- We review some of the highest-ranking sources on ERP ROI to answer the question of the quality level of information on ERP ROI.
We review some of the most popular articles on ERP ROI to understand what is generally available to those searching on this topic. Our own site has several articles that rank high for a search on “ERP ROI,” however, we will leave our own articles out of this analysis.
See our references for this article and related articles at this link.
Article #1: Insights’ ERP ROI Calculation Worksheet
This is an article published by SAP. It is an article that lists a lot of items that are part of the ROI estimation. But it is almost amusing coming from SAP as SAP has been lying about its TCO for decades (TCO is the denominator in the ROI calculation), as we cover in the article How Accurate Was Forrester’s TCO Study on SAP HANA. SAP has zero credibility on the topic of ROI.
Article #2: Precisions’ How to Calculate ERP ROI
This quote is from the article.
The resulting quotient, expressed as a percentage, is your ERP ROI – the larger the quotient, the better the investment. However, the reality is a little more complicated than that because some of the costs and revenue streams are difficult to measure. Different departments and individuals might define costs and returns differently for an ERP project and interpret them differently. It’s important for the finance team to ensure the data collected and calculations across all departments are consistent.
This vastly understates how difficult it is to estimate ERP ROI. ROI estimates are based on assumptions that turn out to be very difficult to support.
The following quote was also interesting.
Nevertheless, if you take the time and effort to develop accurate ROIs, your decision-making will be better informed, increasing your chances for greater success and profitability.
And it is interesting becuase ROI is rarely performed at companies for either their ERP systems or other systems. Yet this article makes it sound like companies produce ROI calculations from their software investments on a routine basis.
Article #3: In4Velocity’s ERP Return on Investment
This article spends a good deal of its words covering the ERP system’s costs, as the following quote illustrates.
The costs mentioned above are some typical project costs that should be considered while implementing the ERP software. We recommend you to carefully quantify these costs before investing, as they help you accurately weigh ERP business benefits and costs.
After evaluating the total investment required for implementing an ERP system, it is now time to focus on the Return On Investment (ROI) of the ERP.
The costs of ERP systems really should be covered in a separate article on TCO. Otherwise, one will end up with an unruly article.
These benefits read like something an ERP software vendor would say come from ERP systems.
It is not at all clear that these benefits naturally flow from ERP systems. I was advising a company that purchased and implemented Oracle ERP Cloud, and they were significantly worse off and had higher costs after the implementation than before they switched over. As for staff retention, why would this be? ERP systems are often frustrating for staff and are less customized to requirements than homegrown systems. They require more, not less external reporting as the reporting that tends to come with ERP systems is generally quite weak.
Who is In4Velocity?
Naturally, In4Velocity turns out to be an ERP software vendor. Therefore, they have 0% interest in communicating the actual ROI of ERP systems.
The article finishes off thusly.
Business executives use the ROI method to determine which investments to make. ERP ROI is also the financial success of most investments. Eventually, ROI is a comparison of the expected benefit of an investment in monetary units to the cost of that investment in the same monetary units. Always ensure that the effectiveness of ERP depends on the efficiency of the business that incorporates it.
This is not true. Again companies seldom calculate the ROI of their software. They do not have resources that know how to do this, and they are not staffed normally to do it. Secondly, In4Velocity would not be a good source to listen to. They want their prospects to accept a number of assumptions regarding the benefits of ERP systems that do not hold up.
Article #4: Panorama Consulting’s ERP ROI Calculator
This is not really an article, but it only has the very basics explained and then has a link to an ROI calculator that does not have much thought put into it.
This ROI calculator is absolute piffle. I entered an average number of days and notice that the calculator assumes reductions in each category of intangibles!
The assumption in every area is an improvement. No doubt, Panorama states it has data points to support this, but why ERP systems would have the automatically estimated improvement is difficult to see. This is part of the ERP industry that repeatedly asserts universal benefits that it cannot support.
Article #5: EasyERP’s ERP ROI Calculation
This is yet another article on ERP ROI by a software vendor. It is amusing how software vendors think they have credibility on the topic of ROI.
Notice how the article begins.
Aberdeen Group is a Reliable Source?
According to Aberdeen Group, organizations obtain the most benefits for the ERP system, if the possible ERP ROI was identified before the start of ERP project and evaluated continuously throughout the implementation process. The methodology of determining the ERP ROI helps you identify where the best effect for the particular business has been achieved. Unfortunately, many companies often avoid ERP ROI calculation when it comes to the selection of the system. So currently, ERP ROI has become an integral part of every company’s decision-making process.
First, Aberdeen Group was a terrible IT analyst that finally got out of the IT analyst game and has changed its business model. So I would never listen to what Aberdeen Group has to say, as I have read their reports.
ROI Has Become a Universal Tool?
This is another article that dramatically overstates how frequently ROI is performed.
Return on Investment has become a universal tool in substantiating the effectiveness of IT projects. Why do we need to calculate ROI? Because ROI measurements in many circumstances improve chances of a successful completion of the project.
Business Statistics Can be Compared Pre and Post ERP Implementation to Determine ROI?
The following quote assumes that other cofactors do not have to be removed from a pre and post ERP implementation analysis.
But for people who work in financial sector, especially those dealing with accounting, calculating ROI is easy as they work with tangible data. Moreover, it becomes easier for them to calculate prior year’s revenue and the costs.
We have previously discussed primary ERP benefits after its adoption. Now, in order to gain better understanding of it let us survey on these tangible and intangible benefits.
How does that company know how much of the changes in costs and revenues are due to the ERP system?
All of These Items Improve with ERP?
The increase in effectiveness of manufacturing as a result of effective management of the equipment;
● Enhanced allocation of resources to lower costs on the workforce;
● The improvement of the process of procurement to lower the cost of the materials;
● Improved planning and control to shorten work-in-progress times;
● Reduced double entry and errors through managing processes in one unified system;
Some intangible data to consider:
● The strengthening of tighter sales cycle by better accounting control;
● Enhanced customer service;
● Standardized procedures;
● Increase accuracy of inventory data;
● Shorter order to shipment cycle.
This is really a massive set of assumptions, which the article is asking the reader to accept. If we take just one, Standardized Procedures, an overly standardized procedure can worsen business outcomes rather than improve them.
Many items on this list are ordinarily not improved with ERP systems.
The article continues in this way. Another article produced by yet another ERP vendor makes gross assertions with no support for anything printed in the article. The articles that stay away from the details also stay away from making false claims. However, the more any of these ROI articles begin to present their assumptions; the more false claims are made.
No vendor will admit that studies going back to the beginning of ERP software have not shown a positive ROI, as is covered in the book The Real Story Behind ERP.
Naturally, as the reality of ERP ROI is not promotional for ERP vendors, this conclusion by Brightwork Research & Analysis is barely perceptible.
Article #6: Reliable Plant’s Controversy ROI ERP
This article stood out from the others so far.
It is very common, however, for companies to take a big leap of faith with ERP and supply chain management systems. And, unfortunately, more than 90 percent of the companies that have implemented ERP have not had a truly successful implementation the first time around.
Yes. But will anyone read this in an article published by an ERP vendor? Naturally no. And if 90% of the first implementation of ERP systems is not successful, it isn’t easy to obtain an ROI.
The following quote from the article had some fascinating insights.
ERP implementations have been plagued by a long list of other afflictions. The following are some common problems:
• ERP software was installed to mirror a set of existing, inadequate business processes.
• The high expense of fixing legacy systems for Y2K was the predominant driving force to replace old systems with new ERP software.
• Organizations were painfully ill-prepared to conform to best practice process templates chosen by the ERP systems integrator.
• Management did not answer the question, “How do we want to run our business and why?” and therefore, maximizing performance through significant business process improvement did not occur.
• Implementations were often done by inexperienced consultants/system integration personnel with limited understanding of how a manufacturing enterprise could and should run.
• Pre-implementation preparation activities were not understood and done.
• Executive sponsorship and active, on-going involvement with the ERP implementation were lacking and, as a result, lots of political bickering and barriers to success surfaced and ultimately became more and more difficult to overcome.
• IT personnel were all caught up in beauty contests of technical wizardry and, as a result, their concentration was not totally focused on helping the business to become a higher-performing company in meaningful terms.
• IT personnel were subjected to the slam and cram of new technology without having the time and training to transition from the old legacy system technology to the new.
This is all true. And after reading so many articles previously on ERP systems in general and then white writing this article, it is rare to read these critical aspects of ERP. This demonstrates how almost all of the published material on ERP systems is published by industry sources that intent to sell ERP systems.
How Y2K Drove ERP Implementations
The following quote provides background on ERP implementations that is often overlooked.
Most new ERP system implementations have been disappointing, and have needed significant cleaning up to achieve positive ROI. Many ERP implementation failures were caused, at least in part, by Y2K being the driving force behind the project rather than defined business performance improvement objectives. With Y2K as the driver, ERP became a software replacement project, and after expenditure approval, management often stepped aside and let information technology and systems integrators take over the installation of software.
Right. This means that Y2K, and an overblown Y2K fear, which was stoked by software vendors and consulting firms, as we cover in the article How ERP Vendors Deliberately Exaggerated the Y2K Issue, was used to scare companies into buying ERP systems. Many academics’ voices stated that the Y2K issue was being overblown, but industry drowned out those voices.
Overall, this was our highest scored article. It was refreshing to read an article on ERP ROI that was not simply trying to sugarcoat the topic.
Article #7: Acumatica’s ERP ROI Calculator How to Get a True Return
This article had some good information, but it is again written from a vendor’s perspective. Observe this quotation.
Don’t Look into the Details?
Honestly, the danger in writing about a clear assessment of ROI is that it will appear to be so complex as to discourage anyone who might be considering a new ERP implementation. Fear not! It’s important for technical leadership to face needed change instead of fearing it or putting it off.
Observe that this quote is making it sound like there is always a positive ROI from ERP.
ERP System is a Game Changer?
Again, the danger in writing an article like this is that it could present ERP implementation as a bit of a decision minefield! Don’t get me wrong—ERP software can be a game-changer for your business (check out our customer stories page). But being aware of all the scope and cost elements involved, as well as which processes and decisions will impact those elements, can only better set up your company for a fast and accurate ROI calculation to produce and prove a successful implementation.
There is close to no evidence that ERP systems are a game-changer. The question is whether a company can obtain a small positive ROI on ERP systems.
You Must Implement an ERP System?
With due diligence, a complete and accurate ROI assessment will ensure that your company asks the right questions and makes the right decisions up front, acquires the best ERP system for your needs, and is empowered to fully realize the benefits of a new solution.
Considering an ERP implementation? We can help you assess your needs and understand the decisions you’ll want to make early the process. To get started on your research, you can download our free ebook, “Clearing the ERP Clouds” with the link below.
Please observe that the assumption is that one has to purchase an ERP system. And this vendor is asking if they can help you assess your needs. Really? Is it the software vendor that should be helping a company assess its needs?
Article #8: Contract ERP’s ROI and Payback Potential for an ERP System
This article begins as follows:
Imagine your company running more efficiently. The peace of mind and calmer days that can result from switching to an ERP system may be enough reason to justify the change.
This proposes a rose-colored glass impression of ERP systems.
Industry experts estimate the typical time to see a return on investment on an ERP system is three years or less. Indeed, Panorama Consulting Group researched the ERP payback period of major ERP vendors, and found 2.7 years as the average time.
We reviewed Panorama’s ROI estimator, and they are clearly not experts on ERP payback. Secondly, a payback of 2.7 years is in complete contradiction with the academic research on ERP systems.
So this article is already providing false information on two different topics, and we aren’t very far into the article.
That’s a long time to wait for ROI when you’re dealing with ERP software that is not only costly, but involves a lengthy process of consulting, implementing, and training. How can you have confidence in the payback potential?
Actually, 2.5 years would be fantastic. But even this fantastic unrealistic estimate is too slow according to Contract ERP.
Forecasting and Managing — ERP systems can reduce inventory levels up to 22 percent. As you’re able to forecast your demand, you’ll limit overstocking. How much will you save by reducing overstocking?
Really? Because I have evaluated many ERP systems, and none of them have acceptable forecast accuracy. The inventory reductions may come from better inventory management. However, ERP systems contain vanilla ERP calculations available anywhere and are inferior to custom solutions because you have much more flexibility with a custom-designed solution. Secondly, due to the low cost of carrying inventory, even a 22% reduction will not go very far to pay for implementation.
This article is designed to provide a false impression to readers. It is a thoroughly dishonest article.
Article #9: Leverage Tech’s Measuring ERP Return on Investment
This article provides a short listing of various aspects of ERP ROI. But the article is not worth reading.
Article #10: ERP Focus’s ERP ROI Proving Financial Payback Will Make You a Star
If someone told me the author of this article was inebriated when he wrote it, it would not be surprising. This article tries to give some insights into the challenges with the estimation of ROI from ERP, but there is just not much to the article.
Article #11: Ascarii’s Return on Investment of an ERP Project
This was an article the author put minimal effort into writing. It is more fanciful than interested in providing evidence.
Article #12: Levtech Consulting’s Measuring ROI in ERP Implementation
As with many other articles on ERP ROI, this article again overstates how widely ERP is used.
With contemporary CFOs justifiably driving expenditure on the basis of measurable metrics, budget allocations for the deployment of an ERP system are subject to demonstrating Return on Investment (ROI).
This quote makes it sound like ERP ROI calculation is the norm when it is exceedingly rare.
This is a consulting company trying to sell Microsoft Dynamics implementation business, so naturally, they make the normal unsubstantiated claims about the benefits of Dynamics.
Lowered material inputs due to coherent procurement, reduction in wastage and predictive control over foreseeable obsolescence.
Streamlined inventory of ongoing production and finished goods, as well as curtailed labor costs due to improved allocation of tasks and reduced need for overtime.
Minimized downtime, rework and resource shortages due to better scheduling, predictive analysis and improved coordination with supplier and sub-contractors.
Reduced cost of after-sales service and redressing customer issues, due to improvements in quality and process reliability.
Again, the article assumes that everything in Dynamics is superior to whatever it replaces in each area. This also leaves out the reality that it is straightforward to find applications with far better functionality in all of these areas. This is a constant feature of ERP vendors, and they propose that their systems do not need to complete with anything. This entire article is rigged to be a sales pitch.
Article #13: MRP Easy’s MRP Software ROI
The article starts as follows.
Often, the success of MRP software is judged by the time, cost and effort to implement it. However, it is possible to calculate ROI based on average saving on labour cost, because the implementation of ERP/MRP system improves the production planning which could significantly improve the efficiency of the manufacturing process and reduce labour cost.
No. MRP software run from ERP systems doe not improve manufacturing efficiency. This is apparent from both observation of companies running MRP from ERP but also reviewing the functionality of MRP in ERP systems.
There are a few more lines in the article, but that is then where the article abruptly ends. We have a positive view of MRP Easy, but this article is of poor quality.
Article #14: Appsolute’s How to Calculate the ROI of Your ERP System
This is a content-free article that is not worth discussing or quoting.
Article #15: ERP Information’s What is ERP?
Most of this article has nothing to do with the ROI of ERP. There is what amounts to a short paragraph on ERP ROI.
Article #16: Dsdinc’s ERP System ROI Analysis
This is a disposable article on the topic that receives our lowest rating.
Article #17: BC Food ERP’s ERP Implementation ROI
This is a quote that is provided in the article.
“Why a food production business needs an ERP? The same reason why all manufacturers need an ERP: Having an integrated system that ties together all aspects of the business together in an organized way will very likely improve the efficiency with which the business operates. This can have a direct impact on profitability. My feeling is that the greatest root causes of strife in a manufacturing organization are information deficits – Which customer has ordered what? How much raw materials do we have on hand? What is our cost of doing business? Every business that reaches a certain size and has hands-on involvement in the manufacture of their product eventually reaches a point where an ERP system offers a practical solution to improving business performance and profitability.” – David Altemir, President/Senior Consultant at Altemir Consulting
This again presumes that only an ERP system can meet these requirements. Secondly, when multiple systems are used, that still ends up becoming an integrated system. There is never a time when a company ever uses just an ERP system, so other systems connect to the ERP system.
The description of “who has ordered what,” this inventory and order management software/functionality. It does not have to come from an ERP system.
Therefore, the article errs by providing a quote that is false from a biased source.
The article is literally chocked full of false claims. Observe the following.
Better Order Management?
Keep all your customers in one system and be able to address their needs and concerns quickly. ERP system allows you to manage your buyers efficiently and grow more sales. If you leverage your ERP’s customer relationship management, you might see a drastic increase in revenue.
This is also false. How does an ERP system improve managing customers? It only records sales orders. Secondly, customer relationship management is a different software category (CRM). Finally, there is no evidence that ERP systems increase revenues.
When calculating the value of your ERP system, you should also consider the reduced cost of goods. Thanks to the streamlined supply chain, you might find your enterprise manufacturing more goods and landing more contracts.
There is no evidence that ERP systems streamline the supply chain. And compared to what? A previous “legacy system” or against specialized demand planning, supply planning, and production planning software? ERP systems have fundamental functionality for supply chain management and normally poor functionality for planning.
If you take the time and effort to choose the right ERP solution for your food production business and implement it well, you can expect that it’ll make the daily lives of your employees less stressful. And if your staff starts loving their job more, there’s a bigger chance they’d want to stick in your company for a longer time.
Once again, no. ERP systems are not considered superior to other systems for users. This is made up.
This is not a critique of the BC Food ERP system, but this article is absolutely filled with false claims.
Article #18: E2B’s Tek The ROI of ERP
Your ROI analysis should begin before beginning any ERP project.
Done right, the insight you’ll receive enables you to build a business case for your ERP project while establishing a data foundation that can be used to track the system’s expected performance in the future.
This article, like many others, overstates how frequently companies perform ROI calculations for ERP. What if the ERP calculation comes out to be negative? Then one would not have a business case for an ERP project (with that software), would you? But again, this potentiality is entirely disregarded by this article. The author also leaves out that the ROI estimate could also be “done wrong,” and you would still have a case for an ERP purchase and implementation.
The increased productivity of your staff through automation is one of the most impactful measures that save money and time. ERP allows you to identify where your staff’s time is most productive as well as uncover areas of excess waste. Tracking labor efficiencies can be difficult and time-consuming, so if you are reliant on manual processes like spreadsheets to manage labor costs, chances are it’s holding you back.
Moving from a manual, paper-based system to ERP for managing labor costs eliminates errors and lost documents. However, it’s important to note that while an ERP implementation optimizes labor costs through better planning and scheduling, headcount reduction is not usually the goal. Often unskilled labor redundancies get offset by more impactful, skilled staff.
ERP systems do not allow you to track labor efficiencies. Secondly, very few paper-based systems, at least in the developed world, have not been replaced already by some computer system. This article is presuming that it is either the 1980s or early 1990s.
More often than not, the ROI and savings would outweigh the cost and justify the investment.
False. And how does this author know this? We have already stated, the totality of academic research on this topic is that ERP systems normally have a negative ROI.
Article #19: Just Food’s ERP Measuring ERP ROI
“We were using an inferior and outdated accounting system before switching to an ERP,” says Rodney Smith, Senior Director of Supply Chain at Creative Food Ingredients. “There was limited bill of material functionality and not a lot of structure there. We were putting data into the system 24 hours later, so we had an issue with real-time inventory. Our procurement team was waiting almost a full day before even knowing what was used.”
This is a common strategy of an ERP vendor like Just Food. They talk about how poor the old software was. However, I have many accounts that complain about how difficult or limiting the ERP systems are.
As for the specific example, the idea that any system would not be capable of perpetual inventory updates is curious. This is because perpetual inventory recording naturally occurs when an item is checked out or into a warehouse. It is such basic functionality that one wonders why this was not rectified long ago. This would be a little like saying that a fire truck purchase worked out because the warehouse kept burning down.
“We were on an older version of Navision and we knew we needed to do something,” Angela Travis, Controller at Roger Wood Foods explains. “We could not upgrade because our system was so heavily customized, and we couldn’t run inventory valuations or physical inventory journals. We met with multiple ERP vendors and ultimately chose JustFood because it didn’t customize the core functionality we were after to run our business, meaning much of it was already built in.”
This quote is reasonable and a reason for an ROI on ERP. This is because the company found a system that was closer to their requirements than the Navision system. This quote does a good job explaining this.
This article did a good job of explaining how and ROI is driven by implementing new ERP software. And getting an ERP system that matches better with requirements would be a prime driver or ROI.
Article #20: Terillium’s The Real ROI of ERP for Manufacturing
The average ROI of Enterprise Resource Planning (ERP) implementations is $7+ for every dollar spent.
This is completely false, as we have already explained.
No sector creates more economic value than the manufacturing industry. Terillium is proud to help manufacturing companies implement Oracle ERP – solutions that help manufacturing businesses thrive with benefits like improved supply chain management, shop floor flexibility and better customer service.
It isn’t easy to get an ROI from Oracle ERP because Oracle charges so much, and its implementations are so expensive.
Overall, this article is a disaster, and I decided not to continue reading it as the author could not write coherently.
The Logic for Stopping at This Point
There was really nothing new coming from any of these articles. And as we looked at more of the articles down the list in the search results. It didn’t seem as if there would be anything else coming down the pike if we continued to read more articles. So at this point, we decided that this would be where we would stop.
So now, let us get into the scores.
The Table of Our Scores
The following is a tabular form of the articles we just covered.
ERP ROI Articles Found On Line
|Our Rating 1 to 10
|ERP ROI Calculation Worksheet
|How to Calculate ERP ROI
|ERP Return on Investment
|ERP ROI Calculator
|ERP ROI Calculation
|Controversy ROI ERP
|RIO ERP Zeroing True Investment
|ROI and Payback Potential for an ERP System
|Measuring ERP Return on Investment
|ERP ROI Proving Financial Payback Will Make You a Star
|Return on Investment of an ERP Project
|Measuring ROI in ERP Implementation
|MRP Software ROI
|How to Calculate the ROI of Your ERP System
|What is ERP?
|ERP System ROI Analysis
|BC Food ERP
|ERP Implementation ROI
|The ROI of ERP
|Just Food ERP
|Measuring ERP ROI
|The Real ROI of ERP for Manufacturing
All of the articles reviewed above are quite repetitive.
- We were not able to find very little original thinking among any of the articles.
- The articles were highly biased as most were written by those selling ERP software or consulting.
- Almost all the articles were written so that the author could put out a minimal level of effort.
- Few of the articles addressed the reality of the difficulty of an accurate ERP ROI calculation.
- Nearly all the articles appeared to presume that any ROI estimation of an ERP system would be positive.
- The calculator by Panorama Consulting is quite obviously highly inaccurate.
The average score of the 20 articles reviewed was just a little over 2—the highest-scoring article coming from Reliant Plant, which we scored a 9.
Overall, this highlights the low quality of information on ERP ROI which is consistent with other poor quality information available on ROI on other software categories.
What Did We Expect?
We did not have great expectations of what we would find before performing this analysis. However, the results are far worse than we would have guessed.
It is difficult to say that any of these articles is worth the time to read. The only way it would be is if you were entirely new to ERP ROI.