Well done! You have taken enough time evaluating various ERPs and finally narrowed it down to one. You have achieved a significant milestone. But another crucial factor to consider is the Total Cost of Ownership (TCO). I believe that TCO should be the final decision-making point during the acquisition of an ERP. After considering all the apparent direct and indirect costs and a few of the hidden charges, you have arrived at the TCO. With satisfactory TCO figures, you can get down to brass tacks and start the acquisition process.
Let’s quickly look at the TCO factors that affect the affordability of an ERP. There are three vital factors to consider, namely, acquisition cost, customization cost, and operating cost.
1. Acquisition cost.
The acquisition cost calculation is very straight forward—the total cost you incur from purchasing the ERP licenses and its related Hardware. Also included are the database and Operating System license costs, connectivity and security-related investments, software & system upgrade expenses, and finally, storage and backup costs.
2. Customization Cost
Perse, you will most definitely need to do some customization while implementing an ERP. Customizations end up becoming mandatory and an extra cost almost every single time. Customization charges can vary considerably depending on the level of planned customizations. Predominately there are three types of customizations: process & Features, Forms & Reports, and External Application or Service integrations. A clear-cut understanding of customizations will save you time as well as money during implementation. Make sure you plan all your customizations well in advance. If you try to do something on the fly, it will not only jeopardize the whole implementation plan but also break the bank!
3. Operating Cost
There are some specific operational costs that you need to consider. The first one is the Annual Maintenance Charges (AMC). You need to pay a certain percentage or a fixed charge (as per the vendor terms and conditions) as AMC. The payment of AMC is to make sure that you are getting the latest patches of the software and continuous support from your ERP vendor. AMC can vary from vendor to vendor. Apart from the vendor AMC, you need to consider some extra support charges paid to the implementation partner on an ongoing basis. Most of the cases, service charges are calculated on a Time & Material (T&M) basis. Another critical operating cost depends on your type of deployment. If you are using a cloud deployment, you also need to calculate the monthly usage charges of your cloud service provider. Similarly, there is an additional cost to maintain the hardware infrastructure in case of an on-premise deployment.
No comments:
Post a Comment