After a brief summer hiatus, I’m back with my monthly unbiased perspective on the business software environment.
This month we answer the following question: “What should be included in the ERP upgrade budget??”
If you’re considering an ERP upgrade in the coming year, the budget line item “ERP Upgrade Cost” may be a mystery that needs to be solved before the budget for CapEx and Operating costs goes final… Sound familiar?
The costs of an ERP upgrade extend beyond software licenses and implementation consultants.
This isn’t a bad thing. It’s just that you need to remember that these are the more obvious and easiest items to have “quoted” as part of your budget. So, what else should you include?
- Let’s start with the one that most companies forget to budget for: staff augmentation. Remember – your internal subject matter experts and process owners will be REALLY busy with their ERP implementation duties (including during the selection period) – as such, someone will need to help them with their day job. Please don’t think that the typical ERP implementation can be done without some level of extra staff support.
- Another “gotcha” comes from the unexpected costs of performing a proper data cleansing. This means that you need to budget some time for someone to really dig into your existing data (in ERP speak: master files for customers, inventories, General ledger accounts, etc.) and figure out what data is both suitable/needed to migrate to a new system, as well whether in fact it is bona fide, at all.
- The costs of organizational readiness. Sounds like consultant jargon, doesn’t it? Well, it’s real. Essentially, the bigger the organization the more you might want to engage a seasoned advisory team to help ready the organization for what’s about to be a very disruptive event – and, believe me, ERP upgrades are disruptive.
- The costs of IT readiness. If you’re going to a 100% cloud solution, then you may not need to do much, here. However, if you’re not going 100% cloud, then you need to consider the increase in hardware, operating system and utility software, desktop power/devices, remote and mobile devices (including RF devices for warehouses!), wireless configurations/equipment, firewalls, and such… these will add up to costs that are absolutely necessary – and don’t forget to budget for the consulting needed to implement and install these components. Also – we recommend that you NOT build your infrastructures to the ERP vendor-recommended “minimum” levels. Build it to scale, unless you’re not growing.
- If upgrading ERP is not something you or your team does every day, you should consider the costs of hiring a selection consultant (ok, shameless plug) to guide your team through the selection and upgrade process – and, you’ll also want to retain the services of (likely) outside counsel who is experienced with software license and software implementation contract negotiations. Outside advisors are valuable, but often not included in most “version 1” ERP upgrade budgets, either.
- The software license and the implementation labor are not all you need to spend with your next ERP vendor. Don’t forget to include reasonable estimates for software license annual maintenance (always included in year 1 fees from the vendor, on TOP of the new license costs) and more labor from the ERP implementation vendor for performing your next version upgrade and supporting your team all year long in the use, care and feeding of your new ERP system.
Clearly, each of these budget-impacting items can be refined based on circumstances. And there are others that we would suggest be included, depending on how thorough you want to be. However, these are a good starting point for “things people most often forget to budget for”.
Feel free to ping us for help in this area, or any area in the ERP upgrade/selection process you’re going through. We’re here to help. Unbiased, independent, and experienced. We’ve got CFO, CPA, software and technology leadership skills that are uniquely positioned to help our clients in this area. My contact information is below.