Cloud / SaaS Total Cost of Ownership Framework A very common question in the world of Cloud / SaaS applications is "How

do I ma ke an apples to apples comparison of the total cost of ownership of Cloud / SaaS applications vs. their on-premises software counterparts?" At some point, I hop e this will become "settled law" - but until then I think it's important to revi sit and update with details from real-world implementations. Two of the best documents on the Internet I've seen on Cloud / SaaS ROI and TCO come from Ray Wang at Forrester Research and from the Software and Information I ndustry Association. You may also recall the recent Nucleus Research case study on an Intacct impleme ntation at nGenera that showed $715,000 in savings, 589% ROI and payback in just two months - below I'll provide some color on where nGenera and Nucleus found s uch an impressive return by adopting cloud financials. One trend I'm seeing is that as cloud / SaaS applications get more and more popu lar, the on-premises software vendors are more aggressively pushing FUD and TCO models that only compare the initial purchase price of on-premises hardware and software to the ongoing subscription price of Cloud / SaaS counterparts. Apples to apples TCO / ROI comparisons must also include ongoing human costs for operat ing and maintaining the system over 7 to 10 years, which is the typical lifecycl e of a major application investment. You can be quite sure that you will find th e majority of Cloud / SaaS TCO and ROI in these ongoing operating cost savings, which is why the on-premises software vendors try to exclude them. Below is my attempt at a framework for making these types of TCO and ROI compari sons, with demonstrative examples from Intacct and the financial applications ma rketplace. Capital savings: Software and Hardware No need to purchase Infrastructure Stack Software - By definition, Cloud / SaaS applications disintermediate technology infrastructure - Eliminating the need fo r software purchases like Client Access Licenses, Windows Servers, Application a nd Database Servers, Middleware, SharePoint, Citrix servers and VPN s for remote a ccess. Also remember most buyers will need two copies of each of these pieces of infrastructure software, one for development/test and another for production. W ith Intacct all of these pieces are included in the monthly subscription fee. No expenditures on hardware Also by definition, Cloud / SaaS applications requir e no server hardware, network storage, backup systems, disaster recovery systems , power or cooling systems, data centers, utility costs, etc. As above, most buy ers will need two sets of systems for development / test and production. With In tacct, our applications run in Tier One IBM data centers, with disaster recovery provided via Sungard and Intacct foots the bill. All you need is Internet acces s. Reduced need to purchase third party tools, modules and applications - A less ob vious place to find ROI / TCO is that many SaaS applications include built-in or bundled functionality that eliminates the need for separate, add-on software to ols, modules and applications. This is particularly true for new SaaS applicatio ns vs. older on-premises applications. For example, Intacct includes built-in re porting, business intelligence, dashboards, portals, workflow, employee expenses , multi-currency, CRM integration, financial consolidation, customization servic es, web services and much more, each of which are usually add-on or third party tools, modules and applications in the traditional on-premises software financia l applications world. No software or hardware replacement needed in ongoing years - A common mistake I see in TCO models is that only initial purchases are considered for on-premises software and hardware over a multi-year TCO lifecycle. More accurate models sho uld break the TCO lifecycle into three section - initial deployment in year 0, o

ngoing operation and maintenance ongoing, and upgrade / replacement costs for ha rdware and software not covered under maintenance somewhere in between year 3 an d year 5. Requiring periodic upgrades and purchases of new software on top of ma intenance is part of the business model of most on-premises software companies a nd should be included in any TCO / ROI calculation. Servers, storage and other h ardware components wear out and need to be replaced, typically on a three or fou r year schedule. IT operations savings Reduced / eliminated spending on IT operations - This is usually one of the top sources of ROI / TCO savings in the Cloud / SaaS world. One of the most common m istakes I see in TCO models is not taking into account the staffing costs in the IT department for deploying, operating and maintaining applications and underly ing infrastructure. In Cloud / SaaS applications, the vendor takes on all of the costs associated with installing, running and maintaining the applications, the underlying software infrastructure and the associated hardware. For Intacct cli ents, this represents saving at least one full time IT professional ongoing and can be much more for larger deployments. As an aside - this doesn't always mean eliminating jobs in the IT department - it can also be seen as removing unnecess ary, low value added work from IT, which allows the IT team focus on more strate gic, value added services. Reduced support costs - The cost to the customer organization, both in downtime and in human costs of diagnosing and fixing problems is a major ongoing part of software TCO. A major improvement in the SaaS / Cloud world is that through the magic of the Internet both the support people at the vendor or VAR and the clien t can be logged into the system and looking at the same screen / data / problem at the same time. The customer doesn't have to describe the problem to the suppo rt rep anymore - the both can look at it at the same time from the comfort of th eir own web browser. The ongoing support savings are significant. No Application and Infrastructure Re-implementation costs in years 3 to 5 - Most TCO models miss the need in the on-premises software world to re-implement and upgrade to new versions of either the applications or the underlying infrastruct ure stack. This is unnecessary in the world of Cloud / SaaS applications like In tacct since the vendor continuously keeps the client on the most current version s. Departmental / Business operations savings Savings through improved application functionality, process improvement, automat ion and integration - Cloud and SaaS applications are by definition far more mod ern than the older on-premises software applications they are replacing - so an important part of TCO is to look at departmental effectiveness before and after implementing new applications. For example, Intacct s order to cash functionality is particularly efficient, helps our clients reduce or eliminate the need for th e order management function in the business. Similarly Intacct eliminates many m anual processes and spreadsheets, allowing the finance team to do far more with fewer people. Intacct clients typically identify savings of one or two headcount s in finance as part of their deployment. Savings through higher worker productivity - Cloud and SaaS applications typical ly offer higher worker productivity because of the always-on, always connected a spects of cloud computing. Because workers can access the system anytime and fro m anywhere, they typically get more done than if they can only use the system in the office during normal business hours. For example Intacct clients can get th eir work done anytime and from anywhere, go paperless, and extend web-based port als, dashboards, reports and employee expenses to all employees in all locations eliminating wasted time and paper processes - and extending productivity improv ements beyond the finance department and across the business. These productivity improvements quickly add up, and in an average Intacct implementation can free up one or more full time equivalents across the business. Additional areas in a complete TCO / ROI model Reduced Risk / Project Failure - Advanced TCO models should reflect the higher r isk of project failure when deploying on-premises software applications. The har dware and software that must be procured, install, configure, optimized, integra

ted and tested in the on-premises world carries a very non-trivial risk of failu re - thus on-premises ERP implementations have a widely documented and much high er rate of project failure than SaaS / cloud counterparts. You can account for t his in a TCO model by adding in an extra cost line to your model - a "project ri sk reserve." Based on my experience, I'd suggest a risk reserve of 25% of the pr oject implementation costs for financial applications. Intacct has a 98% project success rate - contrast this with what you find when you Google "ERP failure ra te" - you'll see failure rates from 40% to 60% for on-premises software implemen tations. Faster Time to Value - With SaaS / Cloud applications, there is no hardware or s oftware to procure, install, configure, optimize or test. In your implementation timeline, you skip all of these steps - which offers both cost and time savings . Since time is money, your TCO model should include the acceleration of value y ou get with SaaS / cloud applications - because you will begin using the new, hi gher value system much sooner than you could in the on-premises software world. In the Intacct world, implementation times are typically 90 to 180 days faster t han for on-premises alternatives - the larger and more complex the implementatio n the bigger the difference. Easier to Adapt - It is much easier and faster to modify functionality and busin ess processes in SaaS / Cloud applications than in on-premises counterparts. Thi s is because SaaS / Cloud applications are designed to be configured by line of business people, whereas making changes to on-premises software tends to require programming and customization by IT professionals. Because of the ease of confi guration, businesses that deploy SaaS / cloud applications make relatively frequ ent, iterative changes to evolve their processes to match changing market or bus iness conditions - which is rarely possible to do in the on-premises software wo rld. The business benefit to reflect in a TCO model is in the savings or increas ed revenue you expect from improved operations that result from being able to ad apt more quickly to changing business conditions. Superior Operations - For all but very large enterprises, the SaaS / Cloud vendo rs will include substantially better operating capabilities than the internal IT department is likely to be able to provide cost-effectively as part of the serv ice. This means with SaaS / Cloud applications you get higher availability, bett er performance, faster problem resolution, better backup and recovery, fewer iss ues with maintenance, 24x7x365 operations, less chance of data loss etc. than yo u would get if you were running the applications yourself in your own IT departm ent. A thorough TCO analysis would include these superior operating characterist ics as an added expense to on-premises alternatives, or as an added benefit on t he SaaS / Cloud side of the equation. Intacct applications run in tier one IBM d ata centers, with disaster recovery via SunGard, and with extensive service leve l guarantees that are far superior to what most internal IT departments are able to cost effectively provide. Other areas - To be complete, there are other areas that a complete TCO / ROI mo del should cover, but my experience is that they come out about the same whether you choose to deploy SaaS / Cloud vs on-premises software.These areas include p rofessional services costs for the initial configuration and roll out of the app lications, ongoing changes to the applications to adapt to new business processe s and training for both administrators and end-users. You'll likely identify add itional areas in your complete TCO / ROI analysis where things come out about th e same - my attempt in this post was to highlight the differences that come up o ver and over again when comparing Cloud / SaaS applications with on-premises sof tware. The bottom line The bottom line of this post is that an overall TCO analysis that makes true app les to apples comparison of SaaS / Cloud vs on-premises applications should incl ude a thorough analysis of costs and return across at least three components - C apital expenditure, IT operations and Departmental /Business operations. The TCO model should extend over the total expected lifecycle of the applications - I'd suggest 7 to 9 years in the world of financial applications - and break the ove

rall lifecycle into three sections - initial deployment, ongoing operations and upgrade/replacement in year 3-5. You may of course choose to include or to not include each of the above categori es as you do your own analysis and you may choose your own lifecycle for how lon g you expect to leverage your new systems. What I think you'll find though is th e above framework should be helpful in making a more apples to apples comparison that draws out the true costs and opportunities whether you are looking at Clou d / SaaS or on-premises deployments.

Total Cost of Ownership When Considering a Move to SaaS Evaluating the ROI of Software as a Service (SaaS) solutions vis--vis on-premise software can sometimes feel a bit like comparing apples to oranges. This CCH whi tepaper provides an overview of the costs and cost savings associated with a mig ration to a SaaS model, including: ? Access Differences ? Hardware Costs ? Ongoing Maintenance, Security and Support ? IT Staffing Levels In the last few years, Software as a Service (SaaS) has been steadily revolution izing software delivery to corporate end-users across multiple industries, rangi ng from banking to Customer Relationship Management (CRM). The accounting profes sion is no exception. Today, more firms are evaluating the new robust SaaS tax a nd accounting solutions, and in the process, they re comparing functionality, efficiency and overall cost with that of traditional on- premise software programs. At its most basic, SaaS is a new model for hosting and delivering on- demand sof tware to a mobile workforce via the Internet. Since the SaaS model shifts many o f the costs associated with solution delivery from the corporate client to the s oftware host/provider, comparing list prices yields only a limited view. To full y appreciate the total cost of ownership when moving to a SaaS model, it s importa nt to account for both hard and soft costs. CCH developed this whitepaper to pro vide a framework in which to evaluate the costs and cost savings associated with a move to SaaS, with the goal of helping accounting firms make more fully-infor med decisions. A More Efficient Way to Access Software One of the most obvious differences between SaaS solutions and on-premise softwa re is in the way firms access the software. With traditional software, firms pur chase a number of end-user software licenses, depending on how many people in th e firm will be using the software in a given year. License fees are paid up fron t, but sometimes not all of the purchased licenses are used, due to staffing cha nges or software implementation delays. Often times, you pay an annual fee for a user, yet that user only uses the application during a discrete time of year, i .e. tax season.

With SaaS, there are no annual individual license fees. Instead, pricing is ofte n modeled as a lease that allows you to scale the number of users based on month ly usage. This model provides the flexibility to add or delete staff members as you scale to manage the annual workflow of your firm throughout the year. This s eemingly minor shift transforms software from a fixed cost to a variable expense , providing firms with increased flexibility. Under the typical SaaS model, the more a firm uses the software, the more they pay the provider. The payas-you-go model enables firms to add new users when they come on board instead of using capital to purchase licenses in anticipation of future new hires. Shifting Hardware Costs to the SaaS Provider Another area of cost savings with SaaS comes in the form of hardware and related resources no longer required to keep the software up and running. Most firms ha ve multiple servers dedicated to housing software and client data. Servers requ ire space, network lines, additional security measures and a skilled IT staff t o maintain them in working order. In addition, many firms hire third party consu ltants to help them customize on-premise software to their firm s standard practic es, representing a significant additional cost. Under the SaaS model, the SaaS provider bears all costs associated with hardware , security and maintenance. As a result, firms no longer need to purchase serve rs to house the software and data on-site. Without the need for servers, firms u sing SaaS solutions can free up costly real estate and convert server space to o ffice space for other uses. In addition, since SaaS applications are accessible from anywhere, preparers can access the software from home or from the road, decreasing the overall need for physical office space. As far as consultants are concerned, while there is often some user-defined cust omization allowed through the use of Smart Client technology within a SaaS model , SaaS providers have quickly adopted industry best-practices that are able to m eet the diverse needs of a broad client base, saving the costly customization fe es typically paid to consultants. Enhanced Security Included One of the most immediate benefits of SaaS computing is that it creates an insta nt off-site back up, protecting firms against natural disasters and loss of data . Given the significant investment in security and back up, a trusted SaaS accounting so lution provider often has more stringent security standards than even the larges t of firms. Since the provider has incurred the cost of having true redundancy o f servers, SaaS providers quickly become an important part of an organization s da ta security and business continuity plans. No End-User Updates, No Interruptions One area often overlooked when comparing on-premise software with SaaS solutions is the staff and time required to update on- premise software. When an IT team updates on-premise software (typically an average of 8-10 times during a normal tax season), they have to take the servers off-line for a period of time to inst all the update. Once that s complete, they need to modify every staff desktop and laptop computer in the firm, all of which takes time and reduces staff productiv ity during the time that their systems are being upgraded. Shipping software updates can cause further delays. For example, when the IRS is sues a new regulation, accounting firms naturally want it as soon as possible. Let s say that the on-premise software vendor can have the new regulation coded by Friday, and ships it out via Fed Ex to clients at that time. Clients don t receiv e the update until Monday, at which time IT updates the servers and computers, c ausing even greater delays.

When a firm uses a SaaS solution, the solution provider manages the update proce ss, saving the firm s IT staff valuable time and resources. As a result, there is no waiting for shipping to get the most recent software updates. All staff find the updated functionality waiting for them from the moment the provider makes th e upgrade live online. Reducing or Redeploying IT Resources IT staff are an important part of any firm, but finding people with the right co mbination of skills is a continual challenge for most organizations. In addition , skilled IT staff can be expensive. Today, most IT staff spend the majority of their time managing systems and keeping software up and running. While some IT s taff might have been initially threatened by SaaS when the technology first bega n gaining traction in the marketplace, many are now recognizing that SaaS can be a means for IT to operate more efficiently and strategically. The SaaS model requires fewer servers and significantly less direct IT involveme nt than on-premise software. In addition, providers like CCH have integrated wit h Active Directory, allowing firms to create a single sign-on across all product s instead of credentialing staff within each program. This represents a huge tim esavings for IT staff. When making the move to SaaS, some firms are able to reduce their IT staffing co sts, while others choose to redeploy the IT staff to other projects to support t he firm s key business initiatives. The Next Wave There is no question that for the accounting profession, SaaS represents a signi ficant step forward. It frees firms from the business of software maintenance an d support and gives them the opportunity to truly focus on what they do best. Cl early, there are efficiencies to be gained, and in the current economic environm ent, all decisions must be made with a critical eye toward ROI. It s only when fir ms take a broad view and evaluate all of the areas affected by a migration to Sa aS that they can make fully-informed decisions to best serve the needs of their clients and staff.