hidden costs in ERP implementation
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You and your ERP selection team have met with various vendors, analyzed everything possible over the months, and now have a selection. The chosen vendor gave you a price and an estimate of your total costs to implement and begin using a new, powerful ERP system. Your management approved the project. Nevertheless, some will be surprised that your best estimate is likely short of the actual cost of implementing the ERP. Recent data taken from ERP projects reported that the average budget per user is $7,200 - a sizeable sum of money to spend if you have a lot of employees, but this isn't always the full picture of your total spend. There are almost always hidden costs to account for.
1. Labor costs
Labor is a major part of ERP implementation. You know up front you will spend a lot of money on labor for the implementation but it is unlikely you will guess right. Try to budget enough.
You will need to convert data from your legacy ERP into formats that your new ERP can use. Every ERP contains a lot of data. You can be sure that data contained in one table must be converted into multiple tables and that data in multiple tables will be used in a single table. People will process these conversions. Some costs can be controlled by limiting the amount of historical data moved. You may also consider using automated conversion processes which will probably help.
Your project team will remain on your payroll and you can expect significant overtime needed. Plus, all of the members of your team had other jobs before they were selected, and those jobs will need to be done. Plan on adding temporary staff and hiring new people to fulfill those jobs.
You will need to supplement your IT staff as well. Every existing system, not only the ERP, needs to continue supporting your business. At the same time, IT people will be needed to support the implementation project.
Many businesses hire consultants from their ERP provider to perform some of the work and to share their expertise during the project. That expertise is invaluable and will take years for your own staff to acquire. Those consultants are not cheap – they will likely bill you at several hundred dollars hourly.
2. Training costs
Training is widely recognized as a major hidden cost. You know it is needed but estimating that cost with any accuracy is difficult.
Your people will learn new processes. Someone will create a purchase order, much as they did with the legacy ERP, but the steps to do the same purchase order in the new ERP will be a little different.
Your people will need to learn new skills. Where you might have copied data to a spreadsheet in the past, your new ERP allows users to build reports and dashboards within the system. This is an example of a new skill that needs to be trained. You should be sure to invest in cross-functional training, afterall, an ERP is an enterprise-wide set of tools. When your receiving clerk processes the receipt of materials for inventory, they are creating accounting transactions at the same time.
A few of us learn completely after the first lesson. Most of us need additional training before we completely embody the lesson. Be ready with secondary training after some time passes – even after the implementation is considered complete. Be sure to have a review process built in to your controls as there will be a few people who thought they were doing the job as trained, but their methods inadvertently veered in an unexpected direction.
ERP implementation projects often take more than a year to complete. Some people will leave the organization during that period and their replacements must be trained to the same standards or the success of your project can be compromised. These ERP costs, and the cost of recruitment, will be laid at the feet of you and your project.