Businesses are always short on two key ingredients: time and money. While we can’t point you towards any reliable time machines just yet, we can share some tips on how to save money while running your business more efficiently.
To do so, we must turn to the discussion of capital expenditures (CAPEX) versus operational expenditures (OPEX). Both of these have their particular merits for individual use-cases.
However, for IT purposes, OPEX reigns supreme.
The Difference Between CAPEX and OPEX in IT
CAPEX usually refers to the one-time costs incurred by businesses to purchase goods and services that result in boosted company revenue. Practical examples of CAPEX purchases include company vehicles, office computers, or even a new office building.
On the other hand, OPEX costs are ongoing. These are the costs incurred by organizations to run their day-to-day operations. Common examples of OPEX costs include research and development expenses, office building rent costs, marketing costs, and even employee payroll.
For IT specifically, CAPEX and OPEX turn into a slightly different discussion. The rise of software-as-a-service (also known as SaaS) model has fundamentally changed the way businesses process IT costs.
The discussion changes fundamentally – why purchase costly servers and application hosting platforms, when you can simply rent them instead?
The Case Against CAPEX in IT
In the modern business landscape, many CFOs are phasing out CAPEX for IT purchases. There are are a few reasons why, including:
- Hefty initial investments. For example, a single and relatively straightforward server will run around $3,000 to $5,000.
- Being stuck with outdated technology. Unless the company wants to keep purchasing newer and more advanced tech, they’ll be stuck with the old one until the investment pays off.
- Unpredictability. It’s extremely difficult to predict the exact IT needs of an organization. A bulk order of costly computers with a certain processing capability may be overkill in a year. Similarly, it’s dangerously easy to underestimate the needs, leaving companies with underpowered devices and software.
Why Shift to OPEX?
CFOs are typically hesitant to shift over to the OPEX approach. In years past, they’ve largely been satisfied with amortization and trackable depreciation values of tangible assets through CAPEX.
Additionally, increased IT budgets have created concerns about whether companies truly are getting the best value on the dollar. Worldwide IT spending is projected to total $3.7 trillion in 2018, an increase of 4.3 percent from 2017 estimated spending of $3.5 trillion, according to the latest forecast by Gartner, Inc.
The benefits of OPEX in IT drew the attention of CFOs for that exact reason. Through three primary reasons, switching to OPEX continues to be an attractive option for organizations of all sizes.
A direct opposite of a CAPEX problem, OPEX usually functions on a set-cost basis. For example, a Microsoft Office 365 license is repeatable and locked in, resulting in trackable and measurable costs. Renting server space from a data center provides multiple mobility and technology benefits, as well as a set fee over the course of a rental period.
From a budgeting standpoint, it’s far easier to track and explain the necessity of IT assets with OPEX costs. Another added benefit is easier monitoring of all company assets – it’s hard to forget about one of your services if you’re constantly being billed for it.
With OPEX, organizations can audit themselves more easily and maintain tighter control over their IT operations.
CAPEX locks organizations into their current software and devices. To upgrade them, they require additional purchased assets that can be extremely expensive.
However, one of the biggest benefits of OPEX is the ability to scale. Because most cloud services and SaaS operations work on an adjustable scale, it’s easy to add or drop resources without needing to seek out an entirely new service or work around a time-related penalty.
For example, purchasing additional storage space with a cloud-based provider is as simple as pressing a few buttons and paying slightly more per month. Similarly, downsizing and eliminating unnecessary expenses is as easy as pressing a few buttons and paying less.
No Hidden Costs
One of the more abstract cost savings comes from the lack of hidden costs in many OPEX options. For example, purchasing a server as a capital expense doesn’t mean you just pay for the server.
You’re now bound to pay for other expenses, such as electricity costs and maintenance. You’ll also need to consider where to put the server. It can’t sit out in the open, so you’ve got to find a secure hosting location with ample cooling.
On the other hand, OPEX can save the day. Using cloud-based server technology means organizations can save money by still accessing the same server technology, without any of the associated hidden costs.
Let’s Talk OPEX
Overall, OPEX is the better way to approach spending within a company. OPEX in IT is far more likely to save money, as well as reducing the headaches of stress and commitment that come with purchasing all of your assets.
Switching to a more OPEX-heavy model isn’t always easy, but it doesn’t have to be hard. The team at IPRO is here to help answer any questions you may have, or even to help you make the transition. Contact us today if you’d like to learn more about OPEX and how it can save your business money.