Because they are two entirely different categories of expenditures, operating expenses (OPEX) and capital expenses (CAPEX) are treated differently for purposes of accounting and tax liability. They should also be considered differently when it comes to calculating Total Cost of Ownership (TCO) and Return on Investment (ROI).
Security Shakes Image as a Cost-Center
Over the last few years, there has been much discussion around physical security and where it fits within an organization’s overall balance sheet. It is clear that security has transitioned from being looked at as purely a cost center. With the advent of smart devices that aggregate data and interoperate with other devices and systems on the network, security has begun to deliver tangible business intelligence that can help to streamline workflows, build efficiencies and save costs along with numerous other benefits.
While this has been an undeniable boon to security practitioners who need to ensure their systems and solutions remain up to date to protect their employers from risk and liability, there is still room for improvement when it comes to finding the best justifications for expenditures on physical and cybersecurity upgrades and new systems.
Some of the biggest news stories over the last few years have revolved around corporate vulnerabilities and the negative impacts that breaches have had on brand value, financial profiles and personal liabilities of the individuals within leadership positions. As risk mitigation becomes a greater and greater concern, the security professionals in C-suite and other top positions are becoming more and more central to ensuring the longevity and value of companies.
It is these security professionals who are finding themselves in the position of determining the best ways to protect the business – a task that encompasses a wide range of responsibilities. For example, the Director of Security, CSO, or other top title is the individual best-positioned to make a recommendation for new expenditures or identify areas where security has been underfunded. Similarly, in times of downturn, that same person is well-placed with the experience and knowledge to identify where cuts can reasonably be made without seriously harming the risk profile of the brand. When security is viewed as a contributor to business intelligence rather than simply a cost center, it is less likely to be impacted when there are global cuts to the budget that do not take these elements into consideration.
Making the Case for OPEX
For these contemporary security leaders, there are significant benefits to placing physical security within the category of operational expenditures. Eliminating the need for a large initial investment reduces the TCO (total cost of ownership), which is often an objective for budget planning. Creating a monthly expense category for security opens opportunities to deploy solutions that are more costly and deliver better outcomes for the organization. Many of the most advanced technology solutions reaching the market today are sold within subscription-based software models, which fit into the OPEX structure and enable security operators to realize greater ROI from their security budgets. This financial structure also creates a better framework for scalability, making business growth a smoother and more organic process.
The same business model has become ubiquitous for most business systems. Companies routinely lease office equipment instead of purchasing it, and many of the most-used business software systems are only available as a subscription. This helps to pave the way for a better understanding of the benefits of the OPEX structure among upper management, who can clearly experience the advantages of always having the most up-to-date accounting, document processing, graphics and other software systems in place. A further advantage can be realized by companies who no longer need to spend their after-tax dollars and spend them on non-revenue generating assets that begin to depreciate the moment they are purchased.
Digital Migration Reshapes Physical Security
As security solutions have migrated to the network, with new systems such as access control often utilizing a thin client and hardware devices such as video surveillance cameras occupying a place on the Internet of Things, it has become clear that the future of security as an expense category is within OPEX. Cloud-based services are continuing to evolve, taking a larger and larger percentage of the overall market, while edge devices continue to drop in price as their features move into the centrally based software realm.
The advent and growth of providers offering Security as a Service has made it easier for those expenses to be considered as ongoing for operations rather than a single one-time investment. At the same time, it places much of the burden for maintenance, upgrades and oversight into the hands of those providers rather than the end-users – creating an additional advantage. Many vendors of security solutions, whether they are manufacturers or integrators, are in a better position to stay up to date on the newest trends in technology and capabilities in areas like Artificial Intelligence, deep learning, behavioral analytics and other complex areas of development. It is to their financial benefit to offer the newest and best products and to make sure their customers are kept up to date with the solutions they have deployed.
Vendors have fully embraced the OPEX model as well since it delivers a dependable stream of RMR (recurring monthly revenue) that is beneficial to their business operations and financial planning. They are also better able to leverage their expertise by providing a more consultative service to their customers, which is good for both parties.
Over time, security will continue to migrate to an operational expense as the managed service model becomes more entrenched and demonstrates higher value to organizations. It is the historical path of this type of trend that it reverses itself every few years as people search for new ways to create efficiencies within business operations. However, because of the nature of how physical security has evolved – with a strong shift from local hardware systems to network-based interoperable systems – this is a trend that may have found permanent traction.
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