26 November 2019

How to assess the return on investment in an ERP solution

An approach to the implementation of the system as to investment which should reimburse in the specified time, e.g. 5 years, is most understandable from a business point of view. No wonder that different ERP solution’s suppliers show calculations or offer tools to determine the ROI. But one should be aware that such calculations are reliable with the assumption that the company during the analysed period will run in the same business environment and will not be changing or dispensing investments in machine park, the introduction of new products or changes in the level of employment. Only with such assumptions it would be possible to calculate the return on investment of ERP system. In practice, there is no such company and similar calculations are not very meaningful.

Maybe instead of attempting to count the ROI, it is better to analyse the effects of the implementation  and identify areas that were improved by the implementation of the ERP system and review to what extent the stated objectives have been achieved.  When considering the results of the report carried out in 2018 by Panorama Consulting you can enumerate 5 main implementation benefits indicated by ERP systems users.

  1. Availability of information and reliable data in real time

Availability of information and improvement of data reliability are among most often mentioned benefits from the implementation of the system. They are indicated by respectively 80% and 55% of respondents. But the access to actual and reliable data is just the first step. Only their analysis and turning them into meaningful information allows you to make better business decisions. It should be noted that such benefit had been pointed out by only 44% of respondents.

  1. Improvement of the cooperation between departments

Another benefit of the implementation of the ERP is a systematic and unified flow of the business data between all the divisions of the organization. In the ERP system, all the information is collected in a common database that supports the basic business processes. This leads to the integration of the departments and processes throughout the organization which was realized by 46% of participants.

  1. Improvement of work efficiency

Many companies also note the significant increase in labour productivity after the implementation of the ERP - 44% of respondents indicated this.  ERP system eliminates multiple data entry and repeating the same processes in different tools as well as tedious ‘manual’ performance of different tasks - which valuably saves employees’ precious time. Thanks to this employees can focus on other business areas or processes that require improvement.

  1. Improvement of 'lead time' and stock level

Shortening of time of manufacturing is very important from the point of view of each production and distribution company. This effect of system implementation and optimizing inventory was seen by 44% of respondents.

  1. Reduction of operational costs

Finally, the implementation of the ERP system helps to reduce operational costs - as indicated by 37% of respondents. This is because the system helps people to better manage time and use the enterprise resources and by consolidating financial reporting administrative costs can be more easily managed.

Such a brief analysis shows how many important changes in the form of improvements that can be translated into business benefits carry the implementation of an ERP system. Those benefits can be converted to tangible financial results. It is, of course, worth taking into consideration costs and expected benefits based on the opinion of entrepreneurs who have already implemented them when planning the deployment of the system. You can also ask how their organization would have functioned if it did not have an ERP system.

How to assess the return on investment in an ERP solution