Successful implementation of the right ERP system for your small business will certainly make you money in the long run. The problem is that the cost of implementing an ERP package can balloon unexpectedly, often to the point where it’s no longer sensible for you to continue, but you don’t find out about it until it’s too late. To be successful, you have to understand all the drivers of ERP cost (including the hidden ones) so you can effectively control it. This paper will show small business owners and managers exactly what to look for, and how to ensure that your ERP implementation is successful and on budget.
ERP in the Small Business
ERP stands for Enterprise Resource Planning, which is just a fancy way of saying “software that manages all aspects of your business.” ERP software has been available for many years in the middle and upper tiers of business software, and in more recent years it’s become available for small businesses. While it’s great for a small business to have the increased profits that go with a successful implementation of the right ERP system, it’s the “successful implementation” part that catches many small business owners, many of whom have not implemented a full-blown ERP system before.
The High Cost of Failure
It’s not uncommon for ERP implementations to overrun the budget by 100%, 200%, 300% or more, or even fail outright. There are well known horror stories about big, publicly traded companies and outrageously expensive ERP implementation failures. Do an Internet search for “erp disasters” and you’ll see. These failures can devastate a company’s financial performance.
Unfortunately, these costly failures are not limited to large businesses. Those are just the ones you hear about because they are high profile. Small business ERP implementations can lead to disastrous cost overruns and outright failures as well. They certainly don’t have to, but they sometimes do. In order to know how to avoid these problems, you first have to understand what drives the cost of ERP implementation.
The Drivers of Cost
The short story is that there are three categories of cost when you’re talking about successful ERP implementation: one they tell you about, one they sort of tell you about, and one that you have no idea about until it’s too late.
The One They Tell You About
License or subscription fees are simple. That’s the one that’s right there on the table. You have a certain number of user seats, you license a certain set of modules, out pops a dollar figure. First-time ERP buyers often think that this is a good part of, if not most of, their total budget for the project, which is not the case.
The One They Sort Of Tell You About
Next are service fees, which are normally presented as estimates on the proposal. Services include training classes, a certain number of hours of consulting required to get the package installed, some hours of consulting to get your data into it, etc. Most often, services are described as an hourly rate with an estimated number of hours necessary to get your system “up and running.” Your initial invoice will likely include a block of service time based on these estimates.
It all fits your budget and all is well. This is where many businesses sign the contracts, but this is also where the problem of runaway cost begins.
The One You Have No Idea About
What they don’t tell you is that the costs stated up front are “best case” costs, and rarely will you be up and running successfully for the stated amounts. After all, most ERP software is sold through third party channels, and third party vendors make their money on service fees. This category of cost can become a big problem by the time you feel you’re into your commitment and implementation “too deep to stop now.”
Here’s another way of saying the same thing: the vendor is responsible for what they sold you, and only you are responsible for your success.
You need it so the vendor is responsible for your success, which is quite a different thing.
Your Checklist for ERP Implementation Success
This checklist will help you make sure that you know what you’re getting into with your ERP implementation, and that the people you’re thinking of doing business with can make you successful for the stated cost.
- The implementation costs and outcomes are clearly expressed in writing.
One of the primary ways costs overrun is if the services are provided on a hourly basis and/or the definition of “done” is not crystal clear and agreed upon in writing.
Ask the vendor for an implementation guide and time line before committing. This should include, in detail, lists of the data elements that can be imported. Be sure that any historical data that you deem critical is included. Agree to a definition of “done”. At what point does the vendor consider your implementation complete? Does this definition ensure your success?
- You understand who is responsible for each element.
Ultimately, you are responsible for the success (or failure) of the project, but it should be clear from the beginning who is responsible for each task. If you have a VAR/reseller involved, will she be responsible for any changes needed in the software, or is the software publisher? Who will be involved in managing data export/import and formatting? These are the type of finger-pointing issues that you don’t want to encounter in the midst of implementation.
- The service work is fixed bid.
A provider who knows what they’re doing should gladly offer fixed bid work. It shows their confidence in their processes and implies a track record of success. It also shows that they’re “in it with you” and not all about maximizing service revenue. A provider who is willing to share the risks inherent in ERP implementation is a keeper.
- You’ve considered travel costs
This is a no-brainer, but still easy to underestimate or even miss entirely. Again, the tighter the implementation plan, the less likely there will be higher travel expenses than you budgeted.
If you can be assured on each of these points, then your chances for a successful ERP implementation will be greatly increased.
The AcctVantage Advantage
At AcctVantage ERP, we’ve been implementing small-business ERP successfully for over 20 years.
AcctVantage ERP is a time-tested enterprise software application designed from the beginning exclusively for small business. Our focus is on delivering ERP success, not just software and services.
We are the publisher and developer of AcctVantage ERP, and provide all sales, consulting, training and support services to our customers directly. No fingers pointed, no bucks passed.
All services are provided on a fixed-bid basis. Implementation, data conversion, special feature integration, training, etc. Any service provided by AcctVantage is fixed-bid so you’ll know exactly what your costs are before committing. Our decades of experience give us the confidence to bid projects accurately, and focus on making you successful.
Spend ten minutes with us and you’ll know if we’re a good fit. Call today at 828-692-3301 to speak to an AcctVantage ERP specialist or visit us at www.AcctVantage.com.
About the author
Dan Beckett has been designing, writing, selling and supporting small business software for over 20 years. With a decade in custom business software and a decade in packaged ERP software, Mr. Beckett has helped small businesses nationwide reap the benefits of affordable software coupled with effective, personal services. He is the author of several journal articles and co-author of a 700-page technical book about business software development tools and techniques. He is recognized worldwide as an expert in the 4th Dimension line of software development tools. Mr. Beckett is currently President of AcctVantage ERP, an ERP software publisher specializing in small business, based in Hendersonville, NC.