Capital Expenditure (CapEx) vs Operational Expenditure (OpEx)
2 min to read
June 12, 2020

Capital Expenditure (CapEx) vs Operational Expenditure (OpEx) #

  • Before: up-front cost in hardware and infrastructure to start or grow a business (CapEx)
    • With cloud: Use services without significant upfront costs or equipment setup time (OpEx)
  • πŸ“ Hybrid solution = combine both in cloud with using both on-premises (CapEx) and cloud (OpEx)
  • Also possible to have CapEx in cloud with e.g. Azure Reserved VM Instances 
  • CapEx model is also sometimes use in cloud

Capital Expenditure (CapEx) #

  • Spending of money on physical infrastructure up front
    • and then deducting that expense from your tax bill over time.
  • An upfront cost, which has a value that reduces over time.

Costs of CapEx #

  • E.g. server, storage, network, backup & archive, organization continuity and disaster recovery, datacenter infrastructure, technical personal.

Benefits of CapEx #

  • Plan your expenses at the start of a project or budget period.
  • Your costs are fixed, meaning you know exactly how much is being spent.
  • πŸ’‘ Appealing when you need to predict the expenses before a project starts due to a limited budget.

Operational Expenditure (OpEx) #

  • Spending money on services or products now and being billed for them now.
    • There’s no upfront cost: You pay for a service or product as you use it
  • Deduct expense from your tax bill in the same year.

Billing of OpEx #

  • As soon as the provider provisions resources, billing starts
    • your responsibility to de-provision the resources when they aren’t in use so that you can minimize costs.
  • Cloud computing can bill in various ways e.g.
    • Number of users, CPU usage time, allocated RAM, I/O operations per second (IOPS), and storage space.
  • Billing at the user or organization level.
  • Pay-per-use (or subscription model)
    • Designed for both organizations and users
    • billed for the services used, typically on a recurring basis
    • E.g. when using a dedicated cloud service, you could pay based on server hardware and usage.

Costs of OpEx #

  • Leasing software and customized features
  • Scaling charges based on usage/demand instead of fixed hardware or capacity.
  • πŸ’‘Plan for backup traffic and disaster recovery traffic to determine the bandwidth needed.

Benefits of OpEx #

  • CapEx challange: Demand and growth can be unpredictable and can outpace expectation
    • CapEx demand & growth
  • Companies wanting to try a new product or service don’t need to invest in equipment
    • Instead, they pay as much or as little for the infrastructure as required.
  • OpEx is particularly appealing if the demand fluctuates or is unknown
  • Enables cloud agility
    • Ability to rapidly change an IT infrastructure to adapt to the evolving needs of the business
    • Manage your costs dynamically, optimizing spending as requirements change.
    • E.g. service peaks one month => pay more, demand drops next month => pay less