{"id":21710,"date":"2020-02-27T10:09:11","date_gmt":"2020-02-27T16:09:11","guid":{"rendered":"https:\/\/planview1s.wpengine.com\/?post_type=topic&p=21710"},"modified":"2024-05-21T16:28:14","modified_gmt":"2024-05-21T21:28:14","slug":"capex-vs-opex","status":"publish","type":"topic","link":"https:\/\/www.planview.com\/topics\/capex-vs-opex\/","title":{"rendered":"What is CapEx vs OpEx?"},"content":{"rendered":"
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What is CapEx vs OpEx?<\/h1>\n

and Why Costing and Capitalization Matters<\/h2>\n <\/div>\n <\/div>\n
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The Challenges of Agile Software Development Costing and Capitalization<\/h2>\n\t

Learn how to evaluate Agile software development efforts and why defining capitalization rules are critical for scaling Agile success and possibly the future of your organization.\u202f<\/p>\n\t
\n\t\tRead the eBook: The Challenges of Agile Software Development Costing and Capitalization<\/span><\/a>\n\t<\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/span>\n<\/section>\n\n\n

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What is CapEx vs OpEx?<\/h2>\n
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Capital Expense (CapEx), or capitalization, refers to how an organization expends or depreciates its investment costs over an asset\u2019s lifetime. For an asset to be capitalized, whether that is a product or service, it must bring long-term value to the company as a tangible production of value.<\/p>\r\n\r\n

For costs outside of capital investments, the term \u201cexpenses\u201d is typically used. An \u201cexpense\u201d refers to something an organization spends funds on immediately and cannot be depreciated over a longer time period. This is also referred to as Operating Expense (OpEx).<\/p>\r\n\r\n

In the world of Agile software development, the difference between CapEx and OpEx can significantly impact whether Agile continues to grow and scale as a development method of choice. The reason for this consternation resides in how Agile work is planned and completed.<\/p>\r\n\r\n

Software development costs are typically capitalized as an attempt to match the development cost against the time period in which the organization receives the benefit to be relieved from incurring them as development costs. Accounting refers to this as the matching principle.\u00a0But, unlike waterfall or milestone-driven work, Agile software development does not follow linear processes or gates. As a result, financial planners and accountants often find themselves unsure of how to appropriately attribute Agile software development costs to the correct CapEx or OpEx categories, leading many to expense all development efforts upfront (OpEx), making Agile costs appear very expensive to the company and its investors. Obviously, this impacts future Agile development efforts.<\/p>\r\n\r\n

As organizations implement Agile practices more widely in software development, capitalizing their efforts accurately becomes paramount to successful fiscal planning and overall Agile transformations. Additionally, knowing what to capitalize versus what to expense impacts an organization\u2019s tax liabilities and profitability.<\/p>\r\n\r\n

When finance inaccurately expenses Agile software development costs, it negatively impacts the business by:<\/p>\r\n\r\n