When you are looking into getting a superior quality ERP system, you need to be aware that the upfront price may not be all it costs. You want to make sure that you are aware of the total cost of ownership of the product, and how it will affect your organization on an on-going basis. Here are some of the expenses of which you might not be aware that you need to plan for during implementation.
ERP Licensing fees
There are several different models used to license the product that you are going to be using. It may be tempting to jump right in with an initial low cost. However, this has zero upfront cost, but may be very expensive when your business grow.
When selecting licensing fees make sure to check the following
- Affordable license per user and flat if possible. Thus, it won’t increase with the total number of users. By example using Jira pricing model it costs you 1$ per user up to 10 users and as soon as you grow beyond 10 users the price per user grow up to $7, so you’ll find yourself the next day paying 7 times more.
- Flat licenses per module; by example you pay a fixed cost for using the payroll whether you have one or fifty users using it. By example with Odoo pricing model, you pay $6 per user no matter what modules they use and you pay $4 for an HR module whether it is used by 1 or 100 users.
All of these will attract different costs, and you need to plan not just for your day one implementation, but for how the product will grow. You may only have a limited number of users initially, but in the future, this could be a lot more, particularly when your business grow
ERP Implementation fees
Not only will there be costs for licenses and hardware, but you need to allocate time and resources for the project implementation team or the fees for the ERP partner in charge of the implementation.
ERP Implementation fees covers the analysis of your current business processes, providing gap analysis, suggest new processes and then model your business on top of the ERP system.
There are three types of implementations:
- Express: this is a functional out-of-the-box (OOB). It works when the business is a single entity without complex processes, no add-on solutions are required, no integration and no data migrations
- Standard implementation is for single or multiple entities that requires minimal customizations and add-on solutions and no business/vertical specific needs
- Advanced implementation is for mature businesses that requires business superiority and competitive advantages through their business processes. This kind of implementation involves moderate to complex processes and integration, data migration from other sources. Such implementation is a complex roll-out and involves usually multiple phases
Your cost of implementation depends on the maturity of your business and the type of implementation.
ERP Customization fees
There is no “one solution fit all”. The more mature your business the more modification are needed for the original solution. ERP customization could be minimal like minor template changes, branding, new fields or advanced like complete workflow modification, advanced new fields and data that is inter-related. Those ERP customization greatly impact the costs and the way they are done too.
How customization is done impact the costs too. There are mainly three ways to do it and each has impact on the cost that affect the initial cost and the total cost of ownership.
Changing the ERP Cache
This is the simplest and easiest to do. Thus, the cheapest. However, it shouldn’t be done unless it is for prototyping. Although the system can be customized but in fact it is not and if you end up reloading the project or upgrading all your changes are lost.
Ask your vendor if they are doing this and if they do then run as fast as you can.
Here are few questions to know if this method is used. Ask the following
- If I upgrade the whole system apps, will the changes to the system persists?
- Can I start a new blank DB and yet all the changes and customization still exist or need to redo the work?
- Can I install 3rd party modules? All 3rd party modules expect to have core functionalities intact otherwise they will be broken and won’t work
Changes to the core code
Some systems, like ODOO ERP, gives access to the code since it is opensource code. Some vendors take the easy way out and change the core code. Although a bit more expensive than just changing the cache it is still cheaper than doing it the right way. However, the impact will be on the total cost of ownership. This kind of implementation makes it hard to:
- Upgrade to new versions of the ERP system
- Install 3rd party modules which depends on the standard core
Extending the system via modules and apps
This is the right way to do it when the framework allows it. Systems like Odoo allows extending the system using 3rd party Odoo modules and Odoo apps. However the development life cycle is longer, more expensive at the beginning but on the long run it is the cheapest. With this implementation you can
- Reload the system with clean database without losing any modification or customization
- Upgrading to the latest versions of the software without losing your work
- Using 3rd party Odoo apps without any hassle since the core is standard. Thus, minimizing the cost of new functionalities. Odoo market place allows free
ERP Training costs
Your company can’t get the best of the ERP Implementation if the users are not well trained. The trained is structured as
- General system training: that consists of navigating the system, how it is connected and standard functionalities
- Industry/Business specifics that are related to your own industry, business or specific customization
Training should be structured in order to make sure all material and info are covered. It usually consists of
- Checklists followed by the training staff and used as reminder for the trained users
- Handouts or documents that gives a quick cheat-sheets or detailed guides on how to perform all operations.
Training structure, level of details and training staff affects the costs.
Data migration fees
If you are already an established business then there will be a need to import data from legacy systems or different files. Data import allows you to operate efficiently. All your customer/supplier accounts will be imported, accounting records, customers history…are imported.
Data import requires some heavy lifting that requires technical skills to scale it and consists mainly of:
- Sending you list of required data and getting from you what data exists and what is missing
- Analyzing the data for correctness and to make sense out of it and identify any related data needed
- Create a cleaning and extraction plan
- Importing the data in the system
- Validation and quality control.
This process is not a clean cut, instead it requires few iterations before finalized and may be repeated many times if the go live was delayed.
ERP Maintenance and support
Many businesses miss those hidden costs or fees. They think they can operate without maintenance or support thus they commit for low cost solutions that doesn’t provide neither maintenance nor support. Here is why you need it
- Changing legal requirements e.g. new tax type introduced or new financial declaration needed thus this requires maintenance and upgrade or you’ll end up redoing much of the work manually.
- Changing business needs that requires fast response from your side. You need to make sure you are working with a vendor that have a team ready to handle your requirements in a cost-effective way. That’s another part of the total cost of ownership
- System maintenance, upgrades and backup.
The final piece of the price, whether on-premises, cloud as PaaS or SaaS…will be discussed in another article.
On your next ERP proposal make sure to verify that all costs are taken into account and think of the total cost of ownership.
Some vendors, performing ERP implementation in Lebanon, use the “Calling price” (or in French called “Prix d’appel”) to lure business to sign on a deal where the real price is 10x more than the proposed price. The end result is a frustrated business and risking the whole solution failure or paying a very expensive cost.
Azkatech is an Official Odoo partner in Beirut with a full mature team for ERP Implementation in Lebanon following the latest software project management practices to achieve predictable outcomes and cost effective ERP implementation.