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ERP implementation costs, duration decline, but at what cost?

by Dave Hannon

January 13, 2011

Dave Hannon

Maybe it’s SaaS and the cloud at work. Maybe it’s the best practice sharing and benchmarking. Maybe it’s the increased oversight due to tight budgets. Maybe it’s the increased competition among vendors and implementation partners.

But whatever it is, the cost to implement an ERP system is decreasing, as is the time it takes to implement it, according to the preliminary results of Panorama Consulting’s annual ERP Report.

And while that is good news for companies considering implementing an ERP in 2011, Panorama warns that lower implementation costs and duration may come at the cost of reduced business benefits and increased ERP TCO. And that’s not a good thing.

Panorama’s analysis of more than 1,000 ERP implementations shows the average implementation cost of an ERP was $5.5 million in 2010, or 4.1% of a company’s annual revenue. In 2009, the average ERP implementation was 6.9% of annual revenue. That’s a good sign and a very good benchmark for those implementing now.

And perhaps an even more useful benchmark is the average ERP implementation time which decreased to 15.63 months in 2010. Of course, the implementation time varies dramatically based on the size of the company. If your company is more than $5 billion in size, then it’s closer to two years to implement (22.9 months) whereas smaller companies are down to 14.36 months. In terms of industry, construction and mining are the speediest implementers while “wholesale trade” is far and away the longest at 18.75 months. (The industry category data is useful, but certainly not exact, as industries are lumped together based on some similarities. Transportation and communications, for example, in the same grouping).

Panorama’s CEO Eric Kimberling says in his analysis that cost and duration decreased because “strained IT budgets forced companies to be more prudent with their ERP software implementations. Companies and their executive teams simply do not have the resources or the tolerance for risk to allow the cost and time overruns that were evident several years ago.”

But Kimberling also warns that companies implementing ERP systems may be cutting too many corners during implementation to produce these results and that when the final numbers are in, there may be an increase in the percentage of companies that experienced some of type of “material operational disruption” at the time of go-live.

“Assuming you have selected a software solution that is a good fit for your organization, things like project management, process design, organizational change management, scope management, and other business related factors are much more likely to impact your odds of success than the software itself,” he says.

See also: Tips for Selecting the Right Implementation Partner.

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