Every customer would always want to know the ROI Of their Enterprise Resource Planning (ERP) implementation project. Vendor will also provide some sort of information that how the ROI will be calculated. Here we present a simple way to understand the high level of ROI of an ERP implementation project.
To calculate the Return on Investment (ROI) of an ERP software implementation, you need to consider the costs incurred and the benefits gained from the project.
Step 1: Identify the Costs:
Software costs: Determine the upfront cost of purchasing the ERP software license or subscription.
Implementation costs: Consider expenses related to software implementation, including customization, data migration, training, and consulting services.
Infrastructure costs: Account for any hardware upgrades, network improvements, or additional IT infrastructure required for the ERP system.
Similarly, you can add more costs to it like training cost, traveling cost, stationary cost etc.
Step 2: Calculate the Benefits:
Operational efficiency: Estimate the time savings and increased productivity resulting from streamlined processes, automation, and improved data accuracy.
Cost reduction: Identify potential cost savings in areas like inventory management, purchasing, production, order fulfillment, and customer service.
Improved decision-making: Assess the impact of better access to real-time data, analytics, and reporting on strategic decision-making.
Revenue growth: Consider how ERP software can facilitate sales and marketing efforts, customer relationship management, and order management, leading to increased revenue.
Assign a monetary value to the benefits:
Quantify the benefits in financial terms. For example, calculate time savings by determining the hourly cost of labor and multiplying it by the estimated time saved.
Use historical data or industry benchmarks to estimate the impact on cost reduction or revenue growth.
Calculate the ROI:
Subtract the total costs (step 1) from the total benefits (step 2).
Divide the resulting value by the total costs.
Multiply the quotient by 100 to express the ROI as a percentage.
ROI = ((Total Benefits - Total Costs) / Total Costs) * 100
Evaluate the Results:
Analyze the calculated ROI to determine if the ERP software implementation is financially viable.
Consider other factors like intangible benefits, competitive advantage, scalability, and long-term strategic value.
For more detailed consulting please get in touch.
Tens of Thousands of companies run ERP software.
It is expected to continue growing as more businesses recognize the benefits of implementing such systems.