The ROI of ERP Systems: Measuring Success and Justifying Investment

Enterprise resource planning (ERP) is a software system that helps you run your entire business by integrating many functions across it, such as financial management, human resources, sales and manufacturing business, supply chain, services, procurement, and more. This system helps deliver benefits such as increased productivity and efficiency.?

ERP implementation is the process of planning, configuring and deploying an ERP through ERP partners who are experts in customizing ERP solutions to meet the unique needs of their clients. The role of the ERP partners in providing technical expertise and support throughout the implementation journey to ensure a smooth transition to the new system is a boon for modern businesses.?

Importance of Measuring ROI for ERP Systems

Return on Investment (ROI), is an important metric for businesses that helps them assess the profit made on an investment. It is calculated when the net profit is divided by the cost of investment, and the result is multiplied by 100 to show the result as a percentage. The ROI of ERP implementation includes financial as well as indirect benefits that enhance both efficiency and effectiveness. Measuring ROI helps make informed decisions about where to further? allocate resources. Not just that. It is also used by businesses to measure the success of their investment thereby helping them to identify areas where they can improve to facilitate increased returns.?

Benefits of ERP Systems

There are many tangible and intangible returns on investments in ERP systems. Both types of returns are beneficial, and highly valuable and should be considered, however, quantifying the intangible results can be challenging.?

• Cost saved = Increased revenues: ERP systems help to reduce costs by helping set efficient systems thereby, leading to increased revenues for businesses.?
• Improved efficiency: An ERP system will increase the efficiency of your business, meaning you will be able to produce more products or provide services with less time and resources.?
• Data accuracy: Centralizing information flow and getting real-time data will bring benefits to various areas within your business. For example, it will help optimise stock management, which will lead to lower storage costs, reduced waste, and demand-based inventory levels. This way the purchasing teams will use real-time data to establish better, lower-price, longer-term, contracts with the suppliers and vendors, leading to cost savings and higher profitability.
• Higher employee satisfaction: Making improvements to internal communication channels, streamlining processes and managing human resources in a better way creates a happier employee base. This results in productive and highly efficient teams that work towards quicker project turnaround. A happy employee stays with the company for longer which lowers new recruitment and training costs.?
• Improved customer experience: The opportunities a business currently loses due to poor or slow customer support are heartbreaking. ERP software helps improve customer experience through faster order management and effective customer service. This can lead to increased sales because of? repeat business and customer loyalty.
• Reduced likelihood of errors: ERP systems automate and maximize processes which minimizes human errors that can otherwise happen while handling data. This results in fewer mistakes and increases reliability in reporting which further saves costs.

Key Metrics to measure ROI?

The simple calculation to determine ROI involves calculating the total cost of ownership for your chosen ERP system. ROI can be measured effectively when a business keeps the following points in mind:?

• Time-to-value: Check the amount of time it takes for a customer to realize value from the product being sold to them.?
• Cost of ownership: Any expenses that a business undertakes that are associated with getting hands-on software acquisition, such as subscription fees per user or license fees.?
• Payback period: Estimating the potential return time of an investment made into the business, product or service, that is, the time it will take for the profit to equal the invested amount.
• NPV (Net Present Value): It is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.

Best Practices to Improve Return on Investment

ROI can be improved by working on certain points like:?

• Strategic planning: Doing long-term planning well in advance by defining future visions by identifying the organization's goals and objectives will fetch increased benefits.?
• Effective implementation and maintenance involves regularly maintaining and updating the software for which costs must be factored in. These costs may come in the form of IT labour outgoings or a yearly maintenance fee which can be agreed with the ERP partner.
• Training and development: Training is an additional expense but also guarantees getting more out of the purchased ERP system. It helps achieve the highest operational efficiency and productivity possible. So, do consider getting ERP training for your staff.?
• Continuous improvement: You may also include any outgoings related to the change management of your organisation, such as loss of productivity during the implementation process, staff’s paid time spent training, fees for support or consultations you may have had for your change management processes.

TechCloudPro is a Digital Transformation Company that is committed to helping businesses worldwide to seamlessly adopt cutting-edge & disruptive technologies in ERP, CRM, AI and Cybersecurity; enabling smarter, faster, more efficient & secure processes and systems. As a company with a global presence, it has established strategic partnerships with some of the world’s leading technology solution providers in their respective domains, to offer the best of IT solutions to its clients. The dynamic team of certified IT consultants and implementation experts at TechCloudPro bring in their strong subject matter expertise and domain knowledge to customize solutions that cater to the specific requirements of every organization. Starting from the business requirement discovery call right up to implementation, training & support, we handhold our clients in every step along their digital transformation journey.

Calculating ROI on the investment made in ERP systems leads to higher success along with helping justify the investment made into this software. Organizations reap a lot of benefits through the transparent data that ERP helps generate for their businesses along with safeguarding their assets and increased efficiency in their work.

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