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

Sameera Simjee

The move to SAP S/4HANA or any ERP software is likely to highlight costs that may be missed or underestimated in budget evaluations. A realistic view of how big the bill could be – with hidden as well as obvious expenses – can help to control cost creep and enables organisations to enter into these complex endeavours with their eyes open. It can also help you choose the S/4HANA approach that best fits your business and will deliver real value. So, what costs are often overlooked, how much should you allow and how can you build this into your S/4HANA strategy?

When clients come to us as ERP strategy and execution consultants, one of the first questions they ask is “how much is S/4HANA really going to cost us and how can we tangibly realise its value?

As we explored in an earlier article, 'S/4HANA: balancing ambitions, costs and constraints', how much you spend often depends on what you want to achieve. The options range from a fully re-implemented platform to selective optimisation of functions like Finance or Procurement, or even a technical upgrade. Yes, the big ambitious programmes could be more expensive in the short-term. But this needs to be set against the potential medium and longer term value that a solution like this could provide.

Gaining clarity on SAP S/4HANA costs

What’s less clear and almost always underestimated are the implementation costs.

Proper grip on the purse strings 

So how can you rein in these potentially escalating costs of your S/4HANA migration? The more you know about the cost drivers, the more you can control them, while making sure resource is targeted where it can deliver the most value. Five priorities stand out:

1.    Clarify your ambitions

With a clear set of ambitions for what you want to achieve through S/4HANA migration and an objective cost-benefit analysis to support this, the easier you will find it to  decide what gets funding and what doesn’t. 

2.    Be realistic 

While certain costs are unavoidable, you can anticipate and mitigate some of the more common unseen costs. Be clear about what costs should be included and evaluated upfront and which ones are a priority, so you can have a plan to catch potential overruns and tackle them early. 

Evaluations should clarify what is a capital expense (CapEx) and operating expense (OpEX). There is discussion in the world of accounting on whether, as a cloud-based platform, much of the move to S/4HANA would be designated as an OpEx in the UK, rather than the CapEx that would have been usual for non-cloud-based systems implementations. The allocation of OpEx or CapEx status will impact whether the project spend is included on the balance sheet or not. Note the treatment will vary by jurisdiction beyond the UK. 

3.    Build in the trade-offs of S/4HANA migration

Evaluations should include an SAP S/4HANA implementation’s indirect as well as direct costs, along with the trade-offs between them. 

A key aspect will be not underestimating the potential costs of sticking with your legacy enterprise resource planning (ERP) system or a bare minimum S/4HANA implementation. Higher maintenance costs, as well as workarounds, inefficient processes and lost opportunities that could come with a ‘do nothing’ or ‘almost nothing’ strategy should all be considered. 

4.    Recognise the value of the investment

The cost of S/4HANA could also be considered as being a valuable investment. 

Given how business critical S/4HANA can be and the risks and opportunities that come with this, it pays to assign your best people to design and direct the programme, even if this requires some temporary backfilling in their usual roles. 

Similarly, the better the talent you hire and more effective the upskilling of existing employees, the more return you can generate from your S/4HANA investment. 

5.    Track the value levers

Identifying the value levers for realising your return on investment in S/4HANA and creating key performance indicators (KPIs) to measure delivery will help you to track progress and intervene where necessary. Examples might include how much less time you’re spending on invoicing compared to your target, or the amount of contract leakage from your procurement solution. 

The other big advantage of these value levers and KPIs is in helping to target and communicate early gains, which can help build buy-in and momentum for S/4HANA roll-out and deployment.

SAP S/4HANA or ERP journeys take significant investment, so organisations need to understand how to identify the crucial costs and make the right objective choices when looking at their options. Having an understanding of those less-seen project costs when calculating your financials will give your budgeting a much firmer foundation. Not only will you de-risk the pricing of your project, but decision-making and prioritisation will be vastly improved. You will achieve better outcomes for your business and gain much better value from your S/4 investment.