Typically known for their large scale and cost separating them from others, capital projects are investments that require a lot of planning and resources. They are essential investment projects designed to add to, renovate, or otherwise improve capital assets.
Here, we’re going to look at not only the defining factors of what makes a capital project, but also the characteristics most often associated with them.
The Definition of a Capital Project
Before exploring the concept more thoroughly, it’s important to nail down the meaning of a capital project. Technically, it is a construction, renovation, expansion, or replacement project for capital assets that already exist. They are in part defined by their cost, usually costing more than $10,000 over the duration of the project, including costs of land, architecture, engineering, and any contracting costs.
Capital projects can also be purchase of major assets costing over $50,000, or a significant maintenance or rehabilitation project with costs over $10,000, or lasting over 10 years.
What are Capital Assets?
To put it simply, capital assets are pieces of property with significant worth, usually properties that are used in a company’s business operations with the purposes of generating profits. Capital assets also cover things like machinery, vehicles, and the like, but for the purposes of capital projects, we’re talking mostly about property.
The Purpose of Capital Projects
Capital projects are typically large-scale, high-cost, long-term projects. Their primary purpose is to expand, maintain, or otherwise improve capital assets. They can include infrastructure projects like railways and roads, subways and pipelines, land and buildings. Capital projects are effectively organized as such as a means of managing the complexity of large projects, controlling their costs, schedules, and more.
Capital projects are not designated as such because they have a shared purpose, to put it simply. It’s a categorization of projects defined by the considerable planning that is needed to carry them out. As such, capital projects are typically discussed and planned for a long time before commencing.
The Characteristics of Capital Project Management
Capital projects do not have a single shared purpose. They can be taken on for a variety of reasons. The characteristic that they typically share is their need for capital project management. Large amounts of resources, both financial and human capital, are spent on capital projects.
As such, it’s recommended that any organizations or corporations taking on a capital project ensure that processes are in control to manage them so that costs and schedules do not dramatically exceed those planned.
The processes mentioned can include making sure that controls are transparent and accessible, that project leaders are clearly named for accountability and responsibility, that there is a meaningful audit trail, that risks are controlled and mitigated, and more.
Capital Projects Must Be Handled with Care
Without effective planning, capital projects, like all projects, can go over budget and outside of the schedule. However, given the scale of these projects, any changes to plans can be extremely costly. As such, effective capital project management is considered a necessity.