10 Tips to Trim 10% from ERP

Transcription

1 About this research note: Operate & Optimize notes provide recommendations for effective and efficient IT practices that help improve the performance or reduce the cost of technologies already deployed in the enterprise. 10 Tips to Trim 10% from ERP Publish Date: February 25, 2009 Shave up to 10% off of Enterprise Resource Planning (ERP) projects without layoffs. Focus on discretionary spend, project costs, and ongoing support costs Info-Tech Research Group

2 Executive Summary Enterprise Resource Planning (ERP) solutions introduce a number of costs into the IT budget. When the economy turns sour and budgets turn south, ERP projects get considerable scrutiny. Info-Tech presents ten quick tips to help shave ERP costs. This note:» Explores four different areas of ERP costs.» Presents a list of ten tips to reduce overall ERP spend. Shave up to 10% off of ERP projects without layoffs. Focus on discretionary spend, project costs, and ongoing support costs. Operate & Optimize 2

3 Optimization Point Enterprise Resource Planning (ERP) solutions introduce a number of costs into the IT budget. When the economy turns sour and budgets turn south, ERP projects get considerable scrutiny. Info-Tech presents ten quick tips to help shave ERP costs. Key Considerations Economic conditions are forcing many enterprises to reconsider their IT budgets. It is imperative for IT leaders to be proactive. When the call comes from executives to cut costs and rationalize budgets, mangers must be ready. The Budget Impact of ERP One of the first steps in any cost cutting exercise is to scrutinize both the project and service oriented budget lines. In situations where overall IT budgets need to be trimmed by up to 10%, IT leaders may look for reductions at the solution level. ERP often takes a commanding cut of project and service lines. It is a prime target for a quick trim. It is also possible to make dramatic cost reductions in ERP by freezing feature requests and laying off project teams. But these steps are very dramatic. As a first step, identify the low hanging expenses of running an ERP project. Types of Spend IT managers must consider a variety of factors when evaluating ERP cost reduction options. Broadly speaking, there are three categories of costs:» Discretionary spending includes relatively small ongoing costs that tend to accumulate. For an ERP project, these costs can include training programs, attending vendor conferences or events, or engaging consultants for small initiatives. Discretionary spending is typically the easiest place to make cuts.» Project expenses include relatively large investments in product enhancement or expansion. These expenses must be prioritized. In many cases, IT managers must respond to a mandate to cut capital expenses, delaying hardware upgrades and terminating consulting contracts. Attacking project expenses may have some intended consequences. Ending contracts or leases, for example, may result in hefty termination fees or litigation. Operate & Optimize 3

4 » Ongoing support costs include annual maintenance fees on software and the costs of maintaining skilled workers. Slashing ongoing support costs can be very difficult. ERP support costs include maintenance fees and the cost of development staff assigned to the ongoing care and feeding of an ERP system. It may be possible to completely dispense with these teams and simply maintain the ERP system as a standalone product. The real cost of this option, however, comes from the loss of experienced staff during bad times and the difficulty and expense of replacing them when conditions improve.» Capital expenses are, generally, illusory in ERP projects. Trimming capital expenses is really a cost avoidance strategy and doesn t address the core budget reduction concerns. IT managers should instead focus on the other categories of spend. Total ERP spend can be reduced by addressing discretionary spending, project expenses, and ongoing support. Budget reductions of up to 10% can be largely addressed by improving discretionary spend and by putting greater scrutiny on project expenses and ongoing support costs. Improvement & Optimization The first place to start is with discretionary costs. With respect to ERP projects, most of these costs fall into training and travel. Consider the following options for reducing discretionary spend: 1. Use vendor support functions. Most IT managers fail to use their support agreements effectively. Make a point of contacting support at least twice a month. Use it as a way to address both tactical questions about the solution and to resolve strategic concerns related to future product releases and benefits. The effective use of support can replace discretionary spending related to attending national conferences and events. 2. Focus on regional user groups and events. Reduce reliance on the vendor by getting involved in regional user groups. In many cases, regional events offer more benefit than national and international events. The user groups also provide a level of peer support that can replace outside assistance. 3. Explore alternative training opportunities. IT specialists still require training. Consider replacing traditional offsite training courses with online training to trim some dollars from the budget. One disadvantage of online training is that staff miss the opportunity to network with peers. Counter this weakness by increasing involvement in the local user group. Operate & Optimize 4

5 Reducing ERP project costs involves another set of tactics: 4. Delay upgrades, additions, and functional roll-outs. The most direct way to slow down expenses is to slow down or pause ERP projects. This approach may save cash but it could have consequences. Consider the impact on process efficiencies. In some cases, it may be necessary to spend money to save money. Only delay projects that can t demonstrate payback within six months. The benefits of the delay stem from reductions in consulting costs and licensing costs. It will not, however, have an impact on labor costs, the most significant component of IT costs. 5. Use resources to focus on core architecture issues. Slowing down some ERP projects may actually free up resources to consider architectural issues. It may be possible to redeploy these resources to improve the ERP architecture and lower overall operational costs. Many ERP vendors, for example, are offering service-oriented offerings to improve data accessibility and user experience. Gaining the full benefit of these solutions often requires considerable attention to process modeling and improvements. Getting this type of work done is often difficult in a go-go project environment. If staff are going unused, give them something to do. There are generally two ways to reduce ongoing support costs. Decrease staff or decrease licensing. The easiest step for most enterprises is to reduce licensing: 6. Use what you re entitled to. Core licensing and maintenance often give enterprises access to far more technology than they actually use. Use economic imperative to establish an accounting of the functionality available and whether or not it would be of benefit to the enterprise. This tactic may defer capital expenditures without adding considerable operational expense. It may also provide the opportunity to replace third-party products. 7. Audit and if necessary trim users. Many enterprises maintain far more licenses than they really require. The related costs can be trimmed. Focus specifically on bolt-on products such as reporting tools. In many cases, these licenses go completely unused. If a named user hasn t actually used the product in the last four months, they probably don t need access to the product. 8. Replace bolt-ons with lower cost options. Trimming the number of licenses is good. Eliminating the costs is better. It may be possible to replace certain functional tools with low-cost alternatives. The most extreme example is replacing Microsoft Office with OpenOffice.org. An ERP example involves replacing client-based Business Intelligence (BI) tools with open source alternatives. This tactic can reduce capital expenses but be aware that it may also increase training and support costs. 9. Reconsider maintenance for bolt-ons. Enterprises that are unwilling to limit bolt-ons may be able to eliminate maintenance. For example, many manufacturers use best-of-breed supply chain management solutions from i2 or Manugistics. These products have an uncertain development roadmap and enterprises are considering reevaluations in the next three years. They shouldn t be paying maintenance. Operate & Optimize 5

6 10. Ask: Do we need maintenance? Most enterprises are used to paying between 17% and 22% of licensing in annual maintenance. This fee entitles them to upgrades and ongoing support. But is it necessary? Enterprises that have already slashed project budgets may have little need for ongoing support, particularly if they don t foresee upgrading their ERP systems within the next five years. One risk of going off maintenance is loss of accounting and security patches. This risk must, however, be understood in the context of overall risk. All business uses face increased risks when they cut budgets and the benefit may be worthwhile. If the risk of eliminating maintenance is simply too great, consider third-party options. For more guidance, refer to the ITA Premium research note, Save 50% on Enterprise App Support with Third-Party Providers. Bottom Line Shave up to 10% from ERP projects without layoffs. Focus on discretionary spend, project costs, and ongoing support costs. Info-Tech's products and services combine actionable insight and relevant advice with ready-to-use tools and templates that cover the full spectrum of IT concerns. Our practical approach is designed to have a clear and measurable positive impact on your organization's bottom line. We serve over 21,000 clients at 8,000 organizations around the world. Since 1998, we have focused on making the work of IT professionals easier - and on helping them achieve greater personal and corporate success. More About Info-Tech Operate & Optimize 6