Advisory Services

July 06, 2021

How do you define ERP ROI…and what if you’re doing it all wrong?

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Effective strategies and best practices help companies build long-term value or ROI of ERP implementations. That said, we caution that achieving your highest potential return on investment (ROI) doesn’t often occur right away. The real value in a business management solution comes from its comprehensive and consistent use over time but sooner or later (typically sooner), most companies want to identify and measure the value of their ERP implementations. How are you identifying and measuring the ROI on your ERP – and what if you’re doing it all wrong?

The Problem with Typical ERP ROI Calculations

There are multiple ways to calculate ROI of ERP implementation, including dividing total benefits by total costs or dividing net profit (benefits minus costs) by total costs. Some companies choose to look simply at the average annual return, which is often skewed as most ERP implementation costs are front-loaded, and most of the benefits take time to realize.

How does one even determine the value of the benefits to use in an ROI calculation? Measuring transactional efficiencies is a common method: are we able to perform consolidations more quickly or reduce the quote-to-cash processing time? However, calculating the true value of benefits is difficult, as some of the most significant benefits—such as increased ability to attract and retain talent—are indirect and difficult to measure.

Shaking Up the ERP ROI Equation

We’d like to shake things up a bit and ask you to look at five additional, non-traditional measures of ROI of ERP implementation, some that—while not immediately evident—will continue to increase the longer you interact with an ERP solution.

1. Ability to Scale and Grow Without Increasing Staff

As companies grow, overhead costs typically grow proportionately, but it doesn’t have to be that way. When workflows and business processes are automated, transaction volumes may double, triple, or sexdecuple (that’s the term for 16 times. Really.), without requiring much, if any, additional staff involvement.

Accounts payable (AP) automation is a great example of this. AP is a function with many routine tasks ripe for automation. Highly automated AP departments process 16 times as many invoices per FTE each month as their peers with little or no automation. Simply put, you can do more with your existing staff. As an added benefit, staff can focus on more strategic value-added work, such as improving supplier relationships and leveraging early payment discounts (which can lead to lower absenteeism and turnover rates, as we discuss below).

2. Promoting Collaboration and Communication Through a Centralized Database and a Single Source of the Truth

Collaboration is more than a feel-good buzzword. While intuitively it makes sense that collaboration leads to better business outcomes, intuition alone won’t turn collaboration into one of our indirect ERP ROI metrics. So, to back up our hunches, readings show collaboration has a fundamental impact on innovation, efficient processes, increased success, and improved communication.

In fact, extremely connected teams demonstrate a 21% increase in profitability. Collaboration helps ensure the right information ends up with the right people at the right time to help them make fast, fact-based decisions. As an added benefit, collaboration increases employee engagement and happiness.

3. Making Better Decisions Faster Thanks to Increased Visibility

Take a big breath before you read this: Managers at a typical Fortune 500 company may waste more than 500,000 days a year on ineffective decision-making. That’s a colossal waste of time. While we don’t know exactly what those managers are doing during this time, we can say for certain that if they had fast, real-time visibility into their business data, including trends, outliers, wins, losses, slowdowns, and more, they’d have fewer excuses for wasting all that time. The old saying about organizations drowning in data but starving for information rings true. Your organization’s ability to block, tackle and score wins by leveraging your business insights is essential for long-term profitability.

4. Reducing Absenteeism and Employee Turnover

When employees consider switching jobs, the top factor is because they’re bored. Providing employees with challenging, interesting work and opportunities to make meaningful contributions to the organization are effective ways to reduce absenteeism and employee turnover. With automated workflows minimizing otherwise rote tasks, your staff can focus on value-added tasks and special projects rather than routine transactions, building value for the organization in fulfilling and rewarding ways.

5. Ability to Pivot Rapidly to Capitalize on New Markets and Unique Opportunities

It’s a global economy and increasingly small and midsized organizations are testing the business waters across borders, looking to grow their market share. In addition, many companies are considering a merger, capital investment, or acquisition opportunities. To capitalize on new markets and investor opportunities, companies need nimble, flexible, scalable, and auditable financial systems.

The Bottom Line

The five alternate, indirect methods for calculating the ROI of ERP implementation may not all begin contributing to the bottom line from day one, but they are significant factors, nonetheless. They come with an escalation clause: they are likely to contribute in increasingly significant ways the longer you continue to use the software and the new functionality constantly being added to it.

We do recognize that some of us need something a bit more, well, direct—so we offer this up. Sage Intacct’s customers enjoy an average ROI of 250%, savings of between $50,000 and $100,000 per year, with an average payback period of under six months.

Those are impressive numbers by any measure. Your results, of course, may vary, but in our experience, they are certain to continue to grow as full adoption takes hold, and the multiplying effect becomes visible and measurable. Contact a trusted managed service partner, <cough> like BT Partners <cough>, with any questions you may have on how a new ERP such as Sage Intacct could help your business in the long term.

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