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1
VALUE ENGINEERING IN ERP
Faculty Guide :
Mrs jyoti Pandya
Presented By :
Hemal Shah (CP1908)
COSTRUCTION & PROJECT MANAGEMENT,CEPT UNIVERSITY
Introduction
Value engineering tries to provide appropriate
functions at appropriate cost maintaining
performance, quality, reliability or maintainability
and safety.
Find out functions and their costs
Identify high-cost functions
Help to establish alternative ways of providing the
needed functions created techniques
2COSTRUCTION & PROJECT MANAGEMENT,CEPT UNIVERSITY
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Introduction:
VE Increase a company’s profitability, competitiveness, and
resource position as well as professional career achievements
and satisfaction to customer.
Value = Function
Cost
Value is increased either by increasing performance
(Function) without significant increase in cost or decreasing
cost while maintaining the performance, quality and reliability.
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Why VE for ERP !!!!
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VE In ERP
A. Total cost of ownership (Cost),
B. Life Cycle Cost of ERP etc.
Total cost of ownership is useful for management to decide
whether to go for ERP,
Based on LCC, components contributing most to total cost of
ERP can be determined and focusing on that components total
cost of ERP can be reduced and value of ERP can increased.
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Total Cost of Ownership
TCO is a means for understanding and controlling
the risks associated with implementing an ERP
system.
Focusing on the total cost picture, on the other
hand, leads us to consider the indirect,
unbudgeted, and contingency costs of
implementation and operations that can disturb an
ERP project downstream.
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How Much Does an ERP System Cost? Size of the ERP software
Corresponds to the size of the company it serves
Need for new hardware that is capable of running complex ERP software
Consultants’ and analysts’ fees Time for implementation
Causes disruption of business Training
Costs both time and money
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Total Cost of Ownership
The total cost of ERP ownership includes the costs
of packaged software, hardware, professional
services (for ongoing maintenance, upgrades and
optimization) and internal costs
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Percentage Wise Cost Distribution
Implementation & Consulting (38 %)
Software (21%)
Hardware (21 %)
Training (20 %)
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Costs of Software
The cost of packaged ERP software
depends on the
1) scope of implementation (ERP
modules and the number of end users),
2) complexity of software and ERP
vendors.
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Costs of Hardware
Implementation of ERP systems routinely requires
purchase of new computer hardware, systems
software, network equipment and security software.
The costs of hardware vary in a wide range dependent
on the scope of implementation and platforms.
The hardware typically costs about half million dollars
for mid-sized organizations that implements ERP
systems.
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Total Cost of Ownership
Based on the ERP survey conducted by Meta
Group in 2002, the average cost of ERP
ownership was $15 millions ranging from half
millions to $300 millions.
Average time taken for implementing ERP was
marked 23 months.
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Life Cycle Cost of Ownership1) The goal of LCC is to support wise decisions about all costs in
the beginning of an ERP project, and then to anticipate and
manage those costs during its life cycle.
There are five major ERP life-cycle components of TCO analysis:
1) Acquisition,
2) Implementation,
3) Operations,
4) Maintenance,
5) Replacement.
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most of the life-cycle costs of an ERP system are centered in operations and maintenance.
Controlling software modifications and centralizing operations can have significant effects on overall costs.
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Life Cycle Cost
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Research Paper
EMPIRICAL STUDY OF ERP SYSTEMS IMPLEMENTATION COSTS IN SWISS
COMPANIES.
Authors
1) Catherine Equey
2) Rob J. Kusters
3) Sacha Varone
4) Nicolas Montandon
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ABSTRACT
Researcher have used data from a survey of Swiss companies having implemented ERP in order to test cost drivers.
Particular attention is given to consulting fees as a major factor of implementation cost and a new major cost driver has come to light
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METODOLOGY The statistical evidence for this study was
collected on the basis of a written survey. The first phase of the research consisted of in-
depth interviews of Swiss companies from the French speaking part of the country.
Contact details for SMEs were obtained from the Swiss federal office of statistics (OFS)
More than 4’000 Swiss SMEs were contacted over a six-month period between November 2005 and April 2006 to take part in the nation-wide survey.
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The final version of the survey was broken down as follows:
1) Contact details,
2) Activities and financial information about the company,
3) Specificities of implemented ERP,
4) Description of the implementation process,
5) Project organization,
6) Outcome and benefits derived from the use of the ERP system,
7) Difficulties and problems encountered.
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RESULTS: On average, 4 modules are implemented in these
projects. Unsurprisingly , The finance module is used in
over 80% of cases. The other most frequently utilized modules:
Purchasing, HR, Inventory management and CRM appear in over 50% of responses.
On the other hand, the production module is used by fewer than 40% of respondents,
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The cost of consulting was under 20% of the total project cost in 57% of cases with a further 20% falling within 50% of total cost .
Thus, Consulting cost is clearly the main individual factor of total cost of implementation in ERP projects.
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Consulting costs as a percent of total costs.
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CONCLUSION
This research paper points to some of the factors that may influence the cost of an ERP project.
An important cost driver mentioned in the literature is clearly validated by our analysis: the cost of on ERP project is dependent on the number of modules to be implemented
The importance of the factor consulting cost clearly stands out in the data
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THANK YOU