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How can CIOs make a business case for a new ERP system?

CIOs can boost the likelihood of buy-in for a new ERP system if they focus on two factors involved in leadership's decision making. Here's a look at what those are.

It's no secret that CIOs face an uphill battle to secure buy-in of a proposed new ERP system.

To get that buy-in takes enough research to create a strong ERP business case. Because the ROI and costs of implementing ERP heavily weigh in in the decision making, CIOs need to do enough groundwork well in advance to turn the ERP implementation decision in their favor. The buy-in process for a new ERP system begins when revenue-controlling leadership realizes that the current IT infrastructure is inadequate to support the company's growth. Inordinate delays in getting required company information such as up-to-date reports and analytics is likely to play a major role in this realization. In addition, the current systems' integration deficiencies and the proposed new ERP system's potential to reduce or eliminate manual work and redundant data entry are often major components of the ERP business case.

CIOs can ensure better odds of winning executive leadership's support if they do their homework and develop a solid ERP business case around these two areas:

The ROI on a new ERP system. The sooner an ERP system potentially begins to pay back the investment made in it, the greater the willingness will be to implement it. Calculating ROI requires calculating the financial gains that the company will make versus the costs involved. For example, if it takes five working days to complete the year-end closing process with an obsolete ERP, while the proposed new ERP is able to achieve this in two days -- man hours involved will be lower and turnaround will be faster. The ERP business case is also strengthened if, for example, the invisibility of existing dead material stock is costing companies millions of dollars and the new ERP will be able to reduce or eliminate this situation. Look for these solid demonstrations of ROI.

Direct and indirect costs of the new ERP systems. CIOs need to account for all direct and indirect costs associated with implementing a new ERP system. For example, there are the costs of on-premises hardware or, in the case of a cloud platform, the purchase of ERP licenses and their recurring annual costs. But there may also be business slowdown or disruption due to implementing new ERP system and the additional training required for business users to come up to speed with the new ERP system. Be proactive about the variety of implementation costs to give a true picture of whether a new ERP system is justified.

Other critical success factors required to create a strong ERP business case and encourage buy-in involve actively promoting stakeholders' engagement, wherein business users share their pressing business pains; conducting ERP scoping to see if the proposed ERP is able to meet the company's business needs; and ensuring a proof-of-concept to help in choosing the right system integrator. 

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This was last published in July 2016

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