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Cost of ERP - What does ERP really cost?


2005-03-12

The total cost of ERP ownership includes the costs of packaged software, hardware, professional services (for ongoing maintenance, upgrades and optimization) and internal costs. Based on the ERP survey conducted by Meta Group in 2002, the average cost of ERP ownership was $15 millions ranging from half millions to $300 millions. The average cost per user per year could be as high as $20,000.

Costs of Software

The cost of packaged ERP software depends on the scope of implementation (the # of ERP modules and the number of end users), complexity of software and ERP vendors. ERP software that involves the integration with external business entities generally costs more. ERP vendors offer discount for organizations who invest in a suite of ERP software systems. Mid-sized organizations typically commit a few million dollars to packaged ERP software.

Costs of Hardware

Implementation of ERP systems routinely requires purchase of new computer hardware, systems software, network equipment and security software. The costs of hardware varies in a wide range dependent on the scope of implementation and platforms. The hardware typically costs about half million dollars for mid-sized organizations that implements ERP systems.

Costs of Professional Services

Customization The big chunk of costs of Professional Services is customization. The cost of customization can easily out-run the cost of packaged ERP software, but it is the customization of ERP software that makes an ERP a success or a failure.

Integration ERP systems won't demonstrate its full potentials unless they are properly integrated with other enterprise software application:

  1. the integration of various functional ERP modules,
  2. the integration of ERP with other e-business software applications, and
  3. the integration of ERP with legacy systems.

Data Conversion The cost of data conversion depends on the format and the media that store the historical data. Data conversion from legacy systems to RDBMS is a time-consuming process. Data conversion may lead to further data gathering to fill the missing links in data requirements.

Testing ERP systems are thoroughly tested before they go into production. ERP testing includes unit testing, component testing, regression testing, performance testing and user acceptance testing.

Training Workflow and UI design in ERP software are more complex than average business software. ERP training is expensive because workers almost invariably have to learn a new set of processes of doing their daily tasks besides learning how to use the ERP software. To reduce the cost of ERP training and to ease the transitions from old processes to new, organizations often seek the help from training companies which are specialized in coaching workers on using ERP software from particular vendors.



Related Topics
Critical Successful Factors of ERP Implementation
ERP Integration - The Challenge for ERP Implementation
The Differences between ERP Systems and Ecommerce Applications
Causes of ERP Failures
Manufacturing ERP - Features, Vendors and Implementation

 



 
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