Requirement Specification vs Functional Specification: Understanding the Difference

Although closely linked, they serve different purposes and are created by different stakeholders. This article summarises the key distinctions and their practical importance for successful ERP and software projects, based on the infographic provided by Dreher Consulting.

What a Requirement Specification Is

The Requirement Specification (often created by the client) captures what the organisation needs from the future software. It defines the “what”, not the “how”.

Responsibilities

• Client
  The client owns this document, as it reflects internal goals, processes and constraints.

Goals

• Capture all requirements for the new software in one place.

• Improve comparability during vendor selection, since all suppliers respond to the same requirements baseline.

Contents

According to the infographic (page 1) a Requirement Specification typically includes:

• Current actual state (AS-IS)

• Desired target state (TO-BE)

• Functional requirements

• Non-functional requirements

It also documents business goals, process needs, graphics, tables, and where possible, end-to-end process flows.

What a Functional Specification Is

The Functional Specification (created by the contractor / software provider) defines how the requirements will be realised in practice.

Responsibilities

• Software provider
  The provider enriches the client’s Requirement Specification with their methodology, solution capabilities, interfaces and implementation approach.

Goals

• Describe precisely how each requirement will be implemented.

• Form the contractual foundation for service delivery and pricing.

Contents

Per the infographic (page 1)

• Detailed goals (what the software will do)

• Clear non-goals (what the software will not support)

The Functional Specification evolves into a shared, binding document used for both the offer and the contract.

How the Two Documents Fit Together

The infographic shows a clear sequence:

1. Client creates the Requirement Specification.

2. Vendor transforms it into a Functional Specification, adding solution details and implementation methods.

3. The resulting document becomes a joint reference point for delivery, governance, scope and quality.

This transformation ensures that client expectations and vendor commitments are fully aligned before implementation begins.

Why These Documents Matter

Companies often underestimate the effort required to elicit software requirements and prepare structured specifications. Yet, poor requirements documentation is one of the most common reasons ERP and business software projects fail.

As highlighted in the infographic (page 1)

• Clean specifications reduce misunderstandings.

• Vendors can provide more accurate proposals.

• Implementation becomes more predictable.

Dreher Consulting notes that many organisations struggle with this step and may lack the time or expertise to produce robust Requirement Specifications internally.

How Dreher Consulting Supports This Process

The infographic emphasises that Dreher Consulting brings 28 years of independent ERP consulting expertise to support clients in:

• Eliciting and documenting requirements.

• Creating complete Requirement Specifications.

• Identifying and qualifying suitable software vendors.

• Guiding the evolution from Requirement to Functional Specification.

This ensures companies enter vendor selection and contracting phases with clarity, comparability and significantly reduced risk.

Summary

The Requirement Specification and the Functional Specification are two halves of a structured, risk-reducing approach to ERP and software selection.

• The Requirement Specification documents what the business needs.

• The Functional Specification details how the vendor will deliver those needs.

Together, they create the contractual backbone of a successful digitalisation and ERP transformation.