What is a capital project? Definition and examples
A Capital Project is a long-term project to build, improve, maintain, or develop a capital asset. This type of project involves a significant and consistent flow of investment. A capital project can be large-scale, needing constant management and resources for completion.
Put simply; a capital project is a huge project that costs a lot of money, lasts a long time, and is generally extremely complex.
Capital assets, in the world of business, include land, buildings, machinery, factories, vehicles, and computer equipment. In other words, for a company, a capital asset is something it needs to produce goods or services.
Due to their scale and complexity, capital projects require meticulous strategic planning, often involving feasibility studies and long-term financial projections to ensure their viability.
Rutgers’ Glossary of Budget and Finance Terms has this succinct definition of ‘capital project’: “A construction project to build, improve, or maintain a physical asset.”
Capital projects are typically projects that we can capitalize or depreciate.
The City of Portland, USA, has the following definition of the term, from the public sector’s point of view: “A Capital Project is a project that helps maintain or improve a City asset, often called infrastructure.”
Capital project – examples
Examples of this type of project include construction projects such as building a new factory, adding a new pipeline, or maintaining an old building. The construction of a new highway, railway, or subway might also be capital projects.
A business may start a capital project to increase growth or to maintain assets. The company may invest in new facilities, a manufacturing process, or internal systems.
In each case, it is important to plan the project thoroughly. The project leader must determine how best to use resources and time. It is also vital to keep down costs.
Unexpected problems
Every project has unexpected problems, even the most carefully planned ones. Therefore, it is important to have a team of professionals with excellent project management skills.
Typical issues include government permit requirements and problems with contractors. Scarcity of resources is also sometimes a problem.
We can fund a capital project through bank loans, bonds, or cash reserves. Public or private funding are also possible options.
Capital project – public funding
When there is public funding, the capital project is typically for the benefit of the community or country.
The renovation of a rehabilitation center or the construction of a new park are examples of publicly-funded projects.
When planning this type of project, we should consider several factors that can affect it in the future. Economic conditions and regulatory changes, for example, can affect a project’s future or outcome.
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Infrastructure
When public funds are financing the project, they are often projects to improve a city’s or country’s infrastructure.
Infrastructure refers to the structures and systems without which a country could not function.
Bridges, railway lines, roads, tunnels, and telephone lines are infrastructure items. Underground water and sewage pipes, cell towers, and airports are also infrastructure items.
Successful capital projects often stimulate local economies by creating jobs and attracting businesses, which can lead to a broader economic revitalization.
Video – What is a Capital Project?
This interesting video presentation, from our sister channel on YouTube – Marketing Business Network, explains what a ‘Capital Project’ is using simple and easy-to-understand language and examples.