Assessing the Total cost of ownership of ERP systems: Case study analysis on the factors behind customer costs in recent minor implementations (Management Project)

This study presents a model for calculating the total cost of ownership (TCO) of relatively small ERP implementations, including two years of running the system. The main factors affecting the cost items in the model are also analyzed, based in part on four case projects that the consultancy company Acando has carried out recently and in part on literature.

The case projects were investigated through interviews with key actors in the projects from Acando and the customer, and through invoicing and project documentation in Acando’s databases. It is important to note that it is the cost side of the projects that is in focus in this thesis. Realized value at the customer is thus not included in the TCO model or further analysis.

The model is built based on previous models for assessing the TCO of ERP implementations, but adapted in several ways to the context of the four case projects in the study. The costs of the case projects are mapped individually into the TCO model, and the total costs for the customers of the projects are calculated and presented. This results in a TCO for each of the four projects of between 4 and 9 MSEK. The model makes a clear distinction between internal and external time and resources that are invested in a project. This underlines how an implementation project is a cooperative effort between vendor and customer.

Important factors found that affect the TCO of implementation projects include all the seven categories of success factors that Nah and Delgado find in their extensive literature review on the subject. The most significant of these categories of factors are shown to be top management support and project management. This is largely because these influence the impact of many of the other factors. All factors are interrelated though, and it is at times difficult to identify which is the main factor in a certain course of events. Looking more into detail concerning the cost affecting factors the most important factors identified in the case studies were the following:

  • Amount of resources allocated to the project by top management
  • Priority of the project in the organization
  • Skill and experience of the customer project manager
  • Control and follow-up procedures
  • Communication between stakeholders regarding expectations and  project scope
  • The amount and complexity of integrations, customizations, data migration and testing
  • Type of contract regarding pricing and risk sharing
  • Change management effort

Source: Linköping University
Author: Rydgård, Göran | Palmberg, Nils

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