Classifying Spend, Measuring Impact, Creating Value: The Role of Capex, Opex, and POPEX

Every large organization is balancing: transform fast to stay relevant, and run reliably to keep customers and regulators happy. That balance isn’t only operational—it’s financial.

How such organizations invest, expense, and recover costs — whether through transformation programs, BAU operations, or experimental pilots — directly influences not only their financial optics but also their strategic resilience in an intensely competitive market. How spend is classified across Capex, Opex, and POPEX shapes EBITDA, investor confidence, and the organizations ability to keep momentum without burning out the organization with balanced mix of FTE and partners delivering together.

Optics aren’t just numbers, they tell the story of where a company is heading, a growth narrative, a resilience narrative, a transformation narrative. Market rewards clarity of story as much as raw results.

Key Financial Terms

Before diving deeper, let’s anchor on some terminology:

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of profitability before financing and accounting adjustments. A high EBITDA signals strong operational performance. Markets watch it, lenders care, and leadership uses it to judge core run-rate health.

·       Economic Value Added (EVA): Net operating profit – cost of capital; measures true economic profit.

• Recovery Rate: The proportion of spend capitalized (Capex) versus expensed immediately (Opex/POPEX). High recovery = more cost deferred, better short-term EBITDA optics.

Labor Recovery Rate = Labor Cost allocated to Capex / Total Labor Cost X 100

At 90% + recovery, EBITDA looks strong but risk rises if Opex/Pope (Support, training, BAU) is underfunded

At 60% recovery, EBITDA is weaker, but BAU and adoption may be healthier.

Balanced range (65-80 %) if often pragmatic supports transformation while still recognizing ongoing operational needs.

• P&L (Profit and Loss Statement): Records revenues and expenses. Opex and POPEX hit the P&L directly, while Capex is deferred and only shows up later as depreciation.
• ROI (Return on Investment) Measures the profitability of an investment relative to its cost. It tells you how much return you’re getting for every dollar you spend. Does not discount future cashflows.

·       NPV (Net Present Value): Measures the current value of all expected future cashflows from an investment, minus the initial investment cost. Gold standard for value creation; accounts for timing and cost of capital. Sensitive to the discount rate.

·       IRR (Internal Rate of Return) is the discount rate at which the Net Present Value (NPV) of an investment equals zero. It represents the effective annual rate of return the project is expected to generate. If IRR is higher than the company’s cost of capital, the project creates value.

·       Payback Period is the amount of time it takes for an investment to recoup its initial cost from the net cash inflows it generates. How long before this project pays for itself?

·       ROIC: Measures how effectively a company turns its invested capital into profit after tax. It is  one of the most important capital efficiency metrics because it shows whether the company is creating value above its cost of capital.

·       Capital Productivity measures how efficiently a company uses its capital base (fixed assets, working capital, and other invested capital) to generate output. How much value do we get from every dollar of capital we’ve deployed?

Accounting Standards (IFRS / US GAAP)

Both IFRS and US GAAP provide explicit rules:

Capex (Capital Expenditure): Costs directly tied to creating or enhancing an asset can be capitalized. This includes software builds, platform rebuilds, infrastructure, data centre, New Core Systems, major upgrades, aircraft, or digital platforms. Money invested to create or enhance long-lived assets. Recorded on the balance sheet, then recognized gradually via depreciation/amortization. Capex protects EBITDA in the short term because costs are not expensed immediately.

Opex (Operational Expenditure): Day-to-day running costs (support, maintenance, staff operations) must be expensed immediately. The cost of running the business—support, licenses, maintenance, compliance patches, everyday staffing. Expensed immediately in the P&L. Opex reduces EBITDA, it keeps the lights on and systems healthy.

POPEX (Project Opex): Transitional costs related to projects (training, dual-running, hypercare) are not capitalizable and must hit the P&L. Transition costs tied to change: training, dual-running during cutover, hypercare, adoption campaigns. Expensed immediately. It’s the glue that makes transformation land; underfund it and Capex underperforms.

Most enterprises leverage partner network to co-deliver transformation and operations. FTE and Partners and how they should be segmented and categorised is a general topic of discussion.

• FTE salaries: By default are Opex, but can be capitalized if timesheeted against Capex projects.

·       Partner invoices: Treated as Opex by default, but can be capitalized if linked directly to asset creation.

Also from an accounting point of view if the partner are being leveraged and they come at higher cost in comparison to FTE, then leveraging them in Capex makes the most sense, but if they are coming at lower cost than the FTE then leveraging them in Opex does. For companies that are leveraging offshore and have a good balance of cost and have brought the partner cost almost equal to or lower than the FTE cost,  the balance of work is the key. It is not about who does the work, it is about what work is being done and mainly how it is accounted for.

So, Lets look how it needs to be accounted for.

Few enterprises struggle with segmentation of programs into Capex, Opex, and POPEX. This discipline ensures that transformation investments are accounted for consistently, managed transparently, and measured for both financial impact and business value.

Enterprise Programs and Their Classification

Enterprises typically run a spectrum of initiatives, each mapping differently into Capex, Opex, or POPEX:

• Transformational Programs (Capex): Building a new cargo management system, Core Banking system replacement, Launching a new loyalty engine, Digital Channel build, Rolling out an e-commerce platform with multi-currency payments.
• Transformational programs (Capex): ERP/core platform replacement, cloud migrations, new digital channels, foundational data platforms.
• Feature additions (Capex): pricing engines, APIs, new revenue features, analytics dashboards.
• Feature Additions (Capex): New dynamic pricing module, Adding cargo API integrations.
• Business-as-Usual (BAU) (Opex): Day-to-day ticketing support, Regulatory reporting operations, Customer service centers and supporting staff, Routine maintenance on booking engines.
• Bug Fixes / Minor Enhancements (Opex): Correcting system defects, Hypercare support, Minor UI improvements, Regulatory compliance patches, technical debt.
• MVPs (Minimum Viable Products) (Capex, but sometimes POPEX if experimental): New pilot digital boarding pass app, AI prototype for crew rostering.
• Pilots / Experiments (Often POPEX): Trial of biometric boarding gates, Limited-run cargo tracking sensors, training, dual-run, cutover hypercare, adoption/change activities. Capex if you scale to product; POPEX if you test and shelve

This segmentation is critical, because classifying work correctly determines whether costs hit EBITDA immediately or are spread over years. If these are blurred, enterprises either under-capitalize (leaving EBITDA weaker than necessary) or over-capitalize (masking Opex needs and causing stress later).

Organizations not only struggle with segmentation, but also at times executive leadership having different at times conflicting views.

Capex/Opex through Different Lenses

CFO Lens: Aims for strong EBITDA positioning, Stewards Capital discipline.

• Prioritizes financial optics and investor confidence.
• Seeks high recovery rates, strong EBITDA positioning.
• Preference: Partners + FTE heavily coded to Capex.
• Risk of underfunded Opex/POPEX, fragile BAU. Over-optimizing can starve BAU and adoption, hurting long-term performance. Over-focus on capitalization may underfund BAU or adoption.

CIO / CDO Lens:

• Focused on knowledge retention, sustainable capability, and avoiding vendor lock-in.
• Sees value in FTE involvement in Capex, less in Opex. Leverages partners to flex capacity and where cost advantage exists will move opex work to partners.
• EBITDA slightly weaker in the short term, but resilience stronger. Too much Opex affects morale, retention suffer, attrition and disengagement may rise.

Chief Technology Officer Lens

• Emphasizes technical sustainability, reducing debt, and protecting architectural integrity.
• Advocates balanced Opex funding to ensure systems remain healthy. Usually carriers the burden of Opex.
• Prefers FTE own architectural design and critical Capex builds. Partners handle modular builds.

Chief Transformation Officer Lens

• Optimizes speed of delivery and transformation velocity.
• Often pushes higher partner Capex allocation to accelerate change.

CEO Lens

• Need to balance all the above. Balance short-term market optics with long-term sustainability.
• Recovery rate must be high enough to show transformation, but not so high that it ignores operational realities.
• Balances ambition and resilience, aiming for a recovery rate (~75–85%) that signals transformation credibility while sustaining BAU.

 

Closing Thought

Every large organization is required to transform rapidly while still delivering stable operations at scale. This creates constant tension between long-term investments (Capex), day-to-day operations (Opex), and the transition costs of change (POPEX). How enterprises maintain financial discipline, allocate spend and account for it is not just a finance issue — it shapes delivery, talent retention, transformation velocity, market confidence and is as important as innovation itself. Extremes (all Capex or all Opex) undermine market confidence or internal trust.

1. Discipline is key: time sheeting, agile backlog tagging (e.g., in ADO or Jira), and clear financial coding essential to classify costs correctly.
2. Balance the portfolio: segment work clearly
• Capex for transformation and long-term growth. Capex fuels the future
• Opex for resilient operations and technical health. Opex sustains the present.
• POPEX for adoption. Popex ensures change success.
3. Frame EBITDA transparently: not just as an accounting outcome, but as evidence of disciplined investment and operational maturity.
4. Transformation efficiency comes from capital efficiency metrics, the KPIs which ensure transformational programs are judged not only by their classification but by the value they generate. Use ROI/NPV/IRR for business cases and selection – which investments to greenlight; ROIC/Capital Productivity for ongoing performance; Payback when speed and cash matter. ROIC is widely seen as the best overall metric (ties profitability to invested capital)
5. EBITDA matters it shapes market perception, reflects short-term financial health and confidence, it is a snapshot influenced by accounting choices.

Airlines Foundation

 Airline is a front door to one of the most complex ecosystems in modern business. Behind every boarding pass lies an intricate choreography of manufacturers, air traffic controllers, alliances, regulators, airports, technologies, and partnerships converging to move the worlds and make global aviation possible.

The fact that it is so complicated also stems from the fact that the airlines global failure rate is a staggering 87.5%, with over 21000 airlines that existed since 1900 and a little over 3000 airlines operate globally today.

Complexity is fascinating not because it resists understanding, but because each layer unravelled reveals another, equally intricate and intriguing beneath it.

So in the quest of unravelling some of the complexities, I am intending to start a series of posts covering Airline ecosystem.

Airlines Core functions include:

• Network & Schedule Planning: Is the process by which airlines decide where, when, and how often to fly. It involves selecting routes, matching aircraft types, balancing short-haul, long-haul, domestic, and international demand, and coordinating with slots, bilateral agreements, and alliances. It is a strategic blend of market demand forecasts, competitor analysis, fleet availability, and regulatory constraints essentially the blueprint that turns global demand for travel into a viable airline timetable.
• Revenue Management & Pricing: Is how airlines decide what each seat should cost, and when. Moving away from fixed prices to dynamic pricing—adjusting fares across fare buckets based on demand forecasts, seasonality, competition, and booking patterns. The goal is to maximize yield and RASM (Revenue per Available Seat Mile) by selling the right seat, at the right time, to the right customer—while also layering in ancillary revenues from bags, seats, meals, and upgrades.
• Sales & Distribution: Is how airlines bring their product—the seat—to market. Beyond their own websites and apps – Direct Flight, airlines rely on Global Distribution Systems (GDS), Online Travel Agencies (OTAs), Travel Management Companies (TMCs), and emerging standards like NDC (New Distribution Capability) to reach customers. It’s the ecosystem that determines where and how tickets are sold, how ancillaries are bundled, and how airlines compete for visibility in a crowded digital shelf.
• Airport Operations: Cover everything that happens on the ground to get flights out safely and on time. This includes check-in, security, baggage handling, gate management, boarding, and aircraft turnaround. It requires close coordination between airlines, airports, ground handlers, and regulators—balancing efficiency, safety, and customer experience in one of the most time-critical parts of the airline value chain.
• Flight Operations & Crew Scheduling: Ensure that every flight has the right aircraft, pilots, and cabin crew in place—while complying with strict duty time and rest regulations. It spans flight planning, dispatch, crew pairings, rostering, and operational control, coordinating minute-by-minute with airports and air traffic control. It’s the nerve center of the airline, where safety, on-time performance, and regulatory compliance come together to keep the system moving.
• Engineering & Maintenance (MRO): (Maintenance, Repair & Overhaul)—Is what keeps aircraft airworthy, safe, and reliable. It spans everything from routine line checks before flights to heavy C- and D-checks, engine overhauls, and compliance with airworthiness directives (ADs). MRO is both highly regulated and capital-intensive, requiring precision, planning, and predictive data to minimize costly Aircraft on Ground (AOG) events while ensuring the highest safety standards.
• Cargo & Logistics: Is the backbone of global trade within aviation, moving everything from e-commerce parcels to pharmaceuticals, perishables, and heavy machinery. Airlines carry freight in dedicated freighter aircraft as well as in the belly cargo holds of passenger planes. This ecosystem involves freight forwarders, integrators (FedEx, UPS, DHL), air waybills, unit load devices (ULDs), and cold chain solutions. Efficient cargo operations balance speed, cost, and compliance with strict dangerous goods and security regulations—making it a critical revenue stream alongside passenger travel.
• Customer & Loyalty: Functions focus on shaping the travel experience and building long-term relationships. Beyond service touchpoints like check-in, boarding, and in-flight care, airlines use Frequent Flyer Programs (FFPs) to reward and retain passengers. These programs—often billion-dollar businesses in their own right—create value through tier status (Silver, Gold, Platinum), mileage accrual, redemption partnerships with hotels, car rentals, and banks, and exclusive perks like lounges and upgrades. Loyalty is not just about rewarding miles flown—it is about anchoring customers in an ecosystem that keeps them coming back.
• Finance & Settlement: Ensures that the billions flowing through airline systems are accurately tracked, reconciled, and reported. This includes revenue accounting, settlement of interline and codeshare agreements, processing through IATA’s (International Air Transport Association) BSP (Billing & Settlement Plan) or ARC (Airline Reporting Corporation), and handling special prorate agreements (SPAs) between partner airlines. It also manages exposure to currency fluctuations, fuel hedging, and payment systems. In short, it’s the financial backbone that turns every booking, ancillary, and cargo shipment into recognized revenue and cash flow.

As Richard Branson once said: “If you want to be a millionaire, start with a billion dollars and launch an airline.” The economics are brutal, but the scale of opportunity is enormous.

Airlines may look simple from the outside, but every journey we take is powered by thousands of interconnected decisions, partners, and systems working in sync. And yet, this is just the surface. In the coming posts, I will try and peel further layers—from strategy and vision, to capability models and KPIs, to the innovation themes reshaping how airlines will fly into the future.

 

Introduction to Enterprise Architecture

Introduction to Enterprise Architecture 

Continued . . Part 1

How it all fits together [Solution]

Technology positioning system’s [TPS] output forms the key to the organizations focus, TechSharp will work on the trending Languages, Frameworks, Techniques, Tools, and Platforms across domains in the IT industry, and identify the right ones for the organization to adopt. This data will be used to propose and implement solution for new projects by the delivery teams. Sales force will use this data to sell the organizations capabilities. TPS will also align with the sales pipeline outliers, and form a combined Technology positioning for the organization.

Imagine the possibilities of leveraging this data.. The Recruitment team can use this data to plan their hiring. They leverage TechSharp to put together the JD’s for the technologies. The LEAD team has a clear technology training focus. Delivery team can plan bench or recommend up skilling of existing strength. The rest of organization team members know which skills is in demand for them to learn and excel.

TechSharp also helps conduct a gap assessment within the organization. When the technology focus is clear and is aligned with the pipeline, it is easier to conduct the gap drive. Example: Hybris is recommended as a technology to adopt. There are 8 different clients whom the Sales force is talking to which needs Hybris skillset. The pipeline suggests that to fulfill the requirements in the next 6 months the organization will need 8 Hybris Architects, 26 Hybris senior Leads and 48 developers. The organization has a few of them working on the same, couple might become available and rest need to be hired or trained in the same. 30% can be trained because they either have exposure to the technology or have worked on it already. All the teams gets atleast 90 days head start to fulfill the requirement.

TechSharp also creates reference architecture documents, knowledge base, POC, Training material and Labs for the teams to leverage thereafter.

TechSharp will be part of the sales cycle along with the Pre-Sales teams contributing on the Solution stack, RFP Questionnaire etc. TechSharp will however begin the cycle with the discussions with the exec level discussions (CTO/CIO/EA) with the client. This will not only help TechSharp understand product owner vision of the product, but also understand the client roadmap. TechSharp will create a roadmap for the team to consume. Based on the roadmap TechSharp will recommend the reusable frameworks that has already been created/evaluated by TechSharp, by which the team gets to work on tried and tested frameworks and always has a group to help when needed. 

Implementation of a project:

TechSharp although not part of the delivery team, will be part of Sprint 0 and Sprint 1, understanding the requirements, recommending the right technology stack, Solution, getting the right team on-boarded and helping with the estimate. The teams will follow the agile process and estimate the work items themselves, TechSharp will only be involved in aligning the roadmap, vision from the CTO and the technology direction. Post Sprint 1 TechSharp will be involved in every sprint review meetings and planning meetings as part of the Audit and governance framework.

Be it critical thinking, Analytical Thinking, Problem solving or people management, with the right direction and timely input TechSharp helps the teams to perform effectively at work through the Competency framework. Mentor program aligns with the TPS program to up skill and recommend the counselees. TechSharp also facilitates multiple events, and training programs with special emphasis on Social evangelism.

Programs at a glance

Technology Positioning System: We know where we want to go, need a program which helps get there.

Program designed to provide a technology vision, streamlined focus and roadmap to the organization. The program identifies areas that the consulting opportunities exist via extensive research, feedback from the Sales force, POC, Analysis and market study [Reuse data from Gartner Hype Cycle, Forrester Wave and other industry Analysis].  This data is then overlaid against the pipeline and enriched. The program produces the focus area: Applications, Trends, Techniques, Platforms, Tools, Languages, Frameworks, and Insights A detailed insight of each of the above including best practices, standards and recommendations on the adoption. This information can then used to create cheat sheets for the sales force [Help with sales] to create a well-defined GO TO Market Strategy and the Mentor program [Help with recommending counselees]. The information is also further useful to the Recruitment, HR , and the Lead teams to align the work force and up skill the resources [including bench]

Roadmap:

Program designed to provide the Stakeholder high-level aspirational view of the end architecture. The roadmap lists individual increments of change and lays them out on a timeline to show progression from the Baseline Architecture to the Target Architecture and future goals. Helping the architects in the project to see beyond the scope of the project and laying down the right foundation and alignment to growth, or keep the transparency of the technical debt to the client with the decision registry.

Gap Drive:

The TPS program will provide the complete list of skills that the organization needs to have. The Gap Drive program will drive to fill the gaps in the skill set. The workforce will be provided with tools to self-assess themselves. The new hire process will ensure that the gap is covered.

People management:

The program includes setting a benchmark for hiring new skills, conducting hire drives, interviews.

POC + Labs:

+	Provide an environment to learn and practice skills identified by TPS. Support Projects and Sales force with POC’s on cutting edge technologies

Value Portal:

Program designed to collect the new ideas from the source, the team who works day in day out for a project. T# will rationalize the ideas, identify the ROI and communicate the same to the stakeholders

Thinking Architecture:

Program designed to gamify teams on the tenets of architecture. Archimedes

Hackathon

A Day, 2 days or even week long hack events, where teams comprising of passionate geeks hack their way through the newest of technologies such as responsive web, complex event processing, predictive analysis, augmented reality, Cloud, cross platform development etc.,  in the process learning, evaluating and implementing uber cool solutions for complex problems nurturing their passion and natural desire for coding, competition,  and sense of achievement

Estimation:

Estimating the effort, time and resources needed to complete project especially for newer skills against all inherent uncertainties helping Sales force get across RFPs and teams across projects

Governance:

Practice and orientation by which architecture is managed and controlled: Implementing a system of controls over the creation and monitoring of all architectural components and activities, to ensure the effective introduction, implementation, and evolution of architecture

Risk Registry:

A Risk management process that identifies flaws in a software architecture and determines risks to business information assets that result from those flaws. Impact to the business, mitigations for those risks and governance to measure the efficacy of the mitigations.

Other Programs:

Enterprise Framework

Knowledge Base

Training

Social Presence:

Evangelizing the outreach of teams and worlds degree of awareness of the team members via blogs, articles, white papers and more

Tech Counselling:

Mentoring program in which an experienced mentor assists mentoree in developing skills and knowledge that enhance professional and personal growth.

Maturity

Program maturity is based on the following factors: