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What? $44M to move an operational ERP to the “cloud”?

 

June 19, 2013

Doug Hadden, VP Products

44 Million Dollars to move an operating ERP application to the cloud? And, a departmental government application at that, according to a recent report. (A large department in the American government.)

$44M buys a lot of software and services. Whole countries pay less than that for turnkey government financial management systems (including hardware, implementation, training and maintenance) for 5 years. Is this highway robbery to move a working ERP to the cloud?

How could this cost $44M?

  • The ERP implementation was the most expensive IT project (begun in 2003) executed by the department so we can assume that the system is complex
  • It's ERP – Enterprise Resource Planning, rather than GRP – Government Rescource Planning, so the costs are much higher because of customization – and this system looks highly customized making changes difficult and expensive
  • The technology used by the ERP company for on-premises is legacy and not easily deployed via a cloud (private or otherwise)
  • There are approximately 70,000 FTEs in the department so a little over $600 per employee (to move to the cloud) 

$44M Can buy a whole new modern system…

My assessment is that the scope of use that includes financial management, procurement, travel, fleet management, grants and reporting could be replaced with modern technology for less.

  • GRP systems are designed for government to reduce the need to customize.
  • Modern pure-web technologies can migrate to the cloud easily.
  • Integration is facilitated in modern technology through the use of industry rather than proprietary ERP vendor integration methods.
  • No wonder systems integration firms are so keen on the cloud!

Prognosis

The $44M spent seems to be to prolong a technically obsolete system. It's true that back in 2003, the state-of-the-art was web-enabled systems that wrapped the web around client/server technology. It's also true that the core technology supported by the vendor remains client/server (although they have made numerous acquisitions or pure-web technology). It appears that:

  • The organization has taken a risk-adverse approach by not considering modern technology and can be expected to pay significantly for that choice
  • There is the view that the long-term costs will be reduced thanks to the cloud deployment – although I wonder whether that's just a data centre called a "private cloud" with improved virtualization
  • The department will be hamstrung and less able to make business process changes in the future

 

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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