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Hidden Costs of ERP Software Systems

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There are many hidden costs involved in ERP implementation and many times ERP implementation cost goes beyond budget. There are many costs such as software changes, change in management or employee, process re-work, work after testing - which can raise not only the time of implementation but also the cost. Therefore it is necessary to examine the hidden expenses as it will help in analyzing the costs properly which preventing delays. Some of the hidden costs are -

Expense on getting resources: The expense on managing resources for data conversion and for decision making is a hidden expense. The development of interface, the generation of reports and getting the right interface - ensuring the data is transferred properly to the new system - causes delays in everyday office work.

Customization: The cost of customization is very high because a single modification in one form requires change in every module related to the form and if the system is not tested accurately at very business layer - it may cause errors and even result in failure of complete system.

During implementation and sometimes after implementation - the buyer understands the business process followed by the software and then the customer may feel the need for some vital customization - this can be very expensive because a minute modification in one module has impact on every module. Sometimes the last minute customization recommended by the buyer can cause failure of complete system.

New hardware: The companies buying the new software will have to discard the old system and expense on the old hardware and machinery is one of the hidden costs. The new system generally requires new attachments and integrated applications.

Time of implementation: The time spend by the senior management towards implementation and conflict resolutions - are hidden cost as the employees are not involved in productive work related to the main business of the organization.

Communication and travel expenses: The expenses on communication on telephones, mobiles, faxes or the expense on travelling where the seller has to pay visit to the departments and manufacturing units or retail stores of the buyer to ensure the implementation is done successfully. Generally the organization misses the integration cost - because it depends on many factors.

Training: One of the most elusive hidden expenses on ERP implementation is expenses on training. The buyer company has to spend on getting training and the time of employees is diverted to learning the new system instead of doing the everyday job. The new system may take time to work properly as the employees are new to it and therefore, the delays of office work - is a hidden cost. Mistakes made at user level can have huge impact on the complete functioning of the system and therefore it is important for the organization to ensure that the employees using the system are aware of the proper way of using it.

Employee turnover, consultancy and maintenance: Employee turnover or backfilling can result in huge financial loses and it happens when an employee bounded by contract is unable to perform his duties as per the contract. These costs can raise the TCO of an ERP.

 Read Related Articles

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