How to Build a Business Case for a Modern ERP Solution
The “modern” integrated enterprise applications offered a return on investment. This was primarily because they made it possible to lower inventory costs, increase days sales outstanding (DSO), and improve margins.
However, today’s “postmodern” ERP solutions (as Gartner refers to them) are more expansive and flexible and provide ROI in dozens if not all direct and indirect ways.
This begs the question: If modern ERP solutions are so great, is it necessary to make a business case for buying a new one. The simple answer is yes.
Why it is important to build a business case for an ERP modern
For many distributions and manufacturing companies, the challenge is sorting through all of the information. It is difficult to find the right insights to build a business case. This includes compiling operational data, predicting future performance metrics, and determining ROI.
It is also necessary to work. Without detailed analysis, no ERP project should be approved. This will ensure that the scope of the project is clear, the budget is complete and the goals are aligned with company objectives. It is important to determine the ROI and payback period before approving any ERP project.
Many organizations still skip the process of building a business case, seeing it as justification to invest in technology.
A business case is more than a confirmation of a need. It also serves as a crucial vision- and goal-setting exercise. It forces you to create a detailed plan, which sets expectations, guides your project, and drives your business transformation.
Also read: 5 Advantages of Industry-Specific ERP Systems
5 Compelling business reasons to replace your ERP
The decision to implement a new ERP system comes down to capabilities. Does your current system have all the capabilities that you require?
There are many more complex questions. A compelling business case must be presented for a new ERP system. This is a costly, potentially risky, but definitely disruptive change to your core business processes and enterprise management systems.
- Your company is growing, has been growing, or plans to grow substantially.
- Enterprise software is essential for a company’s ability to manage its processes more effectively.
- You have to align the systems of an acquired organization.
- Your current system cannot be upgraded.
- Your current system does not serve the business or users well.
1. Identify the current problems and reasons for changing
- What are your biggest pain points?
- What processes would you like to improve?
Evaluate all of your business processes. If you don’t know what processes are slow, poor, or broken, and without identifying obstacles to growth and change, it’s impossible to make improvements.
2. Identify and analyze opportunities
- What can you do to help your company improve its process?
- What are your pain points?
ERP’s greatest benefits are due to the interconnectedness between functions and processes, and the integration and access of data across all departments. It is important to identify your core processes, what blocks you from reaching your goals, and which processes are interrelated versus system-constrained.
3. Set goals and focus
- What is the ultimate goal of your company?
- What’s your vision of the future?
Once you have identified the benefits, it is time to determine which are essential to your organization’s future and aligned with its transformational vision. The most important, major-picture business changes should be determined by the management team. Functional managers need to identify the process improvements they are looking for. The organization must then translate this vision into concrete goals.
4. Assess potential solutions and vendors
- What vendors are experts in your industry?
- Which solution is right for you?
- Which solution has the capabilities and functionality to help you achieve your goals?
Before you even started to work on your business case, you probably began gathering information about suitable ERP solutions. After identifying your pain points and their solutions and clarifying your goals, you now have a solid understanding of your needs and can identify specific improvements that will benefit your company. You are then better equipped to find the right solution for your business and your process.
5. Estimate costs
- What is an accurate number for the project cost?
- Which cost factors should be considered?
An accurate cost estimate for an ERP solution is required to create a business case that is realistic and valid. Software is the first and most obvious expense. This is often a complicated calculation that will vary depending on how many users are using the software and whether it is hosted, cloud/SaaS, or on-premises. Implementation services include software configuration, change management, and project management. Keep in mind, however, that the implementation process is not the end of your expenses: Licenses, maintenance fees, and other costs are ongoing expenses.
Also read: 10 Benefits of ERP Software in Manufacturing Industry
6. Calculate return on investment
- How much does the new solution cost?
- What value are the intangible benefits to you?
Reexamine the goals and opportunities you have identified, and calculate their ROI. Your return will typically come from improved production, which results in lower operating, inventory, and labor costs. These benefits can be quantified. Compare the operating costs of your current system to the cost of the replacement system. Indirect benefits can have real value. Example: Customer satisfaction = X% higher repeat sales = $X revenue
7. Identify and create a mitigation plan
- What are the factors that put at risk project success and potential benefits?
- What mitigation measures will lower risk?
Risk is inherent in any major enterprise system change. However, careful project planning, change management skills, and expert resources can mitigate this risk.
8. Develop a high-level implementation strategy
- What will it take to implement the solution?
At this stage, a detailed implementation plan is unnecessary. However, a thorough evaluation of the project’s business value should include a large-picture view of how it will progress and a projection of the resources needed and the implementation timeline.
9. Present the benefits and value
- What will each function and department gain?
- What’s the reason for a new ERP system?
Your organization’s stakeholders will be concerned: The new ERP and redesigned business processes will impact nearly every function. Persuade them that the long-term benefits are worth the pain. You should focus on the value that can be achieved through improvements in their functional areas or processes. The numbers will tell you the story.
The business case is more than just a justification for your project. It is due diligence, a vision paper, the roadmap for business transformation, and ultimately the basis for deciding if your organization reaps the benefits that it anticipated.