Things to consider when negotiating an ERP deal
Investing in Enterprise Resource Planning (ERP) software can come at quite a high price.
Obviously, different companies will spend different amounts of money on things that make sense for the achievement of their unique goals, it is generally the case that one would have to set aside a considerable amount if they were considering an ERP for their company.
Why is this the case? Largely because of what an ERP project typically looks like in terms of costs in addition to the implementation and initial delivery. For the vast majority of implementations, the bulk of the costs is incurred in maintenance and change and not in the initial implementation.
Although it seems evident that, ideally, the software would always have to be kept up to date, and thus, maintenance work would implicitly be part of the deal of keeping it that way, that is not always so with ERP providers.
The above point might be particularly pertinent to first-time ERP buyers. If you’ve been making use of ERPs for a while, chances are you’ve had first-hand experience with unforeseen maintenance-related costs.
Is there a foolproof way to deal with the “hidden” costs that come with the implementation of an ERP? We wouldn’t go as far as to say that there’s a bullet-proof way of identifying all you’d need to be aware of in terms of ERP pricing, you could definitely learn how to address them by paying attention to the following aspects.
Before anything, figure out responsibilities
When setting up your contract you shouldn’t solely act on the premise that you’d want to seal the deal as cheaply as you possibly could. It is equally as important that alongside capital investment you consider the implications of maintenance related costs, small and medium sized changes to your system as your business process and requirements inevitably changes as well as to mitigate risk.
In this sense, if trying to seal the deal at a lower price has as consequences areas of risk unaccounted for by anybody in the contract, you might be doing more damage than good. It’s not worth obtaining a more convenient price initially if going forward all the gaps that were left uncovered by the contract are going to bring about extra unforeseen expenses.
Therefore, aside from looking at the negotiation from a purely financial standpoint, also make sure the contract provides answers to questions such as a) who will be responsible for the training of users and b) how will data migration work?
Ensure you buy the software you need
You’ll find that purchasing the software your business needs might not be such a simple decision. For instance, when it comes to selecting the software, a great number of business owners end up buying many redundant functionality whilst omitting business critical functionality which later makes up the bulk of maintenance costs.
In fact, the best course would probably be to make additional purchases over time, as you come to the conclusion that there is a real need for them as far as your company is concerned or to agree upfront on a certain number of changes and additions your company can make to the system-capabilities and functionality on a quarterly basis… if you can get any ERP provider to agree to this.
The problem with a lot of implementations is that companies’ business needs change over time and therefore that their software needs change. Reflecting a change in business process in the software implementation is where the bulk of maintenance costs are incurred and where the ERP providers (unfairly) make their money usually.
All in all, your best bet as a company considering an ERP implementation would be to have an in-depth discussion when it comes to negotiating maintenance costs, instead of dismissing them as something that holds little influence financially within the lifetime of the ERP system as part of your company.