77% of organizations have transitioned at least a portion of their enterprise to the cloud. The benefits of moving an ERP from an on-premises solution to a lower maintenance cloud-based platform are numerous- hence why organizations are budgeting an average of 30% spend on cloud solutions per year.
That being said, once the decision has been made to explore how cloud solutions can improve your organization’s processes, one of the first factors to consider is budget. In considering transitioning an ERP, it’s important to understand the economic impact of the current system as compared to what the spend may look like on the cloud.
Total Cost of Ownership (TCO) is an estimate that measures the economic value of investment against the direct and indirect costs across the lifetime of the investment. To determine the TCO, 5 key cost areas need to be examined. Let’s take a look:
When one considers the cost of software, it’s tempting to simply look at the initial cost of purchase. However, many other supporting costs can be associated with software over the lifetime of a solution- even those that operate on-premises. To truly gain an understanding of the TCO, consider:
- Supporting products and services
- ISV solutions
- Add-on applications
Cloud-based solutions are SaaS that are paid monthly or annually and qualify as an Operating Expense (OpEx). On-premises solutions have a high up-front cost classified as a Capital Expense (CapEx) that is typically depreciated or amortized over the lifecycle of the software.
2) Implementation, Customizations, and Training
These factors will vary depending on the specific details of your solution. Transitioning an ERP will normally require the assistance of a Microsoft Certified Partner, both to conduct the implementation and provide training on the system afterwards. Here is where you should account for the cost of their services. Some other items to consider within this umbrella are:
- Software installation
- Configuring parameters
- Developing customizations
- Migrating data
- Change management
- Process auditing
For an on-premises solution, you will need to evaluate the hardware costs associated with the infrastructure. These costs include:
- Networking hardware
- Operating systems
- Data storage
- Redundancy hardware
By contrast, cloud-based solutions allow the user to flexibly manage hardware costs regardless of the utilization percentage.
4) IT Personnel
In an on-premises solution, the cost of IT personnel will need to include labour costs plus the maintenance of real estate, servers, databases, and other associated tools. Cloud-based solutions decrease these costs significantly given that the onus is redirected from your organization to the service provider.
5) Maintenance and Upgrades
Cloud-based solutions deploy updates, fixes, and patches through a continuous upgrade cycle managed by the provider. To calculate the maintenance costs associated with an on-premises solution, you will need to consider not only the cost of each fix and update, but also the IT labour cost to test updates as they are released.
Cost Analysis from the Professionals
CrucialLogics is a Microsoft Gold Partner, and as such we have extensive experience conducting thorough cost analysis of ERP transitions on behalf of our clients. We understand that the decision to move to the cloud is one that needs to be carefully considered. If your organization is wondering whether you could benefit from transitioning your ERP to the cloud, reach out to our team today to learn more about how our expertise can facilitate a seamless transition.
 Forbes, “State of Enterprise Cloud Computing 2018”, https://www.forbes.com/sites/louiscolumbus/2018/08/30/state-of-enterprise-cloud-computing-2018/ - 481a3545265e