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The simple guide to moving to an ERP…but doing it right

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The simple guide to moving to an ERP…but doing it right

Is it worth it? I can almost hear this question being asked in your meeting rooms.

It’s a valid question, how do you justify the costs associated with implementing an ERP system. Will the ROI be worth it? Will the team champion the change?

Thrive looked at some of these questions and developed a few simple points that will help you move towards implementing your dream ERP solution.

ROI analysis – why it’s so important

Your board of Directors or managers want to know that the expense is worth it. That’s fair enough. Conducting more than just a rudimentary ROI analysis could be the secret to not only getting the decision makers on board, but also setting yourself up with a benchmark to implement the solution correctly.

Never go into a project such as an ERP implementation without considering costs and when you’re likely to make those costs back.

Many costs are clear and apparent. Vendors will submit quotes but there are often hidden costs that can sting you down the track. Check out an entire article we did on Hidden costs of an ERP solution.

It isn’t just about considering costs, it’s also important to consider how beneficial this is going to be in increasing productivity, sales, efficiency and even job satisfaction!

By not only collating vendors quotes, but also considering hidden costs, you set yourself up for a more streamlined, accountable and accurate implementation.

How do you calculate ROI?

It requires some simple math. Very simple. But it also requires from your point of view to look holistically at the entire project.

For the purposes of providing an example, let’s say you’re considering an ERP system and the total cost is $30,000, but the system will save the company $150,000 over the next 5 years.

Whilst $150,000 is an example figure for the purposes of this article, here’s how you’ll see these cost savings.
• Increased productivity and throughput
• Less overtime due to an overall streamlining and efficiency increase
• Increased sales due to better customer service, improved quality and
shorter lead time
• Sales and margin improvements due to faster time-to-market for new products and product
variants, cost reductions

What’s the expected return on this investment (ROI)?

There are a couple of ways to calculate the ROI. One method is that the return on this investment is 500% and a second method would be a 80% gain, if you prefer to look at it that way.

Remember, though, that the $30,000 is the total cost of the system for the entire 5-year period and the $150,000 return is the sum of all the benefits for that same 5 years.

The most important thing to note is that not making the investment also has a cost. As your systems age and become more unreliable, data gets lost, there’s no true source of information, these problems can be costly.

Determining project costs for an ERP

When you speak to a vendor or consultants like Thrive about implementation, they will distill these costs down for you. But as a company it’s important to understand where the money is going. For example, as MYOB Advanced identify, some of these costs are spent on:

1. Hardware and core system software On-premise installation

2. Application software

3. Additional complementary systems or services (third-party purchases)

4. People costs for implementation training and development.

Going in with an understanding that this WILL cost you money, but it is likely to save you money in the long run is the key to achieving a smooth implementation.

Take the step, reap the rewards of an effective ERP solution

Don’t let the process of implementation scare away from the benefits that can be achieved.

Remember when we said that NOT taking action has it’s own costs. The benefits, both direct and indirect will provide your business with more visibility, profitability, revenue and accountability.

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