Maximizing your roi through optimal erp performance – key 2 – managing the total cost of ownership something that is borne out in every survey of those who have implemented an erp system, or those bow balancer who are contemplating doing so, is that the three most important concerns are functionality, ease of use and total cost of ownership. functionality and ease-of-use are both purely technological issues that rely on a correct understanding of your requirements and how well the system or systems under consideration comply with and, hopefully, expect needs.
Total cost of ownership, on the other hand, extends well beyond the it / user arena, into wider operations, finance, management, and even in sales and marketing because it can affect profitability as well efficiency. there are bow balancer cases where a disastrous it implementation has taken down the whole organization, or at the very least severely damaged it, so you had better get your numbers right from the start. the emphasis should always be on the “total” cost, and this figure can be sliced ??and diced a number of different ways. first, the faithful or project costs are those costs related to the initial purchase and implementation.
Bow balancer – How to Maximize ROI and Reduce Total Cost of Ownership with Application Management Services
These include: software licensing and hardware costs, although these can be deferred though leasing or hosting options. implementation costs contained in the supplier’s proposal. costs associated with any interfaces or system modifications. costs associated with data conversion from legacy systems. secondly, ongoing costs you will face during the system lifecycle (and do not forget that this could extend up to a decade). these are: leasing or hosting costs depending on the method of initial purchase. all costs associated with the communication system. costs associated with employing additional or specialized staff.
Annual costs for system upgrades and helpline support. the costs are influenced by a number of factors, including: number of bow balancer users and amount of functionality implemented (ie number of modules). finally and most importantly, there are business benefits achieved, which should be included in the cost equation as a positive, as it is influenced by functionality (and whether and how well you use it), ease -to-use and efficient and effective upgrades and customization. the potential include: improved delivery performance percent on-time and complete shipments improved back-office efficiency for order processing automation reduced order lead time decreased inventory levels fewer number of these days you need to close a month reduction in administrative costs immediate cost the five issues immediate cost issues mentioned above can be dealt with by a variety of mechanisms.
Software and implementation costs you should firstly avoid any ambiguity when communicating the specific needs of your business. you should ensure that potential vendors are given every opportunity to understand your business processes and needs as well as you do. it also means avoiding big unknowns such as conversion, customization and integration – activities for which vendors can legitimately say they are unable to give you a fixed cost. you should also be aiming for, at least, a 5 to 10 years relationship with your vendor. a 2007 benchmark report on a survey by the aberdeen group on erp in manufacturing found “the average age of implementations to be almost nine years, implying the longevity of these solutions often exceeds the anticipated life “.
With software and implementation, there are chances of finding a fixed price proposal, where the software vendor contractually accepts some of the risks associated with your system implementation. interface customisations and system modifications wherever possible, you should try to avoid any modifications or custom modifications. changes in particular should be avoided at all costs unless they are absolutely ‘show stoppers’ or business critical. this is particularly because modifications often prevent upgrades from being applied and you are stuck with outdated versions of software is not as easy as it sounds, though. aberdeen reports that only 11 percent of respondents to its survey of organizations undergoing erp implementations had zero customization.
“if your business processes were developed over time – in an unstructured way – the possibility exists that no erp system will match exactly.” however, it was agreed that, while some customization of software may be necessary, doing so will add cost bow balancer and effort to the initial implementation and the complexity of future upgrades. rather it recommends you search out erp solution providers with customers in your industry, evaluate the fit and balance the need to adapt your business processes to comply with the software against aligning the software to your process. system communications one area often neglected by many organizations is the significant disparities between different vendors when it comes to the efficiency with which their systems manage data behind the scenes, ie, the speed where the information is processed and transmitted across organisation.
As surprising it may sound, there may be a cost difference of 5-7 times between vendors for exactly the same transaction. multiply that over the life of the system and then by the number of users in an organization and the figures mount up. additional or specialized staff implementing a new system can mean new recruits in your it department, such as database administrators or systems analysts and training of existing staff. it is obvious salary and employment costs, especially as, in a competitive global environment, specialists are in high demand and regularly headhunted and enticed away with better salary packages and career prospects.
A key criterion in deciding which software vendor you choose should include whether you can implement your erp system without having to increase the number of technical staff. the implementation of new technologies should be seen as an opportunity to reduce the it burden instead. system upgrades and helpdesk support this is probably the easiest cost to determine, since it is normally presented as an annual percentage of the software vendor pricing list.one thing to remember is that you are normally much better off if your support will come directly from the software vendor – agents do not qualify as part of vendor organizations.
Too many cases where support has been outsourced offshore, with the service quality suffering accordingly.aberdeen points out that, very often, “the ratio of services to software costs is indicative of both ease of use and ease of implementation “. users and modules it is a corollary of software implementation that, the larger the organization the more users you have, and that means that the total cost of software and services will rise as well. however, it is not always a linear increase.surveys by aberdeen of medium and large-sized erp users shows that average maintenance cost per user might actually drop when you reach certain economies of scale, thanks to potential volume discounts.
The number of modules implemented also affect tco, due to the wider implementation, the more services may be required. of course, the bigger you are, and the larger the deal, the more bargaining power you may have over the tco. but again aberdeen warns that “with rising costs and weakening economies, we see evidence that cost savings are becoming harder to produce”. ongoing business benefits while later articles in this series cover in greater detail the potential business benefits you can achieve on a continuous basis through an erp system, in summary it is fair to say that, when implementation of a new erp system, you have a great opportunity to improve business processes.
So it is important to not just simply re-implement existing processes. not only you can save costs during implementation, but also achieve significant benefits from an improved business process on an on-going basis. aberdeen research has shown that organizations that pay the closest attention to the roi of a project reap far more rewards. “but they show the discipline to closely monitor the level of payback and performance …. while tco has proven to be a significant factor in choosing software, it is important to keep both costs and benefits in mind throughout the life of an erp implementation and beyond.
” if you’re an it manager or operations, or a c-level executives, it is important that you consider all elements that comprise erp solutions’ tco. in addition to evaluating whether the erp system fits your business needs, you need to consider what the ongoing costs will be in the long run. if not careful, they can add up to significantly more than the initial capital outlay for the software and user licenses. in other words, you need to table a comparison of all the cost elements for your preferred supplier and their competitors. what do you get from this exercise is a clear insight into the real life-cycle costs associated with running an erp system and a much better perspective on your roi.
The next article in this series will look at “7 essential criteria for selecting your erp solution & technology partner”. references: bow balancer ibs australia, “5 things you should know about total cost of ownership (tco) for erp systems”, ibs australia, march 2008 jutras, c., “the total cost of erp ownership in mid-size companies “, aberdeen group, july 2007 jutras, c., and barnett, r.,” the total cost of erp ownership in large companies “, aberdeen group, july 2008 jutras, c., trost, j. and dalle tezze, h., “taking the erp plunge for the first time”, july 2007 ibs australia develops erp solutions, erp systems and business management supply chain software for inventory management system, manufacturing erp software , business intelligence systems and integration erp software.
Peter clarke will present erp systems at gartner itxpo 2008, 11-14 november to be held in sydney, australia.