Group A17

VINSUN Infra Engineering: ERP on Premise or on Cloud

1. What are the pros and cons associated with each of the options being evaluated by
VINSUN?
PROS AND CONS OF EACH OPTION AVAILABLE TO VINSUN
There are two options available with VINSUN. First is ERP on premise platform and second is ERP on
cloud.

ERP ON PREMISE
Definition: On-Premise ERP is an ERP software in-house maintained in a physical office, rather than over
the web
PROS
1. NO REQUIREMENT OF INTERNET CONNECTION ERP on premise works on intranet and hence the
connectivity and speed has no effect on the operations of ERP.
2. DATA SECURITY AND PRIVACY Since it is on premise, data is secured by the companys firewall
mechanism as against on-cloud platform where data is kept in the hands of service provider.
3. CUSTOMIZATION ERP can be heavily customized to suit the needs of the company as every control
on the features is transferred on to the buyer once the ERP is bought.
4. LONG TERM ADVANTAGE Over the long term, if VINSUN goes for integration, the size of
organization will increase dramatically. In such case, it is wiser to use ERP on premise as data security
and use-as-you-wish feature will be an advantage.
CONS
1. HIGH INITIAL INVESTMENTS The price of an ERP system is quite high, especially, for an organization
like VINSUN who has mere 60 employees.
2. EMPLOYEE TRAINING More the customization of the ERP system more is the training required to
shun the repulsive attitude of employees towards the ERP.
3. MAINTENANCE COST Entire maintenance cost will be borne by the IT department (or will be covered
under IT expenses) of the company.
4. BUSINESS DISRUPTION As the complete ERP is designed by the company, the testing, training and
bug clearing makes business disruption imminent. Thus, the loss of working hours is comparatively very
high for this platform.

ERP ON CLOUD
Definition: Cloud ERP is an ERP software that is hosted on a platform over the Internet, particularly
using SaaS model

PROS
1. LOW INITIAL INVESTMENT As no infrastructure is required for ERP (entire cost borne by service
provider), only expense is the contractual cost and the first installment.
2. NO SEPARATE ERP TEAM Separate ERP rolling team is not needed in this platform and the higher
managers can focus their energy on their activities.
3. STANDARD, TRIED AND TESTED FEATURES As the features provided by this platform is standard and
been used for many times. The bugs and errors in the ERP would be less.
4. LOW BUSINESS DISRUPTION As the ERP is ready to use at any moment the loss of business hours is
less. Thus, there is low business disruption.
5. ACCESSIBILITY Work can be done from anyplace, anywhere as ERP available on cloud.
CONS
1. DATA SECURITY AND PRIVACY Keeping the data secure and private is the major concern in this
platform. As the Trust on the service provider is the only firewall available, competitive advantage can
be lost if the data is leaked out to the competitors.
2. HIGH RECURRING COST The installments paid is quite high. Over the long term, the ERP on premise
is much more profitable after the break even is reached. Hence, a costlier option by Cost-Benefit
Analysis.
3. INTERNET DEPENDENCY Speed and Connectivity affect the usage of ERP, as no connectivity or low
speed means no ERP and hence no work.
4. TECHNICAL DIFFICULTIES AND CONNECTIVITY ISSUES Technical issues and connectivity issues are
encountered which can stall the progress of the work for a quite longer duration

2. Evaluate TCO (Total Cost of Ownership) over a period of five years for the options available
to VINSUN.

The Total Cost of Ownership of Vinsun for the three alternative are given below in the table :

Item
Workstation x6
Workstation UPS x6
Laptops x2
Server
Backup up server
Server UPS x2
Initial Hardware cost
Hardware
maintenance (yr 1)
ERP Software x8
Consulting
Deployment/
Installation cost
Training
Service Fee x8 x12
Data Storage Cost
Software Cost
Software
maintenance (yr 1)
Network
Router
Infra set up
Router maintenance
Infra maintenance
Internet
Total network yr1
Total year 1 cost

Bluechip's on
Codeautomation
Codeautomation
Premise ERP
Premise ERP
Cloud ERP
209700
209700
209700
22290
22290
22290
132488
132488
132488
100000
70000
100000
70000
7750
7750
572228
512228
364478
57222.8

51222.8

960000
80000

240000

520000
180000

200000

1740000

440000

172800

36000

15479
120000
1547.9
12000
11988
161014.9
2703265.7

15479
120000
1547.9
12000
11988
161014.9
1200465.7

36447.8

192000
60000
192000

15479
120000
1547.9
12000
11988
161014.9
813940.7

5 Year Costs
Hardware Initial
Hardware yearly
Maintenance rate x5
Software Initial
Software yearly
Maintenance rate x5
Data Storage Cost
(compound)
Network Router and
infrastructure setup
Router maintenance
x5
Net Infrastructure
Maintenance X5
Internet x 5
Total Cost of
Ownership(Yr 5)

572228

512228

364478

286114
1740000

256114
440000

182239
960000

864000

180000

0
366306

135479

135479

135479

7739.5

7739.5

7739.5

60000
59940

60000
59940

60000
59940

3725501

1651501

2136182

The Total Cost of Ownership for 5 years for Bluechips on Premise ERP Solution is around Rs 37.25 Lacs,
where as for Codeautomations on Premise ERP solution is around Rs 16.51 Lacs only while for
Codeautomations on Cloud ERP solution it is Rs 21.36 Lacs.

3. Given your analysis, suggest what Satav should do? Justify your suggestions.
It may not be a sensible decision to choose ERP on Cloud over ERP on premises as the variable costs in
case of ERP on cloud are too high and keep on increasing at a compounding rate as the data storage
requirement increases. The ERP over cloud appears to be 32% cheaper than on premise ERP in the 1st
year. However the variable costs keep on increasing at a compounding rate in case of Cloud ERP and the
total cost of ownership surpasses the Premise ERP and increases by upto 29.3% in year 5.
Thus in view of long term planning VINSUN should not opt for the ERP on cloud option. The only
strategic advantage gained by Cloud ERP is its accessibility over internet. If VINSUN is of the opinion that
this advantage can surpass the cost advantage by on premise solution then it may consider cloud ERP ,
otherwise On Premise ERP solution is the best option for VINSUN.