Have you ever dreamt of transforming your professional services firm with a modern ERP system? But then reality sets in – survey after survey shows the average ERP costs more than 50% over the initial budget. The culprit? Underestimating the true cost of implementation. This blog dives deep into the hidden costs lurking beneath the surface of a seemingly straightforward SaaS ERP implementation and equips you with strategies to avoid budget blowouts.
Beyond the Subscription Fee: Unveiling Hidden Costs in SaaS
It’s not easy to estimate the cost of changing your ERP system. While the subscription fee is your starting point, it’s just the tip of the iceberg. Here’s a breakdown of costs for both SaaS and traditional on-premise solutions:
SaaS:
- Subscription Fees: This covers access to the core ERP functionalities for a specific number of users.
- The implementation fees: Consultants’ professional services are crucial for configuration, customization (limited in SaaS), and data migration.
- Ongoing support, etc. (if not included in the subscription)
If it is an "on-prem" implementation:
- Software Licenses: One-time or recurring costs for the ERP software itself.
- Hardware: Costs associated with servers and storage
- Software (operating system etc)
- Network: Including upgrades to support the ERP system
- Backup & recovery
Now, let’s explore the hidden costs that apply to both deployment models:
- Change Management & Training: This covers user training, change management initiatives, and ongoing support to ensure user adoption.
- Data Migration & Integration: Migrating your data to the new system and integrating it with existing tools can be complex and resource-intensive.
- Additional Features & Functionality: SaaS often offers add-on modules for specific functionalities at an additional cost.
Budget Blowout! The Hidden Dangers Lurking in Your Implementation
Beyond the costs themselves, several factors can lead your project astray:
Poor Planning and Scoping:
- Unclear Project Goals: Without clearly defining what you want to achieve with the ERP, the project scope can creep up, leading to additional functionalities and higher costs.
- Inadequate Needs Assessment: Failing to assess your current processes and data quality can lead to unforeseen challenges and rework during implementation.
These are common issues in the implementations, and we have an ERP Selection Guide that helps to address these.
Management Issues:
Unexpected Challenges:
- Data Quality Issues: Dirty or inconsistent data can be a major hurdle during migration, requiring additional time and resources for cleaning.
- Integration Complexity: Integrating the ERP with existing systems can be more complex than anticipated, leading to cost overruns.
- Unforeseen Customization Needs: Unforeseen customization needs can arise, requiring additional development work. It is a new system, so some customization may be required to adapt to the business processes, especially, if the ERP is not specifically designed for professional services businesses.
Estimating the True ERP Implementation Cost: A Practical Guide
- Lack of Communication: This is one of our obsessions because it is easy to do but often neglected. Poor communication between stakeholders, vendors, and implementation teams can create misunderstandings and delays, impacting the budget.
- Unrealistic Timelines: All too often, we see businesses doing “Right to Left” planning. “We must go live on X date because [insert reason here.]” Beware because ambitious or unrealistic timelines can lead to rushed solutions requiring additional resources, driving up costs. Weak or junior project managers will be tempted to show a plan that looks achievable but is mere fiction.
- Scope Creep: Changes to the project scope after implementation begins can lead to significant cost increases. This is also where communication comes in because management should constantly remind the business what the scope is and try and park new items. Of course, if new items have a strong business justification, they should be added to the scope (budget and timeline)
Now that you’re aware of the hidden costs, here’s how to estimate the true cost of your SaaS ERP implementation:
- Identify Your Needs: Clearly define your project goals and the specific functionalities required. This must done before the the software is selected.
- Factor in Internal Costs: Account for the time your in-house IT and other teams spend on implementation. As a rule of thumb, expect the team to spend 5 times the hours the software supplier quotes.
- Plan for the Unexpected: Allocate a buffer in your budget for unforeseen challenges or additional features that may become necessary. We recommend at least 20%, but this depends on the configurability of the software.
Taming the Cost Beast: Strategies for Managing Costs in SaaS
By implementing these cost-saving strategies, you can keep your project on track:
- Plan Properly: Define a clear project scope, establish communication channels, and agree on realistic timelines and budgets. Speak with the vendor’s existing clients to learn from their experiences.
- Leverage Out-of-the-Box Functionality: We recommend selecting a supplier specializing in professional services. Then, focus on utilizing the core functionalities of the software to minimize customization costs.
- Internal Expertise & User Adoption: Train internal resources to manage the system effectively, reducing reliance on ongoing vendor support.
- Negotiate Contract Terms: While SaaS subscriptions offer less flexibility, negotiate terms related to user licenses, data migration, or implementation services. Aim for a fixed or capped price for implementation services.
- Track Project Expenses Closely: Monitor costs throughout the entire implementation process to identify and address potential overruns early on.
- Contract Experts: Consider bringing in seasoned ERP implementation professionals to guide you through the process. Their expertise can save you time and money in the long run.
Conclusion
Don’t let your SaaS ERP implementation become another statistic! By accurately estimating costs, implementing these strategies, and seeking expert guidance, you can ensure a smooth, cost-effective journey toward a more efficient and profitable.
