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Cost of ERP Ownership - What Does ERP Really Cost

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From selection to implementation and till ERP software start working in full swing, involves many activities and processes which adds up to the total cost of ERP ownership. There is no ERP using company which can boast of implementing ERP within budget and before time, this is largely due to the reason that this process is big and complex, and it is very difficult to calculate exact time and money that may get consumed in getting through. Prima facie it appears that cost of buying the software, cost of IT infrastructure and some petty expenses here and there might add up to give an idea about the total cost of erp ownership. But this is as far from the factual situation as heaven and earth because ERP has hidden cost centers which surface when implementation begins.

The cost of purchasing the software and IT infrastructure required for making that software run, are evident cost centers which are required to be calculated first up. Apart from these to access the real cost of ERP the cost of customization is also required to be calculated. It is very difficult to find ERP solution which fits in the needs of the organization completely without any change. ERP software needs to be customized and this cost is owned by the purchasing company which is not included in the buying price.

Cost of optimization is different from customization cost as it is required when company wants to use the new system at the best of its ability. This process may incur new expenses in the form of buying add on tools, expanding pre-decided IT infrastructure, hiring consultants or support staff. Before implementation process begins and during selection of ERP some companies find it feasible to hire external consultants for functional, technical and GAP analysis which is considered as a wise step by many pundits, but if this was not decided before it will increase the expected cost substantially.



If the buying company has been using a computerized system before shifting to ERP then its integration with the system to reduce the magnitude of change or if complete migration from old system has been decided then data conversion, are other factors which may increase the real cost of ERP ownership. To carry out any of these processes, integration or data conversion, internal cost goes up as more resources are required to help in completing these processes and later testing the system for ensuring its success. External support may also be needed for the same.

Testing and training are two most important steps which require decent amount of funds. Dry run of the software with test data and testing its result need internal work force to invest their time in the process as well as training might require some more investment from the company which in the end adds up with the total cost of ERP. It is estimated that training alone, if done properly, accounts to nearly 17% of the total ERP implementation cost, which is a huge amount and surprisingly most of the time ignored while calculating the cost of ownership of the ERP.





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