Most items of value come at a cost and every company manager or owner likes to know how those costs are broken down.
In the case of the software, which runs corporations, the costing can be quite complex - but it needn`t be. What it really comes down to are three factors, which should be clearly understood and evaluated especially by the first-time buyer of an enterprise resource planning solution.
These three cost factors are:
* The actual price of the software - a once-off cost (often negotiable and which will depend on configuration and features.
* An annual licence and maintenance fee - typically 20% to 25% of the initial software price (this is an ongoing cost).
* Then, depending on the system, related licences such as a database server, or Citrix for wide area networking, a print server, or Windows licences, may also need to be taken into account.
Cost cannot be perceived outside of value. The initial price tag of an ERP system presupposes some advantage. That advantage is primarily the automation of former tasks and exchanges of information; some companies are, even in today`s day and age, quite manual in the way processes are executed. For example, a textile business and HansaWorld customer formerly used five individual systems to run its business, with manual input of data from one to the other. Incredibly, 80 operators were required to make this happen. A good ERP system reduces this headcount to a third, allowing human resources to focus on more important activities.
That`s not all. By removing operator input, errors are reduced or eliminated, which further contributes to a reduction in operating costs. Automation of key processes also introduces assurance and removes the requirement for skilled IT or support staff. Tasks such as backup and recovery procedures, automated database management and more can be incorporated - removing the need for IT specialists on site.
An effective system also positions a company to grow. It is no longer bogged down with solving operational problems, but is free to focus on business itself. And the right software should be ready to support that growth with the ability to scale from its initial size and configuration without disruption or the need for replacement.
Perhaps a more contentious cost is that of annual licence and maintenance fees. Licence fees cover upgrades, which are made by software engineers who work constantly on improving the product. The client base and its feedback is an essential aspect of upgrades and maintenance; 70 000 customers means a lot of input comes in, and enhancements, improvements and upgrades are continuous. Technology changes constantly and an up-to-date system provides the assurance of security, performance and the advantage of all advances the industry has made.
Where maintenance is concerned, the cost is typically somewhere from 10% of the initial cost of the software, upwards. This is an essential element, which ensures that help is always at hand if there are problems - and that the help arrives predictably and reliably. Highly complex systems, which run equally sophisticated and often unique businesses, will need support; people need assistance and guidance to execute functions and tasks, especially as staff changes.
There are two other costs, which are not directly related to the purchase of the software itself, but rather to who installs and configures it; and the cost of acquiring and maintaining the abilities of people who will run the system. Without sufficient end-user skill, the best system in the world will not work properly and will then cost a fortune - as an inefficient system will not deliver value.
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