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Understanding What Money Really Means
You’ve heard it countless times in meetings: “We need more CapEx”, “Can we capitalise this?”, “That team is CapEx-funded”. These phrases often carry the weight of urgency, authority, and expectation—but most people blur what they actually mean.
Here’s the critical distinction: spending money isn’t the same as accounting for it, and accounting isn’t the same as governing it. Confusing the three distorts priorities, warps decision-making, and quietly changes how teams behave.
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At the governance level:
CapEx (capital expenditure) is the business's commitment to long-lived assets. It’s irreversible and strategic. Buying servers, building platforms, or locking in large contracts are classic examples. CapEx exists to control exposure, not to record how funds are spent.
OpEx (operational expenditure) is about flexibility and day-to-day operations. Salaries, cloud subscriptions, and contractor fees fall under this category. OpEx decisions can be scaled up, down, or reversed with minimal long-term consequences.
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At the accounting level:
CapEx creates assets, expensed gradually through depreciation or amortisation.
OpEx is recognised immediately in the P&L.
Tip: When a discussion about CapEx or OpEx starts, clarify whether it’s a governance decision or an accounting classification. Misalignment here is the silent cause of roadmap distortion.
Capitalisation: Not What You Think
Capitalisation is the trickiest term in these conversations—and the one most frequently misused. It isn’t a permission to spend. It isn’t a budget category. It doesn’t dictate what the team can or cannot do.
It’s an accounting reflection applied after money has already been spent. Capitalisation determines whether a cost is recognised as an expense immediately or as an asset over time.
Key points to remember:
You can capitalise what your work produces, but never people or vendors themselves.
Capitalisation is neutral—it doesn’t change cash flow or delivery behavior.
Misunderstanding capitalisation often leads to investment decisions driven by “what looks capitalisable” instead of “what delivers value.”
A practical lens:
Accounting view: Does this create a durable asset that provides long-term economic benefit? Yes → CapEx. No → OpEx.
Governance view: Is this a reversible operating cost (OpEx) or a long-term commitment (CapEx)?
Tip: Use these questions as a mental check before major project planning. They separate decisions about funding authority from decisions about financial reporting.
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Software Changes Everything
Software blurs the traditional lines between building and operating. Unlike a factory or building, digital products never finish—they evolve, iterate, and expand.
This creates two challenges:
Accounting perspective: Finance needs a dividing line. Most organisations default to “initial builds are capitalisable; ongoing work is operational.” It’s blunt, but defendable and auditable.
Governance perspective: Teams accumulate long-term commitments gradually—new hires, architecture choices, platform dependencies—without triggering a formal CapEx decision. Leadership often realises the lock-in after the fact.
This mismatch explains why software teams often feel trapped in accounting discussions that don’t actually help delivery. When governance and accounting are entangled, priorities shift toward work that appears capitalisable rather than what actually delivers impact.
Tip: Treat initial product builds as investments, but don’t let accounting rules dictate iteration or discovery. Incremental learning still counts.
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Funding Models Shape Team Behavior
Here’s the hidden lever: how money flows influences what teams actually do.
When CapEx is misunderstood, teams push for large, parallelisable initiatives because they appear like strategic bets.
When discovery or iteration isn’t capitalisable, it gets deprioritised—even if it reduces risk or increases long-term value.
The result is a roadmap skewed by financial optics, not customer outcomes.
Financial fluency changes the game. Understanding CapEx, OpEx, and capitalisation allows teams to:
Make explicit investment choices without letting accounting distort priorities
Approve small experiments and iterations confidently
Focus on delivering outcomes rather than creating assets for the balance sheet
Tip: Map every initiative to both governance (risk and irreversibility) and accounting (asset vs. expense). This reveals hidden pressures and ensures decisions optimize value, not optics.
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Aligning Governance, Accounting, and Delivery
To bring it all together:
Governance lens: CapEx = committing the business to long-lived decisions; OpEx = funding ongoing activity.
Accounting lens: CapEx = buying assets; OpEx = renting effort or access; Capitalisation = how results are recorded.
When these distinctions are clear, your roadmap stops being driven by financial mechanics and starts being driven by value. Teams can pursue outcomes incrementally, and finance can account for them accurately afterward.
The payoff is profound:
Faster decisions
Cleaner prioritisation
Delivery optimized for impact, not financial optics
Tip: Before committing to any major initiative, ask:
Is this a long-term commitment or a reversible operating choice?
Will the outcome generate an asset, or is it consumed immediately?
Who has authority to commit the business to this path?
Answering these questions keeps the focus on what actually matters: creating products that deliver value, while staying aligned with financial and strategic reality.
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