The costing decision your ERP program is making for you

In every ERP implementation there is a set of decisions that determines what your margin report can say for the next decade. Cost component structure. Whether you run actual costing and the material ledger, or standard only. How profitability analysis gets characterized, and at what dimensions. Cost centers against internal orders. How deep product costing goes.

These get settled in blueprint. They get settled early, in rooms optimized for a go-live date, often by integrators who will not be there when the first variance needs explaining.

Nothing looks wrong at the time. The decisions are technical, they are made competently, and every one of them is defensible in isolation.

The bill arrives about two years later. Margin moves and the analysis stops at a level above the driver. Landed cost by product cannot be assembled without a spreadsheet, a week, and a person to do it. Someone asks why a plant’s absorption changed and the honest answer is that the system was never configured to hold that answer.

By then it is not a configuration change. It is a re-implementation with a different name, and it will not get funded by the IT budget.

The intervention is unglamorous: put the people who will own the margin report in the blueprint room, not in user acceptance testing. And before Controlling scope is signed, get three questions answered plainly.

Can I decompose a variance to the driver that caused it? Can I see actual cost, not only standard? Can I get margin at the dimensions I actually manage the business on — not the ones that were convenient to configure out of the box?

The program will be judged on the go-live date. You will be judged on the margin report, every month, for years.