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Total Cost or Total Loss: New Software, New Budget

Total Cost or Total Loss: New Software, New Budget

The cost of a software budget

Software selection can be a lot like car shopping. You do a few test drives. You talk to happy drivers. You ask for the price and then ask for a better deal. You begin to investigate how much this new vehicle is going to cost. One part of the software budget is easy: that it’s going to cost you something. You might already have a quote from your prospective supplier. You might have more than one quote addressing different ways to acquire your new software or ERP system. But how can you predict the total cost of ownership?

African Professional Chartered Accountant Woman Budgeting For Enterprise Software

Initial installation costs

One option for a new software or ERP system is an on-premises installation, complete with your own hardware to support the platform. In the past, this was the only option. A business would pay money at the beginning and obtain the software to install on a company-owned computer network. Ongoing costs would include financing the staff required to maintain support, manage future upgrades, and navigate bug fixes.

Many software acquisitions today use software as a service, or SaaS, as an option. This is commonly known as the cloud, but it is the most public of the multitudes of cloud-based solutions available to businesses. SaaS requires an agreement to pay a fee monthly for some years into the future. Software as a service usually involves low or no upfront cost since the profit for the vendor is based on long-term commitment to the software subscription. Salesforce is a common example of SaaS. Implementation costs are low to none, as the software and related data are loaded on a vendor-maintained system somewhere outside of your corporate walls. Initial costs vary for SaaS, but generally they’re the deal that opens the door for a more lucrative future for the vendor, rather than an early expenditure for the purchaser.

Project management costs

Acquiring and implementing enterprise-level software of any kind is a major project that can require several years to complete. One of the first considerations is that you’ll need someone to manage the overall project. Some companies will hire a specialist who has managed similar implementations successfully with the intention that the job will be limited to this one project. Others might choose to challenge an up-and-coming person already employed with the company to transition into a position of management of the ERP or software project. The intention here is often to develop that person’s skills and groom them for future promotions. There are other options, of course, but the bottomline is that managing your enterprise software project will cost money. Even using an already-employed person has a cost, as someone will need to be hired to perform that person’s job in the interim.

Most businesses will form a steering committee that will act as a board of directors over the project. The project manager and senior executives will fill this committee and help keep the project on track, leading to completion on a schedule that will most benefit the company.

Real costs will come from the defined implementation group. This group can be made from currently employed people, but all of them, while working on the project on a part-time or full-time basis, will need replacement personnel to fill previous roles. One or more software consultants from the software provider will have roles in this group, and all of them will cost money. Likely there will be specialist consultants required to fill roles and perform tasks when the business is in need of additional resources.

Data conversion costs

Extracting data from legacy systems and converting that data to the formats required by your new software is one of those specialist roles. Most of the cost will come early in the project, but some expenses will certainly be ongoing, as new needs and corrections are found during the testing of the new software.

The price of testing

Testing the new software to ensure all transactions and reports yield the results required actually work will be an ongoing cost throughout the project. Some tests will be completed and changes to processes or data will be made and then the test will be made again until the results are satisfactory. Set aside money and time for a testing phase. This is a critical step and should have substantial representation when you’re developing your software budget.

The savings found in training

Your users will need training so that they can work with the new software immediately. Whether you hire training specialists or develop your own training process, there will be an investment here that will result in a lot of savings and profitability for your company.

The budget for hardware and networks

Your new software has the most up-to-date technologies. Likely you will need upgrades to hardware and networks to enable those technologies. Your legacy hardware probably could use some upgrades anyway if your systems were bought years ago. To create an accurate budget for hardware and networks, add up all the incremental costs and make a time-phased list of those costs. You can now compare the costs in each time bucket against the benefits you expect in each time bucket.

Looking for help developing a software budget reflective of your company’s needs and capabilities?

Get a business process review today. Our experts can assist you with full-circle enterprise resource planning, managed ERP hosting, and managed technology. EstesGroup has helped manufacturers and distributors for more than 17 years, and we have specialists for everything from Epicor Kinetic to Prophet 21.

 

When Your Value Stream Begins With Software

When Your Value Stream Begins With Software

Stay in the Flow: Estimate Your Software Value Returns

Businesses are supposed to earn a profit. New software can quickly lead to debt. Before you commit to a new software acquisition, know if your new possibilities will also be new expenses. If one of your customers wants to open up new product channels and your legacy systems will not work to meet development needs, the software selection process begins. You want to keep the good relationship you have with your customer, and you also want the new business. If you’re a small business, this means exploring the greater world of enterprise resource planning (ERP) software.

Software Value Stream Mobile Device Cloud ERP

Can you forecast the revenue stream for this incremental product or channel?

Your customer will have their estimate. You might also be able to increase sales to other customers with the capabilities the new software brings. Is there new business you can develop that did not exist yesterday? Maybe you can win some business from your competitors using your new capabilities. Incremental revenue will also have an incremental cost of sales. The additional margin is what you need to estimate for this analysis. Some of the new sales might replace existing orders and, if this is your case, subtract the forgone revenue associated.

All You Need to Know About the Savings Game

During the meetings you and your team hold for developing software requirements and talking in general terms about this new software, you will hear excited thoughts about sales orders moving faster into production. People will talk about how you can manage inventory much better. Another one might suggest that you could produce the same level of product with half the personnel in a department.

Some “software value stream” thoughts will make it to your software selection requirement list.

Here’s a potential thought stream surrounding value potential, especially when considering adding or upgrading an ERP software.

  • What can I do to enable a 25% reduction in inventory levels?
  • How can I ensure that all new sales orders will be in production or shipping within four hours of receipt of the order? Can I achieve this using only one support person to handle exceptions? Can I do this if I reduce staff to one from the current level of five people?

With new software, value can now be seen everywhere in your company’s future. Other potential savings are not requirements but remain as expectations. You know that you and your team will benefit from this software. Develop your list of savings and describe those savings in monetary terms divided into time phases. Remember that reducing your sales order support staff as described in your requirement only counts when you actually reduce staff.

Downstream From Your Software Value Stream: Ensuring Future Business

Often some of our software requirements enable us to meet new demands such as a new compliance regulation that our legacy system cannot support. When our new software allows us to meet that compliance, we cannot say we increased revenue or reduced cost. But we can continue in business so that there is a clear value. We could say the cost avoided is the loss of any margin that comes from an entire product line, so the loss would have been significant.

Your Total Value Stream

Evaluate all of your cost savings and incremental revenue and any other measurable improvement related to your new software. Lay these objective benefits out in time buckets over the next several years. You will probably be able to name other benefits that are not easily measurable. An easier user interface will be valuable to your employees, but there might not be any cost savings related. Keep your benefits simple and only use those that you can measure. When in the selection process and considering your software value stream, get your costs of acquisition and usage defined, so that you can compare these benefits directly with your costs later.

Custom Cloud: Public Cloud Choices, SaaS Challenges

Custom Cloud: Public Cloud Choices, SaaS Challenges

What to Do When ERP Turns SaaS

I once sat in at a sales conference for an ERP vendor and listened as the CEO explained sales strategy as it related to their ongoing movement to the cloud. He described the situation as one of configurability vs. customizability. There were some customers who could live with and work within the configurable features and capabilities of the base application as they existed “out-of-the-box.” These customers would be targets for the vendors single-tenant and multi-tenant cloud (or SaaS) offerings. For the subset of customers whose needs extended beyond the system’s base configuration, and were in need of custom functionality and integrations, the vendor would still offer the traditional perpetual license. This would allow customers with more complex needs to deploy their applications on-premise or in a private cloud.

ERP Public Cloud Software as a Service

That was the CEO’s perspective. Customers have their own perspective. 

Configuration & Customization to Order

I recently talked with a customer who was struggling to implement the cloud version of an ERP to the vendor’s public cloud. The customer had purchased the software based on a set of assumptions, assumptions that were not instantiated by the vendor’s public cloud (or SaaS) platform. For one, the customer had come from a highly customized in-house suite of applications, and had a highly developer-centric approach to application implementation: if the app didn’t do what you need, customize it so that it would do what you need.

This approach is anathema to ERP implementations in general, and as a customer implementing on a public cloud SaaS platform, the shock was only intensified. The customization toolset to which they believed themselves to be privy to was less than advertised. And the documentation that explained just what was and was not possible was all but nonexistent. As the customer put it, his team’s vast C# skillset went largely underutilized.

Frustrations abounded on all fronts. Creating the necessary reports and labels, whether through Bartender or SSRS had been a disaster, as both the licensing and underlying architecture made for an untenable situation. Development and deployment of new solutions was cumbersome and time-consuming, as it required the vendor to perform the deployment every time a change was made. Similarly, the approved third-party applications that they had purchased in conjunction with the base package didn’t integrate as well as advertised, and they turned out to be even less configurable than the base ERP system.

Worse still, the customer was a user of the ERP’s product configurator module. This mode was itself a mini-development platform, but its features were largely server-side and thus greatly hampered in the vendor’s SaaS platform. The ability to use the module to look up and retrieve data, for instance, was greatly limited on the SaaS architecture, and the customer struggled to construct configurators to handle their complex product needs. Beyond functionality, the overall performance of the application was a drag. For many customers, the move from whip-fast, green-screen legacy platform to a contemporary ERP brings an unfortunate surprise when it comes to basic performance at a user interaction level. But in this case, it was magnified by the performance of the underlying cloud platform.

It was a disheartening conversation and I struggled to offer suggestions, outside of a reimplementation under a perpetual license model. The strange thing was that the customer did not really even come to me looking for help. He was really just venting his frustrations. He had learned enough of the application, its architecture, and the Service-as-a-Software (SaaS) deployment model to know that whatever help he might receive, he was constrained by the architecture to which he had bound himself. The cloud, whose name implies boundless opportunity and possibility, had become a crippling constraint.  

Different ERP systems provide different levels of configurability and customizability. Some systems offer a basic platform with robust tools to use to build custom functionality with which to tailor the base platform. Others provide extensive configurability, as to avoid the need for additional tailoring. The systems that best combine configurability and customizability capabilities stand the best chance of supporting the needs of complex organizations. Even still, the unbridled requirements of a given company can often exceed the combined abilities of an ERP system to handle it.

This may necessitate the need for third-party integrations, to atone for liabilities in the base system. It may require integration to a pre-existing home-grown system, to address the specific needs of the organization. In the most extreme of cases, customers may look to modify the system’s source code to make the system do what it needs. At some point, it should be considered whether such extreme measures justify the investment in ERP at all. Sometimes it is simply a cultural conundrum: if an organization is unable to bend some of its needs to the will of the application, they may truly be better off with a homegrown system, and live with the liabilities that come with such a decision. 

DRaaS for SaaS: When the Public Cloud Vendor Needs to Adapt

Beyond configurability and customizability, the questions of functionality and integration as they relate to an ERP system’s deployment model complicate matters further. The textbook cases regarding ERP customization nightmares from the 1990s all occurred within an on-premise context. The evolution of cloud computing had not yet thrown this new variable into the mix. But with the improvement of server processing power, the expansion of data centers, and the ability to pass larger and larger amounts of data over networks, ERP vendors were able to construct ERP applications that conformed to the public cloud software-as-a-service (SaaS) deployment model.

This shift toward a SaaS model allowed for highly available and highly scalable ERP solutions, whose subscription-based model provided ERP services for a monthly rate. But in doing so, the features and capabilities that these vendors offered were often scaled back significantly, when compared to their on-premise, perpetual license predecessors. Similarly, the integration capabilities of such platforms were drastically reduced to the web APIs that the ERP SaaS platform supported. This made the extension of the application’s capabilities much more difficult to achieve. For customers needing robust and expansive ERP functionality, as was the case with my customer above, the results of a mismatch between business requirements, customization tendencies, and deployment models can lead to a perfect storm of failure and disillusion. 

How does one avoid such a problematic situation? To begin with, there are some key questions to answer at the time of software selection before you’ve signed the dotted line:

  • Firstly, you need to understand the background of your own organization. Are you coming from a standard system or from a highly-tailored home-grown system? Are your business requirements of the variety that are commonly managed by a packaged system? Is the shift from your current system to the future system a small shuffle or a quantum leap?
  • You also need to understand your own expectations for the new system: are you trying to fit your organization into the system, or are you trying to tailor the system to fit your business? Do you see an ERP system as a packaged application or a custom development platform? Companies differ in this approach, and this greatly affects how they intend to use the system, so you need to be explicit about your expectations.
  • Finally, it should be noted that in many cases, a software’s public cloud version will differ markedly in functionality from its cloud cousin. As such, be careful to understand the version from which the Sales Engineers are basing their demonstrations. If you’re looking at a cloud deployment, ensure that the sales team demonstrates the application, as you will experience it as a customer, and not the products more robust, on-premise version.

Cloud services are as unique as business processes, and SaaS companies / SaaS, or public cloud, applications aren’t always as “internet connection, web browser, go” like they’re often advertised to be.

If your corporate office is mandating some form of “cloud” solution, understand that not all clouds are created equal. A system’s deployment mode is not as simple as choosing between an on-premise dinosaur and a public cloud popsicle. One significant alternative to the SaaS vs on-premise dichotomy is a private cloud deployment. Private cloud allows an ERP customer to install an on-premise, perpetual license version of the software, but in a virtual cloud environment. This allows customers to leverage the full set of capabilities, functionality, and integration opportunities that the software offers. For customers bent on heavy tailoring and customization, this allows them to leverage the full set of tools tailor the application to the customer’s specific needs. Further still, this model makes integrations much easier, as it provides access to the application and database server layers, as needed, which can greatly simplify integration architectures. 

Cloud Customs of Custom Code

A company’s implementation story should be neither a laughable comedy nor a disheartening tragedy. With planning and discretion, companies can formulate a successful narrative. Are you in search of an ERP story with a happy ending? Talk to us, and we’ll spin you a yarn.

You can consolidate everything from software licensing and updates to hardware inventory management with EstesCloud Managed Application Hosting. We offer custom solutions for web-based transactions. We might not be famous like Amazon web services, but our private cloud, hybrid cloud, IaaS, and PaaS solutions offer you the personal attention of world-class IT and ERP consultants.

ERP Deployment Options & Cloud Services

Infrastructure as a Service

Platform as a Service

Software as a Service

IT Management Models

In pure form, a public cloud deployment limits your control and troubles cybersecurity and compliance management efforts. Know your enterprise resource planning options before you deploy. The cloud should be one of your most powerful tools as you move your company forward. But cloud computing terminology is hazy, and cloud migration can be a step backward if the deployment model isn’t a good fit. Do you understand your cloud options? Our cloud ERP experts can walk you through the cloud spectrum and help you find the best platform for your business. When a complex ERP like Epicor’s Prophet 21 is going through client-server architecture changes, EstesGroup consultants are here to answer questions so that you can focus on your business, rather than on its supporting software.

Feeling the pressure to upgrade your ERP system to a new SaaS version? Know your options before you commit to the public cloud. Get a free demo and consultation with our cloud experts today.

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