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On-premise ERP or cloud ERP? Which is cost effective?

Is there an answer to the one-size-fits-all question, the answer is based on the TCO for cloud-based solutions is far lower than on-premise applications, both short- and long-term approach?

In recent years the trend lines between these two approaches has been astonishing. 60% of buyers preferred on-premise solutions in 2009, while that changed considerably post 2014 where 80% preferred cloud solutions.


On Premises: In an on-premises environment, resources are deployed in-house and within an enterprise’s IT infrastructure. An enterprise is responsible for maintaining the solution and all its related processes.

Cloud: While there are different forms of cloud computing (such as public cloud, private cloud, and a hybrid cloud), in a public cloud computing environment, resources are hosted on the premises of the service provider but enterprises are able to access those resources and use as much as they want at any given time.


On Premises: For enterprises that deploy software on premise, there ongoing costs of the server hardware, power consumption, and space.

Cloud: Enterprises that elect to use a cloud computing model pay for what resources they use.

On Premises: In an on-premises environment, enterprises retain has complete control of their data. Companies in regulated industry verticals are extremely concerned with their data and hence are more likely to hesitate to leap into the cloud before others because of this reason.

Cloud: In a cloud computing environment, ownership of data is one question that they have struggled with. All data and encryption keys are with the third-party provider, and hence for some unforeseen circumstances the unexpected happens there could be system downtime and customers would be unable to access critical data which will impact their business…


On Premises: Companies that have extra sensitive information, such as government and banking industries must have a certain level of security and privacy that an on-premises environment provides. Despite the promise of the cloud, security is the primary concern for many industries, so an on-premises environment, despite some if its drawbacks and price tag, make more sense.

Cloud: Security concerns remain the number one barrier to a cloud computing deployment. There have been many publicized cloud breaches, and IT departments around the world are concerned. From personal information of employees such as login credentials to a loss of intellectual property, the security threats are real.


On Premises: Whichever the industry you are there are regulatory controls that need be to be adhered to. For instance, the Insurance and Banking industry come under stringent regulatory norms. Hence it is imperative that they remain compliant and know where their data is always residing.

Cloud: Enterprises that do choose a cloud computing model must do their due diligence and ensure that their third-party provider is compliant with all the different regulatory mandates within their industry and must ensure sensitive data must be protected and secured. All customers, partners, and employee’s data should be governed by the relevant data privacy laws.

In conclusion, be sure to perform your due diligence in comparing TCO projections of both approaches for at least the first five years of your ERP Software Implementation. You will see a clear cost advantage with a cloud-based ERP implementation approach than an On-prem implementation.

At Lorhan IT we ensure that with proper due diligence our consultants give the best advice to customers to decide whether an on prem or a cloud-based solution will give the best result both from a finance and data security point of view.

About The Author

With deep expertise in System Integration, Application Development, and Maintenance, we at Lorhan IT serves over 120 clients across the globe, our core strengths are based on many years of experience in Developing & Delivering SAP Digital Core and Digital Transformation Services. Enterprises today are always looking to improve their current business processes, Lorhan addresses these ever-changing business needs by offering robust solutions that help them to increase their operational efficiencies.

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