Moving monitoring costs to OpEx instead of CapEx doesn't just improve the bottom line

Paessler AG
By Sebastian Krueger, Vice President for Asia Pacific, Paessler
Thursday, 01 September, 2022

Moving monitoring costs to OpEx instead of CapEx doesn't just improve the bottom line

There is little debate about the big cost savings advantages of moving to the cloud. When it comes to the return on investment, comparing capital expenses (CapEx) to operational expenses (OpEx) makes a strong argument for moving infrastructure monitoring to the cloud, too, so companies can convert their IT spending to a usage model and thereby reduce CapEx.

Before the cloud, companies were forced to set up in-house data centres and implement expensive networking and communications infrastructure. They required a significant CapEx investment upfront as they purchased space, equipment and software and had to hire technical staff to manage and monitor everything to ensure it was working. These capital expenditures were an accounting headache and made it difficult to pinpoint their IT investments’ actual cost and value.

Many companies have now outsourced their data centres and communications infrastructure to cloud providers, giving them more flexibility and cost-effective solutions. Therefore, it makes sense that infrastructure monitoring is available via subscription models in the cloud.

Capital expenditures (CapEx)

Capital expenditure (CapEx) refers to a company’s spending on fixed assets, such as purchasing, maintaining and improving buildings, vehicles, IT equipment or land.

One-time purchases of major physical items are intended to benefit the organisation for more than one year. Examples of these major items in the technology space include servers, Universal Power Systems (UPS), line printers, air conditioners, scanners, and even generators in case of data centre power failures.

CapEx spending has pros and cons from the accounting side. If the technology asset’s useful life extends beyond a year, typically, the cost is expensed using depreciation, anywhere from five to ten years. Finance teams and accountants like these CapEx tax depreciations. Unfortunately, more money spent on CapEx means less cash flow for the rest of the business, which can hinder shorter-term operations.

Operating expenses (OpEx)

Operating expenses (OpEx) are the funds that support day-to-day business operations. OpEx items are often used up within the year they are purchased. Contract items include yearly service or maintenance agreements and website or cloud hosting.

These OpEx purchases cover pay-as-you-go items on an organisation’s profit and loss statement and are deducted from income as they occur. When material goods or services are purchased as an OpEx item, costs are assigned to the operating expense budget, the expense is tracked in the profit and loss statement and the equipment’s monthly expenses are tracked and deducted from the bottom line as incurred instead of depreciating.

Preference for OpEx

Unlike the depreciation of CapEx, OpEx are fully tax-deductible in the year they are made. And this is why CFOs have a clear preference for OpEx spending, as long as it does not reduce their company’s ability to be competitive.

The cloud computing cost advantage is crystal clear; it saves money and helps companies make money. By adopting OpEx IT services like distributive monitoring, businesses can cut out wasted capabilities, time and resources that are better spent on their products and services. But more importantly, cloud hosting gives them flexibility, a competitive advantage that allows them to do anything they want in their business.

Hosted monitoring makes financial and business sense

Hosted monitoring in the cloud provides more flexibility in payments, licensing and contracts, allowing users to change the size of their license and choose between monthly or annual payment options.

Using cloud monitoring, IT professionals have the flexibility to scale and adapt without purchasing server hardware. It provides them with a 24/7 holistic view of their entire IT environment, whether in the cloud or on-premise. They can check its health, ensure problems are dealt with immediately and feel confident that should the market demand change, their IT infrastructure can adapt with them.

Ultimately, organisations want to be able to detect problems quickly, investigate them efficiently and remediate them as soon as possible to minimise downtime and other disruptions to customers. Hosted monitoring enables the IT department to collect and analyse data from applications and infrastructure to understand their internal states and be alerted to, troubleshoot and resolve issues with application availability and performance to improve the end-user experience.

Join the hosted monitoring webinar on 14 September. Those who cannot attend the webinar can still register, as Paessler will send them a link to the recording after the webinar.

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