Cost Estimate and Accounting in ERP
February 12, 2025
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Initial investment in acquiring and implementing an ERP system is substantial in terms of both human efforts and financial resources. After, successful implementation, the system goes to maintenance mode and organizations start getting value out of their investment.
After a prolonged period, due to changes in business and technological paradigm, it becomes more and more difficult and expensive to maintain and extend the system. The process of reimplementation and beginning of a new cycle starts.
ERP life cycles, which encompass entire 10 to 20 years of effective operating life, are often confused with ERP Implementation Life Cycle. Some of the phases of ERP life cycle is shown in following diagram.
Maintenance will be covered by service level agreement, entailing payment of license fee to the vendor. For a complicated system, there may be a third party vendor, helping maintenance at site. The license fee, due to provision of escalation, gets escalated at regular intervals and after some years, adversely effects Total Cost of Ownership (TCO).
Parallel to business changes, technological changes also occur. New release and versions appear for underlaying technologiocal platforms like Operating System and Data Base. ERP vendors release patches and versions of their producdts at regular intervals which needed to be incorporated in the existing system. This usually involves minor or modeate efforts. But, problem arises where many softwae objects were customized during implementation. Retrofitting these objects for making them compatiable with later versions, may turn out to be a major migration exercise involving exorbitant cost and effort.
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