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What Factors Affect the Cost of ERP?

Article Details
  • Written By: Osmand Vitez
  • Edited By: Kristen Osborne
  • Last Modified Date: 18 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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An enterprise resource planning (ERP) system is a specially integrated computer application in businesses. While ERP systems are typically beneficial for a company, the cost of ERP implementation and continuing use can vary, depending on several factors. For example, the ERP provider, size of the company, numbers of ERP modules and users, and customer service or technical support are just a few applicable factors. Fortunately, several ERP providers exist that allow companies to shop bids and contract work with vendors who can help mitigate these factors.

ERP vendors have different approaches to their systems. The cost of ERP applications are driven by the system backbone, which typically includes human resources, financials, distribution, and product management. These basic modules can cover much of a company’s standard operations. Using only these applications will lower the cost of a company’s ERP system. Companies can discuss these modules with vendors and see if their ERP backbones are the same, or if they offer a few different modules or applications.

The cost of ERP also depends on the size of a company. For example, companies with multiple locations will need an Internet-based system to transfer information electronically. This creates the need for security in web-based applications and company intranets. Servers, personal computers, digital licenses and other items can all increase costs when implementing ERP systems. Multiple locations can also result in computer hardware needed at each location, increasing the initial cost and future maintenance costs for ERP systems.

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The number of modules in use by an ERP system can also impact costs. Adding modules to handle manufacturing data, purchasing information supply chain operations, and product management can all add to the cost or ERP. While these modules can add value to the company, they increase costs as more hardware and software applications are needed to run these modules. They also provides more opportunity for specialized labor to run these modules in the specific areas of the company. Additionally, increased modules can lead to more individuals needing access to the ERP system. This increases the cost of ERP if the software vendor requires companies to pay a price based on the number of users who access the system.

ERP systems are not typically a one-and-done business expense. The cost of ERP will continue in perpetuity from customer service, technical support, and upgrades. Companies must determine if the initial ERP contract includes some of these free of charge for the first few years or if the company must pay for support. Some vendors may include a customer service package with the initial implementation cost, easing the support fees for a few years before the company must pay for support and service.

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