ERP return on investment (ROI)

Enterprise Resource Planning (ERP) systems promise benefits but it takes time and effort to achieve the promised results. You need a recipe for success. An ERP system return on investment (ROI) is not guaranteed. In 2012, Auckland city forecast a NZ$10 million per year return on its SAP ERP system investment of NZ$71million. By 2014 the budget was NZ$157 million. No increase in ROI was announced. Carter Holt Harvey and Mitre 10 had similar experiences.

What is ERP ROI?

Your ERP ROI is the (total value of investment – total cost of investment) / the total cost of investment x 100%. Usually it will be based on a total cost of ownership over a fixed period like five years rather than just the project cost.

ERP benefits

Your ERP experience can be a success. The good news is that most organisations do not have such complex requirements and there are many ERP systems that cost much less and offer a good ROI. The benefits of ERP systems include:

• better data governance from having a single database
• efficiency from standard, automated processes
• higher productivity from an integrated platform
• more timely and accurate data
• streamlined financial management
• easier compliance and risk management
• better insights into customer experiences and preferences
• better cybersecurity
• enhanced scalability

A capable ERP system that is a good fit and is well implemented can deliver all of these benefits, plus other benefits specific to the organisation. The challenge is to do so at a cost that is affordable and to ensure that benefits are realised and planned return on investment is achieved.

Implement your ERP to optimise ROI

Implementing a new ERP is a big decision with a lot of planning but there are a few key things to get right:

1. Review your current system/s to identify gaps and opportunities
2. Conduct a strategic review of your business
3. Identify your requirements. Identify your risks and opportunities.
4. Establish project governance and have a clear project sponsor.
5. Conduct a well planned procurement process to select a partner and ensure that you delve deep into your key functions so the solution will work for you.
6. Plan the project including people and change aspects – ensure your plan accounts for lessons learned from multiple previous implementations
7. Ensure you have a data strategy
8. Design the solution around key business drivers
9. Build and test with plenty of time to rework and retest
10. Iterate work and break into stages as necessary
11. Deploy using a method and sequence that works for you
12. Stay engaged with the vendor and user groups to make the most of your investment

You must use the vendor’s methodology and standard processes. The fewer customisations you have the fewer problems you will have with support and upgrades. You will have to compromise and do things in lots of new ways and that change will be hard.

ERP lessons learned

There are a few key lessons I have learned from big projects including:

• Know your stakeholders and what they care about
• Start early with data cleansing and focus on ongoing data integrity
• People will change if you respect them, engage them and inform them
• Identify the key people internally you will need for the project and arrange backfill for them
• Develop your key reports and metrics early to get the data you need to run your business
• Don’t cling to legacy processes. Assume that they will all change – a lot.
• Focus your efforts strongly on the things that matter most to your organisation.
• Identify the benefits you want up front and articulate them clearly. Plan how you will measure them and focus on them through the project and after it ends. Benefits are at the centre of change.

Phil Guerin, Consultant/Director, Hague Consulting Ltd. © Hague Consulting Ltd 2024. If you like this content, subscribe to our blog – it’s free!

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