There are two approaches to invest for business:
Capital Expenditure (CapEx)
CapEx is actually the investment in the form of assets which returns back investment over a period of time. It is upfront money which is treated like investment, depending on your location, it can be deducted from taxes. Typically, it is taken as depriciation. Depreciation reduces the amount of taxes a company pays via tax deductions. Larger is depreciation expense – lower the taxable income so lower company’s tax.
Examples; Server costs, Storage costs, Network costs, Dataceneter infrastructure costs
Benefits: This is good option when budget is limited for a project. You can plan your expenses at the start of the project or budget period. When costs are fixed then you know exactly how much is being spent.
Operational Expenditure (OpEx)
Opex is basically opposite to CapEx. This is the spending money on services or products that company use for operation of business. It is products or services company have now and billed for them now. In simple words, it is money expenditure spend on every day. It is preferred by many companies because of favorable tax treatment.
Examples; Leasing software, Software Customized features, Scaling charges based on usage/demand.
Benefits:
The drawback of CapEx is that demand and growth are unpredictable which is challenging. Companies can try a new product or service where they do not need to invest in equipment instead pay as go. OpEx is best option when demand is fluctuating. Companies want to have a new business but do not want to incur up front cost to try out new services.
- identify the benefits of cloud computing, such as High Availability, Scalability, Elasticity, Agility, and Disaster Recovery
- identify the differences between Capital Expenditure (CapEx) and Operational Expenditure (OpEx)
- describe the consumption-based model
