Capex to opex conversion of IT investments


Capex to opex conversion of IT investments

Considering the economy's changing dynamics, it has become essential for companies (public as well as private) to convert capital expenditure (capex) to operational expenditure (opex). Here

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are some tips to help your IT organization present investments in a better light by converting them from capex to opex.

Leverage cloud computing: Outsourcing is an effective tool for capex to opex conversion of IT investments. If ten companies outsource IT functions to a service provider, those companies are saving hardware purchases (capex items). This also helps reduce energy consumption as well as the e-waste (after five years).
Most capex becomes opex in public sector companies, so outsourcing does not have much significance for us. The ministry of steel does a small amount of outsourcing, and converts those items from capex to opex. So some amount of purchasing is necessary. It depends on the company's needs and cost benefits (RoI).

Besides cloud computing, we outsource a small portion of a project like information management. In the government sector we can't leverage processes to outsourcing companies because of strict security policies. In private companies, security is a concern, but these organizations are more liberal.

When it comes to IT hardware, it may be more advisable to go in for ownership than renting at times, as it offers more control. Renting may also raise quality issues.

 Renting: Another way of converting IT from capex to opex is renting items like hardware, but my personal standpoint is to go in for ownership, as it offers control. Renting may also raise quality issues. But the advantage is that the company does not have to bother with depreciation costs or maintenance.

Infrastructure sharing: This is an important part of cloud computing. Government companies facilitate infrastructure sharing with private companies. Infrastructure sharing makes sense for organizations. For example, telecom service providers like Airtel and Vodafone have separate networks. It is such a national wastage. They would save so much if they had common networks and infrastructure. Infrastructure should be shared, in IT at least, as far as possible.

Leasing out equipment: Capex to opex savings can be made through equipment leasing. A company can purchase, and then share it with others. It is a good thing because you have excess processing power many a time, and you are sharing it through leasing.

Staggered payment schedules: These can be worked out to convert capex to opex. IT implementations typically have long durations. A benefit of this strategy is that it offers freedom to a company seeking to change their service provider during implementation.

Outsourcing management of IT: Personally speaking this strategy to convert capex to opex doesn't make sense to me. Management of IT infrastructure and applications is core to a company, and there should be complete control over that asset. If you're sharing management, the company is compromising on their USP.

For converting capex to opex, a company need not be bogged down by numbers. Instead, the CIO and his team should strive towards finding their own USP.

About the author: Sunil Gupta is the CIO for Economic Research Unit, Ministry of Steel, Government of India.

(As told to Sharon D'Souza)

This was first published in June 2010

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