On-premises software (abbreviated to on-prem, and often written as "on-premise") is installed and runs on computers on the premises of the person or organization using the software, rather than at a remote facility such as a server farm or cloud. On-premises software is sometimes referred to as "shrinkwrap" software, and off-premises software is commonly called "software as a service" ("SaaS") or "cloud computing".

The software consists of database and modules that are combined to particularly serve the unique needs of the large organizations regarding the automation of corporate-wide business system and its functions.

On-premises software is established within the organisation's internal system along with the hardware and other infrastructure necessary for the software to function.

Cloud-based software is usually served via internet and it can be accessed by users online regardless of the time and their location. Unlike on-premises software, cloud-based software users only need to install an application or a web browser in order to access its services.

For on-premises software, there are several costs expected to incur until the software and its services would be fully available for use. First of all, the construction of on-premises software within the organisation requires high initial costs, including costs incurred for the purchase of hardwares and other infrastructures as well as costs required for software installation and examination. In addition to this, the entity is entitled to the purchase of the license particular to the software, which involves costs and time for the preparation and required procedures. Furthermore, in order to maintain the software functionality, sustainable maintenance and operations are required and the entity will be subjected to the costs incurred for these as well.

On the other hand, in general, the initial costs required for the use of software services are considered relatively low for cloud-based software and thus suitable to small enterprises without a large amount of capital. Moreover, cloud-based software users are not subjected to license fees as well as maintenance and operation costs since these are on hands of software vendors. Furthermore, costs incurred for infrastructures are expected to be smaller compared to on-premises software as users only need their electronic devices to be able to get access to the services.

Although initial costs for the access to services are usually low for cloud-based software, total costs required for the use of software over a specific time period are unsure as cloud-based software requires routine payment (i.e. monthly subscription fee) for the use of services whereas on-premises software does not.

The entity using on-premises software are fully responsible for the daily operation and maintenance of the system by itself. This results in more time and costs required for the system operation as well as IT personnel who have specialization in managing the system.