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How to counteract the escalating cost of your enterprise resource planning system

Mike du Toit and Glen Krynauw of Deloitte Consulting wrote this article which relates to counteracting the escalating costs associated with enterprise resource planning (ERP) systems. The intention of this article is to prompt discussions, feedback and debate from business executives. Both Mike and Glen will welcome your comments and may be contacted at mdutoit@deloitte.co.za and gkrynauw@deloitte.co.za. I have also started a discussion on this subject on the Deloitte South Africa – Technology group on LinkedIn which I welcome you to join. 

 

How to counteract the escalating cost of your enterprise resource planning system

by Mike du Toit and Glen Krynauw of Deloitte Consulting

Independent parties and industry analysts believe that acquisition and implementation costs represent approximately only 30% of the total cost of ownership (TCO) of ERP systems over a five year period. The remaining 70% represents upgrades, support and maintenance costs. It is therefore not surprising that focused efforts on reducing ongoing supports costs can yield substantial cost benefits and free up funding for enhancements and continuous improvements.

The ongoing costs of supporting ERP systems are often significantly underestimated. The reasons are many and varied. IT landscapes today are large and diverse, trending towards increasing complexity. That complexity has become costly – with research indicating nearly two-thirds of IT spend is now allocated to maintaining existing technology.

ERP systems maintenance and support usually make up a significant component of this IT spend, which often comes as a nasty surprise to those organisations which believed that the ERP acquisition and deployment costs represent by far the most significant component of the TCO over the life of the ERP system.

The real question then becomes why is there so little focus on reducing TCO if this is so obvious? Too many organisations simply accept that these costs are inevitable and refer to this as ‘business as usual’, ‘keeping the lights on’, ‘non-discretionary spend’ or simply put, the cost of doing business. That means that there is an implicit acceptance that these costs are fixed and will, at the very least, escalate annually by CPI. In-house IT support structures often do not set themselves TCO reduction targets and where support is outsourced, the costs are often locked in.

The reality is that IT spend will not normalise after the economic recession and CIOs will have to find budget for new initiatives to continue to support evolving business requirements. The good news is that there are many opportunities for substantially reducing TCO. ERP systems and their support environments represent a significant opportunity not only for cost reduction, but also performance improvement. All that is needed is a holistic analysis, coupled with a deep understanding of all the elements making up TCO.

Download the article . . . . How to counteract the escalating cost of your enterprise resource planning system

This fresh perspective will have the added benefit of allowing continuous improvement to support the business strategy

If you would like to find out more about how to reduce your ERP support costs, please contact Mike du Toit at +27 082 574 4723 or mdutoit@deloitte.co.za and Glen Krynauw at +27 083 678 7638 or gkrynauw@deloitte.co.za at Deloitte Consulting.

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Category: Executive Leadership, Finance, Information Technology

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