As corporate budgets continue to get tighter and tighter, executives need ever more compelling reasons to approve large budget items. ERP systems are no small investment so the decision to implement a new system is usually supported by a careful analysis of cost, payback period and expected benefits. Before a project of this magnitude, every executive wants – and needs – to know: what’s the expected ROI?
The good news is that this question isn’t too difficult to answer. While quantifying intangible benefits can be tricky, ERP ROI can be calculated simply by dividing monetary gain minus the cost of the investment by the total cost of ownership (TCO). An ROI analysis coupled with an analysis of intangible benefits and key performance indicators can build a strong business case for implementing (or foregoing) an ERP implementation.
Following is a list of tangible benefits to look for when estimating ERP ROI:
- Reduced inventory levels through improved planning and forecasting
- Reduced materials costs through improved accounts payable practices
- Reduced labor costs through improved allocation and efficiency
- Minimized interruption and shortages through improved production and scheduling
And here is a list of intangible benefits to consider when building a business case for investing in ERP software:
- Improved customer service through on-time shipments and shorter order-to-shipment cycles
- Improved accounting practices through shorter sales cycles
- Improved legal and regulatory compliance
- Streamlined and integrated business processes through standardization across departments
Together, an ROI analysis and an analysis of the intangible benefits your organization expects from an ERP system can convince executives to include ERP software in their budgets next year. When implemented correctly, ERP software can provide organizations with a host of both tangible and intangible benefits so developing a convincing business case is a worthwhile and necessary activity.
Learn more about measuring and estimating ROI by downloading our white paper, Where’s the ROI? Also, be sure to visit our ERP Implementation Planning page for more information about benefits realization and developing a solid business case for ERP software.