Before a decision of acquiring an ERP

Acquiring an ERP falls in CAPEX (Capital Expenditure) as this huge business driving entity is an intangible asset in nature. The huge expenditure and efforts occur in the whole cycle of acquisition or customization, implementation and maintenance of an ERP. In fact, a significant capital expenditure is made to achieve various business objectives which is intended to come from ERP.

These are:
– Expanding production capacity or enhancing operational efficiency,
– Replacing or upgrading outdated equipment and technology,
– Acquiring the ERP as an assets that will generate revenue or cost savings over an extended period
– Assists compliance with the regulatory requirements
– Enhancing product quality or innovation

The expenditure decision for acquiring an ERP for the business subject to a rigorous evaluation and approval process within an organization. This may involve a cost-benefit analysis, risk assessment, and consideration of the asset’s long-term impact on the business. This type of CAPEX typically involves a significant cash outlay, while it may reduce cash in the short term, the asset acquired is expected to provide long-term value, isn’t it?

Definitely, the decisions is broad and risk-prone but, this is often aligned with an organization’s strategic plan and growth objectives. They may be part of a broader capital budgeting process. Managing and Enterprise Resource Planning effectively is crucial for maintaining and improving a company’s infrastructure, competitiveness, and future profitability. It requires a balance between investing in assets that enhance the business’s capabilities and financial prudence to ensure that these investments align with the organization’s long-term goals and financial stability.

An ERP is like the Titanic – I think so. So decision and taking plan is the most crucial part in consideration of two areas:
1) Development from the scratch. It requires huge time, cost, competent software architect and designer, quality assurance staffs, developers, analyst, tester, technical people for operations, experienced staff for deployment and maintenance, change management, training etc. This is massively ambitious process. It is important to remind that ERP fails and it happened even for the giant companies.

2) Acquisition from a time and industry tested ERP vendor – which needs to be customized bit or more to fit the whole functionality to the business or organizational operations requirements. There are significant vendors in the world now ready with stable, time and industry tested ERP solution – and you know them; these are namely: Microsoft Dynamic365 Business Central, Oracle NetSuite or Oracle ERPCloud, SAP, Infor ERP, Sage ERP, Epicor, Workday Financial Management, SYSPRO, IFS ODOO etc. And, there are ERP expert communities in around the world to provide solution.

Project financial control
Right financial controls must be in place. Initially, as a part of important controls, budgeting control accuracy is paramount to let it be on track at the time designing the financial project.

Risk Mitigation:
This has very crucial key roll for the ERP digital transformation team as is crucial to get effectively identifying and managing risk and focusing on risk mitigation before it turns to a huge problem. The involvement of internal audit group and financial risk management team assist to avoid this. Usually, the software vendor the technology deployers are often engaged and accustomed with core technical issues and implementation, so not having in-depth focus and expertise on financial and accounting domain and its associated business risks and pitfalls. Timely and proactive initiative shall have to be taken placed in the whole endeavour.

Business Value creation:
This is treated as very important task from the finance and accounting team members to focus on where the values comes out of the investment of the digital transformation. It is notable to consider where the business benefits are, having identification the ROI, quantify the business benefits and to hold the organization accountable to seed and realise the values as the benefit. The absence of mechanism of proper project governance of the organization can not realises the business values and benefits. Someone must focus and measure this matter to avoid the obvious and potential loss.

Financial processes:
The efficient finance and accounting team members are to be engaged as the Subject Matter Experts (SME) to identify the futuristic business processes during the technologies being deployed. This steps are required for business processes workflows and at the same the intended output of the workflows, e.g, the reporting, analytics, business intelligence, the consolidation outputs and the desired account closing state which come out of the futuristic system – are the most important deliverables that the most finance and accounting team need to have clear vision for. So the finance and accounting group needs to play an important role to ensure these input and processes fit to the needs for the organisation.

Private Equity considerations:
In the case of the private equity investment for the organizaiton, the finance and accounting teamhas got additional responsibility or focus in favour of the organisation, so that a stable Finance and accounting system should established. Most private equity organisation has low tolerance to spend too much money to let not the budget get out of control. The involvement of the private equity stakeholders in the process to get the realistic views to analyse and hence the change management campaign helps reflect the understanding about the inputs and requirements to be incorporated in the digital transformation.

The cost effectiveness of on-premises versus cloud-based ERP (Enterprise Resource Planning) systems can vary depending on several factors, including the specific needs and circumstances of your organization. Here are some considerations:

1. **Initial Costs:**
On-premises ERP systems often require a substantial upfront investment in hardware, software, and infrastructure. Cloud-based ERP systems typically have lower initial costs since you don’t need to purchase and maintain hardware.

2. **Operating Costs:**
Cloud-based ERP systems typically have predictable monthly or annual subscription fees, which can make budgeting easier. On-premises systems may have lower ongoing costs after the initial investment, but you’ll need to budget for maintenance, upgrades, and IT staff.

3. **Scalability:**
Cloud-based ERP systems can be more cost-effective when it comes to scalability. You can easily adjust your subscription to match your needs as they change. With on-premises systems, scaling up may require additional hardware and resources.

4. **Maintenance and Support:** Cloud-based ERP providers often handle system maintenance, updates, and support, reducing the burden on your IT team. On-premises systems require you to manage these aspects, which can increase operational costs.

5. **Security and Compliance:**
Both options can be made secure, but ensuring on-premises security may require more investment in cybersecurity measures. Cloud providers typically have robust security measures in place.

6. **Downtime and Reliability:** Cloud-based ERP systems often have better uptime and reliability due to redundancy and failover mechanisms. On-premises systems can experience downtime during maintenance or if there are hardware failures.

7. **Customization:**
On-premises ERP systems may offer more flexibility for customization, but this can come with higher development and maintenance costs. Cloud-based systems may limit customization options.

8. **Long-Term TCO (Total Cost of Ownership):**
Calculating the total cost of ownership over several years is essential. It should include all costs such as hardware, software, maintenance, staffing, and potential downtime.

In many cases, small to mid-sized businesses find cloud-based ERP systems more cost-effective due to lower initial investments and reduced IT overhead. However, large enterprises with specific customization needs may still prefer on-premises solutions.

Ultimately, the cost-effectiveness of your choice will depend on your organization’s unique requirements, budget, and long-term goals. It’s advisable to conduct a thorough cost-benefit analysis to determine which option aligns best with your specific needs.