The total cost of ownership of ERP software can be very high as compared to the actual cost of software procurement. If a company is buying enterprise resource planning software, it will have to make investments on buying the software, buy new hardware, install services to the client's terminal and spend money on maintenance of the software.
1. Cost of the ERP software procurement: To buy enterprise software a company has to spend money on procuring the license of the software and on buying new hardware to install the software.
2. Cost of add-on tools and services: There are few things, which if not included in the actual cost of the enterprise resource planning software, may cause budget overrun. ERP software buyers should include the cost of hiring a report writer, expenses on extra modules, money spent on buying data conversion tools, printers and a few other necessary tools, to get the total cost of ownership (TCO) of buying enterprise resource planning software. Sometimes, the company that buys ERP has to pay for add-on software or technology, which is as expensive as new software.
3. Implementation and security of ERP Software: If the organization buying the enterprise software is not equipped with skilled technical staff, the company may have to spend on hiring new technically pertinent support staff. Software should be used properly to get high benefits and technically strong people can provide the needed leadership and skills to reduce security issues in this software. If a company hires external experts, it will have to pay a very high amount for getting the services. Expense on implementation and services of external providers can be high up to four times the actual cost of the software and it can transform the Total Cost of Ownership to a large extent.
4. External Cost of ERP Software: The companies buying enterprise software have to spend on buying software and hardware, but the external cost such as annual maintenance and initial implementation can be very high. Data conversion and integration of software to previous structure can take a lot of time. Initial process of software integration and testing is not only time consuming but also very expensive. Some software companies provide discounts for additional license procurement and the company buying the software can install the software at many terminals through the first time investments. The company may even get hardware at a discount price on bulk buying.
The cost of annual maintenance needed to run the software for years, can be about thirty percent of the cost of the software, although, different companies provide different rate list for AMC. Software maintenance includes services such as upgrades in version of software to integrate technically advanced features, customization on demand, point releases, improving performance of software and to provide additional services depending on the changed needs of the company. Annual maintenance also includes providing skills to solve technical issues and debug errors at client's location.
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This book is written for business professionals, vendors, consultants, project managers, service providers, executives, programmers, teachers and students who are working, managing or studying in the field of software application development, process improvement, BPR, hardware applications development and corporate business process automation. |
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