Epicor seeks to rein in ERP project costs

Under the company's Shared Benefits approach, implementation savings and overruns will be split 50-50

Epicor announced on Monday a new program aimed at containing the cost of ERP (enterprise resource planning) projects, which are notorious for running late and over budget.

Like any ERP implementation, Epicor and its customers will work together to define the project's scope, goals, and expected return on investment. The twist is that both sides stand to gain by keeping projects on steady course. If a project comes in under budget, the extra money will be split 50-50. The same approach applies for any cost overruns, as customers will pay only half of any additional consulting hours, Epicor said.

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The program gives customers "some of the comfort" of a fixed-price contract, as well as the potential to get money back, said Craig Stephens, Epicor vice president of consulting. Under a standard fixed-price agreement, Epicor would keep any excess funds, he said.

Also, since Epicor is also agreeing to share the cost of overruns, it "has no incentive to milk the customer" for excess consulting fees, Stephens said.

Epicor has been sounding this sort of cost-containment theme for some time. In 1999, the company announced a "1:1 ratio" initiative, with a goal of ensuring implementation expenses are not greater than the software's list price. That approach has some wiggle room, of course, since software licenses are frequently subject to significant discounts off list.

Meanwhile, Monday's announcement drew a moderate nod of approval from Vinnie Mirchandani, founder of the Deal Architect procurement consulting firm and a well-known blogger on enterprise IT issues.

"[With] many large companies I help negotiate implement contracts for, we try and include a bonus/penalty piece based on budget, time, customer satisfaction and business results," Mirchandani said. "So not unusual, but good to see a vendor proactively offer it."

Epicor should be commended for publicly confronting the issue of implementation costs, but "as with any incentive program, you have to watch out for unintended consequences," said Frank Scavo, managing partner of the IT consulting firm Strativa.

If Epicor receives half of the savings for bringing the project in under budget, it could conceivably motivate the project manager "to expend as few professional services dollars as possible during the implementation," he said. "Furthermore, if Epicor has to cut professional services rates by 50 percent after exceeding the budget, how will that affect the choice of which consultants to assign to the project? Might that not motivate the project manager to utilize someone other than the best consultants?"

"I'm not saying any of this is the intention of Epicor -- simply that you have to recognize how the incentive program might affect decisions in the field," he added.

From a strategic standpoint, Epicor's announcement could have resonance with companies that changed ERP systems around the Y2K scare, and are now looking to upgrade the aging platforms, said 451 Group analyst China Martens.

It also comes about a year after the vendor launched Epicor 9, a "next-generation" superset of features from various product lines, supported by a SOA (service- oriented architecture) framework and available in both on-premises and SaaS (software as a service) forms. Epicor has big hopes for the strategy, which has echoes of Oracle's long-delayed Fusion Applications.

But Epicor 9 is another reason to apply some skepticism to Monday's announcement, according to Scavo. "I suspect that, with the rollout of Epicor 9, Epicor's best consultants might be very heavily utilized right now, so you have to question anything that might encourage engagement managers to skimp on services hours."