Published on the 07/08/2024 | Written by Heather Wright

Avoiding expensive surprises…

ERP systems may be the life blood of the organisation, but they’re also notorious for their complexity and big budget overruns when it comes to implementations.

A recent report from Panorama Consulting shows 33 percent of ERP projects exceeded their expected budget, with 5.3 percent going ‘significantly’ over budget. (The median project cost in the report was US$450,000, well down on the 2023 reports median of $625,000.)

“Migrating to the cloud can involve unexpected data migration challenges and ongoing maintenance needs.”

While the software cost might be clear(ish), other activities and variables like customisation and training can lead to unexpected costs and budget blow outs.

Panorama’s 2024 ERP Report survey shows the extra costs typically stem from additional technology requirements or underestimating the work involved – with 51 percent citing additional tech requirements and 39 percent citing either underestimating project staffing or organisational issues. Underestimating consulting fees was a factor for 33 percent of respondents who went over budget, while increased project scope was an issue for 26 percent.

On the technology front, Panorama says there could be a connection with the increased popularity of cloud technology. It says cloud complexity with implementations often involving integration with additional technologies and services like data warehousing, business intelligence tools and security solutions is one reason cloud implementations might encounter unplanned technology purchases.

Migrating to the cloud can also involve unexpected data migration challenges and ongoing maintenance needs, necessitating purchasing additional tools or services; while the rapid evolution in technologies and services can mean initial project planning is revised to include the latest tools along the way.

Some experts suggest including at least 20 to 30 percent contingency in ERP project budgets.

While putting in the planning up front goes some way, particularly in avoiding software cost surprises when stakeholders request additional features or changes to your initial design, there are some ‘hidden’ expenses that are mostly unavoidable, Panorama says.

Software customisation

Most ERP systems require at least some customisation to meet an organisation’s specific business needs. Vendors often charge extra fees for customisations, and costs can add up quickly, with customisation often proving time-consuming too.

Integration costs

Likewise with integration costs. Many organisations underestimate the number of systems, such as CRM or HR systems, within the business that will need to connect to the new platform. Middleware subscription costs can also take an upwards hike thanks to data being pumped into the ERP software.

Resource costs

As the Panorama survey shows, resource costs are one of the key budget blowouts for ERP projects. Resourcing issues were also the key factor leading to timeline overruns.

Misjudging the skills required also causes headaches for some who may overestimate the expertise – or indeed the availability – of their internal team, and underestimate the skills required for an ERP project.

Data migration and cleansing

Migrating data from old systems to the new ERP system involves mapping data fields, ensuring data integrity and running extensive testing, Panorama notes.

Removing duplicates, correcting inaccuracies and standardising formats can be labour-intensive and costly, and some organisations will also need to invest in data achiving solutions to store historical data that is not migrated, but must be retained for regulatory or business purposes.

Testing, testing, and validating too

Need we say more? Unit testing, system integration testing, user acceptance testing… there is plenty of testing involved in an ERP implementation.

Change management

New ERP systems can have a big impact on employees and as we all know, change can sometimes be hard to take. Fail to handle your change management successfully and you could experience a productivity drop as your team try to muddle through or develop their own workarounds to avoid a system they’re not comfortable with.

Expect training costs too, to manage the transition. That training needs to be ongoing as the system evolves Panorama says.