Frequently Asked Questions – ERP Software
Four frequently asked questions about Enterprise Resource Planning (ERP) software include:
1. What is Enterprise Resource Planning (ERP) software?
ERP software allows businesses to manage massive amounts of information by integrating all departments and processes into a single, unified system that serves the individual needs of each department. This “information hub” delivers accurate, real-time information so that each department can efficiently communicate and share information across the entire organization. For example, using a modern ERP system, when a customer places an order for a particular product, the sales department can view in real-time how much of that item is currently stocked in the warehouse as well as the financial standing of that customer. Common applications include manufacturing, financials, supply chain management, production, engineering, HR and customer relationship management (CRM).
2. How can ERP improve my business performance?
A centralized, integrated ERP system provides invaluable benefits to organizations seeking to reduce costs, manage growth, streamline processes and gain a competitive advantage. Common business performance improvements include:
- Business process improvements
- Superior insight and data to drive strategic decisions and future process improvements
- An increase in productivity and efficiency
- Platform for growth and innovation
3. How much does ERP software cost?
This is a tricky question to answer because estimating the cost of ERP software requires careful assessment of an array of variables that can vary widely from company to company. Small-to-mid-sized businesses can expect the cost of software and services combined to range anywhere from $150,000 to $750,000. That said, there are a few key factors that influence the total cost of ERP:
- Number of users. Most systems are priced on a per user basis. You can expect to pay roughly $1,500-$4,000 per user depending on the functions needed.
- Number of applications/modules. ERP solutions are typically divided into applications or modules and companies can pick and choose the ones they need. This cost is usually factored into the cost per user.
- Implementation Costs. Typically, an implementation to software cost ratio of .75:1 to 1:1 is considered a good planning goal but a ratio of 1.5:1 or 2:1 is not uncommon for more complex or customized ERP initiatives, especially if the implementation will cover multiple sites and/or companies.
- Third-Party Software add-ins. Most ERP vendors integrate software from other companies to boost functionality or add value to their ERP systems. You can expect third-party software licensing to be about 10-15% of the overall software cost.
4. What are the hidden costs of ERP implementation?
Even well-planned ERP initiatives run into some hidden costs and overages. Common overlooked or underestimated costs include training, customization, data conversions and integration/testing.