ERP Know More - Is Your ERP System Turning Out To Be A White Elephant?

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The third post in this series is an honest, no-frills-attached exposition on maintaining an ERP system. There is no simple or linear explanation to the perception that maintaining an ERP system is a costly affair. This is because the cost of maintaining an ERP is a complex function of many variables. Other than the annual maintenance costs paid to the vendors, the organization needs to evaluate the cost of IT infrastructure it requires to keep the ERP running like a smooth and well-oiled machine. This would include the hardware upgrade cost, system software upgrade cost, and the costs involved in maintaining trained manpower required to keep the system running. This is often overlooked, and one tends to only look at the AMC charges proposed by the vendor. The presence of trained manpower and the self-sufficiency in maintaining and enhancing the system help in keeping the maintenance costs low.

After an ERP system has gone live, the maintenance activities in the first one year are relatively high, because this is a period when a lot of minor enhancements, reports and formats get added to the system. There is a manpower cost associated with this. After a period of one year, the ERP system gets into a routine maintenance mode, during which the focus is on maintenance activities like data storage, data backup, applying patches/updates and short term training needs.

An organization wishing to minimize the cost of maintaining the ERP solution should most definitely opt for an on-demand model, because this model allows you to concentrate more on the core business. The responsibility of database administration, updates, infrastructure management, and associated costs is entirely taken care of by the vendor. The organization can also leverage online updates, which is not possible in an on-premise model owing to the logistics involved in applying updates/patches in a batch mode.

Organizations having unique business practices and willing to invest in managing the entire infrastructure themselves can still opt for the traditional on-premise model.

Whether it is on-premise ERP or on-demand ERP, the percentage cost that an organization incurs on an ERP system varies a lot from ERP to ERP, and also, from organization to organization. Therefore, it is difficult to commit on a fixed percentage. To arrive at this percentage one needs to arrive at the costs relating to manpower, infrastructure, licenses, implementation, and customization. If an organization is flexible to adopt the global business practices offered by the ERP, it helps in minimizing the implementation and customization costs.

However, there are other reasons for the cost to go up and things to go overboard. Expecting and understanding them will go a long way in easing out the shift to an ERP system. The key reasons, some of which we have already discussed in detail in the previous posts in the ERP Know More series, include the following.
• Sometimes the ERP implementation is viewed as an IT initiative and not as an organizational goal. In such cases the implementation gets delayed because of the lack of push from the top management. This increases costs.
• Another factor contributing to cost overrun is excessive customizations, when the organization is inflexible to adapt to standard practices and work-arounds.
• When IT users and business users of the organization are not fully geared or are unwilling to take over the implementation from the vendor/implementer, unplanned additional cost which shoots up the project cost.

However, there are some practices that can be followed by organizations to tame these expenses. Some of the practices include:
• Earmarking a dedicated ERP team with the required empowerment before the onset of the implementation, so that the implementation goes smoothly, in a focused manner.
• The organization should be willing to look at and embrace the generic and best business practices offered by the ERP with minimal customizations.
• In the post go-live period, the dependence on the vendor should be consciously reduced even if it involves additional strain on the users. This helps in attaining self-sufficiency faster and thus minimizes additional costs.

Like I have emphasized in the previous post, every path has its puddle. But there is nothing that we cannot navigate. All it requires is the technical expertise and the understanding that beyond the initial hiccup if at all, a well-implemented ERP is something an organization should leverage on to whatever extent possible.

We will keep you posted on more of our experiences in the coming days, while you think about ERP solutions or rather, KNOW about ERP solutions!