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Investing in an Enterprise Resource Planning (ERP) business management solution is one of the most important capital expenditures any small or medium-sized business (SMB) can make for the future. Let's take a look at a capital budgeting process that will help you choose the most appropriate vendor and create a foundation for reliable profits and business growth, year after year.
Conduct a review of your current business processes to determine your requirements for the new ERP system. Assemble a team of executives representing each department or function to share their business-critical needs and workflows. It’s important to consider:
Planning your ERP Budget Tip #2 Estimation of costs
Determine the incremental and total expenses required to meet the needs uncovered in step 1. This requires internal and external research like talking with IT staff about existing hardware, software, and personnel resources and getting estimates from vendors. It can be time-consuming, but comparing apples to apples will be vital to getting the right solution at the right price. Break down costs into technical costs like licensing, hardware, cybersecurity, testing, maintenance, data migration and testing, add-ons, and more.
Planning your ERP Budget Tip #3 Estimation of cash flow, cost, savings, and ROI
Project the resulting financial benefits the business will generate and accrue over time with the new ERP solution in place. In terms of return on investment, assign cash flow and/or cost savings value over time to the items in step 1. Strongly consider labor cost reductions, improved cash-to-order cycles, and new efficiencies gained by real-time reporting using a single source of data truth.
Planning your ERP Budget Tip #4 Assess risk
Itemize the associated risks of the project, and evaluate each item against its estimated cash flow or cost savings benefit to determine if the benefits outweigh the risks. In instances when the risks may outweigh the benefits, consider eliminating the associated features from your costs. For example, you may decide that on-premise servers present the risks of cybercrime and data security breaches and opt instead for a cloud-based solution.
Planning your ERP Budget Tip #5 Analyze the Plan
The finalized implementation plan includes a timeline with key project milestones leading up to the go-live date, how the project will be paid for, a method for tracking costs, and a procedure for recording cash flows and cost savings.
Because this system will integrate, manage, facilitate, and automate all of your business processes, it is important to conduct comprehensive system and vendor due diligence.
Get more details, including an ERP Budget Worksheet to help uncover hidden costs, eliminate surprises, and get your money's worth when you download ECI's Plan and Build Your ERP Budget ebook.
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