Risks and hidden costs
There are serious amounts of complexity-related risks already in the ERP field due to the convolution of the application layers, on-premises infrastructure, and hyperscalers, as well as vendor and partnership agreements with various service levels. – by Gábor Hédai, IPR-Insights.
Let’s go through some other areas affected by newly emerging challenges.
The first, and biggest, issue is the cloud-only approach, which alone carries as much risk as all the other issues combined, so we really need to be on our toes here. When going cloud-only, we will be subject to the pendulum effect and may develop a desire to go back to a partial or fully on-premises operation model at some time in the future, perhaps because SAP might start cranking up prices even further. If we find ourselves in that situation, is possible to go back and how? At what cost?
How strongly do we feel about the Composable ERP model? This approach is bound to have significant risks associated with indirect or digital access. How great is that risk and is it possible to quantify that? Also, there always are hidden costs related to data hosting. What is our experience and are there any trends we can identify from our past engagements?
Another thing to consider is the magnitude of organizational change that going from on-premises footing to SaaS is going to bring. Let’s say we currently have an on-premises agreement and we are headed to a SaaS negotiation. We’re looking at a shift we had never had around our ERP. Getting the right input from infrastructure, application management, finance and controlling, legal and other lines of business in the planning process of our future ERP environment is a very challenging task already. We have to make sure that we are looking into all aspects of our operations and use that knowledge to negotiate a new agreement that covers our current and foreseeable needs with minimal risk and a positive ROI. We need to try to include protection against mid-to-long-term risks like price hikes and functionality re-shuffles, as well as a safety hatch to go back to on-premises. For the S/4HANA migration to make business sense, SAP must provide added value and benefits to our core business. If we do our planning right, we must still face the fact that, whether we get price benchmarks right or wrong, we’re going to carry a not insignificant amount of risk. If the risks, even through no fault of our own, materialize, the consequences of such a fundamental project are bound to be severe and are going to cast a long shadow. Even if we do very well in the negotiations, and get very good terms and pricing, there are always going to be some pitfalls simply due to complexity. That, however, does not mean that we are helpless, and there is nothing we to do about preventing such issues when contracting for S/4HANA. The key to this is going to be a much deeper pricing analysis than we’ve ever done before; to get there, we need both expertise and tooling.
It is absolutely crucial to understand our risks stemming from complexity. The greater the complexity, the greater the risks are. Risk number one is pricing and the complexity of pricing. Risk number two is services (service content, service quality, service levels, etc.). Risk number three is the return on investment.