CapEx vs. OpEx: Why Shifting to OpEx Makes Sense
When it comes to purchasing IT infrastructure, IT professionals typically have two options to choose from:
- Acquiring new IT infrastructure as a capital expense (CapEx)
- Or acquiring them as an operating expense (OpEx)
As more businesses switch from traditional software and hardware ownership to as-a-service models, Finance and IT departments must reconcile how best to categorize cloud costs.
According to a Gartner report, IT spending was expected to grow by 4% to $3.8 trillion by the end of 2021. Traditionally, acquiring IT infrastructure meant procuring them outright as part of your capital expense. Those days are gone. With the rapidly changing technology necessitating the need to keep abreast with the latest innovations, following the OpEx model can help your business not only keep up but also help curb overspending and optimize your IT budget.
In this article, we’ll briefly define CapEx and OpEx and also enlighten you on why shifting to OpEx is a prudent move.
What Is CapEx?
CapEx (capital expenditures) refers to the money businesses spend on fixed assets, including their purchase, maintenance, and improvement. One-time purchases of these assets are meant to benefit your business over several years. Some of the IT assets that are usually purchased using CapEx include IBM power systems, Intel-based window servers, and other IT infrastructure.
Challenges of CapEx
Some of the challenges that you may face when you allocate an IT budget using CapEx include:
- There will be less cash flow for accomplishing short-term goals, given the large capital outlay that CapEx demands.
- There’s a greater likelihood of making mistakes when approximating future capacity requirements when procuring IT assets and services.
- There are difficulties and lengthy bureaucracies involved when approximating the IT budget and getting it approved.
- Scaling upwards or downwards in response to changing market conditions is a challenge.
- Overspending often occurs when attempting to keep up with the rapidly changing market conditions.
- Upon acquiring a particular technology, your business is locked in and won’t be able to take advantage of the latest tech innovations.
What Is OpEx?
OpEx (operating expenses) refers to the money spent to support day-to-day business operations. OpEx IT infrastructure is generally used within the year it is procured. Examples include printer cartridges, web domain registrations, web hosting, and annual service or maintenance agreements.
Benefits of Moving From CapEx to OpEx
Here is an outline of some of the benefits of moving IT investments from CapEx to OpEx:
1. Lower Upfront Cost
When using OpEx, you need not pay for all your technology infrastructure at once. Upon signing a leasing contract with your preferred Managed IT services company, you’ll gain access to the IT assets and services you require for a fixed and predictable monthly fee. As such, OpEx helps free up a large chunk of your IT budget, which can be used in projects that are more revenue-generating.
2. Increased Agility
Another benefit of shifting your IT investment from CapEx to OpEx is the increase in agility. In other words, you’ll be able to scale your business’s IT infrastructure as needed.
3. Access to Current IT Assets and Services
OpEx provides numerous options to gain access to the latest IT assets and services for your business. By entering into an agreement with a proven and trusted MSP, you’ll be able to access secure and reliable networks at fixed and affordable monthly costs. The OpEx model offers numerous as-a-service options, including Infrastructure-as-a-Service (IaaS), Software-as-a-Service (SaaS), and Device-as-a-Service (DaaS), to help keep your business’s operations current and running optimally.
4. No Depreciation Costs
Opting to follow the CapEx model will mean that you’ll have to worry about your IT assets aging behind the latest technology or depreciating. Nonetheless, leasing your IT infrastructure under the OpEx model means that you won’t have to worry about them aging, given that all upgrades and maintenance are included in your package.
5. Less Red Tape/Bureaucracies
As opposed to CapEx, which involves several red tapes, with OpEx, the process of approving the IT budget is much quicker, especially if you pay low monthly costs. This minimizes the precious time lost in meetings chasing signatures. It also facilitates more productive outcomes.
6. Reduced Responsibility for Upgrades and Maintenance
Once your business partners with a proven and dependable managed IT services company, you won’t have to worry about upgrades and maintenance. All your backups, IT support and repairs, operating system upgrades, and onboarding assistance for your team will be taken care of by the IT services provider. This frees your internal team to focus on tasks that grow your business’s bottom line.
7. Predictable Spending and Stable IT Budget
By leasing IT services and IT assets on an as-needed basis, you’ll spend less funds on your IT budget. Additionally, with affordable and fixed monthly costs, you’ll be able to predict your IT spending easily. When your IT spending is predictable, you’ll have an easier time calculating the ROI of your IT investments.
8. Scaling and Responding to Market Conditions is Easier
Markets and technology are constantly evolving. As such, your business operations should have the capacity to scale and respond to these changes. With a flexible operational expenses framework, there’s no long-term commitment, so you can:
- Easily switch to a new product that best suits your business’s needs
- Turn your services on and off as needed
- Quickly scale your operations upwards or downwards
In the rapidly changing regulatory environment, there’s immense pressure for businesses to maintain consistent compliance. That said, a robust infrastructure alone won’t enable you to meet compliance standards. OpEx enables you to partner with a managed service provider with top-tier certifications such as FedRAMP and FISMA. Such a provider will help ensure that your business remains compliant. You’ll only need to pay affordable monthly fees.
Make the Switch From CapEx to OpEx
Given the fast-paced nature with which technological advancements are taking place, OpEx is more suitable given its fluid nature. Do you want to shift your business’s IT investments from CapEx acquisitions to OpEx? On-Site Computers Inc. is the ideal partner. We offer a wide range of technology solutions, including hardware services, IT consulting, managed services, cloud services, virtualization, structured cabling, and more. Contact us whenever you have a technology requirement or need.
Mike Bowe | Published on February 20, 2022