No Lender Accepts the Seller's Appraisal. Your Board Shouldn't Either.
Most ERP business cases reach the board looking like independent analysis but they aren’t. The cost estimate came from the vendor’s license quote and the system integrator’s bid. The benefits projection came from the vendor’s own ROI calculator and case studies. And the internal champion who assembled it needed the project approved. Four decades of research on project estimation shows that numbers built this way are systematically biased: costs are estimated low, benefits are estimated high, and the ROI figure inherits both errors at once.
The Seller’s Appraisal is a white paper by Victoria Fide CEO Tory Bjorklund that examines the documented forces behind ERP cost overruns and benefits shortfalls, what the published research record actually shows about how projects perform against the numbers they were sold on, and the practices that measurably improve estimate accuracy before you commit.
Abstract
An ROI calculation divides expected benefits by expected investment. In most midmarket ERP selections, both inputs come from the sellers. This paper traces the two root causes of vendor estimate failure, optimism bias and strategic misrepresentation, to the academic research that named and documented them. The arithmetic consequence is a business case that can change sign under nothing worse than average conditions.
After reading this whitepaper, you will:
- Understand the two forces (optimism bias and strategic misrepresentation) that systematically skew vendor estimates before you ever see them
- Know what the published research actually shows about ERP cost overruns and benefits shortfalls
- Recognize the specific budget line items vendors routinely underestimate in competitive bids and what it signals when they’re missing
- Understand how reference class forecasting works and why it produces more accurate estimates than bottom-up vendor projections
- Be able to ask the right questions before you sign and know when you should get an independent estimate review
1 in 6 Projects Run Approximately 200% Over Budget
The average hides the risk that matters.
Research examining 1,471 IT projects found an average cost overrun of 27% — survivable, and roughly what a good contingency covers. Underneath that average, 1 in 6 projects ran approximately 200% over budget. (Flyvbjerg & Budzier, Harvard Business Review, 2011)
At Victoria Fide, we provide independent, unbiased assessments and estimate validations so you can be confident in the numbers you’re basing your decisions on.
Schedule a FREE 30-Minute Consultation today
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