Return on Investment, or ROI, is a type of financial metric used by a wide range of organizations to help them measure project returns, and to compare these with other potential investments, be it software, hardware, resources, or manpower. And while we’re talking software, let’s talk ERP and ERP implementation ROI. On the surface, the ERP implementation ROI metric is pretty simple – it’s calculated by adding up the expected return from an ERP system and then subtracting the expected costs of the ERP.
What do you first need to know about Enterprise Resource Planning, otherwise known as ERP? For starters, it’s the desegregated management and control of various business processes. This type of planning is often done in real-time and is mediated by both technology and software so that businesses can achieve better and more accurate results from their completed tasks.
Read on to learn how ERP can make your business more efficient and more productive, and how you can use your ERP system to calculate your organization’s ROI.
Modern ERP and Cost
Modern ERP solutions can help businesses reduce their overall operating costs while also increase their productivity. Moreover, ERP comes equipped with standard features and functionality that help automate your daily tasks and processes, many of which you once (or still are) handled manually. As a result, saving valuable time and no less, cost, is undoubtedly the most welcoming benefits of implementing an ERP system.
Investing a considerable amount of money in purchasing and implementing an ERP system is but a piece of cake. Justifying the overall budget, as well as a large expense, are inevitable factors that can affect the process. The entire cost of ERP implementation, licensing, maintenance, and training, is also called the Total Cost of Ownership, or TCO. The estimation of a business’ TCO is typically calculated over a period of five, or sometimes even ten years.
There is another reasoning that justifies the TCO for onboarding ERP, and that’s the unprecedented number of benefits that follow a newly implemented ERP system.
Want to Calculate ERP ROI?
Return on investment can be calculated by adding the expected returns from the ERP system prior to dividing the final amount by the TCO of the system itself. The quotient of all of these calculations is your ERP ROI. Taking all this into consideration, it’s easy to conclude that the larger the quotient, the greater the benefits for your business.
Precisely determining ERP ROI will encourage many companies to outline their total cost before financial action is taken. The following points illustrate just how important implementing a calculated ROI of ERP is:
- It will justify the ERP process financially
- ROI is likely one of the most important and crucial criteria in selecting the right ERP for your company
- This calculation will enable your company to measure the expected benefits from ERP, obtained following the implementation process
- It will give your business clarity in terms of your organization’s future, especially for the next 5 or 10 years
- The calculation will also enable business leaders to learn their company’s productivity rate, and how it can be improved, both short- and long-term
How Can You Achieve ROI of Your ERP System?
- By implementing organizational data for better ROI. Evaluating, implementing, and selecting an ERP system will generate a vast amount of business data. Bringing together every aspect of it, and connecting the dots, is a staggering task. Teams from each department need to act objectively and in sync, giving active input, to ensure consistency, and help counter any bias.
- By putting the focus on processes and people, rather than technology. Companies can manage to achieve increased ROI simply by not getting involved (often, knee-deep) in all of the technological aspects. ROI can be calculated based on the management of a business process, its required resources, and its organizational changes thereafter.
If you’re aware of the greatest opportunities ERP can and does deliver, then the implementation will affect your ROI. Selecting an ERP solution adapted and customized for organizations that require the largest improvement, will have the best possible impact on your business, and will in turn, further improve your overall ROI.
If you’d like to learn more about ERP implementation ROI, and drill down to the “dollars and sense,” contact us to schedule a call with one of our ERP experts.