Accounting vs.

Enterprise Resource Planning Software

IQRA SAEED

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ERPs and Accounting Software: Introduction

Given to ingenuity of human minds, several analog methods were developed to bridge the gap between desired goals and actual realization due to human inefficiencies. In this respect, Information technology is far most the effective method. This fact and the human efficiencies found in business function due to persistent tasks and the need for high speed complex calculation led to the development of accounting software and ERP systems. Following is an explanation for the latter mentioned representations; ERP systems helped to manage business processes such as marketing, production, purchasing, and accounting in an integrated way. ERP does this by recording all transactions in a common database that is used by information systems throughout the company and by providing shared management-reporting tools. An Accounting software is an application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, payroll, and trial balance. It functions as an accounting information system. The market has been undergoing considerable consolidation since the mid 1990s, with many suppliers ceasing to trade or being bought by larger groups.

The Usefulness of ERPs

Following is the criterion for a successful ERP system (from mySAP, Oracle E-Business Suite and Microsoft Dynamics AX) for the consequence of concluding on the usefulness; Functional and non functional benefits Design requirements and costs Supplier stability risks Initial implementation time and cost constraint Operability requirement

Inherent in the above framework is the assumption that implementation will lead to increase in shareholder wealth, in a private sector setup) or a more economic use of resource, in a public sector setup. Following is a side by side of the above mentioned ERP packages; Functional; These business functions when integerated in the ERP system will provide benefits such as quicker, more secure and accurate transaction management (refer to topic 4 for detailed benefits of an ERP system) Page 3

Financials Customer Relationship Management Product Lifecycle Management Supply Chain Management Supplier Relationship Management

The following chart explains some businesses are unable to realize all the benefits of ERPs. This might be a result of poor implementation management which leads to lack of integration with current business controls. On average SAP has the highest weighted realized benefit. On the other hand, Microsoft is the one with the lowest. This might suggest that Microsoft is the most difficult to integrate.

Design requirements; When ERP systems are customized according to the specific internal control procedures, this is known as a bespoke system. SAP integrates its best practices during implementation as compared to ORACLE and Microsoft which customize their software to suit the individual needs of the business. The drawbacks of a bespoke system are and benefits of the standard system and vice versa. Bespoke is bit expensive, difficult to implement updates, introduction might be delayed and thus less reliable. This when compared to its only relative advantage is to aid change management. The advantages of bespoke and standard system should be weighed against each other according to the objectives of the ERP to derive maximum benefit. Supplier stability; Microsoft has its consultancy partnerships in more than 88 countries as compared to ORACLE and SAP with 50 and 75 countries respectively. This is most beneficial for businesses operating in several countries. Moreover theses three are the most famous ERPs and can be easily purchased as it is quite accessible. Going concern? Future update

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Microsoft is the most secure as it has been established since quite a while and a huge conglomerate however all 3 have been established with high profitability and had been a going concern since 1990s Reputation: SAP currently holds the largest market share due to well recognized brand image. Microsoft is comparatively new in the market. ORACLE has lost its customers to SAP and Microsoft due to less perceived realized benefits.

Implementation Time

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Operability Nearly 40-percent of companies surveyed who implemented SAP are satisfied with their software, and 83-percent would purchase the software again. Eighty percent of Oracle Customers are satisfied and 100-percent of those surveyed would purchase the software again. Microsofts satisfaction numbers are lower than the big two, at a 33-percent satisfaction rate. Costs Project Costs and Overruns (Average) Planned SAP Oracle Microsoft $19,003,667 $1,364,269 $407,938 Actual $20,615,350 $1,573,152 $463,667 % Increase 8% 15% 14%

SAP has the highest costs and the highest realized benefit, when compared to that of Oracle costing relatively greater then Microsoft has also the disadvantage of having the highest payback period. Lastly, Microsoft having the lowest costs has thus also the lowest payback period, hence most relevant to low midsize markets

The Usefulness of Accounting Software

Functionality; Peachtree, similar to QuickBooks, performs the same business management functions, resorting to satisfying the needs of personal or low market setups. However, Xero is more flexible solution to such needs with catering only to the accounting double entry needs of customers Design Implementation These softwares are ready to buy off the self from their respective websites. PeachTree and Quickbooks bring multi user capability with a server acting as the main database for storing Business data and several client systems in use of managers. However, Xero is more suited to individual/personal setups as it is built to be used by one authority but can be used from multiple destinations as Xero also provides an online service. Supplier stability Supplier stability is measured in terms of going concern of Software vendor. This can be measured using criteria such as future product prospects and current Profitability of the product; with vendor having the highest is most stable. Following is a comparison in a tabular form; Page 6

Profitability PeachTree Quickbooks Xero

$300.5 million (2011) $798.0 million (2011)

$0.878 million (2011)

Both Peachtree and QuickBooks have been in business since quite a while and have a strong future outlook with stable growth over the last decade1, benefiting the customer in terms of secured dispute resolution and relevant patches and updates Implementation: These accounting software are bought off the shelf, download from their respective websites and are implemented in terms of user training which is available through cheap consultancy and official documentation. Costs: The respective costs of Peach Tree, QuickBooks and Xero are $1200 2, $3203 and a monthly subscription.

Comparing the Usefulness of Accounting Software and ERP

The purpose of accounting is to provide accurate and reliable overview of financial situation to interested parties, where they dont just need software to keep track of financial or business activity, they want to manage it. There is a long way from being aware that something happened, and being able to react, or better yet, to proact based on information kept in the system. This is something accounting software normally cant handle, and it is also not something that it is made for. In order to manage business activity with the help of software, there is completely another category of software, called ERP, and while it does include accounting functionality, it goes way beyond.

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Acknowledging the above mentioned citation, accounting software serves a separate purpose than a ERPs system and thus are not comparable. Accounting Softwares as of now, are shifting towards a more integrated business management approach like an ERP system Advantages
Sales forecasting, which allows inventory optimization Chronological history of every transaction through relevant data compilation in every area of

operation.
Order tracking, from acceptance through fulfillment Revenue tracking, from invoice through cash receipt Matching purchase orders (what was ordered), inventory receipts (what arrived),

and costing (what the vendor invoiced)

They eliminate the need to synchronize changes between multiple systemsconsolidation of

finance, marketing and sales, human resource, and manufacturing applications

They bring legitimacy and transparency in each bit of statistical data. They enable standard product naming/coding. They provide a comprehensive enterprise view (no "islands of information"). They make real

time information available to management anywhere, any time to make proper decisions.
They protect sensitive data by consolidating multiple security systems into a single structure.

Disadvantages
Customization is problematic. Reengineering business processes to fit the ERP system may damage competitiveness and/or

divert focus from other critical activities

ERP can cost more than less integrated and/or less comprehensive solutions. High switching costs associated with ERP can increase the ERP vendor's negotiating power

which can result in higher support, maintenance, and upgrade expenses.

Overcoming resistance to sharing sensitive information between departments can divert

management attention.
Integration of truly independent businesses can create unnecessary dependencies. Extensive training requirements take resources from daily operations. Due to ERP's architecture (OLTP, On-Line Transaction Processing) ERP systems are not well

suited for production planning and supply chain management (SCM)

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