What is a capital project? Definition and example
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.
The Cambridge Dictionary has the following definition of the term:
“A large and expensive project to build or improve a capital asset such as a factory, etc.”
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.” (Image Data: Michigan State University)
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.
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.
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.
Video – Capital Projects
In this PwC video, Daryl Walcroft, PwC Principal/Capital Projects and Infrastructure, talks about capital projects. He explains that they are usually huge, incredibly complex, and may last from five to ten years.
Walcroft tells us why having the right tools like risk analysis and schedule analytics is important.