For most SMEs and not for profits (NFPs), IT still sits in capital expenditure. Servers, network equipment, devices and core platforms are all bought, depreciated over time, and refreshed every few years. And while it looks tidy on the balance sheet, from a cashflow and forecasting perspective it often isn’t.
The cost of Capex is variability, not depreciation
In real terms, capital IT spends create cost variability that’s disconnected from business activity. Large, infrequent purchases drive multi-year refresh cycles, one-off budget spikes and reactive upgrades when capacity runs out.
To mitigate risk in that model, infrastructure is usually sized for peak or worst-case scenarios. What that translates to is organisations paying up front for capacity they don’t fully use; in turn that excess capacity becomes a sunk cost, regardless of whether demand materialises.
Financially, this means that IT costs change when assets are replaced rather than when the organisation scales, downsizes or changes operational models. You’ll know if you’re in this cycle because your IT spend will change materially in years when headcount and activity are broadly static. If that’s your current cost model, it’s being driven by asset cycles and not operational reality.
How Opex ties IT cost to business reality
Treating IT as an operating expense reverses that logic. Instead of owning infrastructure and licences outright, you can pay a predictable monthly run rate for managed services, platforms and software subscriptions. Within that model costs scale with headcount, usage and service scope, rather than with capital projects.
It also means that life for CFOs becomes easier because forecasting improves as IT spend becomes easier to model alongside staffing and operational growth. Risk also moves from being a capital commitment to service management, leaving less cash tied up and fostering greater flexibility.
In practical terms, it shifts the approach to IT spend from major refreshes to one based on cost per user (or indeed other units of consumption) that flexes when the organisation grows.
Opex works best when governed like a financial control
It’s worth keeping in mind that Opex-based IT spend can fail if it’s poorly managed. In subscription environments where scrutiny over renewals is poor it’s common for waste to accumulate quickly. That typically takes the form of subscriptions for people that have left the organisation, mis-assigned premium licences, or overlapping tools performing similar functions.
In that scenario, some organisations assume that Opex is more expensive than Capex, when really they’ve just replaced asset sprawl with subscription sprawl. To that end, organisations without regular licence and use reviews could see as much as 25% of SaaS spend deliver little or no value.
In essence, Opex-based IT spend needs the same disciplines that are applied to other operating costs. There needs to be clear ownership of contracts and renewals, regular licence and usage reviews, as well as alignment between HR changes and system access. And as a minimum, there must be visibility of IT run rate against headcount and activity.
With those controls in place, Opex is predictable and measurably less wasteful than Capex models.
Predictability is about control not cost cutting
Well governed Opex reduces financial surprises. You are on the right track when your monthly costs are stable, your cost drivers are transparent, and technology spend expands and contracts in line with organisational needs.
Capex will have a role of course because some assets are best owned, particularly where usage is stable and long-term. But for SMEs and NFPs core IT services are best treated as a managed operating expense, and not a series of capital outlays.
The end goal isn’t to spend less on IT, it is to spend deliberately and in a way that is understandable, controllable and aligned with how the organisation works. Properly managed Opex makes that possible.
Take back control
We know that for a lot of CFOs in charities and NFPs, IT responsibility is theirs but doesn’t come with the time, staff or technical know-how to manage it confidently. Instead, it comes with the feeling that something may go wrong, and that you’re unable to prevent it.
If you need a clear, non-technical place to start, we’ve written a short survival guide for finance leaders in this position. When IT Lands on Your Desk walks you through the fundamentals of IT in plain language, so you can regain control before problems force the issue.