Build an ERP Business Case in 5 Steps with Template

Natalie Gagliordi | Content Strategist | February 26, 2024

“Our current ERP is OK. Why fix what isn’t broken?”

It’s a common question from business leaders and frontline employees who are hesitant about a major IT system overhaul or just don't realize the benefits they're missing out on. But industry momentum continues to build for shifting finance operations from legacy on-premises software to newer applications that can better meet today’s business requirements. Companies and institutions are rethinking or expanding their business models and strategies and implementing new technologies with the capabilities to support those new approaches. When companies decide to replace a core application, such as ERP, the choice these days is most often to a cloud-based application. Since ERP is so central to day-to-day operations, however, many executives only see the risk in making any change. With a well-defined ERP business case, you can open the eyes and ears of key business leaders who must approve such a move and win over the staff who will use the systems every day.

What Is an ERP Business Case?

Enterprise resource planning (ERP) is software that organizations use to oversee their daily business operations, covering functions such as accounting, procurement, project management, risk management and compliance, and supply chain operations. An ERP business case is a presentation-style document that thoroughly outlines the rationale, justifications, and expected benefits of implementing a new ERP system within an organization. Most companies have an ERP system (or multiple applications) in place to run these functions, so the business case centers on the reasons to migrate from the existing on-premises systems to the cloud. The reasons for making a change should tie directly to the company’s strategy and the capabilities needed to execute on that strategy. The business case serves as the roadmap for stakeholders and decision-makers to evaluate and approve the investment in a new ERP solution.

Why Building a Business Case for Modernizing ERP Is Important

An ERP business case is crucial for gaining approval and funding for an ERP project, since the business case provides key decision-makers with a clear understanding of the anticipated benefits, costs, risks, and strategies associated with implementing a new ERP system. Having a business case helps focus the team on what’s important and the reasons why the transformation is being done. Having this focus increases the level of commitment to making it work. It’s also valuable for getting employees excited about a better software system—or at least willing to give it a fair chance.

When an organization starts seriously considering implementing a new ERP system, the leadership usually creates a project team, and that team’s first job is to build an ERP business case. When companies decide to replace a core application, such as ERP, the choice most often is a cloud-based application. The business case provides the chance to dive deep into how new ERP software will provide business capabilities needed to execute on the company’s strategy and to quantify the value of those capabilities. The business case might link new software capabilities such as artificial intelligence to better forecasts that help improve business performance. It might show how a cloud-based ERP reduces the costs of frequent upgrades, making it easier and more cost effective to access new IT capabilities. By explaining and showcasing value versus cost, the team moves closer to deciding whether to pursue the project, including finding the right ERP solution and securing approval from leadership.

Key Takeaways

  • The ERP business case is the first step in providing executives and corporate stakeholders with the context for why a new ERP system is needed.
  • An ERP business case thoroughly dissects the cost-benefit evaluation and potential ROI of implementing a new system.
  • The ERP business case should offer a high-level overview of the ERP project and then also detail how the new system will be implemented, including timelines, phases, and the resources required.

5 Steps to Build a Business Case for a New ERP

Creating an ERP business case requires cross-functional collaboration to pinpoint all the needs for a major new software system, the benefits it would bring, and the justification for the investment. Here are the core steps to create an ERP business case.

1. Assess Current Software Against Upcoming Needs

When building a cloud ERP business case, start by grounding the effort in the company’s strategy and the capabilities needed to execute on that strategy. Look to your future needs. Then, identify gaps between those capabilities and the current state of your organization's ERP systems and related business processes. If possible, benchmark yourself against some peers to identify areas of opportunity. There are numerous potential benefits to upgrading technology, but you won’t achieve many of those benefits if you don’t understand where, how, and why you’re falling short. You don’t want to migrate an ineffective process to a new ERP system. Providing context for why a new ERP system is needed helps stakeholders understand what the transformation effort will look like given your current state.

Perform an existing system assessment

Working with various business stakeholders, evaluate the strengths and weaknesses of your current software and processes. For example, are you using the latest technologies, and can you regularly add new capabilities as they emerge and become available? Do this assessment by different functions, such as finance, planning, and procurement. The idea is to figure out the pain points, determine where the inefficiencies exist, and spell out how these limitations affect the organization.

An example of a process maturity visualization, ranging from manual to fully automated.

Audit current business processes

Conduct a thorough review of business processes and workflows to identify bottlenecks, redundancies, and areas for improvement, such as time-consuming system updates and manual tasks.

List current process costs

Estimate the operational costs associated with the existing ERP system, including software licensing, hardware, training, consulting, personnel, ongoing maintenance, upgrades, and other associated expenses.

Outline existing process inefficiencies

Identify and document the current pain points, inefficiencies, and limitations in existing systems and processes, such as missing or hard-to-access data, overly manual tasks, or a lack of real-time data.

Add up the cost of on-premises ERP-related inefficiencies

Quantify the financial impact of inefficiencies related to the current on-premises ERP system, such as manual maintenance and disruptive downtimes, or other system limitations such as a lack of flexibility and the need for customizations.

2. Determine ERP requirements and estimated costs

This step will determine whether a new ERP system will address the capability gaps you identified in Step 1. It’s important to establish clearly defined goals and objectives that your organization aims to achieve with cloud ERP. This step outlines what the new ERP system will address or improve within the company compared to the on-premises ERP.

Figure out functional requirements

Perform a comprehensive analysis of existing systems to determine the functional requirements and features the new ERP system must have to support business processes and meet organizational objectives.

List required features and modules

Identify what benefits you’re interested in and specify the essential features and modules needed in the ERP system to improve business processes and add capabilities, such as advanced forecasting using machine learning and AI capabilities.

Perform functional gap analysis

Identify any gaps between the current system’s capabilities and the functionality of the proposed cloud ERP system. Look for product roadmaps to assist you in this process on company websites.

Create an implementation and deployment plan

For stakeholders to act on a proposed ERP business case, they need to see a plan detailing how the replacement ERP system will be implemented, including timelines, phases, resources required, along with potential challenges and mitigation strategies.

A generic example of a roadmap for deploying ERP and HCM.

Estimate ERP costs for more than five years

Forecast the total costs associated with implementing, licensing, and maintaining the ERP system over an extended period.

3. Calculate return on investment

To determine if a new ERP is the right decision, you want to provide a detailed analysis of the potential return on investment (ROI). Typically, this analysis is based on comparing gains—such as increased revenue, better cash flow, increased staff productivity, lower capital costs, and lower support costs—against the implementation and ongoing subscription costs. It will compare the new system’s total cost of ownership versus the cost of keeping and maintaining the existing system. It usually leans heavily on industry benchmarks, analyst studies, and business process maturity models to assess a range of conservative and likely models for the returns and costs. The plan also should provide an estimated timeframe for how soon the new system will be in place and when expected benefits will be achieved. You want stakeholders to understand what success looks like and how you’ll measure that success going forward.

Address critical business needs first

Highlight how the ERP system addresses critical capability gaps listed in the assessment phase, such as the need for process automation, embedded analytics, machine learning, and collaborative capabilities to improve the accuracy and speed of decision-making.

Showcase improved business operations

Demonstrate how the new ERP system can help improve operational efficiency and enhance productivity. Efficiency gains can come from standardizing, simplifying, and automating disjointed business processes. Cite metrics that these changes can improve, such as on-time delivery to customers or reduced days sales outstanding.

Demonstrate lower overall costs

Lower total cost of ownership (TCO) is one potential value for moving to a cloud-based ERP, which reduces maintenance costs and eliminates upgrades, freeing IT staff to focus on more value-adding initiatives. It also eliminates the capital expense for hardware refreshes and data center facility operations. Additional savings can result from simplifying and automating business processes.

An example of a five-year cost-benefit projection for a hypothetical ERP project.

Provide a strategy for realizing and measuring savings

Detail strategies and plans to realize the anticipated cost savings through the ERP implementation. You want to create key performance indicators (KPIs) and benchmarks to track against once your organization is live and using the solution so you can quantify the ROI.

Build an ERP funding plan

Outline a funding plan detailing the financial resources required for the ERP implementation project, including the cost of the software, personnel requirements, system integrator support, and other expenditures.

4. Create an Implementation and Deployment Plan

A primary concern for business leaders and employees will revolve around whether an ERP overhaul will be disruptive. If moving to a cloud-based ERP, they’ll want to know how you’ll manage the downscaling of your on-premises systems while ramping-up your cloud applications. Employees will be eager to understand how it will change their day-to-day jobs, while executives will want to know potential risks that could slow operations. In this section, you want to address those concerns while showcasing the project’s feasibility and offering a realistic timeframe. Accountability is key: Show how you’ll track results and what will happen if they’re not being achieved.

Create a staffing plan

Develop a plan outlining the necessary people, skills, and roles required for the ERP project. Will you need to bring in the expertise and capacity of a system integrator? Consider how you’ll staff any training needed to support key people working on new systems.

Find ways to minimize business downtime

Present strategies to minimize disruptions during the transition to the new system, ensuring continuity in operations and reducing the risk of data loss, downtime, and rework during the migration. For example, map out in detail the rollout by regions and functions of new ERP capabilities. Be clear on when the legacy systems will be shut down and when and how (and how much) data will move over. Likewise, establish a testing plan for integrations with existing applications, databases, and third-party systems to avoid issues that may disrupt the flow of data.

Showcase the plan to minimize implementation risks

Identify and assess the potential risks associated with the ERP implementation, along with strategies to mitigate these risks, such as extensive testing, mock go-lives, and ensuring that all hardware, software, and networks are compatible and updated to support the new ERP system.

Be realistic about timelines

Set realistic timelines for implementation, considering the complexities and potential challenges. Map out the rollout phases, such as by geographies, business functions, or other factors. In the case of cloud applications, the implementation time is often shorter than conventional, on-premises systems required, but being realistic about the timing and the required change management is critical to establishing credibility and managing expectations.

Show accountability

Define your approach for tracking achievement of benefits, who is responsible for them, and what actions teams can take if the benefits aren’t being achieved.

5. Present your business case

Once you’ve established the purpose of the ERP implementation, the anticipated benefits and costs, and the plan to deliver those benefits, it’s time to take your business case to stakeholders. At this stage, you’re not pitching a detailed step-by-step implementation strategy, though you do have that in place and ready to dive into if questioned. Rather, you want to distill that exhaustive data, analyses, and plans into a high-level overview that clearly communicates to executives the need, benefits, costs, risks, and strategies for the ERP migration.

Know your audience

As you present the ERP business case to decision-makers, such as C-level executives or a review board, anticipate the questions or concerns they may have, and try to tailor the presentation to address their priorities and interests.

Use data visualization

Leverage data visualization tools to illustrate the benefits, cost savings, and ROI of implementing the new ERP system.

From conservative to likely, this visualization shows the range of possible returns on a hypothetical ERP project.

Don’t skip over the financials

Yes, you’re giving a high-level view of the project. But you do need to provide detailed financial projections, cost-benefit analyses, and a breakdown of the expected ROI to support your case. The chief executive and other C-level decision-makers need hard financial data to justify this type of investment.

Download the ERP Business Case Template (DOC)

ERP Made Easier than Ever with Oracle

Crafting a realistic and practical cloud ERP business case demands a thorough understanding of your company’s current state and future needs and the ability to clearly demonstrate the potential benefits cloud ERP can bring to the organization.

Oracle Fusion Cloud ERP fully integrates financial management, procurement, performance management, and supply chain and manufacturing on one platform to give holistic insights across the entire business with real-time data. By automating processes that used to be manual, Oracle Cloud ERP helps finance teams respond quickly to fast-changing business conditions. It also supports collaboration within the application suite for instant data sharing and problem solving and offers built-in, standardized best practices that encourage process efficiency. With Oracle Cloud ERP, your IT team is no longer focused on hardware support and costly upgrade cycles and instead can focus on helping the organization get the most out of your capabilities. Quarterly updates deliver the latest innovations so you’ll never have to worry about software obsolescence or enduring another disruptive upgrade. For companies working on their ERP replacement strategy, Oracle Business Value Services can help them define and articulate the business case. Oracle also offers financing options that can help companies manage the upfront project costs.

ERP Business Case FAQs

What is a business case for ERP?
The business case for ERP serves as the strategic and economic justification of an ERP implementation, providing stakeholders with the benefits, costs, and risks of the new system.

How do you write an ERP business case?
Writing an ERP business case involves cross-functional participation to deliver a deep understanding of the need for and benefits of implementing a new ERP system.

What are use cases of ERP?
Use cases are documents that detail how employees or other software applications will interact with the new ERP system, explaining how the software should be used to meet particular goals and perform business tasks.

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