You
don’t have to be an expert to know that enterprise resource planning
(ERP) is one of the most costly technology initiatives that an
organization can implement. While it is very difficult to provide
global costing guidelines, there are some important considerations
that can help you estimate your total expense for implementing ERP.
Here is an overview of four cost factors associated with staffing
during an ERP implementation. These factors will likely weigh into
your decision about whether you should purchase a packaged ERP
system from a vendor or if you should custom build an ERP solution
in-house.
Second article in a series
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This is the second article in a series on
ERP and the factors you should consider when building or
buying an ERP system for your organization.
The first installment discussed the differences in
packaged vs. custom ERP software.
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Plan for human costs
The costs of installation, implementation, and data migration
generally run about three to four times the original cost of the
packaged ERP software. For example, if your software costs $2
million, you can expect to pay an additional $6 million to $8
million for consulting services to get the system into production.
TechRepublic members shared general cost information in a recent
survey. (See Figure A.)
| Figure A |
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Consider remote consulting
If your organization is located in a major metropolitan area, you
will likely have lower consulting costs. For example, an ERP project
in South Dakota may cost double the rate of the same system
developed in Los Angeles.
This factor is present because the rates are more stable and
competitive in larger cities. Organizations located in smaller
cities may have to pay their vendor for consulting services at a
rate much higher than the market average. If your company is located
in a smaller city or rural area, you may want to use off-site
consulting and hire consultants who work from home.
Transition your IT staff
It’s interesting that a recent survey of TechRepublic members
determined that end-user adoption of an ERP package was the greatest
concern among IT professionals (see Figure B).
| Figure B |
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Analysts confirm that training end users is a significant expense.
In a recent report on SAP
end-user training, Gartner
suggests that, at a minimum, enterprises should allocate 17 percent
of the total cost of an ERP project to training. Gartner research
also found that companies that budget less than 13 percent of their
costs for training are three times more likely to see their ERP
projects run over time and over budget when compared with companies
that spend 17 percent or more on training.
But end users aren’t the only staff members who should concern you.
Staff turnover among developers is common in organizations that are
implementing an ERP solution. If you choose to purchase a packaged
ERP solution, be prepared for staff turnover. In many cases,
programmers will be excited to learn a new technology, while others
are reluctant to embrace change. On the average, IT managers can
expect to lose up to 40 percent of their IT staff, primarily those
programmers who are unwilling or unable to master the new software.
Avoid the illusions of false savings
Many managers choose to purchase a prewritten ERP solution under the
assumption that because the software is prewritten, they can
downsize their IT staff. In reality, prewritten packages require IT
personnel to locate bugs and apply patches to the packaged software.
There are seldom any real human savings associated with adopting a
prewritten ERP package. In practice, your IT staff will remain about
the same size, with your old programmers being replaced with
application specialists.
