Inaccurate cost estimations

ERP software implementation projects imply high initial costs for large-sized enterprises, mainly for two reasons: Effort- and requirement-wise, the level of the project is extensive, moreover, large-sized enterprises can afford to invest a higher amount of funds in technological advancements than small- and medium-sized enterprises. As part of the intra-enterprise project preparation processes, budgeting has to be assessed even before the official project launch. It is highly challenging for the project team to frame exact procurement costs at this stage. Large-sized enterprise software projects tend to go through a tunnel, where costs are further defined and refined for more precision by the project team. During the tendering and procurement stages, the project team or the procurement department initiates the request for quote (RFQ) process. As a response, the software vendor submits the costs with the statement-of-work (SOW) document.

In the initial planning phase, the project team might face the issue of inaccurate cost estimations, as the requirements are not properly translated to the software vendor. In other scenarios, the software vendor might not determine the development costs explicitly and state a ‘from-to range’. It is likely that both of these result in an overestimation from the vendor’s perspective and an underestimation from the client’s perspective. Furthermore, the vendor might not reveal all aspects of the usage costs: it is not directly promoted by the vendor that certain ERP software has to be upgraded periodically to receive official support, and the upgrade has a significant cost.

In the long run, as the ERP software is in use, further enhancements or new functions need to be added to the existing and implemented system. The project team might not consider that such customization can require high capital for outsourcing it to the external software vendor or for internal technology experts.