When looking at an offer for a new MIS system, some people find it confusing to find out what the real price will be. This even goes for normally owned license prices given to them. Prices from different vendors will have different breakdowns. When examining those different prices we often step to Cost of Ownership over a period of time, for instance on yearly basis and summed up over a number of years.
What are the relevant costs to look at to get a fair comparison?
Of course some obvious points are Base license and monthly/yearly costs. When comparing these we can see that cloud prices come out very inexpensive and appealing. Downside to a cloud solution is that after some 4 to 5 years the total costs paid cross from cheaper to more expensive than a normally owned license.
However – in the equation some things are often forgotten:
- Hardware costs:
Is it required to buy new hardware, server, space for your server, power to run and cool your server?
What is the total cost of running a server (softwares, updates, breakdowns, replacements, insurance, maintenance) Looking at it closer many companies will have costs in the areas of 2000 USD per year easily.
The perceived risk of breakdown and data loss is a more fluffy value but nevertheless all IT managers are aware of this.
- ERP costs:
Is the software package equipped with finance software? Is it good enough for your business?
Or is there an additional cost to add to the comparison?
If your system integrates to a Finance solution, then add these costs to the equation.
- Staff costs:
Are there resources needed to administrate, maintain and fix the database as they live and die in the server room? Modern databases work on SQL databases – it’s a new game and often requires outside resources to setup, maintain and –what is worse- upgrade. Outside SQL guys are more expensive than internal resources and the cost is more evident in the accounting. At 1000 USD per year you are a lucky system owner.
- MIS Upgrades:
Is all included in your yearly maintenance fee?
Often the maintenance fee includes the code base upgrade whereas implementation and special adaptions come on the top. System upgrade projects are often not yearly but every 3 or 4 years and the tendency is to have them more often because the rapid IT environment changes we see nowadays. Split over the other years the cost could easily be 2000 USD per year.
Summing up these more anonymous costs per year an inhouse system can easily cost 5,000 USD that are not included in the direct calculations. And that may just be the thing that changes the crossover between the two ways to a 6 year horizon. And with all that changes in our digital world: who know what you want to do in 6 years anyway?
It’s about money, risk and convenience!
Think about the value of not spending your investment upfront – you get to keep your money and have paid the same amount after 5-6 years.
When we add to this that you risk starting on a product you find out after a year will not meet your expectations it makes the case for cloud computing even more compelling. You only spend while you use and you can switch horses with less money spent. This certainly adds to the strong case for cloud solution.