Cloud vs On Premise For ERP Software

Cloud costs vs on-premise costs: Cost of ownership

On Premise

On-premise ERP solutions usually have a much higher initial cost for businesses such as one-off licence fees, hardware, running costs, maintenance and hosting. Choosing an on-premise ERP solution could mean unpredictable spending, such as updates, modifications to the system and support throughout the contract. Implementing the system on-site at your business location and training users to utilise the system correctly can also come at an additional cost.

Installing software on-premise requires a range of equipment and hardware such as the servers to run the software and associated machines or workstations to manage them, as well as any additional cabling and components needed to complete the hardware install.

When opting for on-premise, it’s also important to remember the lifespan of hardware and its subsequent replacement cost. Plus, when replacement is needed, there would also an associated upgrade cost to move your system to the new hardware.

In addition to the hardware, all users will require a licence. Depending on the size of your organisation, the cost of licencing can differ greatly - a company with 1000 users will require significantly more investment for user licences than an SME with 100 users.

Cloud

Many businesses are moving to the cloud due to the range of benefits cloud-based software provides, and when compared, lower costs are often associated with its implementation.

The cost of cloud-based ERP software usually comes as a subscription, billed monthly or annually, and provides your business with licenses to use the software. On top of that, a support contract with your chosen ERP partner will also be required. Cloud installation would require your business to have an internet connection and hardware which enables your users to access the software application, for example, mobile devices, laptops, or computers, depending on their needs.

Cloud-based software allows for more flexibility and scalability, as you can easily add or remove users and applications/modules as required, and change your storage requirements. This enables you to scale efficiently and adapt to emerging opportunities without disrupting your workflows.

When comparing cloud costs vs on premise costs, it's clear that requiring minimal equipment and IT support requirements reduces both the running expenses and the initial investment to put technology in place. The cloud SaaS model not only helps you to predict your spending more accurately but also helps to keep initial costs down due to the implementation being cheaper. 

On-premises vs cloud: Security

On premise

Security is a major concern for any business. Whilst opting for on-premise usually poses less of a risk to business data, this data is still susceptible to hackers and viruses.

When software is installed on-premise, the company is responsible for the security of its system from both internal and external threats. Continuous monitoring of the system must be ensured to maintain security.

Managing security can vary in cost depending on whether it is managed internally or through a third-party provider. In-house management requires IT staff on hand whereas outsourcing to a third-party IT provider will often include a fixed monthly cost, which may be lower than that of a paid employee.

In addition, backup and recovery strategies would need to be implemented to ensure the business can return to its operations should a loss of data occur. This can take time and additional investment to set these procedures in place.

Cloud

The security of cloud systems is typically managed by the cloud provider and therefore usually factored into the monthly subscription fee – offering significant cost savings for businesses. You can rest easy knowing you’ve got the latest and most up-to-date security features protecting your business's data, with no surprise costs to cover security updates. 

Many are still opting for on-premise over the fear that sensitive and important data could be compromised in a cloud environment, but advancements in technology and cyber-security have made Cloud services more trustworthy and secure and continuous security advancements further close the gap.

With data and information being stored off-site, your partner will need to ensure strict security procedures and adhere to relevant data protection and security legislation.

On prem vs cloud: Control

This point doesn’t affect the cost – but when weighing up the cloud vs on premise pros and cons another factor to consider is control. 

Cloud

With cloud-based ERP solutions, the level of control you have is limited in comparison to that of on-premise ERP. The level of control within a cloud environment is more restricted due to most of the services being provided by your ERP partner.

On-premise

With on-premise ERP solutions, you have complete control over security, updates, and modifications.