Tax code can encourage SMaaP?

Wednesday, 2 September 2009

Expenditures in most US businesses are one of 2 types Operational expenditure (OPEX)and Capital expenditure (CAPEX), the following are the wikipedia definitions of the two, I should note I am not qualified to describe the US tax code in any usable detail.

An operating expense, operating expenditure, operational expense, operational expenditure or OPEX is an on-going cost for running a product, business, or system. Its counterpart, a capital expenditure (CAPEX), is the cost of developing or providing non-consumable parts for the product or system. For example, the purchase of a photocopier is the CAPEX, and the annual paper and toner cost is the OPEX. For larger systems like businesses, OPEX may also include the cost of workers and facility expenses such as rent and utilities

The Conventional wisdom in the current economic climate is that Opex is "better" than CAPEX, IE it is easier to spend some operational money, Capital expenditures usually require sign off. (see cloud computing)

However I have consistently run into a different issue, Operational expenses are very difficult to add to, and if a quick straw poll on twitter is anything to go by, I am not the only one.

Hiring a new manager for a "help-desk" for example is a decision with long term consequences and though the cost is quite small it is usually a hard slog to increase headcount, however buying a new software suite, implementing it and hiring the consultants to advise on its deployment are all capitalised and therefore require only single sign off at the inception of the "project".

This seems to be another incentive leading to SaaP "Service as a Project":

  • Failure is not an option - the project must have "ROI" and this ROI must be defined in a return of capital. A real issue when your starting point defined by lack of financial data.
  • Service is not a project - treating great service as a project that has an end has probably felled more ITIL adoptions than any other, understanding your customers and users, the service you provide, how it's used and making it great is way of life... not a project.
  • Not everything is able to be capitalized - This is a real kicker, there are some things the cannot be capitalized, I believe this can incentivize some organisations to buy more software and spend less time staffing for the new organisation.
As always just a quick thought, let me know yours.


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