When it comes to calculating ROI for ERP systems, we tend to look at a dollar and cents amount. We think of ROI as a purely financial amount. If you’re saving this much money or earning that much more money than the cost of the ERP, then you’re getting a good return on investment.
However, that’s only one way to think of the ROI on ERP systems. Another way of looking at it is to look at the less tangible or quantifiable benefits that ERP systems bring. Read on to learn about how to assess less obvious sources of ROI.
One of the benefits that ERP systems provide is that they create a single source of truth. A single source of truth eliminates the need for individual employees to maintain their own data sources (or for departments to do so, either). Instead of multiple spreadsheets or other digital or paper documents floating around, there’s one version, and you never have to worry that it’s inaccurate.
Of course, don’t rely on mere anecdotal evidence; a study from the Aberdeen Group shows that ERP implementations reduced administrative costs by almost 20%.
A single version of truth leads to another valuable benefit – a reduction in errors.
Errors are expensive. When you don’t fill an order properly, it costs you money to correct your mistake. And when you don’t receive the right order, you experience an interruption in the flow of business. An ERP system can improve the amount of complete and on-time shipments by 17% because it reduces costly errors, according to the Aberdeen Group report referenced above.
In addition to reducing errors, ERP systems also streamline processes. Imagine that many of your manual processes are now digital. There’s no more wasting time entering data or searching for it in disparate sources – it’s all in one place. Greater efficiency leads to lower operating costs, because people are devoting themselves to earning more money for the company, rather than spending time on tasks that don’t lead to higher profits.
The Aberdeen Group’s study showed that companies that implemented an ERP system were able to reduce their operating costs by up to 20%. Thanks to ERP systems, these firms became more efficient and save money.
Another benefit you can expect to see from implementing an ERP system is higher levels of productivity. Higher productivity levels are a direct result of the other advantages ERP systems bring to organizations.
A study conducted by German researchers showed that companies that have implemented ERP systems have a higher than average level of productivity, earning their firms more money. On the other hand, firms without ERP systems actually lose money because their employees are less productive.
These other ways of measuring ROIs are not simply a fun exercise – they help you understand exactly how an ERP system can benefit your organization. They help you build a stronger business case for an implementation and ultimately, a stronger company.