While it’s easy to see savings in terms of technical support or a lack of physical infrastructure, it can be more difficult to determine the cost savings of better productivity and efficiency. This is especially true when it can be offset by issues such as initial training.
In terms of on-premise vs. cloud-based, the best comparison is to run simulations regarding the cost of growing a physical infrastructure rather than adapting to a cloud-based solution. An on-premise architecture needs to be continually upgraded: a cloud-based solution is a singular transition.
Implementation and Transitional Costs
A transition towards a cloud solution doesn’t happen overnight. Not only do the cloud solutions need to be explored and implemented themselves, but employees also need to be trained in its use. Often, data may need to be ported over and validated to complete the transition. If it’s significant enough, the company may have some downtime during the transition as well.
Yet often the costs of transitioning to a cloud-based solution is trivial compared to the expensive on-premise licenses that are commonplace for native solutions. When considering implementation and transitional costs, they must also be compared to the cost of continuing to use an on-premise solution, which often means upgraded and updated licenses every year, and on-going training.
A transition from on-premise to cloud also isn’t always a one-to-one transition: different solutions must be explored. An entire on-premise infrastructure could be replaced by a single platform, such as Office 365, or it may need to be replaced by multiple solutions: ERP, CRM, and productivity and management suites. The totality of the system must be costed when thinking of the transition.
Implementation and transitional costs are particularly important to calculate because they require upfront capital. Training and software need to be purchased, which means the company needs to have the liquidity to afford the project. Implementation and transitional costs are also a one-time expenditure, however, which means that long-term they aren’t as important as the on-going and total cost of ownership.
On-Going Maintenance and Management Costs
Once the transition has been made, the organization will switch to maintenance. The maintenance costs of a cloud-based solution are often primarily in terms of a subscription fee, as well as any support-related hours. As cloud-based solutions don’t rely upon physical infrastructure, these subscription costs are usually replacing other, larger costs such as: