Implementation: The Largest Cost Category#
For most ERP projects, implementation costs exceed license costs. Understanding where this money goes is essential for budgeting and controlling costs.
The Implementation Budget Categories#
External Consulting (40-50% of implementation)#
Implementation partner: The consulting firm that configures and deploys the system.
Typical composition: - Project manager: 15-20% of consulting cost - Functional consultants: 40-50% of consulting cost - Technical consultants: 20-30% of consulting cost - Training developers: 5-10% of consulting cost
Typical rates (NZ/AU): - Project manager: $250-$400/hour - Senior consultant: $200-$350/hour - Consultant: $150-$250/hour - Junior consultant: $100-$180/hour
Internal Resources (20-30% of implementation)#
Internal team: - Project manager: Dedicated to ERP implementation - Subject matter experts: Business users who provide requirements and testing - IT resources: Technical support for integration and infrastructure
Hidden cost: Subject matter experts are usually seconded from their regular roles. Their regular work still needs to be done, creating either backlogs or the need for backfill.
Infrastructure (5-15% of implementation)#
For on-premise: - Servers: Application and database servers - Storage: SAN/NAS for database and documents - Network: Bandwidth and connectivity - Disaster recovery: Secondary site infrastructure
For cloud: - Integration infrastructure: Middleware, API management - Development/test environments: Sandbox instances - Data migration tools: ETL software
Data Migration (10-15% of implementation)#
Data migration includes: - Data extraction from legacy systems - Data cleansing and transformation - Data loading and validation - Historical data decisions
Cost drivers: - Number of source systems - Data quality issues - Historical data requirements - Validation complexity
Training (5-10% of implementation)#
Training components: - Training development: Creating materials - Training delivery: Conducting sessions - Train-the-trainer: Developing internal trainers - Ongoing training: Post-go-live support
Contingency (10-20% of implementation)#
Every implementation budget should include contingency. The question is not whether it will be needed, but how much.
Cost Escalation Factors#
Scope Expansion#
The most common cause of cost overrun. Requirements expand during implementation as stakeholders identify additional needs.
Mitigation: Rigorous scope management with formal change control.
Requirements Volatility#
Requirements that change after configuration has begun require rework.
Mitigation: Invest more time in requirements before configuration begins.
Resource Availability#
Key resources (internal or external) not available when needed.
Mitigation: Resource planning and proactive scheduling.
Data Quality Issues#
Unexpected data quality problems in legacy systems.
Mitigation: Early data assessment in the project.
Integration Complexity#
Integrations prove more complex than anticipated.
Mitigation: Early integration design and proof-of-concept.
The Implementation Phases#
| Phase | Typical Duration | Cost Distribution |
|---|---|---|
| Initiation | 5-10% | 5% |
| Requirements | 15-20% | 15% |
| Design | 10-15% | 10% |
| Build/Configure | 25-35% | 30% |
| Test | 15-20% | 20% |
| Train | 5-10% | 10% |
| Deploy | 5-10% | 10% |
Fixed Price vs Time & Materials#
Fixed Price#
Advantages: Cost certainty (if scope is fixed).
Disadvantages: Vendor builds in contingency. Change requests are expensive.
Best for: Well-defined scope with limited uncertainty.
Time & Materials#
Advantages: Flexibility. Pay only for what you use.
Disadvantages: Cost uncertainty. Requires strong project management.
Best for: Uncertain scope or exploratory implementations.
NZ/AU Cost Factors#
Partner availability: Limited local partners may command premium rates.
Travel costs: Partners may need to travel from Australia or further.
Currency: Some partner resources may be priced in USD.
Conclusion: Budget Realistically, Control Rigorously#
Implementation costs can be managed, but not if they are underestimated from the start. Use realistic benchmarks, include appropriate contingency, and implement rigorous scope and change control.