There seems to be much debate going on in many organizations around whether Capital Expenditures (CapEx) or Operational Expenditures (OpEx) is the better way to go in regard to technology investments.
Many organizations are trying to determine if it’s better to have more CapEx – that is, investments in the actual physical resources behind the technology (for example, servers, network pipes or hardware). Other organizations, on the other hand, argue in favour of having more OpEx; paying month-to-month for services makes more sense to their business model, and they prefer the flexibility that OpEx offers.
So which one is better? Jaime McMahon, VP of Sales & Marketing for ProServeIT, recently presented his own thoughts on CapEx and OpEx at a University of Toronto Continuing Education course on Cloud Computing. Here’s what Jaime had to say:
Q: So, Jaime, what do you feel is more beneficial for organizations when adopting new technology in their business? CapEx or OpEx?
JM: Well, I think it depends on what industry the company belongs in. For some industries, CapEx will work better for their business models, and in other industries, an OpEx focus might be more appropriate.
Q: Can you give us an example?
JM: Sure. Public sector organizations like government, municipalities, or healthcare, tends to prefer a CapEx approach. Budgeting, especially when that budget varies, is very difficult for them, so they’ll often try to convert OpEx to CapEx to meet their budgetary and procurement requirements. On the other hand, the Professional Services industry – legal, finance or human resources companies, for example – might prefer an OpEx approach, because it gives them the flexibility to introduce new technology into their workplace. They can dip their toes in the water, so to speak, without having to shell out large amounts of money. This is especially important if they’re also a small business that doesn’t necessarily have the capital to invest in their own equipment.
Q: You spoke about introducing new technology into the workplace. How do you feel OpEx reduces the common barriers to entry in this regard?
JM: OpEx makes trying new things a lot easier for companies, plain and simple. In an OpEx world, a business owner or IT director or CFO can say, “you know what, I’ll give this a shot for a month or two and make sure it’s right for my company. If it is, that’s great, I’ll move forward with the idea. But if it’s not the right fit, I can choose to exit without much of a penalty.” That’s a good thing, because it allows for much more agile thinking around IT.
Q: Scalability is also much more agile when using an OpEx approach, is it not?
JM: Oh, absolutely. Let’s say you’ve got a larger organization and the cost to implement a new technology is ten thousand dollars a month. Instead of going all in and hoping that it works (which would be more in line with a CapEx approach), you can test out your idea on a fraction of your users, which reduces your monthly cost to a fraction of the total cost and gives you the opportunity to test if that new technology will be viable for your business before committing everyone to it. That OpEx approach allows you to minimalize your barriers to entry – once your idea’s been proven to work, you can easily scale up, or, if the technology proves not to be the right one for your organization, you can walk away without feeling too much pressure.
Q: So, it sounds like you’re an advocate of OpEx over CapEx.
JM: Not necessarily. I don’t want to say that OpEx is always the better answer. It really depends on the industry that the organization is in, and there are some options where having the physical environment is a better choice for that particular organization. But, depending on what the organization is looking to do, OpEx does make things much easier for an organization to implement new technology or Cloud Computing options.
Comparing CapEx and OpEx - A summary
|Description||CapEx, or Capital Expenditures, refers to investments in the actual physical resources behind the technology (for example, installing servers, network pipes or hardware).||OpEx, or Operational Expenditures, refers to ongoing, month-to-month expenditures that are used to run the business.|
|Ideal Industries||- Public Sector Organizations (i.e. healthcare, government, municipalities).
|- Professional Services Industry (i.e. legal, finance, human resources).
- Small Businesses.
|Benefits||- Can be easier for some organizations to meet budgetary requirements.
- Organization owns the equipment once it’s been paid off.
|- Flexibility to introduce new technology into their workplace.
- No need to shell out large amounts of money.
- Allows for much more agile thinking around IT.
- Scalability is easier and more cost-effective.
Exploring Your Options Talk to Us Today!
If your organization is currently exploring your options around CapEx and OpEx solutions, talking to IT experts as part of your decision-making process can be of major benefit to you. The IT experts can provide your organization with a comprehensive analysis of the benefits and disadvantages of each option in relation to your particular goals and objectives. They can also provide your organization with insights into what other customers have chosen and their experiences.
ProServeIT has helped numerous organizations for over 15+ years, and we have witnessed our customers benefiting from both CapEx and OpEx solutions. We have helped them determine which option is a better fit and understand the benefits of Cloud Computing. Let us help you examine the two options and create a customized roadmap to implement your chosen solution in the most effective way. Contact us today!