Here are 7 ways to control your ERP implementation costs and avoid cost overruns.
An enterprise resource planning (ERP) system is the backbone of your organization as it manages and integrates all your critical business processes. If properly implemented, ERP solutions result in higher efficiency, lower operating costs, and improved visibility and reporting into your financials. Plus, if you're a distributor or manufacturer, an ERP solution will optimize your supply chain and give you a significant edge over your competitors.
Implementing an ERP system is often seen as a strategic business investment, but we’ve all heard the stories of how implementation costs can often exceed the budget – especially if your project goes over schedule due to technical issues, scope creep, or poor planning. So, what can you do about this? Luckily, there are certain ways to control or minimize the costs of ERP implementation. We've rounded up some helpful tips in this article.
1. Ensure the Discovery Process is Thorough
A thorough discovery process is crucial to ERP implementation success and avoiding cost overruns. This is the process where your ERP implementation partner learns about your business operations, processes, functional requirements, and goals. This will eventually result in a project roadmap. A thorough discovery process helps create more accurate estimates of time and budget – avoiding potential cost overruns in the future.
Another reason why ERP implementations can go overschedule (and run up your costs) is because your project is understaffed, or your internal team are unable to meet the project deliverables on time. The discovery phase is an excellent way to ensure your organization's project team and other internal stakeholders are all on the same page.
This is the time to plan and budget details around software and infrastructure costs, approach for data transfer and change management, your internal project team and how their existing job tasks will be covered during the ERP implementation. If these kinds of issues are not addressed at the beginning of the project, the result is disorganization and potential cost overruns. Careful planning and budgeting are crucial to controlling implementation costs.
2. Select ERP Software Based on Your Business Needs
Selecting the right ERP solution for your company will also help keep implementation costs low. When you choose an ERP solution that doesn't meet your business or industry needs and challenges or makes you purchase more functionality than you need, these costs can add up.
To keep the costs down, select an ERP system that is easily customized according to your organizational needs, flexible enough to adapt to changing business requirements, and modular, so you only purchase the functionality your business needs. Make sure your selected solution allows you to extend the functionality or scale easily when required and that it has a long-term roadmap to make the most of your investment.
3. Avoid Needless or Excessive Customization
Some companies overlook their business requirements at the outset and later find themselves needing to add custom functionality to their ERP solution. This approach can be problematic. While some level of customization is often necessary during an ERP implementation, excessive customization can lead to increased costs and unnecessary complexity.
It can also complicate future upgrades, as custom code may need to be revised each time the vendor releases a new version—for on-premises solutions. It's important to focus on your organization's most pressing business needs and learn how to leverage the system's built-in processes. Once the core ERP functionality is optimized, you can then explore additional features. Keep in mind that minimizing unnecessary customization helps control implementation costs and shortens project timelines.
4. Focus On Long-Term ROI, Not Cost Cutting
An effective ERP implementation requires a well-defined plan that accounts for both best- and worst-case scenarios regarding spending. It is crucial to establish your ROI (return on investment) before the project begins and to carefully consider the long-term impact of your decisions on the organization. This should be a central element of your ERP business case.
Often, companies focused solely on minimizing upfront costs end up paying a higher price in the long run by neglecting how the project aligns with broader organizational goals. Cutting corners may provide short-term savings, but it can also lead to issues that negatively affect ROI. In summary, while reducing upfront costs can seem appealing, a strategy that prioritizes long-term ROI will not only maximize the value of your software but also reduce risk.
5. Select the Right ERP Implementation Partner
When you hire an ERP partner to implement your software, it’s crucial to leverage their full range of expertise. Beyond technical knowledge, the right ERP partner will bring valuable industry expertise and insights to the table.
The right partner will also have the experience and expertise to fully understand the way your business works and make accurate estimates to avoid budget overruns. Partnering with the right ERP consultant is essential not only for a smooth and efficient implementation but also for keeping your project on track and within budget.
6. Consider a Cloud ERP Solution
If you’re looking to keep ERP implementation costs low, consider investing in a cloud-based ERP solution. Cloud ERP solutions are more cost-effective than their on-premises counterparts and cloud ERP has a lot of benefits. The upfront costs are lower, as most charge on a subscription model, monthly or annually. You'll also save on infrastructure as you don't require any hardware or servers as the vendor hosts the system. Cloud ERP implementations are also typically faster and less expensive compared to on-premises. According to a Forrester report, companies who moved to the cloud reduced their deployment costs by an estimated 30% to 50% compared to on-premises ERP and saved 40% on administrative costs on average.
7. Select the Right Implementation Plan for Your Business
Set yourself up for ERP implementation success by selecting the right type of ERP implementation plan for your business, whether a typical time-and-materials implementation or cost-conscious options such as lean implementation, or fixed-fee implementation. Fixed-fee implementations have a definite scope, and a precise list of items included. Lean implementations are implementations that are scaled down and focus on the basic components to keep costs low.
There are advantages and disadvantages for each type, based on your business and needs. For instance, small businesses that are moving off QuickBooks or a simple accounting system would benefit from a lean implementation plan while larger organizations with complex requirements or customization should steer clear. The best way to figure out the right method for your business is to determine the size, complexity, and requirements of your business.
Got More Questions? Kwixand Solutions Can Help
ERP implementations can cause cost overruns – but that doesn’t have to be your experience. By developing a realistic budget, planning the project in line with the specific business needs, and following best practices for ERP implementations, your company can enjoy the benefits of an ERP solution while setting your business up for continued long-term success.
Got questions? The team at Kwixand Solutions is happy to help and guide you through the ERP journey. We're a Microsoft Dynamics 365 Partner, and our consultants bring over 50 years of combined experience helping businesses across North America digitally transform.
We also offer KwixStart implementations for small and mid-sized businesses that want to adopt D365 Business Central. These fixed-fee lean implementations have a set price and timeline and include a discovery process, data import, training, and support. For larger or more complex organizations, we offer KwixSmart implementations. These are 2-part fixed fee implementations for any Dynamics 365 solution.
Additional Resources
We've rounded up our top resources and articles around ERP implementation best practices below, if you want more information!
