Evaluating the Cloud: How Much is the Cloud?

how-muchAs the holidays approach, most of us receive emails about shopping opportunities, special deals, and anything to encourage us to buy—and most focus on price. Those of us who enjoy a deal are often concerned about our personal budgets and also budgets in the professional realm. When considering any new purchase, one of the first two considerations are, “How much does it cost?” and “What do I get for my money?” This is easier to answer if you’re purchasing a toy for your child, but here at Sierra-Cedar, our HR Systems Survey looks at the cost of various HCM technologies; we have hard facts and insights based on cost data for both SaaS and on-premise solutions.

One of the most interesting things when looking at cost data is that when organizations are asked about the reasons they would consider a move to SaaS, only 16% consider cost to be a consideration. Improved User Experience tops the list for 76% of our respondents, followed by Easier Upgrades (61%) and Best Practice Functionality (58%) to complete the list of the top three reasons. For those who might be considering a move to SaaS, regardless of the price, user experience and features are areas where organizations expect big changes.

Benjamin Franklin once said that “time is money,” and when it comes to SaaS, we see our Survey respondents’ data showing savings of time for SaaS Core HRMS Implementations. Licensed On Premise implementations for new HRMS deployments take an average of 15.3 months, while SaaS implementations take an average of nine months. This faster implementation time holds true across organizations of all sizes. Note that while duration is less, the cost per hour is higher.

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Our data show that SaaS requires lower internal HR technology headcount vs. Licensed On Premise solutions; i.e., SaaS requires fewer functional HRMS support, Application Support, and Infrastructure resources. Some of the internal support reductions are offset by higher annual SaaS fees. Note that headcount costs can be affected greatly by issues such as organizational makeup, size, and scale of an organization.

Our Survey asks questions about annual HR technology expenditures for the current year and budget for next year. This “number” includes license plus maintenance, annual amounts paid for hosting or to SaaS vendors, and any cost paid to business process outsourcing (BPO) providers. Calculating an average for spending across a group of companies is complex. This year in our annual white paper, we provide budget comparisons for comparable organizations with ~11,000 employees (we do have budget averages for other sizes of organizations—we didn’t publish that data, so please contact us if you have questions). What we found was that the actual expenditures for technology were not greatly different across the various deployment models.

Both Licensed On Premise and SaaS solution expenditures were in the lows $130s per employee, with Licensed solutions budgets going up in the next year.

Current costs are important, but they don’t always tell the whole story. For better cost insights, the HR Systems Survey asked respondents to provide external implementation costs as well as ongoing support costs. We did see differences across the external expenditure ranges: we saw higher expenditures for SaaS solutions implementations and change management efforts, as well as for budgets for ongoing support in the next year; Licensed on Premise had higher expenditures for ongoing support in the current year. For any solution, increased levels of functionality may require increased configuration time from both internal and external resources, resulting in higher costs.

It is important to note that large organizations (over 10,000 employees) usually incur lower per-employee costs than small organizations due to economies of scale. For further details, we recommend reviewing one of our White Papers, and as always, feel free to contact our Research department for further questions.

So where does that leave you when shopping for an HCM Solution? As with any purchase decision, you need to do your research as everyone has at least one unique requirement! This research needs to consider both internal and external factors.

Internal research:

  • Updating your business, HR, and IT three-year strategy plans (if these aren’t documented yet, conduct interviews and document your understanding).
  • Conducting a thorough inventory and evaluation of the current HR systems environment, including the integration points and data requirements.
  • Identifying current and future users for the next three years.
  • Identifying your key or unique feature requirements, and then creating realistic use cases for each of them. If you have too many to create uses cases, then you are going too deep.
  • Looking ~three years out, identifying the key features that will help align business plans.
  • Gathering data from your end-users on their expectations and needs (surveys, focus groups, super user discussions).
  • Identifying budget, sequence, timing, and resource allocations for your organization.
  • Making an assessment of your internal culture. With which type of organizations does your organization work best? What types of vendor relationships create synergy and movement?

External research:

  • Reviewing options by attending HR Technology events and looking at many solutions to identify what technology is available and might meet your requirements. Remember these presentations are tuned to best showcase that solution. Before you select a solution, please conduct a full, in-house demo with your use cases.
  • Reaching out to your network to gain insights from your peers on their experiences with the technology, culture, and support of possible vendors. It is worth your time to go onsite to see how other organizations are using a system.
  • Talking to the possible new vendors and keep existing vendors in the loop. Remember to plan to integrate third-party solutions. Some solutions include delivered interfaces, which lowers the initial and ongoing costs.

A purchase which impacts an organization’s workforce requires an enterprise perspective. Total cost of ownership (TCO) includes many factors. An organization should be sure to include as many hard costs as it can in its calculations, and soft costs should be identified. Remember to include the costs of helping the organization address the changes that it will experience. The investment in organizational change management will pay dividends.

Remember to send me a note at Cloud@Sierra-Cedar.com with your comments, questions, or disagreements. I look forward to hearing from you as we continue to evaluate the Cloud.

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