The Costs of Cloud vs. On-Premise ERP

If your business is reaching a point where a new business management or enterprise resource planning system is required, you’ve probably been bombarded with choices over different software solutions and services. Among the choices of vendors and partners, will be a fundamental choice as to the structure of your ERP system itself – whether you’ll deploy the system on your own internal IT infrastructure, or take advantage of a Software-as-a-Service (SaaS) solution and host your new system on the cloud. This has recently become even more of an difficult decision as ERP vendors release new SaaS versions of the solutions that previously were restricted to on-premise deployments, SAP Business One, Exact Globe, Microsoft Dynamics and more.

The basic difference is simple – On-premise systems are hosted internally on your own, local,  servers and network, then controlled and maintained by your companies own internal IT resources, with cloud hosted ERP (also known as SaaS) deployed to the cloud and maintained by a partner and accessed by your users over the internet. While the difference seems small, choosing between on-premise ERP and cloud based ERP is not a decision that you should make casually. Both choices can have vastly different implications for internal IT staff and resources, cash flow, long term customisation, and data security and control.

The ownerships costs between similar systems with different hosting deployments can vary greatly, even when considered over a long time line, and it is important to take into consideration items beyond simple upfront license and implementations costs, and include aspects such as hardware costs, customisation costs, training costs, support costs, maintenance update costs, and other costs specific to your business.

On-premise ERP solutions normally need a larger up-front investment to purchase and manage the software and the related IT infrastructure, including hardware, servers, and networking resources. If your company doesn’t have an existing set up capable of handling such a deployment, including an IT staff with relevant skill, it may also be necessary to invest more time and money in additional resources and hardware, or training.

Just as important as the initial implementation is the on-going cost of maintenance, patches and upgrades. ERP systems are vast and complicated pieces of software, with vendors releasing patches, fixes and updates regularly. Using an on-premise solution means your IT staff will be required to spend time to deploy these fixes and then roll them out to every user’s machine as needed.

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For cloud-based ERP, upfront costs are usually smaller; the system is hosted and deployed to your requirements and then users access it through the internet. The cloud ERP provider hosts and maintains the entire IT infrastructure for you, ensuring the system is always running, for smaller companies, this shifts the burden on time, and cost onto a specialist partner with a greater level of expertise.

These advantages come some with disadvantages however. SaaS ERP is less upwardly scalable and not as flexible as on-premises ERP deployment. The major drawback for most companies is the comparative lack of flexibility. While ERP systems in general require that you do things the way the system is designed to handle, with SaaS that can be even more limited. There is also a cap as to how much an SaaS system can be customised, leaving you to change your company match the system, rather than the other way around. Most companies will have custom processes and procedures that go beyond what an out of the box system can accomplish – meaning in most circumstances some level of customisation is needed during implementation. Utilising an on-premise solution with internal skill makes this easier initially, and as the system goes into full, ongoing use, can be tweaked and altered as necessary – without loading on extra consultation costs.

Ultimately on-premises versus Cloud hosting for your ERP system will come down to an analysis of your company and its ERP business process and IT infrastructure requirements.. Smaller companies might want to consider cloud hosting more seriously, while larger companies may find SaaS appropriate for branch offices or to add functionality to their existing systems, and utilise the flexibility and security of a on-premise solution.

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Comments: 1

  • Sylvain Boyer says:

    Nice article Adam. I would add a third option: hosting in a private cloud. This approach offers the flexibility and security of the on-premise deployment, married with the advantages of the cloud being an easy per seat pricing model with minimal (if any) capital investment needed. Dynamics ERP (GP, NAV, AX) are good candidates for such a deployment.

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