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In today’s business environment options for delivery of IT solutions have changed dramatically. In the past, on-site IT services required a dedicated physical space for equipment and hardware, application and software user license expenses, a team of skilled employees to keep the system working properly, and more. This is generally considered the Capital Expenditure (CaPex) model.

Now, most IT requirements can be provided remotely to any sized company through the cloud by managed cloud computing services companies. These companies work with businesses to determine their IT needs, design a customized cloud IT solution/service package, and then charge a subscription fee for their services. This is considered an Operational Expenditures (OpEx) model.

This is a simplistic summary of both IT delivery models and the merits of each have been widely debated. Yet more and more companies are opting for an OpEx model for their IT services. Nancy Zumbrano states, “Organizations have more options because they can afford the latest and greatest 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.” (1)

This raises one of the greatest advantages of using a cloud hosting service provider. The service provider assumes full responsibility for the functional delivery of IT services. Dave Michels, contributing editor and analyst at TalkingPointz writes, “The shift to the cloud is actually the buyer shifting the responsibility for actual results to the provider. It’s a combination of pay-as-you-go, the reduction or elimination of capital equipment, and shorter-term commitments…” (2)

Jack Gardner identifies additional benefits, “OPEX is really the hidden cost saver… as you don’t have to hire 24/7 engineers, Sr. Systems and Network Administrators (in the case of managed cloud), or incur HR and legal fees associated with hiring people full-time. Likewise, the savings in time for existing staff can help them refocus on growth or in the case where developers are distracted by infrastructure, they can refocus on their applications (regaining their opportunity cost OPEX).

“Technology as an operating expense allows a company to:

  • Pay only for the capacity it needs at the moment and scale as requirements change
  • Ease and speed up the budgeting process because short-term spending requirements are less
  • Make multiple investments across the business since capital isn’t tied up in large upfront expenditures
  • Fund expenses faster through operations rather than needing to borrow money or divert money from other projects to pay for large, upfront technology costs
  • Smooth out cash flows over time instead of requiring lumpy outlays” (3)

capex-vs-opex-table

I’ll use iStreet’s managed cloud computing resources as an example of services that might be included in an OPEX model Service Level Agreement (SLA). Our iStreet team possesses significant cloud computing IT skill sets that include the following:

  • Network security
  • Network engineering
  • Infrastructure systems engineers and operators
  • Database administrators
  • Specialty database administrators (i.e. for enterprise applications from SAP, Oracle, Microsoft and other ERP and CRM ISVs.)
  • Network Maintenance
  • Classic project managers to keep your environment properly documented
  • 24/7 IT support services and more…

Many small to medium-size businesses have limited capital. For these companies, it makes sense to select cloud computing options that convert up-front IT costs into a manageable operating expense – freeing up resources to direct towards developing and delivering their core competencies. Even enterprise level companies can take advantage of this model for specific projects that include IT needs above and beyond their on-site IT solutions.

The following is a case study where iStreet provided an OPEX solution for a company in place of their colocation solution. By consolidating and virtualizing their IT function, iStreet helped this fledgling start-up become a market leader.

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If you are interested in considering an OPEX IT solution for your company, please contact us at sales@istreetsolutions.com and we will get back to you within 24 hours.

Resources:

[1] Zambrano, Nancy. (2014, January). Why Are More CFOs Shifting IT Investment From CapEx To OpEx? ShoreTel. Retrieved from https://www.shoretel.com/blog/why-are-more-cfos-shifting-it-investment-capex-opex-0

[2] Gardner, Jake. (2013, October). CAPEX vs. OPEX? Convincing the C-Suite on Cloud Computing. LogicWorks. Retrieved from http://www.logicworks.net/blog/2013/10/capex-vs-opex/

[3] Gardner, Jake. (2013, October). CAPEX vs. OPEX? Convincing the C-Suite on Cloud Computing. LogicWorks. Retrieved from http://www.logicworks.net/blog/2013/10/capex-vs-opex/

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