Budget Range by Company Size
One primary factor that an ERP project cost depends upon is the size of the company, so we asked experts to estimate what companies of different sizes should allocate to their ERP project.
Answer data was segmented for each category: small business, small to medium business, medium-sized companies, and large enterprises. Each case produced an approximate bell curve of answer popularity, from which a summary range estimate from the center of each bell curve was derived.
As Mehdi Aftahi, TEC’s CTO noted, “The ratio of ERP expenditure to the number of employees can be totally different across different industries. Other factors to account for in cost projections include how labor intensive the industry is, how complex the operation is, the state of the legacy systems in place, the number of integration points with other systems, and how ready the organization is for implementing an ERP solution.”
Breaking the Budget
The budgets shown are indeed estimates, and, given the complexities of ERP implementation, it’s no surprise that overrun is common. We asked experts which three factors most commonly cause ERP projects to go over-budget from this list of frequent offenders:
- Software customization demands
- Scope of business process changes
- Enlarged project scope
- Unrealistic original budget
- Implementation timeframe
- Technical infrastructure issues
- Training demands
- Service and maintenance needs
Software customization demands 75.00%
Scope of business process changes 63.89%
Enlarged project scope 63.89%
Unrealistic original budget 58.33%
Implementation timeframe 25.00%
Technical infrastructure issues 2.78%
Training demands 0.00%
Service and maintenance needs 0.00%
The most commonly cited reason for budget overrun is software customization, which is part of why it’s so important for companies to have the best possible sense of what they actually need early on in the process. We’ll discuss that more in our look at common selection and implementation mistakes.
The other most common reason is typical of most big-budget endeavors: change in scope. In the case of ERP, the scope of the implementation project is often underestimated, as is the scope of the business process changes that will be required. As Aron Ain, CEO of Kronos, put it, “treating these as software implementation projects creates the central challenge. They are business design projects.” The bottom line is, if you break the initial scope or if you don’t assess and budget for the right scope from the start, you will break your budget.
Given the various ways ERP projects can go astray, it’s prudent to build some buffer into the budget planning. Accordingly, we asked survey respondents just how much buffer an average company should plan for.
We provided numerous ranges to choose from, but the expert consensus is clearly around the 20-30% mark, which accounted for half of the responses. But several experts suggested even higher contingency budgets—so in all, 83% of respondents recommend a buffer of at least 20%.