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Process Modeling, Process Improvement, and ERP Implementation
ERP System Costs and Benefits
As you learned in Chapter 2, ERP implementation is expensive (with costs ranging
between $10 million and $500 million, depending on company size). The costs of an ERP
implementation include the following:

• Software licensing fees—ERP software is quite expensive, and most ERP
vendors charge annual license fees based on the number of users.
• Consulting fees—ERP implementations require the use of consultants with
the skills to configure the software to support the company’s business
processes. Good consultants have extensive experience in the way ERP
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systems function in practice, and they can help companies make decisions
that avoid excessive data input, while capturing the information necessary to
make managerial decisions.
• Project team member time—ERP projects require key people within the
company to guide the implementation. These are team members who have
detailed knowledge of the company’s business. They work closely with the
consultants to make sure the configuration of the ERP software supports the
company’s needs, which means these workers are frequently taken away
from their daily responsibilities.
• Employee training—Project team members need training in the ERP software
so they can work successfully with the consultants in the implementation.
Those team members also frequently work with training consultants to
develop and deliver company-specific training programs for all employees.
• Productivity losses—No matter how smoothly an ERP implementation goes,
companies normally lose productivity during the first weeks and months after
switching to a new ERP system.
To justify the costs associated with an ERP system, a company must identify a
significant financial benefit that will be generated by the use of the software, but the only
way a company can save money with an ERP system is by using it to support more
efficient and effective business processes. This means that an implementation project
should not just re-create the company’s current processes and information systems,
although that is a possibility since SAP provides the source code with its ERP package.
A company could choose to alter the package through SAP’s internal programming
language, called Advanced Business Application Programming (ABAP)—which you first
learned about in Chapter 2. With access to the SAP ERP source code, it is possible for a
company to spend a significant sum of money on software code development to avoid
changing a business process to the best practice process designed into the ERP software.
Many companies have difficultly handling change and prefer to continue doing business as
they always have—rather than adopting the best practices built into the ERP system.
As part of the implementation, a company must also manage the transfer of data from
its old computer system to the new ERP system. In addition to managing master data such
as materials data, customer data, vendor data, and so on, a company must also transfer
transaction data, which includes sales orders and purchase orders, many of which are
likely to be in various stages of processing—a challenging task.

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