Converting Your AV Spending from CapEx to OPEX
Joe Way, PhD, CTS
We are IT. Simple. Get over it. We are. Yes, we are intrinsically different in that rather than pushing around ones and zeros, we deliver content and experience. However, our vehicles for doing so are fundamentally ingrained into standard IT protocols and practices. This means it is also time for higher education to rethink how we budget and procure. It’s time to move from a capital expenditure model (CapEx) to an operating expenditure model (OpEx).
Traditionally, AV has been a project-based budget, with a token amount given for maintenance and miscellaneous expenses. IT has always worked on a SaaS, PaaS, or other subscription-based “aaS” model, even if the hardware was procured through a capital budget. IT thinks in true renewal cycles. It’s not enough to say “our refresh cycle is 5-years, but we push it to 7.” In IT circles, if you plan and sign for 5-years, the gear stops working on the first day after that five years. While I can understand how this does not initially sound like a smart model, it actually holds much higher value to traditional “buy and wait” procurement models.
First, subscription-based procurement and planning practices include upgrade paths along the way. Think of how many times Zoom has upgraded features over the past year that we need to be able to support. But having AV systems based upon OpEx modeling, we can engage our manufacturers to also develop and upgrade our functionality with each feature change. This goes beyond firmware upgrades as was traditionally done. With server and software-based ecosystems (like Crestron VC4, XiO Cloud, Fusion Cloud, CH5/HTML5, and API integration), our classroom upgrade cycles no longer need to be 5 years, but rather as soon as we can code in the newest functionality. There is value in being able to match the Zoom features our customers use at home in the classroom environment… not to mention how much easier that makes user adoption, training, and support.
Second, it forces a continuous improvement mentality. Hang and bang, rinse and repeat, set it and leave it. Those are dangerous mindsets. While it used to work, the world has changed. Security, accessibility, and adaptability are all leading concerns now. And we must always be thinking about how to continually provide updates and new services to our customers, and often before they even know they will need them. When a project completes, it’s easy to put it on the back burner, add it to the list of spaces we “support,” and then turn our attention to the next project. But a continuous improvement mentality will look at all our spaces holistically. If I update one, I update all 300 as well. Of course, there are certain exceptions for projectors and some peripherals that have a “shelf life,” but user experience and functionality are always fluid. The needs of our faculty and staff are adapting as they learn to be effective in the new way of teaching and learning. We must come along on that journey with them. It is not about telling them what a room does, but rather being open to what it can do, and should, and will do. It builds relationship bridges that will pay dividends well into the future.
Last, budget planning is simpler. You know exactly what it costs to operate your spaces. There are a lot fewer surprises. There is no worse feeling than wondering which spaces you will fix up and which you will let further deteriorate. Even worse, how about asking for $50,000 out of nowhere because a number of projectors decide to die on you mid-semester. OpEx budgeting looks at the total cost of ownership that accounts for all scenarios. It’s actually pretty simple: decide how often you need to change out the “stuff” like speakers, projectors, screens, etc., and amortize that over time. Add in the cost of subscriptions for the space. Add in the cost of support. Multiply it by the number of spaces. Add 10% contingency. And there’s your annual budget. Easy enough. When new projects and buildings come by, you simply take the procurement cost and add that to this same formula for the spaces. Last, it’s an easily justifiable budgeting practice that any CFO can understand. Couple that with the risks of loss of class time, lower service quality, and changing reality of a post-COVID world, and our leadership will see that we understand modern business practices. This is a win-win. We get the budget needed, and administration gets a high-quality product at little risk, no surprises, and a budget they can work into their long-term projection planning.
Moving from a CapEx to OpEx model is a paradigm shift. But it’s a necessary one in order to be effecting in the new ways of working. It also isn’t reinventing the wheel, it is AV finally catching up with the way other industries already do business. I encourage you to take time to work out the numbers and hold the conversations with your upper administration. It will seem strange at first, but the benefits will soon be evident.
About the Column
The higher ed AV vertical is over a five-billion-dollar sector of the commercial AV integrations industry. Add in the live events, and higher ed accounts for over ten-billion-dollars annually. That’s significant, and why tech managers in our vertical must treat our departments like big business. Every month, Joe Way, PhD, CTS, explores important aspects of business operations, sales, negotiation, finance, and strategy based on over 25 years’ experience in business development, founding and managing several multimillion-dollar companies in the entertainment industry.
The Author: Joe Way, PhD, CTS
Joe Way, PhD, CTS, is the Director of Learning Environments at the University of Southern California, in Los Angeles, CA and AV Nation 2019 AV Professional of the Year. He is the host of the Higher Ed AV podcast and co-founder of the Higher Education Technology Managers Alliance (HETMA.org), aimed at connecting the higher ed tech manager community and advocating for their common audiovisual needs. He is the author of the bestselling book, Producing Worship: A Theology of Church Technical Arts, is a regular contributor to leading AV-industry media outlets and podcasts, and serves on the AVIXA Tech Managers and Diversity Councils. Joe is an Orange County, CA, native with over 25 years’ experience in education, technical production and the arts, and organizational leadership and management. Over his career, Dr. Way has received diverse awards in the areas of education, the arts, and business, and is a regular keynote speaker and writer for AV-industry and higher ed conferences and media outlets.