Budget Overruns in ERP Projects: Avoid these
5 Causes of the
classic Success Killer

Failed ERP Projects: there was often a Lack of Experience with Budget Planning

What do you think is the most common reason why ERP projects fail? Unreliable or incompetent partners? Unmotivated teams? Both occur. But watch out: even if you exceed the set budget, this can be your downfall.

Let’s take a realistic look at the problem: most companies have little experience when it comes to budget planning for a digitalization project. Accordingly, the focus is usually elsewhere. And this is hardly surprising, as companies only modernize or replace their ERP solutions every 8 to 10 years on average - which is why budget planning is rarely on the agenda.

The Project Budget: how is it made up?

An ERP project is a complex undertaking that needs to be optimally budgeted. The majority of the budget is made up of investment costs - that is the cost of implementing the solution. These include the costs for hardware, all services for selection, customization and implementation and software licenses. The investment costs are usually only incurred once.

In addition to the external investment costs, there are the internal costs, i.e. the personnel costs. After the implementation, only the ongoing costs are relevant for you. For example, for software updates, support contracts and services that become necessary during the operation of the software.

It is very important that you plan your budget carefully and monitor it closely at all times to avoid some causes of budget overruns right from the start.

Why do Budget Overruns occur? 5 common Causes

1. Incomplete Budget

This cause is more or less self-explanatory. It is also probably the easiest to control and regulate. It is about ensuring that the budget is complete and has a sufficient range. Aspects that often receive too little attention include training your end users and change management, i.e. the planned organization of change processes, and this should not be underestimated. Similar to the training of your employees, you can never spend too much money on your change management!

2. Insufficient Preparation

You already know that the preparation phase is crucial to the subsequent success or failure of your project. Because even before you have decided on an implementation partner, you are already making some success-critical decisions.

And by the time your implementation partner’s consultants arrive on your doorstep, the most important part of your preparation must be completed. For effective budget management it is crucial that you are clear about what you want to achieve and how you want to achieve it before the clock starts ticking. Use a product roadmap for this. It will give you orientation and planning certainty It is also important that you clearly define your goal focus. For example, decide in advance which project approach you want to use. Do you want to realize your project in many small steps or with a “big bang”?

Basically, starting the right internal preparations in good time is crucial for controlling your financial budget.

3. Underestimated Complexity

Many companies underestimate the complexity involved in implementing new business software. They still believe that it is a purely technical project. In the end, the selection of the new software solution is responsible for less than 50 percent of your success. Rather, the processes and the human factor are also important here. Never ignore the fact that a new solution requires your team to work, think and act completely differently.

4. Underestimated Workload

The same applies to the amount of work involved. During the negotiations with the ERP vendors, the entire focus is on the new project and everyone involved is very committed and enthusiastic. Once the project is up and running, however, other priorities are on the agenda. Perhaps the company wants to win a major new customer. An unplanned reorganization is blocking resources. Or important employees fall ill or leave the company.

Without having the right focus, you will ultimately be forced to hand over more of the work to your implementation partner. And that comes at a price, of course. In the end, exceeding your budget is merely a logical consequence.

5. Unlimited Complexity

A final cause of budget overruns is increasing complexity during the implementation of the project. Many organizations lack the discipline to really stick to the features and scope of changes you agreed upon before the start.
Of course, it’s tempting to accommodate the additional requests that arise during the course of the project. For example, you may find that you need additional modules, such as integrated project management. This can usually be implemented, but has a negative impact on your financial and time budgets - and also on the motivation of your teams!

Stick closely to the agreed objectives and instead enter all sensible ideas in an “optimization list”. You can then use this document to define the second step of implementation once the first step has been successfully completed. This is a sensible strategy that allows you to manage and control complexity while staying within your financial budget.

With the right Budget Management, you can make a decisive Contribution to the Success of your Project

Keep an eye on your project budget at all times - both in the preparation phase and during your project. Plan in detail and set priorities for your project whenever necessary. If in doubt, it is better to keep complexity and effort a little lower than too high.

Nevertheless, you must be aware that additional costs due to unplanned requirements, changes or difficulties cannot be completely avoided. In practice, it makes much more sense to set a generous budget instead of calculating closely.

Budget overruns can quickly become the success killer of your ERP project. They are absolutely unnecessary but also avoidable.