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Crime watch: why your ERP solution had fatal consequences

By Jean-Baptiste Sachot, 11:13 AM on June 13, 2017

Coûts réels d'un ERP enquête

This is a story about a crime. And one that came at a very high price. One day, you leave the office with your heart pounding: you’ve just found out how much your management software actually costs. The sums don’t lie. Your ERP solution should have helped your company leap forward, but it’s holding you back. After this shocking discovery, you write one single phrase in bloody letters on the back wall of reception: “our ERP solution killed us”. What happened? How can you explain this crime? How can you get justice? Let’s investigate this heinous act together.

The investigation: calculating the real costs of your ERP solution

First, let’s look at the clues at the crime scene. Although the expenses linked to the cost of running your ERP solution don’t seem too high at first sight, you only have to dig a little deeper to grasp the seriousness of the problem.

What an ERP solution actually costs

To start with, there are hardware costs:

  • buying or hiring servers ;
  • database licences ;
  • maintenance budget.

Essentially, these are the costs of setting up and maintaining the solution, bit by bit.

And then, you have to deal with updates. This is the death knell: just like many companies’ solutions, your on-premises software was old and difficult to scale up. Every upgrade is complicated and expensive. You have to run non-regression tests, follow upgrade instructions and other tedious tasks. It’s a huge job.

➤ For a large company, an undertaking of this scale could take a whole year – and that’s with an entire legion of consultants on the job. You then realise – all too late – that the update costs are 50% of what a new SaaS ERP solution would have cost.

The hidden costs of your management software

Time to reveal a well-kept secret: the hidden costs that you misjudged at the start end up stabbing you in the back. For example, the time it takes to choose an ERP solution, a significant investment for the teams involved in the project – and all this before you’ve even signed a contract.

And then, there’s the time it takes to manage the solution. It could be an operational management: moving the projects forward with the specialist teams and overseeing the solution’s configuration. Or it could be more technical, with IT teams checking backups and running tests. But in any case, you have to quantify this time and include it in your overall costs.

Read also: Top 5 signs that it’s time to change your ERP solution.

Equally important but harder to measure are the productivity losses from unsuitable or inadequate software. And it’s here where the sums begin to soar.

➤ Let’s assume that a piece of software costs a user 5 minutes a day because it wasn’t properly configured or suitably specialised. That’s 19 hours a year, nearly 3 working days, up in smoke! And if we work on the basis of 1,000 users, that makes 2,700 days lost each year. And all this because of a tiny loss of 5 minutes a day.

The impact is huge and the sums enormous: in the most extreme cases, the cost of running an ERP solution can be 1% of a company’s turnover. How is such a bizarre situation possible?

The verdict: you could have prevented the crime with a tailored ERP solution

So, you could have stopped the crime after all! You should have looked at all of your expenditure, item by item, and asked yourself the right questions:

  • How much has your ERP solution cost you on average each year since its initial setup?
  • Are those costs tolerable?
  • If you chose to move on to another platform, one that better suits your needs, could you reduce your productivity losses?
  • Could these savings be transferred to billable activities?

Read also: How to convince your board that your company needs an ERP solution?

Here are two happy conclusions we can draw from the investigation:

➤ 1/ Changing your software can result in productivity savings.

The example of losing 5 minutes a day is striking: if your consultants spend nearly 3 days a year skirting around a tiny ERP problem, they aren’t just losing time: these three days are also days they can’t invoice for their services. With the right ERP solution for you, you can do more than cut your costs: you can turn your losses into gains.

➤ 2/ And there are also benefits for your financial team.

  • First, you can improve your fixed assets: if your company buys its ERP licence, you have to write these expenses down under “investments” (CAPEX); however, if you opt for a leased SaaS software, the costs go under “operations” (OPEX).
  • Second, you can spare your cash flow: you don’t need to write a big, fat check now for the next five years; you can make regular payments (for example, every quarter), spreading your outgoings. Finally, an argument that’ll please your CFO!

If your company has borne the brunt of endless ERP-related costs, as seen in this investigation, it’s high time you looked at the benefits of changing your management software for something more tailored to your business. Do the sums and don’t let this financial crime go unpunished!

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