May 9, 2012Doug Hadden
Doug Hadden, VP Products
November 2009: I was asked to step in at the last moment to present at the Financial Management Institute of Canada.
Topic: The Business Case for ERP in Government.
Problem: I’m fundamentally against the notion of using ERP for public financial management. Nevertheless, I made a stab at explaining the argument for ERP in government [see embedded presentation]. Evidence continues to mount about high costs and high failure rates for ERP in government. The business case for ERP in government remains weak.
Strength of the ERP in Government Business Case
- ERP improves efficiency and productivity: Automated processes are more efficient than manual processes. Yet, ERP systems often introduce unneeded complexities. And, many government ERP users report that systems are unable to fully automate all processes. Many studies suggest that companies do not gain benefits from ERP until the final phase of implementation.
- Single ERP has a better value than many Best-of-Breed: The “portfolio management” viewpoint suggests that the cost to support a single ERP instance is far lower than multiple applications. Even though the applications may provide more value than ERP, the management costs are far higher. That’s the premise. ERP systems are highly complex to manage. And frequently need additional best-of-breed anyway.
- Government transformation: Software vendors suggest that ERP can help government transform. Yet, ERP systems leverage customization (call-outs, scripting, BPM tools, code etc.) to adapt to changing needs. There is a significant cost to continuously adapting software that uses the customization approach.
The TCO Problem
ERP software has a high Total Cost of Ownership (TCO). Studies of ERP costs suggest that internal costs such as training, employee retention, and IT management is as high as the cost for software across multiple private and public sector markets. Consulting costs can be twice the cost for software. Evidence suggests that consulting costs are much higher in government in the private sector.
Many people ask me how much the FreeBalance Accountability Suite costs. The software cost is often the least relevant cost to governments. Our analysis of 5-year TCO proposals shows that the leading ERP vendor total cost is roughly twice that of FreeBalance. And, that doesn’t include internal cost differences. Or upgrade costs. Or future customization costs.
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