Hosted ERP VS cloud ERP, which is better? The question that most IT teams at mid-sized to larger enterprises have on the table as they consider an upgrade or change of their systems. We’ve observed discussions around the decision making process of hosted versus cloud when it comes to an enterprise’s ERP solution and while there are strong merits to both options depending on what factors are most important to the organization, often, a number of factors especially with hosting an ERP aren’t considered or left out.
Early rounds of evaluating the hosted versus cloud options tend to focus on the pricing and cost models. The software licensing costs of the hosted software is compared against the per user monthly / annual charges of the cloud based version and with some quick comparisons, a team tends towards one option. However, the practical experience of hosting an ERP brings to light a lot of hidden factors as well as costs that don’t often get enough consideration while arriving at the end figures. Very often, it’s not just the financial costs but costs in terms of time, responsibilities, risk mitigation and work that goes into keeping a hosted ERP up and running without hiccups.
We were recently talking to the IT team of a fairly sizable conglomerate business which some years ago, opted to have a common ERP system hosted on one of their premises as the backbone for all the business verticals and office around the country. Here is some of what they shared with us which offers an insight into how deep the costs of hosted ERP can really run all considered:-
The licensing costs for the actual ERP software and direct expense of purchasing software aside…
- They invested a considerable amount in developing a dedicated data centre putting in raised floor tiles, ventilation, cooling systems, air conditioning to maintain low temperatures, powder coated rack units to house the servers, cabling and equipment.
- The space occupied by all this equipment and the data centre takes up a significant part of their office real estate and about 2000 sqft of prime office space has been occupied by the hardware hosting the ERP.
- The servers, managed switches, firewall equipment, network storage devices, backup devices and hardware costs was a large one time investment during the implementation phase.
- In the last few years, there was a realization that this was not a one time investment at all. Since the implementation, the company has had to replace a lot of the data storage network devices with higher capacity and higher speed storage that is available today since the speed of those devices was a bottleneck in the system. A lot of the servers which were in use 3-4 years ago have been replaced at a high cost and a number of hardware upgrades had taken place over time.
- A high speed dedicated leased line was required around the clock with very high service levels and uptime. However, 4 additional back up lines were also required for internet bandwidth in case a particular service providers line went down so the ERP doesn’t crash. The monthly cost of having the bandwidth required as well as the redundancy ISP lines adds to the operating costs.
- Very strong power infrastructure was required to ensure the infrastructure hosting the ERP doesn’t fail and UPS backup for all the servers and equipment was essential. In time it was realized that even the UPS rooms and the back up generators required backup UPS’ and back up generators to ensure at least two levels of redundancy taking up a lot more space and of course, more one time as well as on going costs.
- The data centre runs 24×7 unlike most the offices that rely on them so a team of 4 dedicated staff was required to man the ERP and the hardware around the clock ensuring support as well as uptime and tackling issues. This also meant since the premises had to be open all day and all night, the contracted security company had to ensure there was security on the premises around the clock too.
- There are regular contractors to come in an service the generators, top up the fuel, service the UPS backup systems, batteries, service the cooling systems and more.
Essentially, comparing the licencing cost of ERP software and the monthly billing costs of cloud ERP solutions isn’t always a rational apples to apples comparison. While in many cases a hosted ERP is still a justified decision based on a specific organizations requirements, it helps to take a deeper look into everything involved with hosting an ERP while putting it up against the costs of a cloud ERP to get a more accurate assessment done.