VALUE ENGINEERING IN

ERP

Faculty Guide : Presented By :

Mrs jyoti Pandya Hemal Shah (CP1908)

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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


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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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Total Cost of Ownership
 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

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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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Total Cost of Ownership
 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
Ownership
1) 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

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