It’s difficult to get your arms around an enterprise software implementation is.  With large organizations tracking and planning costs can be difficult but the full cost of ERP software can be difficult to estimate with smaller sized companies as well.

The rule of thumb of estimating the cost of a software solution is to break out the cost into four separate groups and tackle each of them one at a time.  These ERP cost buckets are software price, implementation, maintenance, and related licenses and hardware.

The price of the software may be the easiest component of total costs to get a hold of, so it would be best to start there.  Before making any decision on which application to go with, however, its important to wait until you add up the other costs groups before deciding.  You may find that the total cost of one application was on the high end of the spectrum, while the cost of the software was the lowest.  Common sense would tell you that this most likely was by design, and the price of the software was a sweetner to get you on the phone and in discussions with the vendor. 

However, if your budget constraints are too rigid, the initial price of the software may be a deal breaker right off the bat and you will discover rather quickly other options that are suitable for your business.  For this reason, SaaS based solutions are becoming more and more popular with smaller sized companies with smaller budgets.  A smaller company could get a significant ROI with some of the powerful SaaS based, software on demand, solutions on the marketplace today.

The implementation cost is the next cost category of the ERP implementation.  In many cases, this component is by far the most significant cost.  If you are a large company with archaic legacy systems, or any legacy systems for that matter, the implementation could take months and even years to fully integrate.  I have personally worked on two large ERP implementations at a Fortune 500 company and again at a mid size company and they were still being implemented a year later and more before the enterprise systems were fully implemented.

An implementation initiative with and uncertain ends means poor return on investment.  Although it may be difficult to do, press the implementation consultant to agree on a fixed timeline and subsequent rate before signing the dotted line.  If you press hard enough you could come very close to a fixed rate implementation agreement with a portion of the software costs and implementation fees in escrow.

Maintenance costs are another significant component if you look at the life of the software and total costs associated with annual upgrades.  Annual maintenance fees typically run 10% to 20% of the cost of the software.  In the maintenance fee there may be allotted hours of consulting included but for the most part what you will get are the upgrades to the software.  Depending on the initial cost of the software this fee could be quite significant.  Thus again is another reason why companies are looking into software on demand or SaaS, software as a service, alternatives where the cost is borne by the application host provider.

Lastly, be aware of any hardware, peripheral licensing, and implementation required with your new enterprise software.  You may be surprised to find that in the middle of the implementation you are required to get more powerful database servers, print servers, and a multitude of other add-on required to fully utilize your new ERP software. 

Once you add all the costs together, it will be clear which application costs more than the other and you can work on the next step of the process which is determining which software from a feature and functionality aspect is right for your company.

Written by :

rich