Your enterprise resource planning (ERP) system is only as good as its results. The best ERP systems don’t just collect and organize data — they also analyze dense information to help stakeholders make better-informed decisions.
Aside from clear indicators of failure, how can you evaluate your ERP system to maximize your investment and reap the rewards of a company-wide resource planning tool?
Metrics To Evaluate ERP Performance
Let’s start with perhaps the simplest: downtime. For some companies, ERP software feels like more trouble than it’s worth. They are plagued by network and data errors, fragmented rollouts, cost overruns, delays, and every other implementation catastrophe an executive dreads.
No matter the cause, downtime is an easy way to evaluate ERP system performance. How often is it broken over a given time period? Depending on the severity, this might be the only question that matters.
These are the clearest effects — but that doesn’t mean they’re simple. First, you have to determine your KPIs. We recommend against tying ERP systems to total revenue or other “bucket” numbers. There are too many factors influencing them to draw reasonable conclusions about how they tie to the new ERP system.
Instead, focus on the metrics that matter most to your business. Here are some examples:
- Change in accounts receivable
- Accounts aging
- Capital expenditure decision time
- Financial forecasting accuracy
- Timeline adherence
- Average margin per sale
- Lost employees and turnover
- Recruitment time
Once you have a list of relevant and measurable KPIs, determine your time frame. Common evaluation points are 30 days, 60 days, 90 days, and 365 days, but you can use more or fewer points of analysis depending on your preference.
With those two lists in place, it’s time to line up your KPIs with your ERP system rollout over the time frames you chose. You should have clear correlations with each of the metrics you expect to be affected by the ERP system rollout.
With that information in hand, you can answer questions like:
- Has this system increased our rate of production? If yes, by how much?
- How has our new system impacted customer satisfaction? Are we sure this is the cause?
- Has this lowered AR aging? Do we have better insight into payment schedules?
- Has this improved processes and relationships with vendors? Do we have feedback loops in place to measure this?
Don’t forget to factor total cost of ownership along with projected benefits into your assessment.
There’s more to an ERP system rollout than quantitative ROI. Things like ease-of-use, employee happiness, and streamlined team communication are just a few of the intangible benefits a new ERP system can bring.
While some impacts can be measured with survey data, other consequences of a new system can be hidden — or even give a false impression of its effectiveness.
Here’s something to think about: if your ERP software increased the speed of capital expenditure decisions but led to more downtime and hurt delivery metrics, is it effective? What if it increased data visibility, but poor implementation led to reporting conflicts? Or maybe it made your firm more efficient, allowing a staff cut, but an automation error blurred a key performance indicator that executives use to allocate resources.
All of these are ways your ERP software might be holding you back behind the scenes. Of course, all of this also works in reverse. If you only look at a few metrics, you may get a false impression that your ERP system is ineffective.
How To Spot Hidden Effects
The only way to uncover these hidden effects is to take a cross-sectional approach to your ERP assessment. Take all of your key performance indicators — things like delivery times, client churn, or accounts aging — and link them to your ERP system rollout as you did before. Don’t forget to include staffing considerations as well. Good ERP software can replace entire teams of analysts with automation tools and seamless database management.
In practice, this process will turn out a lot of charts and lines; what you’re searching for is relationships.* Did you have a dip in your finance staff 90 days after rollout? Maybe the new software made some jobs obsolete. Did client satisfaction ratings increase after 60 days? It could be tied to better reliability after the rollout.
Be careful not to jump to conclusions; correlation does not equal causation. The many moving parts of a modern business make this fact-finding mission slow, but necessary.
*Note: ironically, custom dashboards in your ERP software may help you visualize these relationships.
Utilization rate goes beyond, “Are employees using it?”
Perhaps there are certain dashboards your executives refuse to touch. Maybe there’s a function your employees can’t live without. Highlighting these pieces can help focus your attention on the true benefit being realized — which, in turn, can help you prioritize the components your company makes the best use of.
This is especially important if you’ve purchased a tiered ERP software (meaning certain functions are behind a paywall). You might be able to cut costs after realizing your team just isn’t using those premium features the way you expected them to. On the other hand, maybe your team has outgrown their current feature set and it’s time for an upgrade.
Need Help With Your ERP Assessment Approach?
Assessing your ERP is a complex but crucial process. The harsh reality is that approximately 60% of ERP projects fail to some degree. A portion of this can be blamed on improper implementation — after all, the most powerful software implemented poorly will be a nightmare to use. But with the right implementation scope, schedule, communication, and migration plan, you’ll gain unprecedented visibility and control over the resources flowing into, out of, and through your business.
For further help with your ERP assessment approach, reach out to Metaformers, a group of experts who have been using technology to transform organizations just like yours for decades.