Quantifying the Benefits of ERP Applications

STAMFORD, Conn.--(BUSINESS WIRE) -- META Group, Inc. (Nasdaq: METG), released the findings from a new ERP market report -- Deriving Value From 21st Century ERP Applications.

The market research report illustrates that total cost of ownership (TCO) and time to implement (TTI) must be benchmarked against various measures of complexity to determine what drives ERP implementation costs and elapsed time. More than 200 companies surveyed for the study reported that areas such as technology integration, number of users, and number of physical locations implemented can play a large role in determining both TCO and TTI.

"META Group conducted this client study in response to IT organizations being asked to justify ERP application spending over the past few years and provide evidence of its benefits," says Barry Wilderman, senior vice president and director, Enterprise Application Strategies at META Group. "Relying solely on TCO as the primary metric for measuring ERP application effectiveness does not provide a complete picture. We encourage IT organizations to cast a wider net when applying ERP metrics and consider other factors such as the extent of re-engineering and the number of discrete processes implemented."

On average, ERP implementations are costing approximately 1% of corporate revenues for large companies (e.g., a $1B company spends about $10M on an ERP implementation over the course of the project), with 70% of the total cost going toward labor. In addition, ERP implementations are taking 20 months, with a time to benefit of 27 months. Finally, META Group finds organizations must go beyond ROI to measure ERP value. Indeed, they need to measure intangible benefits such as improved business processes, better access to information, and higher levels of customer satisfaction.

"To get ERP extensions and related projects funded these days, it's not enough for business and IT leaders to show how good a job they can do containing application costs relative to other companies," said John Luc Alarcon, senior vice president and director of META Group Data Services & Published Research. "The problem has always been there was no holistic approach and, most importantly, no trusted source for objective and accurate analysis on ERP value measurement. Our goal with this unique report is to deliver actionable research to fill this gap."

About the Report

Deriving Value From 21st Century ERP Applications is based on a multiclient study that surveyed more than 200 organizations from 12 industries, ranging in revenues from $100 million to $87 billion. These companies were analyzed to determine the value of their ERP implementations based on four key metrics -- total cost of ownership (TCO), time to implement, quantified benefits, and net present value. Our analysis revealed that total-cost-of-ownership (TCO) metrics can be misleading when they are based on industry-wide averages. To provide a clearer picture of ERP value, the four metrics were tempered by the different levels of complexity for each organization's project, including environmental, geographical, corporate revenue, size of user population, and ERP process. To learn more about META Group market research reports, visit metagroup.com or call (800) 945-META (6382).

META Group is a leading provider of information technology research, advisory services, and strategic consulting.

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