Andrew Strada, Solutions Director at Sunrise Technologies
You are ERP shopping. You have met with multiple vendors and these vendors have provided estimates. The estimates vary widely: some are high six figures and others are multiple 7 figures. How do you make sense of these differences? Should you just pick the cheapest one? What happens if the estimate is wrong, and you go over budget?
Here are a few guiding principles for evaluating your ERP estimate:
Ask yourself: What is included in my estimate?
If you receive estimates from different vendors on comparable solutions that are 100%, 200%, or 300% different from each other, you are not comparing apples to apples, and are looking at different implementation methodologies. A low-cost estimate should be scrutinized in a couple of key areas.
Is the vendor providing you with dedicated consulting resources or part time resources with a bucket of hours?
If you have a consultant working on your project and 2 or 3 others at the same time, you can be sure your project will suffer. Their availability and commitment to your needs will not be consistent. They may have one project in pre go-live testing with intense time commitments and deadlines. Meanwhile, you are in a design phase for your project and will not get your emails answered or meetings scheduled. This is a huge reason for project delays in addition to frustrating your core team. While this is cheaper on paper, it will cost you in the long run. A dedicated consulting team does cost more but ensures that they are fully embedded with your team during the project. This creates better relationships, faster responses and resolution, and better solution quality.
What kind of deliverables will the consultants provide during the project?
Low-cost estimates are usually achieved by putting the burden of work on the customer. In a functional setting, this is usually in the form of training the core team on how to configure the system. In other words, a consultant will show the customer all the settings available and help confirm requirements. It is then up to the customer to set up those configurations and validate usability. This does not work for large ERP deployments. This leads to change orders where the customer needs help doing this setup with the help of an expert consultant. On the technical side, a vendor may expect the customer to do the data migration. They will likely argue the customer is the expert of their data, so it makes sense to load it into the new system. While that is true, a customer is not an expert on the data structure of the new ERP. It is essential legacy data is migrated correctly to facilitate new processes and configurations. This can only be done by someone with expertise in the new ERP. The low cost appeal of this model also appeals to an emotional component which is how much a business trusts their users. It is great that a business feels comfortable taking this burden on internally, but it is misguided. ERP implementations are a once in a career change for most users. Further, it takes years to become a true expert in an ERP system. All ERP implementations require extreme involvement from business users, but they need the dedicated helping hand of an expert in the new system to ensure success.
When am I receiving this estimate?
In your ERP evaluation, you should receive two different estimates:
Within the context of the sales cycle
This is the first set of numbers you will see. A good vendor will ensure to conduct a discovery with you before providing any numbers. This should be several hours if not a full day’s worth of work. They should understand your business landscape, your current system landscape, and key requirements/guardrails. The estimate should include direction on what systems they plan to replace with the new ERP, the functions within the new ERP that they will deploy, integrations that need to be written, the timeline, and expected resource structure. This estimate should be in the form of a range with a low and high end. Any vendor that provides you a single number at this phase of the evaluation is not telling you the truth or is at best totally guessing. ERP deployments take many months or years to implement. They require a lot of information. There is no way a vendor can say that a project will cost X with only a few hours of discovery or document study. There is still a lot for them to learn. You should insist on a range and use that as a guiding light to pick an implementation partner.
Within the context of a diagnostics engagement
The next number you get should be the final number somewhere in that range. This can only come after weeks of paid work in the form of a diagnostics. The range should allow you to pick your vendor and this exercise is the first phase of the project. This is where your vendor will go deep with every business area. This exercise should be 4-8 weeks long and itemize all of the work that needs to be done. It will provide a map for the project. It will lay out what work will happen when, how long it should take, and very granular scope items. That final number and associated scope should be validated by both parties and become the statement of work for the full project.
Conclusion: You get what you pay for with ERP implementations
ERP deployments are bet the farm projects for your business that should be scrutinized heavily. It is not an exercise that should cut corners, hope for the best, or assume cheapest is best. It is very much a pay for what you get model. You are better off investing the money on dedicated qualified resources and trusting them to get the information they need at each phase of the project.
