The Nine Critical Steps for an ERP Business Case that will get through to your execs
The Nine Critical Steps for an ERP Business Case that will get through to your execs
Today, ERP solutions offer powerful opportunities for a leaner and more transparent operation. Our view of ERP’s has evolved, and the solutions provide more than just improvements on the balance sheet.
Thirty years ago ERP’s were defined as successful if they could reduce inventory costs, improve days sales outstanding (DSO) and margins. However, having this narrow scope field limits the scalability and flexibility of what ERP solutions can create.
ERP’s are now a cross-functional piece of software. A solid business case can help show how a return on investment can be maximised. It allows businesses to formalise a set of goals they want to achieve.
Building a successful business case for ERP software is worth considerable thought, as it provides a roadmap to business transformation.
The importance of a solid business case for ERP
Navigating complex processes for construction companies can be overwhelming. The challenge of sorting through specific production schedules, operations and performance metrics is hard work.
Generating accurate and complete information to build your business case is a necessary process. Determining ROI and payback period is a crucial element of your business case. Without an adequate project scope, businesses miss a detailed analysis of processes, budgets, business goals and objectives.
Building a business case is more than a means to achieve investment in technology. A complete business case will be your blueprint to success. Transformation is driven by having an accurate view of why you’re embarking on this venture, your goals and how the project will be executed successfully.
Five tips to consider when replacing your ERP – the key to a successful ERP business case
Does your system have the capability to meet or exceed industry standards? Your ERP must support data-driven decision making (DDDM) and the capabilities to offer operational efficiencies.
Falling behind competitors is a strong reality when it comes to ERP solutions.
How do you know when you’re at risk of falling behind? Five key indicators support replacing your ERP:
- Growth – Your business has grown significantly or has plans to achieve this growth.
- Process Management – Your enterprise software can not streamline your processes.
- Acquisition – Your company has completed or will make an acquisition, and you need to align systems.
- It’s time – Your software does not provide updates and can not be upgraded.
- Functionality – Your system can not meet the business needs and service users adequately.
By identifying how many of the above categories you fit within, you can then start to identify a set of goals to work towards.
So, how do you build an ERP business case step-by-step? A good method is to take notes on each step.
1 Review your current problems and pain points
- Establish the pain points in your business; what are you trying to fix?
- What processes need to be updated?
Slow, flawed or broken processes impede business growth. Your pain points are going to help you understand which processes are inefficient and limit your current productivity.
Examining and evaluating them will be the first step to change. It will be the first step to defining where you need to be.
2 Analyse productivity and determine the opportunity
- Evaluate the benefits of reducing the time to complete tasks and finish projects.
- What is the solution to process improvement?
ERP offers one integrated solution across a businesses core functions and processes.
It’s essential to unpack which processes are system constrained and which are simply design related.
To achieve your vision, you need to identify which key processes are holding you back from realising your goals.
The process will provide greater visibility across the interconnectedness of functions.
3 Define your objectives and goals
- What is the opportunity, and what do you want to achieve?
- What are your big picture changes for the business?
Your vision for the future state of your business will determine your business goals.
Using clear goals, your management team can then work on the objectives to assist the transformation. Referring to the opportunity enables functional managers to identify specific process improvements and optimise business functions.
Defining these goals effectively will give you a clear pathway forward.
4 Review the vendors and solutions in the market
- What is the industry expertise of a potential vendor?
- What is the best solution fit for vision and goals?
- What capabilities and functions do you need to support your requirements?
Before compiling a business case, it’s essential to start researching what solutions are available.
And with the aid of reviewing your critical processes and pain points, you’re now equipped to understand your specific requirements.
Selecting the right vendors provides the necessary support to solve your pain points and deploy solutions successfully. The vendor should provide you with cost-effective solutions and, more importantly, solution options that will enable your company to fulfil the business case goals.
They need to know what you want to achieve, and most importantly, understand how to get you there.
5 Cost Estimation
- Determine the implementation cost?
- Establish additional cost factors linked to the schedule and potential risks?
The total cost of ownership for enterprise software (ERP TCO) is a critical element of building a business case.
Both indirect and direct costs need to be considered; the software itself and implementation services.
Depending on the business and ERP vendor, there are generally two types of deployment; perpetual licensing (server on the business premise) and subscription plans (cloud or SaaS).
The cost of the software can also increase with the number of users.
Customisation, models, features, consultants, hardware, training are all a part of the implementation costs. It is also important to consider ongoing costs, including IT staff, customer support, maintenance and upgrading.
Knowing the complete picture of costs will avoid the horrible situation down the track of underestimating what’s involved.
6 Calculate and Anticipate Return on Investment (ROI)
- What is the net cost of the ERP solution?
- Have you considered the intangible benefits?
Expected efficiencies and process improvements can make it difficult to calculate the ERP ROI, but not impossible.
To calculate ERP ROI, you need to divide the ERP Returns via the ERP cost (step 5).
You can identify your ERP returns by reviewing your goals and anticipated returns.
Typical improvements come from reduced inventory, material costs and wastage via process improvements. It may be increased efficiencies via the reduction of double handling, human error and accurate management of equipment.
Calculating ROI is about establishing value to changes from your current system with a new ERP.
7 Risk Identification and Mitigation
- Review your goals and assess potential risks?
- Determine what factors could hinder ERP success?
- Use the analysis to plan your risk mitigation strategy!
ERP implementation can encounter significant risks, and the cost of failed implementation makes most businesses nervous. And understandably.
Accurate and comprehensive project planning is your mitigation strategy.
Consider your resource strategy, which team members are required and when they are available. Develop a deployment plan to create team buy-in and ensure technical infrastructure support.
If you know the risks and can communicate them, you can put in place a plan to avoid them.
8 Develop a high-level implementation guide
- What’s your blueprint for implementing ERP?
Although a comprehensive plan is not required when building your business case, it’s crucial to complete a high-level overview of how the project will run.
Using your objectives, you can divide your project plan into phases. To maximise success, consider what resources will be required, provide a timeline for deployment and always ensure you factored in potential risks to the project plan.
In essence, the more you know from the start, the better the rollout will be and the quicker you will experience ROI in your ERP rollout.
9 Demonstrate and identify value
- What is the argument for a new ERP?
As with any new initiative, people get nervous about projects as large as new ERP’s. Focus on what this new initiative will provide to the business. Highlight how it will ultimately make people’s lives easier. How it will transform the way they work.
The more analytical you can get, the better the response.
Look at the big picture.
This is an exciting time for any business. Whilst challenges ahead are inevitable, the opportunities these present are enormous.
It all starts with undertaking a solid process in identifying a good business case. By working through the nine steps above, your business case will be a powerful tool to convert stakeholders into champions of change.
If you would like a hand to understand how an ERP system can change the way you run your business, or need a hand planning a successful ERP business case, get in touch with our team of experts and let’s start planning your business case together.
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