[Video] How to Calculate the True Cost of a New ERP | ERP Cloud Blog
 
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Intelligent Technologies, Inc.

[Video] How to Calculate the True Cost of a New ERP


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If you have an accounting or ERP system, that’s reached a certain age, it’s natural to wonder whether to keep the status quo or replace it with something new. As your software ages and your business grows, issues can pop up which at may at first seem like slightly annoying idiosyncrasies. But, as one issue leads to others, the risks you face by holding onto an outdated system intensify.

If you’re at the point where you think it may be time to replace your ERP system, where you begin? One thing that can be very helpful is calculating the true cost of a new ERP system. Luckily, there’s a formula for that, it’s:

True Cost = ROI - Total Cost of Ownership

 

While the formula itself is simple, some people struggle with figuring out what to include in each of these figures. To answer these questions, we created the video you see below. In less than two minutes you’ll get a quick visual overview of the most important factors to include in your total cost of ownership calculation.

 


Can’t watch right now? No problem! Keep reading for a written list.

 

ROI: What to Include?

This figure looks at both the potential savings and costs of buying a new ERP system. Important questions to ask yourself when calculating it are:

  1. Could a new system help me decrease my operating expenses? By how much?
  2. New ERP’s, are more user-friendly than legacy ones, which allows people to get more done in less time and boosts employee satisfaction. How could an increase in productivity save my business money?
  3. Many new ERPs can integrate directly with your customer relationship management system. Finally, you have a single version of the truth and can get a 360° view of every customer. Having this data at their fingertips makes it easier for customer support reps to respond to issues. What kind of cost savings or increase profit might this bring?
  4. Having a single space to store all of your most important business data allows you to make data-driven decisions faster, how might that help the bottom line?
  5. How much will the new software licenses cost me?
  6. How much time and money will I have to spend training users on the new system?
  7. What will it cost me to maintain the new system? (IT overhead, if any)

 

Total Cost of Ownership: What to Include?

The formula for the total cost of ownership is:

Purchase Price + Implementation Costs + Operating Costs (for the next 5 to 10 years).

 

The first two parts of this calculation are cut and dry. But, the third piece, operating costs sometimes confuses people. So, to help point you in the right direction, here are a few important factors your operating cost calculation should include:

  1. Projected upgrade costs
  2. Projected costs of any future customizations
  3. Staff time and effort spent implementing the new system
  4. Ongoing training costs (both for new users and existing ones)

 

While not quite as easy as 2+2, figuring out the true cost of a new ERP system does not have to be difficult, if you follow the formulas, we’ve laid out here. And, if you’re looking for an even easier way to get an estimate of the cost to replace your ERP system, check out this handy calculator tool developed by Acumatica.

Questions about calculating the cost of a new ERP? Not sure whether now is a good time to make the switch? Contact us, our experts will be happy to discuss your needs. And, when you’re ready to explore your ERP options, visit this web page to meet some of the most popular options on the market today.

 

By: Laura Schomaker, Intelligent Technologies, Inc., a NC Acumatica partner

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