When your company decides to invest in an ERP software system, the term ‘implementation’ will undoubtedly be used on a frequent basis. If you are unfamiliar with ERP systems and are in the initial stages of your software search, you may not be aware of the sheer number of factors present in a typical ERP implementation, and how vendors provide quotes on the process. Many businesses believe they can manage most of the implementation themselves, but this is never recommended as trying to cut corners initially will lead to frustrations in the future. The right software system will lead to automation, save you time and money, reduce errors and allow your business to grow for years to come. Therefore, doing the implementation right is imperative to ensure the success of the project. To help demystify the inherent ambiguity of the word itself, the following list provides an overview of a typical ERP implementation process with information on how vendors quote ERP implementations:
- Definition of Scope: The definition of scope, or requirements analysis, is the process associated with analysing and documenting a company’s specific business needs and expectations, and developing a project plan to ensure those needs are met.
- Installation: Installation, although self-explanatory, is the actual set-up of the software by the vendor’s team on your company’s servers (or the vendor’s servers if it’scloud-basedsed application) and represents the central component to any implementation of ERP software.
- Configuration & Integration: Configuration means setting up the software with your company’s existing information, users, and personal settings. In addition, integration is the configuration of the software to enable communication to existing and external systems.
- Data Migration/Conversion: Data migration/conversion is a sizeable portion of the implementation process in terms of both time and cost and involves transferring data from the current system or spreadsheets to the new one.
- Customization: This includes such tasks as changing the source code of the software to fit a specific need or business process as requested by your company.
- Reporting: Similar to customization, this component includes creating new reports and forms not included in the standard software package. Once again, this is as requested by your company.
- Testing, Training & Documentation: Testing, training, and documentation involves the vendor ensuring the system is ready for launch, training the end-users on how to maintain the system, and documenting how the system is configured.
Now that we've established the distinct factors that make up an ERP implementation, it’s time to discuss the costs. There are essentially two prominent pricing models an ERP vendor may offer which include; ‘guaranteed’ and ‘time and materials’ cost structures. As a result of the extensive list of variables above, the use of ‘guaranteed cost’ or fixed cost implementations has become increasingly rare among ERP vendors. The idea of a guaranteed implementation cost is very attractive to clients, as a common belief exists that being given the exact implementation price will protect them from any additional charges. Unfortunately, this is not always the case. More often than not, the client will not receive the guaranteed price they established while drafting the proposal. Essentially, a client is only guaranteed that the vendor will complete the tasks established in the proposal with no changes. However, the need for specific alterations in functionality often arise during implementation, and the result will be additional hourly charges which cause frustration and creates a level of distrust between client and vendor. Although there are possible apparent benefits to guaranteed pricing, such as protection from inexperienced vendors, a level of uncertainty still exists despite the claim of a single fixed cost, making other pricing models very attractive.
Alternatively, the implementation pricing model that most vendors prefer is based on ‘time and materials’ and essentially works out to hourly pay. This specific model often worries potential buyers as they believe they are simply handing over a blank check to the vendor. However, most experienced vendors will complete a thorough analysis of a company’s business needs and present a detailed proposal of what the client will receive and the estimated number of hours needed to complete the project. Any additional costs that arise during the implementation are communicated to the client in advance for approval. Although there is no ‘guaranteed’ price, by using this method you can arrive at a number that is fairly accurate as long as both parties follow the established plan. If you're still concerned about implementation costs, the best defence against any concerns is to conduct thorough reference checks on prospective vendors - talk to their existing customers about this specifically.
This list and explanation of pricing models represent important components of any ERP implementation process and should provide some insight for your company when discussing software solutions with potential vendors. Be sure to learn some of these common terms and the differences in cost structures in order to understand the complete offering of your ERP vendor when they use the word ‘implementation’.