Selecting the right Enterprise Resource Planning (ERP) software is rarely an easy decision, and the biggest mistake most companies will make is rushing into it without first establishing their functional requirements. A slap-dash approach will only end up costing you time, money, and resources. There are a number of downloadable ERP requirements checklists and templates online, but very few of them are useful as they tend to focus on generic features rather than the specific needs of the team that will be using the ERP for years to come.
Best practice is to establish a custom checklist based on your specific needs, that way you won’t end up wasting more money on flashy features that have very little to do with your company’s goals.
This blog will help you build a custom ERP requirements checklist that is right for your company and equip your team with the criteria and questions needed to assess each system and find one that will work best. You can also download this free ERP functional requirements checklist template, to explore the top features and get started.
Core topics covered in this blog (skip ahead by clicking on a topic)
- Understanding the basics, what is an ERP?
- What are the core benefits of an ERP system?
- Steps to establishing a custom ERP requirements checklist
- The top requirements template or checklist
Understanding the basics, what is an ERP and why it matters
What is an ERP and what does it do?
ERP is an acronym that stands for enterprise resource planning. It’s software that centralizes work across multiple departments, so that you can streamline processes and ensure the secure management of your resources (financial and otherwise). ERPs cover functions such as marketing automation, financial management, customer relationships management, supply chain management, etc. They can be industry-specific and save teams considerable time and money by modernizing workflows and consolidating crucial company information.
What are the core benefits of an ERP system?
ERPs serve a wide range of functions depending on industry requirements. Many of the solutions on the market can be modified or customized to meet the demands of a company. However, there are some core benefits regardless of the exact functionality an ERP is purchased for, and these benefits tend to impact all departments. So, whether you’re looking for an ERP to handle financial, human, or marketing resources, it’s likely that you will experience the following benefits:
- Forecast accurately with comprehensive reporting and insights
- Save time and money by eliminating obsolete manual labour
- Improve scheduling and planning with full visibility
- Boost efficiency and remove bottlenecks through automation
- Prove compliance easily with audit-friendly reports
- Increase data security with state-of-the-art data management
- Centralize data management to prevent unnecessary errors
Steps to stablishing a custom ERP requirements checklist
(click one to jump ahead)
- Survey team and establish a list of business requirements.
- Get upper management to actively engage in the process.
- Consider in-house expertise and get full user support.
- Make a comprehensive list of all functional requirements.
- Figure out integration with existing systems and processes.
- Consider the capabilities the ERP should have as you scale.
- Set a realistic budget covering implementation, integration and onboarding.
- Crunch the numbers and calculate the total cost of ownership and ROI.
- Research industry-specific solutions and avoid expensive customizations.
- Decide what kind of team you want to work with.
1. Survey team and establish a list of business requirements
Make a comprehensive list of all your business requirements for the ERP. You will need to survey the people it will impact most i.e. the users and those directly impacted by its functionality. There is no one-size-fits-all checklist, and you will need to speak to employees at all levels of your company to get a feel for the right criteria. It might be useful to make a list of those who will use the system, and then start by asking them what they need it to be able to do with it. Then, you may want to ask upper management what sorts of reports they need to see to make financial decisions. You also want to ask trusted customers and suppliers what would help them.
Use this feedback to build a tiered list of requirements
If you do this well, you will end up with a large list of ideas. Take this list and use it to form a tiered list of requirements. Working with your team, establish what are the “must-haves”, “good to haves” and “nice to haves”. Your list may have more tiers than this. The overall aim is to get a clear picture of the essential features for your ideal ERP system and which features you can maybe live without.
Once the list is tiered, get the entire team to evaluate it. Can someone fight for a feature that got pushed to the bottom of the list? Be flexible and try to listen to everyone’s input. Weigh the costs and benefits of what they advocate for before you finalize the list.
At the end of this process, you will be able to start looking at some of the other technical requirements of a good ERP. Looking at solutions before you know exactly what you need can have dizzying results. It may even prevent you from making a decision grounded in your business requirements.
2. Get upper management to actively engage in the process
It’s up to you to convince upper management of the importance of the project and get them to have total buy-in and give full support. Your list of business requirements should be one tool that will make it easy to show them the potential of the right ERP system, but really, you need more from them than just budget approval. Without their buy-in, you may end up getting a cheaper solution with less functionality than you require and find that it costs you in the long run.
Before you approach upper management, be sure to have read through this list comprehensively, as it details many things that you may want to be aware of (and have answers for!) before you book a meeting.
It’s also wise to consider the adoption of a new ERP as a financial transformation that is a major decision which impacts every aspect of your company. Framing it this way can help leadership understand the importance of the change and get the support you need to drive what will be a transformative process for the entire organization.
Recommended reading for financial transformations:
- The finance leader’s playbook for financial transformation
- The core benefits of financial transformation
- The core financial transformation challenges you can’t ignore
- Build a roadmap for financial transformation with 11 best practices
3. Consider in-house expertise and get full user support as part of your ERP requirements checklist
Chances are that there are members of your team who have a wealth of experience using different ERPs at previous jobs. Many of these ERPs will be specific to your industry’s needs. As part of your checklist, get their suggestions on the systems they’ve loved throughout their careers. This is important information and can cut down on training costs later. If you end up choosing a solution that some of the team is already familiar with, they can help with training the wider team. It’s also important to understand what they loved about those systems so that you can be sure any new ERP will get their full support.
You need your team’s full support to make the system work. After all, they will be using the system, and the learning curve can be steep. Sometimes, companies make the mistake of landing their teams with a new system, without first supporting them in the transition. Think about how to manage the change to a new ERP from a human perspective. Your team needs to know that documentation and training will both be readily available.
4. Make a comprehensive list of all functional requirements
Once you’ve got a clear understanding of your team’s abilities and requirements, it’s time to get technical. Consider what functional requirements your ERP needs to make your company run smoothly. For instance, should it be hosted on-premise or in the cloud? Will you be using this in addition to a CRM system or run your sales processes out of your ERP? Other functionalities might be the ability to manage multiple currencies and companies.
It’s as important to establish the functional requirements you don’t need. For instance, if you don’t manage inventory, then the system you choose won’t need to have that functionality. Many ERPs are built specifically for certain industries. It’s worth considering which functionalities are crucial to your business.
Some general functionality questions to ask:
- Will you need the ERP to have the functionality to support multi-company, multi-warehouse and international companies
- Do you need it to handle different pricing and billing models per product or service?
- Will you need to support accounting functions like General Ledger (GL), Accounts Payable (AP), Accounts Receivable (AR), cash management and tax management?
- Do you need it to support a complete quote-to-cash cycle?
- Do you need it to support inventory management?
- What legal frameworks and tax laws do you need to be aware of?
5. Figure out integration with existing systems and processes
Your company already has processes and systems in place. Your new ERP solution should not interfere with these workflows and technologies, unless necessary. The ERP must be easy to integrate. Otherwise, you will end up creating an administrative nightmare that will make it impossible to fully optimize your systems.
For example, if you’re already using Microsoft 365 it makes sense to opt for ERP systems that will integrate with that system. Basically, you need to actively look for companies that have built solutions for your industry. These companies will likely have processes in place to integrate your systems with the ERP.
In some cases, you may find your current systems are all out-dated. It will end up making the most sense not only to invest in an ERP but also the other tools and systems that integrate with that system. Although this may feel daunting, it will save time and money in the long run.
Whatever you decide, make sure your ERP requirements checklist has a section outlining the systems it will need to integrate with. There’s no point wasting time researching ERPs that won’t function in your workplace.
6. Consider capabilities the ERP should have as you scale
It’s also important to think about the future when deciding on your ERP requirements checklist. Most likely, your company plans to scale, and as it grows your systems need to be able to seamlessly manage that growth. That means choosing a solution that will be as good for your company tomorrow as it will be today.
If you do plan to scale and won’t need all functionality immediately, it’s important that you think about scalability and updates to the system as time passes.
- How easy will it be to ramp up operations?
- Do the ERP providers have clear guidance and systems in place to help you manage growth?
- Can they give examples of companies who have used the ERP to scale?
7. Set a realistic budget covering implementation, integration and onboarding
Deciding how much money is realistically available for an ERP system is crucial. This is an investment in a system that will operate at the very heart of your business for at least a decade. It’s important to weigh up how much you’re going to spend. Be sure that management understands the benefits before you start whipping numbers out of the air.
In 2019, a report that analyzed data from over 2,000 projects. They found that the average budget per user for an ERP project was USD 7,200. Training costs, integration costs and the system cost are all part of the expenditure you can expect in getting your ERP up and running. Make sure your requirements checklist understands the true budget required to get the job done.
8. Crunch the numbers and calculate the total cost of ownership and ROI
Once you establish a budget, it’s time to calculate your return on investment. Make sure these costs and benefits are spread over time so that you get a clearer picture of the ROI over time. Once you know how much it will cost, you can start to think about the improvements and benefits of the system and calculate the money that can be saved. E.g. processes that once took hours, may now only take minutes.
Now that you will have a system taking care of labour-intensive work, you may be able to free up staff to provide valuable services that were impossible in conjunction with arduous reporting and invoicing processes. This will be very different for each company and comes back to the business requirements. Your team must understand the time and money that will be saved and that this is an investment that will have a measurable ROI.
9. Consider industry-specific solutions to avoid expensive customizations when creating ERP requirements checklist
One of the biggest costs in implementing any ERP system is requiring a lot of customizations, this is often because the solution is too general and not fit for purpose. Ask yourself is your company so unique that no other company has ever needed the same tools? Although this is possible, it’s not likely. You should be able to find an ERP that has been tried and tested and that has functionality specific to your industry. Whenever you find an ERP system pushing customizations, ask yourself if those features might be standard in a system built with your industry in mind.
For instance, a healthcare provider looking to manage materials is going to have completely different requirements from a SaaS company that wants to streamline its subscription billing. Both companies will need a system that can support industry-specific extensions that supplement the core ERP rather than relying on overpriced customizations built by ERP providers who don’t usually operate in their industry.
One way of establishing whether or not a software provider has the tools you need is to look for case studies or examples that exist where similar business models to you have successfully implemented and used that ERP. If you are going to need customizations, be sure you focus on providers who have a team of skilled developers who will be able to quickly and efficiently tweak your system.
10. Decide what kind of team you want to work with
One component that often gets left off ERP checklists is deciding what sort of team you intend to work with. It’s a piece of software! Why does it matter as long as it has the right functionality? The people behind the product matter when a system is integral to the day-to-day running of your company.
Make sure you know how helpful they’re willing to be? If they will be hands-on with training? If an implementation framework exists? How have other companies found working with them? The right global ERP system will also have demonstrated success in the countries where you operate, so make some of your selection criteria the availability of useful resources, case studies and references that are relevant and industry-specific. Compare and contrast how well different ERP systems work within your space.
By establishing what it is you’re looking for as part of your ERP checklist, it will then be easy to research different solutions and make sure that the team behind the system will be as responsive and helpful as you need.
The top ERP requirements template or checklist
For those who don’t want to build a custom ERP checklist, it’s possible to use this requirements template which outlines the top functionality you should consider when prioritizing features. Even if you are building a custom checklist, defining some of the most common functionalities can be helpful before you get started. Below is a list, segmented by department, to help you choose an ERP or facilitate the discussion about company requirements. Alternatively, download the free ERP requirements checklist here.
Financial and accounting top requirements
Given the demands of modern finance, it’s no surprise that one of the core functions of an ERP is to streamline and automate processes so that the finance team can focus on more strategic initiatives. Here’s a list of the requirements accounts teams usually request:
- Accounts receivable
- Accounts payable
- General ledger
- Recurring revenue management
- Deferral scheduling
- Cost analysis and management
- Churn reports
- Cash flow management
- Revenue allocation
- Expense management
- Support multiple currencies
- Manage multiple entities
- Support multiple regions
- Enables regulatory compliance
- Audit trails
- Financial reports
- Built to scale
- Integrates with finance’s existing tools
- Advanced security features
Subscription management and recurring revenue requirements
Most industries have seen the adoption of complex pricing models, and SaaS migration has become a necessity for many forward-thinking companies. You could easily consider subscription management tools under the finance section. Still, it’s valuable to give this functionality a separate heading given how central these tools are to the future of organizations. Below is a list of requirements your ERP needs if you plan to incorporate recurring revenue strategies in your future plans.
- Invoicing automation
- Handles complex billing cycles
- Supports all billing models
- Accommodates unique buyers
- Revenue allocation
- Deferral schedules
- Revenue recognition
- Real-time reporting capabilities
- MRR reports
- Churn metrics
- Audit-friendly reports
- Compliance with ASC 606 and IFRS 15
Integration is one of the most critical core requirements, yet it’s also easy to ignore. Double-check all solutions and explore options built to integrate with your current processes and workflows.
- Compatibility with existing hardware
- Software integration
- Capability to integrate new modules
- Ability to integrate with devices
- Integrates with apps across various departments
Data-management and security requirements
One of the central conversations in choosing an ERP is effectively managing sensitive data. It is essential across all industries, even more so for those navigating stringent regulatory guidelines such as healthcare and finance. It is imperative that your ERP can handle the complexity of modern data management and protects sensitive information against security breaches and attacks.
- Enables data quality
- Catalogues data accurately
- Automates data
- Advanced data security features
- Big data tools and insights
- Data integration across departments
- General ledgers
- Improves data consistency
- Improves data collection
- Business intelligence tools
- Comprehensive reports and analytics
- Customizable reports and insights
Business intelligence tools and enterprise reporting requirements
One of the most compelling reasons for any leadership team to invest in an ERP is the ability to attain business intelligence that will help set your company apart from the competition. Reporting and analytics empower teams to make strategic decisions based on accurate and timely information. Here are some of the requirements leaders look for:
- Advanced data management
- Real-time comprehensive reporting
- Vendor management and qualifying
- Data querying and analysis
- Advanced billing tools
- Comprehensive and accurate forecasting
- Profit and loss statements
- Reconciliation statements
Managing commercial leases
Whatever your industry, it is likely that commercial leases are part of how you do business. Health care companies find themselves converting retail spaces or leasing out equipment, retailers lease multiple locations, and manufacturers and SaaS companies spend a considerable amount of their budget on leasing storage facilities. Whether you are the lessee or the lessor, it’s likely that as operations grow, lease management requirements will increase. Below are some of the features you should consider.
- Digitalize lease portfolio
- Vehicle fleet management
- Equipment lease management
- Property lease management
- Lease renewals
- Revenue and expense management
- Create and modify leases
- Manage terms and terminations
- Streamline modifications
Company and industry specific ERP requirements checklist
The list above is by no means comprehensive and merely acts as a launch point for companies trying to set expectations and define requirements. It’s also essential to consider the demands of your operations, the struggles with your processes, and any custom requirements you might encounter. It’s worth creating a list of what this looks like department by department, getting marketing, HR, product, and customer service all to weigh in. Here are some industry-specific requirements you might need to consider, depending on your goals for the ERP.
- Healthcare materials management
- Human resources tools
- Customer relationship management
- Manufacturing management
- Product tools
- Sales tools
- Inventory management
- Financial consolidation tools