Topic 3: ERP Lifecycle :

Pre-implementation/Feasibility

Kedareshwaran S
 ERP Implementation Lifecycle vs SDLC

Strategy Pros Cons

Build • Customized software is more likely to • The cost to build a system can be quite
(Customized) be a good match to an organization’s high compared to the cost of purchasing
needs. off-the-shelf software.

• A custom application provides the • Customized software can take months or

potential to achieve competitive even years to deploy.
advantage.
 ERP Implementation Lifecycle vs SDLC

Strategy Pros Cons

Buy (Pre- • A software solution can be acquired and • On-demand software is usually offered
packaged) deployed relatively quickly. “AS-IS” and cannot be modified to match
the organization’s needs.
• An organization can “test drive”
software before acquiring it. • An organization incurs recurring licensing
costs.
ERP Implementation Lifecycle vs SDLC
 ERP Implementation Lifecycle (SLDC)

• Pre-implementation (Feasibility)
• Project Preparation (Planning)

• Business Blueprinting (Design)

• Realization (Execution)

• Final preparation and pre-Go Live

• Go live

• Support
 Pre-Implementation (Feasibility) Phase Activities

• Business Case/ROI Analysis

• Budget Approval

• High – level requirement, scope

• RFP for implementation partner selection

• Selection of consulting partner

• RFP for package selection

• Selection of package
 ERP Business Case/ ROI Analysis

• ERP Business Case/ROI analysis is becoming an important factor in influencing the

organizations’ decision to acquire ERP packages.

• A demonstrable return on investment (ROI), is becoming a must for customers to

invest scarce capital and human resources in ERP packages.

• ROI models fall short in their ability to accurately measure the total value of an
enterprise software investment are they are focused only on quantifiable (tangible)
measures of return.
 ERP Business Case/ ROI Analysis

• The overall payback that enterprise software can offer to a company gives a more
complete analysis of return.

• This analysis takes into account both the tangible and intangible benefits of the ERP
systems.
 ERP Business Case: Tangible Factors

• Reduced inventory costs (by at least 20%)

• Reduced inventory carrying costs (by 25–30%)

• Reduced manpower costs (by 10% or more)

• Reduced material costs (by 5% or more)

• Improved sales (by 10% or more)

• Improved customer service resulting in savings (of 5% or more)

• Efficient financial management resulting in savings of (18% or more).

 ERP Business Case: Intangible Factors

• New business opportunities.

• Improved customer and customer goodwill.

• Better relationships with partners, suppliers and other business associates

• Improved time to market.

• Improved customer support.

 ERP Business Case: Intangible Factors

• Improved decision-making capability.

• Better analysis and planning capabilities.

• Improved information accuracy, visibility.

• Flexibility and business agility.

• More competitive.
 Visible Costs

• License Cost : In the traditional software license model, a company pays a certain
amount per individual license.

• Implementation Cost : It’s common for companies to spend 1 – 2 times (sometimes

higher) of the initial license fee on implementation consulting.

• Auxiliary Software Costs: These include the license fee of supporting software, such
as middleware, compilers, third-party add-on applications, and additional database
that are usually required to run the ERP applications.
 Recurring Annual Costs

• Most ERP vendors make considerable profits by charging their clients roughly 10-
20% per year per license in support.

• These include one or more of the following:

– Product updates, typically called patches or Manufacturer Service Packs (MSPs)
– Troubleshooting technical glitches
– Access to support sites and knowledge bases.
 Additional Costs - Part of Total Cost of Ownership (TCO)

• Training costs: It is likely to be the most underestimated item while budgeting

because the end-users not only have to learn how to use the software but also
almost invariably have to learn a new set of business processes.

• IT Infrastructure costs: It includes the costs of all hardware and infrastructure

required to upscale the existing system.

• System Integration Costs: Integration costs for ERP systems increase in proportion to
the number of external systems or applications that the systems interact with.
 Additional Costs - Part of Total Cost of Ownership (TCO)

• People Replacement Costs : In case the highly trained cross-functional ERP

resources quit your organization, you may have to find suitable replacement.

• The team that implements the ERP system in an organization achieves immense
functional and technical expertise about the whole system specific to your business.
 ERP Cost Breakdown

Cost Component % share

Consulting 30

Software 25

Hardware 20

Training 10

Project team 10

Misc. 5

TOTAL 100
 Parameters for ERP Selection

• Financial viability of the application vendor

• Installed base and local presence

• Technological maturity
• Product strategy, vision & investment in innovation

• Partnerships
• Customer support

• Cost
Parameters for ERP Selection
 Parameters for Consulting/Implementation Partner Selection

• Process consulting experience • Tools & Methodologies know-how

• Industry experience • Presence in different geographies

• Client References and satisfaction • Global delivery capability

• Ability to provide end-to-end service • Reputation

• Project Management capabilities • Price

 Contract with Consulting/Implementation Partner

• Profile of the consultant’s team with resume of each member

• Consulting fee and payment conditions

• The time schedule and the implementation budget

• The projected improvements in quantifiable terms and the time required for
showing the results

• Implementation methodology
 Contract with Consulting/Implementation Partner

• Terms and conditions of knowledge transfer and employee training

• List of deliverables (reports, manuals, knowledge bases, etc.)

• Other specific activities the consultants are supposed to do

• Reporting mechanism to the company management

• Project monitoring and status reporting systems

 References
• Textbook, Chapter 9, 10 : ERP Implementation
• https://toughnickel.com/business/ASAP-Methodology-SAP-Implementation-Phases
• https://clarusway.com/what-is-software-development-life-cycle/