Case Study:In House ERP Vs. Cloud Based ERP

When selecting a new enterprise resource planning (ERP) system, one of the most critical factors in your decision will be whether you choose to deploy it on-premise or in the cloud.

Cloud-based ERP systems are more common than ever before. Today, nearly every ERP vendor offers some form of cloud deployment option, and some have ditched their on-premise offerings altogether.

But there are still several reasons why a small or midsize business might choose a traditional on-premise system, which, until recently, was the norm in the ERP space. Which one is right for your organization? Well, only you can make that decision, but this rundown on the pros and cons of each should make it easier.

By knowing the advantages and disadvantages of each type of ERP system, business owners can determine the best fit for their SMB, allowing for a more informed allocation of resources and a more efficient ERP workflow.
Deployment and Pricing of Cloud ERP vs. On-Premise ERP

The biggest difference between these two systems is how they are deployed.

Cloud-based software is hosted on the vendor’s servers and accessed through a web browser.

On-premise software is installed locally, on a company’s own computers and servers.

Some vendors also offer “hybrid” deployments, in which cloud software is hosted on an organization’s private servers (more on this later).

Another key difference between cloud and on-premise solutions is how they are priced:

While there are many exceptions to this rule, in general, cloud software is priced under a monthly or annual subscription, with additional recurring fees for support, training and updates.

On-premise software is generally priced under a one-time perpetual license fee (usually based on the size of the organization or the number of concurrent users). There are recurring fees for support, training and updates.

Thus, on-premise systems are generally considered a capital expenditure (one large investment upfront). Cloud-based systems, on the other hand, are typically considered an operating expenditure (an additional overhead cost the organization will continue to pay).

Cloud software’s low cost of entry—especially compared to hefty upfront perpetual license fees—has contributed to its widespread adoption. According to one recent study, 93 percent of enterprises currently use cloud-based software or system architecture, and use of hybrid cloud systems increased from 19 percent to 57 percent in one year.
Over time, however, system costs tend to converge. Below is a chart showing total costs of ownership (TCO) over 10 years for both cloud-based and on-premise software.
Advantages and Disadvantages of Cloud ERPs

Security is often the top concern for prospective ERP buyers. Small wonder, considering the critical information stored in an ERP system—including company financials, corporate trade secrets, employee information, client lists and more.

But while buyers once were wary about the security of cloud-based software, many are becoming less skeptical today (evidenced by the adoption rates above).

Reputable cloud vendors have strict standards in place to keep data safe. To further ease concerns, prospective buyers can seek a third-party security audit of a vendor they’re considering. This can be especially useful if the vendor is less well-known.

Most cloud systems enable easy mobile accessibility, and many even offer native mobile apps. But this ease of access also comes with greater security considerations, especially if employees are accessing company files on their personal mobile devices.

Similarly, more accessibility means less customization—and cloud ERPs offer less flexibility for businesses that seek to tailor their system to their hearts’ content. But organizations with less specialized needs, such as general consulting firms, can get by just fine with a cloud system’s out-of-the-box capabilities.

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