ON PREMISES OR IN THE CLOUDS?

On-Premises or in the Clouds – the two main choices when it comes to ERP. Yet, what exactly is the difference between cloud based ERP programs and on premises ERP program?The easiest way to explain is that an on premise system has all the programs, software, drivers installed directly in the office, onto each computer or the servers. Cloud ERP is basically a Software as a Service or SaaS system. The ERP vendors host all the necessary drives and hardware and the business need not buy expensive hardware.

On-premise systems are self-managed by the business whereas cloud systems are managed by third parties. There are many hybrid options that combine the benefits of both cloud and on premise programs.

Infrastructural or IT requirements are the greatest for on premise systems. The enterprise has to purchase all the necessary hardware servers and IT equipment beforehand for the ERP deployment. Cloud hosted or hybrid systems have a moderate amount of investment required for the ERP system. Completely cloud based programs have little if any additional IT requirements. All the necessary resources and infrastructure are with the ERP provider.

There are concerns about the total costs of ERP ownership. On premise programs are generally not financially feasible for small and medium enterprises as they require a large upfront investments. Cloud program do not entail large up front expenses and generally have monthly or yearly payment models. Over a large period of time, cloud ERP may be the more costly system. A hybrid ERP system requires a moderate investment in total. Businesses would need to decide how long they would use a particular system, their budget and assess their financial capabilities before making a decision.

The software licenses are owned by the enterprise in the case of on premise ERP. For the cloud based system, the software license are rented by the company. Hybrid system also give the business ownership over the licenses. Because on premise and hybrid systems give the entire ownership of the license to the company, the usage license does not expires. In the case of cloud ERP, the license to use the system expires upon non-payment fees or when the company does not renew their contract. As per accounting principles an on premise and hybrid system would be regarded as a capital asset or capital lease while cloud ERP would be regarded as an operating lease or expense.

Cloud systems have a distinct advantage over the other two in terms of updating ERP software. Cloud systems are updated automatically by the vendor and it is ensured that the business is always running on the latest version. For hybrid and on premise ERP, the system is updated very infrequently – generally every 18 to 24 months and business often run on outdated system to avoid the additional expenses and possible data loss that may occur as a result of the updates.

Both on premises and hybrid ERP give the business the ability to completely customize their programs. Generally the greater the customization required, the greater the cost of the ERP. Businesses have to assess their requirements and decide how customized their program needs to be. Cloud ERP may be limited in their scope of customization offered depending on the vendor. Companies should find an EPR vendor that is compatible and one that provides them with the specifications they have in mind. The majority of small and medium enterprises do not require much customizations and the cloud systems would meet their business requirements.

Hybrid and on premise ERP systems have user based security. Access to data is determined by the company and its personnel. Each user or employee will have access to data that is relevant to their department and work. For cloud based systems, data is generally accessible corporate wide, but can be restricted. A function of cloud ERP is the greater accessibility it offers to users compared to strictly on premise programs. Users can access data from any part of the world through the internet (unless the company has restricted it). This allows them to be more efficient. Small and mid-sized companies where decision making is fairly integrated benefit from greater transparency and accessibility provided by cloud systems.

Large companies would typically opt for hybrid ERP and have greater restrictions on data accessibility to prevent unauthorized data manipulation.

Security of the servers is internally managed in the case of onsite ERP. For this the company must have a capable IT department or team to ensure no confidential data is vulnerable to hacks. The security and maintenance of the data is in the domain of the company. The additional expenses in employing capable IT personnel means that typically only larger companies or companies with highly classified or sensitive information would use onsite ERP. For hybrid and cloud ERP the maintenance and security of the servers is externally managed.

Cloud systems are the most logical option for small and mid-sized enterprises while on premise ERP is opted by larger companies. Businesses need to assess their requirements and capabilities to maintain the ERP before deciding which system to opt for.