One of the first considerations of ERP purchase and upgrade is whether to choose cloud or on-premise hosting environment. The primary difference in the systems is this: cloud-based software is hosted on a third party’s servers and accessed through a Web browser; on-premise software is installed on a company’s own servers. The secondary difference then becomes cost structure. Cloud-based software is priced via subscription (and seems to offer savings up front), while on-premise software is a one-time license fee. The longer you are utilizing cloud software, the more expensive it is, compared to on-premise.
Both types offer advantages. In this article, we will be exploring the distinct, sometimes overlooked, benefits of on-premise hosting.
Security, Customization & Control of Data
Hosting ERP on-premise means controlling not just the physical servers, but the security as well. You control your own employees secure access and don’t have a second layer of employees (who you do not know) to consider as potential security risks. You also control the backup environment, which can be critical in a disaster situation. Cloud solutions do not always provide the flexibility needed when you use a custom solution tailored to your business.
Cloud ERP is hosted, managed and backed up by a vendor in a subscription cost environment. At that point, ERP data is locked into a system where you have little control and the vendor has a lot. If the vendor goes out of business, this can be problematic. And, of course, switching vendors becomes a real hassle in a cloud based environment where you are likely to receive a flat file and told, “Good Luck.”
Long Term Cost Savings
Initially the expense of a subscription may appear less costly. However an on premise hosted environment will most likely be less expense after several years. One should determine the ROI over a 5 or more year period. Overall cost depends on the subscription and support your company would need from a cloud vendor. When you’re locked into a subscription service with less control of data and vendor options, maintenance costs can escalate without much room for negotiation.
It’s a little bit like buying a condo vs. a house. The condo arrangement seems low-hassle and less expensive, but if Home Owner Association fees climb and the community environment becomes less ideal, then suddenly you’re in a pickle.
Choosing an on-premise or cloud-based ERP solution is a complicated decision, but one you can make with certainty if well informed of all the options. In the end, it’s about understanding your company’s unique set of needs, working with a trusted vendor, and analyzing the pros and cons objectively.
If you have questions about on-premise and cloud-based ERP, contact Parallel Solutions at (440) 498-9920 to learn about the risks and rewards of various options.
Mary Jo O'Neill