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Stay On Track: ERP Budgeting Best Practices for Maximum Cost Savings

Written by Laura Schomaker

September 21, 2023

Enterprise resource planning (ERP) systems are important in modern businesses, allowing organizations to simplify processes like accounting, human resources, project management, and inventory/order handling through a centralized database. Despite these systems’ importance in navigating the business world, many companies struggle with common ERP challenges, such as budget overruns.

Avoiding exceeding your budget and guaranteeing budget compliance requires effective strategies to stay on track. This article will help you plan your ERP implementation and avoid going over budget by providing the top practices for budgeting your ERP system. Let’s get started!

Thorough Planning

ERP budgeting requires thorough planning for clear project objectives and scope. To navigate the budgeting process, have specific goals and outcomes for your ERP implementation. Some objectives you might intend to achieve with implementation include:

  • Improving organizational efficiency
  • Enhancing customer service
  • Streamlining HR tasks
  • Simplifying order management
  • Reducing organizational costs
  • Mitigating your labor cost

To outline your project while preventing scope creep, keep clear documentation of the processes included in ERP implementation and know the number of users interacting with your new system. Define anything out of scope to avoid unnecessary expansions during the implementation process.

Never underestimate the power of a project plan. Create a thorough timeline with individual phases and activities for implementation to ensure you hit all touchpoints. Pay attention to critical milestones like testing phases, go-live dates, etc. Assign specific roles and responsibilities for your ERP team members to ensure everyone knows what’s expected of them.

Allocate an appropriate budget to stay within range during this initial phase and base this budget on realistic estimates and expectations to avoid overwhelming your team. You can determine this budget by working with relevant stakeholders and factoring in training, migration, and change management costs. Set aside contingency funds for any unforeseen expenses during implementation.

Selecting the Right ERP System

Choosing the appropriate ERP software for your company’s needs is vital to a seamless transition. Selecting a system starts with a comprehensive needs assessment, where you identify your organization’s unique requirements and priorities for your ERP solution.

Evaluate all available options to determine whether systems align with your needs, considering scalability and flexibility to accommodate future business growth. While you might have many vendors available for your ERP system, not all vendors have the same resources to help you during this process. Thoroughly research different vendors and assess their track records in your industry, considering elements like the vendor’s stability, reputation, hybrid options, and years of experience in ERP solutions. Trustworthy vendors should provide references and customer testimonials to prove their reliability.

Consider the total cost of ownership (TCO) before choosing a vendor. TCO is an estimate that helps determine the value of your investment in the following areas:

  • Software
  • Implementation, customization, and training
  • Hardware
  • IT personnel
  • Maintenance
  • Upgrades

While vendors might have promising initial costs, ongoing expenses can blindside you if you choose the wrong provider. Assess each ERP system’s long-term benefits and return on investment (ROI) before integrating it into your business process.

Efficient Project Management

A medium-sized business implementing an ERP solution requires efficient project management to succeed. Establish a robust project governance structure and appoint roles to your team members, such as choosing a project manager and forming a steering committee. Project managers work with project owners to ensure the ERP solution is deployed on time, on budget, and following project specifications. Your team will also need clear communication channels and decision-making processes to guarantee success during implementation, where transparency is key.

As you navigate your ERP purchase, continuously monitor and report progress in real-time. Implement key performance indicators (KPIs) to track project advancement, such as budget control, adherence to project timelines, and completion of specific phases in the project. Have routine status meetings with your team members and stakeholders to address issues during implementation and provide key updates.

Always prioritize change management during implementation. Have strategies to manage employee resistance to change effectively, including open communication channels and employee meetings to address concerns and challenges. Invest part of your budget into training and support to improve employee adaptation to your new system, and offer ongoing support through help desks, documentation, and user communities to assist employees during the entire process.

Risk Mitigation

Identifying potential risks that can arise during ERP implementation requires a comprehensive risk assessment at the project initiation stage. Recognize risks related to your technology, personnel, and other external factors to assess risk impact and likelihood. These risks include problems with software compatibility, system performance, regulatory changes, and vendor-related risks.

While not all risks are avoidable, you can plan by having strategies in place for risk mitigation. Establish thorough contingency plans for high-risk scenarios and allocate resources to mitigate issues. Continuously review and update risk assessments as the project continues and ensure you assign responsible parties to risks with clearly defined roles should issues arise. Monitor your project progress consistently and remain prepared to address challenges that can impact your budget, timeline, and scope.

Vendor Management

Vendors are some of the most important stakeholders in your ERP software implementation, and choosing the wrong vendor can diminish the effectiveness of your cloud-based systems. Always ensure clear contractual agreements that include all costs and fees associated with the ERP vendor. Ensure you and the vendor agree on responsibilities and deliverables.

You’ll need a team that provides diligent vendor oversight to prevent common problems from arising. When negotiating with vendors, remain strategic and seek cost negotiation and budgeting optimization opportunities. Long-term partnerships can unlock potential cost reductions, so when you find a trustworthy vendor, stick with them. Consider perpetual licensing to save money on your license fee.

Testing and Quality Assurance

Thoroughly test your ERP system to identify and address any issues and guarantee its quality before your go-live stage. Test various aspects of your system, including modules, integrations, and functionalities, to guarantee everything works as expected. Involve end-users in comprehensive user acceptance testing (UAT), collaborating with them to test different scenarios and cases. These users should interact with your system to provide accurate feedback on its usability and alignment with business requirements.

Implement effective quality assurance measures to establish quality control processes and guarantee system integrity. Document these processes throughout the project and ensure adherence to best practices for ERP implementation. When defects or discrepancies occur, address them efficiently to avoid costly reworking. Identifying these issues is possible by having team members with clear responsibilities to discover issues during testing that could disrupt business operations or harm data integrity.

Ongoing Monitoring and Optimization

Conduct a comprehensive post-implementation review to ensure everything runs smoothly and as planned. Evaluate your ERP system’s performance and its impact on your organization to determine whether it meets its goals. During post-implementation, you’ll likely notice some areas for improvement and cost-saving opportunities that can help keep your ERP system affordable and lower the total cost.

Keep your ERP system up-to-date and scale as necessary to meet ongoing business needs. Remain aware of required software updates and patches that can enhance your system’s efficiency and effectiveness, and frequently optimize your processes to maximize ROI.

Conclusion

Cost savings are a crucial element of successful ERP implementation and budgeting. Maintaining budget compliance during implementation is possible with thorough planning, the right ERP system, efficient project management, risk mitigation, vendor management, testing and quality assurance, and ongoing monitoring and optimization efforts. By meticulously planning the implementation process, you can keep your operation on budget and on track for success. Achieving budgetary goals is feasible with a well-executed strategy and a commitment to ongoing improvement. Learn more about staying on track with ERP budgeting by downloading our guide today!

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