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Evaluating the ROI of ERP software

ERP systems are a large investment. In this expert response, find out how to estimate the ROI of ERP software, including payback periods and business changes.

How do you evaluate the ROI of ERP software? For instance, how long does it take to pay itself back in saved costs or increased productivity? Do the products vary in this regard?
One should consider the business value first. There are a number of metrics that matter and impact business value. Payback period depends on your cost structure of (license fee, maintenance, upgrade, implementation, training, ongoing staffing, etc.). Once that's in place, you'll also have to account how much business change you'll face. The amount of change your organization needs to address drives up costs and lowers ROI. Flexibility in the system to adapt will pay off more if you face tremendous change.

That being said, most companies have not achieved significant ROI because it took them two to three years to get

up and running. They used the system in steady stat for about three more. And after six years, their requirements have shifted so they've had to rip out the older systems. It's frankly too hard to measure a complete ERP project. However, they have definitely received benefits. The issue is that the amount of change makes it hard to determine ROI.

It's the hope that newer architectures will provide more flexibility so software can run longer and be more adaptable or Software as a Service (SaaS) deployments will increase ROI.

This was first published in December 2009

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