Why companies need to consider ERP total cost of ownership

April 7, 2015
Posted in ERP
April 7, 2015 TM Group

Why companies need to consider ERP total cost of ownership

Total cost of ownership shouldn't mean unexpected expenses.

When companies decide to implement enterprise resource planning software, they need to consider the ERP total cost of ownership. Although there will be upfront expenses associated with the customization, integration and deployment of the platform, organizations still need to invest in maintaining it. For instance, there will likely be upgrades, which can be complicated by any customized scripts or other variations made to the software.

For this and other reasons, it’s advisable for companies to invest in ERP software that’s agile and flexible, allowing companies to adapt the platform to their needs as they evolve.

Plan ahead to avoid headaches later on
The firmest foundation for success is a solid plan that considers all of the aspects of a problem. It’s obvious that businesses that decide to deploy ERP software have an issue or issues in need of resolution. However, rushing to put the solution in place can result in undesired consequences and may end up hurting the company in the long run.

Software Advice, a company that advises ERP software buyers, recently released a report titled, “Enterprise Resource Planning Software BuyerView,” which highlighted a significant problem that many companies have when they decide to implement ERP software. Regardless of the costs associated with the initial purchase of an ERP solution, there are more expenses down the road.

In fact, one of the top reasons that ERP users cite for wanting to implement a new software platform is the growing expenses associated with annual support and maintenance fees. Even though companies may have to deal with a one-time payment for the software license, there’s no guarantee the organization will have a problem-free experience with the ERP platform. Support charges are typically billed separately, and if a company encounters a setback or it needs make customizations, the business has to decide whether it’s worth the financial cost. Many times, inaction will result in an ERP platform that doesn’t function in the way the enterprise needs it to.

Recognize organizational priorities
As part of the planning stages for an ERP implementation, companies should realize exactly what they need the software to do. The Software Advice study found that many organizations go with a system that is too complex for their needs. As a result, they use only a portion of what the platform can do, which wastes money.

One way that companies have adapted to this situation is by subscribing to software-as-as-service ERP platforms, which are normally hosted on the vendors’ server and company users can access the software through the Web. Instead of paying for a license, the business pays a fee on a monthly or annual basis that includes all maintenance and updates.

Flexibility yields financial results
According to Aberdeen Group, a research and consulting firm, businesses with more flexible ERP solutions have a better chance of generating a return on the investment and can adapt to changes with greater speed and lower costs. For instance, organizations with adaptable ERP software can meet new regulatory requirements with greater ease than companies with monolithic systems. Failing to comply with federal rules can cost companies a lot of money in terms of fines and penalties.

Furthermore, when a company needs to introduce new processes or alter their existing workflows, having a rigid ERP system can cause extended delays in employees carrying out their duties and lead to lost productivity, which also causes financial strain. However, companies with flexible ERP setups can see a 15 percent improvement in operational expenses, Aberdeen explained.

ERP software is a critical tool for companies in many industries, but the benefits of the software are only seen when organizations consider the total cost of ownership. As a result, it’s important to consider what type of implementation is best for the business.

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