blog/case-study-the-real-price-of-cheap-software-implementations

2024-08-23

Introduction

The Misconception That the "Lowest Cost Wins"

When it comes to software selections or system implementations, the old adage "the lowest cost wins" often prevails.

Many businesses, driven by budget constraints or the allure of savings, fall prey to this belief.

Sometimes, companies choose a system with a lower stick price because they feel it won’t affect their business too much compared to a system that better fits their needs.

Other times, this misconception leads to companies choosing a less pricey system implementor to deliver a full implementation of a technology.

However, did you know that this strategy can lead to unforeseen complications and higher long-term costs?

This case study explores a real-life example to highlight the pitfalls of opting for the lowest bid in an ERP software implementation project.

Client Background and Project Scope

A few months ago, Red Pill Labs was engaged by a manufacturer and distributor to lead their ERP software selection project.

The client sought an ERP system that would best meet their operational needs, streamline processes, and support future growth.

After utilizing our unbiased selection framework, the client selected Microsoft Dynamics as their ERP system.

Following this decision, we assisted the client in narrowing down their search to two system implementors with the necessary technical and industry-specific experience, whom we will refer to as Partner A and Partner B.

The Proposal Dilemma: How To Identify a Low-Bid Approach

Partner A’s Proposal Demonstrated a Thorough Understanding of the Project Scope

Partner A provided a comprehensive proposal, which included:

• A complete implementation approach

• Change management strategies

• Reasonable hours

• And a fair budget.

Their quote reflected a thorough understanding of the project scope and the client's needs.

Partner B’s Proposal Differentiated Significantly From Partner A

On the other hand, Partner B’s quote had significant gaps in contrast, namely in terms of time and materials.

For one, their proposed hours was notably lower.

So was the overall budget.

To Red Pill Labs, the stark contrast between both partners suggested a “low-bid approach” aimed at winning the contract.

Upon further investigation, it became evident that Partner B typically handled much smaller projects.

This was a crucial finding, especially considering that both vendors had received the same comprehensive project information.

Partner B's inexperience with larger, more complex projects raised concerns about their ability to effectively manage the scope and scale of the client's ERP implementation.

Intervention and Realignment

Recognizing the risks associated with Partner B's unrealistic bid, Red Pill Labs intervened.

We urged Partner B to increase their hours and budget to a more realistic level.

This intervention was driven by the need to protect the client from the likely scenario of escalating costs due to change requests and a potentially rough implementation process.

Although it felt unusual to request an implementor to increase their budget, our primary motivation was to align the project scope with realistic expectations and mitigate future risks.

This adjustment process was challenging and required persistent effort to align Partner B’s expectations with the project’s true requirements.

Project Conclusion and Lessons Learned

Conclusion:

This case study demonstrates that a low-bid offer is not always what it appears.

While it might seem cost-effective initially, the hidden costs associated with inadequate hours, missing components, and potential for extensive change requests can far outweigh the initial savings, such as the case would have been if Partner B did not even up adjusting their proposal.

By opting for a well-rounded and realistic proposal, the client was better positioned for a successful ERP implementation, avoiding the pitfalls that often accompany the lowest bid.

Lessons Learned From This Project:

5 key takeaways from this study:

• Always evaluate bids comprehensively, considering the full scope of work, including change management and realistic hours.

• Ensure that vendors have experience with projects of similar scale and complexity.

• Be wary of significantly low bids, as they often come with hidden costs and risks.

• Persistently work to align vendor expectations with the project’s true requirements to avoid future complications.

• It can be extremely beneficial to have an unbiased third-party on your team, such as Red Pill Labs, who fights to ensure clients don’t get fooled by seemingly attractive offers.