June 8, 2018

It is hard to argue that there are no two enterprises with identical business processes. Off-the-shelf ERP solutions not always fit everyone because of the lack of the flexibility, customization options, high cost of the implementation, maintenance and licenses. Thus enterprises often go for something proprietary and start the custom ERP development and implementation. We have already touched the subject whether custom ERP development worth the time and money investments and process of building an ERP from scratch. Here we will answer the question of how much does it cost to develop custom ERP system.

List of The Contents

 

STAGES OF AN ERP DEVELOPMENT PROJECT

Whether to automate enterprise processes, to stay more competitive, to be more efficient, to improve productivity or for other reasons, companies are building the ERP that fits their core business. Custom ERP development goes through different stages that are connected to each other. These stages include:

  1. Discovery, design, and planning: at this stage, we identify key-people who have a thorough knowledge of the business or the business unit in which they are involved. They are going to define the needs and goals of the ERP. Given that they have a thorough knowledge of the business process, they will help specify the ERP system to be built and provide an up to date information. They can identify processes that are very little automated and thus need to be or could be improved. At this stage, it is essential to understand how business processes are related to one another.
  2. Development: the previous phase has helped define the needs, and during the development phase, the development team will build the ERP. IT architects analyze the connection between every module identified and design an appropriate architecture. During the development process, the ERP is materialized. Old data are converted to fit the format required in the ERP, the information and data needed in the new ERP are defined as well. From information got during the discovery stage, we will be able to know where are the sources of information.
  3. Testing: Following ERP development, it is essential to test the system before it goes live. Databases are checked for accuracy and correctness; documentations are updated if necessary during the test phase. If the tests are conclusive, users are trained in the system. To reduce the cost of training, we can train few users on the system, and once they understand the system, they will be able to assist and train the end users.
  4. Deployment and ongoing support: If the system is tested and training on the system was given, the ERP can be exploited in the production environment.

Stages of the custom ERP development project

In this article, we are going to estimate how much does an ERP system cost. The stages concerned with this is estimation are: design, development, and test. To better understand the estimation process, let’s see what does an ERP consist of.

DESCRIPTION OF THE ERP MODULES

An ERP addresses several aspects of business and can, therefore, include several modules. The most popular modules of an ERP are:

  • Human Resource Management: this module is an essential part of an ERP and one of the most common features of an ERP system. This module deals with the following aspects of human resources management:
    • Employees management
    • Management of the departments within an organization
    • Time and resource planning management
    • Careers management
  • Planning
  • Inventory Management: ERP system makes inventory management flexible, it helps keep stable and optimal inventory level. This module helps track information about each product and item stored in a physical warehouse. Querying information in ERP is a lot easier, each item has its identification number, and its location in the warehouse is known all time. The system allows tracking each item from the moment it enters the warehouse until the moment it leaves the warehouse. At any given time, viewing information about any given item in the warehouse is straightforward.
  • Reporting
  • CRM This module aims to improve the relationship between service provider or product vendor and its customers. In this module, customers’ needs are studied to provide services or products that meet these needs and improve clients’ satisfaction. This module is useful especially in the context of globalization where competition is fierce.
  • Sales and marketing this module is complementary with CRM module. In this module local sales and export are managed, it also helps to make the sales processes much more manageable. This module includes:
    • Order management
    • Sales management and monitoring
    • Invoices management
  • Finance and Accounting: this module manages all information related to finance.
  • Production: this module aims to improve production planning, orders management and optimize production management from orders to delivery.

Custom ERP modules scheme

UNDERSTANDING CUSTOM ERP DEVELOPMENT TIMELINE

Regarding the timeline, there may be some variations depending on the size of the development team and the urgency of the ERP project and delivery. However, even an urgency is still conditioned by the level of parallelism possible. Indeed, even if theoretically it is possible to have a team with the size we want, the constraints of precedence frames the degree of parallelism.

In the main lines, the realization of an ERP takes place as follows:

Custom ERP development timeline scheme

EXAMPLE OF AN ERP SYSTEM DEVELOPMENT COSTS ESTIMATION

Since estimation and ERP software cost depend on the businesses, we are going to take a specific example to exercise to estimate ERP software cost accurately.

We will estimate a web-based ERP example with specific modules. In our case, we will consider a dairy processing company. This company works in the production and distribution of dairy products. The company is supplied by various farmers whose prices, quantity and quality vary from one supplier to another. However, it is crucial that the company provides with the same product quality. Whatever the quality of the product delivered by the suppliers, the different finished products (yogurt, cheese, etc.) should always have the same characteristics and the same quality. Given the different provenance, it is essential to have at each production the average cost of production to maintain a reasonable margin. The finished products are distributed to several stores with a specific order. Production is variable during the year with peaks at particular times in the year, which requires better management of human resources.

Identifying ERP modules

For this example, we can identify the following modules:

  • Human resources module: to manage the human resources and optimize planning depending on the needs for production:
    • Resources planning to ensure production at any given time
    • Resources repartition: how many workers, transporters, control managers, etc.
    • Presence and access control in the company: the system will only authorize employees working on the shift on site
    • Recruitment management according to production
    • Payroll management
    • Inventory management: manage the warehouses
    • Manage raw products in warehouses upon arrival, since the products can only be preserved during a defined period after which they must be thrown, It is crucial to properly manage the number of products available in warehouses to limit losses.
    • Manage transformed products
    • Manage suppliers and supply chain
    • Manage distribution
    • Storage management
  • CRM
  • Production management
    • Manage the production process: facilitate the establishment of a nomenclature according to the supplied product
    • Manage the production chain
  • Sales and marketing: this module helps manage and improve marketing strategy
    • Manage marketing and sales

Custom ERP development process is very similar to software development process in general. When building software or a system especially a system as complex as an ERP, it is vital to address the development process with Agility. It makes sure that every developed feature meets the end users’ needs and reduces the risk of ending up with a product that is different from requirements. It is important to migrate the process gradually to facilitate validation and especially to ensure the success of data migration and to make small corrections at the same time as necessary.

When building an ERP, for each module we will have to follow the following processes:

  • Define the goals of each module and design
  • Develop each module
  • Test

Building ERP involves many actors from both sides: development and technical team and business team. In the technical team, we will have the following:

ERP Project development stakeholders scheme

HOW MUCH DOES ERP DEVELOPMENT COST

Now that we have identified the team involved in the ERP development process let’s answer the question: how much does ERP cost? During the estimation of ERP software price, there are five aspects we should take into account:

  • Estimation of each module
  • Estimate of system interconnection: how these modules are connected to each other
  • Data migration and validation: how to integrate old data into the ERP system and how to validate data accuracy and correctness
  • Test of the whole system: during the test phase correction may be necessary
  • Deployment and training

Estimating each one of the previous steps will help us answer how much does an ERP system cost

Estimation of each module:

Estimate of each module is similar to web application cost estimation. Let’s take the table that sums up the time needed for each IT specialist to create a Web application.

PhaseProject Manager and expertsFront-end developerBack-end developerQASys Admin
Total20%20%35%25%up to 5 working days
Conception/design10%4%6%2%
Development6%12%20%14%
UAT2%2%5%4%
Support2%2%4%5%

Since these modules have similar complexity, let’s make an estimate of one of the previous modules and extrapolate the estimate on the other modules.

HR management module cost estimation

Developing HR management module will cost:

  • 2 back-end developers working full time for 3 months charging $35/h = $36 690 
  • 1 front-end developer working full-time during 3 months charging $35/hr = $18 480
  • 2 QA engineers working full-time during 2 months charging $25/h = $16 000
  • 1 Project manager who manages the project from design to project closure during 3 months charging $30/h = $14 400
  • 1 System administrator working full-time during one week charging $25/h = $1 000

The HR management module will cost approximately $86 000.

Extrapolation on the other modules

Since all five modules have the same level of complexity, the five ERP modules will cost approximately $430 000.

Cost of system interconnection

Now that we have an estimate of the ERP modules development cost let’s estimate the cost of modules interconnection to have ERP software price. Interconnecting the modules will require the development of an API to make the modules communicate. Developing similar API for each module to enable communication between the module is cost effective.

There are four steps needed to develop an API:

  • Research to understand the data structures and the communication protocol between each module.
  • Build an API prototype
  • Develop the API
  • Document the API

API developer working full time will need:

  • 3 days to perform his research before API development
  • 5 days to develop a prototype
  • 20 days to build and test API
  • 3 days to document the API

To develop 5 API for the 5 modules, 3 API developers will work full-time for 2.5 months charging, on average, $35/h = $46 200. This is the testing stage cost.

Data migration and validation

Migrating data from old system to the new ERP system will require data extraction, then transformation to fit the ERP system’s format and then load into the ERP. If we consider a medium complexity level of migration between the old system and the ERP system, it will require:

  • 1 DBA working full time for 2 months charging $30/h = $9 600
  • 2 ETL experts working full time for 2 months charging $40/h = $25 600

Data migration will cost approximately $32 200

Test cost estimation

To thoroughly test the ERP of this level of complexity, it will require:

  • 2 testers working full-time for 2 months charging $25/h = $16 000.

Deployment and training

  • An expert in training trainers for ERP working full-time for 1 month and charging $70/hr = $11 200

From the previous estimation, such ERP system price is approximately $535 000.

ERP development cost brakedown

AVERAGE ERP DEVELOPMENT COST TABLE

StageCost
Total$535 600
Development$430 000
Interconnection (APIs)$46 200
Data Migration$32 200
Tests$16 000
Deployment and Training$11 200

IN CONCLUSION

ERP connects all business units within an organization and offers a logical and strategic approach both for decision making as well as for improving the production and customer relationship. Since all the information is centralized, people who need it in their decision making can have them in real time, and the communication between the departments is improved. 

When setting up an ERP, it is crucial to involve the most competent people in defining the system. ERP system price depends on each business. The estimation process remains the same, the most significant part of the estimation process lies in estimating each component and stage of ERP development process.

Want to know how much it your ERP development project might cost and how long will it take to complete? Contact Existek via the form at our website or talk with the specialist at the website chat to get a professional estimation. Existek is an offshore software development company experienced in business process automation and custom business intelligence software development. We can help you to complete your project starting with the blueprint and requirements analysis to the fully-functional software that makes your everyday operations better.