERP to avoid such expenses.