From CAPEX to OPEX: IT is No Longer Your “Cost Center”

April 25, 2017 /

in Cloud Workspaces /

For most, your IT department has earned the reputation of being a “cost center” – with enormous expenses for purchasing hardware and server; paying for software upgrade and unexpected maintenance; and then having to do it all over again in the next refresh cycle.

However, companies now have a new option to keep their IT infrastructure up-to-date without upfront investment. Cloud computing has introduced a new pay-as-you-go financing model, making it possible to switch IT operations from Capital Expenditure (CAPEX) model to the favorable Operational Expenditure (OPEX) approach.

This blog will provide CFO, CIO, and IT managers a closer look at the impact that cloud computing has on the IT department and business owners under the new OPEX financing model.

CAPEX versus OPEX from an IT Perspective

Before getting to the benefits of the cloud and its OPEX financing model, this brief summary will provide all you need to know about CAPEX and OPEX, and how differently they can impact your IT budget.

 

CAPEX

OPEX

Purpose

To buy assets with a useful life beyond the current year, i.e. servers, desktops, etc.

Ongoing costs to run a business

When paid

Lump sum (or financed, with extra charges); Followed up by maintenance expenses

No upfront payment; An agreed fixed cost is charged every month

When accounted for

3 to 10 years, as an asset depreciates over time

In the current month or year

Listed as

Depreciation, equipment, or property

Operating cost

Tax treatment

Deducted over time as the asset depreciates

Deducted in current tax year

Example

Buying new server hardware and software for your datacenter

Software/Infrastructure-as-a-Service from Microsoft Azure

CAPEX used to be the only way to pay for IT infrastructure. Now, as the cloud technology evolves, you can utilize any IT services under a monthly, ongoing OPEX financing model:

  • Software-as-a-Service (SaaS): similar to the old thin-client model of software provision, yet remove the need for managing, maintaining and upgrading software;
  • Platform-as-a-Service (PaaS): provide a platform to develop or customize applications without managing OS, servers, storage, and networking;
  • Infrastructure-as-a-service (IaaS): outsource a virtual data center in the cloud without invest in capacity planning or the physical management and maintenance of it;

As a result, the delivery of IT-as-a-Service in the cloud can give you the same power of in-house IT infrastructure while removing the need for hefty upfront CAPEX investments and replacing them with predictable monthly fees under the OPEX model.

For IT Department: Drive Innovations Without Being a Cost Center

For most businesses, IT is usually viewed as a department that delivers little strategic value but requires a necessary, and quite often, enormous expense. After pouring thousands upon thousands of dollars of CAPEX, your IT personnel are still stuck with tasks such as running, maintaining, and – when the time comes – upgrading the server, leaving them little room to innovate and bring actual value to the business.

Now, thanks to cloud computing, the perceptions of IT is changing positively. With a fixed, on-going monthly fee, your IT department can offload the infrastructure burden to other cloud service providers. The IT infrastructure is always up-to-date without upfront hardware and software purchases (CAPEX) or regular upgrade and maintenance needs.

Developers are freed from operation-oriented tasks to direct their efforts towards exploring new products and technologies. As a result, IT returns to where it should be - an “innovation center” that can drive business productivity and profitability with innovative solutions.

For Business Owners: Avoid IT Wastes & Pay Only for What You Use

Traditionally, most enterprises have hardware utilization rates significantly below 20% because of the excess capacity required to handle peak demand. Hence, many companies carry up to 5 times the required hardware, networking, and data center space, wasting much more on compute and storage that is required.

The only way to reduce IT spending is to utilize more computing power. However, high utilization limits agility and negatively impacts innovation and business growth. A sudden increase in demand, in this case, would put a lot of pressure on the IT infrastructure, and in return cause delays and service interruptions.

The biggest business benefit of cloud computing is aligning IT utilization with business agility. You can rapidly change your leased IT infrastructure in order to adapt to the evolving needs of the business. You can turn on and off servers in the cloud to maximize utilization rate in both working and non-working hours, while ready to scale up or down to meet with sudden changes in demand – with just a few clicks.

At the bottom line, companies want to pay only for what they use – when they use it. The smaller ongoing costs provide a clear understanding of IT expenditure, allowing business owners to plan better financially and manage cash flows without wastes in excess capacity or CAPEX surprises hidden in the server that may fail at any moment.

If you have any question about transforming your IT CAPEX to OPEX through the use of remote desktops and remote applications, feel free to contact us at info@mycloudit.com or call us at 972-218-0741.