Page 28 - MetalForming August 2011

or the vendor’s own consulting arm, if so qualified—will gener- ally spend less on implementation than will an organization that chooses an integrator with lesser skills or a poor track record in delivering services within budget.
Other factors come into play, such as the degree of stan- dardization of business processes among multiple facili- ties, and the organization’s track record in managing cross- functional business-change projects.
Complexity of the Software
Lastly, one other factor acts as a wild-card, in my opinion, in the ultimate cost of an ERP-software implementation project: the complexity of the software itself. This may or may not affect software license cost, but it often affects imple- mentation cost.
This may be easiest to define with an example. SAP and Ora- cle are two well-known, so-called Tier I ERP systems. It general- ly is understood that these systems can support the largest, most complex and most geographically dispersed organiza- tions. Also, they can support the widest number of industry sec- tors. They do this by incorporating a great deal of functionality for various industries, business processes and local regulatory requirements. These systems are highly configurable, with a big footprint.
This complexity comes with a price. It means that to make use of the system in a specific organization, many decisions must be made during implementation. These decisions cost time and money as experts configure the software and test it specifically for the organization’s needs.
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This drives up the cost of the implementation.
SAP and Oracle are well-aware of this issue and have worked hard over the past decade to preconfigure their sys- tems for specific industries and uses. If a customer fits well into the vendor’s preconfigured templates, much of the complexity of the software can be hidden from view. Cus- tomers that fall neatly into these templates can sometimes
achieve very rapid and cost-effective implementations.
But don’t the higher-end software packages still cost more than software targeted for small and mid-size businesses? This is not always the case. I have seen situations where SAP and Oracle were actually the low-cost bidders. In cases where a software vendor wants the deal, it is not safe to assume that the higher-end pack- age will cost more. For this reason, I don’t believe software com- plexity in itself is a consistent factor in either software license cost
or implementation cost.
So, why do software vendors, customers or integrators continue
to use the implementation-to-license cost ratio? Because, as flawed as the ratio is, it does set expectations as to implementa- tion cost. To me, the ratio best works in hindsight—if a system implementation, on average, costs 1.5 times the cost of the soft- ware, a customer must not assume that it can do it for half the license cost. To really judge the prospective cost of an imple- mentation project, nothing beats performing a detailed esti- mate based on a realistic work-breakdown structure, with realistic estimates that account for the factors outlined here. MF
Fact.
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Eric Miller, Miller Welding and Machine
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For a FREE copy of Global Shop’s ROI brochure, visit www.GlobalShopSolutions.com or call 1.800.364.5958.
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