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Study points to high cost of managing ERP systems

Veronica C. Silva | July 5, 2013
Multi-million outlay can turn into another multi-million in operational costs as businesses evolve along with the ERP system.

If you think your organisation is saving up by digitising and computerising your operations, you may have to rethink your cost-cutting strategy. A recent study revealed that in some cases, IT costs may be higher than expected, depending on how your organisation grows and develops. 

A white paper by IDC revealed that some changes in how businesses grow are adding up to the cost of enterprise resource planning (ERP) solutions, particularly in maintaining these systems. 

The IDC white paper, titled “Maintaining ERP Systems:  The Cost of Change” and published in May 2013, is based on a survey of 164 executives in North America and Europe. The white paper was sponsored by Unit4, a Netherlands-based software company that incorporates different software brands to help government and private enterprises to embrace change. 

The white paper noted that while deploying an ERP system in the organisation is critical to any business, there are some insurmountable costs involved in managing and maintaining the system as businesses evolve. It turns out that changes made to the ERP system, including upgrades, can cost businesses millions of dollars annually. 

Initial outlay 

Survey respondents said that after an initial outlay of millions of dollars to deploy the ERP, it still cost them anywhere from US$1.2 million to US$4.1 million to effect some changes in the ERP as businesses also change to adapt to market trends. 

Fifteen percent of survey respondents said they have had to re-implement their entire ERP system; of those organisations, 60 percent report this was after an original US$2.5 million cash outlay.

Even organisations that have implemented newer versions of some of the name brand ERP systems have not escaped the spiraling costs. 

“It would be a reasonable assumption that systems implemented in the last three years would be more modern ERP systems, and thus be more flexible and easy to modify,” said Michael Fauscette, global vice president, Software Business Solutions, IDC.  “The survey data though shows a very different picture.” 

Businesses that have recently implemented new ERP solutions are the ones that have most likely gone through business changes, such as mergers and acquisitions, and compliance to regulatory requirements. Because of these changes, they are the most likely ones to change their ERP solutions. And these changes involve costs. 

Business changes 

The white paper noted that while newer ERP systems are more flexible and agile to accommodate business changes, these changes come with a price tag. And organisations have already accepted the undeniable reality that these costs will not simply go away.  

“The frequency of change and subsequent investment to make the ERP system support the business has become so common that many businesses simply accept that there is no better way to operate business,” Fauscette said.  

 

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