Here are a few popular posts on ERP Software Blog that you might find of interest.

An Example of Creative Employees Using Microsoft Dynamics AX in a Way the CIO Never Expected, April 9, 2012 by Anya Ciecierski, ERP Software Blog Editor

The Real Difference between Microsoft Dynamics NAV and AX March 14, 2011 by Jeff Pyden, Omnivue

Infographic: A CFO’s Guide to ERP in the Cloud January 30, 2012 by ERP Software Blog Editors

5 Steps to a Successful Implementation of Your New Accounting System by John Hoyt, Technology Management Concepts

Did You Know You Can Get a Microsoft Transition Investment Credit to Move From Dynamics SL (Solomon) to Dynamics GP (Great Plains)? – March 12, 2012

A Connecticut Distributor Adds Order Entry, Inventory Planning & Container Management for Microsoft Dynamics GP – March 5, 2012

Abstract

Virtually everyone has heard something about “The Cloud”, but what are the implications from the perspective of a business? What is the Cloud? How can the Cloud assist firms become more efficient, effective and nimble? Does it make sense to move to the Cloud? What are the risks of moving to the Cloud? Since space is at a premium (blogs aren’t supposed to be lengthy documents), we will highlight mostly operational issues and leave a technical discussion to others.

Although I cited several references at the end of this entry, I would like to thank Lauren Carlson at Software Advice for sending me their most recent article (The Cloud and Why Installed Software Isn’t Going Away) and asking that I contribute some thoughts of my own.

What is the Cloud?

“Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g. networks, servers, storage, applications and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.”

NationalInstituteofStandardsand Technology (NIST), October 7, 2009

I’m a business oriented person, not an IT guru so here’s my personal definition. The Cloud is a means whereby the resources required to support the computing requirements of a business are provided by others. In most instances people think of the Cloud as a means whereby they can access via the Internet software applications that are provided (hosted) by a third party provider. This is Software as a Service (SaaS) and we normally think of this in terms of a Public Cloud whereby the third party provides everything; hardware, software, data backup and finally both hardware and software updates. Everything is provided by a single entity and all the user has to do is open their browser.

Actually the hosting doesn’t necessarily have to be provided by a third party. The firm itself can create a Cloud environment that replaces the traditional on premise network based infrastructure. It operates in exactly the same manner as a Cloud, but the firm retains all ownership rights (and responsibilities) to everything. It’s just a different way for users to access software applications and stored data.

Since this post is really about operational issues, not IT issues, let me conclude this introduction by saying that there are also other variations such as Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). In all instances these service model are designed to assist firms stick to what they do best and partner with others to provide the rest.

What can I / should I do in the Cloud?

The simple answer to this question is that you can do anything in the Cloud. The more realistic answer is that you have to decide what makes good business sense. While our focus is accounting / ERP, there are other possibilities.

Backup and Recovery

The other articles listed at the end of this post are primarily concerned about backup and recovery and that is an excellent use of the Cloud. Prior to the development of the Cloud most firms backed up their data to tape drives. This has proven to be difficult in many cases, particularly when programs and files are being restored after a natural disaster or system crash. Cloud providers that specialize in backup and recovery have developed solid systems that are more reliable and ultimately less time consuming than the tape option.

While guarding data associated with a firm’s primary business applications such as accounting or ERP systems must be a primary concern, one must remember that there are a significant number of other data and application sources that need to be protected (desktops and laptops).

Data Archiving

This is to some extent an extension of the backup discussion. There is a wealth of data that can be retrieved from a system, but the process has been difficult. There are firms that offer services and software products that organize and archive data and then let users search and retrieve information from these Cloud repositories.

Self Sufficient Software Applications

Probably the most significant growth area for Cloud computing has been the deployment of specific point solutions such as CRM, office suites and other stand-alone software solutions. If you are evaluating a move to the Cloud, this might be a viable test environment. You do need to be a bit careful as the connection between accounting and ERP systems and these point solutions is growing rapidly. CRM solutions could operate independently, but this would create a disconnect between customer information, quotes and orders located in the CRM system and similar information in the accounting or ERP system. If you are evaluating a Cloud based CRM system, but want to maintain your on premise accounting or ERP system, you need to build a link between the two.

AR Collections Management

The next four business applications or processes all have one thing in common. They utilize data from the accounting / ERP system to help people do their jobs more efficiently or effectively. A well designed AR Collections Management application reads invoice and payment data and places it in an application that can be accessed via the Cloud. This gives people the ability to access this data, track a customer’s payment history, contact customers and solicit payment. Rather than making contact from an office, a Cloud based AR Collections application can even be accessed when you are sitting in front of the customer.

Exception Management

An effective Exception Management system will highlight issues that need to be addressed. As an example if inventory turns is below expected levels, the system will notify a named individual and give them both the condition that needs to be addressed as well as a form of a task manager that helps people track their actions as well as the progress they are making. This is perfect for the Cloud. In addition, a Cloud based Exception Management application can support collaboration so that multiple people can be working on the same issue at the same time and share responsibility and ideas.

Business Metrics

Since Business Metrics is not tied to a formal accounting application, but is instead just a form of reporting, all metrics related information can be posted to the Cloud and accessed anytime anywhere.

Business Reports

Although Business Metrics is probably best suited for the Cloud, there is no reason why people cannot access more standardized business reports via the Cloud. This is particularly true if these reports are converted to PDF or spreadsheet format and opened as required by users.

Advantages and Disadvantages of Accounting / ERP in the Cloud

While there were only a very few accounting / ERP options a few years ago, users now have a growing number of Cloud alternatives, but care needs to be taken when considering a move to the Cloud.

Public Cloud vs. Private Cloud

If you include hosted accounting and ERP systems as Cloud alternatives, then the field is wide open. Hosting as most people understand the concept is the transfer of operational responsibility from the user to a third party. This is just a form of a Private Cloud. A true Public Cloud is a multi-tenant system whereby all users share the same software application, but have their own data repository. Product updates and fixes are processed once for all user firms. That can become quite attractive, particularly for firms that want to implement their system as quickly as possible.

Private Cloud options could include any number of alternative deployment methods as we have mentioned earlier. In many cases the Private Cloud is operated by a firm that specializes in one or a limited number of accounting or ERP products. They are responsible for all operations, including updates, product fixes, backup and archiving.

Depending on the nature of the agreement reached between the user firm and the Cloud provider, the user could purchase the software outright and then just pay for hosting and other services. Alternately the Cloud provider could own the software, provide updates and user support and charge a monthly fee.

Ownership of Data

Once of the points raised in the Software Advice article is critical. Regardless of the deployment option selected, it must be agreed in writing that the user has an absolute right to their data and a right to receive their data in an agreed upon format and within a specified time frame. There have been several instances whereby the user’s data has been almost held for ransom or the data is so jumbled that importing it into a new accounting / ERP system is almost impossible.

Third Party Applications

This is a bit of a tricky area. Virtually all accounting / ERP vendors rely on third parties (ISVs) to supplement the functionality of their core system. In some cases these ISV products provide functionality that is “critical”, meaning that the core system would not have been selected if the ISV applications were not available. Other ISV applications could be considered to be “nice to have”, but not necessarily critical.

Here’s the dilemma. What do you do if the ISV solution is not compatible with the next release of the core accounting / ERP product? Actually this is just as significant an issue for traditional on premise accounting / ERP systems as it is for Cloud solutions. If you want to move from an on premise solution to the Cloud and the ISV solution isn’t going to be ready for six months or more, what are your alternatives? The same issue might arise for upgrading from an existing Cloud solution.

How do I Evaluate the Cost of Cloud Computing?

Cloud computing is no more than a method by which information and applications can be accessed or protected. There is a cost associated with Cloud computing and that cost has to be quantified. Actually you need to calculate the cost of doing business under any deployment option. Since our primary focus is accounting and ERP solutions, let’s just stick to that alternative.

One of the most alluring aspects of Cloud computing or SaaS is the fact that there might not be a significant up-front purchase investment. Instead firms pay a monthly per user fee. While this seems attractive, keep in mind the fact that SaaS is no more than an alternate financing arraignment. Someone has to pay for the software itself, updates and day-to-day management of the entire system by trained IT experts. The cost of on-premise software comes in “chunks” (initial investment and annual maintenance fees) as well as on going payments for IT personnel and system maintenance.

How do you then compare these two alternatives? Actually there are several alternatives depending on the nature of the Cloud solution you are evaluating. A public Cloud bundles most of the costs into a single monthly usage charge per user while the various Private Cloud and hosting alternatives may include any number of services and payment options. In all cases you need to calculate the total cost of the deployment model and take into consideration when these expenses will occur. I might be showing my age but calculating the Net Present Value of each alternative seems to be a viable model.

First we have to select a time period. For the sake of this example, let’s assume a contract of five years. That takes into consideration all of the significant costs of each alternative. Then let’s assume that we can invest our money at 5%. Now let’s calculate the cost of each alternative in each of the five years. The cost of Year 0 expenses will not be discounted since they occur at the beginning of the contract. However, the cost of Year 2 expenses will be discounted since we could have invested those funds and generated a return of 5%. Year 3 expenses will be discounted even more and so on. Since there are published tables that we can use, we can take the cash flow in each of the five years and discount them according to the table, add them together and calculate a Net Present Value. This then gives us a method by which we can calculate the cost of each alternative and compare it against other alternatives.

There are probably other methods by which these uneven cash flows can be turned into a total project cost, but the objective is still the same. You need to utilize some method by which the timing of an expense is taken into consideration.

As you are making these calculations, please make sure you take into consideration all associated expenses such as the cost of IT personnel, system maintenance support, network costs, implementation, data conversion and customization. In some cases (e.g. implementation) you might have costs with any alternative, but they might not be the same.

Am I Going to be Forced into the Cloud?

Although our future seems to be in the Cloud, that’s not going to happen in the short term. Vendors who now publish on premise accounting / ERP applications will continue to do so for some time, but the choices will shrink over time. I would suggest that five years might be a good planning horizon.

I would refer you to the article The Cloud and Why Installed Software Isn’t Going Away as it paints a very clear picture. Vendors of installed software have far too much invested to precipitously drop their existing on premise applications and more importantly the revenue stream from their existing on premise clients. There are hundreds of thousands of users that are quite satisfied with their current on premise systems and see no compelling reason why they need to shift to the Cloud. While demand for Cloud applications will continue to grow, it’s going to take some years for the Cloud to overtake on premise as the deployment option of choice.

As pointed out in the Software Advice article, one of the most significant impediments to the growth of the Cloud at least from the perspective of accounting and ERP users is the whole concept of customization. Many on premise accounting and ERP systems have been modified, sometimes to such an extent that these systems can no longer process updates released by product vendors. Product vendors provide source code or access to Software Development Kits that make it relatively easy to modify the core applications. That works very well in the on premise world and just as well for applications hosted by third parties. The whole notion of customization, particularly extensive customization, has been and will continue to be a significant issue for Public Cloud vendors. A Public Cloud is based on the notion of shared resources that make it easier (less costly) to create/update original applications and then present them to users. Public Cloud applications present a single image to all users from all participating firms. This makes it very difficult to present unique views and unique applications to unique users.

Conclusion

There is no question that the Cloud will continue to grow rapidly. It’s an easy way to disburse computing resources and follow the maxim that firms need to concentrate on what they do well and leave other aspects of their business to other experts. While the Cloud will continue to evolve, we are not going to be forced to move to the Cloud, at least not in the next five years. I think we should look at the Cloud as an opportunity and decide for ourselves how and when we can utilize this new resource to our advantage.

“The Cloud and Why Installed Software Isn’t Going Away”, Software Advice Blog, 2012, Software Advice

“Five myths of Cloud computing”, HP white paper, 2011, Web Buyers Guide

“Why Cloud and How to Choose a Cloud Vendor”, Autonomy white paper, 2011, Toolbox for IT

“Cloud-based data archiving service”, IBM white paper, 2011, Web Buyers Guide

Cloud computing is becoming one of the “hot” topics regarding accounting and ERP software system deployment. Most of us just think that there are only two real options: on-premise as we have for years or the Cloud where we access a system via a browser and have no local network to worry about. Unfortunately this isn’t the case. There are any number of deployment options: on-premise, hosted, SaaS (Software as a Service) and the Cloud. Within each of these alternatives are several options. It’s all very confusing.

The ERP Software Blog web site (an excellent collection of blogs regarding all things Microsoft Dynamics (GP, NAV, AX and SL) has published a comprehensive white paper (35 Questions Every CFO Needs to Ask about Cloud ERP Software) that might help us understand the Cloud and how it can be utilized to our advantage.

ERP Software Blog (http://www.erpsoftwareblog.com/) is a web site where Microsoft Dynamics resellers post information. Here are a few posts that I thought were interesting and not related to any one product.

Microsoft Dynamics Partners Adapt to the Challenges of the Cloud

http://www.erpsoftwareblog.com/2011/07/microsoft-dynamics-partners-adapt-to-the-challenges-of-the-cloud/

 What is Public Cloud vs. Private Cloud for ERP Software?

http://www.erpsoftwareblog.com/2010/10/what-is-public-cloud-vs-private-cloud-for-erp-software/

7 Tips for Selecting an ERP Software Replacement System

http://www.erpsoftwareblog.com/2011/07/7-tips-for-selecting-an-erp-software-replacement-system/

Malcolm Gladwell and ERP Software

http://www.erpsoftwareblog.com/2011/04/malcolm-gladwell-and-erp-software/

Results of Harvard Business Review Cloud Computing Survey of 1500 Business and Technology Leaders

http://www.erpsoftwareblog.com/2011/06/results-of-harvard-business-review-cloud-computing-survey-of-1500-business-and-technology-leaders/

Here are a few of the recent and more popular posts that can be accessed on ERPSoftwareBlog

Crystal Reports vs SQL Server Reporting Services: Clash of the Microsoft Dynamics GP Reporting Titans

February 4, 2010 by Rick Feterick, Feterick & Associates, Inc.

The Difference Between Virtualization and Cloud Computing

August 30, 2010 by Nancy Phillippi, Custom Information Services (CIS)

5 Payroll Implementation Tips for Organizations to Consider for a Successful Implementation

June 9, 2010 by RSM McGladrey, Inc.