Enterprise software investments are expensive and require your whole organization’s buy-in to achieve success. One of the most important forms of organizational buy-in is identifying and justifying the potential Return on Investment (ROI) of the project. Ultimately, how will a new ERP ACTUALLY bring value to your organization?
Enterprise software investments are expensive and require your whole organization’s buy-in to achieve success. One of the most important forms of organizational buy-in is identifying and justifying the potential Return on Investment (ROI) of the project. Ultimately, how will a new ERP ACTUALLY bring value to your organization?
The definition of ROI varies greatly from business to business and depends on factors like business structure and operational needs. Some businesses may achieve the greatest ROI through process efficiency and time saved, while another may see the most improvement through robust reporting capabilities delivering greater insights and improved decision making. What is considered “valuable” to an organization is dependent on each business’s metric for success.
Ultimately, metrics determining ROI can also vary across departments within the same organization. A CFO may define ROI as quantifiable financial return from the project, while a COO may define it as improved employee productivity and satisfaction. As a result, it is critical that you evaluate all departments and opportunities to determine potential return on investment for your ERP project.
Setting your expectations for ROI early in the project is crucial in avoiding disappointment and creating a realistic timeline for achieving targeted ROI goals. You will likely not receive immediate financial return from the project yet at go-live, making the projected timeline crucial to ensure your team to reaps the benefits of your new ERP.
Concrete monetary benefits may not be immediately evident, but there will be qualitative returns seen soon after go-live. Benefits such as streamlined task completion, increased customer satisfaction, and growth opportunities for new lines of business or expansion can be achieved early in the process. While the qualitative returns do not provide you with quantifiable financial gain, they will in many cases lead to more efficiency and quantitative benefits down the line.
These four steps will help you calculate and predict realistic ROI for your enterprise software project:
Setting realistic expectations for your ROI success can be achieved by defining your ROI success indicators. Interview Subject Matter Experts (SMEs) across departments to set goals for the software that are relevant to their respective areas of the business. Then, define consistent timelines for when those goals should be achieved. Not all goals will be realistic or make it into the plan, but this can set a strong foundation for selecting and eventually configuring the system. Doing this as soon as possible in your evaluation process is crucial!
Determine what is truly causing to pain across the organization from an operational perspective. What are the bottlenecks stalling different business processes? Will a new system enable growth and improve those processes, or are there other issues in the way? This could include culture, inefficient steps, or lack of training and adoption. Establish what the REAL causes of business issues are, and how new software could actually make improvements.
Don’t aim too high after doing your initial analysis! If goals are too steep for ROI returns, you are setting the project up for dissatisfaction at go-live. Identify your Minimum Viable Product (MVP) for the implementation, accounting for the functionality and capabilities essential for business operations. Then, use your MVP to plan out your post-go-live timeline and milestones. Once you have your MVP in place, your team can focus on optimizing the system and maximizing efficiency in those previously established areas of pain.
To measure success of the initiative, it is important to identify the difference between “hard” and “soft” benefits for your organization. “Hard” benefits are quantitative and typically determined by process improvements. These include driving additional sales, reducing cost of goods sold, cutting IT and operating expenses, centralizing data, and more. “Soft” benefits are more qualitative and based on perception or user experience. Empowering users to make better and more educated decisions and improving your perception by both the market and future employees are examples of “soft” benefits. By understanding the benefits you will receive as “hard” or “soft,” you can properly anticipate what your ROI returns will look like at different milestones after go-live.
To calculate ROI percentage, organizations must determine the total value of their investment against the total cost of their investment. The ratio between the two will provide a percentage of value that you can expect to see returned.
Though organizations can utilize “hard” benefits as a foundation for this calculation, it is still based on assumptions to reach a fully encompassing number. Focus on the largest two to three benefits that your organization will receive from the new ERP to perform this calculation. And due to the effort involved in enterprise software projects, aim for an ROI percentage that will lead to 100% growth or more.
In order to find your “total value of investment,” an organization’s accounting team must determine expected benefits and quantify their value over a set span of time. Organizations have varying metrics for what financial value is assigned to different software benefits. For example, process efficiency improvements may be valued more by an organization who has been anchored by limited software capabilities.
Using the same span of time from the total value of investment, an organization’s total cost of investment is the total cost of ownership and implementation for that time span. This should encompass licensing, implementation, and operating costs.
To actually achieve the calculated ROI and meet planned expectations, organizations must properly allocate their resources to the project and set an “ROI timeline” for when they should achieve certain goals. To do so, an organization must establish what costs will be associated with each phase of the project. Determine the milestones to reach before moving on to the next phase, and the resources needed to complete each phase.
If necessary, hire additional resources or an independent consulting firm (like us!) to backfill your needs. Then, while looking at each phase of work, discuss what “success” looks like at the end of each milestone. Define units of measurement to track success in the project as you go!
To successfully achieve ROI from your enterprise software investments, follow best practices to guide the process:
Enterprise software investments are long-term projects that will take, in most cases, one to two years to complete (or even longer for a large enterprise). While you may not see your return immediately at go-live, the aim of these projects should be to set your organization up for long-term success. By taking the proper steps and planning accordingly, the ROI returns you see on a new enterprise software investment should support your organization in growing exponentially.
Need support determining if there is enough of an ROI proposition to proceed with your ERP project? We can help! Schedule a free consultation with our team today.