Cost of ERP implementation depends on the choice of software, hardware, maintenance, vendor charges, integration, internal costs and hidden costs; although, it has been observed that the price of ERP implementation reduced in the last year due to recession. According to a survey the average cost of ERP implementation in the year 2008 was $8.5 million and in the year 2010 the cost of ERP reduced to $6.2 million.
Choice of Software: Depending on the need of the organization it is important for a company to select the software. Small and midsized companies can go for client server architecture and large organization can go for N-Tier architecture, companies having retail units in many regions may select multi location ERP software and many companies may have to opt for software which can provide solutions in remote geographical regions. Depending on the functionality of the software and user's requirement the cost of software can be determined.
Cost of consultancy: The cost of taking the services of expert professionals is also included in the overall cost of ERP.
Cost of customization: Many software packages may need customization and for additional customization the vendor may charge extra charges.
Integration of the software: Integrating ERP is also an important step because it enables the ERP to be used properly in all departments. The integration should include functional areas, e-business applications and legacy systems of the organization. Integration is important because many processes and applications should be integrated to provide complete solution.
Cost of data integration and data conversion: The toughest job in software implementation is data conversion in which the historical data of the organization is integrated to the solution and it is very important to ensure the accuracy of data. The complete functioning of software is based on the accuracy of the data transferred to the new database.
Testing cost: It is an important step because during testing the bugs are fixed and errors are removed. Testing is done to check the integration, to ensure correctness of data and it is also done to ensure scalability that is to see if the software is robust enough to handle a number of users.
Training cost: The last step is training in which the employees of the organization are provided training to use the software. The new system is difficult to handle initially and when the employees are given a few session of training, it becomes easy.
Hidden costs: There are a number of costs which are not visible from outside but the organization undergoing automation process may have to suffer these losses. Some of the hidden costs are: the time period when the employee and resources are attributed to learning the functionality of new software is not a productive time and it can be considered to be a hidden cost.
Cost of replacements is also a hidden cost. The company that is using a software or application may have to discontinue the old system to be replaced by new system, and it can also be considered to be a hidden cost. The replacement of a number of hardware attachments is not included in the initial cost.