How to calculate the return on investment in an ERP software? (part 2)

There is no universal way to maximise the return on investment (ROI) in an ERP software, as every business has specific goals and resources with which it works.

There are also industry-specific considerations – a service business does not face the same supply chain issues as a manufacturing company, for example.

However, the following five tips can help you get more value out of your software, whether you have chosen a locally based or cloud-based ERP solution.

1. Prioritise training

The only way to ensure that a new ERP software delivers a return on investment is for employees to fully embrace the new way of working and utilise the software to its full potential.

Employee training will increase the initial cost of implementing ERP software. This will initially reduce the return on investment, but these initial investments pay off quickly, and then begin to deliver long-term returns that turn the ratio positive.

Employees who are not trained and encouraged to use the new ERP system will continue to rely on spreadsheets and manual processes, significantly reducing the impact of this substantial software investment.

Read more: ERP systems and EURO – how do you prepare them? (UPDATED)

2. Management support

The implementation of an ERP software depends on the company’s vision and the commitment of senior management to utilising the new solution. It is essential that every executive, department head, and manager in the company supports the use of the latest ERP software and understands its crucial role in driving business growth and success.

This is the key to transformation and to engaging employees in the process.

3. Never stop evaluating

Another key to maximising your return on investment in ERP is to evaluate and refine your approach continuously. It is a good idea for business leaders to review the revenue and costs of the software implementation at least once a year, comparing them with their baseline metrics and considering new ways to reduce costs and extract value from the software and the data it provides.

The NetSuite cloud ERP software enables businesses to establish key performance indicators (KPIs) at both individual and company-wide levels, and closely monitor them to ensure continuous improvement. This is crucial to enable the company to continue working towards its specific goals, in addition to broader cost and time reductions.

4. Be realistic about costs and benefits

It is well known that estimating the cost of implementing new technology can be challenging, especially for small and medium-sized companies transitioning to a more complex way of working. Many companies turn to their ERP supplier or implementation partner for guidance on timelines, costs and effective and efficient employee training. It is equally important to accurately measure the benefits of the new ERP software to obtain a comprehensive picture of the return on investment, encompassing both tangible and intangible benefits.

5. Avoid common pitfalls

Several common pitfalls prevent companies from realising the full potential of their ERP software. The most common pitfall is treating ERP implementation as a traditional technology deployment, with one-off initial costs and a short payback period. In reality, most successful ERP software implementations are realised in stages over time, with the return on investment calculated at each phase.

It is also essential to know when to stop measuring the return on investment, especially with cloud-based ERP systems. In the case of a capital expenditure, such as a machine with an expected useful life of 10 years, it is straightforward to calculate its value and return for each year, and this calculation can be discontinued once the machine is taken out of service. In the case of cloud software, however, there is rarely a defined lifetime, especially considering that upgrades and updates are performed automatically. At some point, the ERP software becomes an integral part of the business’s standard operating procedure, and ROI is no longer a primary measure.

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A sensible approach is to start by defining and aligning business requirements with departmental goals, such as eliminating silos or integrating processes to achieve a more cohesive organisation. To this end, NetSuite offers its customers business needs assessment maps and total value of investment assessment maps to help them with this task and bring clarity to their ROI calculations.

Read more: How ERP software is revolutionising pig farming at Boni Holding

Conclusion

ERP software are large and complex, affecting every part of the business, from finance to customer service.

It is challenging enough to analyse the impact of ERP on all these operations, and even more challenging to calculate the return on investment in different business lines that manifest themselves in various forms and at different points in the ERP lifecycle.

But a successfully implemented ERP software can provide your business with unprecedented insight into its performance, opening up new opportunities to increase revenue while reducing costs and saving valuable time. This is where the actual return on investment comes into play, and this is where the tips outlined above can ensure maximum return.

This is why many companies choose cloud ERP. Without the need to manage IT infrastructure or change resources, companies can gain transparency into their operations, extend their core management platform, and get a clear picture of the return they hope to achieve from the implementation.

See the first part of the article, where we look at ways to calculate the return on investment in ERP.

Source: The ROI of ERP Systems

At Balkan Services, we have expert knowledge of business, technology and legislation and speak all three languages. We will listen carefully and advise you on choosing the right business software for your needs

Balkan Services has implemented business software solutions since 2006 and has completed over 750 projects for over 400 clients. We follow a proven implementation methodology with clear steps and best practice know-how.