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Cost Blowouts in Software Modifications
Thursday, May 02, 2013

The failure of organisations to adequately define their ERP requirements before buying ERP software result in modifications to the software during the software implementation stage of the project.

Surveys reveal 60% of companies implementing ERP have to undergo modifications in order to get the functionality they want. The cost of these modifications, or additional modules, can run into substantial sums of money, delay the progress of the project and in some cases force the abandonment or failure of the ERP implementation.

The rush to purchase ERP software without adequately defining the functionality in sufficient detail to avoid downstream modifications that blow the budget is unnecessary. Taking the time to produce a model and define the detail against the model eliminates the need for the modification of the software unless the company changes its mind later on.

The model is a flow representation of the entire business process with each of the areas operating requirements detailed to enable the software to be simulated against. The cost of developing the model and the operating requirements against the model, pale into insignificance when compared to the cost and disruption of carrying out modifications during the software implementation stage.

The average budget overruns for ERP projects is in the region of 25%. Many organisations experience overruns of 3 to 4 times the original cost estimates and the majority of this is due to the failure to produce a comprehensive model that covers all of the functionality required.

I have seen many companies put too much faith in software vendor words that their software is fully configurable to meet any need only to find out during the implementation stage that it doesn’t really fit and requires modifications or extensive, expensive customisation that wasn’t allowed for in the original contract.

The specification and selection of ERP software must be done by the company understanding what their needs are and taking the time to carry out a proper analysis of their needs and translating this into a model that the software company is required to simulate through their software. Software houses will baulk at this citing cost reasons for not setting up their system to simulate your model.

There are two reasons for this!

1. There is a cost that they will incur. Part of the sales process in my view but if you are keen to pursue a specific package then negotiate. You are still much better off than having to carry out substantial modifications during the implementation stage of the ERP project.

2. The ERP vendors software has shortcomings that they do not want to expose you to and forcing them to simulate through your model would highlight the deficiencies and lose them the sale. If you have simulated the software through the model and it works then why do you need to pay huge sums for implementation services?

The onus is on the buyer of the software to specify exactly what is required and the model is an idealway of doing this. It does take time but the effort will save substantial sums of money later on in the software implementation stage of the project.

Consultants who want to come in and carry out analysis and recommend ERP software should be avoided as this is an activity the company should shoulder and accept responsibility for. Consultants that assist in defining the model should be engaged but they must be independent of any ERP software package.