With another Thursday comes another throwdown and today we size up the true Return on Investment (ROI) found involving the most common deployment options of ERP software: on-premise or cloud.
While cloud deployment is fairly common in the Customer Relationship Management (CRM) arena, cloud adoption in enterprise resource planning (ERP) is still gaining momentum with software like Acumatica leading the way.
With so many considerations beyond cost trade off, businesses looking for ERP software must consider both SaaS and traditional on-premise deployment options to really evaluate which best meets the unique needs.
For this edition of the Thursday Throwdown and best evaluation of the ROI of cloud and on-premise systems we will go beyond traditional cost evaluation and include business benefits, risk and flexibility.
One important factor most organizations fail to consider when opting for cloud deployment is the cost of customization. Carrying out due diligence on both deployments is important to find the right solution for a business.
ROUND ONE: Costs
Generally, on-premise solutions are costlier, especially when comparing subscription and license fees. The systems typically require support, upgrades and hardware maintenance fees on top of license fees.
On the other hand, most cloud deployments bundle these costs into the subscription fees. Moreover, cloud deployments avoid charges for end user support and administration, temporary business support and backfill, hardware and upgrades.
In the long term, on-premise systems are less costly than cloud options. However, their costs increase during upgrade cycles, which represent about 65% of the initial costs of implementation in year eight. Some of the cost drivers with cloud include fees for extra features such as premium help desk support, storage capacity beyond a preset limit, industry-specific functionality, mobile and offline access, among others.
ROUND TWO: Benefits
Cloud deployments bring immediate business benefits including shorter time to deploy, automatic updates, improved usability and independence from IT. The result is enhanced integration with other IT and operational systems, especially when real-time integration is important. On the other hand, on-premise ERP has more pronounced integration than cloud.
Given the lack of disruption in change management, usability, implementation, and upgrades, it is clear cloud deployments have an initial and significant advantage in achieving benefits.
ROUND THREE: Flexibility
Both cloud and on-premise deployments deliver ease of configuration, technical flexibility, and scalability. On-premise solutions deliver tailored configurations capacity, stronger tools sets for customizations and proven integration capabilities. On the other hand, cloud systems deliver technical agility by allowing migration to on-premise, greater deployment options in bandwidth-constrained environments and reduced IT staffing requirements.
When looked at objectively, the advantages of flexibility of one solution over the other are canceled out by each other. Hence, there are minute advantages in flexibility when comparing either deployment option.
ROUND FOUR: Risks
With the cloud, risk tends to center around impact risks like limited verticalization and customization capabilities as well as weaker integration and loss of control.
On the flip side, on-premise risks tend to be related to implementation risks such as support issues, training needs and deployment complexities.
As a result, the risks of on-premise solutions are slightly greater than those of cloud solutions.
So Which ERP is Right for You?
While the advantages of cloud ERP cannot be downplayed, the deployment is not ideal for all organizations. Generally, Cloud ERP is more suitable for smaller, less complex organizations that do not have very unique requirements. On the other hand, large organizations with more complex operations will find on-premise solutions more appropriate.
Companies weighing cloud and on-premise options should assess ROI in 10-year periods, factor in the number of centralized users, adjust assumptions based on historical data and also consider hybrid models.
Regardless of whether an organization opts for a cloud or on-premise solution, the advantages and disadvantages must be carefully reviewed. Klear Systems would be happy to assess the business needs of your company to determine which would be the best fit for your unique practices.
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