Technology Cost Justification

Cost Justification of Investing in New ERP Technology

Issue

A mid-sized manufacturer utilizing legacy AS400 was feeling pressure to invest in new ERP technology to meet both the internal needs of the company and the demands of their customers. They wanted to make sure that the investment could be cost justified. The key was to determine the ROI of new technology so that management could make an objective decision.

Solution

In order to determine an accurate ROI, we interviewed a number of stakeholders in various functional areas within the organization. Additionally, we observed their operation, received completed questionnaires from support staff, and evaluated the organization’s ability to absorb change. We identified key metrics that were valuable to the client and focused on determining their impact on the cost justification of new technology. We also included a “change quotient” metric whose purpose was to measure the organizations ability to change; this is an essential element of bringing in new technology. The technology cost justification was based on a five year total cost of ownership (TCO), which was not the entire planned life of new technology, but was agreed to be a reasonable TCO period of time.

Results

The business has an objective ROI measurement based on three key metrics. The ability to reduce head count, the opportunity to grow sales, and the change quotient all contributed to the cost justification being positive for this particular company. The results of this study clearly indicated that new technology could be justified and as importantly, could have a significant improvement factor across all functional areas. This enabled the company to get funding for the new technology and provided clear direction regarding process improvements for the organization.