Budgeting for an ERP project can be a daunting task, due to the various activities involved in the delivery of an ERP and its multiple moving parts, as discussed in a previous article ‘What is an ERP Project?’. In this article, we will delve into the process of scoping an ERP project. To start off with, it is important to know the scope and scale of the system – this can be very top-level or more detailed and refined.
Using broad brush strokes we can take a view of the estimated cost of a project by selecting modules of the software to cover functionality, selecting user numbers and the business geography that will be included along with the hosting options. As mentioned, this is a broad estimate but is useful for indicative figures.
It is important to consider whether the software will be required to manage the following areas: Finance, CRM, Sales, Purchasing, Inventory, Manufacturing, Quality, and eCommerce.
Each of these will add the additional cost of licence and configuration of the solution with varying degrees of influence. Controlling a wish list and implementing functionality in a phased manner is a way of controlling project costs.
- Organisational Complexity:
A single-entity organisation is very different in its requirements to a multiple entity because of its additional ledgers, sites, processes, and reporting consolidations. These all add up to the complexity of a solution. Whether there will be operations in a single currency or multiple currencies will affect the inter-ledger activity and the overhead of reconciliation within the system.
- Business Geography and Legislations:
Operating in the UK is a known quantity, with flexible account structures, simple tax rules and detailed reporting functions which most businesses are familiar with. When operating in multiple legislations a multitude of tax rules, reporting standards, fixed asset treatments, charts of accounts and other variables can come into play. Each additional legislative area can add intricacy to the project and overhead to the implementation.
- User Numbers – Named VS Concurrent
Quite simply, some software is based on named users and some on concurrent licences. Named users are non-transferable licences which are assigned to an individual and concurrent licences are transferable licences operating in a ‘pool’ for use as required. This makes comparing 2 systems’ costs somewhat challenging as their licencing structures may vary and without a clear concurrency metric, it is difficult to ascertain which is providing better value. However, despite this, generally, a vendor can provide a licence cost of the software based on the number of users.
- Cloud x Hosted x On-Premises
There are many choices available for ERP hosting and these each affect the solution available. Likewise, they each have associated cost implications, with on-premises being the most capital intensive and a traditional ownership model, while both the hosted and cloud options are revenue costs in the form of a subscription, typically annual.
The above information will provide an ERP implementation partner with enough data to provide a ballpark figure, but this will be highly speculative and will include a good bit of guess work. In order to provide more accurate proposals a partner will need to undertake significant investigations, usually referred to as a ‘deep dive’ or ‘discovery’ phase. These will involve investigations into the following:
- Detailed functional requirements
- Preferred and suitable implementation methodologies
- Data migration requirements
- Document management
- Localisations (multi-territory and group requirements)
- Integrations and Modifications (Dev)
- Other ERPs?
Without the above information it is not reasonably possible to propose a solution, nor is it reasonably possible to qualify or disqualify the suitability of the solution for the prospective customer. The discovery phase of the purchasing cycle is vital to ensure that the project is scoped adequately, information is captured and all parties are aware of what is being proposed as included and excluded. A proposal for an ERP solution should be accompanied by a detailed document of specifications to which all parties agree.
To summarise, trying to estimate the costs for Sage X3 can be a bit of an art; however with an open, transparent line of communication between buyer and vendor, it is possible to reach “ballpark” figures relatively easily, and really hone down in terms of precision once more of the nuance is established.