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Maybe someone who knows more about this stuff can enlighten me. From what I've heard there are actually only 2, opex and capex. If I recall correctly capex is

Maybe someone who knows more about this stuff can enlighten me. From what I've heard there are actually only 2, opex and capex. If I recall correctly capex is better for the business because of how it gets treated in the accounting stuff. This naturally gives rise to the feature factory style work of a lot of dev jobs. Some reason like they can record capex spend as an asset with depreciation. Is this true?

zer00eyz 3y ago
This is close, there is more nuance to it, and a lot of it is going to be specific to your org. If you work in office, and there are accountants there go make friends. They are just another flavor of nerd, so you're gonna get along with them, and they have insights into the company that you will never get outside of the C level. IF you dont KNOW the answers to accounting questions, take some classes. Candidly this is a function of every business that engineers should be aware of! The projects that cost money upfront (OPEX) and can provably reduce recurring costs (CAPEX) can be HUGE wins for all involved. There is a story about how Dr's in the US have no idea what a procured costs, and that many non us ones do. Though the example is about insurance, I think the lack of awareness of costs is pervasive in more places. Do you know your AWS spend? Do you know the per customer cost/spend (is that individual or organization).... These numbers start to matter in a value engineering situation.
- radiator 3y ago
  > The projects that cost money upfront (OPEX) and can provably reduce recurring costs (CAPEX) So you mean OPEX are upfront costs, and CAPEX are recurring costs?
  - marcosdumay 3y ago
    Yeah, whatever mistakes the GP did, those names are the other way around.
    - zer00eyz 3y ago
      Yes I did transpose them!!! I have since had coffee and am feeling much more on the ball, thanks for catching my error folks!!!!
- datadrivenangel 3y ago
  Capital Expenditure (CAPEX) is the money invested up front, and Operational Expenditure (OPEX) is the money invested to operate the investment as you go.
smugglerFlynn 3y ago
3 parts of organisation mentioned in the article have their own respective Operating Expenses (OpEx) and Capital Expenses (CapEx). OpEx is what you spend on day to day activities, and CapEx is what you invest into something that you will use long term. You can pay via CapEx or OpEx for the same exact result: e.g. if you purchase a car, that's CapEx, but if you rent it each month, that's OpEx. I'm simplifying, but that's the gist of it. Organisations tend to move away from CapEx where possible, because of two reasons: 1. management decisions require accounting know-how and accounting 'magic' when CapEx gets involved 2. large upfront investments are much less flexible and more risky than day to day expenses Let me illustrate. Your marketing department is investing into new on-premises IT system to run promotions and campaigns. They are spending $1M dollars upfront for the installation, equipment purchase, system licenses and so on - all these expenses will be booked under CapEx. That marketing department also pays day to day salaries, and some other regular expenses, which all go to their OpEx. Let's say right after system is launched and everyone in Marketing starts using it there is a 30% growth in # of leads they bring, and resulting 10% growth in sales. But what does that mean, financially? Was the project a success? 10% growth in sales might not cover full cost of our $1M investment, so for how long would we need to keep up the growth in order to see returns? What growth numbers do we need to keep seeing? What if we decide to adjust and purchase more hardware and licenses as we go? What if system unexpectedly required us to hire extra people in marketing, bumping up department's OpEx? All that requires calculation, recalculation, excel spreadsheets crunching, more spreadsheets, and a few fat decks of powerpoints just to align all the decision makers around the numbers and understand what worked, financially. Compare that to marketing department buying access to the same system in cloud via monthly subscription (let's say they start paying $10K total monthly - these will go to your OpEx). Any growth is now super straightforward to assess - you've invested $10K, you got 10% more sales that month, and you can now deduct all the combined OpEx from that number and see if you are still profitable after bringing the new system in. That's a reason #1. Accounting and decision making complexity is not the only reason to prefer OpEx. Note that accountants came up with smart ways to make CapEx behave more 'OpEx-y' - for example, this $1M in the books will be spread across many months or years by using depreciation across system lifetime, so that upfront investments can be comparable to daily expenses. But the same way you are not buying a local car each time you arrive on a vacation somewhere, businesses don't want to have hands tied in large investments - oftentimes renting something is preferred, and business people will still call their decision to rent instead of buying "switching from CapEx to OpEx". That's a reason #2.

zer00eyz 3y ago

This is close, there is more nuance to it, and a lot of it is going to be specific to your org. If you work in office, and there are accountants there go make friends. They are just another flavor of nerd, so you're gonna get along with them, and they have insights into the company that you will never get outside of the C level. IF you dont KNOW the answers to accounting questions, take some classes. Candidly this is a function of every business that engineers should be aware of! The projects that cost money upfront (OPEX) and can provably reduce recurring costs (CAPEX) can be HUGE wins for all involved. There is a story about how Dr's in the US have no idea what a procured costs, and that many non us ones do. Though the example is about insurance, I think the lack of awareness of costs is pervasive in more places. Do you know your AWS spend? Do you know the per customer cost/spend (is that individual or organization).... These numbers start to matter in a value engineering situation.

radiator 3y ago
> The projects that cost money upfront (OPEX) and can provably reduce recurring costs (CAPEX) So you mean OPEX are upfront costs, and CAPEX are recurring costs?
- marcosdumay 3y ago
  Yeah, whatever mistakes the GP did, those names are the other way around.
  - zer00eyz 3y ago
    Yes I did transpose them!!! I have since had coffee and am feeling much more on the ball, thanks for catching my error folks!!!!
datadrivenangel 3y ago
Capital Expenditure (CAPEX) is the money invested up front, and Operational Expenditure (OPEX) is the money invested to operate the investment as you go.

smugglerFlynn 3y ago

3 parts of organisation mentioned in the article have their own respective Operating Expenses (OpEx) and Capital Expenses (CapEx). OpEx is what you spend on day to day activities, and CapEx is what you invest into something that you will use long term. You can pay via CapEx or OpEx for the same exact result: e.g. if you purchase a car, that's CapEx, but if you rent it each month, that's OpEx. I'm simplifying, but that's the gist of it. Organisations tend to move away from CapEx where possible, because of two reasons: 1. management decisions require accounting know-how and accounting 'magic' when CapEx gets involved 2. large upfront investments are much less flexible and more risky than day to day expenses Let me illustrate. Your marketing department is investing into new on-premises IT system to run promotions and campaigns. They are spending $1M dollars upfront for the installation, equipment purchase, system licenses and so on - all these expenses will be booked under CapEx. That marketing department also pays day to day salaries, and some other regular expenses, which all go to their OpEx. Let's say right after system is launched and everyone in Marketing starts using it there is a 30% growth in # of leads they bring, and resulting 10% growth in sales. But what does that mean, financially? Was the project a success? 10% growth in sales might not cover full cost of our $1M investment, so for how long would we need to keep up the growth in order to see returns? What growth numbers do we need to keep seeing? What if we decide to adjust and purchase more hardware and licenses as we go? What if system unexpectedly required us to hire extra people in marketing, bumping up department's OpEx? All that requires calculation, recalculation, excel spreadsheets crunching, more spreadsheets, and a few fat decks of powerpoints just to align all the decision makers around the numbers and understand what worked, financially. Compare that to marketing department buying access to the same system in cloud via monthly subscription (let's say they start paying $10K total monthly - these will go to your OpEx). Any growth is now super straightforward to assess - you've invested $10K, you got 10% more sales that month, and you can now deduct all the combined OpEx from that number and see if you are still profitable after bringing the new system in. That's a reason #1. Accounting and decision making complexity is not the only reason to prefer OpEx. Note that accountants came up with smart ways to make CapEx behave more 'OpEx-y' - for example, this $1M in the books will be spread across many months or years by using depreciation across system lifetime, so that upfront investments can be comparable to daily expenses. But the same way you are not buying a local car each time you arrive on a vacation somewhere, businesses don't want to have hands tied in large investments - oftentimes renting something is preferred, and business people will still call their decision to rent instead of buying "switching from CapEx to OpEx". That's a reason #2.