ERP Budgeting 101

    12/11/19 10:00 AM

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    Budgeting for an ERP purchase

    Budgeting for an ERP purchase can be a significant challenge. There are many cost factors to consider when replacing your current system and choosing an arbitrary dollar amount as your ERP budget is a mistake. But it is a mistake that many first-time ERP shoppers make.

    We often use the analogy that you don’t typically go to the doctor when you are sick and tell the doctor you have a budget for getting well. We don’t tell the doctor to stay within those requirements to get us healthy again. Most of us are willing to pay for tests, treatments, procedures, rehab, and prescriptions to get well. That makes sense, right?

    Properly addressing business needs are not all that different from assessing causes of illnesses.

    Identify issues before setting an ERP budget

    At Visual South, we want to understand what problems your current system has and any issues affecting the business. Our team needs to launch a discovery phase to not only understand the “symptoms” your ERP is showing, but also the root causes of issues before you set an ERP budget. The findings are used to prescribe the functionality needed from our Infor ERP applications.

    Visual South offers Cloud Suite Industrial and VISUAL as ERP options

     

    We define the product configuration and scope, we prescribe the necessary training, determine procedures to be developed, perform testing to validate the new procedures, and provide assistance in rolling out the new system with the improved processes in a live environment. Our team will then review our findings with you, collaborate to define phases of the implementation, and discuss budgetary requirements needed for a successful project that addresses your business requirements.

    Otherwise, if you ignore pre-budget process definition and planning, you are simply making an uneducated guess and your budget is an arbitrary number. It is difficult for an ERP provider to deliver an effective system for an unrealistic cost.

    In short, companies looking for a new ERP system should make an ERP budget example or template based on needs and goals, versus costs or expenses.

    Benefits of a properly implemented ERP

    When an appropriate budget is set, you can choose the right ERP system for your business. And when it’s properly implemented, the system can:

    • Make employees more efficient and allow for business growth, while maintaining overhead
    • Provide data that is trusted and can be used to make correct decisions
    • Improve customer service, which increases sales
    • Speed up response time and decrease production time, which increases sales
    • Improve on-time delivery without expediting or adding overtime hours, which increases customer satisfaction, profit, and sales
    • Improve the ability to analyze product lines to determine which are most profitable and valuable.

    The above are some of the benefits that a properly implemented ERP system can provide to virtually any manufacturing and service company. But those benefits will be limited if you have an inadequate ERP budget. Your budget should allow you to: purchase a system that has the functional attributes you need; train users on those attributes; and develop procedures to achieve the desired results.

    Related: How to Implement an ERP System Step-by-Step

    Related: 5 Characteristics of Successful ERP Implementations

    Components of an ERP budget

    As a general example, an ERP budget should include funding for the following:

    • The ERP application itself, whether purchasing a perpetual license or cloud subscription
    • Annual maintenance fees for on-premise perpetual licenses
    • Hardware to support the ERP application (server, PCs, tablets or mobile devices, and barcoding/scanning devices, as needed)
    • Implementation activities, which are typically 1-to-1 or 1-to-2 for most true SMB market-leading ERP applications

    Summary

    Creating a proper ERP budget is not easy. Assigning an arbitrary number to fix undefined business issues and goals can lead to a bad investment and unsatisfactory ERP roll out. Visual South has been helping companies for over 25 years define business requirements, build plans for achieving business goals, and apply software and services to make them a reality. The Visual South team can help you develop a solid ERP budget for your project, too.

    Alternately, if you want guidance or feedback on the ERP budget you have already made, please feel free to reach out for a free assessment. You can also learn about evaluating ERP software options on your own with our popular eBook for selecting ERP software.

    eBook ERP selection

    Tim O'Brien

    Written by Tim O'Brien

    Tim has over 20 years of successful experience helping companies improve their processes and operations using enterprise software solutions. Those enterprise solutions include Enterprise Resource Planning for manufacturers, Service Management for service oriented companies, and Enterprise Asset Management in the process manufacturing industry.