CapEx vs. OpEx

In this week’s podcast on “How to Build a Museum” with David Greenbaum, FAIA, we heard that “over time, OpEx will eventually outstrip the CapEx of a new museum building.”

Maybe this made you think: “Interesting. Yes, eventually that would be true.”

Or maybe: “What?”

These terms are super useful, so let’s unpack them a little.

“CapEx” is finance jargon for “capital expenses”.

“OpEx” means (you guessed it) “operating expenses”.

Capital expenses go to create “capital”: anything with a value lasting beyond a year, like a museum building or exhibition.

Operating expenses, on the other hand, pay to operate that same building or exhibition each year after that, like salaries, heating, and maintenance.

“OpEx eventually outstrips CapEx” because over enough years, the accumulated annual costs of operating a building will eventually be more than the cost to build it.

Generally, the higher the CapEx, the higher the OpEx. The decisions we make designing a project directly impact what it will cost to operate it later.

Here’s the thing:
Now we know why “OpEx eventually outstrips CapEx”.

And how the two are related.

And that we can actively control our CapEx to lower our OpEx later.

Useful, right?

Warmly,
Jonathan