24 Mar Measuring hosted ERP ROI, the intangibles
An article at CloudTimes recently looked a IBM’s prioritization of big data and cloud in its 2013 report. The article hints that this indicates a larger trend t be seen over 2014. Well no surprise there. Big data and cloud and the combination of the two seem to be all anybody is talking about these days. According to the IBM report, 85 percent of new software is being built for the cloud. So naturally the world of Enterprise Resource Planning is no different. For many SMBs and startups, a hosted ERP solution is the obvious way to go, but measuring hosted ERP ROI (return on investment) is a likely step before making the switch from entry level accounting to a full ERP solution.
In a recent article on ROI at PanoramaConsulting.com, it is recommended that organizations start by evaluating the benefits when calculating ROI for ERP. These benefits are broken up by tangible benefits and intangible. Tangible benefits include reduced inventory, reduce materials cost and reduced labor costs. Intangible benefits include better customer service, shorter sales cycles or improved legal and compliance practices.
These intangible benefits act as the wild card for any ROI calculation. When measuring hosted ERP ROI there are even more intangibles that can be easily overlooked. A couple of examples…
- Performance and Reliability – The data in the first few years of cloud computing has all but proven that a reputable cloud hosting partner can deliver more secure and more reliable ERP systems than many on-site systems. The service level agreement generally assures this.
- Availability – The cloud by nature is better equipped to deliver mobile solutions. The sale team in the field, for example, will be better equipped to do their jobs with real-time access to critical information from anywhere at any time.
- Rapid Deployment – They say time is money, and an on-site deployment can take weeks, months. With a solution like hosted Dynamics GP you will be up and running in days. And your team will start using the system imediately. How valuable is your time? How important is time to value to your ROI assessment?
There are also the intangible consequences of running an ERP system on site. These include the costs of running the server like power, IT management and maintenance, floor-space and storage. The IT talent needed to maintain an in-house server is extremely costly.
One of the reasons measuring hosted ERP ROI is so tricky is that hosting is a service. Comparing the upfront cost of an on-site deployment to the service pricing is like comparing apples to oranges. Take this for example, when you buy a television you measure its value based on size, picture quality, sound and so on. When you order cable service, you measure its value on customer service, availability and performance. Measuring the value of on-site ERP against cloud based solutions is like measuring the value of your television against the value of the cable connection.