QuickBooks is viewed as an ERP system

The real cost of an enterprise resource planning system

Glenn Tyndall Many companies began to use Enterprise Reource Planning (ERP) systems instead of accounting software applications. I differentiate an ERP-ytem from accounting systems in that B


Glenn Tyndall

Many companies began to use enterprise resource planning (ERP) systems instead of accounting software applications.

An ERP system differs from accounting systems in that accounting systems only perform accounting tasks. However, an ERP system can not only take on accounting tasks, but also general business management tasks.

Overall, it's a more powerful platform.

An ERP system is essentially a set of software packages that can perform accounting, product planning and development, manufacturing, inventory management, sales management, human resources, and other business tasks.

As with the cost of an accounting system, when choosing an ERP system, consider not only license fees, but also the total cost of the ERP system itself:

  1. implementation
  2. training
  3. Development to adapt
  4. Process redesign
  5. maintenance
  6. Upgrades
  7. support

Cost 1: implementation

It is necessary that professionals install and configure your ERP system. Therefore, you need to include these implementation costs in the total price of the ERP system. ERP systems are complex software applications. As a result, you will likely need to change operating systems, upgrade or change servers, and change other hardware and software that you use on your company's network in order for the ERP system to run properly.

You must or should also set up a test environment as part of the implementation so that you can test the ERP system without affecting the actual data of your company. This can save many potential man hours if implementation issues arise.

Cost 2: training

As mentioned earlier, an ERP system is a complex software application that can be viewed as a series of software programs that are compatible at the same time. Your staff will need training in how to use the programs because an ERP system is not as intuitive or easy to use as a basic accounting software program like QuickBooks or Peachtree.

Your company's employees need time and training. The ERP provider often offers additional training at a standardized hourly rate on request. There will be times when a consultant will be needed when there is specific content or a particularly difficult need. Either way, you need to factor these additional costs into your analysis when reviewing ERP systems for purchase.

Cost 3: Develop to Customize

The ready-to-use functionality of an ERP system is not enough to run your company effectively. You will have to pay some expense to develop customized reports so that your employees can easily perform their daily and monthly tasks.

An ERP system can store a significant amount of information, but users have limited access to the information. As such, it is not uncommon for IT staff to be responsible for developing customized reports for different departments so that business processes and analysis can be performed in a timely manner.

Cost 4: process redesign

If your company is upgrading from an accounting software program to an ERP system, you will certainly have to redesign many processes. For businesses using accounting software, many tasks outside of the software can be done either manually on paper or in a third-party application such as MS Excel.

Theoretically, purchasing an ERP system should mean that many of these tasks are automated by the software in order to increase both the accuracy and the efficiency in performing these tasks. Even if your company changes ERP systems, no two are alike, so you can expect some changes in your company's business processes to be the same as the software's processes.

Cost 5: maintenance

You need to maintain your ERP system so that you can take these costs into account. ERP costs can include hardware, network, and labor costs from IT and other departments to ensure the system is working properly.

The maintenance costs for an ERP system are usually between 15 and 20% of the original purchase price. An ERP facility costing $ 250,000 would theoretically have maintenance costs of $ 37,500 to $ 50,000.

Cost 6: upgrades

Like all software programs, ERP systems require regular upgrades in order not to be out of date. You should consider how often you expect to upgrade your ERP system and what the cost of doing the upgrade will be.

You should also take into account that an upgrade can affect business processes and require additional hardware or software to keep the system running smoothly if your business is not running in a mirrored configuration while the updates are being performed or the data is being transferred.

Cost 7: Support

Your employees will have problems using the program and you will find numerous errors in any ERP system. Therefore, you should ensure that your provider is providing you with adequate technical support to resolve these issues.

You should ask your vendor whether this support is included in the license fee or is an additional cost, as technical support can affect your bottom line if not included with the first purchase and not closely monitored.