value engineering in erp

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VALUE ENGINEERING IN ERP

Faculty Guide :

Mrs jyoti Pandya

Presented By :

Hemal Shah (CP1908)

COSTRUCTION & PROJECT MANAGEMENT,CEPT UNIVERSITY

Introduction

Value engineering tries to provide appropriate

functions at appropriate cost maintaining

performance, quality, reliability or maintainability

and safety.

Find out functions and their costs

Identify high-cost functions

Help to establish alternative ways of providing the

needed functions created techniques

2COSTRUCTION & PROJECT MANAGEMENT,CEPT UNIVERSITY


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Introduction:

VE Increase a company’s profitability, competitiveness, and

resource position as well as professional career achievements

and satisfaction to customer.

Value = Function

Cost

Value is increased either by increasing performance

(Function) without significant increase in cost or decreasing

cost while maintaining the performance, quality and reliability.


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Why VE for ERP !!!!


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VE In ERP

A. Total cost of ownership (Cost),

B. Life Cycle Cost of ERP etc.

Total cost of ownership is useful for management to decide

whether to go for ERP,

Based on LCC, components contributing most to total cost of

ERP can be determined and focusing on that components total

cost of ERP can be reduced and value of ERP can increased.


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Total Cost of Ownership

TCO is a means for understanding and controlling

the risks associated with implementing an ERP

system.

Focusing on the total cost picture, on the other

hand, leads us to consider the indirect,

unbudgeted, and contingency costs of

implementation and operations that can disturb an

ERP project downstream.


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How Much Does an ERP System Cost? Size of the ERP software

Corresponds to the size of the company it serves

Need for new hardware that is capable of running complex ERP software

Consultants’ and analysts’ fees Time for implementation

Causes disruption of business Training

Costs both time and money


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The total cost of ERP ownership includes the costs

of packaged software, hardware, professional

services (for ongoing maintenance, upgrades and

optimization) and internal costs


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Percentage Wise Cost Distribution

Implementation & Consulting (38 %)

Software (21%)

Hardware (21 %)

Training (20 %)


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Costs of Software

The cost of packaged ERP software

depends on the

1) scope of implementation (ERP

modules and the number of end users),

2) complexity of software and ERP

vendors.


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Costs of Hardware

Implementation of ERP systems routinely requires

purchase of new computer hardware, systems

software, network equipment and security software.

The costs of hardware vary in a wide range dependent

on the scope of implementation and platforms.

The hardware typically costs about half million dollars

for mid-sized organizations that implements ERP

systems.


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Based on the ERP survey conducted by Meta

Group in 2002, the average cost of ERP

ownership was $15 millions ranging from half

millions to $300 millions.

Average time taken for implementing ERP was

marked 23 months.


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Life Cycle Cost of Ownership1) The goal of LCC is to support wise decisions about all costs in

the beginning of an ERP project, and then to anticipate and

manage those costs during its life cycle.

There are five major ERP life-cycle components of TCO analysis:

1) Acquisition,

2) Implementation,

3) Operations,

4) Maintenance,

5) Replacement.


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most of the life-cycle costs of an ERP system are centered in operations and maintenance.

Controlling software modifications and centralizing operations can have significant effects on overall costs.


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Life Cycle Cost


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Research Paper

EMPIRICAL STUDY OF ERP SYSTEMS IMPLEMENTATION COSTS IN SWISS

COMPANIES.

Authors

1) Catherine Equey

2) Rob J. Kusters

3) Sacha Varone

4) Nicolas Montandon


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ABSTRACT

Researcher have used data from a survey of Swiss companies having implemented ERP in order to test cost drivers.

Particular attention is given to consulting fees as a major factor of implementation cost and a new major cost driver has come to light


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METODOLOGY The statistical evidence for this study was

collected on the basis of a written survey. The first phase of the research consisted of in-

depth interviews of Swiss companies from the French speaking part of the country.

Contact details for SMEs were obtained from the Swiss federal office of statistics (OFS)

More than 4’000 Swiss SMEs were contacted over a six-month period between November 2005 and April 2006 to take part in the nation-wide survey.


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The final version of the survey was broken down as follows:

1) Contact details,

2) Activities and financial information about the company,

3) Specificities of implemented ERP,

4) Description of the implementation process,

5) Project organization,

6) Outcome and benefits derived from the use of the ERP system,

7) Difficulties and problems encountered.


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RESULTS: On average, 4 modules are implemented in these

projects. Unsurprisingly , The finance module is used in

over 80% of cases. The other most frequently utilized modules:

Purchasing, HR, Inventory management and CRM appear in over 50% of responses.

On the other hand, the production module is used by fewer than 40% of respondents,


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The cost of consulting was under 20% of the total project cost in 57% of cases with a further 20% falling within 50% of total cost .

Thus, Consulting cost is clearly the main individual factor of total cost of implementation in ERP projects.


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Consulting costs as a percent of total costs.


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CONCLUSION

This research paper points to some of the factors that may influence the cost of an ERP project.

An important cost driver mentioned in the literature is clearly validated by our analysis: the cost of on ERP project is dependent on the number of modules to be implemented

The importance of the factor consulting cost clearly stands out in the data


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THANK YOU

value engineering in erp

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