Making the critical decision about replacing a computer system has always been difficult because it involves subjective, intangible factors as well as dollars. And now it can be more confusing because the decision should consider a new kind of “system” - Application Service (AS). With AS, a distributor does not pay a large sum up front for a license to use ERP software; nor is it necessary to purchase a new, larger server. PCs are used, usually via the Web, to access software and data on a computer residing at the company that provides the Service. The distributor pays only for the resources used (e.g., the amount of processing done), which can be less expensive than owning a system.
Based on experience, here are the steps to take to make a non-emotional, unbiased, cost-effective decision.
- Create a list of the reasons why replacement of the current system is being considered; call them “goals.” It may be possible to achieve these goals without getting a new system.
- Define the planned and expected growth and change at the company.
- For the current system, identify where improvements or changes in user job-functions and/or procedures/controls could achieve some goals listed in step 1. Also determine if enhancements to the current system could achieve some goals.
- Based on steps 1 and 2, define all the features that are desired in a new system. Then determine the availability of suitable new software and the availability of an Application Service.
- Identify savings, benefits and efficiencies that only a new system or AS would yield.
- Identify where improvements or changes in user job-functions and/or procedures and controls could produce some benefits of a new system.
- For the current system, determine which enhancements would be needed to provide the same financial savings and intangible benefits that a new system or AS would.
- For each software enhancement identified in steps 3 and 7, estimate the direct cost, the value of internal time involved, and the resulting savings and benefits. Also estimate the level of risk of success.
- Judge whether the system environment is structurally suitable for all the enhancements being considered; whether the current system is user friendly and easy to use; the adequacy of software support.
- Determine if the current server could handle enhanced current software. If not, estimate costs for any hardware expansion or replacement hardware, taking step 2 into account.
- For each enhancement, do a cost-benefit analysis, and classify it as immediate, mid-term, or not worth doing.
- Determine if the current server could handle new software. If not, estimate costs for any hardware expansion or replacement hardware, taking step 2 into account.
- Add up the cost of all the enhancements classified as immediate or mid-term.
- Estimate the true future cost of using the current system, as enhanced/expanded, the savings and benefits from enhancements, and the net cost (savings).
- For a new ERP system, estimate the true cost, the savings and benefits it would produce, and the net cost (savings).
- Repeat step 15 for an AS.
- Use steps 9, 15 and 16 to make the big decision - including whether to license software or use an AS.