Cloud vs. On-Premises Costs for Nonprofits

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Picture of Cloud vs On Prem costsNonprofits today are evaluating the cost of Cloud vs On-Prem when it comes to operating their organizations cost-effectively. Let's take a look at their challenges.

Nonprofit organizations (NFPs) are mission-driven, existing for the benefit of the communities, purposes, and individuals they serve. They are stewards for private and public funding received to support their efforts and are focused on the efficient use of resources to effectively deliver against their missions. A major metric NFPs are measured by is the program-to-admin ratio; the more they spend on programs and the less they spend on admin, the better. As a result, cost mitigation is critically important to their core operations.

Because of this focus on cost containment, a cloud ERP software is ideal. But there's a misconception that upgrading software to the cloud is more expensive than just staying put with an on-premises solution. That belief simply isn't true. The benefits of moving software to the cloud far outweigh staying on-premises, and for a cost-and efficiency-focused nonprofit organization, the Microsoft cloud offers the best solution.

Here's a look at where nonprofits save and benefit from upgrading to the cloud.

Infrastructure savings in cloud vs on-prem

We've found that contrary to for-profit businesses, most IT professionals in a nonprofit organization advocate for cloud solutions. These IT professionals know the cloud will be far more efficient and cost-effective than managing IT on-premises. This Microsoft cloud vs on-prem costs savings can then be redirected toward fulfilling the organization's mission.

With purchased and on-premises software, you most often host your core software on dedicated servers within your facility. To do so, your nonprofit must then have on-location staff to maintain hardware and software or outsource the job to an external firm. Security and backups are dependent on those teams - too costly to maintain on a 24 by 7 schedule.

With the Microsoft cloud, your organization has little or no upfront costs for infrastructure including the servers, which are owned by the contracted provider. You pay on a monthly or annual basis for the use of these contracted servers and related equipment. The fee often includes software maintenance and upgrades as required. This service frees up your valuable IT resources to address more important security and data management issues.

Public clouds like Microsoft Azure have some of the most stringent levels of built-in security available today. Data backups are built-in, so you don't have to worry about equipment failures or a computer room flooding or catching fire. Note: a service that doesn't include features like backups and recovery in the core cost is not a true cloud solution.

Summary of Savings: equipment, labor, and energy costs, time spent managing infrastructure, peace of mind, and significant protection from disasters.

Software cost savings

With on-premises solutions, you pay higher up-front costs, with additional annual fees for software maintenance, and then consulting fees to upgrade the software when the provider fixes bugs or adds new features. If you don't upgrade on time, which isn't uncommon, software functionality breaks down or is not compatible with other systems. This can lead to a host of problems and workarounds in the system, all of which add cost and inefficiencies to the equation. Over time it's difficult to know whether the return on investment for those maintenance payments is worthwhile.

On the other hand, cloud solutions require a subscription payment on a pre-agreed payment cycle which acts more like a lease. True cloud software subscriptions include all upgrades and maintenance, which are regularly pushed to the user. This maintenance means your software is 100% up to date 100% of the time. No technical staff is required to maintain and upgrade the software, and it's easier to scale up or down as your organization flexes. Another benefit: more integrations with third-party software.

Summary of Savings: predictable costs, provider-covered maintenance and upgrades, reduction in labor hours

Remote work efficiencies - the cloud connection

When COVID lockdowns hit in early 2020 and nonprofit staff were forced to work remotely, many people found that on-premises software in use at the time could not adapt to the new reality. They experienced the pain of not being able to work at all or in a limited way when the office was no longer a workspace option.

As one simple but powerful example, the CFO of a nonprofit we work with suddenly could not sign checks because he couldn't go to the office. By taking full advantage of our software's place in the Microsoft cloud, we were quickly able to set up automatic check signatures and approval systems, so the CFO was safe at home but still achieving his goals.

Even in non-COVID times, the labor hours saved, and efficiencies gained with remote access is significant. Many nonprofits have dozens of volunteers and employees operating out in the field. Rather than asking them to email Excel sheets of data to their accounting colleagues who then have to import or manually enter data, the field team can now connect to a cloud-accessed ERP solution anywhere, any time, and from most any device. They can provide their data to be processed in multiple ways quickly and without the inaccuracies and wasted labor.

Summary of Savings: time, data accuracy

Processing efficiencies: cloud vs on-prem removes workarounds

Software should work for you; you shouldn't work for your software.

Nonprofit accounting departments tend to be lean and the people within are great at multitasking. These accountants are also creative problem solvers because budgets are always tight, headcounts limited, and burdens on their time are increasing. They do a lot in spreadsheets and move data manually between systems because their accounting software often doesn't perform the tasks for them. Those workarounds add up in the form of hours wasted and increased errors in data output.

Accounting software should provide greater integration and workflow management to boost productivity. All that is possible with modern cloud software.

Summary of Savings: time, labor, and errors

Audit-ability

Transparency is a critical element in adhering to a nonprofit's public fiduciary responsibility and to its success as an organization. Spreadsheets and records that are manually patched together become a nightmare when auditors visit or board reports are required. A solid cloud ERP solution is transaction- and detail-oriented and includes important components such as automated approvals, better reporting, and effective workflows. This means that nonprofits no longer depend on a mix of spreadsheets and legacy software solutions to meet auditing requirements.

Summary of Savings: time, data accuracy, audit costs

Final thoughts about cloud to on-prem costs

It's easy to outline the line-item costs of an on-premises versus a cloud solution: labor hours, the dollars spent on licensing or subscription fees, upgrade/update fees, and so on.

But you also need to consider some hidden costs in your decision whether or not to move your software to the cloud. For example, your staff may be used to building workarounds and one-off solutions with on-premises software to meet your needs so you don't have to hire additional team members and can meet the legal requirements of being a nonprofit. While creative and even admirable, it's not efficient, and it costs you time and productivity and staff burn out.

The cloud reduces costs, burden, and risk, all of which add up to significant overhead for a nonprofit. And, with that, you benefit from up-to-date and integrated software solutions with real-time data and remote access that is and will be critical to delivering on your mission long into the future.

Finally, be sure your "cloud solution" is truly a "Microsoft Cloud" solution. This isn't just a push for Microsoft, but a way to make sure you have the cost savings and quality cloud products you need.  Here are some key questions to ask of your software provider before subscribing to their software:

  1. Does Microsoft apply all BC updates automatically every month, plus two major updates in April and October?
  2. Is the cost for hosting included in the license for the accounting software?
  3. Can you install more Apps from AppSource?
  4. Is MS Teams integration available automatically?
  5. Is the Yodlee Bank Integration available automatically?

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