October 27, 2015

Cetrom in Footnote: Crunching the Numbers- Cloud vs. OnPremise IT

This article originally appeared on mncpa.org here. By Jerry Shipley, Cetrom, October 2015

The fear of losing internal data or a client's confidential information is real. It's a universal concern that drives the need to implement reliable, proven technology solutions. It is also a business continuity issue for the firm; if you don't trust the processes that protect your most precious information, you should find a different provider. Therefore, examining and selecting the appropriate IT solution is a top priority for CPA firms. The two most common IT infrastructure options for accounting firms are on-premise or cloud-based technology. On-premise solutions are developed and managed in-house by CPA firms themselves, while a cloud-computing solution is managed by a third-party provider and leverages the Internet to safely and securely store and deliver anytime, anywhere access to data. With a little due diligence, determining which is best for your firm can be as easy as comparing the numbers and staff involvement for each.

Looking to the cloud

Cloud computing delivers an end-to-end technology solution with enterprise-level security, around-the-clock support and numerous levels of redundancy to protect your data and applications. These solutions can easily be scaled to meet the needs of growing firms or busy seasons, without extensive investments required by on-site solutions. The data and applications are managed at an off-site data center. This may create undue concern for executives. However, high-end data center safeguards and infrastructure enhance the strength of your CPA firm's data security by adding layers of protection to ensure your information and applications are always available. This level of protection is usually very costly if part of a firm's on-site solution.

Keeping data close

Alternately, on-premise solutions provide the illusion of control and security since staff members can physically see where the data is stored. But, these also come with a higher risk of downtime and greater costs to install and maintain, not to mention the potential dangers to the on-site server from theft, fire, corruption, power outages or lack of redundancy. Expenses associated with on-site solutions are similar to large appliance purchases because they require a substantial, upfront capital investment for hardware and software. On-staff resources are also required to manage and maintain these systems, adding to the cost.

Comparing the options

According to Computerworld's Forecast 2015: IT spending on an upswing, 42 percent of IT decision-makers are planning to increase spending on cloud computing in 2015. Digital Business, Rethinking Fundamentals also notes that by 2018, more than 60 percent of enterprises will have at least half of their infrastructure on cloud-based platforms. These statistics may be driven by the fact that cloud computing can be a better fit for a company's budget; a majority of the related costs recur monthly as operational expenses. With this cost structure in place, CPA firms can essentially pay as they go for hosted solutions and easily predict upcoming costs. Like most businesses, CPA firms want a technology solution that both enhances business operations and fits into a budget. A simple comparison between on-premise and cloud-based solutions can prove helpful in determining the best choice for your firm.

Hardware:  Long-term costs need to be examined for both cloud services and an on-premise solution. First, hardware must be replaced -- it's inevitable whether you are working in the cloud or on-site. The difference occurs when determining which hardware must be replaced at what time. Traditionally, PCs, servers and other infrastructure components that are maintained on-site would have to be replaced every three years. This is a large capital expense that must be incorporated into budgets regularly. However, a cloud solution could extend the lifecycle of on-site hardware from three to five years because the real computing work is done on remote servers, saving local equipment from heavy use. Maximizing the lifecycle of your technology reduces the amount of capital required to maintain these systems.

Software and storage:  If installing an on-site solution, other expenses that your accounting firm should consider include anti-virus protection and additional storage for when your firm grows. Depending on your storage and IT needs, as well as the number of employees, the upfront costs associated with developing an on-premise solution from scratch could exceed budgetary outlays in the first year alone. This does not include the human cost of managing and maintaining the system and subsequent investments in software upgrades and licensing. With cloud services, most of these extraneous capital expenses disappear. The subscription pricing model allows your firm to pay a monthly rate that covers nearly every aspect of your solution by utilizing the cloud vendor's secure, enterprise-level infrastructure to store data and access software at your convenience. If your CPA firm chooses a hosted solution, the cloud provider will also ensure all software licenses are up to date as part of your agreement. The only capital expenses you'll need to consider are on-site hardware, such as user PCs and printers. Usually, kick-off costs for a cloud solution include the purchase of an enterprise level firewall, if necessary, and a professional services fee for migration and implementation.

Downtime:  One of the most overlooked considerations, for either solution, is downtime. When a firm's staff has to wait for assistance from the in-house IT expert or vendor customer support, they are not contributing to productivity. If the problem is not resolved on the initial visit by the support person or call to customer service, the employee must wait for a callback to get help. This leads to a lot of frustration. Every minute a partner or associate is in wait mode creates a real cost -- time is money.

Maintenance:  After comparing the cost of hardware and software for both solutions, maintenance costs must be considered in the decision-making process. On-site solutions typically require at least some shared or dedicated, in-house staff capable of overseeing the solution, managing software upgrades, updating software licenses and troubleshooting for basic technology issues. For more complex technology issues, smaller to mid-sized organizations usually rely on outsourced IT support from a third party. Larger businesses tend to have additional staff members who are able to design, build and maintain an on--premise infrastructure -- these resources, at the going market salary, could each cost $75,000 per year.

Control:  When accounting firms choose a hosted solution, the bulk of the IT responsibilities are taken over by the cloud service provider. Cloud service providers manage security measures, data backup processes, storage considerations and software updates through the subscription, thus reducing the firm's IT support expenses. For example, if your CPA firm is on the cloud and set for a Microsoft Office upgrade, the service provider should facilitate this upgrade without your company investing additional financial resources or time. For other third-party software, many cloud providers will perform the updates on a schedule agreeable to the customer.

So, what do you do?

Ultimately, the decision between a hosted option and on-site solutions requires accounting firms to analyze their budget constraints, software requirements and maintenance costs. An ideal solution is one that allows you to access and store critical data, while fitting into your firm's budget. If a firm does a true, full cost-accounting analysis, a hosted cloud solution is generally the better alternative. Because the cloud-based IT solution shifts a majority of the IT responsibilities and concerns back to the service provider, your CPA firm could see significant savings that can be reinvested into other areas, such as attracting new clients. How would your accounting firm utilize the savings derived from cloud computing? Use the solution comparison and cost considerations mentioned above to help your accounting firm crunch the numbers, so you can make an informed decision that sets your firm up for success.

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