Cost of ERP (Enterprise Resource Planning)
How much is too much?
THE cost of packaged ERP depends on the number of ERP modules, number of end-users, complexity of software and ERP vendors. (http://www.erppandit.com/ cost-of-ERP.html) The total cost of ERP ownership includes the costs of packaged software, hardware, professional services (maintenance, upgrades and optimization) and internal costs.
ERP software that involves the integration with external business entitles generally costs more. ERP vendors offer discounts to organizations that invest in a suite of ERP software systems. Though many mid-sized organizations typically commit a few millions in packaged ERP software, there are number of result-oriented low-budget packages are available in the market today.
Implementation of ERP system sometimes demands purchase of new computer hardware, system software, network equipment and security software. The costs of hardware vary in a wide range depending upon the scope of implementation and platforms. The hardware typically takes a big bite in the cost for mid-sized organizations that implement ERP systems.
Implementing ERP system requires the services of many professionals. These services cost money. The major costs under this category are customization, integration, data conversion, data migration, testing and training.
It is unlikely that a financial director would support the idea of unlimited funding for the ERP implementation project. Instead, from a control stance, a budget needs to be established. This will be based upon an estimate of the likely costs. In identifying where the costs are likely to arise, consideration should be given to:
Database license fee
Core software license fee
Additional module license fee
Additional seat license fee
Third-party software license fee
Integration of third-party software
Much of the cost information could be obtained from the vendor. While it is likely that the vendor will provide a specific figure for each item, this may only be an estimate. This is likely to be the case for such items as consultancy, which history suggests is an area for potential overspending. In this case, an upper and lower value, and the expected value should be sought to give a fairer reflection of the potential cost exposure.
While some of these costs will be one off (i.e. hardware, training and consultancy) other will be ongoing (e.g. maintenance). To get a better picture of the cost exposure, a long-term perspective should be taken. A meaningful time horizon is five years. By the time that five years has passed it is quite possible that the application has been reviewed and a new budget established for additional work, such as an upgrade or additional functionality.
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