If you’re replacing or upgrading your enterprise resource planning (ERP) system, you may be considering whether you will host it On-Premise or in the Cloud.
Until recently On-Premise ERP was the standard, but Cloud-based ERP systems are becoming increasingly popular. Which one is right for your organisation?
In this article, we’ll look at three major decision factors that drive the choices for ERP hosting.
Your hosting choices come down to these primary options:
- On-Premises, with infrastructure and applications located in your own data centre
- Hosted in the “private” Cloud where your applications and data are siloed from other companies, using service providers such as AWS, MS Azure, Cipherwave etc.
- Software as a Service (SaaS) in the “public” Cloud where you share multi-tenanted applications with other companies, while your data is kept separate
The three questions that people ask when choosing an ERP hosting platform
Which hosting option is the most cost-effective?
Because of its perceived low cost of entry and Total Cost of Ownership, Cloud software has become a popular choice over On-Premises infrastructure (with its hefty upfront costs). But the cost of infrastructure is only one part of a much bigger picture. The main drivers of cost in ERP hosting are hardware, software and skills.
Hardware is expensive and prone to obsolescence
On-Premises hosting requires the upfront purchase of infrastructure such as servers and storage. You may also need other hardware for system performance and security.
Cloud hosting and SaaS, on the other hand, don’t require upfront equipment purchases. And you can increase capacity when required, so there’s no need to “over-engineer” your hardware.
ERP software now provides flexible payment models
On-Premises and Hosted ERP software licensing usually involve an initial cost, with additional annual fees for ongoing software support and updates. Some ERP vendors also offer a subscription-based payment model for their systems that is inclusive of annual updates and support.
For SaaS ERP, the software cost is as part of the total service.
IT salaries drive up the costs of an ERP system
A typical ERP system demands the skills of many people, including hardware and software support, training, development and security. With On-Premises ERP, you need to factor those ongoing salary costs into your Total Cost of Ownership model. Hosted and SaaS ERP provides the services of those skilled people as part of your monthly or annual fee.
How do you ensure optimal performance, functionality, and support?
Performance improves usability and productivity
The new Cloud software architectures are designed for optimal network and server performance. Additionally, if there is a surge in demand for your system, Cloud ERP can withstand peak loads and dynamically alter server capacity to cope. Similarly, On-Premises infrastructure can be built to run very fast – but that can be expensive.
Functionality is the true measure of your ERP system’s value
ERP systems require customisation to fit your business needs. Both On-Premises and Hosted ERP systems can be customised as needed, but SaaS systems are often limited in customisation capability.
Who will be responsible for Support and Maintenance?
Support for On-Premises systems is your responsibility and will require the involvement of your IT department or vendor. With Cloud-based ERP, the cloud provider will handle most issues remotely.
With On-Premises ERP or Hosted ERP, your team and your ERP vendor will provide support for ERP-related maintenance and software updates.
SaaS ERP users receive regular and routine updates as part of the continuous improvement model associated with SaaS systems. This means you can often avoid the dreaded experience of large version upgrades that are synonymous with On-Premise solutions. On the other hand, you don’t get to choose when and how it’s performed.
What are the security and risk considerations?
On-Premise systems can only be used by those who have access to your computers and hardware, so they are comparatively safe and (almost) risk-free. There is, of course, still the potential risk of computer hacking and viruses, but one could argue that this is a hazard of the modern age of technology we live in.
As for Hosted and SaaS ERP, reputable vendors will have very strict standards in place to keep your data safe, including backup data recovery procedures and the adherence to PCI DSS standards. Furthermore, they will also have full-time employees dedicated to mitigating risks and keeping your software up to date with the latest security measures.
There are many options for hosting ERP systems, and each has its own strengths.
The reduced infrastructure, hardware, software and licensing costs associated with Cloud-based ERP often result in a lower Total Cost of Ownership compared to On-Premise solutions. The Cloud billing models also eliminate the need for large capital outlays. It’s been demonstrated that Cloud ERP can be as much as 46% less expensive than a comparable On-Premise solution.
On the other hand, On-Premises hosting has long provided peace of mind for security and access control. You can also reduce your support costs with the help of managed services providers (MSPs) who will take over support and management of your systems at competitive rates.
At this time the preferred option for most companies appears to be Hosted (private) Cloud, as this offers the best combination of benefits.