ERP CLOUD vs ON-PREMISES

 ERP Cloud vs. On-Premises

When choosing an ERP (Enterprise Resource Planning) system like sap business one , one of the key decisions a small to midsize businesses (SMBs) need to make is whether to go for an on-premises OR a cloud deployment. The main differences between these two options are:

Cloud 

- The vendor hosts Cloud-based systems.- Cloud-based systems are usually charged periodically (monthly, quarterly or yearly) sap consultant

On Premises

- On-premises systems are installed on a company’s own servers- On-premises systems require an initial purchase of the licenses followed by a yearly maintenance fee (normally 10-20 per cent of the license cost).

So, what does that mean from the perspective of an SMB?

By going with the cloud-based option, a Small-Medium Business:

1. Does NOT need to make any investments in infrastructure (servers, firewall, etc.), which needs regular maintenance and upgrades and has a recommended shelf life of 3-4 years.

2. SMB’s IT personnel will have to handle all technical issues during daily usage, upgrades/updates, and general upkeep of the server and database, not to mention security and mobile accessibility.

3. There are no high up-front license purchases with no option to reduce the number of users in case of downsizing or miscalculations of required users.

Yes, but over time won’t the cloud-based option be more expensive than the on-premises one?

Let us compare the Total Cost of Ownership (TCO) of the two options based on five users over a period of six years. For example, we will take a 6,000THB per month per user for the cloud-based option and a 115,000THB per license for the on-premises one, which is pretty close to standard SAP-B1 pricing.

For the cloud-based option, we need to multiply the monthly fees per user by the number of users to reach a monthly cost of 30,000THB. Multiply that by twelve months. We end up with a yearly cost of 360,000THB.

For the on-premises option, our calculation, we can start with the license fees by multiplying the license purchase price by the number of users to reach a total purchase cost of 575,000THB. We’ll need to add the yearly maintenance fee at the standard rate of 15% from the purchase cost to come with an additional 86,250THB per year (starting from the first year as per SAP maintenance policy).

For the hardware, we can use as a benchmark an upfront cost of 250,000THB (two servers for redundancy, firewall, database software, etc.) and an average yearly upgrade cost of 50,000THB (starting from the second year).

Finally, we will add the IT personnel costs by allocating approximately 25% of IT personnel working time with a monthly salary of 60,000 to reach a monthly cost of 15,000THB. Multiply that by twelve months. We reach a yearly cost of 180,000THB.

We can now clearly see which option has a lower TCO over our designated time period.

Of course, other aspects need to be compared between the two options. However, when dealing with an SMB, the benefits of a cloud-based system by far outweigh the benefits of an on-premises one.