Jan 18, 2012

What does an ERP system really cost?

Here's a helpful article that examines the cost-benefit analysis of an ERP system. It might be worth checking out, Gabrielle.

How to conduct a cost-benefit analysis for an ERP system

"When you think of buying or hiring an ERP system then you should make a cost-benefit analysis. When properly done it will protect you from acquiring a system that would lose money instead of earning it.

The costs of an ERP system
The costs of an ERP system consist of many elements:

The acquisition price. That is the money you pay when you buy a system. Sometimes you cannot buy a system but you can hire it for a monthly fee.

The costs of customizing the system. An ERP system can be used in different ways. The supplier changes the settings of the system in such a way that it suits your company’s operation. This can be a time consuming job. It requires not only the efforts of one or more consultants of the supplier but also the cooperation of some of those members of your staff who have an excellent knowledge of the way the company operates.
The system has to be installed on your computer-system. The supplier will do that in most cases, but at a price. It may be that your computer system has to be enlarged, more memory, more data storage, more workstations, perhaps a new operating system. If so, it is you who pays the bill. (If you are offered an online ERP service, you will get a very different cost structure).

See the link above for more."

There was a 2002 study by Meta Group that addressed this issue.  Obviously, the numbers may be off somewhat given the fact that a decade has passed since the study was published.  They surveyed 63 companies covering a wide spectrum of company size and industries.  This study analyzed the total cost of ownership, including professional services, software and hardware costs, from initial installation through the following two years.  The range was pretty dramatic, ranging from a low of $400,000 to a high of $300,000,000.  That averaged out to $15,000,000 (that may have been the median cost, I'm not certain).  Of course it doesn't take too many $300 million figures to skew the figures  Average cost for each user worked out to $53,320.   As one would expect, the cost of ERP deployment increased in step with the size of the company and number of users.   One rule of thumb that I've heard, but have not verified, is that total ERP costs often run about .5 to 1% of revenue.  

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