News & Views

News & Views is published monthly by 180 Systems. Our objective is to provide recent articles to our readers on business technology topics. In some cases, our blog contains a title with a hyperlink to a source article, a quote from the article and our comments. In other cases, we have provided a blog without a hyperlink for original content by 180 Systems. We encourage you to post your own comments. You can also access our blog by topic.

How to get an accurate estimate of ERP implementations costs

ERP, Software Selection

We ask the finalists in our software selection projects for a detailed breakdown of implementation costs by module (g/l, a/r, a/p, purchasing…) and by task (customization, integration, conversion, project management, design…). We provide them with a lot of information to make the estimate possible:

  • detailed requirements
  • business process review which includes process, problems, type of problem, and impact of problem
  • high level process maps
  • access to our client to get the tour and ask whatever questions are needed

The finalists are asked to demonstrate a prototype of the to-be business process allowing them to validate assumptions. But sometimes, even with all this information, the vendors still can’t nail down the costs because of the unknowns. We then ask the vendors to conduct a paid-for consulting assignment to do some of the work they would have done in the design phase to arrive at more accurate numbers prior to signing a long-term contract.

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ERP Cost Estimates

Business Case, Contract Negotiations, ERP, Software Selection

Buyer beware when estimating the costs of an ERP implementation. There are so many unknowns that make it really tough to avoid unpleasant surprises. The vendors are very reluctant to fix price anything when it comes to the services required because of the many unknowns – scope of work, who does what, capabilities and available time of buyer resources…. It’s especially difficult for the vendors in the early stages of the selection process. At the same time, the buyers want to have a decent ball park of costs before pursuing a potential solution.

But there are guidelines that will help. When it comes to license or annual fees, it’s fairly easy to come up with a number as it’s based on number of users and high level scope. You should be using a rule of thumb for the implementation services which can be estimated as a ratio of implementation to license fees as follows:

  • 1:1 for a straight forward implementation with relatively simple requirements
  • 1:5:1 for an implementation with some complexity of requirements and little or no customization
  • 2:1 for an implementation with a lot of complex requirements and some customization
  • 3:1 for an implementation with a lot of complex requirements as well as a lot of customization

Other costs to consider:

  • Maintenance – the vendors will provide a % but make sure that it includes adequate levels of support. The vendors have been pushing their maintenance %’s ever higher despite the competition. Assume at least 20%.
  • Travel – it can be as high as 15% of implementation fees
  • Upgrade fees – many systems that are installed on premise or on private clouds will have upgrade costs every few years which should be a small % of the implementation fees.
  • Internal costs – you need to know who will be involved and the extent of their time as well as their approximate cost to the company
  • Legal fees
  • Infrastructure changes – you need to get an idea of the recommended infrastructure for the new system and what it will cost to acquire and install it.
  • Consultant fees – you may want some coaching services from a company like 180 Systems.
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