Hidden costs of ERP

Understanding the Hidden Costs of ERP Implementation

Actual cost of implementing ERP can go way beyond your estimates when the hidden costs come into picture.

Hidden costs of ERP

ERP implementation is complex with budgeting being the evasive element. Often, companies underestimate the overall budget while analyzing the implementation stages. Many additional costs occur without anticipation and upset the entire planning. So, before you start the ERP implementation in your organization, it is best to gain a quick understanding of the various hidden costs involved in ERP implementation.

Common hidden costs of ERP implementation

Here are the factors involved in ERP cost that might cause your budget to overrun while implementing the ERP system.

  • Licensing costs – Though many ERP systems are available for a very low initial cost, it could be expensive as the business grows. Purchasing the license is the recommended solution, but involves huge upfront cost.
  • Labour costs – The time spent by the employees in implementing the system and learning to use it must be estimated accurately. Many projects also require the support of temporary staff. There is also a need to train the employees and make them adept at using the software.
  • Testing and retesting – An ERP system has to go through multiple testing to identify and eliminate the flaws. After correcting the initial flaws it undergoes continuous retesting for creating an ideal product. If any defects come up while using the system, it again goes through testing and retesting stages. All this adds up as the hidden cost of ERP implementation.
  • Customization – Every company requires a customized ERP solution that fits their business needs. The modules have to be altered according to the specific needs so that the performance is optimized. Customized ERP systems are more expensive, especially when it comes to upgrading it.
  • Cross-functional team – For a successful ERP implementation, organizations need the support of a cross-functional team. The entire team has to learn the new system, its process, and also map the new procedures. The cross-functional team must align completely to the changes and cooperate with the implementation. Gathering and training the team could put a huge drain on the financial resources.
  • Reengineering of processes – A company has to reengineer the business processes continuously and remove the flaws it faced in the implementation. Such updating causes higher expense and increase the ERP cost.
  • Data conversion – The data an organization deals with is huge and importing it is also costly. Several data such as vendor lists, customer records, inventory materials, and many more have to be cleaned up and imported to the system.
  • Maintenance cost – ERP system needs continuous support and maintenance for optimal performance. Post implementation bugs could affect the performance and have to be removed on time. Apart from this there could also arise a need for upgrading the basic ERP system to meet the business dynamics.
  • Employee resistance – The implementation of ERP may not be welcomed by all employees. The resistance can be eliminated only through training and constant communication. This again factors in as the hidden cost of ERP implementation.

Conclusion
ERP implementation has several hidden costs such as internal resource requirements, training costs, upgradation etc. Being aware of these in advance will help you fine tune the process and reduce these unexpected expenses.

If you are looking for assistance with ERP implementation and find it confusing, look no further. SBL can handle the complete ERP implementation through advanced planning that minimizes the hidden costs. Our decade long experience in implementing ERP systems help us recognize the warning signs during an implementation and provide the correct roadmap to make it a success. Contact us for all support related to ERP implementation.

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