Costing an ERP Solution
The ability to effectively cost an ERP solution presents a major challenge for organisations. It is for this reason that ERP adopters often hire consultants to help determine their requirements and estimate a cost for the implementation. This process alone can be an expensive exercise. Complexity and cost are intimately connected with software complexity being the major reason for rapidly increasing software development costs with a substantial amount of an ERP implementation cost not originally anticipated. For this reason the scoping of the system requirements and the method of selecting your ERP solution is critical for a successful ERP implementation.
Organisations who have identified the need for an ERP solution to improve their business and set themselves up for future growth approach the method of selecting an ERP software solution in a number of different ways. Some go out and receive presentations from software providers whilst others will document their key requirements and get software vendors to focus on those. Others will engage with consultants, accountants and lawyers to create a tender document of requirements.
Whatever your approach, we understand that the immediate question you want answered is ‘How much is this project going to cost?’. ERP implementation costs can range anywhere from tens of thousands of dollars for small businesses, to hundreds of thousands or even millions for larger enterprises. Of course, ERP systems are investments: for a relatively significant fee now, they will pay off huge dividends in the future.
Whilst NEXUSsoft may initially be able to provide you with an indicative cost based on our experience, it should be treated as a budget range as it is impossible to provide a fixed figure without first completing a scoping exercise. The scoping exercise is actually like starting the project but without you committing to anything. Whilst other providers charge for this exercise NEXUSsoft will complete the scoping exercise free of charge and obligation free.
The scoping exercise involves sitting down with your project team, interviewing members of departments, compiling a document that contains your requirements and business processes to give us a clear picture of the project moving forward. The scoping exercise will also allow us to identify any complexities and cost drivers that will directly affect the cost of your ERP implementation. Unforeseen complexities are frequently encountered on ERP implementation projects, leading to unexpected high costs making ERP systems one of today’s largest IT investments.
To calculate a fixed price for implementation of your ERP solution, the following complexities must first be determined:
In addition to complexity, there are many other cost drivers that can significantly affect the total cost of an ERP implementation. Example of some of the cost drivers include:
- Project duration constraints
- Size of the organisation
- Number of modules, users, user groups, transactions, portals, reports, integrations, departments and sites
- Amount of data conversion required to migrate existing data
- Complexity of business processes
- Type of modules implemented
- Level of customisation and configuration
- Ongoing support requirements.
By completing the free of charge and obligation free scoping exercise to determine your system requirements, business processes, system complexities and cost drivers, NEXUSsoft will be able to provide a fixed price proposal for the implementation and ongoing costs associated with your solution taking the guess work out of your project budgeting.
Breakdown of Implementation Costs
he costs associated with the implementation and development of an ERP solution can be broken down into the following areas: Consulting Services, Customisation and Configuration Services, Migration of existing organisational data and training.
From our experience, a typical breakdown of the implementation and development fee for a NEXUSsoft solution is as follows but may vary based on the complexities and cost drivers listed above.
Consulting Services – 40%
ERP implementations consist of a complex web of non-technical challenges that can make or break your project. A NEXUSsoft consultant will work with your organisation to make the implementation process as easy as possible for you. The NEXUSsoft consulting services include:
- Creating a business case to help justify the implementation of a new ERP system
- Identifying ways to streamline workflows through business process reengineering
- Engaging end-users in requirements gathering and obtaining end-user buy-in to the project as a whole
- Project managing the implementation of the ERP system
- Requirements testing the ERP system before implementation to avoid post go-live issues
Customisation and Configuration Services – 40%
When you customise an ERP system, you are building functionality that doesn’t yet exist anywhere in the software. Customisation requires technical software development and programming skills to add the new features to meet your requirements. The customisation and configuration services include:
- Development of the bespoke solution on the NEXUSsoft proprietary framework
- Configuration of the solution
- Testing and bug fixing
- Set up of the cloud hosting environment.
Migration of existing organisational data – 15%
The migration or your organisations historical and live data to your new ERP system is fundamental to a successful ERP project. This historical data must first be cleansed and converted prior to being imported into the new solution.
Training – 5%
It is imperative to ensure that your staff fully understand how to use the ERP solution. Properly trained employees in the use of the ERP will help assure that all of its benefits are truly realised for your organisation.
It’s no secret that enterprise resource planning (ERP) systems represent a major investment in both time and money. What is less well known is that ERP solutions come with continuing costs that can be highly variable and difficult to predict and mitigate. The total cost of owning and maintaining the system normally includes a great deal of ‘hidden’ on-going expenses. When selecting ERP software, buyers typically make one glaring error – they focus on the traditional ‘cost of ownership’ – software licences, implementation, maintenance and support. But they forget a critical question: “How easily can the software be altered when there is a planned or unplanned business change?”
When the organisation restructures, or there’s a merger or acquisition, or simply a change of business process or legislation, how easy is it to make that change? The answer can significantly impact the ongoing cost of an ERP system but not with NEXUS.
Organisations are spending considerable amounts to customise their ERP solution to their business post-implementation, adding modules and functionality, re-writing applications, modifying outputs, improving system performance, modifying processes, and in general, upgrading the system so that it keeps pace with changes in the business. Due to the cost of customisation, organisations find it prohibitive to make changes to their ERP, thereby reducing their ability to position themselves for growth.
To overcome this hurdle, NEXUSsoft roll all ongoing costs into the one monthly fee to provide its customers with a known fixed ongoing amount which includes upgrades, customisation and system expansion, bug fixes, licencing fees, hosting, continuous phone and email support and integration programming to ensure your solution never becomes obsolete. The fixed ongoing amount will be determined as part of the scoping exercise.
Breakdown of Ongoing Costs
A typical breakdown of the ongoing fee structure for a NEXUSsoft solution is as follows.
Licence for the NEXUSsoft proprietary framework – 50%
ERP software is generally not bought or sold but instead it is licenced for use. Licences are typically based on the number of seats (users) that access the software. Instead of charging for each individual seat, NEXUSsoft provide a business licence which covers the entire business entity.
Hosting Fee – 10% depending on storage requirements
If your ERP solution is hosted in the cloud, then a hosting fee will apply. The NEXUSsoft cloud hosting environment is in the Microsoft Azure cloud environment. The NEXUSsoft cloud environment is located in Australia and provides geographically redundant storage and enterprise grade backups to ensure your data remains safe.
Ongoing support and system enhancement – 40%
The NEXUSsoft Subscription Licence includes upgrades, customisation and system expansion, bug fixes, continuous phone and email support, integration programming and consultation.
Until we sit down with your organisation and complete the free of charge and obligation free scoping exercise we cannot put finite dollar values against these items. When we do, you will have a correctly aligned solution that will stand the test of time and metamorphose with your business growth. Further benefits you can expect to receive by completing the free of charge and obligation free scoping exercise include:
- Clearly identify the exact processes of departments and individuals.
- Improvement opportunities are identified and leveraged in the new solution.
- Deliverables are clearly understood by all parties’ up-front, no nasty surprises or false expectations (what is in scope and what is not).
- Users are engaged before the project truly begins so that end user buy-in will be greater as they have contributed to its design and feel more involved.
- A fixed price allows you to accurately budget for the project.