8 Steps to help ease your ERP software selection process:
STEP 6: Proposals
There are many different components to the cost of implementing a new ERP system. Some of the costs may be hard to quantify such as staff training costs and inefficiencies in the first few days of using the new system when going live. This article tries to help you identify the typical out-of-pocket costs associated with implementing a new system. These costs are usually much easier to quantify.
First, there is a misconception in the marketplace regarding the cloud. Whether you implement your new system in the cloud or on-premise has nothing to do with how you pay for your new system. There are some vendors that force you to let them host your data and server(s), but most vendors give you choices of hosting your server(s) on-premise or in the cloud.
Any particular vendor may or may not offer subscriptions (paying a fee monthly) or paying an up-front amount for the license. But the payment arrangements have nothing to do with where your server(s) and data are hosted, unless a particular vendor forces the two to coincide. For example, many cloud-based-only systems only offer subscription pricing. Where as many larger ERP vendors offer both traditional licensing (pay for it once, up-front) or subscription pricing. All of the same pricing components still apply. It’s just the manner in which you pay for them that changes. So when comparing costs, it is wise to understand the underlying components and then figure out how each particular vendor is bundling them.
- License Fee
You can either pay for your license fee up-front (perhaps with financing or through a lease) or you can enter a subscription agreement where you agree to pay a certain amount monthly or annually for as long as you continue to use the software. Some vendors offer both options. Some only offer one or the other. Most vendors base the license fee on the number of users but some vendors offer enterprise or unlimited user licenses. If the vendor bases the license fee on the number of users, make sure you understand whether it is based on named users or concurrent users. Some vendors also differentiate based on what the user will be doing in the system. For example the license fee for a view-only user may be different than a full user license. Just make sure you understand what is being proposed.
- Maintenance
Different vendors have different terms for this but it is the ability to receive new versions of the software at no additional charge. In today’s security environment, it is critical to keep your ERP system upgraded to support the current operating systems and database systems. Make sure you understand how you receive access to new versions of the ERP system as they are released and what the new versions cost.
- Telephone Support
You will want to have access to telephone support during the implementation and even after the system has been implemented. Make sure you understand what the cost will be associated with this support. Some vendors offer an annual fee for a certain number of people. Some have you pay per incident. Also understand whether you can only call your local dealer or whether you can call the developer of the software with your questions.
- On-site Support
During the implementation you will want significant on-site support for at least train-the-trainer instruction. You should also plan on running the new system in a test environment prior to using it in a live situation. Make sure you understand the hourly or daily cost of this support and the level of experience of the team who will be on-site. This cost can easily be as much as the license fee.
- Data Conversion
How are you going to get your master files set up in the new system? Are you going to re-key all your customers, vendors, inventory items, etc.? How about historical transactions? This cost can be significant depending on how much transaction history you want electronically imported into the new system. Make sure you understand what the hourly or daily cost will be for receiving this service.
- System Integration
Will the new ERP system need to “talk” to other systems? Understand how you will be billed for the integration costs.
- Enhancements
Enhancements are not evil as long as they don’t stop you from upgrading to new versions and they are common in mid-range and large implementations. Make sure you understand the vendor’s strategy of maintaining any enhancements as new versions are released. If you’re going to have to pay to have enhancements re-done from scratch every time a new ERP version comes out, make sure you understand that up-front.
- 3rd-Party Add-ons
Make sure you understand who is responsible and what the cost will be, if any, for maintaining the interface to 3rd-party add-ons as new versions of the ERP system are released. Do you need separate maintenance and support for the 3rd-party add-on?
- Database
ERP systems typically require a database such as Oracle or Microsoft SQL Server. These can be free but they can also be quite expensive. Make sure you understand what level of redundancy you are getting with the proposed database and what the maintenance and support costs associated with the database are going to be.
- Hardware
It is not uncommon to need new monitors and/or workstations. Make sure you look at the minimum recommended requirements for the ERP system to determine if you need to purchase new monitors or workstations. It’s almost always advisable to purchase a new database server to house the new database. You can spend as much or as little as you want on hardware for a database server. If performance is critical to you, get the most RAM you can afford so the database is housed in memory. SSD drives can also dramatically improve performance in most scenarios. If you’re in a subscription environment where hardware is included, make sure you understand how many other users will be sharing your hardware and how that might affect performance.
- Remote Access
You can easily have remote access to almost any ERP system whether it is a cloud-based system or not. There are too many possibilities to cover them all here but make sure you understand the hardware and licensing costs for any remote users you may have. Don’t assume you need a cloud-based solution or a browser-based system just because you have remote users.