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.