Capex Verses Opex: Making the Right Decision

We are coming out of the financial crisis and things are starting to turn round but money is still tight. Deciding what to spend money on lies at the heart of success for many businesses and it’s something that IT directors and CFOs everywhere are having to come to grips with.

What do we mean by capex and opex?

Capex stands for capital expenditure and it involves the money you spend on things like buildings, machinery and other facilities. Operational expenditure, or opex, is the money you spend on things like the day to day running costs such as wages, utilities and repairs.

How capex and opex figure in IT support

In the past, Directors favoured capital expenditure when it came to IT infrastructure because they have control of how it is gradually paid off and can keep track of the depreciation over time. It works when you have a clear idea what your company needs for the future and are certain that the outlay is going to be worth it and effective.

With the development of technologies like the cloud, however, more and more CFOs are beginning to take a more operational expenditure approach, opting for managed support and technical consultancy delivered remotely. Seeing IT as opex rather than capex means that you no longer need to invest in the infrastructure but can pay for it on an ongoing basis as you would with any other utility.

The benefit of IT as capex

The one real benefit that comes with buying your own IT infrastructure is that, at some point, you get to own it. The problem nowadays is that technology is changing rapidly and businesses need to keep up with the latest developments if they are going to compete. Seeing IT as a capital expenditure is becoming ‘old fashioned’ particularly for small to medium size businesses looking to expand.

The benefit of IT as opex and managed support

The debate over capex and opex in IT is really something of a red herring. The real issue is whether organisations should be investing in IT infrastructure, along with the costs of employing the people to maintain it, or outsourcing it to a third party supplier. It’s a question of money yes, but also a matter of which provides the best service.

The money issue is one of making a substantial payment for installation and maintenance over having your IT supplied on a bespoke basis without taking on site responsibility. What happens when your IT infrastructure suddenly becomes out of date? Is your IT team up to the job? Is it better to have a technical consultancy?

Treating IT as an operational expense has several advantages:

* It can be tailored to your needs. * You pay a monthly cost that is lower than the overall initial expenditure in having a server installed. * You get access to the latest technology and security systems. * It can grow and change as your business grows. * Capital is freed up because it isn’t earmarked for a big project.

The truth is that technology has now developed to such an extent that IT can be effectively supplied remotely. An established IT support provider can evaluate your business IT infrastructure, tailor provision to your current needs and help your grow more efficiently.