How to Calulate ROI on ERP

It is always very challenging to calculate the ROI for an ERP Investment. As an organisation, you always willing to invest sales generating activities than the in an ERP. ROI in Sales generation activities is clearly visible.

ERP ROI will be in two forms. – Both Tangible and Intangibles.

Tangibles measurement.

1. Reduction in Inventory / Debtors: Usually after ERP, the improved process will lead to reduction of Working capital needs, if implemented properly. After six month you get visibility and all the interest in the reduced working capital is a saving to the company. Research studies indicate that there is reduction of  receivables & Inventory by 10 %  post ERP Implementation. For Example : Even if there is reduction of inventory by 50 Lakh Rs. You will be at least saving 5 Lakhs per Annum every year.

2. Stationary / Go Green : Nowadays with the latest technologies, we can save lot of paper printing including invoices to customers by sending whatsapp / emails etc., Interdeparment communication can be automated instead of printouts. For Example For a retail customer, who prints 600 invoices in multiple location per day, the paper saving cost can be worked out at 600* 30 days * 12 months. It will be atleast 1.5 Lakhs per Annum + All other print outs which can be saved.

3. Reduction in wastage / Rejections: It’s a regular pattern, after ERP the visibility of the operations. The Rejections can be attributed to functions and improvements can be implemented to reduce the rejections/ wastage. It’s a regular area of saving, that’s always expected out of an ERP implementations. For Example, if you can reduce rejections by 1 %, there will be lot of saving on the Raw material, labour etc. If we can rejections is reduced by even .5 %, the cost saving can be calculated at few lakhs or few crores based on your volume of operations.

4. Revenue leak Areas: The system can easily give you are report of Customers for who we have not charged or under charged, thereby you can easily start improving your revenue. For Example – You have not invoiced customers for their AMC or not invoiced for some time.

Intangibles

Productivity: Streamlined business process, will help your employees achieve more in less time.

Labour Costs: Automating certain process, will save number of people required. Your hiring of manpower need not be in proportionate with your revenue growth.

Customer Experience: With the introduction of mobile / SMS / Emails, there can be proactive updates to the customer thereby improving customer retention.

Improved Reporting: From the management perspective, their will be more visibility into the department functions and helps in improved decision Making.