What Are the Costs of ERP Implementations?

ByShaun Snapp

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Executive Summary

  • Dave McComb’s book Software Wasteland is one of the best books on IT and IT waste.
  • ERP systems have a high propensity to exceed their implementation cost budgets.

Introduction

The quotes from Dave McCombs’ books are quite shocking. These quotes are so amazing, we created a number of articles to make them available to ourselves in an easily findable way so that we could use them in the future.

See our references for this article and related articles at this link.

Quotes

“We work a lot with a state agency who had contracted a firm to estimate the cost of an ERP implemetation. After surveying a number of states, they came up with the number $125 million +/- $20 million.

In our independent assessment, basesed on other work we had done for this agency and our knowledge of the scope suggest that a realistic range for the project was from $5 Million to $1 Billion +. As we’ll discuss, the $125 million number is almost impossible to hit.

External consultants typically charge $150-$200 / hour or about $300k – $400k per year. You’ll need 300 to 400 person years to hit a $125 million budget. It’s just not possible to get that many people coordinated around a one year project — it will be 3-5 years, with 100 people.

Why do I say it’s just as likely to hit either extreme? At the high end you have only to look at Healthcare.gov, the California Child Support Enforcement System, or the DOD DIMHRS system to see how medium sized systems project can easily become billion dollar blow outs. “

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Conclusion

Overbudgeted ERP implementations are the norm, and they are the norm a pointed out by Dave McComb. And that ERP implementations go over budget in as a natural consequence of the expectations of ERP implementations and how ERP systems are budgeted.