For all the considerations a given company might have to make… From product quality to community outreach, continuing education to guiding principles and so much more… One factor remains a central part of every business:
MONEY.
No matter how you slice it, finances play a huge role in the operation of any organization. Even with higher missions, service to customers and clients, and company missions, there’s always the bottom line to consider. Overhead exists whether you want it to or not. The struggle for revenue – whatever income you choose to measure – is ongoing, even for the businesses making record numbers year after year.
So, what does any of this have to do with ERP systems?
From a financial perspective, an ERP system represents both a cost AND an opportunity to reduce overhead. First, let’s look at how to evaluate the ROI of ERP itself. Then we’ll explore how an ERP system can improve the ROI of initiatives in your organization.
How to Anticipate The ROI of Your ERP System
When you’re planning to implement an ERP system, you likely have an idea of the benefits. You want to tighten up supply line operations, keep better track of employee performance, evaluate training programs… And on and on. Regardless of any goals, however, you will have to contend with the costs of implementation. How do you know if it’s worth the price?
First, you have to gather the projected costs of implementation. This may include hardware, subscription fees, installation costs, and so on. Calculate everything you need to get up and running.
Next, anticipating ROI begins with careful analysis of a few key factors:
Productivity
What are your goals for productivity increase? If your ERP plan involves employee agility and productivity, what are the savings (or increased revenue) if you meet your goals? How does this compare to the costs of ERP? Your gains in productivity may only offset some of the costs, but it constitutes part of your overall return on investment.
Risk
What do you stand to lose? This will likely be one of the most difficult costs/benefits to evaluate, but necessary nonetheless. Are you reducing risk with more systematized processes? Are you increasing risk with a potentially unstable system that could hurt productivity or security with a crash? Estimate the losses you encounter in the worst case scenario, and the financial benefits of reduced risk through ERP.
IT
Even beyond initial implementation, ERP systems come with IT costs. Support staff will likely be required for maintenance, training, updates, and so on. These costs need to be factored into your overhead – and will influence the overall ROI you see.
Compliance
If part of your ERP strategy is to improve regulation compliance, this could be an area of ROI as your goals are achieved. Improving compliance (and/or standardizing processes for remaining compliant) can reduce training costs, help you avoid fines, and help you minimize costly mistakes. Look at the costs of noncompliance in previous years to estimate savings.
Data Visibility
A successful ERP system will allow members of the organization to have detailed, readily available information on many aspects of the company. This alone can result in serious ROI – simply because problems can be identified more easily, areas of loss can be addressed, and poor performance can be recognized early on. It may be difficult to quantify these “saved costs” exactly. The benefits, however, should not be overlooked.
HOW ERP Improves ROI Throughout Your Business
A robust ERP system can provide improvement across many aspects of an organization. The opportunities will, of course, depend on your specific industry. Some examples include:
• Warehouse Efficiency – More accurate tracking means better ordering and supplying. Your ERP system can identify where you may be wasting money on reordering, where you may be wasting space with unused supplies, and so on.
• Customer Service – With better tracking comes a more complete picture of your customers’ needs. Armed with this information, you can adjust your products, customer service, support, etc., to meet the needs of your clientele. This results in more frequent purchases, longer relationships, and improved long-term customer value.
• Operational Efficiency – With the ability to centralize information, you can reduce the time it takes to get staff up and running with new programs or equipment. This means reduced costs and improved productivity.
ERP systems are definitely a financial undertaking, but stand to yield a whole range of benefits that incrementally reduce expenses across departments. Improving efficiency is operational, but results in time and money saved. Keeping a close eye on processes, supplies, etc., means not hemorrhaging unseen dollars. Keeping employees engaged and accountable means happier, more productive staff. The benefits are numerous, and almost all have direct (or hidden) financial rewards as well.
Brainstorm some goals, evaluate your budgets, and consider whether implementing an ERP system in your business will have sufficient ROI to make it worth your while. If you have any questions, or would like to learn more about what ERP can do for your organization, contact us today!
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