Cloud ERP Total Cost Of Ownership (TCO): 5 Factors Affect
Software License, Subscription and Maintenance Costs
One of the most important and straightforward components of ERP TCO is software costs; however, exact figures rely on the customer’s choice of hosting method for their ERP software. A single perpetual licensing charge for on-premises ERP permits users to host the program on their own servers. In a hosted ERP solution, the perpetual license applies to internet-accessible servers hosted by a third party (not the customer or the ERP vendor).
Customers must pay monthly or annual subscription fees (which are distinct from license fees or hosting fees) in order to use cloud ERP systems, which are hosted by the cloud ERP provider. Both license and cloud subscription costs often vary with the system’s user base. As a result, while determining ERP TCO and developing the business case, be careful to take future needs into account in addition to the cost of current requirements for the number of users.
The expense of addressing issues with hosted and on-premises ERP systems is covered by software maintenance. However, since suppliers maintain their software on their servers and include maintenance as part of the subscription price, cloud-based ERP does not require software maintenance.
Legacy System Decommissioning Costs
A TCO estimate should take into account the cost of replacing several legacy systems or an existing ERP solution when implementing a new ERP system. Decommissioning, however, is more complex than simply turning a switch. Data from legacy systems must first be transferred to the new ERP system.
When internal resources are not available for this process, businesses frequently utilize consultants. Additionally, as a backup measure during the early stages of adoption, businesses may decide to run legacy systems concurrently with new ERP systems; some components of legacy systems may continue to function for longer periods of time.
After your new ERP system is implemented, be careful to take into account any costs related to maintaining and ultimately sunsetting those systems.
Hardware and Infrastructure Costs, Including Hosting Fees
On-premises and hosted ERP systems have significant hardware and infrastructure costs, but pricing strategies vary. Although some businesses may be able to repurpose existing technology, on-premises ERP systems sometimes require upfront hardware and infrastructure costs.
Hardware and infrastructure expenditures are also included with hosted ERP systems, although the third-party hosting provider will probably charge fees on a monthly or annual subscription basis. However, as cloud ERP companies host and maintain the system on their own infrastructure and cover the cost of that service in their subscription fees, hardware and infrastructure costs are at their lowest for cloud-based ERP.
Any ERP system may need extra hardware purchases, regardless of hosting strategy, such as new networking equipment for quicker connectivity or upgrades to end-user devices to access the ERP system. ERP TCO may also take into account the hardware required to support backup and disaster recovery solutions.
Consultancy, Implementation, Customization and Integration Fees
Since hardware is not required for cloud ERP systems, they are typically easier to set up and take less time. However, no ERP implementation is as easy as turning a switch. Because of this, a lot of businesses employ consultants for a variety of ERP deployment and operation phases, such as vendor assessment, business process assessment, project management, data migration, training, and testing.
Additionally, consultants frequently assist with the customization of ERP systems to match client requirements, such as company-specific regulations and workflows or benchmarks for financial reporting. Integrations with other core systems are another typical customization that helps an ERP system’s primary database further aggregate critical data. ERP TCO estimations should take into account the costs connected to utilizing consultants or internal resources to perform these projects.
Training Costs
After the new system is implemented, ERP training continues beyond educating end users. Training should begin during the deployment phase and continue on a regular basis when new features are added to the system. This is an essential step in making sure users of an ERP system support and accept the new technology.
There are numerous ways to manage training. ERP companies frequently charge for training services; consultants are another choice. Another option is a hybrid approach, in which key internal team members are trained by consultants and then given the duty of teaching the rest of the business. In any case, regular training budgets are a crucial component of ERP TCO.
Conclusion
In conclusion, understanding the factors that can affect the Cloud ERP total cost of ownership (TCO) is critical to making a well-informed decision about adopting a cloud-based ERP system. By considering factors such as implementation, customization, and ongoing support costs, businesses can develop a comprehensive understanding of the TCO and make a more accurate assessment of the benefits and drawbacks of cloud ERP. Ultimately, by carefully evaluating the Cloud ERP Total Cost Of Ownership (TCO), businesses can ensure they are making a sound investment in the long-term success of their organization.