31 March 2003 The average cost of an SAP roll-out in its first three years of deployment is $14.5 million, a figure so high that more than half of those who attempt a deployment do not achieve a positive return on investment.
That is the controversial finding of a new report by Nucleus Research, a Wellesley, Massachusetts-based research company that bases its studies on the comments of published reference site customers. For the SAP study, Nucleus contacted 93 reference sites, although only 21 agreed to take part.
The report suggested that nearly half of all SAP deployments exceeded their original budgets, but that many problems arose out of poor planning and implementation.
It also showed that software licences at an average of $1.8 million only account for about a fifth of the costs of deployment. External services account for $3.6 million — twice the cost of the software — while in-house personnel account for $2.48 million. However, SAP earns 17% of the licence costs every year in maintenance fees.
Nucleus warns that “SAP deployments for which consulting costs amount to more than twice the cost of the software are unlikely to deliver a positive return on investment.”
Poor returns were not blamed solely on high prices, but on “lack of breadth and repeatability” of process changes, high people costs and excessive customisation.
But rivals are unlikely to be able to take much pleasure from the report. An earlier study has already embarrassed customer relationship management software vendor Siebel Systems and other similar reports are planned. Nevertheless, a report on Manugistics supply chain management software found that customers achieved a positive payback.
The small sample used by Nucleus Research — just 21 out of 19,000 licensees — has enabled SAP to dismiss the report as unscientific. It says it is working to release its own data based on a much larger group and a better methodology.