The Hidden Cost of Legacy ERP Software

Picture this: You're trying to run a modern local government with technology that's older than some of your junior staff members... If this sounds familiar, you're not alone.

A staggering number of state and local governments are operating with ERP systems that are over 25 years old. That's like trying to do year-end reports on a typewriter... technically possible, but definitely not preferable! Those days are long gone and should stay in the past (despite the satisfying clack of typewriter keys...).

While your legacy system might feel like a comfortable old friend, it's more like that friend who keeps "borrowing" money and never paying it back. And the more you enable the legacy system, the more you marginalize your employees and citizens.

Today, we're diving deep into the real costs of hanging onto outdated technology, and trust me – the numbers might make your director need a moment to sit down. (We recently did a webinar with the Ohio GFOA that covered much of the information below. Download the slides here or at the end of the article.)

The Scary Stats: A Reality Check 📊

If numbers could tell stories, these would be horror stories. We're not talking about minor inconveniences or small budget overruns – we're talking about the kind of statistics that make auditors break out in a cold sweat. Let's pull back the curtain on what's really happening in government IT departments across the country, and why these numbers should be setting off alarm bells in every city hall and county office.

• A whopping 59% of CISOs report that outdated infrastructure is their biggest challenge in addressing emerging threats

• 34% of state and local government organizations were targeted by ransomware

• 49% of successful attacks came through compromised credentials

• 24% exploited vulnerabilities in outdated systems

• 72% of ransom demands to state and local governments are for $1M or more (with 37% exceeding $5M!)

• The median ransom payment? $2.2M in 2024

• 19% of ransomware victims fully recovered within a week (down from 63% in 2023)

• More than half (51%) took over a month to recover (up from just 7% in 2023)

Modern cyber threats are sophisticated, relentless, and evolving daily. While you're patching holes in your decades-old system, cybercriminals are developing new ways to exploit vulnerabilities you didn't even know existed. And all of these are problems that modern ERP systems are specifically designed to prevent.

The True Cost of Standing Still 💰

Think of legacy ERP systems like a leaky roof—the longer you wait to fix it, the more damage it causes, and the more expensive it becomes to repair. The costs aren't just in dollars and cents (though those numbers are daunting enough); they're in missed opportunities, security vulnerabilities, and operational inefficiencies that compound daily. This all leads to technical debt. Let's break down what this really means for organizations of different sizes.

For Small Local Governments (~100 employees)

Think you're too small to be a target? Think again. The annual cost of inaction ranges from $300,000 to $2.2M. That includes:

• Potential ransomware recovery costs ($2.83M average)

• Lost efficiency savings (typically 25-35% of your operating budget)

• Increased maintenance costs for those creaky legacy systems

• Higher staffing costs due to manual processes that could be automated

For Medium-Sized Organizations (~500 employees)

The stakes get higher as you grow. Medium-sized governments are looking at $2.8M to $4.1M annually in potential costs, including:

• Full ransomware recovery exposure ($2.83M)

• Average ransom payment risk ($2.2M)

• Lost operational savings (which 63.4% of organizations are currently enjoying)

• Extended recovery times (remember that 51% taking over a month to recover?)

For Large Organizations (1,000+ employees)

Now we're talking serious money: $4.2M to $7.3M annually. This includes:

• Maximum ransomware exposure ($2.83M recovery + potential $5M+ ransom demands)

• Substantial efficiency losses (missing out on that 85.5% potential improvement)

• Higher IT maintenance costs (while 90.5% of organizations are seeing savings with modern ERP... see below)

The Hidden Productivity Drain ⏳

Remember the last time you had to wait for your computer to update in the middle of an important task? Now multiply that frustration across your entire organization, every single day. Legacy systems aren't just slow – they're productivity vampires, sucking the life out of your team's workday with manual processes, redundant data entry, and endless workarounds.

• Manual data entry eating up hundreds of staff hours

• Data silos preventing departments from sharing crucial information

• Reporting that takes days instead of minutes

• Integration nightmares with modern systems

This can be a form of marginalization. Staying on a legacy ERP system can make employees and citizens feel insignificant by signaling a lack of investment in modern tools and technologies that could enhance their experiences.

For employees, working with outdated systems can lead to frustration as they navigate inefficient processes, making them feel undervalued and overlooked by leadership. The absence of current technology can also hinder their professional growth, contributing to a sense of stagnation.

For citizens, slow service delivery and limited access to user-friendly, modern interfaces can create the impression that their time and needs are not important to the government. This perceived inefficiency and lack of engagement may lead citizens to feel neglected and disconnected from their local government.

Without the benefits of personalized services and increased transparency that modern systems can provide, both employees and citizens may feel like mere numbers in a bureaucratic process rather than valued individuals. And that's never a good thing!

Upgrading to a modern ERP system can help address these issues by demonstrating a commitment to efficiency, transparency, and the well-being of both employees and citizens. This gives them a greater sense of significance and engagement.

The ROI Reality Check 📈

Here's where things get exciting—and not in the "oh no, our system crashed again" way...

When organizations make the leap to modern ERP systems, something amazing happens: efficiency skyrockets, costs plummet, and suddenly those tech-savvy new hires stop rolling their eyes every time they have to use the system. Let's look at the numbers. Organizations that modernized their ERP systems saw:

• 90.5% experienced reduced IT maintenance costs in 2024 (up from 68% in 2023)

• 63.4% saw savings in operating and/or labor costs

• 85.5% reported improvements in productivity and efficiency

• 83% of projects met their ROI expectations

The Investment Perspective 💡

Sure, the initial investment in a modern ERP system might make you wince (and really, that's not a problem with a SaaS subscription model), but the long-term benefits – in efficiency, capability, and yes, cost savings – make it one of the smartest moves your organization can make. This isn't just spending; it's investing in your organization's future.

The average cost of an ERP project per user is $9,000, with around 26% of employees using the system But it does heavily depend on vendor, offerings, custom projects, training, etc. But here's the thing: this is an investment, not a cost. Modern ERP systems offer:

• Automated workflows that free up staff time

• Enhanced security features to protect against those million-dollar ransomware demands

• Integrated data systems for better decision-making

• Improved citizen service delivery

• Reduced maintenance costs

• Better disaster recovery capabilities

Steps to Modernization: Your Action Plan 🎯

Ready to join the 21st century? Great! But before you start shopping for new systems, let's talk strategy. Modernizing your ERP is like planning a city-wide renovation project – it requires careful planning, clear communication, and a solid understanding of where you're going and why. Here's your roadmap to success.

1. Assess Your Current State

   • Document manual processes

   • Track time spent on redundant tasks

   • Identify security vulnerabilities

   • Calculate current maintenance costs

2. Build Your Business Case

   • Use the cost ranges provided above for your organization's size

   • Factor in both direct costs and opportunity costs

   • Include potential security risk costs

   • Calculate the efficiency savings potential

3. Plan Your Transition

   • Set realistic timelines

   • Establish clear milestones

   • Create a comprehensive training plan

   • Develop a change management strategy

The Bottom Line 🎯

At this point, you might be thinking, "Okay, we get it—our old system is costing us money." But here's the thing: it's not just about cost.

It's about your organization's future, your employees' sanity, and your ability to serve your community effectively. The choice between modernization and marginalization isn't really a choice at all – it's an inevitability. Which side of history will you be on?

References:

2024 Deloitte-NASCIO Cybersecurity Study

Panorama Consulting Group 2023 ERP Report

Panorama Consulting Group 2024 ERP Report

Software Path 2022 ERP Software Project Report

Sophos' The State of Ransomware in State and Local Government 2024

Fortune Business Insights