Cloud or On Premise: What to Choose for your Next Small Business ERP Project?

The Basic Question is: Does my ERP deployment make an effect on my cost of implementation in the long term? If that is the dilemma then what should I chose for a long term implementation — should I rely more on the On-Premise or should it be a Cloud?

The solution is to look for the finest approach. What we have always understood is every requirement is unique to each other and there is no one-size-fits-all solution. Lately, the trends are pointing in a single direction for most small business ERP deployments. The TCO for cloud-based solutions is significantly lower than for on-premise alternatives, both in the short and long terms.

For the Organizations, Start-ups, Entrepreneurs, lately the turnaround in the trend lines between these two approaches has been remarkable. The study by Noel Radly for “Cloud vs. On-Premise Deployment, 2008–2014,” she states, “There’s been a radical shift in deployment preference: 88 per cent of buyers preferred on-premise solutions in 2008, while 87 per cent preferred cloud solutions in 2014.” It should be noted that in the same article, Radley says, “From 2009 to 2010, for example, preference for on-premise deployment dropped from 54 to 31 percent. In 2014, just 5 percent of buyers wanted to evaluate on-premise software.”

If these numbers are to be noted then, the related costs of the two approaches, it demonstrates very clearly why the trend lines are moving so quickly in opposite directions.

Cost of Implementation

If you are going in for an on-premise ERP solution consider these costs:

  • The implementation cost is the maximum hit on your process
  • Expenses for the typical implementation for on-premise solution for hardware, software licenses, database licenses and external implementation consultants (one who will assist in designing), installation and training the staff
  • Implementation consultants for customization's or modifications: This will also be a cost for they need to code the core of the software for unique needs of your small business, especially if you are in a specialized vertical niche.
  • Now add the cost of housing an “industrial-strength” (processing and storage capacity network infrastructure which is “cyber-safe” and is configured and maintained by your expensive, on pay roll, IT experts).

Now compare it to a cloud-based ERP system:

  • Will require much lower up-front costs (because of absence of any significant IT expenses)
  • The solution is based on the periodic subscription fee for software hosted on remote third party servers which are accessed online. (Pay subscription pay-as-you-go)
  • Shift the risk to the software vendor
  • Periodic updates (which are usually built into the subscription fee)
  • Software will be always up to date; don’t worry about the obsolescence
  • No software vendor threatening to end support
  • The Cloud-based ERP Solution provider is responsible for all of the IT support for cloud-based; the subscription fees will continue to be your primary expense
  • Control over your regular fixed cost

Cons of on-premise solutions

The recurring costs for professional hardware team

  • Network maintenance service
  • Continuous monitoring
  • Backup of in-house systems, updates and upgrades of infrastructure software (firewalls, anti-virus and malware protection)
  • Disaster recovery backup systems

Another thing to consider in this competitive market is that once your company has invested in significant code modifications for your on-premise ERP solution, the costs of upgrading to a newer version might be too high and also you may be stuck with the current version, which may no longer be supported by the vendor.

To mention other; there will be costs associated with downtime if something go asymmetry with your on-premise solution and you need to account for IT costs and probably the loss of business? It is always nice to know that there are highly trained professionals in a remote data center who works onsite 24/7 to ensure that your ERP cloud solution performs at peak efficiency and that your business will experience the absolute minimum of costly downtime.

In conclusion, you have to be sure to perform your due diligence in comparing TCO projections of both the approaches for at least the next five years of your ERP software implementation. The odds will not be very different to your research which can clearly demonstrate you how the overall cost advantages of a cloud-based implementation will benefit you in a long / short term.