That ERP implementation is a costly investment is a known fact. It is perhaps one of the most expensive capital expenditure of the company. A company invests in the ERP system because it expects to benefit from the system. However benefits have to be weighed against the cost. An ERP project involves direct as well as indirect costs which have to be evaluated for a cost-benefit analysis. However this cost-benefit evaluation is not as straightforward because ERP implementation also involves a lot of hidden costs. These hidden costs may be difficult to quantify and control.
In this blog we list some of the most notorious hidden costs involved with an ERP implementation:
Most ERP systems available in the market place are plain vanilla versions that meet your requirements. They are good to use but may not be great in delivery unless you match them up with add-ons features to perfectly fit your requirements. The add-ons are like the extra-toppings on your favorite pizza that make your meal complete. Add-ons are not industry specific and neither do all add-ons work on all ERPs so you have to hunt for the right add-on that fits your ERP in terms of compatibility. Sometimes an add-on may not be readily available and you may have to get it customized to match your requirements.
Example: Your Industry may have a 2 percent extra tax liability and you may want an add-on to calculate that.
This obviously is a cost factor that you had not accounted for.
Every organization is unique and has its own set of requirements. No ERP can completely content an organizations needs. This calls for customizations into the ERP. However customization is complex, time-consuming and costly. Moreover they are an invitation to future costs and complexities especially at the time of ERP upgrades. ERP upgrades are unavoidable if a company wants to stay ahead in business however for a company using customized ERP it is a real daunting task as as it has the additional baggage of re-customization.
Therefore a company needs to carefully evaluate while opting for customized solutions and also keep in mind its future implications.
3. Training and Employee Dissonance
Most of us really want things to get better without any change, that's human psychology. So when a new ERP system brings in a complete change within the organization, employees may not take it very well. There might be a big resistance to this change. Some employees may adapt to the new system after lot of training hours. Some employees may need a lot of counseling and mentoring to accept and co-operate with the new system. These factors build in a cost factor that's very difficult to quantify and account for.
4. Change Management
ERP implementation is a lengthy process and the entire implementation can well run into couple of months. This long duration poses a new set of often unforeseen problems. During the ERP implementation cycle some key associates may quit, there can be strategic tie-ups between organizations including mergers and acquisitions which now will have to be accommodated in the ERP implementation. There could be change in government policy, vendor or supplier policy that may need to be adjusted. These unforeseen changes lead to an additional burden on the ERP implementation and add to its cost.
5. ERP Evolution
ERP system has to evolve along with the organization and hence requires constant maintenance. There could be functional or technical upgrades that may be required to keep the ERP in best running condition. The company may expand, add a new product or open new business units which need to be included in the ERP system. There may be a new technology or platform on which the ERP may need to be rolled out. All these factors lead to a heavy maintenance cost.
Above are some of the most common overlooked hidden costs. These costs need to be carefully estimated and accounted for during an ERP implementation. Some of these costs can really be brought down by exploring smarter effective ERP options available in the market. Example ERP customizations are not the only option for a company, there are many more effective options available to customize your existing ERP.
If you feel you are being a casualty of such hidden costs do take corrective actions by choosing better alternatives.