We’ve all heard the nightmares of companies that go millions of dollars over budget. But what is the reality of actual ERP implementation costs?
The good news is that we are in the process of conducting an ERP Benchmarking Study and we have some real data to assess rather than basing any conclusions on hearsay we read about in the media. The bad news is that the data we have collected so far isn’t very encouraging.
We have gathered and compiled results from 24 companies that have participated in the study so far. The 24 companies surveyed vary in size, industry, revenues, etc., but they did show one concerning similarity: 100% of the companies went over budget. No, this isn’t a typo. To give a better perspective of how widespread this problem seems to be, the study also reveals that 78% of the companies in the survey went over budget by at least 10%, and the average cost overrun was 23%.
To put the significance of these numbers into perspective, if a company budgeted $5 million dollars for their project, they went about $1.2 million over budget. That’s not an insignificant number, especially for a small- or mid-size company.
So what does this all mean? It could mean that the companies all under-budgeted. Or it could mean that they didn’t manage the project well. Or, maybe vendors mis-managed their side of the implementation. Of course, it could have been all of the above. We are still evaluating the results and looking at correlations and relationships in the data, so we don’t have any definitive conclusions yet. But I have my suspicions.
In the meantime, what can companies do to control their budgets and ERP costs? Some of my past posts have touched on the issue, but I will devote another entry this month to how managers can better manage their ERP project costs.