Your company has decided to upgrade to a cloud-based enterprise resource planning system, or cloud ERP, and now you’re comparison-shopping. While looking through the websites of various vendors, you see that some offer a fixed-fee (or fixed-price) implementation. It sounds like a good deal, but what are the advantages and risks of choosing a fixed-price implementation?
The primary benefit of going with a fixed-fee implementation is that you reduce your financial exposure. Since you know what the cloud ERP system costs, you’re able to budget appropriately with reduced risk of project cost overruns. Depending on the nature of your business, this reduced financial risk may offer significant incentive.
Of course, you still need to do your research before signing a fixed-fee implementation agreement. For your partnership with the vendor to be successful in the long term, the fixed fee must reflect an accurate estimate of the implementation’s cost.
Generally, the vendor calculates the cost based on your specifications for the cloud ERP system, and quotes a price. To make sure that the price is fair, organizations generally solicit multiple bids from competitors. If you already have a relationship with a certain vendor, however, you might decide to accept its pricing without first getting a competitor’s bid. As long as you have a history and trust with the vendor, there’s nothing wrong with that approach.
When you receive a bid for cloud ERP implementation services, the cost should include standard elements, such as the software installation, training for your organization and requirements analysis. The bid may also include system configuration and custom report development, as long as these deliverables are clearly defined in the bid and agreed to prior to signing the fixed-fee proposal.
With fixed-fee agreements, your project must be clearly defined in terms of project scope and deliverables. Without this clear definition, you and your vendor are likely to experience miscommunication on what the bid does and does not cover. The following are two common misunderstandings in cloud ERP implementation projects.
- Reporting: Let’s say your vendor gives you a bid that says the price “includes reporting,” but it doesn’t say anything about how many reports or what kinds of reports are included. That vagueness is sure to create problems. The vendor might have been thinking of two or three fairly standard reports, but your business needs 10 customized reports. While you could make the case that the bid includes whatever reporting you need, the reality is that information needs to be clearly spelled out in detail from the beginning.
- Data migration: Any cloud ERP implementation proposal should be very specific about which data the vendor is migrating to the new system and to what extent. If the proposal is vague, you may be expecting that all of the relevant data is being migrated, while the vendor might have a much more limited process in mind.
If you have trouble defining your project clearly, one option is to break it out into two phases: project definition and project implementation. In the first phase, you would pay the vendor (possibly for a fixed fee) to handle the process of defining the deliverables and scope of your project. Once that phase is complete, the vendor then uses that project definition as the basis for quoting you a fixed fee for the implementation project.
That doesn’t mean your fixed-price cloud ERP project won’t evolve. Your agreement should also provide for a change-order process. This way, if it should become necessary to change the scope of the project, the agreement includes a method for quoting and adding the extra work to the project and the fee.
And while a fixed-fee implementation has advantages, remember that it’s just another way of approaching a project, and your business may find other equally suitable arrangements.
The key to a successful fixed-price implementation is having the deliverables clearly spelled out in the agreement. You need to agree as to what those deliverables are and they need to meet your business needs, or else the ERP implementation won’t be satisfactory. To get what you want, tell your vendor as clearly as possible what you’re looking for in the implementation project.
Contact Business Solution Partners to learn how a cloud ERP implementation could help to improve your company’s efficiency and optimize workflows.