Vinsun ERP Problem

2. Evaluate TCO (Total Cost of Ownership) over a period of five years for the options
available to VINSUN
The Total Cost of Ownership of Vinsun for the three alternative are given below in
the table :

Item
Workstation x6
Workstation
UPS x6
Laptops x2
Server
Backup up
server
Server UPS x2
Initial Hardware
cost
Hardware
maintenance
(yr 1)
ERP Software
x8
Consulting
Deployment/
Installation cost
Training
Service Fee x8
x12
Data Storage
Cost
Software Cost
Software
maintenance
(yr 1)
Network
Router
Infra set up
Router
maintenance
Infra

Codeautomat
Bluechip's on ion
Codeautomation
Premise ERP Premise ERP
Cloud ERP
209700
209700
22290
132488
100000

22290
132488
70000

100000
7750

70000
7750

572228

512228

57222.8

51222.8

960000
80000

240000

520000
180000

200000

1740000

440000

172800

36000

15479
120000

15479
120000

1547.9
12000

1547.9
12000

maintenance
Internet
Total network
yr1
Total year 1
cost

11988

11988

161014.9

161014.9

2703265.7

1200465.7

572228

512228

286114
1740000

256114
440000

864000

180000

135479

135479

7739.5

7739.5

60000
59940

60000
59940

3725501

1651501

Five year cost

Hardware Initial
Hardware
yearly
Maintenance
rate x5
Software Initial
Software yearly
Maintenance
rate x5
Data Storage
Cost
(compound)
Network Router
and
infrastructure
setup
Router
maintenance x5
Net
Infrastructure
Maintenance
X5
Internet x 5
Total Cost of
Ownership(Yr 5)

The Total Cost of Ownership for 5 years for Bluechips on Premise ERP Solution is
around Rs 37.25 Lacs, where as for Codeautomations on Premise ERP solution is
around Rs 16.51 Lacs only while for Codeautomations on Cloud ERP solution it is Rs
21.36 Lacs.

3. Given your analysis, suggest what Satav should do? Justify your suggestions.
It may not be a sensible decision to choose ERP on Cloud over ERP on premises as
the variable costs in case of ERP on cloud are too high and keep on increasing at a

compounding rate as the data storage requirement increases. The ERP over cloud
appears to be 32% cheaper than on premise ERP in the 1st year. However the
variable costs keep on increasing at a compounding rate in case of Cloud ERP and
the total cost of ownership surpasses the Premise ERP and increases by upto 29.3%
in year 5.
Thus in view of long term planning VINSUN should not opt for the ERP on cloud
option. The only strategic advantage gained by Cloud ERP is its accessibility over
internet. If VINSUN is of the opinion that this advantage can surpass the cost
advantage by on premise solution then it may consider cloud ERP, otherwise On
Premise ERP solution is the best option for VINSUN.