Why choosing an EPM tool is a consequential decision

Picking a financial planning tool is a big decision that comes with a hefty price tag. It's more complex than you might think, with costs adding up in several areas. Here’s a breakdown of the main expense categories and why you need to choose carefully.

1. Software Costs

Overview: The first thing most people think about is the software itself. But, this is just the starting point.

Cost Range: Typically, software costs range from $150,000 to $300,000 per year.

Components: These costs usually include:

• Use Case Fee: Based on the features you need.

• Platform Fee: Basic access to the platform.

• Support Fee: For customer support and maintenance.

• Seat or Data Fee: Depending on the number of users or data volume.

Negotiation: The initial prices might be high around 1.5x - 2x of final cost, but with good negotiation, you can bring this down to $150,000 to $300,000. Always negotiate; vendors are generally flexible, especially around quarter or fiscal end quarters.

2. Implementation Costs

Overview: Implementation is a major expense right after you purchase the tool. This phase can last three to six months and involves setting up the system to fit your company’s needs.

• Hourly Rates: Expect to pay $200 to $300 per hour for experts like architects, modelers, and project managers

• Hands-on Implementation: This involves someone on your team spending 30-40 hours a week on the implementation process. Budget 2 to 3 times your software cost.

• Outsourced Implementation: This is when you only spend 5-10 hours a week on implementation. Budget 4 to 6 times your software cost.

  
  

Importance: Proper implementation is crucial because it sets up the infrastructure for your financial models. It's essential to have your team involved during this phase to avoid costly mistakes and re-implementations. Key initial models include your headcount model, income statement, balance sheet, and a high-level cash burn model. Subsequent phases can add more complex and bespoke models like revenue and sales compensation.

3. Headcount Costs

Overview: The most expensive part of the decision is often the headcount required to maintain and develop the tool. This depends a lot on the complexity of the tool and the modeling language it uses.

• Proprietary Modeling Languages: Require specialized knowledge, meaning you might need to hire experienced professionals.

• Simple Tools (e.g., Google Sheets): Lower maintenance as your finance team already knows how to use them.

  
  

Cost Breakdown:

• Salaries: Expect to pay between $150,000 to $225,000 per resource annually.

• Additional Costs: When you add benefits and stock-based compensation, the total cost can rise to $350,000 to $500,000 per resource.

• Overall Headcount Costs: Including redundancy (having more than one expert), you might spend around $500,000 to $800,000 annually, which translates to almost $1.5m to $2.5m in just headcount related costs over a 3 year contract.

Total Cost Estimation Over 3 Year Contract

When you add up all these factors—software, implementation, and headcount—the decision to implement a financial planning tool can cost between $3 to $5 million over just a 3 year period. Here’s a rough breakdown:

• Software Costs: $450,000 to $900,000.

• Implementation Costs: $500,000 to $1 million over two implementation phases.

• Headcount Costs: $1.5 to $2.5 million.

• Adhoc: Don't forget your time and the finance teams time in implementation and maintenance, I didn't assign a # to this, but this is a real cost you need to think about. We must always prioritize and this will take time away from other areas.

Final Thoughts

Choosing the right financial planning tool is about addressing your current needs and planning for future growth. Picking a tool that's flexible, easy to learn, and maintain will save you significant time and money in the long run. Make this decision carefully, knowing all associated costs and having the right resources to support implementation and ongoing maintenance.

You will need help choosing the right tool. Lean on your peers and experts like Rasagya Monga at Amvent who has put together a great 5 Step Evaluation Framework.