Basic bookkeeping/accounting software features like invoicing and creating profit & loss statements get the job done for many small and midsize enterprises, but larger or more complex organisations often need more advanced platforms. However, the question then becomes whether to implement a comprehensive, organisation-wide tool like an enterprise resource planning (ERP) system or best-of-breed financial management system (FMS)?
In this article, we’ll explore the difference between these tools and explore why an organisation might choose a best-of-breed FMS over an ERP to handle financial planning areas like budgeting, revenue forecasting, and more.
What’s the difference between best-of-breed FMS and ERP?
As the name indicates, a best-of-breed FMS is at the top of its peer group (as opposed to more run-of-the-mill finance software), and it focuses exclusively on finance/accounting functions.
“A financial management system (FMS) is the software and processes an organisation uses to manage assets, income and expenses. An FMS performs various functions: reducing accounting errors, maintaining audit trails and ensuring compliance with applicable accounting standards,” explains Gartner.
In contrast, an ERP can provide operational and analytical support across an entire organisation. In addition to finance, an ERP can support areas like inventory management, marketing, and HR.
“ERP systems tie together a multitude of business processes and enable the flow of data between them. By collecting an organization’s shared transactional data from multiple sources, ERP systems eliminate data duplication and provide data integrity with a single source of truth,” explains Oracle.
So, in general, an ERP is a broader tool, whereas a best-of-breed FMS is finance-specific. An ERP can certainly have strong finance functionality, and for some organisations it’s a better fit. However, an FMS that lives up to the best-of-breed name could have additional finance features that certain types of organisations need, such as a non-profit looking for financial software to support fundraising and grantmaking efforts.
ERP or FMS: which is right for you?
Both an ERP and FMS can be valuable to a wide range of organisations, and it’s possible that either one would work well. That said, there can still be several scenarios where one system comes out ahead. Five reasons why you might choose a best-of-breed FMS over an ERP include:
1) Operational fit
If your organisation has unique finance needs, a best-of-breed FMS might have the additional features that help you optimise your financial planning and accounting. These systems can often be specially configured — and are often built by design — to address a company’s unique financial requirements. Meanwhile, if you don’t need a system that also encompasses areas outside of finance, then an ERP might be overkill.
For example, an organisation that only sells services, like a law firm, might not need the supply chain management capabilities that an ERP might provide. But you might need specialty finance features, such as those that help account for different types of revenue streams like hourly billing and fees from winning cases.
2) Implementation time
If time is of the essence, going with a best-of-breed FMS might be a better fit. Because this type of system only sits within the finance department, it can be far quicker to plan and execute an implementation compared with an ERP that stretches across business units. A best-of-breed FMS generally won’t face the same types of bottlenecks that can occur when working with multiple departments.
With ERP, many organisations conduct a full review of business processes so that they can scope out how to incorporate everything within an ERP implementation. All told, a mid-size ERP implementation project roughly takes around 6-12 months (far longer than with a typical FMS). But in some cases, it can take two or more years to complete, depending on factors like the size, geographical spread, and overall complexity of an organisation.
Due to the scale, complexity, and implementation time, ERP systems also tend to cost more than finance-specific software. The price factors in the multiple business processes an ERP can support, so if you’re not looking for a system that can be used across departments, it might not be worth paying for an ERP.
In addition to the upfront costs, consider the total cost of ownership, such as in terms of maintenance and license fees. Here too, an ERP can often be more expensive than a best-of-breed FMS.
4) Ease of use
Because of the enhanced functionality of an ERP across business processes, they tend to be more difficult to use, at least in terms of initially getting up to speed. Plus, working across departments can be tricky, even with advanced software. So, if you want finance/accounting employees to be able to quickly and easily leverage a new system you’re implementing, it might be better to go with a best-of-breed FMS, assuming that the FMS meets your operational needs.
An ERP can be a big commitment that leaves you without much flexibility if you need to change course. Even though ERPs can be fully customisable, you might not be in a position to invest the time and money it takes to steer an existing system to fit new business processes.
In contrast, a best-of-breed FMS may have more flexibility. It might be faster and less expensive to add new finance/accounting functions if needed, and it can be particularly more flexible to make changes for other business processes. Since an FMS doesn’t cover areas outside of finance, like HR, you can add or change software in those distinct areas as needed, instead of changing an all-in-one system like ERP.
Find the right system for your organisation
Both ERP and FMS systems can help organisations manage financial processes, and they each have their pros and cons. It’s important to consider your operational needs along with factors like time and budget to see which system is right for you. But if your primary focus is on finding a finance system, and you’re not too focused on other areas, then a best-of-breed FMS might be the way to go.
If you’re ready to explore your options for implementing an FMS or ERP system, YourShortlist can help. We’re a technology consultancy using procurement best practice and data insights to save companies time and money. Our goal is to make business technology procurement simple, transparent, and cost-effective. We won’t charge you anything, and we won’t share any of your project details without your explicit approval.