How to SAVE MONEY on an ERP Project (ERP Budgeting Tips)
In this video, we're going to talk about how do you budget for this very expensive E R P implementation that you're planning, how to time the purchase, how to budget for it, and how to source the funds so that you have the money available when you need it to be. E R P systems and implementations for governments tend to be a very expensive endeavor. Sometimes it's a once in a career, once in a lifetime opportunity in a project for a finance director or an HR director or an IT director. When it comes time for budgeting for a new eerp system or modernizing your existing one, how do you know where to start? How do you know how much funds to look for? How do you know how to time it? You can look into a crystal ball cuz really sometimes that's all it takes cuz you don't know if you don't know.
And there are so many undefined variables that can go into budgeting for an E R P system that can leave you strapped for cash when you go down the path of E R P implementation and not be ready when the time comes. So how do you find out how much money you need to buy a new system or modernize a new system? You really have to take a comprehensive look at what you need. Again, goes back to documentation, business process redesign requirements, definition, what is it that you need? Think about this like building a house. You can't just go out under the market and say, Hey, how much for a house? You have to think about what you need, how much land, what kind of windows do you want? What kind of fixtures do you want? Take all of that, put that into a design document for an architect or a builder to tell you how much this thing is going to cost you.
Defining Requirements
So the first thing to do is really dig deep and define your requirements. Define future state processes. That's going to dictate how much a project or a product is going to cost you. The mistake you can make in this stage is calling a vendor to see how much they're going to charge you. Most vendors today charge you based on your population size or how many modules you want or what kind of product they have. If it's in the cloud, if it's on premise. Again, lots of variables to choose from, but the first thing to do is define your own requirements. If you go and ask a vendor, they'll give you a big number. Sometimes vendors are not going to work with you because they think you have a certain level of population they don't serve, or you're too small or too large for them. Again, there isn't a lot to talk about.
If you just ask how much is your system, they're not able to tell you unless you have a comprehensive requirements set. You really need to look at what functions and features you need from this new E r P system. The first step to identify that is doing a business process analysis, doing a requirements definition that's going to tell you what features you need and how to go about looking for them. Once you have that ready, you can put this RFP on the market and see what comes in. And as far as vendor proposals and budget requests, you must factor in the cost of training, maintenance, upgrades, and these things are sort of baked into a software as a service agreement today. But in case you're going with an on-premise installation, keep in mind that what you pay today isn't what you'll pay next year. You'll have to pay for maintenance and upgrades.
Implementation Costs
And not to mention during the implementation process, the software vendors team might tell you that it's going to cost you X millions or a few hundred thousand dollars for the system itself. But then they're also going to charge you for their side of the implementation cost, their implementation consultants, their configuration experts database experts. Implementation itself will cost you money. And then the system you buy the rights to whether it be a software as a service implementation or on-premise, have to keep paying for the licensing in some way or the other. And then you have to keep in mind that you are a small to medium sized government that doesn't have the resources to take this on as a full-time project. So you'll have to go look for a consulting team, you'll have to look for a project management team that can come in and take this project on your behalf and manage the third party vendor.
So all in all, you have to look at the tco, the total cost of ownership of this project, this product, this implementation that you're looking at. So it doesn't cost you more than you think it'll, it'll cost you upfront. The most important thing is looking at total cost of ownership from the perspective of how much does this thing cost me to stand up and implement, and how much is it going to cost me to keep running? And what are the benefits that are going to come out of this implementation? As a government agency, you can't just step into existing funds and buy things willy-nilly. You have to go through the commission council process, budget approvals, the budgeting process. So timing of your budgeting and how much money you have to come up for an E R P implementation is critical. We've seen clients that have taken the whole thing to commission have gotten a couple of million dollars approved for the system and the consulting and the implementation of it.
One Step at a Time
And we've also seen clients that have taken the project through the budgetary approval process in chunks. You might want to just do the business process analysis piece first. Then you go through the RFP process, then you to go to the vendor selection process. You can take these things to commissions and councils piecemeal, or you can say, Hey, we anticipate this to take X amount of dollars and let's just get approval for it upfront. The real key thing to remember there is that you need to have an out for unknowns. The project team may want to bring on additional consultants. The project team may want to go with a different vendor. The vendor may tell you in the end that we lied on the proposal, we didn't really think through our requirements when we responded, and we need X amount of dollars more really bad situation to be in.
But an effective project management team can help you avoid that scenario. So all in all, you have to look at the total cost of ownership, the timing of the budget, how you're going to find the funds, and at what point are you going to take this to your legislative body for approval. And a critical thing to remember is when you find the budget, when you get the approvals, make sure you don't pay the vendor, the software vendor upfront. No matter what the story is. They might tell you that, Hey, we need to set up the servers and we have upfront costs, so pay us half of it upfront. Don't do it. All of that can be negotiated and we'll cover that in another video that specifically talks about how to negotiate the contract and how do you keep the balance of payments in your favor. If you're embarking on an E R P implementation on an upgrade project and need to talk through budgeting and how to go about raising the funds and getting approvals from your council or commission, please get in touch. We've helped many clients do the same. Thank you.