Why No ROI or Payback on An ERP Project is a Good Thing Especially Given the Cloud

Transcription

1 Why No ROI or Payback on An ERP Project is a Good Thing Especially Given the Cloud 875 Cerritos Corporate Dr., #A Cerritos, CA 9070 Toll Free : (800) 969-APEX Tel : (562) info@acsi2000.com Website :

2 Why No ROI or Payback on an ERP Project is a Good Thing Especially Given the Cloud When a proposal is put forward for implementing an ERP system one question invariably arises. That question is what is the ROI or Payback on this investment. It is always preferable to have such an analysis before embarking on the typical ERP project. A properly done ROI/Payback analysis builds a business case for the project, allows for better decision making and provides a baseline to measure against the timeline and dollars agreed to. However, determining the associated hard and soft dollar cost savings and amounts associated with both leaves much to the interpretation to those charged with the project. Also, regardless of ROI or Payback period, if the organization is evaluating/implementing a real-time integrated ERP application, with a talented staff augmented by the ERP software vendor, the benefits accrued to the organization over the long term more than justify the investment required. Remember a well thought out planned implementation, with the right personnel, will invariable be on time and within budget and therefore makes ROI or Payback almost an afterthought. That is a good thing. When you also realize that many ERP deployments are in the Cloud rather than on premise ROI and Payback will never be realized especially over the long term. That is the reality as Cloud now makes ROI or payback irrelevant, because there is none especially if you have a large monthly subscription fee. That is also a good thing. Now your priority is on running your business and being competitive rather than focusing on your IT infrastructure costs regardless of On-premise or Cloud deployments. Eventually the great majority of deployments will be Cloud rather than Om-premise as the reverse is true today. ROI or Payback of an ERP Project A ROI or Payback for an ERP project is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio. Payback is the amount of time that passes before invested money is returned or before money that is owed is paid. While it is relatively easy to calculate the expenditure for an ERP project, it is difficult to determine the hard and soft dollar savings from the project as assumptions are made and you know what happens when you assume. In addition, we must also discount ROI or Payback when the decision on an ERP project is a political rather than benefits based. Hard Dollar Savings and Soft Dollar Benefits of an ERP Project Sometimes it is difficult to determine what savings are hard dollar versus soft dollar. Hard dollar savings are tangible and identifiable saving as opposed to that realized from not spending. Soft-dollar savings are intangible benefits of ERP systems that cannot be as easily measured through quantifiable means but still hold value for your business. Some of the quantifiable hard dollar and soft dollar savings and benefits of an ERP system are mentioned below. Implementation of an ERP system, however, is not a panacea as any savings from reduction of personnel (i.e. clerical) is offset by the need to hire additional higher paid IT staff for an on premise deployment. As to a Cloud deployment, as mentioned previously, there is no ROI or Payback. Hard Dollar Savings: Inventory Reduction - As you buy what you need which is augmented by lower warehousing costs, less handling and transport, reduced obsolescence, and so on.

3 2 5 6 Improved Receivables (Days of Receivables Ratio) - Because the number of days between invoice and collection, on average, is reduced which is a significant cash bump, the result usually of improved billing procedures, visibility, aging control and accounting follow-up. Reduction in Material Costs - Leads to improved procurement practices especially requisitioning, purchase order, receipt and invoice processing. Lower Labor Costs - An ERP system helps improve manufacturing practices (and helps you grow leaner), and as such you can reduce outages, interruptions, and with them, re-work, overtime and mistakes. In addition, reduced labor cost through better allocation and reduction of overtime of workmen directly involved with production such as technicians and skilled workers. Improved Production Throughput - Through better scheduling of critical equipment and sub-contracting operations, thereby minimizing shortages, interruption and rework. Reduction in the cost of after sales services. In addition to hard dollar savings, the following soft dollar benefits also occur: Error reduction, accuracy of inventory record. Integration of information efficiency, transparency and effective MIS. Improved customer service. Establishment of standardized procedures. Improved accounting control. Legal and regulatory compliance. Make better management decisions. Do more with less i.e. be more productive. Enhance teamwork. Improve morale. Generally improve processes. Reduce duplication. Increased flow of information. 2

4 Calculating ROI or Payback and Why No ROI or Payback is a Good Thing There are standard calculations of ROI or Payback for an ERP project but as we have discussed the cost savings both hard and soft dollars are quite subjective. Soft dollars may be too cumbersome to even calculate. But historically these calculations are important for creating an overall business case for the ERP project. For those who need to know they have been successful they are measures one can lean on. As organizations move to the cloud and the calculation of soft and hard dollars is quite subjective the focus will be the overall running of the business with an ERP system. ROI and Payback become irrelevant as you must compete and ERP is required just like utilities, people and facilities and all else because you need it to run your business and be competitive. About Apex Computer Systems, Inc. (ACSI) A Trusted Advisor For the past 8 years ACSI has been a Microsoft Certified Gold Partner reseller providing full-range implementation services for Microsoft Dynamics NAV. Our organization serves a broad spectrum of clients ranging from emerging small and medium-sized businesses to Fortune 500 enterprise corporations across the nation. Combining the right people, processes, and technology, we offer a complete range of solutions to help our clients be more efficient and cost-effective. Our reputation for quality and excellence has been earned through proven commitment and delivery of solutions to our clients, business partners, and community. Our Consulting Services include: Pre-Sales Evaluation Assistance Services Proof of Concept Ensures feasibility of successful ERP system implementation. Customized Demo - Allows the customer to gain insight into ERP features and benefits within a familiar environment. Licensing Requirements Determine the most cost-effective number of Microsoft Dynamics NAV licenses. Deployment and Configuration Planning Deployment Plan Cost-effective plan to ease the burden on valuable internal resources. On-premises Hosting For customers that require on-site deployment. Cloud Hosting For customers that have limited on site IT resources and require rapid deployment. Operational Assistance Services Operational Planning Enables best practices of ERP solution for proper use. ERP Customization No two businesses are the same, so ACSI provides software customization to meet the customer s exacting needs. Training Services Deep understanding of the use of installed software to deliver core competency to users.

5 On-going Software Support Services Production Environment Review Maximizes the efficiency and productivity of the ERP system. Software Upgrades Manage and implement new versions of Microsoft Dynamics NAV and maintain data integrity. New Functionality Implementation Added as your organization grows to meet your new business requirements. Support World-class support with decades of ERP software experience for maximum uptime and minimal downtime. 875 Cerritos Corporate Dr., #A Cerritos, CA 9070 Toll Free : (800) 969-APEX Tel : (562) info@acsi2000.com Website :