Calculating the return on investment (ROI) of an ERP system involves several considerations, including deployment models, distinctions between “hard” and “soft” returns, and phases of implementation. Here are the key points:

1. Deployment Model Impact: The choice of deployment model (on-premises or cloud) affects ROI calculations. Cloud-based systems are treated as operating expenses, while on-premises systems involve upfront capital expenditure. However, ROI principles are still used for understanding the value of cloud ERP.

2. Hard vs. Soft ROI: Hard ROI refers to quantifiable financial returns, such as increased revenue or reduced costs. Soft ROI encompasses intangible gains like improved employee morale. Both contribute to ROI but may be less clear in terms of dollar value.

3. Phases of Implementation: ERP implementations have two phases: initial installation and ongoing usage. Employee training and user experience play a crucial role in maximizing ROI. Proper training helps employees adapt to the new system, leading to long-term benefits.

4. ERP ROI Formula: The basic hard ERP ROI formula is:

 
 ROI = [(Total Value of Investment - Total Cost of Investment) / Total Cost of Investment] x 100%

5. Illustrative Example: An example is provided with a consumer goods manufacturer using a cloud-based ERP. The ROI is calculated by comparing gains (sales growth, productivity gains, cost savings) with the total cost of ownership (TCO). In this example, a 90% ROI is achieved.

6. Tips to Increase ROI: Five tips are provided to maximize ERP ROI:

1. Prioritize employee training to ensure they embrace the new system.
2. Get buy-in from top executives and managers to drive the ERP's success.
3. Continuously evaluate and refine your approach to ERP usage.
4. Be realistic about costs and benefits, including both tangible and intangible gains.
5. Avoid common ERP pitfalls, such as treating implementation as a one-time project.

7. Conclusion: ERP systems are complex and touch all aspects of a business. Calculating ROI requires careful consideration of both tangible and intangible benefits. Cloud-based ERP offers advantages in terms of flexibility and visibility. Successful implementation and ongoing assessment are keys to realizing maximum returns from ERP investments.

8. FAQs: Common questions about ERP ROI, such as how to calculate it, the business value of ERP, the time to see returns on a cloud ERP investment, and the elements of a standard ERP system, are addressed.

Calculating ERP ROI involves assessing both the financial and non-financial benefits, and ongoing evaluation is crucial to ensure the system continues to deliver value to the organization.