Why ERP Implementation Cost Estimates are So Wrong - ERP Cloud Blog
 
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Robert Jolliffe, Sabre Limited

Why ERP Implementation Cost Estimates are So Wrong


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ERP Implementation Cost

...Even the thought of this can bring on heart palpitations and cold sweats.  If you are shopping for a new system this can keep you up at night. Talk to almost any company that purchased an ERP system in the past, and you will hear a common concern ... “How can I trust your quote?”

Historically, ERP implementation companies (often called ERP Partners) have been terribly (I would say notoriously) wrong when they estimate the ERP Implementation cost.  We’ve all heard stories about SAP implementations that exceeded estimates by millions of dollars.  For a small business, buying an ERP can mean expecting to pay in the $100,000 range for training and deployment. For these small businesses, the risk of cost overruns of 100% to 500% (as is often reported) is a serious concern.

So why does this happen?

I have been providing ERP services for almost 20 years, and for most of my career I have been “Rescuing” bad implementations.  I have seen a lot of projects that have gone several times over budget, and where the relationship with the Partner and the Customer has deteriorated beyond repair.

The one common thing I have seen, is that in the majority of the bad implementations, the decisions made in setting up the system and using the technology was wrong.

The customer invariably complains, “the Partner never helped us, they showed us how to set up the system and left it to us to make the decisions.”

In most of these cases the people (both the consultants at the Partner, and the staff at the Customer) are smart and capable.  In most of these cases the ERP itself was technologically capable of doing a good job.

In the absence of bad people and bad technology, there must have been something wrong with the process.

The Traditional Process

The process of implementing an ERP has traditionally been done by Partners that are “generic” in their focus.  

Experienced ERP consultants (historically) come from an organization that really knows the software, and has spent thousands of hours becoming an expert, but doesn’t necessarily have a background in the customer’s industry because their sales reps will sell to any and every industry.

The customer’s staff (in a small or medium business) come from an organizastion that really knows their industry, and has thousands and thousands of hours of experience.  Most small and medium businesses however have nobody on staff who have the expertise of implementing an ERP and they don’t know the software.

Since the ERP vendor is traditionally expected to be the trainer, it only makes sense that the ERP vendor would make an effort to train the customer to be an expert in the software, so that they can assist in setting up the system.

Remember, it takes thousands of hours to become an expert. Malcolm Gladwell says it takes 10,000 hours.  That may be a stretch - but you can’t become an expert over night.

This is the flaw in ERP implementations that results in the quotes being radically wrong.  The customer is expected to become an ERP expert so they can make the setup decisions needed to get the system working, but the quote never has enough time for this.  

An ERP that is configured and set up by someone who is not an expert, will inherently be done wrong and result in cost overruns.

Customizations

Addressing the ERP implementation mistakes often results in customizations.

I have seen a lot of customizations that are probably only needed because the ERP was set up incorrectly.  This is not to say there is never a place for a customization, but if you are using an ERP incorrectly (because it was set up wrong) then you are going to need a LOT of customizations … or you need to start over and do it right.  Sometimes the latter is too bitter a pill to swallow.

For more information

I recently recorded a Youtube video on the subject that you can watch here.  

To learn how Sabre has overcome this problem, stay tuned for my upcoming blog and video explaining how we have changed the process of implementing ERP.
To learn more about Sabre, visit our homepage at www.sabrelimited.com.

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