What does the phrase “Opex instead of Capex” mean when it comes to IT expenditures? Why would it make any difference? How can you use this new option to increase your bottom line?
Usually these financial decisions are left up to the CFO. But now it’s just as important for the IT Manager/Director to be looking at this opportunity. It’s clearly a shift in thinking about moving some of the IT Capital Expenditures in your budget to Operating Expenditures.
Big ticket items like servers and phone systems are capitalized to spread the costs over time and take advantage of amortization and depreciation. As a Capex line item, it’s in the budget and shows up on the Balance Sheet. The expenses are typically managed on an annual basis.
Operating expenses are day-to-day costs of running the business and are managed monthly. These expenses appear on the Income Statement as “Operating Expenses.” They often vary from month to month.
In the IT world, this example is pretty straight forward. Do you buy a new server and put it on your Capex budget and manage it yourself or do you use Cloud Services and pay for it monthly as an operating expense and let someone else worry about the maintenance, updating, breakdown and replacement costs? Certainly a cost is attached to each alternative, but don’t forget about the soft costs that don’t appear on the financial reports. For example, how much time are your IT employees spending supporting older equipment and systems rather than contributing to new ideas, researching opportunities and technology solutions for the company?
Software as a Service (SaaS), Infrastructure as a Service (IaaS) and even Managed Services all offer opportunities for IT to move some Capex costs to the Opex budget. Watch for future articles that explore each of these options.