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 customise 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/4 migrations change processes and core structures. Ensuring that programmes work with functional stakeholders to define the future state operating model is key, especially since many organisations use the transformation opportunity to evolve and optimise 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 organisation. We often find that these core activities are not considered as part of the migration programme, 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.

The next set of unseen costs centre on interfacing S/4HANA with internal systems such as payments and payroll, along with the platforms used by third-parties including suppliers, customers, banks and tax authorities. 

The technical requirements of S/4HANA mean that getting it to interface with all the other systems in your value chain can be an exceptionally complex and expensive task – adding between 5%-10% to the overall implementation bill. But the more business functions or key processes S/4HANA covers, the fewer legacy systems it needs to integrate with and hence less remediation and workarounds required. So it’s important to factor this trade-off as well as the maturity of the existing integration landscape into your ambition and appetite for change. 

Organisations 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 programme, 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 programme. 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 programme.