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Compare Cost of Cloud for ERP vs. In-house

Some claim that the Cloud for ERP software is the cheapest option. Many organizations have embraced the Cloud under this premise, but many critics say the Cloud is more expensive, especially long-term, and an in-house system is the most economical. Both groups are right in that sometimes the Cloud is the best option and other times it isn’t. When evaluating the Cloud for ERP, all the underlying circumstances must be considered to make the correct choice.

Cloud computing makes more sense than purchasing in-house software licenses for start-up organizations, seasonal businesses, and organizations with minimal IT investment through choice or lack of capital. Upgrades in Cloud computing are also cheaper than traditional upgrades.

Start-up companies can utilize Cloud computing to minimize upfront hardware and software investment by paying for software licenses on a per user (usually monthly) basis. Not having to purchase the software and hardware upfront means that a small organization can gain access to sophisticated software without having their own computer server.

For some organizations, the monthly payments that never go away can seem very expensive after a few years. It’s important to know that on average, monthly payments for Cloud services over two to three years will be the same amount as if the system were purchased upfront for in-house installation. However, as already mentioned, start-up companies stand to gain the most from the Cloud model as the initial investment into computer hardware and software can be daunting when first starting out.

Seasonal organizations can grow and scale back in size and the Cloud model allows user licenses to be added or dropped as needed. The overall cost of the monthly software licenses is reduced as they only pay for what they need at that time and avoiding having to purchase licenses for the maximum number of possible users.

If an organization does not want to build a professional IT support group in-house, the Cloud model makes a lot of sense. The IT staff and resources at the Cloud service centers will often far exceed the quality of firewall protection, software patching, and backup services provided by in-house resources. In addition, the Cloud service offers more integration to other business software such as Microsoft Office or SharePoint.

Future upgrades are an important consideration for organizations considering the Cloud. Upgrades to ERP databases can be very expensive, whereas upgrades on the Cloud can be cheaper because the software vendor completes the work in the background with organizational data being easy transitioned. It is important to realize that processing upgrades on the Cloud may severely restrict an organization’s ability to configure or customize the system to meet specific requirements.

In some circumstances, Cloud computing is more expensive and not advisable. If an organization is committed to having a highly professional in-house IT group and abundant server resources and this situation is likely to continue, the cost advantages of Cloud computing seem less clear.

There can also be technology or security reasons why your ERP database should be in-house and Cloud computing is not a viable option. Many organizations are still uncomfortable about having physical access to their data outside their control. In some cases, organizations operate in an environment without reliable Internet access, which eliminates the ability to work with remote databases. We have also worked with organizations who by law cannot have their data reside outside of Canada and some data service providers include locations in the United States.

An organization can compromise when deciding between the Cloud and in-house by choosing both when needed. We have seen organizations in a rapid start-up mode sign up for Cloud licenses so they can quickly scale up without needing to make additional capital or people investments and then purchase in-house software licenses when stabilized or the investment funds become available.

Overall, there are many factors in play and they are usually unique to each organization so be sure to evaluate your short and long terms goals when choosing between Cloud services or in-house.

By Malcolm Roach, CEO of Open Door Technology, Microsoft Dynamics NAV Partner