ERP implementation has a reputation for being a slow and costly process. However, nowadays there are options for all budgets. However, you must take into account the different elements that influence the total cost of implementing an ERP, which we analyze below.
In 2002, a study by the consulting firm Meta Group (taken over by Gartner in 2005) analyzed the cost of 63 ERP implementations in small, medium and large companies. The conclusion was that, taking into account initial installation and maintenance over a two-year period, the overall cost of implementing an ERP system ranged from 300,000 euros... to 215 million euros!
[These figures put ERP software out of the reach of small and medium-sized companies, just as when the first ERPs appeared, only multinationals could afford them. But in recent years, ERPs for SMEs have appeared that greatly reduce costs thanks to standardization and new technologies.
Despite this, it is difficult to give an overall figure or price for how much it costs to install ERP software. Once you have decided that the time has come to implement an ERP in your company, you must take into account all the aspects included in the implementation of an ERP software: the price of the software, the price of the hardware, the cost of consulting services, the cost of maintenance and the hidden costs, which can be an unpleasant "surprise". Here is a breakdown of these aspects with some indications of their approximate weight in the total price of a standard ERP implementation.
What is included in the price of an ERP?
[ad]] Software License Cost (35% of the total budget): this is the most transparent cost, as ERP vendors usually charge a fee for each user or group of users in your company that will access the ERP. However, the price of an ERP license varies greatly depending on the product you choose: it can go from 500 euros per user in the most basic products aimed at SMEs to over 5,000 euros per user in advanced ERPs aimed at medium and large companies. You can also opt to install an open source ERP, which has no license cost.
Hardware cost (10% of the total): to implement ERP software in your company you need to have a basic IT infrastructure. This usually consists of: a server on which to install the ERP software; a database with well-structured company information to feed the ERP; a LAN network with the capacity to transmit the volume of data generated by the use of the ERP; client equipment (computers or workstations) suitable for users to access the ERP; and a backup system to protect against disasters. If you choose an ERP hosted in the cloud (or ERP SaaS), many of these costs are integrated into the license price.
Consulting cost (50%): this is the most expensive part of the ERP implementation. It consists of the services provided by the consultants who implement the ERP in your company. The consultancy covers several phases: a preliminary study to analyze the needs of your business and propose the most appropriate ERP solution; the installation of the ERP itself; the adaptation of the software to the specificities of your company and sector (a process called ERP parameterization); the migration or conversion of the company's data for use in the ERP; and the training of the employees who will use the solution. Despite the fact that more and more "out of the box" products are being offered, which theoretically do not require any parameterization, the truth is that most of the time some kind of adaptation is required.
ERP Maintenance Cost (5%): the cost generated by an ERP does not end when you install it in your company and start using it. There are maintenance costs that include aspects such as installing new updates, correcting failures or specific system errors, resolving technical incidents (or reinstalling the ERP in the event that your company suffers a catastrophe that affects the IT systems) and managing the evolution of the ERP, for example by adding new modules or users according to the changing needs of the business. This maintenance task is usually performed by the same integrator company that installed the ERP and is charged by an annual or monthly fee that is usually equivalent to 15% of the total cost of the ERP software license. Another possibility is to hire a specialist or train someone from your company to take care of ERP maintenance internally, although this is a task that requires a very specialized profile.
Watch out for hidden ERP costs!
Is that all there is to it? No, you still have to add one more item that experts call the "hidden costs" of an ERP. These are a series of expenses that are not usually included in the initial budget, but that arise as you implement and start using the business management system. For example:
In 2002, a study by the consulting firm Meta Group (taken over by Gartner in 2005) analyzed the cost of 63 ERP implementations in small, medium and large companies. The conclusion was that, taking into account initial installation and maintenance over a two-year period, the overall cost of implementing an ERP system ranged from 300,000 euros... to 215 million euros!
[These figures put ERP software out of the reach of small and medium-sized companies, just as when the first ERPs appeared, only multinationals could afford them. But in recent years, ERPs for SMEs have appeared that greatly reduce costs thanks to standardization and new technologies.
Despite this, it is difficult to give an overall figure or price for how much it costs to install ERP software. Once you have decided that the time has come to implement an ERP in your company, you must take into account all the aspects included in the implementation of an ERP software: the price of the software, the price of the hardware, the cost of consulting services, the cost of maintenance and the hidden costs, which can be an unpleasant "surprise". Here is a breakdown of these aspects with some indications of their approximate weight in the total price of a standard ERP implementation.
What is included in the price of an ERP?
[ad]] Software License Cost (35% of the total budget): this is the most transparent cost, as ERP vendors usually charge a fee for each user or group of users in your company that will access the ERP. However, the price of an ERP license varies greatly depending on the product you choose: it can go from 500 euros per user in the most basic products aimed at SMEs to over 5,000 euros per user in advanced ERPs aimed at medium and large companies. You can also opt to install an open source ERP, which has no license cost.
Hardware cost (10% of the total): to implement ERP software in your company you need to have a basic IT infrastructure. This usually consists of: a server on which to install the ERP software; a database with well-structured company information to feed the ERP; a LAN network with the capacity to transmit the volume of data generated by the use of the ERP; client equipment (computers or workstations) suitable for users to access the ERP; and a backup system to protect against disasters. If you choose an ERP hosted in the cloud (or ERP SaaS), many of these costs are integrated into the license price.
Consulting cost (50%): this is the most expensive part of the ERP implementation. It consists of the services provided by the consultants who implement the ERP in your company. The consultancy covers several phases: a preliminary study to analyze the needs of your business and propose the most appropriate ERP solution; the installation of the ERP itself; the adaptation of the software to the specificities of your company and sector (a process called ERP parameterization); the migration or conversion of the company's data for use in the ERP; and the training of the employees who will use the solution. Despite the fact that more and more "out of the box" products are being offered, which theoretically do not require any parameterization, the truth is that most of the time some kind of adaptation is required.
ERP Maintenance Cost (5%): the cost generated by an ERP does not end when you install it in your company and start using it. There are maintenance costs that include aspects such as installing new updates, correcting failures or specific system errors, resolving technical incidents (or reinstalling the ERP in the event that your company suffers a catastrophe that affects the IT systems) and managing the evolution of the ERP, for example by adding new modules or users according to the changing needs of the business. This maintenance task is usually performed by the same integrator company that installed the ERP and is charged by an annual or monthly fee that is usually equivalent to 15% of the total cost of the ERP software license. Another possibility is to hire a specialist or train someone from your company to take care of ERP maintenance internally, although this is a task that requires a very specialized profile.
Watch out for hidden ERP costs!
Is that all there is to it? No, you still have to add one more item that experts call the "hidden costs" of an ERP. These are a series of expenses that are not usually included in the initial budget, but that arise as you implement and start using the business management system. For example:
- Deviations in the initially planned consulting budget.
- Integration with existing, often legacy, applications.
- Migration and conversion of heterogeneous unstructured data for use in the ERP.
- Redesign of internal processes to adapt them to the ERP operation.
- Technical maintenance of all aspects not included in the contract.
- Loss of employee productivity while adapting to the new system.