ERP benefits best measured with KPIs that look beyond ROI calculationDate: Feb 25, 2014
While the traditional ROI calculation remains a vital tool in ERP projects, companies must also establish key performance indicators (KPIs) to measure other signs of ERP success or failure, according to a consultant who spoke at the Panorama Consulting Solutions ERP Boot Camp that took place recently in Vail, Colo.
Senior executives will still want to know the expected ROI, which requires identifying ERP benefits in two main categories, said January Paulk, Panorama's senior manager of business process and organizational change management in this video recorded at the conference.
"We look at a business case that looks at the labor benefits. Labor benefits, of course, are those associated with people and time savings," Paulk said, "and then the non-labor benefits associated with other items outside of people, like reduction in paper that you buy or inventory turn improvement."
But it's just as important to have KPIs outside of the ROI calculation, such as for improving customer interaction or boosting the efficiency of the supply chain. "You identify process objectives, and then you look at key performance indicators that you can use to measure those process objectives," she said.
Key performance indicators are also helpful in setting up a continuous improvement program for the ERP system, a step Panorama recommends. "When you identify those KPIs, you establish a baseline so you know where you're operating today," Paulk said. "And then, from that, based on benchmarks in the industry and of your competitors and how they're operating in those particular areas, you can set goals and targets for yourself. You can take incremental measurements and see how well you're meeting your targets."