AX TCO

Cost of Microsoft Dynamics AX in the Cloud vs On-Premise (TCO)

Microsoft Dynamics AX is Microsoft’s flagship enterprise resource planning (ERP) product designed to manage operational and administrative business functions for midsized and large enterprises. Growing companies choose to invest in Dynamics AX because it not only offers complete functionality to optimize business processes, it provides a solid platform that supports scalability, complex integrations, advanced security and development requirements, and large global deployment scenarios.

When choosing the right ERP solution for your business, there are a lot of factors to consider. Features and functionality are important because you want to make sure that the solution can meet your everyday needs. The time it will take, the value it can provide, how you will deploy the solution – all of these are essential to the decision making process. But it’s the total cost of ownership (TCO) that can be the make or break point in all decisions.

Microsoft Dynamics AX Implementation Cost & Carrying

The total cost of an ERP solution can be a confusing number where it’s not a one-time fee. When you consider all the direct and indirect costs that you need to take into account every year, it can be overwhelming. Which is why you need to be able to identify all software, services, and maintenance fees and be able to accurately forecast spanning your solution’s entire lifecycle.

The most obvious direct costs are annual software licensing fees. That fee is purely dependent on the product you choose to implement and the number and type of people using the solution. Most ERP solutions will have basic levels of licenses to work with so you can mix and match what you need. The Microsoft Enterprise Agreement (EA) is a licensing program for companies that want to standardize IT across their enterprise yet retain the flexibility to choose from on-premises and cloud services. It includes volume pricing, the flexibility to transition to cloud services at your own page, and simplified licensing management.

Through this EA, Dynamics AX offers flexible licensing options for Dynamics AX 2009, AX 2012, AX 2012 R3 and Dynamics 365 for Operations (previously referred to as AX7 or AX2016). You have to purchase a subscription license (SL) for every internal user who accesses the AX service, which ranges from User SLs (mix and matching between self-service, task, and enterprise) and a Device SL, where you can enable a license for a device used by multiple individuals.

So what are the other costs outside of obvious licensing fees and installation? Here is a list of all the costs you will need to factor into your TCO calculations:

  • Installation and set up
  • Customization and integration
  • Pre and post implementation support
  • Data migration
  • Employee training
  • Software upgrades
  • Hardware and hardware maintenance fees
  • Additional software licensing fees
  • New IT hires to keep your system up and running

The other area that we still need to factor into our calculations is deployment method.

How Software Deployment Decisions Impact TCO

TCO can change drastically when start to consider deployment methods. The trouble is, not every company has an understanding of what the difference between on-premise and cloud, Software-as-a-Service (SaaS). In the simplest form, when a company chooses to deploy Dynamics AX on-premise, we install and run the software on the company’s hardware and servers (i.e their physical location). This is normally managed by the company’s IT department. When a company chooses to deploy Dynamics AX in the cloud, the software, databases, and associated data are delivered through the internet and can be accessed on any device with a web browser.

So what’s the best option? There are pros and cons to both methods but at the end of the day, what works best for you will depend on your environment, size, growth plans, and compliance requirements. If we just look at costs, in general, SaaS solutions are known for their lower entry costs compared to on-premise solutions. With minimal hardware fees, a price per user guarantee, and maintenance and support fees typically bundled into subscription fees, it is a significantly lower investment starting off. On-premise solutions cost more in the initial year and around year 5 or 6, which is the average lifetime of a server. There are a lot of non-financial costs you need to consider when making a decision on deployment, but it does help to see how these costs evolve over time. Let’s take a look at this simple chart comparing the TCO of an on-premise solution versus a cloud ERP solution.

On-Prem vs Cloud Chart

The numbers in this chart are meant to illustrate the cumulative spend of ERP over a 5-year period and should not be taken into consideration for any calculations. Before you make any decisions, you should speak with a partner like Rand Group for a full comparison of all on-premise, cloud, and hybrid options based on your own business requirements.

Dynamics 365 for Operations Available in the Cloud & Hybrid On-Premise

With the latest version of Dynamics AX now evolved into Dynamics 365 for Operations, you have the choice to either deploy the solution in the cloud on Azure or through a hybrid cloud option. NOTE: The availability of the hybrid cloud is still TBD and dates are yet to be confirmed by Microsoft. Customers willing to run their operations in their own data centers will still have the power to connect to the cloud services such as PowerApps, Flow, Power BI, IoT and more.

If you want to get started today, we suggest pursuing a pragmatic approach that combines the best of both cloud and on-premises environments. Dynamics 365 for Operations will enable organizations to run all their business processes on-premises connected to the cloud for a single view of the business across distributed on-premises environments, thereby providing on-premises support while utilizing the power of the cloud for intelligence in business processes. The cloud connection ensures data aggregation, financial reporting, intelligence, backup and disaster recovery and more.

All cloud and on-premises deployments are managed by Microsoft Dynamics Lifecycle Services (LCS), including the automation of best practices deployments, which helps improve quality and lower the risks of implementations. And when it comes to using Dynamics 365 for Operations, regardless of a cloud or on-premises deployment, people across the organization have access to the data and business processes through a single, integrated, and improved user experience. This approach will substantially help our customers to scale in highly distributed environments while empowering people a single view of the business. The local on-premises deployments capitalize on the customer’s data center investments and ensure that extreme business continuity requirements are met. It also helps organizations meet data residency and compliance requirements more easily. At the same time, the customer can benefit from automated deployments and updates, telemetry, and intelligence that the cloud offers. This gives our customers the best of both on-premises and cloud worlds – and initial feedback from participants at Summit ‘16 has been overwhelmingly positive.

Before you make any decisions, and because Dynamics 365 is a new product, we suggest you get a personalized quote from a professional. Put your trust in a partner like Rand Group, to ensure you make the best, financially-sound, decision for your business. At Rand Group, we support and understand all the nuances of on-premise, cloud, and hybrid deployment of Dynamics AX – no matter what version you are on.

– Software Delivered as Promised. No Surprises.

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Kevin Endres

Insight written by Kevin Endres

Vice President, Dynamics AX at Rand Group

Driven and analytical, Kevin Endres is a motivating Vice President with a keen desire to build exceptional teams. With over 23 years of ERP implementation experience, with a focus on Dynamics AX, Kevin has helped companies resolve mission critical issues, redesign business processes in accordance with best practices, and ensure implemented systems provide a positive ROI.

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