Comprehensive Guide to ERP Project Budgeting: Ensuring Financial Health Amidst Complexity
ERP budgeting is the discipline of funding a programme whose largest costs are the ones not on the licence quote: internal people, data work, integration, change and the year after go-live. Budgets that only cover the implementation are the ones that run out in hypercare.
If you change this
It implies 2 topics across 2 modules, including Projects and Portfolio (PPM) which you might not expect.
See the path ahead →Why it matters
Software and implementation partner fees are the visible costs and usually the minority. The costs that overrun are the internal ones, because they are not invoiced and so were never estimated.
- Internal effort is the largest omission: Backfill for the subject matter experts a programme takes out of the business is a real cost that rarely appears.
- Data work is consistently underestimated: Cleansing is a business activity, not a technical one, and it is discovered rather than planned.
- The run cost changes permanently: Subscription, support, and the capability to operate it.
The workflow
- 01
Scope definition
What is in, and explicitly what is not, before any number is produced.
- 02
Cost modelling
Software, implementation, internal effort, backfill, data, integration, change, training and infrastructure.
- 03
Contingency
Sized against assessed risk, held centrally, released against evidence.
- 04
Business case
Costs against benefits, with named benefit owners and a baseline.
- 05
Approval
Through the organisation's own capital or investment process.
- 06
Tracking
Actuals and commitments against baseline, with forecast to complete.
- 07
Benefit realisation
Tracked after go-live by the owners, not by the programme.
Budget the year after go-live. Hypercare, defect remediation, the deferred scope and the first period-end problems all land after the implementation budget was assumed to have closed.
What you need in place
- A cost model including internal effort: Priced at a real rate, with backfill.
- Contingency held centrally: Contingency distributed into workstreams is spent.
- Capital and operating split: Determined early, with finance, because it changes the approval path and the accounting.
- A benefits baseline: Measured before, or the benefit cannot be evidenced after.
- Forecast to complete, refreshed: Spend to date tells you nothing on its own.
- Post-go-live funding: Explicitly in the envelope.
Questions to ask
01Internal cost
Is internal effort in the budget, at a real rate?
Usually not, and it is usually the largest line.
02Backfill
Who does the day job while the expert is on the programme?
If the answer is nobody, expect both to suffer.
03Data
What is budgeted for cleansing?
It is business effort, it is large, and it is discovered late.
04Capitalisation
What can be capitalised, and who decided?
It changes the approval route and the reported result.
05Contingency
How much, held by whom, released on what?
Contingency inside workstream budgets is not contingency.
06After go-live
What is funded for the twelve months after?
If nothing, the programme ends when the problems start.
07Benefits
Who owns each benefit, and what is the baseline?
Unowned benefits are not realised, and unbaselined ones cannot be proven.
Metrics and KPIs to track
Spend against baseline
Actual and committed, by category.
Forecast to complete
Refreshed on a cadence, with variance explained.
Contingency drawdown
Consumed against elapsed schedule.
Internal effort
Days consumed against planned, by business area.
Benefit realisation
Measured against baseline, by owner, after go-live.
Run cost
Ongoing cost against the business case assumption.
Alongside this