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Is a new System really worth it?

Is a new System really worth it?

How do I know whether a system implementation is really worth it? For example, for a new ERP or CRM?

Most people will now say: “Why don’t you calculate the Return On Invest, that’s what people always do.”

No, they don’t. And they shouldn’t.

Admittedly, the ROI is definitely an important key figure, but it cannot always help when deciding on a new software project.
Especially since ROI is usually used more for a retrospective view. Evaluate the past time, but not the future usage.

To make strong and realistic metrics tangible for your customer, you should first look at the cost side.
This then later needs to be compared to the benefit side to derive the potential success.

What does the cost side mean?

You list the expected costs for licenses, maintenance, service and support. In addition, you also make a parallel list of the expected expenses in the course of an initial project implementation.
You can almost call this a kind of Total Cost of Ownership. Not quite the same, but similar.

This will then give you an overview of the expenses within the first year and you can also consider the current years under further assumptions, if required.

Here is also one important thing that most always gets ignored. Internal costs of project participants and users.
Here you set assumption values for how much working time the upcoming system will demand from the project participants and users in the first year and in subsequent years.

In combination with the personnel expenses, you can then use this to calculate the project costs incurred internally by the employees due to “downtime” in day-to-day business.

How does the benefits side come into play here?

Just like all companies, you will never be able to know exactly how much productivity increase a new system will bring you.
Frankly, there are specialists who do nothing else for weeks but track exactly that very precisely. However, only few companies really want to afford this level of detail.

Nevertheless, there are empirical values from which you can benefit and get a first impression. For example, an increase in productivity of 8-12% for a sales employee when introducing a completely new CRM system is quite realistic.
If you now offset this percentage increase, depending on employment and hierarchy, with the working hours and the associated personnel expenses, you get saved costs in a certain way.
Of course, these are not real saved costs, but saved hours that your colleagues can use for more productive activities in the future and thus significantly increase performance.

But what to do with this now?

We’re almost there, just compare the costs over the assumed years with the associated increase in productivity by employees.
Costs will always fluctuate somewhat over the course of an IT project, depending on new requirements, but productivity will also usually increase exponentially with it.
In most cases, especially in the CRM environment, the full scope of the system can be used gradually without ongoing, cost-intensive adjustments by external service providers.

We regularly use such comparisons in projects to make the right software selection, but also to assess new ideas and their cost-benefit comparison.

This gives the project team a better feeling for the overall situation.

In most cases, a further utility analysis is also used to compare software producers and providers.

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