The importance of building a business case for ERP

Implementing an Enterprise Resource Planning (ERP) system is a great place to start digitization of your manufacturing or distribution business to centralize all your data and streamline your operations for greater efficiency.

However, various studies indicate that 70-90% of digital transformation initiatives fail. A major reason for this is that organizations jump straight into selecting and implementing systems without being strategic and creating a business case.

Creating a solid business case can drastically impact your initiative’s success. In this blog post, I’ll share the key steps involved in building a business case that will enable you to identify the potential challenges, risks, and benefits associated with the implementation, and then how to build them into your plan for a successful ERP implementation.

Why do you need a business case?

Understanding why you need a business case can help you prioritize and justify the costs of an ERP system. Here’s why:

1. It’s a significant investment: Digitizing your manufacturing or distribution business with the help of an ERP involves a significant financial investment. A general rule of thumb is that the cost of an ERP implementation can account for 1-5% of a company’s annual revenue. Building a business case will help you not only understand the potential costs, such as initial investment cost, ongoing maintenance and support costs, but also, and more importantly, the overall return on investment (ROI) associated with the implementation.
2. Change management will be key to adoption: Implementing an ERP system is a significant organizational change that can impact every aspect of your business, from business processes and employee roles to the overall culture of the organization. This can result in resistance to change from employees, which can negatively impact the success of the implementation. Building a business case can help develop strategies to achieve buy-in from the top down.
3. You can focus on what you need: Most manufacturing businesses I have worked with have a general idea about what they want from their system. However, many are not clear about the specific capabilities they need to improve overall efficiencies. Building a business case can help ensure that your requirements are clearly defined, and that the system can be tailored to your needs, delivering the expected benefits.
4. You’ll be able to quantify the benefits: Identifying the potential benefits of an ERP system is important to justify the investment. Creating a business case can help you quantify these benefits, such as increased efficiency in resource utilization, improved decision-making due to real-time insights, better inventory management and control, enhanced customer service and turnaround times. A customer I helped recently was able to set a goal to reduce inventory carrying costs by 10% and increase production efficiency by 15%, and measure the progress against these specific goals.
5. It will help justify the investment: Building a business case will help you justify the investment to senior management and other stakeholders. By quantifying the potential costs, benefits, and ROI, manufacturers can make a compelling case for why the investment is necessary and help align teams internally for successful adoption.

Steps to creating a business case

Now that you understand why it’s so important to create a business case for ERP, let’s look at the key steps involved in creating an effective implementation plan. You will identify the potential challenges, risks, and benefits associated with the implementation, and build them into your plan.

1. Identify the problem or opportunity: The first step is to identify the problem or opportunity that the system can address. A manufacturer I worked with was experiencing challenges while working with multiple disparate systems and wanted to improve alignment between different departments. Their order entry effort was duplicated across three separate systems, and they had issues tracking orders. The key is to specifically define the business need that ERP can help address and define goals.
2. Determine the scope and objectives: The next step is to determine the scope and objectives of the ERP system. This involves specifying the functions and processes that the system should cover and establishing the expected benefits and ROI. Doing this prevents “scope creep” and sets clear expectations. This will help you tailor the ERP implementation to the specific needs of your business.
3. Conduct a feasibility study: Before investing in an ERP system, manufacturers should conduct a feasibility study to assess the technical, operational, and financial viability of the project. This involves first creating an internal project team that consists of stakeholders from key business units so that all relevant factors are considered. I would also recommend bringing in external ERP implementation consultants because they can provide expertise and best practices. This will improve the quality of the feasibility study so that you can determine available resources and constraints that can impact the project’s success.
4. Define the solution and vendor selection criteria: Once the feasibility study has been completed, you will have a high-level list of requirements. Based on this, you should create a list of evaluation criteria that will be used to assess potential vendors and define the ‘right fit’ for your business. These criteria might include factors such as flexibility, functionality, ease of use, scalability, vendor reputation, cost, support and maintenance.
5. Develop the business case document: Create a clear and concise presentation of the business case. This should include key elements such as an executive summary – key points of the business case, cost-benefit analysis – that outlines the costs of the project and expected ROI over time, and a comprehensive implementation plan – including timelines, budgets, resource requirements and other necessary details.
6. Present the business case to stakeholders: The next step is to present the business case to stakeholders and communicate the value proposition and benefits of ERP. This is an opportunity to address any concerns or objections and obtain the necessary approvals and support.
7. Implement, monitor and assess results: The final step in creating a business case for ERP is to implement the system, monitor its progress, and assess the results. This involves creating a detailed implementation plan, training employees on the new system, and ensuring that it is properly integrated with existing processes and systems. Once the system is up and running, it’s important to monitor its performance and assess whether the expected benefits are being achieved. This will help you identify any areas where improvements can be made and ensure that the ERP system continues to deliver value over the long term.

With a clear strategy in place, you can ensure a successful implementation that delivers the results you need. For a more in-depth look, be sure to check out our webinar, “Building the Business Case for ERP,” where you can learn more about how to ensure your ERP implementation will succeed.