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Hidden Costs of ERP Implementation for SMBs

Naama Aharoni  |  May 24, 2023

What to look for when implementing an ERP system - the hidden costs

Enterprises of all sizes increasingly turn to enterprise resource planning (ERP) systems to streamline operations and increase productivity. However, when implementing an ERP system, many small- and medium-sized businesses don’t take into account the hidden costs associated with such implementations. Without properly accounting for these additional costs, companies can find themselves in a precarious financial situation that may ultimately lead to project failure.

This blog post will examine some of the most common hidden costs associated with ERP implementation projects and discuss best practices for identifying and reducing them.

THE 12 COMMON HIDDEN COSTS OF ERP IMPLEMENTATION

1. CUSTOMIZATION

When companies implement an ERP system, they often expect that the software itself will be able to handle their business needs out of the box. However, many ERP systems are not equipped with features tailored to individual businesses' specific requirements and processes.

As a result, organizations may need to invest in customizations or additional modules to meet their unique operational needs. These costs can add up quickly, so it is important to identify any potential customization requirements before committing to an ERP solution.

To reduce customization costs, companies should thoroughly assess their requirements and processes to ensure that the ERP system they choose can adequately accommodate them. Additionally, organizations may want to consider using an “off-the-shelf” solution or working with a vendor who offers extensive customization options.

2. DATA MIGRATION

When businesses are transitioning from one ERP system to another, a large amount of data typically needs to be transferred over. This process can be time-consuming and expensive if not done properly.

The cost of data migration can be reduced by working with an experienced ERP vendor with a proven track record of successful migrations. Additionally, companies should ensure that their data is properly backed up before any changes are made to the system and that they have sufficient resources in place to execute the migration process effectively.

3. TRAINING AND SUPPORT

Many businesses find themselves in need of additional training and support when implementing an ERP system. This can include teaching employees how to use the software, providing ongoing technical assistance, and addressing any user-related issues.

As such, it is important for organizations to allocate sufficient budget for these types of costs before beginning the implementation project. Organizations looking to reduce training and support costs should consider hiring certified consultants who can provide the necessary guidance. Additionally, they may want to consider leveraging the expertise of their own IT personnel or investing in a system that is easier to learn and operate.

4. HARDWARE AND INFRASTRUCTURE

The hardware and infrastructure requirements for an ERP implementation project can vary greatly depending on the size and scope of the organization’s operations. As such, businesses should be sure to factor any potential hardware or infrastructure costs into their budgets before beginning the project.

To reduce these types of expenses, there are a few options available. Companies can invest in cloud-based ERP solutions, which typically require less hardware and infrastructure than on-premise systems. Additionally, businesses can consider working with third-party providers who specialize in hosting ERP solutions or outsourcing certain components of the project to experienced service providers.

5. INTEGRATION WITH EXISTING SYSTEMS

Another common hidden cost associated with ERP implementation projects is integration with existing systems. Many companies have disparate systems in place that need to be connected and synchronized with their new ERP system before it can be used effectively. This process can be complex and time-consuming, and organizations should plan accordingly to ensure that they allocate sufficient budget for integration costs.

To minimize these expenses, businesses should clearly define their integration requirements before selecting an ERP solution. Additionally, they should look for vendors who offer pre-built connectors or other tools that can help simplify the process.

6. ONGOING MAINTENANCE AND UPGRADES

In addition to initial implementation costs, organizations must also consider the cost of ongoing maintenance and upgrades. These expenses typically occur when a software update is released or an issue arises with the system that needs to be addressed by a support team. Therefore, companies should ensure sufficient resources are allocated for these types of tasks before beginning their ERP project.

Businesses looking to reduce their long-term maintenance and upgrade costs should carefully research potential vendors before making any decisions. They should also ask about service level agreements and look for ERP solutions that are designed to be easily maintained and upgraded.

7. COMPLIANCE AND SECURITY

The cost of compliance and security is often overlooked when implementing an ERP system, but it is nonetheless important for organizations to consider these expenses before beginning their project. Companies must ensure that their systems meet the necessary requirements related to data privacy, security standards, and industry regulations in order to remain compliant with applicable laws. This can require significant resources on the part of the organization, so it should be taken into account as early as possible in the planning process.

Organizations should research potential vendors carefully before committing to any particular solution and inquire about what steps they take to protect customer data from unauthorized access or misuse. Additionally, they should select ERP solutions that are designed to meet their specific compliance and security needs.

8. CHANGE MANAGEMENT

The cost of change management is another hidden expense often associated with ERP implementations. Businesses must plan for any necessary changes to organizational processes or procedures for the new system to be successfully adopted and implemented. This can include employee training programs, communication strategies, and other initiatives designed to ensure that everyone is on board with the project from start to finish.

Organizations should consider implementing a comprehensive change management strategy from the outset to minimize employee resistance and ensure a smooth transition into the new system. Additionally, they should be sure to factor any potential costs associated with these initiatives into their budgets before beginning the project.

9. LABOR COSTS

Another hidden cost associated with ERP implementations is labor costs. As mentioned previously, integrating a new system into existing procedures and processes can be time-consuming and complex, and organizations must consider the cost of hiring additional staff or outsourcing certain tasks to experienced service providers. Additionally, companies should also plan for any potential changes in staffing structures that may be necessary as a result of implementing an ERP solution.

Businesses should assess their current staffing needs carefully before selecting an ERP solution and look for solutions that are designed to minimize complexity while maximizing efficiency. Additionally, they should research potential vendors thoroughly to ensure sufficient support is available during implementation and beyond.

10. TESTING

Testing the new system before it goes live is crucial to ensure all components work properly. However, this process can be labor intensive, so companies must factor these costs into their budgets when planning an ERP implementation. Additionally, businesses should also plan for any necessary retesting that may be required due to changes in the environment or other unforeseen issues.

In order to minimize these expenses, organizations should carefully research potential vendors before initiating their projects and look for solutions designed with testing and debugging capabilities in mind. Additionally, they should ask about service level agreements and what type of support will be provided throughout the process.

11. CUSTOMER DISSATISFACTION

Customer dissatisfaction is another hidden cost associated with ERP implementations that businesses must plan for. Poorly managed projects can lead to disgruntled customers who may leave negative reviews or cancel their subscriptions due to a lack of satisfaction with the product or service. Additionally, customer complaints can also negatively impact a company's reputation if not addressed promptly and effectively.

Organizations should consider implementing stringent quality assurance processes before launching any new system into production to minimize potential customer dissatisfaction. Additionally, they should have comprehensive customer feedback mechanisms in place so that any issues can be identified and addressed quickly.

12. RESISTANCE OF EMPLOYEES TO ADOPTING NEW ERP

Finally, organizations must consider the potential cost associated with employee resistance to adopting a new ERP system. Many employees may be hesitant or unwilling to embrace the change, leading to decreased productivity and lower overall satisfaction. Additionally, their actions can also impact customer relations if not addressed appropriately.

To minimize costs associated with employee resistance, organizations should implement clear communication plans that outline expectations for all staff members and provide ample training opportunities before implementation. Additionally, they should ensure that everyone is on board with the project from start to finish to ensure the successful adoption of the new system.

banner- ERP implementation timeline
BEST PRACTICES FOR IDENTIFYING AND REDUCING HIDDEN ERP COSTS

To reduce hidden costs of ERP implementation, businesses should consider the following best practices:

  1. Conduct a thorough needs assessment before choosing an ERP system to ensure that all components are properly aligned with strategic objectives.
  2. Research potential vendors and inquire about support levels, testing, and debugging capabilities before implementing.
  3. Establish quality assurance processes and customer feedback mechanisms that can quickly identify any issues that arise during or after the installation of the new system.
  4. Implement comprehensive training programs for employees to minimize resistance against adopting the new system and ensure successful adoption and usage within the organization.  
  5. Monitor progress throughout the project to quickly identify and address any issues that arise along the way. 


CONCLUSION

ERP implementations can often lead to hidden costs if not properly managed. Organizations should carefully assess their needs before selecting a solution and research potential vendors to reduce costs.

By taking the necessary steps to identify these hidden costs early on in the process and managing them appropriately throughout the project timeline, organizations can ensure a successful and cost-effective ERP implementation.