When it comes to capital expenses, there’s just no beating around the bush: companies hate them if they need the cash on hand. Capital expenses, or CAPEX, generally involves large asset purchases paid in a lump sum that depreciate over time.
That’s why IT, with its investments in goods such as equipment, infrastructure, and software licenses, has traditionally been categorized as CAPEX—a necessary evil that piled on to an organization’s balance sheet while unhappy CFO’s looked on.
But that’s all changing thanks to the cloud.
CAPEX vs. OPEX
Today, the cloud has made it possible for IT expenses to migrate toward the other side of the balance sheet, becoming an operational expense, or OPEX. Rather than drop a lot of money on assets upfront, the cloud allows finance to treat IT as an operational expense that will be incurred on an ongoing basis, usually monthly. This is preferable, as operational costs are viewed simply as the cost of doing business.
Think of it this way: what would be easier on your personal finances: purchasing a house upfront or making monthly payments?
For IT experts who may not be well-versed in the world of finance, it’s important to understand CAPEX and OPEX. Being knowledgeable about both, and especially the benefits of OPEX, will help you to speak confidently with your company’s C-Suite about how a shift to the cloud or the as-a-Service model of business can get your company more for less, a prospect that is certain to help expedite approvals and quicken adoption of cloud-based strategies.
Southern Florida College: A Real-World Example
Services recently performed for a Florida Southern College (FSC) illustrates perfectly how IT can work as an OPEX.
FSC’s IT team had been informed that the campus IT center would be losing power for nearly two days due to building construction, which would likely cause the servers to go down. The unacceptable result of this?
- 2,800 students would be unable to do their online coursework.
- 270 faculty members would be unable to exchange email
- Online recruiting and registration would be halted
Looking for a fast yet dependable fix, the college CIO brought in IT firm DSM. Their solution? Temporary virtualization of the college’s physical web servers utilizing a virtual private cloud and their Miruma Protect Disaster-Recovery-as-a-service offering. In a manner of days, FSC was ready for the cutover, and everything went off without a hitch. They moved to the cloud on a Friday night, and were switched back to their primary servers on Monday morning without interruption.
In the past, FSC likely would have had to make a costly offsite server purchase as CAPEX to backup data while the project was being worked on. Once the project was complete, however, the servers would no longer be used, making the expense necessary but wasteful. Even if the servers were able to be repurposed, the cost would be incurred all at once while the usefulness of the server would last for months or years.
Today, FSC and others like it can use a cloud provider to pay only for temporary services as needed, making it a much more CFO-friendly OPEX.
Additional OPEX Benefits
Because everything ultimately revolves around the bottom line and Return on Investment (ROI), it can be very difficult to explain the advantages of making a six-figure infrastructure purchase to someone in charge of pinching every penny. However, as an OPEX, it’s very easy to see how much storage was used and the protection provided within any given month, and the price that was paid for it.
But the benefits don’t end there. With a CAPEX, you need to take into account depreciation—not so with OPEX. You paid a set amount, and received a specific service; it’s that simple. OPEX also makes growth easier. Need more storage? Simply increase capacity with your current vendor. Gone are the days of vetting vendors or products, waiting on approvals, and waiting through lengthy implementation processes.
OPEX also benefits management by allowing them to focus on growing the organization—developing new products, entering new markets, taking care of and acquiring customers—rather than putting out fires.
Take a page from Kevin Duggan’s book, Design for Operational Excellence: A Breakthrough Strategy for Business Growth. “By removing the need for management intervention,” writes Duggan, “companies leadership is freed up to unleash the power of their organization to grow.” And whether you’re in IT or finance, those are words we can all learn from.