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Recently I have been asked by a number of small / medium sized businesses about the cost implications of a Cloud or Hosted ERP solution over a traditional On Premise system. The purpose of this blog is simply to highlight a few key points that business owners need to consider before making any decision about which way to go. It is important to define exactly WHY you are looking at a Hosted solution over On Premise then consider these key points:

Internet Connection: Most SME’s use ADSL for their internet connection; this is fine for non business critical use but you do not want to run your entire business on it. There are no Service Level Agreements in place with an ADSL line and if an external contractor accidentally cuts the cable your business could be without its operating system for hours / days / weeks, unable to process orders or function at all. Instead, get a quote for an Ethernet or Leased Line with guarantees in place for “Up Time”. I have heard stories of businesses ADSL lines being down for up to 10 days before!

Where is your data hosted?: If you are getting your ERP Partner to host your system, visit their Data Centre, ask questions about how they back up data and what plans they have in place for Disaster Recovery / Business Continuity. Get some references from their existing customers about their levels of response and how much down time they have experienced. If you are looking at a Cloud Provider who lease data centres all over the world, find out where your data will actually be hosted, will you have your own dedicated server or will your data be spread around the globe on a number of different servers?

Get a guarantee or price fix: Let’s say you choose a Hosted ERP solution; you agree on the monthly license price, migrate your data and start using the system. Everything is great but what happens if they then increase the price by 100% in year 2? It’s improbable but not impossible. I have heard stories like this and if you don’t pay, they simply switch off your system until you do pay.

Check out the Profit / Loss of the Hosted ERP Provider: This is important, if you choose a supplier who are not profitable or enter financial difficulties, what will happen to your data / ERP solution if they cease trading? SAP offer Hosted Business One and also the ByDesign product. SAP’s turnover for 2011 was $14Bn and they are in their 40th year of trading so they are a pretty safe bet!

Consider the resilience of communication between your site and the internet: Loss of communication can disable any business trading so it’s often recommended that you install Firewalls with a failover for added security. Ask you partner for a quote and evaluate the risk of not doing this.

As a conclusion, we often find most companies who are looking at a Hosted / Cloud solution are thinking of reducing the TCO. Evaluate how much a new server is going to cost and how long this will last. Look at the ongoing maintenance costs of an on site solution and compare this with the Hosted system including Leased Line / Security. Finally, if you are simply looking to reduce the Capital Expenditure then it may be worth asking your partner about a Finance Deal on the On Premise solution to spread the cost

Hosted and Cloud is a great way to go but it is not right for everyone.

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  1. JUAN JESUS AGUI

    I went to an event about SAP BO On Demand here in Lima, it costs $120.00 per user plus implementation fee. I personally like your last sentence “Hosted and Cloud is a great way to go but it is not right for everyone“. There are too many things to consider and security and reliability are always critical points for Managers in order to decide to invest in technology…

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    1. Tim Guest Post author

      Security and reliability are the biggest concerns for SME’s looking at Cloud. Although the market is expanding I think it will stay that way until there are a few more “success stories”.

      Thanks for commenting

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