Is your company evaluating whether to transition your ERP solution to the cloud or stay on-premises? To determine whether this transition is right for your company, you’ll need to understand the economic impacts of your current ERP solution and what your ERP might look like in the cloud.
Total Cost of Ownership (TCO) is a financial estimate to determine your economic value of investment against your total direct and indirect costs over your system lifecycle. The TCO estimate considers the six cost areas every company needs to understand when visualizing their company’s transition to the cloud.
Take a look at the graphic above – on the surface, cloud and on-premises solutions look identical! Let’s dive into a comparative cost analysis between the cloud and on-premises to understand the right solution for your organization. In this new blog series, we’ll explore each of the six cost areas. Today, we’re discussing software cost.
#1 Software Cost
This is the cost of your software application including the cost of all supporting products and services, such as ISV solutions, add-on applications, customizations and other integrations to ensure your ERP system is fully inter-operable with existing systems. One big difference from a licensing standpoint is that the cloud is a SaaS that you pay-as-you-go monthly or annually and expense the cost, which is classified as Operating Expense (OpEx). In the case of on-premises applications, you pay a high upfront cost classified as a Capital Expense (CapEx) which is usually depreciated or amortized over several years.
Tune in to our next blog post in this series as we discuss the second cost area to consider when transitioning ERP to the cloud – Implementations, Customizations, and Training.
If you need help transitioning your ERP software to the cloud, contact our team of expert consultants today!