While selecting a new ERP system or migrating to another one on a different platform, it is important to weigh the pros and cons as well as the suitability for your unique business needs.

ERP systems are either hosted on-premise or on the cloud with each having its unique advantages and disadvantages. An on-premise ERP is installed at the company’s location and on its computers and servers. A cloud ERP on the other hand is hosted on the vendor/solution provider’s servers and is accessed through the internet via a web browser. Some forms of hybrid cloud deployments are also being done with the cloud software being installed on the client’s servers.

Cloud software is generally priced under a monthly or annual subscription model, with additional recurring charges for support, training and updates and is charged as an operating expenditure.

On-premise software is generally priced with a one-time perpetual license fee that is based on the size of the organization or the number of user logins with additional recurring fees for support, training and updates. This is charged as a capital expenditure.

The low entry cost of cloud-based software compared with heavy license fees of on-premise solutions has contributed to the adoption & use of cloud-based software or system architecture by a majority of users since 2014. They are especially the case for small and mid-sized business enterprises.

While the entry barriers to cloud based ERP’s are much lower than an on-premise one, the total cost of ownership tends to converge over a long term as per a study. This is after considering total costs over at least a ten year period but the total cost per year around the 10th year is comparable not the total costs over the ten year period- the cloud ERP is a clear winner if all the costs for each year are added up.

The key concerns expressed against cloud based systems are:

  • Similar cost of ownership as an on-premise system if a long term view is taken
  • Data security is better in an on-premise system as can be an issue due to access by BYOD accessibility
  • Customization options are fewer

Reputable cloud vendors now have strict standards and protocols in place to ensure security of data of the clients. A 3rd party security audit of the ERP vendor being considered is a good idea to evaluate the security competence of the solution.

However, the key advantages of a cloud ERP are:

  • Low hardware up-gradation and manpower cost
  • Affordable, manageable and predictable costs
  • No maintenance hassles
  • Low cost entry barriers
  • Fewer software up-gradation issues
  • Mobile accessibility is a hassle in on-premise ERP- not so on cloud ERP’s
  • Accessibility is much better with 24X7 access
  • Some cloud solutions offer native mobile apps

As time passes there will be fewer competent people/organizations left to work on the old legacy based on-premise systems because they are based on a much older technology and we all know that product life cycles are getting shorter by the day. The user would have to pay a premium to experts to fix the system in case of hiccups who also would be more difficult to find as technologists gravitate to more lucrative options.  As the solution becomes outdated so will the hardware and infrastructure too be outdated. The changeover cost to a new solution will be very high in terms of license, infrastructure, manpower costs etc and may be a matter of life and death in the cut throat competitive business world of today. The cost of ownership to the customer may level around 10 years after acquiring it but will start rising exponentially over a longer term due to the above mentioned reasons.

On premise systems with high customization possibilities will continue to be preferred in niche industries with unique processes that do not conform to the general norm. Most vendors have moved to hybrid or cloud hosted ERPs though on-premise ERP solutions continue to exist for those who need their unique functionalities and have deeper pockets.

We at Versa offer a one stop cloud ERP solution that integrates all business functions and is suited for just about any business vertical. It is backed by flexible payment options with no hidden costs and effective customer support.

To know more, please visit www.versaclouderp.com

Reference and further information:

http://www.softwareadvice.com/resources/cloud-erp-vs-on-premise/