You are likely already familiar with the terms Capital Expenditure and Operational Expenditure. However, recent developments within the IT world mean that you have more choices than every when choosing between Capex vs Opex. From cloud computing to software and more, technology solutions are becoming more subscription-based. It may make more sense for your company to explore whether a capital expenditure (a large outlay of money) or an operational one (a smaller, pay-as-you-use type setup) makes sense for you.
Pros/Cons of Capex
Capex for your IT budget means a large outlay of funds to purchase something outright – for example, servers. This can be useful in that you own the servers, and do not have to renew licensing like you would on an opex basis. However, typically capital expenditures require a large amount of money to be available to purchase items like software or servers, and with technology constantly changing, items purchased outright can often become outdated after only a few years, meaning you will need to outlay a large amount of cash again soon. In addition, making a larger purchase means attempting to predict your organization’s needs for the future, which can be difficult to truly determine.
Pros/Cons of Opex
Operational expenditures for IT are becoming more of a norm in today’s world. With so much storage migrating to the cloud, the cost model for data storage has shifted. You can now pay for storage on a monthly, as-used basis, instead of trying to predict how much you will need and spending a large amount of your technology budget at once. However, storage isn’t the only thing moving to the cloud or to a subscription-based fee. There are many softwares that are now “SaaS” – software-as-a-service. Microsoft has cloud-based services such as Azure that are also based around pay-as-you-use structures. And of course, while not entirely the same, paying for a managed IT services partner is a slightly different cost model than paying for an internal IT department. Operational expenditures mean a smaller expense up front. And it can mean cost savings in the long run, as you are not paying for items you don’t use. It also makes your IT budget more predictable, since you decrease the amount of sudden, large expenses you could incur. Now for the negatives – it should be noted that for items like cloud, this may not mean that this cuts costs (and in some cases, can increase costs), but it alters the timeline in which you pay for the solution quite significantly. It is a much less permanent solution than capex as mentioned, which can be a positive or a negative. Some management individuals may see Opex as a negative as it is more of an expense than an investment, as you will not own the mentioned solutions. However, with the landscape of technology constantly changing, it may still be more of an advantage to have flexibility with Opex than investments with Capex.
Compare Capex vs Opex for Your Organization
While there is no right answer for how to structure your IT budget, especially in the small-to-medium sized business space, it is important to be aware of the new developments in the wide variety of technology solutions now available on a more opex, rather than capex basis. Discuss with your technology and management teams to compare capex vs opex for your various technology solutions and see what is right for you.