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Survey finds big variation in ERP costs

Cliff Saran
The cost of enterprise resource planning systems can vary from €3,000 (£2,000) per seat to as much as €87,000 depending on how the software was implemented, a survey by analyst firm Ovum has revealed.

Ovum spoke to more than 40 organisations across the world to determine the cost of implementing business software applications.

Ian Wesley, manager of the software relations service at Ovum, said the survey showed that the cheapest way to implement ERP was to avoid customisation. The research found significant price differences between tier-one suppliers, such as Oracle, SAP, JD Edwards and PeopleSoft, and tier-two suppliers, such as Exchequer, Sage and Microsoft Business Solutions.

Implementation took the largest chunk of ERP expenditure, accounting for up to 90% of overall costs. The survey found that it was more cost effective to use consultancy services provided by the software maker than use one of the “big four” IT consultancies.

Dennis Keeling, Ovum associate and chairman of the Business Application Software Developers Association, warned users that one of the biggest costs they faced was upgrading. This is particularly relevant given that ERP suppliers have been withdrawing support for older versions of their packages.

“When a user moves from Oracle 10.7 to 11i they have to replace not only the software but also the database and upgrade to more powerful servers,” he said. “An upgrade can cost as much as 50% of the original implementation fee.”

Keeling noted that even in the largest corporation it was not cost-effective to implement a tier-one ERP system in every subsidiary. “The technical infrastructure [within a country] may not be good enough to support tier-one ERP,” he said.

Keeling said updating real-time information, such as stock levels, would not be possible in some countries because users could not guarantee the communications network would be available. He also questioned whether enterprises needed to run tier-one ERP within sales organisations or for warehouse facilities.

Even when consolidating financial accounts across a global business, Keeling said many companies preferred to use third-party products rather than the tools in their tier-one ERP systems.

How to avoid escalating ERP costs

  • Stick to vanilla business processes
  • Use the software supplier’s consulting services
  • Tier-one ERP software costs more than tier-two software
  • Licence fee alone is a poor indicator of implementation costs.

Source: Ovum


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