I ran across one of those product evangelists espousing the virtues of open source ERP software. There are many potential value propositions that I buy in open source:
- A community of programmers can develop quickly and cost effectively
- Multi-platform and LAMP platform support can lower license costs and provide flexibility
- Eliminating the up front and ongoing license costs can save money
The operative word in the last bullet point is CAN. The cost of an ERP system is made up of many factors; however, one of the least significant is the upfront license costs. Don’t stop reading because a license may range from $1,000-$3,000 or more per user in a traditional implementation or $100-$250 per user per month or more in SaaS, but think of the costs of an ERP implementation and the ongoing costs and benefits.
Typically, in traditional software implementations, the license cost is less than 1/2 or of the initial costs. Don’t just think of the cost of an implementation partner and your internal staff costs, but consider the disruption of your business processes due to change, and the time it takes of leadership to effect the desired behavior from the staff. Even in a SaaS world, if you compare the first year or two subscription to the cost of change it will pale if you consider all the soft costs. In many cases, open source software needs to be supported by a programmer who customizes the solution to your needs and is often required to make changes to code when system capabilities are not available in the “free” version. In either case, the efficiency and effectiveness of the implementation will determine the total cost of your initial outlay for the system.
Now think of why you are changing systems in the first place. Your business processes need improvement, redesign or radical overhaul to deal with the new economy, competitive pressures, or to become a leader in your industry. The benefits of the ERP system are driven by the capabilities of the system and its ability to adapt to your business and changing conditions. Typically the “free” version of an Open Source ERP lack capabilities, support and require customization to meet and/or adapt your business requirements. Custom development is always more expensive up front, and long term, if an out of the box or configurable solution is available.
You don’t buy a new system based upon what it can do for you in the first 3 or 6 months, so don’t evaluate packages based upon initial costs.
Tags: erp software, Mid Market ERP, open source erp, Software as a Service, Software Licensing, Software Selection
