Wading into the waters of ERP software for the first time can be tricky. However, it gets even more difficult when you realize you have to bring a team of blindfolded coworkers and managers along with you into its murky depths. ERP justification is key to removing the metaphorical blindfold and helping company stakeholders understand the potential benefits of an ERP system. This is typically done through a presentation to relevant parties who then approve (or disprove) of the proposed software solution.
In this article, we will discuss some of the key factors to address when justifying ERP to team members, how to improve the odds of positive ROI and some of the benefits a successful implementation can yield. By understanding some of the main factors needed to provide an effective ERP justification and contemplating some of the intricacies of the actual implementation, you can improve your odds of success.
- A successful ERP justification presentation contains recognition of the current business environment, documentation of challenges, clear end-goals, estimation of implementation costs and a potential ROI prediction.
- ERP implementation costs anywhere from $10,000 to more than $10 million.
- For every dollar spent on ERP, companies receive an average ROI of $7.23.
- The average time it takes for companies to start seeing benefits from an ERP system is about 14 months.
Table of Contents
- What Are The Key Components of ERP Justification?
- Why Is Justifying ERP Necessary?
- What Kind of Investment Does Deploying ERP Entail?
- How Can You Ensure Successful Implementation?
- What Are Some Benefits of ERP?
What Are The Key Components of ERP Justification?
When you create a business model or present a project for funding, there are key elements that you are expected to include in your presentation. Though ERP justification requirements aren’t as cut and dry, there are some factors that you can add to your case to improve the strength of your argument.
At its core, ERP justification needs to consist of extensive knowledge of day-to-day processes and recognition of ways in which software could actually improve them. With this in mind, here are some factors to include in your presentation:
Acknowledgment and Analysis of the Current Business Environment
Without extensive knowledge of your current workflows, how can you expect anyone to trust you to lead them into an ERP investment? Before presenting your case for implementation, you should do extensive research into company processes. Talk to leaders in all of the departments that would be impacted by the ERP, discover their pain points and learn the nuances of their workflows.
Not only will this improve your chances of a successful implementation, but it will also demonstrate to stakeholders that you’ve done the groundwork to really understand the core aspects. It also denotes that you have used this collected information to come to the conclusion that ERP is an effective option.
Documentation of Workflow Challenges
More than just talking about challenges in current workflows, it’s important to document them and bring them to the table during your discussion justifying ERP. If you can provide data suggesting the impact that these bottlenecks have on company revenue and productivity, stakeholders will better understand the effect that not having an ERP has on the company.
A good way to provide documentation of problems would be to have department heads send out an anonymous survey to subordinates where they can input challenges. This ensures that issues are included from employees at every level in a department.
What exactly do you wish to achieve by implementing ERP? There’s a scant chance that your blindfolded peers would let you lead them into mysterious waters without a clear intention in mind. The same goes for ERP. Without a clear end-goal, your ERP justification presentation will be unsuccessful. After all, why invest time and money in a project without knowing the intended outcome?
Your system end-goals should take current workflow challenges and business environment into consideration and use these insights to develop an ideal implementation outcome. For example, do you wish to implement RFID tracking into your warehouse to streamline operations? That’s something that should be presented as an end-goal.
You’ve presented all of the challenges your business is facing and all of the ways you could address them through an ERP system. It sounds great, but how much will it actually cost the company? Cost is a huge factor to consider when selecting a new software program, especially an ERP. You’ll need to account for licensing, installation, data migration, training, customization and other costs when presenting an estimate.
The cost will also vary by factors such as the number of licensed users, company size and selected vendor. Make sure to discuss price elements specifically so that stakeholders can make decisions as to the best options and whether there are any elements they would prefer to leave out of the system.
Developing a measurement for potential ROI underlines the benefit of implementing an ERP system. At this point in the ERP justification discussion, stakeholders are probably holding their breath at the amount of cost associated with ERP. However, it’s essential to clarify that this upfront investment can have a great margin of return post-implementation. A Nucleus Research study found that the average ROI for an implementation is more than $7 for every $1 spent on the system.
Calculating potential ROI is where things can get a little tricky. Here are some of the factors to consider when making your calculation:
- Cost of ERP program and installation
- Additional ongoing costs (maintenance, training, annual licensing fees, etc.)
- Cost savings (inventory reduction, increased plant productivity, reduced spoilage, less overtime)
- More opportunities for revenue (better customer service, improved on-time delivery rates, margin improvements)
- Indirect benefits (boost in employee retention, more stable schedules, smarter market decisions)
Why Is Justifying ERP Necessary?
ERP justification is an essential part of the software selection process because it ensures that stakeholders are all on the same page. The reason that everyone needs to be strategically aligned is due to the complexity associated with an ERP deployment. In fact, the rate of implementation failure is estimated to be anywhere from 40% to 80% due to factors that hinge on bad planning and aversion to change.
The time and revenue resources required to implement ERP are a large part of what makes ERP justification so important. The more effort and input needed for a software project, the more essential it is that stakeholders are all on the same page and understand the scope of the deployment.
What Kind of Investment Does Deploying ERP Entail?
ERP involves both direct and indirect costs. It also entails an extensive investment of employee time for planning, researching and conducting the implementation.
Lisa Anderson, the President of LMA Consulting Group, said, “Investing in implementing an ERP system is similar to investing in a critical piece of machinery to support sales growth and achieve a substantial return on investment. Typically, they require a significant upfront investment in software and implementation support to ensure success with the project; however, as one of the most significant business process upgrade projects any company will undertake, it becomes simply a prudent investment and mitigation of risk.”
Here are some of the data points to keep in mind when considering the amount of effort and money it can take to introduce an ERP system to your operations.
- A Panorama Consulting Solutions study from 2019 found that the average amount of time it takes for SMB implementations to start reaping benefits is 11 months after the go-live date. The average for large enterprises is seven months.
- ERP costs vary greatly, depending on factors such as selected vendor, business size and the number of intended users. A Clients First blog post estimates the cost of ERP implementation to range anywhere from $10,000 to more than $10 million.
- The 2019 Panorama study indicated an average implementation time of 14.1 months. Of these implementations, 58% exceeded the expected timeline.
How Can You Ensure Successful Implementation?
There are a few different ways that you can improve your chances of a successful ERP implementation. Here are some of the methods you can use to increase the likelihood of a positive deployment scenario.
The 2019 ERP study from Panorama Consulting Solutions found that 53% of organizations that completed an ERP implementation found organizational change to be difficult, compared to 44% that found technical aspects difficult. This goes to show that change management is a real-life struggle for organizations implementing ERP. Will your employees be able to adapt to change? How can you encourage them to use the system effectively? These are important questions to consider before, during and after you introduce a new ERP system.
Having a project champion can greatly improve the likelihood of a successful implementation. This individual encourages other team members to get on board with the project and involves other users in the process to make sure that the program is efficient for all employees. The champion helps keep the project on track and emboldens users to adopt the ERP and to get into a change-oriented mindset.
Training is an essential component of a successful ERP deployment. After all, if your employees don’t know how to use the system effectively, how can you expect them to use it? Training methods vary depending on the vendor that you opt for, but many solutions do offer online or on-site classes to help users learn more about the program.
Another method of obtaining training is by enlisting the help of an ERP consultant. These individuals help businesses that are implementing ERP do so effectively and with a broad knowledge of the system.
Sometimes a company’s needs aren’t explicitly included in the out-of-the-box software capabilities of a desired vendor. In this case, the solution might need to be customized or configured to meet the needs of an organization. This is part of the reason why developing a list of pain points and desired outcomes from implementation is so essential — you need to know the most important aspects of your business and account for them in the new system.
Some companies elect to include add-on modules in their programs to increase the number of features and to improve functionality. Users also have the option to build their own ERP using a postmodern ERP strategy in which they select separate vendors across different workflows. For example, a company might choose to integrate QuickBooks (an accounting software) with BambooHR to meet unique operational needs.
What Are Some Benefits of ERP?
ERP has a range of benefits, which is why so many companies decide to take the plunge and implement it. David Dozer, the CTO of Blaze IT LLC, said, “Any time you can take manual steps out of a process and prevent a person from having to copy information from a piece of paper or transpose it from one screen to another you are going to increase speed and accuracy.”
Here are some additional improvements that you might see after the successful deployment of an ERP system.
One of the core functions of ERP is the centralization of various workflows and processes. By connecting these elements, various interdepartmental tasks can be automated. This automation can help free up employee time to work on different projects, therefore improving company productivity overall and increasing the scope of work that can be completed day-to-day.
Workflow automation varies depending on the selected vendor, but some common streamlined processes include the automatic input of transactions to the general ledger, customer shipment notifications and sales order generation.
Boost in Revenue
Financial management tools are some of the most commonly requested features of ERP software. Specific functionality in these systems differs, but some vendors offer advanced forecasting and demand planning tools based on projected customer demand and historical data to optimize purchasing and production processes.
By better predicting inventory and material needs, companies can reduce spoilage and inventory shelf time. This is one of the elements of ERP that can lead companies to boost their revenue and increase productivity.
Improved Internal Communication
ERP centralizes various operations. Many programs offer customizable dashboards that allow users across a company to access real-time data and to look at the status of projects. This improved visualization can help with internal communication snags that occur as employees request information from a different department or question the status of a project involving multiple entities. Harsha Sarjapur, President of InfoSourcing Inc, said, “ERP brings every department under one roof, creating a more complete on-demand application rather than synchronization of data.”
Developing insights faster and using real-time data is one of the benefits of implementing ERP. Instead of mulling through data tables and plugging in formulas manually, ERP systems can develop charts, graphs and other visual representations of information to hasten the creation of actionable insights. This allows users to spend less time searching for data and more time putting it to use.
Customer relationship management is an extremely important factor in any business. After all, without customers, there’s no revenue and, therefore, no company. Some ERP systems include or can easily integrate with customer relationship management (CRM) tools.
Many systems allow users to retain customer information such as previous communications, sales history and shipping information in a centralized location so that sales conversations can be targeted to improve the likelihood of generating a repeat customer. The program may also integrate with other departments such as distribution to send clients notifications automatically when an item is shipped or delivered. This improves the customer experience and can lead to an increase in business.
Adopting an ERP solution can give your company a significant increase in revenue and productivity. However, ERP justification is necessary to get to that point in the process. By identifying current needs, challenges, end-goals, costs and potential ROI, you can not only develop an effective justification argument, but you can also improve your odds of a successful implementation.
ERP can be justified by calculating potential ROI in terms of both revenue and increased productivity, which are elements that are tightly woven together. Having a clear goal in sight improves one’s ability to get others onboard with an ERP deployment. Using the analogy at the beginning of this article, a clear anticipated outcome helps stakeholders put on their proverbial blindfolds to navigate the murky waters of ERP.
Contributing Thought Leaders
Lisa Anderson is the founder and president of LMA Consulting Group Inc., a consulting firm that specializes in manufacturing strategy, end-to-end supply chain transformation and technology adoption that maximizes the customer experience and enables profitable, scalable, dramatic business growth. Lisa has been named in the Top 46 most influential in Supply Chain by SAP, a Top 40 B2B Tech Influencer by Arketi Group and a Top 50 ERP Influencer by Washington-Frank. She recently published, “I’ve Been Thinking”, an inspiring collection of 101 strategies for creating bold customer promises and profits.
Harsha Sarjapur is the co-founder of InfoSourcing Inc., an ERP solution provider that assists businesses of all sizes with the implementation of ERP solutions. He has worked in the ERP industry for the last 20 years. His company is an Acumatica certified partner and was recognized as an Acumatica MVP from 2016-2019.
David Dozer is a business consulting and IT specialist with more than 15 years of experience in the enterprise software realm. He has dedicated his career to helping clients find and implement software solutions that meet real-world business needs. In his current role as CTO of Blaze IT LLC, he focuses on helping small companies with their digital operations. David is also a member of the SelectHub Thought Leader program.