This only recently became a key question you should be asking when upgrading your company's communications system.  I believe there are a few key things that are a no-go when looking at each system.  First, let me cover Hosted Solutions.  Specifically, if you have these items or issues, then this is not the right solution for you.

Bandwidth – Both quality and quantity are needed for a good experience with a Hosted Solution.  If either of these are an issue you will not be happy choosing this option.

Cabling – You need to know what type and quality of cabling you have.  If you do not have Cat 5e or Cat 6, you must upgrade.  This can be expensive, so it should be considered in your deployment.

Software Ties to your Communications Solution -  Many Customer Relationship Managment (CRM) and other software applications tie into phone systems, so you must make sure they are compatible with a Hosted Solution.

Paging – If you have a yard, halls or other paging solutions in place, they may not be compatible with Hosted Solutions.  Check before making a purchase.

Analog Ports – These can be used for cordless phones, paging, intercom, transfers from other locations and more.  Many Hosted Platforms do not include or have an ability to support this.

Call Center Applications – depending on the depth of your needs, an on premise based system could be the best solution.

Pricing – Since this is a monthly service, make sure you get in writing that your price is locked or at least guarantee minimum increases.  You don’t want to get everything set then have your prices increase year over year.

Moving over to the premise-based solutions, you need to validate many feature sets and upgrades to make sure you are making a good long-term investment.

IP – You want to make sure in today’s world you get a system that will, at a minimum, support IP phones and IP connections to remote locations.

Features – Many times features are billable upgrades.  Make sure you understand what is included and what is additional.

GUI (Graphical User Interface) – This is so you can administer your own system without extra charges.  Like changing usernames and voicemails.

Upgrade paths – This will allow you to expand the number of users, branch locations and licensing. 

Both systems have several things you need to be familiar with and that you need to address before making a purchase, such as:

• Remote Users
• Disaster Recovery – If something happens to phone service, Internet service, your building or more, how are you going to recover?
• Support – Make sure you have at least 8x5 support and better providers have options for 24x7 support. Depending on your business, you need to select the correct options.
• Provider – there are a lot of mergers and acquisitions happening in this space. Check the financial viability of the provider so it doesn’t just disappear, and you have a large investment with no support or upgrades
• Training – Make sure you get the training and training materials, so you can administer and train your own users.

So, in general the nice thing about a Hosted Solution is its flexibility, features and monthly payments.  Premise-based benefits can include long life, a potentially lower Total Cost of Ownership (TCO), a lack of  bandwidth requirements and bulletproof functionality. 

I hope some of these items help you down your path of purchasing a communications system for your business.