It is wise to sum up the TCO (Total Cost of Ownership) whenever an organization goes for any purchase and installation. TCO provides a clear picture of the total cost involved and helps in taking right financial decisions. ERP implementation and running of the software system demands huge capital investment and therefore TCO in this case plays a significant role in determining the final profit margin. TCO involves the direct and indirect costs during purchase including the hidden and annual maintenance cost. TCO is the best tool to determine the ROI (Return on Investment) of any new purchase or implementation. Although, TCO analysis is not new but presently it has found wide application in the IT industry.
TCO can be designated as a strategic tool to identify the major cost benefits of the ERP implementation during its entire life cycle. It helps to maintain the cost during the life cycle at the same time assessing its business value. TCO of ERP depends upon the expenses incurred on hardware, software, training, implementation, data migration and annual maintenance. Various hidden costs and employee performance also contribute to the TCO. Hidden costs contribute almost 20% of the TCO and many organizations make a blunder ignoring these costs.
Most of the ERP systems constitute of core features, but addition of special add-ons for business requirements increases the number of end users increasing the TCO. Special features of ERP also raise the TCO. ERP packages supporting different languages, currencies and e-business raise the TCO significantly. More the complexity in ERP features more is the TCO.
Hardware expenses: Although expenses on hardware comprise the major portion of TCO, the silver lining is that it can be estimated. Huge expenses are incurred in procuring a number of workstations, discarding the old infrastructure, installation of servers, equipments for integration and system software.
Expenses on integration and testing: This forms one of the indirect costs and seems never ending. Expenses shoot up as integration is carried on during implementation followed by testing. Both the buyer and seller participate in different phases of testing the software modules gradually increasing the TCO.
Expenses on training: About 13-17% of the TCO can be attributed in training the in house staff. Again, the cost increases with the extension of time. Organizations having pre-trained staff can reduce these expenses to some extent. Moreover, slow performance of the untrained or newly trained staff also raises the TCO.
Expenses on consultation: This is one of the indirect costs and is often tough to estimate. Costs on consultation can be huge depending on the situation and organizational requirements. Organizations spending $3-4 million often have to spend $8-9 million on consultation. This can be minimized through remote consultancy but some organizations located in remote areas may require on site consultants.
Expenses related to data migration and data conversion: This also contributes significantly to the TCO as the process demands a high level of accuracy. Sorting and migration of data should be carried out with high precision generating error free reports.
Read about SAP R/3 Architecture and system management. Also know Disadvantages of ERP.
Saturday, September 17, 2011
SAP ERP Review - Small Introduction Of All ERP From SAP
SAP (Systems, Application and Products in Data processing) that originated in 1972 in Germany by a team of five engineers from IBM has been one of the most reliable ERP systems in the international market. SAP fits best in big sized complex organizations in different geographical locations, where millions of data are being handled on a regular basis. SAP ERP system along with a number of features goes into the depth of the functionalities and its flexible feature provides an excellent integration streamlining the workflow of the organization. SAP ERP implementation involves huge capital investment and is a long process for its complex features and the extent of flexibility.
SAP ERP system comes in two popular versions of SAP R/3 and Business One. Both the versions constitute different architecture and functionalities and are meant for different purposes. SAP R/3 provides 3-tier architecture and is fit for large sized business organizations. SAP Business One provides 2-tier architecture and is suitable for small and middle sized organizations.
The 3-tier architecture of SAP R/3 comprises of UI (User Interface), business logic and database. The user can communicate with SAP GUI through the presentation server, and the application server hosts the business logic and database. This integrated ERP system is perfect for organizations carrying out millions of transactions on a daily basis. The three tier architecture is highly scalable and provides enough scope for customization. It can run on different applications and database servers.
SAP R/3 follows the programming language ABAP/4 that can run on different operating systems like UNIX, OS/400 and Windows NT. It goes well with different types of databases like Oracle and Informix. It efficiently integrates applications of Finance, Human Resource, Manufacturing and Distribution. Commonly used modules of SAP R/3 include Financial Accounting, Payroll, Production planning and Control, Material management, Sales and Distribution and Organizational Management.
Fifteen core modules constitute the SAP Business One that include Finance, Banking, Inventory, Administration, Purchasing, Sales, Sales Opportunities, Production, Human Resources, Service, Business Partners, Reports, Web CRM and E-commerce. These modules serve all the business purposes of most of the small and medium sized organizations.
The SDK component provided by SAP Business One enables further updating and integration through third party vendors. The GUI (Graphical User Interface) provides a 2- tiered client server architecture and can be extended to 3-tier architecture with the help of Citrix or other web based servers. Implementation time is short provided no customization is carried out in the initial phase. Most organizations go for Vanilla Implementation of SAP Business One, which is considered to be standard and is a rapid process. The vendors must carry on GAP analysis, SRS (System Requirement Study) and Process Mapping of the organization before implementation.
Read Benefits of ERP for SME. Also know Advantages of ERP in an organization.
SAP ERP system comes in two popular versions of SAP R/3 and Business One. Both the versions constitute different architecture and functionalities and are meant for different purposes. SAP R/3 provides 3-tier architecture and is fit for large sized business organizations. SAP Business One provides 2-tier architecture and is suitable for small and middle sized organizations.
The 3-tier architecture of SAP R/3 comprises of UI (User Interface), business logic and database. The user can communicate with SAP GUI through the presentation server, and the application server hosts the business logic and database. This integrated ERP system is perfect for organizations carrying out millions of transactions on a daily basis. The three tier architecture is highly scalable and provides enough scope for customization. It can run on different applications and database servers.
SAP R/3 follows the programming language ABAP/4 that can run on different operating systems like UNIX, OS/400 and Windows NT. It goes well with different types of databases like Oracle and Informix. It efficiently integrates applications of Finance, Human Resource, Manufacturing and Distribution. Commonly used modules of SAP R/3 include Financial Accounting, Payroll, Production planning and Control, Material management, Sales and Distribution and Organizational Management.
Fifteen core modules constitute the SAP Business One that include Finance, Banking, Inventory, Administration, Purchasing, Sales, Sales Opportunities, Production, Human Resources, Service, Business Partners, Reports, Web CRM and E-commerce. These modules serve all the business purposes of most of the small and medium sized organizations.
The SDK component provided by SAP Business One enables further updating and integration through third party vendors. The GUI (Graphical User Interface) provides a 2- tiered client server architecture and can be extended to 3-tier architecture with the help of Citrix or other web based servers. Implementation time is short provided no customization is carried out in the initial phase. Most organizations go for Vanilla Implementation of SAP Business One, which is considered to be standard and is a rapid process. The vendors must carry on GAP analysis, SRS (System Requirement Study) and Process Mapping of the organization before implementation.
Read Benefits of ERP for SME. Also know Advantages of ERP in an organization.
Oracle ERP Review - Small Introduction Of All ERP From Oracle
Oracle has engulfed the world ERP market with its strong databases and flexible features. This ERP system has been proved to be one of the best capturing most of the market share, due to the quality of services provided along with fast implementation facilities. Oracle implementation is expensive but given the benefits of this system it is worth investing. Oracle database systems provide high security and fastest data transactions rendering it to be the most reliable ERP solution. The database technologies are based on HTML, XML, RDBMS and NRT and use the servers of Web Server, Forms Server, Reports Server, Initiator, Sun Java and Discover.
Oracle E-business suite: This ERP provides a complete solution integrating various organizational applications like human resource management, marketing, sales, manufacturing, supply chain management and service. The system enables fast and intelligent functioning of the organization with fast moving of the supply chain. This allows timely decision making of the management producing improved margins that helps the organization to maintain the competitive edge.
Automation of various business processes like planning, marketing, procuring, selling, maintaining and servicing is possible among the different units of the organizations in multiple geographical locations. The software constitutes of 2,100 features that can fit easily in different sectors like health, finance and manufacturing.
The applications provide a 3-tiered architecture based on Oracle Apps framework. Linking with Oracle11i application with high security features is possible with this application and can be customized.
PeopleSoft: PeopleSoft software is best suited for organizations with complex business features and requirements. It is the most comprehensive solution of Oracle based on Pure Internet Architecture that accelerates business processes resulting increased productivity. With 1350 new features and 300 web services, this ERP helps in lowering the total cost of ownership. The software is very useful in fulfilling unique customer demands. Important modules include Customer Relationship Management, Human Capital Management, Financial Management, Campus Solution, Supplier Relationship Management, Supply Chain Management and Service Automation.
Siebel: Siebel Customer Relationship Management application from Oracle is perhaps the sole and complete solution in the world that facilitates overall growth of any organization through intelligent management of different customer related operations. The system offers a unique combination of features related to analysis and transactions to satisfy any type of customer requirement. The system can be tailored to fit in more than twenty industries, and with pre-built integration it delivers the best.
Joint venture with Sun Microsystems: Oracle has tied up with Sun Microsystems with a sole objective to improve the technological aspects of the ERP solutions. The integration of two technologies has enabled the ERP solutions to work smoothly, without the use of too many servers that ensured better crisis management and cost reduction.
Find information on ERP Software Selection. Read SAP ERP Review and features and advantages.
Oracle E-business suite: This ERP provides a complete solution integrating various organizational applications like human resource management, marketing, sales, manufacturing, supply chain management and service. The system enables fast and intelligent functioning of the organization with fast moving of the supply chain. This allows timely decision making of the management producing improved margins that helps the organization to maintain the competitive edge.
Automation of various business processes like planning, marketing, procuring, selling, maintaining and servicing is possible among the different units of the organizations in multiple geographical locations. The software constitutes of 2,100 features that can fit easily in different sectors like health, finance and manufacturing.
The applications provide a 3-tiered architecture based on Oracle Apps framework. Linking with Oracle11i application with high security features is possible with this application and can be customized.
PeopleSoft: PeopleSoft software is best suited for organizations with complex business features and requirements. It is the most comprehensive solution of Oracle based on Pure Internet Architecture that accelerates business processes resulting increased productivity. With 1350 new features and 300 web services, this ERP helps in lowering the total cost of ownership. The software is very useful in fulfilling unique customer demands. Important modules include Customer Relationship Management, Human Capital Management, Financial Management, Campus Solution, Supplier Relationship Management, Supply Chain Management and Service Automation.
Siebel: Siebel Customer Relationship Management application from Oracle is perhaps the sole and complete solution in the world that facilitates overall growth of any organization through intelligent management of different customer related operations. The system offers a unique combination of features related to analysis and transactions to satisfy any type of customer requirement. The system can be tailored to fit in more than twenty industries, and with pre-built integration it delivers the best.
Joint venture with Sun Microsystems: Oracle has tied up with Sun Microsystems with a sole objective to improve the technological aspects of the ERP solutions. The integration of two technologies has enabled the ERP solutions to work smoothly, without the use of too many servers that ensured better crisis management and cost reduction.
Find information on ERP Software Selection. Read SAP ERP Review and features and advantages.
Introduction Of ERP Software Multi Tiered Client-Server Architecture
The term Enterprise Resource Planning or ERP has been frequently used in business processes past a decade. ERP software system provides a comprehensive solution to various simple and complex business processes streamlining the workflow with improved efficiency and output. Many small and large scale organizations are implementing ERP to stand out from the rest with improved margins. The term ERP not only implies a mere software system, but is also an effective tool in planning business strategies. ERP, with the help of various modules or software applications, helps in resource planning and controlling management and operation.
History of ERP
This software application, which evolved from MRP (Management Resource Planning), has come a long way with various customizable features and modifications streamlining the business processes through effective integration of different units on a common platform. MRP, released in eighties, was purported for manufacturing industries and was designed accordingly to control various processes of manufacturing starting from resource planning, managing production, distribution and delivery of the products. Proper inventory management in different manufacturing industries was the main objective of MRP, which later expanded in managing all operations and units across the enterprise. The evolution of flexible multi-tiered client-server architecture of ERP has led to its rapid expansion and implementation in different types of business.
What Constitutes The ERP?
Effective resource planning is not a simple process, and ERP is a complex system involving different software modules that help to integrate different functional units of the departments through uniform data migration. The software modules support planning, marketing, production, distribution, tracking, inventory control and logistics with special modules supporting accounting and finance, human resource and customer relationship management.
The components include ERP software, other processes supportive of ERP software, hardware, operating systems to run ERP software and the users.
Successful ERP Implementation
Although ERP installation has become mandatory in most of the business organizations especially those located in multiple geographic locations, still ERP implementation requires lots of planning. Successful implementation of ERP is an uphill task that demands expert guidance. Any faulty planning will lead to the failure of the ERP system causing heavy losses for the organization. ERP implementation is a long term process that involves huge capital investment and organizations must go for ERP packages matching their requirements. Only a successful ERP implementation will not produce the desired return on invest as it also depends upon the users. The benefits of ERP can be maximized through intelligent application and efficient usage.
Read Benefits of ERP for SME. Also know Advantages of ERP in an organization.
History of ERP
This software application, which evolved from MRP (Management Resource Planning), has come a long way with various customizable features and modifications streamlining the business processes through effective integration of different units on a common platform. MRP, released in eighties, was purported for manufacturing industries and was designed accordingly to control various processes of manufacturing starting from resource planning, managing production, distribution and delivery of the products. Proper inventory management in different manufacturing industries was the main objective of MRP, which later expanded in managing all operations and units across the enterprise. The evolution of flexible multi-tiered client-server architecture of ERP has led to its rapid expansion and implementation in different types of business.
What Constitutes The ERP?
Effective resource planning is not a simple process, and ERP is a complex system involving different software modules that help to integrate different functional units of the departments through uniform data migration. The software modules support planning, marketing, production, distribution, tracking, inventory control and logistics with special modules supporting accounting and finance, human resource and customer relationship management.
The components include ERP software, other processes supportive of ERP software, hardware, operating systems to run ERP software and the users.
Successful ERP Implementation
Although ERP installation has become mandatory in most of the business organizations especially those located in multiple geographic locations, still ERP implementation requires lots of planning. Successful implementation of ERP is an uphill task that demands expert guidance. Any faulty planning will lead to the failure of the ERP system causing heavy losses for the organization. ERP implementation is a long term process that involves huge capital investment and organizations must go for ERP packages matching their requirements. Only a successful ERP implementation will not produce the desired return on invest as it also depends upon the users. The benefits of ERP can be maximized through intelligent application and efficient usage.
Read Benefits of ERP for SME. Also know Advantages of ERP in an organization.
Enterprise Resource Planning Software Selection - How to Select ERP?
The benefits of ERP system are well recognized, and selection of the right ERP software is the most vital step in ERP implementation. ERP implementation involves heavy expenditure and wrong software selection may lead to total failure of the ERP system causing heavy financial losses for the organization.
Criteria for ERP software selection
Defining the organizational requirements: Requirements vary with organizations, and detecting the prime needs of an organization is the first step of ERP selection. ERP software comes in a number of features allowing organizations to choose the right one according to their requirements. An organization can opt for few modules initially and add extra modules later based on the business demands. The organizational requirements may be many, but ERP software selection must be based on priorities.
Buying an ERP system or hiring an organization: Small and medium sized organizations with minimum requirements can either buy an ERP system or hire a third party vendor. This spares the organization from huge one time capital investment. The maintenance and implementation costs also get reduced considerably. The hired vendor also upgrades the installed ERP software regularly. On the other hand, buying an ERP system involves huge investment and other implementation problems.
Type of ERP required for an organization: ERP software selection varies with the organizational requirements and business processes. An organization should carefully select the software after chalking out the prime requirements. An organization can go for industry specific software or Vertical market software, meant for specific functions. Large organizations handling huge volume of data daily can opt for Horizontal market software, meant for carrying out many functions suitable for different types of industries.
Technology and hardware requirements of ERP implementation: The organization should clearly define the technological and hardware requirement of the ERP system based on the structure. The technology of ERP should be scalable and able to withstand load. It should accommodate basic features like strong database, various server options, e-commerce application and user- friendly interface, regular updating and able to support multi languages, multi divisions and multi-currency conversions in different geographical locations.
Selecting the suitable vendor: There are number of ERP vendors available in the market each presenting different features, service and cost. It is wise to prepare a list of reputed vendors and jot down the pros and cons of the ERP systems provided. The organization can seek references from other users to get an idea of the product and service. Calculation of critical success factors is vital while selecting an ERP vendor, as this calculation will decide the return on investment (ROI) in the future. The organization should check the various updating facilities of the ERP provided and the cost involved.
Read information about Cost of ERP Implementation. Also know about Annual Maintenance Cost for ERP.
Criteria for ERP software selection
Defining the organizational requirements: Requirements vary with organizations, and detecting the prime needs of an organization is the first step of ERP selection. ERP software comes in a number of features allowing organizations to choose the right one according to their requirements. An organization can opt for few modules initially and add extra modules later based on the business demands. The organizational requirements may be many, but ERP software selection must be based on priorities.
Buying an ERP system or hiring an organization: Small and medium sized organizations with minimum requirements can either buy an ERP system or hire a third party vendor. This spares the organization from huge one time capital investment. The maintenance and implementation costs also get reduced considerably. The hired vendor also upgrades the installed ERP software regularly. On the other hand, buying an ERP system involves huge investment and other implementation problems.
Type of ERP required for an organization: ERP software selection varies with the organizational requirements and business processes. An organization should carefully select the software after chalking out the prime requirements. An organization can go for industry specific software or Vertical market software, meant for specific functions. Large organizations handling huge volume of data daily can opt for Horizontal market software, meant for carrying out many functions suitable for different types of industries.
Technology and hardware requirements of ERP implementation: The organization should clearly define the technological and hardware requirement of the ERP system based on the structure. The technology of ERP should be scalable and able to withstand load. It should accommodate basic features like strong database, various server options, e-commerce application and user- friendly interface, regular updating and able to support multi languages, multi divisions and multi-currency conversions in different geographical locations.
Selecting the suitable vendor: There are number of ERP vendors available in the market each presenting different features, service and cost. It is wise to prepare a list of reputed vendors and jot down the pros and cons of the ERP systems provided. The organization can seek references from other users to get an idea of the product and service. Calculation of critical success factors is vital while selecting an ERP vendor, as this calculation will decide the return on investment (ROI) in the future. The organization should check the various updating facilities of the ERP provided and the cost involved.
Read information about Cost of ERP Implementation. Also know about Annual Maintenance Cost for ERP.
ERP Implementation - Best Practice Adopted By Organizations
ERP implementation is an uphill task involving huge monetary investment and time. Success and failure of ERP implementation rests on the best practices adopted by the organizations. Many organizations go for ERP implementation without much planning and cases of failure with ERP are not rare. Intelligent planning is essential for successful ERP implementation to squeeze out the maximum return on investment. Selection of the right ERP software may give you high returns while a wrong selection may prove to be disastrous. Return on investment may not fall in line with the expectations as lots of factors are associated with its implementation and usage. The best practices of ERP implementation can be summarized as:
Define goals and requirements: The organization should sort out the requirements and define the goals accordingly before going for ERP implementation. Set feasible targets according to the capability and remain focused on them while selecting ERP software. ERP software offers varied features and benefits, but one should be very specific while selecting it. Analysis of the vendor's capabilities is essential, and proper communication should be maintained to keep the vendor aware of the minutest details of transactions carried out in the organization.
Devote time in planning: Allocate at least 4-5 months for effective planning before ERP implementation. Careful planning will help in budgetary allocation as per the organizational requirements. Enough time must be provided to test the new business processes, customization and security features of the ERP system. Proper testing will help to analyze the future returns of the implemented ERP system.
Identifying critical business processes: The organization should identify the critical business processes and make sure that these processes provided by the vendor function with extreme precision. The ERP should be able to analyze the business processes properly and decide the priority. It should be flexible in adopting new technologies and strategies instead of sticking to the old ones.
Aim in getting good ROI: The implemented ERP system should provide good return on investment. Analyze the key cost areas including cost of implementation and other hidden costs. Keep a track on the post implementation performance to achieve an appreciable ROI.
Training the in house staff: Proper training should be provided to the in house staff, as ROI depends a lot on the users. If required, consultants from outside should be hired to train them about the proper usage of the software.
Distribution of resources: Proper distribution of resources among the staff members and project team is important for successful ERP implementation. An efficient project manager should head the team and guide through various stages of implementation.
Forming risk management team: The responsibility of the team is to find out any flaws in the planning and eliminate them timely. The team should maintain a counter plan in case any problem crops up during the implementation process.
Data Migration: This is the most crucial phase of ERP implementation. Sorting out the relevant data discarding the irrelevant ones should be done carefully, while migrating data into the new system.
Read information about Cost of ERP Implementation. Also know about Annual Maintenance Cost for ERP.
Define goals and requirements: The organization should sort out the requirements and define the goals accordingly before going for ERP implementation. Set feasible targets according to the capability and remain focused on them while selecting ERP software. ERP software offers varied features and benefits, but one should be very specific while selecting it. Analysis of the vendor's capabilities is essential, and proper communication should be maintained to keep the vendor aware of the minutest details of transactions carried out in the organization.
Devote time in planning: Allocate at least 4-5 months for effective planning before ERP implementation. Careful planning will help in budgetary allocation as per the organizational requirements. Enough time must be provided to test the new business processes, customization and security features of the ERP system. Proper testing will help to analyze the future returns of the implemented ERP system.
Identifying critical business processes: The organization should identify the critical business processes and make sure that these processes provided by the vendor function with extreme precision. The ERP should be able to analyze the business processes properly and decide the priority. It should be flexible in adopting new technologies and strategies instead of sticking to the old ones.
Aim in getting good ROI: The implemented ERP system should provide good return on investment. Analyze the key cost areas including cost of implementation and other hidden costs. Keep a track on the post implementation performance to achieve an appreciable ROI.
Training the in house staff: Proper training should be provided to the in house staff, as ROI depends a lot on the users. If required, consultants from outside should be hired to train them about the proper usage of the software.
Distribution of resources: Proper distribution of resources among the staff members and project team is important for successful ERP implementation. An efficient project manager should head the team and guide through various stages of implementation.
Forming risk management team: The responsibility of the team is to find out any flaws in the planning and eliminate them timely. The team should maintain a counter plan in case any problem crops up during the implementation process.
Data Migration: This is the most crucial phase of ERP implementation. Sorting out the relevant data discarding the irrelevant ones should be done carefully, while migrating data into the new system.
Read information about Cost of ERP Implementation. Also know about Annual Maintenance Cost for ERP.
All Cost of ERP Implementation
ERP implementation has become an utmost necessity for most of the business organizations; therefore the cost of ERP implementation must be seriously considered. The implementation cost varies with different ERP systems and depends upon a number of constant and variable factors. Different vendors offer different types of ERP systems with varied features suitable for different types of organizations. Cost of ERP implementation includes installation of hardware and software, time period of installation, software license renewal, training of in house staff, customization and integration of additional applications, consultancy, testing, maintenance and other future costs.
Every organization should plan and analyze the implementation cost carefully before selecting an ERP system. It is easy to estimate the fixed costs related to hardware installation and license renewal, but the expenses related to customization, training and adding new features often deviate a lot from the estimation and are considered as variable costs. Customization and integration depend on the future requirements of the market and customer. Accurate prediction of variable costs is near to impossible, but an efficient planning will help to make an approximation of the variable costs.
Direct Costs Involved in ERP Implementation
Preliminary expenses on hardware and software license: Cost of hardware installation, software modules, database and software license, third party software license and the operating systems come under the direct cost and can be estimated. Hardware cost also depends on the number of workstations, users, servers and networking systems. With addition of extra features, the total cost of ownership increases. Indirect costs also depend on the software and technological features adopted.
Implementation cost: ERP systems with complex integration features meant for big sized organizations require more time for implementation involving huge costs. ERP software systems with simple basic features meant for small and medium sized organizations require lesser implementation time and are less expensive. One tier ERP systems require lesser implementation time reducing the TCO (Total Cost of Ownership) to about 50%.
Indirect Costs Involved in ERP Implementation
These include training of employees, transportation, expenditure on consultancy and maintenance. It is tough to estimate these costs as these factors are likely to vary widely according to the situation.
Customization: Customization of the existing ERP system is essential to ensure efficient running of the business processes and expenses related to it vary according to the changing market scenario. Lack of customization can impede the business functioning while excessive customization may damage the product. Customization often results in heavy expenditure.
Expenses on training and data migration: Data migration is the most vital stage of ERP implementation that demands a higher level of expertise. Employees not used to new features may not deliver according to expectations, and that raises the TCO. Hiring consultants can also prove to be expensive. Expenses on training the in house staff depends on the time period and contributes significantly to rising TCO.
Post Implementation expenses: Annual Maintenance Cost (AMC) should be included in post implementation expenses and buyers can negotiate a favorable deal with the vendors to minimize this expenditure.
Read information about ERP Vendor Selection. Also know the ERP Software Features.
Every organization should plan and analyze the implementation cost carefully before selecting an ERP system. It is easy to estimate the fixed costs related to hardware installation and license renewal, but the expenses related to customization, training and adding new features often deviate a lot from the estimation and are considered as variable costs. Customization and integration depend on the future requirements of the market and customer. Accurate prediction of variable costs is near to impossible, but an efficient planning will help to make an approximation of the variable costs.
Direct Costs Involved in ERP Implementation
Preliminary expenses on hardware and software license: Cost of hardware installation, software modules, database and software license, third party software license and the operating systems come under the direct cost and can be estimated. Hardware cost also depends on the number of workstations, users, servers and networking systems. With addition of extra features, the total cost of ownership increases. Indirect costs also depend on the software and technological features adopted.
Implementation cost: ERP systems with complex integration features meant for big sized organizations require more time for implementation involving huge costs. ERP software systems with simple basic features meant for small and medium sized organizations require lesser implementation time and are less expensive. One tier ERP systems require lesser implementation time reducing the TCO (Total Cost of Ownership) to about 50%.
Indirect Costs Involved in ERP Implementation
These include training of employees, transportation, expenditure on consultancy and maintenance. It is tough to estimate these costs as these factors are likely to vary widely according to the situation.
Customization: Customization of the existing ERP system is essential to ensure efficient running of the business processes and expenses related to it vary according to the changing market scenario. Lack of customization can impede the business functioning while excessive customization may damage the product. Customization often results in heavy expenditure.
Expenses on training and data migration: Data migration is the most vital stage of ERP implementation that demands a higher level of expertise. Employees not used to new features may not deliver according to expectations, and that raises the TCO. Hiring consultants can also prove to be expensive. Expenses on training the in house staff depends on the time period and contributes significantly to rising TCO.
Post Implementation expenses: Annual Maintenance Cost (AMC) should be included in post implementation expenses and buyers can negotiate a favorable deal with the vendors to minimize this expenditure.
Read information about ERP Vendor Selection. Also know the ERP Software Features.
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