Don’t Let These Hidden Costs Skew Your ERP TCO Calculations

October 4, 2018 Greg Williams

Don’t Let These Hidden Costs Skew Your ERP TCO Calculations

We all know the importance of evaluating ERP systems and their total cost of ownership (TCO). Typically, this is done as part of the selection process and is calculated by using the purchase price and implementation costs of the solution. Both Microsoft Dynamics NAV and Dynamics 365 for Finance and Operations are two examples of very different cost structures based on the hosting platform choice of the Cloud versus on-prem. Both models have advantages and disadvantages and the corresponding costs need to be compared not only for initial acquisition but also for operating costs over time.

Regardless of platform, there are upfront costs common to all projects and these include hardware, software, and services. Services can refer to internal staffing as well as partner assistance for implementation, user training, support, and any needed customization of the system. These are the upfront and initial costs that are usually easy to anticipate. However, there is a whole category of hidden costs you may or may not have considered.

3 Hidden Costs of ERP To Consider

When implementing an ERP system, hidden costs are dangerous not only because they add to your original TCO estimates, but also because they directly impact your return on investment (ROI) for the system and your organization’s bottom line. Here are a few hidden costs that often surprise businesses that did not plan for them.

  • Data migration:  This is the cost of moving data from the old to the new system, including making any needed format changes. This isn’t always economically viable and it is possible to archive the old system in a read-only state.
  • Upgrades:  Factor in the cost of upgrades not just to the ERP platform, but to all of the related systems software. For example, Windows and SQL may need to be upgraded periodically and licenses purchased. A Subscription-as-a-Service (SaaS) offering such as Dynamics 365 for Finance & Operations will eliminate the costs for technical upgrades.
  • Old systems: Old systems can still incur costs. Even if it was not worth the expense of data migration, you may have other business needs (such as compliance) that dictate the need to keep the system running for a number of years. When this happens, the costs can include things like hardware, software licenses, and data export services.
  • Future operations: What will it cost to be in production over 5 years? 10 years? Does this figure include ongoing infrastructure expense and ongoing people expense?

The Hidden Savings with Dynamics 365 Finance and Operations

Many of our Dynamics NAV customers run multiple third-party applications to supplement their base ERP system. It is not uncommon to have 5-6 apps (or more) to address specific needs and gaps, often implemented over time. Many of those specialized applications are no longer needed in Dynamics 365 for Finance and Operations since they are now built-in functions out of the box. This creates a savings not only for the third-party software license fees but also the expense of maintaining those interfaces. Be sure to factor in any third-party app needs (and obsolescence) into your total cost of ownership calculations.

In Conclusion

It’s important to take all costs into account when choosing and implementing a new ERP system. Use the factors above to avoid unwanted surprises and estimate a complete TCO for not just the acquisition but the lifetime of the solution. Better yet, working with an experienced partner like Western Computer can help you determine a realistic and achievable TCO for your ERP solution based on hundreds of implementations. 

About the Author

Greg Williams

As Western Computer's Dynamics Practice Manager, Greg Williams is responsible for aligning the company's product and service offerings with the specific needs of its customers. Greg's 15 years of experience with ERP implementations in the manufacturing and distribution industries allows him to identify potential risks and immediately mitigate them with creative solutions.

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