Budgeting for an ERP system involves a few additional tools and forecasting methods that are intrinsic to the implementation lifecycle apart from the usual projections and inputs that go into any budgeting exercise. It is important that decision-makers factor in every single aspect to prevent cost overruns and implementation bottlenecks. Typically, an ERP system implementation involves three different components – the technical aspects, the human involvement, and the migration of data. ERP budgets are basically woven around these aspects with the inclusion of other components like contingency expenses.
- Calculate the technical costs involved in setting up the ERP software
Contrary to general perceptions, this could be the easiest component, as far as budgeting is concerned. Decision-makers who have a well-defined project scope can seek quotes from vendors and decide on the best choice after matching functional requirements and vendor ratings. The technical costs include all costs towards hardware, hosting, maintenance, technical support, network, technical communications, applications software and interfaces etc.
- Forecast and plan for the costs towards human resources requirement
Here, the involvement of resources would include internal and external. Arriving at a conclusive figure or an estimate may actually be a challenge, but nevertheless, is mandatory to get as close as possible. The aspects that form the human element in the lifecycle are project management, consultants, resource costs towards deputed team members and training.
- Pay attention to projected implementation costs of migration
This could be the intangible factor in the budget, the blind alley. Care needs to be taken to closely look at the costs towards extraction of data from legacy systems, and its migration into the new system. This effort is pivotal to the efficacy of the ERP software, and a budget should forecast the right allocation.
- Contingency funds for identified risks
The budget should have a contingency fund to mitigate identified risks that can occur at any stage of the implementation. Proper planning will certainly reduce the risk, but factors beyond the control of organisations are prone to risks and it makes sense to be prepared with a contingency allocation.
- Calculate savings, document the progress and review on completion
During the implementation, it is possible to get more clarity on the projected and actual savings as a result of the ERP solution. The progress needs to be carefully documented, with an objective comparison and analysis which needs to be reviewed on completion.