A realistic view on costs can help you choose the right S/4HANA solution

A key cost multiplier is how many divisions and operating territories are involved.

The outlay needed for a regional versus global deployment of S/4HANA can vary strikingly. Drivers of increased costs include duplication of resources across local teams, along with the need to customize processes and develop the necessary capabilities on the ground. 

The scale and cost of local recruitment within what can be limited technical talent pools are one of the first major budgetary underestimations – and indeed causes of implementation delays. 

S/4HANA migrations change processes and core structures. Ensuring that programs work with functional stakeholders to define the future state operating model is key, especially since many organizations use the transformation opportunity to evolve and optimize the core business operating model.

Similarly, definition and implementation of the service support model is also crucial to ensure the integrity of the platform and processes in life and to promote continuous innovation. Setting up tech and business functions to work in new ways such as DevOps, Release Management, Centres of Excellence and Global Process Owners are all part of the target operating model for the run organization. We often find that these core activities are not considered as part of the migration program, and so are often overlooked or undercooked in business case costing. Being clear on what change will be brought to the future operating model is key to ensuring a transparent and confident ROI commitment to the Board. 

You will have to free up your people from their day jobs to be involved in the migration creating skills gaps in other areas of the business. You should set an allowance for backfill, training and education to ensure your team is up set up for success to deliver the migration without risk or impact to your core business as usual operations.

Organizations frequently fail to factor in the costs of establishing and setting up new ways of working to support their ERP migration. They often overlook or underestimate the direct and indirect costs of new teams, methods, processes, data and tech capability to realise their goals. The time required and the impact on existing business-as-usual activities should not be under-estimated.

The other largely unseen and underestimated costs are contingency. You’ll need to factor in up to 5% a year for inflation, so in a three-year implementation program, that would increase the bill by 15%. 

You’ll then need to allow typically around 10% for what will inevitably be increases in the scope of the program. Some of this expansion could follow a review of ambition and strategy during implementation, though there may also need to be adjustments to address initial assumptions which then become clearer over time. The final contingency would be 5-10% to tackle overruns in delivery and time. 

So whatever figure you had initially come to, you’ll probably need to add at least 25% more and possibly as much as 35% in a large and complex program. 

Some AI tools may be reused or adapted by other organizational functions, allowing the investment to go further There is a lot of potential crossover with Legal, for example.

It is worth noting that most major procurement software suppliers are starting to develop AI add-ons to their existing systems. This may offer a more cost effective, and less risk adverse approach than implementing a brand-new tool. It would also help to mitigate the challenge of integrating AI tools into your existing technology landscape which can otherwise require significant effort. 

However, ‘out of the box’ solutions may not be what they first appear. The maturity of these products remains in question and organizations may still need to invest in some degree of bespoke configuration and tailoring to ensure effectiveness.