Understanding ERP Implementation Costs, and How to Reduce Them
Tags: erp, implementation
Published: 2023-03-13 15:19:14

ERP implementations almost always cost more than expected.

Implementing an ERP system is a significant investment for any organization, both in terms of time and money. According to Gartner, ERP implementations failure rates can exceed 75%, while McKinsey estimates that more than 70% of all digital transformations fail.

It’s crucial to understand the costs involved in an ERP implementation to properly budget and help you make the most informed decisions about your ERP, along with helping you maximize the value of your investment. Proper planning and budgeting are necessary to avoid any unexpected costs and delays that can derail the implementation process. 

Understanding fully the costs involved in an ERP implementation can also help in prioritizing key requirements, choosing the right implementation approach, and evaluating the return on investment (ROI). Said another way, To successfully implement an ERP system that achieves an organization's goals and stays within budget, it's essential to understand the costs involved.

Let’s dive into why ERP implementations are expensive and how to mitigate the cost:

Obvious Factors that Impact ERP Implementation Costs‍‍‍
1. Software licensing and customization fees: ERP implementation costs are primarily driven by software licensing costs and the degree of customization required to meet business needs. Higher customization leads to higher costs.

2. Hardware and infrastructure requirements: Most ERP software requires a significant hardware infrastructure to run smoothly, including servers, databases, and network infrastructure. Costs for these components can add up quickly.

3. Training and support costs: Comprehensive training is essential to ensure successful ERP implementation. Companies should budget for both initial training and ongoing support and maintenance.

4. Data migration and integration expenses: Migrating data from legacy systems to the new ERP system can be complex and time-consuming. Integration with other systems may also require additional costs, depending on the extent of integration required.

5. Consulting and project management fees: Implementation consulting and project management fees can be significant. Companies should allocate sufficient resources to manage the project effectively and ensure that it stays on schedule and within budget.

Hidden ERP Implementation Costs to Consider
Hidden costs can also significantly impact ERP implementation expenses. Here are a few to be mindful of:

1. Ongoing maintenance and upgrade expenses: After implementation, ERP systems require regular maintenance, updates, and upgrades, which can be a significant ongoing expense. This includes hardware maintenance, software updates, and license renewals. Most maintenance projects also require a significant portion of employee time.

2. Downtime and productivity losses during implementation: During the implementation process, there may be downtime, which results in  productivity losses. This includes training time for employees, data migration, and system testing, which almost always disrupt daily operations.

3. Costs associated with change management and employee adoption: ERP implementations often involve significant changes in business processes, which require employee training and adaptation to the new system. This can result in additional costs related to change management, including communication, training, and user adoption.

4. Integrations with other systems and tools: Integration with other systems and tools can also impact the cost of ERP implementation. This includes integration with third-party applications, data migration from legacy systems, and customization of the ERP system to meet specific business needs. These integrations can add to the overall cost of the implementation process.

Cost-Saving Strategies for ERP Implementation
While ERP implementation can be costly, there are ways to reduce expenses and make the process more cost-effective. By taking the following cost-saving strategies into consideration, businesses can minimize expenses and maximize the ROI of their ERP system

1. Conduct a thorough needs analysis before selecting an ERP system

Before selecting an ERP system, businesses should conduct a thorough analysis of their current and future needs to ensure that the chosen system meets their requirements. By doing so, businesses can avoid the cost of unnecessary functionality that they will not use.

2. Consider cloud-based or SaaS options

Businesses can save costs by opting for cloud-based or SaaS options, as they eliminate the need for expensive hardware and infrastructure investments. These options also offer the flexibility to scale up or down as needed.

3. Prioritize critical functionality over nice-to-have features

Businesses should prioritize critical functionality over nice-to-have features to avoid unnecessary costs. By focusing on critical features, businesses can add as they go, and ensure they only pay for what they need.

4. Negotiate hard with vendors and consultants

Businesses can negotiate with vendors and consultants to reduce implementation costs. Negotiation can involve seeking discounts, extending payment terms, or selecting a vendor that offers implementation services at a lower cost.

The best way to reduce ERP implementation costs
Intelligent, ERP-aware Automated Testing!

Opkey's automation testing platform helps reduce the time & effort involved with your ERP implementation, while ensuring your organization identifies issues early on, preventing costly errors down the line.

Here are a few ways how we do this:

Test Management: Opkey's test management module helps streamline testing workflows, making it easy to to track progress, identify bottlenecks, and allocate resources effectively.

Continuous Testing: Opkey's continuous testing solution can help you identify issues as soon as they occur, reducing the need for extensive troubleshooting and remediation. This helps you maintain system stability and avoid costly downtime.

No-Code Testing: Opkey’s platform empowers any employee to create and execute automated tests, no matter their technical expertise. Therefore, companies can save significantly on development costs.

Self Healing Test Scripts: Opkeys test scripts heal autonomously when changes occur, meaning employees can spend less time maintaining tests. This, in turn, reduces the length of the implementation.

By using Opkey's comprehensive suite of testing and automation tools, you can significantly reduce the cost of ERP implementation, while ensuring a high level of quality and system stability.

Read more: How to Save Money with Test Automation eBook

Final words
Implementing an ERP system is crucial for businesses, but we know it can also be expensive. To reduce the costs, organizations must understand the key factors affecting implementation costs, including software licensing, hardware requirements, training and support, data migration, integration expenses, consulting and project management fees, as well as hidden costs, such as ongoing maintenance, downtime, productivity losses, and employee adoption, is crucial.

Implementing cost-saving strategies, such as conducting a thorough needs analysis, considering cloud-based or SaaS options, prioritizing critical functionality, and negotiating with vendors and consultants, can help mitigate expenses.

To further decrease the cost of ERP implementation, leveraging automation testing tools like Opkey can help reduce testing time and costs. Opkey enables businesses to test their ERP system with greater accuracy and efficiency, enabling them to identify defects early and avoid costly downtime.