CapEx and OpEx – What’s the Best Option for Technology Investments? – CIO

There’s a lot of debate around whether Capital Expenditures (CapEx) or Operational Expenditures (OpEx) is the better way to go in regard to technology investments. A number of organizations think it’s better to have more CapEx – that is, investments in the actual physical resources behind the technology (for example, servers, network pipes or hardware). On the other hand, some organizations argue in favour of having more OpEx: Paying month-to-month for services makes more sense to their business model, and they prefer the flexibility that OpEx offers. Here are frequently asked questions and answers.


Which option is more beneficial for organizations when adopting new technology in their business? 

This all depends on the company’s industry. For some industries, CapEx will work better for their business model, but other industries may find an OpEx focus to be more appropriate.

For example, public sector organizations like government organizations, municipalities, or healthcare companies tend to prefer a CapEx approach. Budgeting, especially when that budget varies, is very regulated for them, so they’ll often try to convert OpEx to CapEx to meet their budgetary and procurement requirements.

On the other hand, the Professional Services industry – like legal organizations, finance, or human resources companies – might prefer an OpEx approach, because it gives them the flexibility to introduce new technology into their workplace without committing to large up-front expenses. They can dip their toes in the water, so to speak, without having to shell out lots of money. This is especially important if they’re also a small business that doesn’t necessarily have the capital to invest in their own equipment.


How does OpEx work to reduce the common barriers to entry when new technology is introduced in the workplace?

OpEx makes trying new things a lot easier for companies. In an OpEx world, a business owner, IT director, or a CFO can say, “you know what, let’s give this a shot for a month or two and make sure it’s right for my company. If it is, I’ll move forward with the idea. But if it’s not the right fit, I’ll be able to get out of this without much of a penalty.” So, in this regard, OpEx removes the common barriers to entry that many organizations face.


Which option provides more scalability?
 

Let’s say the cost to implement a new technology is US$10,000 a month. Instead of going “all-in” and hoping that your new technology works (which would be more in line with a CapEx approach), an OpEx approach allows you to test out your idea on a portion of your users first. This reduces your monthly cost to a fraction of the total cost and gives you the opportunity to test if that new technology will be viable for your business before committing everyone to it. Once your idea’s proven to work, you can easily scale up, or, if the technology proves not to be the right one for your organization, you can walk away without feeling too much pressure, or suffering too much of a financial setback.


Which option is better for your organization?
 

As mentioned, the choice between CapEx and OpEx really depends on the industry that your organization is in. For some organizations, investing in and having the physical environment is a better choice. In contrast, depending on what your organization is looking to do, OpEx may make things much easier for your organization to implement new technology or Cloud Computing options. Therefore, knowing your organization’s requirements and needs should be the first step when determining whether you choose a CapEx model or OpEx model.


Comparing CapEx and OpEx – A Summary

 

CapEx

OpEx

Description

Capital Expenditures (or CapEx for short), refers to investments made in the physical resources behind the technology (i.e. network pipes, hardware, or servers).

Operational Expenditures (or OpEx for short), refers to ongoing monthly expenditures that are used to run the business (i.e., a monthly hydro bill).

Ideal Industries

–    Public Sector Organizations (i.e. healthcare, municipalities, or government organizations)

–    Manufacturing

–    Professional Services Organizations (i.e. legal, finance, or human resources organizations)

–    Small Businesses

Benefits

–    Can be easier for some organizations to meet budgetary requirements.

–    Your organization owns the equipment once it’s been paid off.

–    Flexibility to introduce new technology into your workplace.

–    No need to pay out large amounts of money.

–    Allows for a more agile IT environment.

–    Scalability is easier and more cost-effective.


About ProServeIT

As a multi-award-winning Microsoft Gold Partner, ProServeIT has been helping organizations of all sizes increase their efficiency, eliminate their “IT debt” and apply a security lens to everything they do. ProServeIT understands that every organization has different needs and challenges, and they will work with you to understand your organization’s culture, your customers, and what’s most important to you as a company. Providing customized solutions that help you simplify your IT infrastructure, increase your team’s productivity, and grow your business, ProServeIT can use their expertise and experience to digitally transform your business.

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