How to Build a Business Case for ERP

//How to Build a Business Case for ERP

How to Build a Business Case for ERP

We’ve talked a lot in the past about ERP implementation, and how important it is to choose the right system in the first place, but we can’t stress enough how challenging the actual preparation for an ERP project can be. Not only do you need to be able to clearly identify the benefits of ERP for your business, but you also need to be able to create a clear vision statement and be able to accurately estimate the costs involved as well.

Our years of offering independent ERP consulting services have shown us that to be able to successfully build a business case for an ERP system there are certain questions that need to be answered:

  • Does an ERP system make sense for our business?
  • What will an ERP system cost?
  • What benefits will we get from the introduction of an ERP system?

The people who really need to be involved in this first stage of justifying the purchase of an ERP system are the top management of your company, the leadership team as such, as well as the operations management team (if you have one). The aim is to involve everyone who will be held accountable for the costs and the realisation of the benefits of the chosen system since the goal is to allow the company to make an informed decision about the purchase of the software.

Step One: Vision Statement

When any business development decisions are made, the best way to go about them is to write a vision statement, i.e. what the company will look like after the ERP system has been installed and what new competitive capabilities it will bring to the company. This may sound like a lot of work, and something you don’t want to get involved in, but actually it doesn’t take a lot of time and it is an essential part of the project and making sure it is successful.

The vision statement only needs to be one page long, and it should include an overview of where the company is today (including what problems it is facing), where it wants to be in the future, what marketplace environment it is operating in and the competition it is facing. A good vision statement will drive action within the company and should be communicated to the team – so that they know which direction the company is headed in and so that they can work together to get it there.

Step Two: Cost Analysis

building a business case for an erp systemAnother vital step in building a great business case for ERP implementation is to establish the costs and the benefits of completing the project as this not only helps with the allocation of funds but also establishes it as a solid commitment for the business.

Costings should include hardware (or hosting) and software costs, as well as the costs for installing, configuring and on-going maintenance. They should also take into consideration the costs of cleansing and migrating the necessary data, including making sure inventory records are not duplicated, bills of material are accurate and so on. You also need to factor in people costs such as the cost of the project team, training all the users so they are able to use the ERP system to its full advantage, and any additional support on the project such as professional guidance from an independent ERP consultant.

Once you have identified the costs, you can take a look at what the benefits to your business will be of an ERP system, as this is a great way to convince upper management to invest.

Step Three: Analysis of the Benefits of an ERP System

Typical benefits of an ERP system include:

  • Increase in productivity – surveys which have been completed in the past have revealed that there was an average gain of 11% in productivity after businesses had ERP systems installed, and in some cases, this rose to 20%.
  • Reduction in cost of sales – an ERP system will give companies the information they need to improve forward planning and so produce more accurate production schedules.   This in turn allows companies to have a clear picture of what materials are needed, and when.  As a result, they can optimise their purchasing and produce items at a lower cost.
  • Reduction in inventories – improved scheduling will mean that businesses should have lower inventories for raw material, work in progress and finished goods.
  • Increased sales – customer service will also improve, with improved scheduling and more efficient internal processes resulting in products being shipped on time and customer queries being handled more promptly. We all know that better customer service equals happy customers which equals more sales.

Following these steps and pulling together a business case which includes an overall vision for the company, a clear outline of the costs involved, and an overview of the benefits won’t guarantee that your request for an ERP system is accepted but it should improve your chances. If you want to talk through any of the information we have raised in this article, please give us a call on 0843 523 5630 or send us an email to [email protected]

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