The Total Cost Of Ownership For ERP

Evaluating ERP systems can be rather difficult, particularly for a first time purchaser. These large-scale software systems may be very different from anything you have purchased before, with the potential for a lengthy sales and installation process. It might be tempting to simply throw your hands up and just pick one, but this could be extremely dangerous, particularly considering the amount of time you and your employees will interact with the system. One of the most important factors to consider early on is the total cost of ownership of the system.

Remember, total cost of ownership goes beyond what the sales guy will tell you on the phone. At least, at first. Even the best solution may feature hidden costs that will only come up in the final stages of an agreement. For instance, you may not be told that there will be a cost for ongoing maintenance, without which you will be helpless should an unexpected software bug emerge (they will). Also, will you be charged for future upgrades? This may or may not be a factor for you, but the integrations your system will need to make with emerging software upgrades will almost always be a priority for some reason or other. Also, will they charge you an additional fee to implement the software? All of these things need to be known up front.

The software sales guy cannot answer the other aspect of TCO for ERP systems. This is the cost of upkeep on your side. You may have IT people that need to work with the system regularly (especially if you opt out of scheduled maintenance). You also need to consider the cost of “downtime” during implementation. Will you lose any money while you wait for that software to be installed? If so, you will need to look for software that cuts implementation schedule to an absolute minimum.

Calculating TCO can be tedious, but it is necessary if you are to determine the relative value of an ERP system. It is far better to determine costs up front and be prepared to deal with them before you reach the final stages of a negotiation.