[ Return to Tip Library ]

Pros & Cons of Hosted ERP (SaaS) Solutions

Learn how hosted ERP compares to traditional on-site installation.


Comparing ERP delivery models reveals that risks are inherent whether on-site or hosted, the trick is determining which risks you are willing to take.

Software-as-a-Service (SaaS) is defined as 'a software distribution model in which applications are hosted by a vendor or service provider and made available to customers over a network, typically the Internet'. This model often allows for a quicker implementation, but also has its challenges in providing the same flexibility as an on-premise ERP.

Our comparison of the two ERP delivery models will provide insight into selecting the best option for your business needs. If selecting SaaS, proceed with caution. The vast increase in SaaS providers has yielded vendors of various degrees of competency - ensure that your data will be secure and that your long-term goals are met.

The Pros

  • Initial cost for the ERP solution is usually less than the front-end costs that are common to on-premise ERP solutions.
  • Deployment and implementation can cost less and be faster.
  • Hardware and software needed to run the ERP solution can be reduced - both at the Hosted site as well as the customer’s facility.
  • Less internal IT staff is required with a Hosted solution. Software does not need to be installed on client machines.
  • Up-time can be increased with an SaaS solution if the customer invests additional money for infrastructure and support. (e.g. redundant server, back-up data lines, etc.)

The Cons

Long Term Viability

  • SaaS vendors tend to come and go. The market is relatively young and not as stable as purchasing and running your own internal systems. Find out how many paying customers are on contract to get a rough measure of a vendor's viability.
  • Risk of downtime (if you don’t make allowance for a redundant server, etc.)
  • Less flexibility for system modification or ad-hoc reporting
  • The investment in SaaS cannot be counted as an asset on your corporate balance sheet, and therefore cannot be depreciated.

Is the Long Term Price Cheaper?

  • The Hosted model is pay-as-you-go, usually with a definite time commitment of 3 - 5 years. Initial startup is less expensive, but by the second year you may be paying much more per month for the same services. SaaS is similar to a lease vs. buy tradeoff.
  • The costs for monthly support, modifications and access to the ERP application can fall victim to price increases in future years. This translates into a surprise decline in your organization's return on investment.
  • Once you are a customer of an SaaS vendor, your support options are limited. A relationship breakdown with an SaaS partner could become one of the most significant and costly business issues that your company will face.
  • One way or the other you pay. But most often "less expensive" is all about the initial capital expenditure for the licenses and hardware.

In general, the financial comparison between SaaS and on-premise is not about how much you save, but rather when the investment is made. Either way the costs are relatively the same.

Customers can Lose Control Over Their Own System.

  • The customer is 100% reliant upon the telecommunications provider. If the network goes down, the system is inoperable. If you are a supplier to a customer who imposes penalties for delivery delays, an SaaS outage could result in customer fines along with a loss of productivity.
  • Disaster recovery planning is in the hands of the SaaS vendor. From the most devastating to the smallest technical issues, the customer is dependent upon their solution partner to keep the system up and running.
  • Fluctuations in data traffic can impede performance in a hosted ERP solution. Increased data volumes have the potential to tie up bandwidth resulting in system delays that will decrease productivity and usability of the system.
  • Upgrades, patches and fixes are all completed by the vendor. Customers are at the mercy of the provider for virtually any software update and often prioritization of duties differ.
  • Hosted solution’s export rights of data can be limited.
  • Even if the SaaS provider is following or exceeding industry standards in data security, there is always some risk associated with data transmission over the internet.


What type of companies are SaaS systems suited for?

  • The SaaS delivery model is best suited to smaller companies with limited cash flow. Due to a much less significant initial investment, a superior ERP system is within reach for smaller organizations. In the long run, the costs may be the same - or possibly more, but that initial larger investment is avoided.
  • Contracts are typically two to three years. This means if the customer was looking at a short term solution this could be an excellent alternative. Total cost of ownership commonly is equal with standard systems after 3 to 4 years.

 

 

Find the answers and get expert ERP selection advice using the knowledge attained from years of business software experience. For additional information, contact BSA Inc. at info@BSAinc.ca.