In the first two parts of this series, we talked about some key factors to consider when selecting financial accounting software, such as where the accounting application sits relative to the technology life cycle and what selection criteria are the most important. Now we’ll look at couple of other factors that should be considered when selecting new software for a not-for-profit organization.
5. Cloud versus On-Premise
Most organizations have historically run their accounting software on premise with in-house servers. Today, however, non-profits no longer need to invest in expensive servers and related IT resources. Instead, they have the option of running their applications in the cloud. Which leads to a big question. Should your new financial accounting application be in the cloud or on-premise?
Cloud Computing has been around since the 1990s, but it has really only been the last few years that it has become a viable option for financial applications. This is primarily due to two factors. First, high speed internet access has become more prevalent and reliable in recent years. Secondly, highly successful popular products such as Salesforce.com and Microsoft Dynamics CRM OnLine have proven that the concept is viable.
There are two types of financial accounting cloud solutions:
- Hosted Solutions. These are on-premise applications that are being hosted in the cloud and are accessible through the internet through thin-client terminal services from Microsoft or Citrix. An example of a hosted solution is Microsoft Dynamics GP.
- SaaS Solutions. SaaS (Software as a Service) solutions are applications that were written specifically for the cloud. An example of a SaaS solution is Intacct.
On the surface, Cloud Computing seems tailor made for non-profits. As with any technology, however, there are pros and cons that need to be considered:
- Non-profits are almost always struggling with out-of-date computers and IT infrastructure. With cloud computing, that is no longer an issue. Instead, non-profits can focus on their mission rather than no-value-added IT.
- Cloud computing allows you to implement new applications more quickly with lower up front investments. This, in turn, leads to a faster ROI.
- The total cost of ownership (TCO) of a cloud solution is generally lower because you no longer need to worry about IT resources, maintenance issues, upgrades and backups, etc.
- Because cloud providers have economies of scale, they can invest in far superior hardware, backup technology, power sources, internet connections and firewall and spam protection than the typical non-profit. Hence, your data is probably far more secure in the cloud than it is on-premise.
- SaaS solutions (and to a lesser extent, Cloud solutions) are accessible anywhere from any device.
- With cloud computing, you are dependent on internet connectivity. Of course, if you lose connectivity in your office, you can always go down to the local wi-fi hot spot and connect.
- You don’t have unrestricted direct access to your data. That doesn’t mean that you can’t access your data when you need to or that you won’t be able to eventually retrieve it if the hosting company goes out of business, for example. It does mean, however, that integrations and customizations may be more difficult.
In summary, cloud computing is clearly the wave of the future for non-profits and there is no reason not to consider running your financial applications in the cloud. Make sure that you understand the difference, however, between hosted solutions and SaaS solutions. Hosted solutions tend to be functionally richer, but they were not designed to run in the cloud so they are generally more expensive to run in the cloud and do not perform as well as on-premise or SaaS solutions. Furthermore, the user is still responsible for maintaining the software and managing updates and upgrades. With a SaaS solution, you never have to worry about upgrades because that is all handled behind the scenes by the vendor. Because SaaS solutions are still relatively new, however, they typically do not have the same breadth and depth of functionality as on-premise solutions.
6. Industry specific software versus mainstream ERP solutions
Another huge question when considering new software is whether you should go with an industry specific solution (i.e. software that was written specifically for the non-profit industry) or whether you should purchase mainstream ERP software that was designed to be adaptable to many different types of industries and situations. As you might expect, there are pros and cons of each option:
Pros of Industry Specific Software:
- Potentially better industry functionality or fit
- Less effort to setup up because already configured for the industry
- Potentially quicker to benefit
Cons of Industry Specific Software:
- Limited reporting flexibility. Typically, you are locked into the reports that come with the system and creating custom reports is expensive.
- Little flexibility to adopt to new situations. For example, maybe you want to add a for-profit division.
- Difficult to integrate with other applications.
- Often well behind the technology curve because of limited R&D resources.
- The backoffice accounting (G/L, A/P, etc.) portion of the solution is typically weak or non-existence.
- Too much dependence on the vendor for enhancements and support. Typically little or no local support and very few ISV (Independent software vendor) relationships.
In general, if you want a flexible system that allows you to easily query your data and make information easily accessible to all of your stakeholders, you probably want a mainstream ERP application.
To be Continued…..
Maner Costerisan, a Michigan-based CPA firm and Microsoft Gold Certified Partner, specializes in helping Not-for-Profits improve operations and support their mission through accounting, CRM and productivity software solutions. For more information on how we can help you excel in these challenging economic times, please contact us or visit our website.