When CFOs look at enterprise resource planning (ERP) spending projections, their eyes often get as big as silver dollars. To reassure themselves that their math isn't completely out of whack, most companies want to compare notes with someone who has already lived through an ERP project. "Total installed cost is probably the hottest issue in the market right now; users want to gut-check with someone else," says Chris Jones, research director of business applications at Gartner Group Inc.
Unfortunately, a total cost number-even if you can find a company willing to share its figures-won't necessarily mean much. Jones notes that everyone delves into from a unique situation, depending on hundreds of variables, including the existing hardware and network infrastructure, the number of corporate divisions and users, the specific functions targeted for the ERP system and the amount of process redesign. The cost of the software itself is universally known to be a small slice of the total project outlay.
One attempt at a useful comparison is to look at the total cost as a multiple of the software cost. There's no consensus, however, on what that multiple should be. Meta Group Inc.'s Barry Wilderman, a vice president of application delivery strategies, for example, says ERP implementation costs should fall in the range of $3 to $10 per dollar spent on the software itself. Such a wide range offers little predictive value, other than serving as a red flag for users who anticipate spending $15 per software dollar. And even the use of such broad numeric ranges has skeptics. "Never use a rule of thumb. This nonsense about one-to-one, two-to-one that's exactly what it is: nonsense. There is no such thing as a standard cost to implement ERP," says Gartner's Jones.
A different benchmark compares the cost per user. Monsanto Co.'s Gary Banks, IT lead for the company's SAP implementation, says the overall price tag for ERP can be intimidating. However, his unscientific survey indicates that while other software projects typically have a lower overall price, the cost per user is higher than with ERP because fewer employees benefit from other kinds of software. Again, remember that many variables affect the cost-per-user number. "I'm sure it could be done for less with a more aggressive implementation," says Banks, noting that Monsanto has invested a lot of time in choosing the processes and business models best suited for the company.
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