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By: Anusha

Can company really get significant and continuous return from ERP investment? What is ROI?

Hi readers,


I would like to share some ideas about ROI – Return On Investment on the implementation of ERP. One of the main reason for the ERP implementation is the need for general & standard IT platforms. Some other reasons are; improvement of the process, reduction of operating cost, effective time management, effective data evaluation efficient performance etc...


ERP implementation will definitely affect your business in an immense way. Some impacts of ERP implementation can be easily measured but definitely not all of them, but ROI analysis is a useful starting point. Estimating the ROI before the ERP implementation will help us to reduce overall cost. Is that the only reason??? Definitely “ NO ” there are a number of reasons to determine ROI, we will check it out one by one.


1. From a financial point of view, ROI provides secure and strong confirmation for ERP implementation. 

 We all know that the future of a new project will definitely depend on the potential benefits of the project. If there are no benefits then there is no future for that project until we implement necessary changes to that project. And no chief financial officer approve any project without any ROI.


2. ROI can be an important and relevant criterion for selecting the right ERP solution for your organization.

 From the beginning stage of ERP selection procedures organization can be calculated ROI for potential and expected ERP vendors. Definitely estimation of ROI is not only the deciding factor in selecting ERP solution but it generally is one of the most important factors.

 

3. ROI can be used as a tool to find out the benefits of ERP implementation.

 Estimation of ROI at the beginning of a project shows the anticipated benefits that can be achieved. In the financial point of view if the expected and estimated ROI is obtained then the ERP project can be marked as a success.  It is crucial for organizations to determine the ROI which does not only provide stabilization of finance for ERP implementation. By proper usage of ROI will also help us find out the most appropriate ERP.


So ROI is something very much important in the field of ERP implementation.

Now we are going to check out the ways to achieve ROI;

Do you have any idea about “ how to achieve ROI ” Don't worry we will give you a lot of information regarding thisShall we start??


Some of the ways are listed below:

    1. Set the practical and required goal for your ERP implementation.

    2. Aim at people and processes, not the technology.

    3. Do not underestimate the cost, time and effort required for your  ERP implementation.

    4. Understand the finish line for the ERP implementation.

    5. Focus on the long-term alignment with your business goal.


1. Set the practical and required goal for your ERP implementation.

An important reason for the failure of ERP is the lack of ability of people is to fast and better adaptation of changes. If you want a successful ERP implementation the management has a strong commitment and responsibility to bring the new changes and also make the employees accept the changes and the make their mind to adapt with new working habits.

ERP implementation is a systematic approach to reorganizing and rearranging the business process. Each and every person in the organization should be aware that the aim of the ERP implementation is to make the business level into high. Hence everyone should need to work shoulder to achieve the goal. The top management needs to take all necessary actions to reduce the gap between the new ERP system and your employees then only your workforce also streamline with the objective of the ERP implementation. The board of administrators should set practical and sensible objectives and manage practicable expectations throughout the process which results in achieving the targeted goal of ERP and ROI.


2. Aim on people and processes.

ERP vendors invest billions of dollars in R & D (Research and Development) processes. Implementation of ERP is not just changing the technology. Success or failure of the ERP project depends upon how well you handle the business processes and reorganize the work behavior till now and how well you streamlined the whole processes etc...

It is very important that to let everyone know how the changes affect their work behaviour and the benefits . As all know communication is a key point so you have to consider the feedback and you should give necessary suggestions.


3. Do not underestimate the cost , time and effort required for your  ERP implementation.

The focus is an important thing same way where were we need to focus is also important. An important focus of ERP implementation is time, money and effort. Majority of the study says that 50% or more ERP implementation is a failure. Do you know the reason??? Because the majority of the ERP cases takes more than the expected/estimated money and time.

While planning for ERP implementation, consult an experienced and expertise vendors like Cybrosys Technologies, or else don’t take your vendors estimate as the expert opinion. Go for a second opinion about the time and cost which help you to compare and decide. You must have a clear plan about the implementation timeline and major goals achieved from the ERP implementation and you have to share these ideas with your vendor.


4. Understand where the finishing line really is.

Successful ERP implementer knows where the finishing line is.  Most of the business organizations are dive into ERP implementation with the belief that they are going to implement everything that is necessary for the organizational processes or the things that make sure the organizational growth. But most of the cases due to insufficient planning , lack of systematic approach ,lack of proper estimation of time , money and resources most of them stop the race early and never realizing the desired processes or functionality . The best strategy for the ERP implementation is to find out the key features of ERP and benefits achieved from that and understand that how these features helps to achieve  the organizational growth . This knowledge will definitely help you to give proper training for the users.

 

5. Focus on the long-term alignment with the business.

As early said, ERP implementation does not only introduce a new technology it is a new work behavior. ERP implementation advances and develops with time . You have to ensure the support from the vendor for training and future customization . Long-term alignment is ensured by focusing the continuous development and customization and make necessary changes in business behavior according to the market changes etc...


Now we are going to check out the things to be considered for the evaluation of ROI.

There are different factors for evaluating the  ROI for the ERP implementation. And some of them are;


IT Costs:  IT costs includes the cost of hardware, replacement cost, the cost of training in progress, the cost of the workforce, cost of software and subscription.


Expected Productivity Impacts: If you are planned to improve the productivity & efficiency then you have to utilize the technical support and integration. Don't forget to estimate the effect of data errors and time needed to correct. You have to consider all small details because each and every small thing can cause the impact on ROI.


Visibility Impact:  Financial activities are controlled by the management to achieve the desired  Return On Investment. Financial control is achieved by better information and trustworthy data. You have to confirm that the new ERP system will definitely provide better, reliable and updated data and also better access to the data. In addition to this having better visibility helps us to control the movement of data and we can understand that how fast the data can move and how fast it reaches to the right people. The right information at right people will definitely steer our organizational growth.


Audit & Compliance impact: A new system should reduce audit compliance & oversight cost because it allows for better control and repeatable process.


Risk Impact: This cost is the hardest to estimate one. Calculating the overall risk is going to be the most difficult. Your company should consider the risk that is currently built into your system. Such as relying on people based processes leakage of revenue, or unsatisfied customers. 


So how can we calculate  ROI ??? 

We will go for a simple way. I hope that is more effective rather than we go for the complicated and unfamiliar way. 


ERP–ROI  can be calculated as follows;

ERP-ROI = ( monetary gain – the cost of investment ) / total cost of ownership.

This is one of the methods and there are a lot of different methods are available for ROI calculation. 


The impacts of time & the processes that consume money can be checked by estimating the ROI before purchasing and implementing ERP systems. Nowadays the market contains a number of different ERP systems, so selecting the appropriate ERP system is very difficult from the above mentioned points you now have some of the tools and also you can get a clear idea about selecting proper ERP with the help of estimation of ROI.

All benefits from the ERP implementation and ROI can be achieved only after the implementation go live.  All objective of ERP implementation is achieved if it is done by experienced hands. A good ROI can only be obtained after 2-3 years.




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