Costs of an ERP System
Many companies are now using enterprise resource planning (ERP) systems rather than accounting software applications. An ERP system differs from an accounting system in that the latter only performs accounting-related tasks. An ERP system, however, can handle not only accounting tasks but helps you manage your entire business.
An ERP system is essentially a suite of software packages that can perform accounting, product planning and development, manufacturing, inventory management, sales management, human resources, and other business tasks. Like the costs of an accounting system, you will want to consider not only the licensing fees when choosing an ERP system but the total costs of the ERP system itself:
- Development for Customization
- Process Redesign
Cost 1: Implementation
You will need to have professionals install and configure your ERP system so you will need to include these implementation costs in the total price of the ERP system. ERP systems are complex software applications, so you will likely need to change operating systems, upgrade or change servers, and change other hardware and software you use on your company’s network for the ERP system to run properly. You will also need to -- or should, more aptly – set up a test environment as part of the implementation so you can test the ERP system without affecting your company’s real data.
Cost 2: Training
As mentioned, an ERP system is a complex software application that can be thought of as a suite of software programs that are compatible with one another. Your employees will need training on how to use the programs, because an ERP system is not as intuitive or easy-to-use like a basic accounting software program, such as QuickBooks or Peachtree. Your company’s employees will need time and training. Often times, the ERP vendor will provide additional training upon request at standard hourly rates. Sometimes you will need to find consultants who specialize in the ERP system to provide you with the training that your company will need to use the ERP system effectively. In either case, you will need to factor these additional costs into your analysis when reviewing ERP systems for purchase.
Cost 3: Development for Customization
The out-of-the-box functionality of an ERP system will not be enough for you to operate your business effectively. You will need to incur some expense in developing customized reports so that your employees can perform their daily and monthly tasks with ease. An ERP system can store a substantial amount of information, but users are limited in the ways that they can access the information. Therefore, it is not uncommon to have IT staff dedicated to developing customized reports for various departments so that business processes and analysis can be performed timely.
Cost 4: Process Redesign
If your company is upgrading from an accounting software program to an ERP system, then you will certainly have a lot of processes that will need to be redesigned. For companies using accounting software, many tasks may be performed outside the software either manually in a paper format or in a third party application such as MS Excel. The acquisition of an ERP system should, in theory, mean that many of these tasks are being automated by the software to increase both accuracy and efficiency in performing these tasks. Even if your company is changing ERP systems, no two are alike so you can expect to have some changes in your company’s business processes to coincide with the software’s processes.
Cost 5: Maintenance
You will need to maintain your ERP system so you will need to factor in these costs. ERP costs can include hardware, network, and labor costs from IT and other departments to ensure the system can run properly.
Cost 6: Upgrades
Like all software programs, ERP systems require periodic upgrades to avoid becoming obsolete. You should consider how often you expect to upgrade your ERP system and what these costs will be when you go through with the upgrade. You should also consider that any upgrade may affect business processes, and require additional hardware or software so the system runs smoothly.
Cost 7: Support
Your employees will run into trouble using the program, and you will detect numerous bugs with any ERP system so you will want to ensure that your vendor will provide you with adequate technical support to resolve these issues. You should ask your vendor if this support is included in the licensing fee or is an additional cost.