GLOBAL MARKET FOR CLOUD-BASED INFRASTRUCTURE SET TO SPIKE BY 2020
June 20, 2014

CFOS SHIFTING FROM CAPEX TO OPEX?

Bottom line management has always been key to any successful organization, but how to spend the money to get there has always been a contentious battle. CFO’s have to consider multiple variables to determine expenditures for that year dependent on market and environmental factors. Traditionally for technology investments, CFOs most often preferred capital expenditures over operating expenses because they could take advantage of amortization and depreciation schedules of those investments over an extended period of time, but now due to major shifts to cloud technologies, no longer is large capital infrastructure upfront needed for a multitude of projects. Operating expenses (OpEx) have thus distinctly created advantages over capital expenditures (CapEx) that have made it a favored investment approach by finance departments

There are plenty of hard costs that require large, upfront investments and should be a part of the approved budget, but although the actual spend for approved projects is “predictable,” what was planned does not necessarily align with what is actually needed by the business over the life of that investment. Major upfront investments can handcuff an organization for years in light of the rapid pace of technology now in the marketplace, hence, why infrastructure needs are becoming less and less predictable. Previously, what once required dedicated skilled labor, loads of time, and costs can be fulfilled remotely via the cloud with dedicated companies that specialize in a certain areas through a monthly subscription fee for its service. Organizations have more flexibility because they can afford the latest technology without having to find a large bucket of funds upfront to pay for it. Instead, they can focus on their core competencies and transition many of their CapEx investments to OpEx spending, freeing up cash for those investments and other projects that drive revenue and growth.

Other inherent challenges with capex projects include:

Show me the money- Large amounts of cash required
All or Nothing- Error-prone estimates for project benefits do not anticipate market risk
Estimating budget for approval is a lengthy and arduous
Locked in- Once purchase is complete, the company is stuck with it – despite technology advancements your product may not have
On the other hand, operating expenses allows many more benefits to a company such as:

Simple- Pay as you go
Ease and speed up the budgeting process
No hassle- Short-term spending requirements are less
Free Cash- Capital is not tied up freeing budget for multiple projects
No need to borrow money or divert money from other projects to pay for large, upfront technology costs