Accounting Packages: Comparing SaaS, Hosted and Cloud Computing

cloud computingA CFO, vacationing in Hawaii, pulls his iPad from his beach bag. He reviews the monthly reports prepared by his team (who have been toiling back at the office) and their accounting packages. With a few clicks he reviews the ledgers and reports and compiles a packet of .pdf reports for the board meeting next week. He fires off the packet to his finance committee members via email, and returns to his chaise. All in a day’s work.
 
Technology and automation have always been about the promise to 'do more with less' with your accounting packages. And this is certainly the case with the newest offerings based on “cloud computing.” Do those promises hold up? Let’s take a closer look at some of the pros and cons. 
 

First let’s identify a few terms.

 

  • Cloud computing is a term coined by the “cloud” symbol typically used on flow charts to represent activity on the internet. Data is sent into the cloud, functions are processed, and data is returned to the user or some other constituent. Applications using cloud computing perform their functions off-site.
  • Hosted solutions generally involve the end user purchasing the application software or accounting package and paying a provider to house (host) the software on a server located at the providers location.These sites are usually secure data warehouses, protected from natural disasters, and with multiple levels of back-up to insure data security.The provider charges a periodic fee for their service, while the client pays for the software license and on-gong costs for upgrades and any maintenance and support fees.
  • Software As A Service, or SaaS models, typically involve the provider owning the software license and the user subscribing to use the application for a period of time. As in a hosted solution, many of the technical tasks are performed by the provider (back-ups, upgrades, etc.) The cost to the user in this case includes not only the expense of hosting the application or accounting package, but also a fee to use the application.

If we look more closely at the benefits of these models, we see that there are both pros and cons. 

Technology Outsourcing

On the benefit side of the ledger, a reduction in both technical infrastructure and internal skills could be recognized. Since the servers providing the storage and processing is at the provider’s location, on their equipment, internal requirements for these resources are reduced – at least for these functions. But therein can be the mitigating factor to recognizing these savings. If the technical resources are required in-house for other functions that are not outsourced, then these savings are not fully realized.

Reduce initial investment

As opposed to purchasing an application outright and housing it on-site, SaaS and hosted solutions provide potential savings in hardware and software outlays. This can certainly allow access to an otherwise price prohibitive application. However, many traditional licensed providers offer leasing terms that may also allow a user to spread payments over time. A thorough financial analysis on “total cost of ownership” is required. In addition, factors such as budget/funds availability and preferences in recording the investment may impact the decision. For example, an organization may have approval to purchase a system outright (or not), or may prefer to pay for their system as a current expense (SaaS), versus a capital expenditure (licensed).

Reduce Payroll/Increase productivity

Time savings realized through the reduction of the maintenance of the system may translate to either reduction of overall staffing or reallocate of resources to more productive tasks. Of course this is generally one of the objectives of any system upgrade – to relieve talented staff of “task related” activities and allow them to focus on more analytical issues. In addition, the ability of off-site users (such as accountants and/or auditors) to access the system remotely may reduce the need for full-time, in-house skill sets.

Scalability/Functionality

For subscription and hosted services, access is usually based on a per user basis. And as an organization’s needs change, users can be added or removed. In a similar fashion, SaaS providers sometimes offer individual subscriptions on a function basis (AR/Billing, payroll, HR, etc.) Therefore functionality can be added or removed as needed. On an in-house, licensed model, users and functionality can generally be added. However, removing users or functions will not result in a refund of the license purchase, although it may reduce on-going maintenance expenses.

Off-Site Access

Hosted and SaaS applications can generally be accessed from anywhere. Users can easily log-in to the system from home or other offices. A user in an out-of-town hotel can log-in and review a client record, run a report, or update expense information. In addition, any user with a “need to know” (such as an accountant, auditor, board member, etc.) who may not be located at the office can also access the system. While this can also be accomplished on an in-house system, it may require additional equipment and configuration.

Data Integration

Some SaaS and hosted providers offer multiple functions in fully integrated suites or ERP systems. This functionality might be beyond the reach of smaller organizations due to financial or technical considerations. By using software as a service, you may be able to gain greater breadth of functionality. In addition, workflow processes may be included in these systems as part of the “basic” solution, offering electronic review and approval of documents. Again, this is generally available with in housed systems as well.

Data Security

Hosted and SaaS services are now using portals for access which enhances data security. In fact, many organizations that house data internally also use portals for external access due to security concerns. Yet confidence in data security remains one of the largest obstacles to the hosted or SaaS system. While the industry assures users of the safety of their data, routine media reports of compromised security within data warehouses make many potential users skeptical. Indeed hosted and SaaS providers are facing ever increasing regulations on data security and encryption requirements. Compliance to these regulations are something a potential user will want to review.

Recent studies by the AICPA suggest a 12% adoption rate of cloud-based systems in the next 5 years. Of course, that means an overwhelming 88% of systems will continue to be licensed housed systems. Yet many experts see this trend as the beginning of what will ultimately become the new standard. As for end users such as you and I, we will need to use our tried and true due diligence practices and cost/benefit analysis to see which model best suits are particular needs.