Our thoughts...

ERP cost of ownership


Calculating the cost of implementing an ERP system is not quite as simple as calculating the cost of the implementation. Have you considered the following items when deciding how much your software and implementation actually costs?


  • Scope

More importantly what is considered in Scope and what is considered out of scope.  This scope should clearly define this as well as cover your entire implementation in detail.  While on the topic of the Scope it is important also to define at this stage for your implementation whether it is based on time and materials or whether it is fixed price.  There are pros and cons for each of these types of projects which will be outlined in its own blog article.  If you can be confident that all requirements are covered in your scope, the implementation costs should not vary drastically without good reason (which should be documented using change controls and you should be made aware of any cost fluctuations prior to them being incurred).

  • Licensing

The Scope mentioned above will give you a cost estimation of the implementation or labour hours required whereas this item will give you a value for the cost of the software.  Pay attention to the cost per user as this will give you an idea of future costs when your business grows and you have more staff members working in the system.  Also pay attention to whether the users are named or concurrent as this also impacts the costs.  Sometimes software seems reasonable per user but considering you need to buy a license for every individual that may log in to the system, even if it is only a couple of hours per week makes the cost add up quite quickly.

  • Maintenance

Maintenance is the amount you pay to the software vendor i.e. Microsoft or SAP to be entitled to new versions of the software without having to repurchase.  This is generally a percentage of the full license cost, that means if you received a discount on the software you purchased, your maintenance will be calculated on a percentage of the full un-discounted price.

  • Upgrades

Although you are entitled to free upgrades because you pay maintenance on the software, you still need to pay someone to perform the upgrade for you. Make sure you understand how often patches and versions are released, how often you need to upgrade and how long a typical upgrade takes to perform (consulting/development hours you need to pay for).

  • Customisation

Customisation not only has a cost it impacts the cost of an upgrade as it either needs to work with the new version you are upgrading to or it needs to be removed if the functionality exists in the newer version of the software.  There are pros and cons to getting customisation done but these will be discussed in a later post.

  • Support

Support is also a factor to consider when calculating the cost of ownership.  Do you need to pay for a Service Level Agreement, how dependant will you be on your service provider in terms of reporting requirements and training and ultimately how much is the hourly rate for support as this can often differ from project rates.


All of these items need to be considered when calculating the Total Cost of Ownership of the software you would like to implement, however, it is just as important to get an idea of the return on your investment as this often outweighs the cost tenfold.