What is ERP and How Can It Improve Your Business?
In today’s environment, most project-based organizations use some sort of technology to help run their business, and ERP systems are becoming an increasingly popular choice for their ability to streamline processes and align businesses for growth.
by Kim Koster
But first: what is ERP? In this blog, we will help answer this question and review some of the key features and benefits of a project-based ERP system.
What is ERP?
ERP stands for Enterprise Resource Planning. An ERP system includes financials, pipeline, time, expense, resource management, purchasing, project management, reporting, dashboarding, and more. Something to note when understanding the definition of ERP systems: “system” is not interchangeable with “software.” An ERP system goes beyond just software and includes the people and processes of an organization. The ERP will touch every part of the organization and keep all the gears turning together.
Project-Based ERP vs Generic ERP
Businesses that execute projects as opposed to mass production of products require an ERP system that is tailored specifically to them, instead of trying to squeeze value out of a “one size fits all” solution. A single product like toothpaste, for example, is sold to hundreds or thousands of people, but projects tend to be more unique and customized. For projects, the “product” being sold is service, and each customer will have different nuances and requirements.
Generic ERPs are costly and can be very difficult to maintain. They usually manage the general ledger account and the department/organization, while projects are tracked separately. In generic solutions, the project is an afterthought when it should be the center of the universe.
ERPs that are project-based, on the other hand, are designed to manage every part of the project lifecycle, from pipeline management to planning to accounting. They provide real-time information and a single source of truth for executives to make informed, strategic decisions. Here are a few other reasons to use an ERP system purpose-built for projects:
- Transactions are associated with a project, department/organization, and a general ledger account and can be viewed or reported through a lens using any of those dimensions
- Time is collected directly to the project tasks that the individual works on and is visible in real time in all projects, plans and forecasts
- Costing architecture is tailorable for each project and task through a Work Breakdown Structure (WBS) that can be as simple or complex as required and can be unique for every project
- Visibility is available in real time into the financials of each project (profit, cost, billing and even forecasts)
- Resource management tools that provide project managers with information on what skills are available when and even where
- Complete financial reporting that keeps the project at the forefront
- Project based key performance indicators help drive the organizational and project goals and keep them aligned
- System controls send notifications when project restraint thresholds are met, configured, project by project, to the needs of the business
To summarize: Project-based businesses need project-based ERP. It’s as simple as that.
The Benefits of an ERP System
Single Source of Truth with Real-Time Data
Project-based organizations who haven’t yet adopted an ERP system might be using disparate solutions, spreadsheets, or some other homegrown combination of the two to manage their business. Each of these provides its own distinct information—its own version of the truth. These separate solutions do not integrate with each other and provide stakeholders with a clear picture of the entire business. Project managers and executives spend a lot of time simply trying to find the latest version of the data or trying to “sync” the separate datasets.
The project-based ERP system is the center of the organization’s activity. The finances, purchasing, resource management, project management, and more are all together in a single solution. The data and information flowing through the system is real-time, so anyone can see exactly where a project stands at any given moment and have all the information they need to make informed, strategic decisions.
Automated and Streamlined Processes
ERP solutions automate several once-manual processes and operations. With an ERP system, project managers can set up automated reminders for time, expense, and invoicing, as well as establish reports that run automatically. This improves operational efficiency and allows managers and executives to get out of the business of completing tedious, repetitive administrative tasks that add little value and turn their attention back to running the business.
Connected and Empowered Teams
People are the most important resource in project-based businesses. They are the ones who ultimately execute the projects and grow the business. Projects are social and require constant communication and collaboration between employees to keep them running smoothly—or to quickly course-correct and avoid disaster when needed.
An ERP system gets all employees engaged with one solution and reviewing and working with the same real-time data. Employees will be able to instantly access the information they need to check project status and make decisions. Businesses armed with a project-based ERP are poised to unleash productivity and innovation with the power of collaboration.
Government compliance is always top of mind for government contractors, but especially now as the cost of compliance has doubled over the past three years1. DCAA, CAS, CMMC, and other guidelines require GovCons to keep detailed records for time, cost accounting, and more. Without automated support for these requirements, GovCons face increased cost and increased compliance risk if there just isn’t time to do it all.
With an ERP system that is purpose-built for government contractors, teams can manage risk and ensure compliance with built-in compliance and controls. With the right system, DCAA compliance and audit confidence are foundational, not simply a goal to achieve.
Integration With Other Business Tools
Running a project-based business has a lot of moving parts, and often means tracking data, information, trends and metrics across multiple applications. Keeping them all up-to-date is time consuming and error-prone. The best modern ERP systems integrate with other best-in-class applications, allowing the business to automate workflows and keep information in sync. By flowing data to every part of the organization, ERP systems bring processes and teams together in a way that unlocks more collaboration, better insights, and the ability to move projects forward.
How to Find the Right ERP System
As discussed above, project-based organizations require ERP software that manages the entire project lifecycle and have robust functionality for pipeline, customer relationship management, resource management, budgeting and forecasting, revenue recognition, time and expense, billing, real-time reporting, and more. It must provide a complete picture of the health of the organization and empower stakeholders to make strategic decisions. The software should be backed by a provider that is dedicated to the organization’s success, providing strong customer support and training.
1: 2020 GAUGE REPORT Industry Roadmap of Benchmarks and Trends for Government Contractors. Unanet and CohnReznick. September 2020
Learn more about what to look for in an ERP and financials system in our eBook.