how much does erp cost?

How much does

ERP cost? August 2013

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Internal Project Team Maintenance Implementation Software Infrastructure

Internal Cost

External Cost

Project Duration 18 Months Time

Cost

1. How Much Does ERP Cost? The correct answer to this question is the same as that which applies to the length of the proverbial piece of string – it depends. While there are survey results available that provide benchmark ERP costs, for example from Aberdeen Group, our experience at Lumenia has been that such benchmarks need to be treated with a lot of caution. The number of variables that can impact the cost of an ERP project is very large indeed, and the costs of an individual project can vary wildly from the benchmarks. The truth is, without an understanding of the scope of a proposed project and a host of other considerations it is not really possible to make a sensible estimate of cost. However, it is possible to identify the main ERP cost components and some of the drivers that influence each.

2. Project Cost or Total Cost of Ownership (TCO) The first thing to establish when considering ERP cost is whether one is discussing Project Cost or Total Cost of Ownership (TCO). Project cost consists only of the cost components incurred during the lifetime of the project, assumed for example to be eighteen months in the diagram below. Note that for the sake of simplicity each component in the diagram below is shown with equal cost – of course in reality, the cost of each component is likely to be different and also to vary from project to project.

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Internal Project Cost

Support Team

Support Team

Support Team

Maintenance

Maintenance

Maintenance

Maintenance

Implementation

Upgrades

Upgrades

Upgrades

Software

Enhancements

Enhancements

Enhancements

Infrastructure

Infrastructure

Infrastructure

Infrastructure

TCO on the other hand includes the Project Costs as well as the costs that will be incurred over time in using the ERP system. Generally the time period used in TCO calculations is between 3 years and 5 years. The components of ERP TCO over a 4.5 year time period (project duration, plus 3 full years) are shown graphically below.

Note this example assumes a single go-live point, with a clean break between project and recurring costs. If there are a series of go-live events, as is common in phased ERP implementations, there will usually be an overlap between project and recurring costs. While this complicates the cost allocation process a little, it does not change the essential cost components.

In the remainder of this article each of the cost elements above will be explored in some more detail.

Project Duration 18 Months

Time

Internal Cost

External Cost

Year 1 Post Go-Live

Year 2 Post Go-Live

Year 3 Post Go-Live

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Lumenia Consulting Ireland (HQ)

Parkmore Business Park West Galway, Ireland T: +353 91 746940 E: [email protected]

Lumenia Consulting UK

71-75 Shelton Street, Covent Garden London, UK, WC2H 9BP T: +44 207 4708766 E: [email protected]

6. About Lumenia Lumenia is a leading independent ERP consulting organisation and is not aligned with any ERP or other vendor of business software.

We provide objective advice and experienced project resources to organisations that are planning to upgrade or change their ERP systems. Specifically, we provide services in the following areas:

› ERP strategy development › ERP product and vendor selection › ERP project management › ERP change management › ERP data migration management › ERP systems validation

We have offices in Ireland and the UK and work globally with many of the world’s leading companies.

For more information, please contact Lumenia at:

how much does erp cost?

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