3. Recommendation
Table 3.4: Cloud vs On-Premise ERP Cost Comparison
|
Cloud |
On-Premise |
|||||||
|
Company Size |
Small |
Medium |
Large |
Small |
Medium |
Large |
|
|
|
User Base |
100 |
500 |
2500 |
100 |
500 |
2500 |
|
|
|
Software Licensing |
$3,000 |
$3,000 |
$3,000 |
$5,500 |
$2,500 |
$1,500 |
|
|
|
Customization |
$500 |
$300 |
$100 |
$2,000 |
$1,000 |
$500 |
|
|
|
Implementation |
$2,000 |
$1,500 |
$500 |
$3,000 |
$2,000 |
$500 |
|
|
|
Infrastructure |
$1,500 |
$1,250 |
$1,000 |
$2,000 |
$1,000 |
$500 |
|
|
|
IT Personnel |
$1,500 |
$750 |
$250 |
$2,000 |
$1,000 |
$750 |
|
|
|
Maintenance |
$1,000 |
$750 |
$500 |
$2,000 |
$1,000 |
$750 |
|
|
|
Training |
$3,000 |
$1,500 |
$750 |
$2,000 |
$1,000 |
$500 |
|
|
|
Cost Savings* |
($250) |
($150) |
($50) |
($750) |
($500) |
($250) |
|
|
|
$1,225,000 |
$4,450,000 |
$15,125,000 |
$1,775,000 |
$4,500,000 |
$11,875,000 |
|
||
*Savings through automation and customization
As the implementation partner for various clients, the goal for Infosys consultants is to recommend and design a path of implementation for a product which produces most value for the client. When considering the value chain model any organization, finance plays a critical strategic role in helping CEO's with setting objectives, making decisions, and planning for the future (figure 2.1). Oracle ERP Financial installations allow corporations to improve efficiency, increase revenues, and control costs. Cloud offers lower implementation costs for small businesses but the licensing costs can add up. The break-even analysis demonstrates costs to be equal for user base between 500 and 2500 users depending on current infrastructure investments, customizations, and existing resources.
Table 3.1: Cloud ERP Internal Evaluation
Table 3.2: On-premise ERP Internal Evaluation
Small Businesses
Prior to cloud platforms, ERP applications were out of reach for smaller businesses due to up-front infrastructure investments and high implementation costs. Cloud is an emerging field which enables multiple smaller businesses to share the ERP application infrastructure hosted by the vendor resulting in lower costs and low turnover. As Table 3.1 demonstrates, a cloud implementation provides a greater margin compared to on-premise when applied to a small user base. As the user count grows, the cost of a cloud implementation grows in a linear fashion. Smaller companies can take advantage of cloud implementations by avoiding heavy investments in infrastructure, IT personnel, and maintenance. On the downside, cloud offerings are shared between multiple clients and clients lose control of customizations, maintenance schedules, and security. This results in quarterly user training and testing since the application gets upgraded more frequently but the margin is still greater than an on-premise implementation.
Medium Businesses
The strategy on which implementation to pursue for medium businesses depends on the firm's strategy. Graph 3.5 shows the costs of 500 users in a medium sized corporation are almost identical for cloud and on-premise ERP implementations. Corporations which do not rely heavily on customized businesses processes will also find value in using cloud applications. Depending on the growth of the business, a hybrid ERP implementation might fit better into the client's ERP strategy since moving from cloud to on-premise or vice versa will not require the client to reimplement the financial suite of Oracle ERP applications. A cloud ERP would be beneficial if the client does not foresee growth and firm's financial processes are not heavily customized. An on-premise would be required for firms which deal primarily with government contracts or confidential financial information which requires heavy industry data security and data stored in a secured firewall to comply with regulatory guidelines.
Large Businesses
When it comes to large enterprises with an enormous user base of multiple thousands of users, the decision is clear: due to the economies of scale and costs of licensing and implementing Oracle ERP's, the on-premise option will always result in a more economical and effective implementation (Graph 3.5). Global enterprises generally have financial operations in dozen or more countries. Since these implementations can take number of years to complete, the enterprise needs to have strict control over security, maintenance, and is customization ability due to the highly complex financial processes. By doing so, the ERP application can be automated and shaped to fit the business needs, providing greater efficiency and margin, security, and control over the application. A cloud implementation for large enterprises will result in a diminishing return due to the lack of customization and value-add to the financial processes. Developments in these complex environments require top talent; the challenge for large businesses will be with retaining talent as employees seek greater challenges working with newer technologies while the corporation is stuck on a decades-old technology.
Graph 3.5: Cost of Implementing Oracle ERP
Continue to Part 4: Oracle ERP Cloud vs On-Prem: Part 4 - Implementation and Conclusion