Operational Expenditure vs Capital Expenditure for IT

by | Nov 15, 2019 | Article

As IT infrastructure in the modern workplace is constantly changing, the options to deliver IT services to your employees and customers are also increasing. The term “cloud” is now prevalent but what does it mean for your cashflow and bottom line? Do you continue with a traditional Capital Expenditure (CapEx) purchasing model or should you look at an Operating Expenditure (OpEx) solution instead?

 

Operational Expenditure (OpEx) Model

There is certainly a trend toward the OpEx (subscription) based model, but is it right for you? A simple view of OpEx is to look at it as Pay-As-You-Go (PAYG), and it does offer increased agility to deploy and deliver services quickly with costs being spread over the life of the contract. Hardware and software are rented from your chosen supplier and the latest versions of the relevant software are normally included.

An example would be if you have a project requiring additional server capacity when you know this would stretch your existing solution. Purchasing server capacity through a service such as Lynx Flex can give you this extra capacity without the high capital costs of buying your own hardware and software – you simply rent it instead.

 

Capital Expenditure (CapEx) Model

CapEx projects tend to take longer to gain approval for and require larger cash outlays upfront but it does give you full control over your asset. You will usually own the hardware, software and have total control over its location and what it gets used for. Capital item purchase also needs a degree of forecasting to be undertaken, as you need to build in a lifecycle plan to the project. Longer term, age of the equipment can be an issue as you try to maximise the Return on Investment (RoI).

If you have a sensitive project that requires your data is kept on-premise on its own hardware, a CapEx purchase probably makes more sense. You will usually own the hardware and software but the additional server capacity required needs to be specified according to an agreed design. There is a higher upfront spend but on-going costs are usually lower, depending on the application.

 

OpEx vs. Capex

Some companies use a mix of CapEx and OpEx for their server and storage requirements. Examples of this are some customers keeping on-premise servers for local storage but using cloud-based solutions for services such as email or CRM. You can even purchase on-premise hardware on CapEx and rent the software on OpEx (using SaaS – Software-as-a-Service).

In its simplest form, OpEx has the lower initial outlay but is usually more expensive over time. CapEx has a high initial outlay but once those costs are paid, on-going costs are often lower.

Choosing which option is best for you is not necessarily an either/or situation. A discussion with Lynx Networks can help decide what would work for you in the cloud, on-premise or even as a hybrid of the two.

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