7 Ways to reduce ERP implementation cost

In today's economic environment of constrained and highly scrutinized IT budgets, organizations are looking for ways to reduce their deployment cost and long-term total cost of ownership for enterprise applications or ERP. The obvious targets for both of these areas are: Reduction in the product license cost and the consulting fees of the implementation and support partners. Let us look at these and some of the other equally important aspects that can make sure that the cost of ERP implementation remains lowest and with best of quality thereby increasing the ROI.
  • Grab the obvious first - Negotiate software license cost: As I said above, the buck starts at the license cost and it is not that the big boys of ERP applications do not negotiate on the cost of licenses. They do. Take this up as a part of your project decision and approval phase and make sure that while the functionalities and architecture that you need are a must (so a decision just on cost should not be made), you also find ways to bring down the license cost of the software to make your overall cost at lowest level
  • Hit the implementation cycle time with correct frameworks and tools: We have seen in the past that all ERP implementation projects are not successful and long cycle times are one of the core reasons of their failures. In addition, longer the cycle time, higher the cost of implementation. Do your research and find out various tools and frameworks that are available in market to make sure that you reduce the implementation cycle time by utilizing them. These frameworks and tools developed by some IT organizations have successfully improved the cycle time by 30 to 50% and hence
  • Play as per your strength on consulting fees structure: Though most of the organizations keep on moving towards the fixed price agreements with the consulting partners so that there are no hidden costs (at least from the vendor side) during implementation period, but this strategy is worth re-visiting after having a look at your strengths and nature of the project. It makes good sense to go for an hourly based consulting fees model (called as T&M model popularly) if you already possess good project management skills and bandwidth to manage these projects. A blend of both these models can also be explored. There are more pricing models made available in market these days by the ERP Service Providers and you need to do a proper research on these before engaging the consulting partner
  • Vanilla is the best flavor: Customizations are something that make the ERP work on your commands but beneath, there lies a monster that if wakes up, will make sure that ERP becomes more of a junk box of errors and bugs. Well, it is not as bad as it sounds but take a clue from this and make sure that the customizations are at their lowest ebb in your ERP environment to keep the size of the monster smallest possible. Not only, the customizations inflate the cost of ERP implementation (more developers needed) but also will consume more time of business superusers and users to test more. It will also impact the "post implementation support and maintenance cost" as it will hit the stability of the application. A customization free application is popularly called as Vanilla implementation
  • Manage Scope and Change Requests: It happens and will keep on happening that when you do the requirement gathering exercise, you will get a good wish list from some business functions but some might not be able to spend the required time on the list and you get the half baked requirements from them. It is during the implementation (specially after the first environment pilot and testing cycles), they will see their brain bulbs lighted with more requirements or changed requirements for that matter, which will ignite a fire of scope creep and hence the need of change requests that were earlier not part of the "Fixed Price Contract" with the service provider. What follows next, is additional cost on the project which could have been avoided by taking some measures to freeze scope in the beginning
  • Take a second opinion on design: In most of the ERP implementations today, only one vendor (or team) is engaged for deployment and since these skills are normally not available with the business, organizations end up depending completely on the vendor team's expertise on the design and deliverables pace and quality. The major risks of these are again cost inflation (a study mentioned last year that 8% ERP projects are delayed due to insufficient planned testing), expectations not getting met after Go-Live, more than required customizations (and hence more cost again) etc. A best practice that is emerging from the best in class , is to hire specialized teams and utilize their scientific tools and frameworks for validating the design, deliverables and pace of ERP project before it is too late. Though, it will certainly consume resources and money but believe you me, this micro additional cost (you can good deals in this area) will make sure that you are doing everything right and can correct whatever is going slow or wrong
  • Exams are still the best way to gauge a student's performance: What will happen if you find out after Go-Live that the functionality that you wanted in the new ERP system, fails in a particular scenario and since it is not easily detectable, you run the risk of wrong usage of the application and hence the "data truth" is lost. Additionally, if that functionality malfunctioning impacts leakage of revenue in some form or other, then the matter will be worse. What will follow, is fixing of that functionality or if it is needs longer period or changing the design altogether (yes, it is possible), then you will need to plan a new release for rollout of this and the implementation cost will increase. There are multiple scenarios like this which can be avoided if we do proper and frequent testing and make sure that there are no bugs, no mismtach between expectation and result and no data issues. Recognize testing as the most important part of the project from the business users point of view so that the issues can be reported timely and can be resolved within the timeframe of the project itself (and hence the cost remains protected)

These points represent just a few of the steps that will help you in keeping the cost of ERP implementation in control in turn increasing the return on investment which will come handy in current time when every penny going out of pocket pinches deep.

5 comments:

  1. Excellent List! We are planning to implement ERP in Q1 2010 and these tips will certainly help us in saving some precious money. Thanks for sharing this.

    Joey

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  2. - Make sure there are enough good skills in the market to implement the package you choose. If you go for SAP, Oracle, Microsoft, ... you will be able to choose. If you go with a smaller ERP vendor, you are generally limited to their consulting services
    - If your ERP vendor also offers consulting services, check their quality very well before buying them. That the software is good and attractively priced does not mean the consulting services will be too. In my experience with mid-tier ERP vendors (a few of them) their consulting services were overpriced and left much to be desired in term of quality.
    - Control your consulting and travel costs. Use a time and expense system to track how much you spend per task. Have periodic reviews, tying the costs back to accomplishments.

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  3. Winshuttle (www.winshuttle.com) offers easy to use transactionSHUTTLE software that is instrumental in accelerating and delivering SAP implementation on time. You can find more informaiton at http://www.winshuttle.com/SAP-data-import.html

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  4. Good one :)

    Very nice list,few point I would like to point out in addition to the above

    Check for Open source options if it can fits your needs it can reduce your Licensing cost drastically
    Don’t invest on high costing ERP consultants unless needed.

    Thanks
    Ronny Diaz
    www.globalteckz.com
    OpenERP Experts

    ReplyDelete
  5. Interesting list...not many articles on web have published such an honest list...way to go

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