Implementing ERP solutions – is fixed price possible?21 May 2014 | by Natalie
You have decided to implement a new ERP system for your business, you have shortlisted your preferred ERP supplier and now you are negotiating the all-important implementation pricing. Should you be asking for a fixed price implementation or an agile “do and charge” approach?
There are several different methodologies available and several different ways to slice and dice an implementation of ERP software but fundamentally you have a “high level” choice between defining the scope upfront and getting a fixed price for implementation services or getting an upfront estimate and then treating the project as “time and materials” or “do and charge”. Each type of project methodology offers pros and cons.
Using a fixed-price methodology has a distinct advantage in that you know what to budget for your implementation and associated services. The difficulty is defining the scope of work at the start of the project. Another area of potential conflict can be managing the implementation – what happens when an item is out of scope or was poorly defined during the scoping process? A fixed-price ERP implementation requires strong project management, clear decision-making from management and a high-level, experienced consultant to do the scope of work.
Under a “time and materials” or “do and charge” implementation methodology you get precisely what you want from the system – the challenge is that project timelines and budgets might overrun substantially – based on original estimates.
There is also a “hybrid” model which allows for a fixed price on part of the scope of works and some additional “time and materials” budget for certain parts of the project (reporting, data conversion and training).
At the end of the day, there is no right or wrong answer. There are hundreds of different criteria that need to be considered when implementing ERP and negotiating the ERP implementation. Some questions that need to be asked include:
– What reporting is required?
– How much data needs to be converted from legacy systems and what format is the current data in?
– What internal skill sets do I have at my disposal – technical, applications and business?
– How much time do my internal team have to dedicate to the ERP project?
– How many parts of my business are included in the scope of this ERP project?
– How likely is it that my requirements are going to change in the next few months?
Whether you decide on a “fixed price” implementation or a “do and charge” project will depend on your specific requirements. What is clear is that the more planning you can do upfront the better positioned you will be for a smooth implementation of ERP.