Can ERP implementations be fixed-price?

A couple of bloggers experienced with ERP projects are making the claim that ERP implementations could be done as a fixed price product:

Roberto Galoppini’s Commercial Open Source Software

I’m sorry guys but I must disagree.

The example used is that of the US hospital group that has ‘productised’ (awful word, by the way) some of its heart surgery procedures. The extrapolation being that if it can be done for heart surgery, why not ERP implementations.

While they are both complex procedures, one of them (heart surgery) is governed by physical rules – physics and chemistry – but the other is subject to the far more complex and vague rules of people and social interaction. It’s the same reason why sociology and economics aren’t considered sciences – because when you deal with interactions of people, things are far harder to understand and predict.

When I was one of Microsoft’s Dynamics NAV implementers, we tried very hard to push fixed price implementations with a packaged solution set called RIM (Rapid Implementation Methodology) because it was supposed to appeal to smaller companies. But once you got into a project you uncovered complexities that the customer didn’t even realise where there, and so variation orders had to be added to the fixed price. Perhaps for a basic financial system a fixed price project might suffice, but not for other areas of business; for manufacturing implementations specifically, Microsoft recommended that a fixed price project should never be quoted.

SAP’s Business One pushes fixed price implementations, but we heard from companies who have gone that route that they get a basic system which then costs them real money if they want the system to run like they need it.

The day I hear a lawyer offer fixed price court proceedings, or an accountant offer fixed price auditing, then I will consider fixed price ERP implementations.


13 thoughts on “Can ERP implementations be fixed-price?

  1. The point regarding the vagaries of dealing with people is well-taken. However, there are companies who break down services into fixed-price bundles, then string those packages together to create a start-to-finish service offering.

    Would that work on a large, multi-year SAP or Oracle implementation? Perhaps not. But it could very well work on a smaller, SME-type deployment.

    Michael Krigsman

  2. Simon,
    I am definitely not experienced with ERP projects, my idea of Open Source Franchising is about basic services, since they are the most required and also easier to be ‘productized’. So, while I couldn’t bet on the possibility to create an offer a-la-cart for the ERP market, I am pretty sure it can be done with all IT basic needs.

  3. An interesting point to which I am inclinded to agree. From my experience, fixing the price of an ERP implementation usually means problems: either the implementation company is going to lose money, or the customer is going to get a poor implemenation. There is of course the exception where the implementation is for a well-defined limited scope (such as the roll-out of the same system to many similar companies.)

    Maybe the solution for ERP is to implement a fairly standard system with basic functionality for a fixed cost and add the goodies later. I read an interesting article on fixed-cost for agile software implementations and I think a lot of the content there also applies to ERP. One interesting idea was that instead of having a series of “change requests”, the project team make “exchange requests” where they need to trade features/requirements in order to get new features added in. The argument is that this would help to keep the project on time and on budget. A lot of project team members see the implementation as the only opportunity they will get for changing their ERP system and as such try to cram in as many features as possible. It is our job to help them realise that they can have all of the features they need over time, but we must focus on the critical requirements if we ever want to go live.

  4. Yes ERP implementations could be fixed price provided much work is done upfront and both parties (the clinet and the vendor) fully understand the scope of the project or the phase. In practice ERP implentations could also be at “a capped price” – again the success of this project will largely depend on the work done upfront to build sufficient knowledge and undersatnding..

    As a prospective buyer I favour a capped price… As a prospective seller/implementor I prefer to adopt the approach where I give the prospect a “budget quotation” and bill on the basis of actual time incurred…

    Satha Arumanayagam

  5. Providing basic functionality in an ERP has been the traditional approach to offering fixed price implementations – a few years ago that is what SAP’s ASAP did, and what the Dynamics NAV RIM methodology does, and SAP Business One as well. But I don’t think the customers really understand what ‘basic’ means; which is why those ‘change requests’ pour in once the implementation starts.
    Is this because clients are uninformed or ignorant, I don’t know?
    One way perhaps would be to provide a lot more detail about what basic functionality delivers – details on process flows, screen shots, reports, data requirements – but I haven’t seen that yet because it requires a lot of (unpaid) work.
    BTW, I appreciate the discussion on this – it has given me some new things to think about.

  6. As a developer, I’d love fixed priced ERP projects. Unfortunately, fixed priced bids do not coorelate to overall project success.

    The developer can only quote services based on known project elements. Since no prospect offers full discloser, accuracy is virtually impossible. Every company is different, has their own unique quirks, has their own unique operational problems. It is impossible for the developer or reseller to know these issues ahead of time and therefore impossible for the developer to hedge against them in a fixed quotation.

    If the clients ultimate project success is the focus, fixed bid ERP implementations are not the answer.

  7. I have just started to look at the Sure Step implementation methodology for Dynamics and, so far, I am very impressed. There are some rough bits and it is early on but I think this tool will go a long way to making better installations for both customer and VAR alike.

    The tool provides a browser-based tool that gives (amongst other things) details of the steps in the implementation process and provides useful templates (such a spreadsheet of business processes with a space to write gaps in functionality.) At least it will help people not have to remember parts of the implementation that sometimes get forgotten (such as infrastructure analysis.)

    I think this tool will help to bridge the understanding gap of what a standard product does. At the moment the customer’s assumptions of what a “normal” ERP system does can be a long way from the truth – resulting in lots of gaps and the inevitable delivery/testing/upgrade headaches.

    Relatively speaking, impelementing an ERP is a simple process. The IT people need to understand the business well enough to determine how the product should be configured and what gaps need to be filled. The customer needs to understand the ERP product well enough to determine if they should be changing their processes and also to know how to use it when they go live. This whole process is made a lot more complicated by assumptions, budgets, time-constraints and the fact that the VAR is trying to make a living.

    I think Microsoft have started on the right path to allowing fixed-price implementations by making the product more intuitive and better documented, but there is a long way to go.

  8. NABROS has a 100% hit rate in executing fixed cost erp implementations. All they speacialize is in fixed cost. The best part is there is a money back warranty – If for any reason the project gets delayed , they refund the consulting fees.
    Check them out when you get a chance – .

  9. Pingback: My top posts « The Manticore blog

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