Panorama Consulting Solutions, a leading consulting firm has just released the 2016 edition of its annual State of ERP Systems and Enterprise Software Report. Again this year, the firm reports some very interesting, and revealing findings. The publication is based on responses from more than 200 organizations across multiple industries.
In this blog – the first part of a two-part series, Lavante Senior Consultant Josh Morrison explores the Panorama Consulting report with respect to the timing and costs associated with ERP projects.
2016 ERP Report: Over the past four years, overall project cost has decreased while the percentage of respondents experiencing cost overruns has increased. Duration overruns, on the other hand, are becoming less common, while overall duration has increased. The duration increase is not necessarily a bad sign as organizations appear to be planning for longer durations and have more realistic expectations about what it takes to achieve ERP success.
Observation: Costs are down slightly, but cost over runs have increased and, as we will see in a moment, are also up as a percentage of revenue. It is common that cost overruns are very often a result of customization work. So then, as total costs are down but cost overruns are up, how does this play with the fact that project durations have increased. It’s simple; organizations are realizing that it will take longer than before to implement an ERP so they are planning for this. They are also planning for greater savings from the project, hence the lower anticipated costs. This however is still an area where organizational expectations and reality need to bridge a gap. It’s good that project managers are recognizing the greater required duration of these projects and taking a more realistic approach, but longer durations and customization work mean longer ROI periods and eroded realized value.
2016 ERP Report: On average, organizations spend 6.5-percent of their annual revenue on their ERP project. This is an increase since last year where organizations spent 5.9-percent of their annual revenue on their ERP project.
Observation: This figure, while telling, I think needs to be taken in context. For example, a $20 billion company is not likely spending $1 billion plus on a new ERP. I imagine this percentage is based on smaller revenue organizations (~$500 million). That said the trend is what is important here. The total cost of the ERP project is increasing as a percentage of sales. This, combined with the increasing trend toward project cost over runs, is concerning to organizations and stakeholders.
Look out next week for the second blog in our two-part series by Josh Morrison which focuses on the impact of customization and data quality in ERP deployments.