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What Is a Capital Project?
Understanding capital projects, examples of capital projects, capital project funding, what are capital projects in government, what is a non-capital project, what makes a capital project successful.
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What Is a Capital Project? With Examples and How Funding Works
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Investopedia / Yurle Villegas
A capital project is a long-term, capital-intensive investment to build upon, add to, or improve a capital asset . Capital projects are defined by their large scale and large cost relative to other investments that involve less planning and resources.
Key Takeaways
- A capital project is an often-pricey, long-term project to expand, maintain, or improve upon a significant piece of property.
- A capital project is distinct from other company projects as it is large in scale, high-cost, and requires considerable planning relative to other investments.
- Capital projects often refer to infrastructure, like roads or railways, or, in the case of a corporation, the development of a manufacturing plant or office.
A capital project is a large-scale project with a high cost that is capitalized or depreciated .
Regular capital investments, such as new facilities, structures, or systems, may be necessary to accelerate growth within a company or government. For example, if a company wants to build a new warehouse or purchase new manufacturing equipment to increase efficiency on the factory line.
Capital projects typically consist of the public sector building or maintaining infrastructure, such as roads, railways, and dams, and companies upgrading, expanding, or replacing their facilities and equipment.
Capital projects must be managed appropriately, for they require a significant commitment of company resources and time. The project assumes a calculated risk with the expectation that the capital asset pays off. Management of risk is a key driver of successful project development and delivery of a capital project.
The most common examples of capital projects are infrastructure projects such as railways, roads, and dams. In addition, these projects include assets such as subways, pipelines, refineries, power plants, land, and buildings.
Capital projects are also common in corporations . Corporations allocate large amounts of resources (financial and human capital ) to build or maintain capital assets, such as equipment or a new manufacturing project. In both cases, capital projects are typically planned and discussed at length to decide the most efficient and resourceful plan of execution.
Capital projects are big investments and, therefore, face a lot of scrutiny, especially when paid for with public funds or the money of a publicly traded company . The goal is for these investments to pay off but sometimes they are poorly planned and executed and end up losing significant capital.
These projects are big, take time to complete, and can cost a lot of money, meaning it is often necessary to obtain equity or debt financing to make them happen. To receive funding, capital projects are obligated to prove how the investment provides an improvement (additional capacity), new useful feature, or benefit (reduced costs).
Additional funding sources for these projects include bonds , grants, bank loans, existing cash reserves, company operation budgets, and private funding. These projects may require debt financing to secure funding. Debt financing may also be required for infrastructure, such as bridges. However, the bridge cannot be seized if the builder defaults on the loan. Debt financing ensures that the financier can recover funds if the builder defaults on the loan.
Economic conditions and regulatory changes can affect the start or completion of capital projects, as in the case of Brexit , which caused the cancellation or delays of some projects in Britain.
In the U.S., Congress is responsible for funding public capital projects, such as roads, power lines, bridges, and dams.
Government capital projects are large-scale, costly projects to maintain or improve public assets, such as parks, roads, and schools.
Most public offices set thresholds for what qualifies as a capital project. For example, in the Commonwealth of Virginia, a capital project is defined as a project that creates at least 5,000 gross square feet of building space or exceeds $3 million in total project cost. Projects that fall under each jurisdiction's thresholds, which can also include life expectancy, may instead be called “non-capital projects.”
Careful planning and realistic estimates. Affordable funding needs to be secured, costs need to be well-managed, and the project must have a very good chance of becoming profitable. One or two setbacks could turn a capital project into a financial disaster.
The Bottom Line
Capital assets are key revenue generators and the backbone of many companies. Those wishing to expand and become more profitable will need to invest in capital projects and do so in the most cost-effective way possible. Over time, it is smart, well-executed investments that separate the good stocks from the weak ones.
David J. Edwards, Marwan Mohamed, Erika Anneli Pärn. “ Brexit: Measuring the Impact Upon Skilled Labour in the UK Construction Industry .” International Journal of Building Pathology and Adaptation, 35(3), 264-279.
Construction Products Association. " Brexit – Impact on Construction Product ."
IEOM Society. " BREXIT: Assessing the Impact on the UK Construction Industry & Mitigating Identified Risks ."
U.S. Capitol. " What Congress Does ."
Virginia Tech. “ Understanding Capital vs Non-Capital Projects .”
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Most popular, most recent, definition - what is a capital project.
- It is a new construction, expansion, renovation, or replacement project for an existing facility or facilities. The project must have a total cost of at least $10,000 over the life of the project. Project costs can include the cost of land, engineering, architectural planning, and contract services needed to complete the project.
- OR -
- It is a purchase of major equipment (assets) costing $50,000 or more with a useful life of at least 10 years.
- OR -
- It is a major maintenance or rehabilitation project for existing facilities with a cost of $10,000 or more and an economic life of at least 10 years.
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 .
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.”
Video explanation:
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.
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.
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.
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What is a Capital Project?
A capital project is an investment in the procurement or construction of a significant fixed asset . Capital projects tend to involve a much larger investment than for the typical fixed asset, and may require months or years of work before they are completed. Given the heavy investment required in a capital project, it may be necessary to obtain equity financing or debt financing for it.
Capital Project Analysis
Because of the major funding involved, capital projects are usually debated at length, looking at all possible alternatives, before the investment decision is made. This analysis may include the use of outsourcing, using less-expensive purchases, and/or making do with the current asset level.
Once approved, a project management team is assigned to them to monitor expenditures and the progress of the construction work, as well as to mitigate any identified risks. This analysis may lead management to shut down a project if costs are exceeding expected levels.
Examples of Capital Projects
Examples of capital projects in the public sector are bridges, buildings, and roadways. In the private sector, examples of capital projects are a warehouse, production line, and research facilities.
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What is a capital project?
Capital Projects defined
The loose definition of a “capital project.” is: a long-term, high-value endeavor with the express purpose of building upon or adding to or improving the property, plant, or equipment. Capital projects typically involve large-scale projects on the higher-end of expenditures compared to those requiring fewer resources.
Some examples of capital projects include roads, railways, manufacturing plants, nuclear power plant construction, power transmission, and electrical distribution . The consistent element of these projects is the amount of planning is substantive and the benefits are seen long-term, rather than immediately. Corporations usually begin capital projects in anticipation of growth or are contracted by a governmental agency to pursue capital projects for the public good.
Case Study in Power Plant Construction
Matrix NAC, headquartered in Tulsa, OK and a wholly-owned subsidiary of Matrix Service Company (Nasdaq: MTRX), completed power plant construction for a natural gas turbine capital project in July 2019. This capital project has the capacity to power 500,000 homes.
The installation of the 500 megawatts GE steam and gas turbine involved the input of federal, state and regional regulatory agencies, financial experts, countless engineers, and planners. Capital projects, from the moment planning, begins, pull interested parties in by the sheer amount of resources involved. This capital project cost in excess of a half-billion dollars. Since new power plant construction is an overwhelmingly complex endeavor, only top power plant construction companies perform capital projects .
Additionally, new power plant construction is a tremendous capital investment for any utility company. Matrix NAC pulled over 1,000,000 feet of electric cabling, made over 50,000 terminations, and installed 80,000 feet of conduit. To perform these tasks while maintaining their aggressive schedule dates, Matrix NAC utilized their substantial experience in capital projects.
What Can Top Construction Companies Do for Capital Projects
Matrix employs methodologies like strategic planning and cost-control forecasting tools to help keep your capital project within budget. In a half-billion-dollar project, going over by just 1% means a utility company has to explain to regulators and board and shareholders that an extra five million dollars may be added to their rate base. There are no good surprises in a capital project and having a top power plant construction company means those surprises are kept to a minimum, if at all.
Project management goes hand in hand with cost management. Any overruns frequently amplify and increase as the project life continues. Matrix, as a leading provider of power plant construction, keeps clients apprised of budget, schedule and progress.
Whether your capital project is a new power plant construction or nuclear power plant construction or any one of a number of substantial endeavors , large capital investments are daunting tasks. As a contractor, you need to ensure your capital project will operate as promised. As an investor, you want to minimize the number and size of liabilities and risks to guarantee an optimal return on investment.
Optimize your capital investment with the power plant construction company capital project experts call when they know they want the best: Matrix Services . Matrix uses technology, manpower and experience to optimize your investment and mitigate liability for a robust cross-section of capital projects.
Matrix NAC can help complete your capital projects with efficiency and economy in mind. Contact us today to learn more about our services.
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Capital Project definition
Examples of capital project in a sentence.
Capital project funding from the national block grant would come mainly as a grant to match locally raised revenues, with allowances for low-income inaccessible areas.
Mr. Matthew Frahm June 18, 2020Page 13 of 15 (7.13) Assist in the preparation of various New York State Department of Education forms and reports pertaining to the Capital project .
The Cost of Capital project team has proposed to commission an academic review of the cost of equity finance, testing the conventional approach in the current low returns environment.
Capital project funding would continue to come primarily from a national block grant from which the Provincial Councils could select the specific projects based on provincial priorities for roads under its purview.
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Capital Project - Explained
What is a capital project.
Written by Jason Gordon
Updated at June 26th, 2021
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Table of Contents
A capital project is a project embarked upon in order to improve, replace, or maintain a capital asset. Capital assets include land, roads, buildings, rails, and others. Common examples of capital projects are new constructions, expansion of a facility, renovation of a building, replacement of heavyweight machines and equipment, among others.
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Academic Research on Capital Project
- Banks versus venture capital : Project evaluation, screening, and expropriation , Ueda, M. (2004). Banks versus venture capital: Project evaluation, screening, and expropriation. The Journal of Finance , 59 (2), 601-621. Why do some startup firms raise funds from banks and others from venture capitalists? To address this question, I study a model in which the venture capitalist can evaluate the entrepreneur's project more accurately than the bank but can also threaten to steal it from the entrepreneur. Consistent with evidence regarding venture capital finance, the model implies that the characteristics of a firm financing through venture capitalists are relatively little collateral, high growth, high risk, and high profitability. The model also suggests that tighter protection of intellectual property rights encourages entrepreneurs to finance through venture capitalists.
- Use of quality function deployment in civil engineering capital project planning , Ahmed, S. M., Sang, L. P., & Torbica, . M. (2003). Use of quality function deployment in civil engineering capital project planning. Journal of Construction Engineering and Management , 129 (4), 358-368. Capital project development is a complex process that takes many years to implement. The development of a capital project usually undergoes several rounds of design evolution, and as a result the basic and original customers requirements may be easily sidetracked or may deviate from the clients objectives. Quality function deployment (QFD) is a tool that can be used to keep track of customers requirements. The objective of this paper is to explore the applicability of QFD in the civil engineering capital project planning process by developing a QFD model with an application template for the process. To verify and demonstrate how the QFD model works, data are obtained from two real-life projects and fed into the template for back-analysis. The findings suggest that QFD can be successfully used in the capital project planning process as a road map to keep track of the original requirements, facilitate good communication across the hierarchy, and serve as a tool for evaluating project alternatives.
- Efficient capital project selection through a yield-based capital budgeting technique , Shull, D. M. (1992). Efficient capital project selection through a yield-based capital budgeting technique. The Engineering Economist , 38 (1), 1-18. Abstract A yield-based capital budgeting methodology is presented that provides capital project evaluations consistent with shareholder wealth maximization under the assumptions of perlect capital markets and cash flows known with certainty. The methodology is derived by adjusting a modified rate of return technique proposed originally by Lin and more recently in another form by Beaves. Hence, the Lin/Beaves method is examined and an interpretation is suggested for both its investment base and its return measure. Being based upon the Lin/Beaves method, the adjusted methodology shares the economic interpretations associated with both the investment base and the return measure of the Lin/Beaves method. As a result, the adjusted methodology both appropriately evaluates capital projects and provides a return measure with a clear interpretation. Innovation and risk in a public-private partnership: financing and construction of a capital project in Massachusetts , Bloomfield, P., Westerling, D., & Carey, R. (1998). Innovation and risk in a public-private partnership: financing and construction of a capital project in Massachusetts. Public Productivity & Management Review , 460-471. This case study focuses on a Massachusetts project that was financed and built through a complex series of noncompetitive contracting arrangements authorized by special legislation waiving the statutory rules that normally govern publicly funded capital facility projects in Massachusetts. The project's use of lease-purchase financing and fast-track, design/build construction were touted as an innovative, entrepreneurial approach enabling rapid construction of a state-of-the-art capital facility. This case study highlights the project's risks as well as the broader public policy implications of the project's financing and construction techniques.
- Development of performance metrics for phase-based capital project benchmarking , Yun, S., Choi, J., de Oliveira, D. P., & Mulva, S. P. (2016). Development of performance metrics for phase-based capital project benchmarking. International Journal of Project Management , 34 (3), 389-402.
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capital project Definitions and Synonyms
- 1 a major project , often involving building work , which will make it possible for an organization to increase its production Synonyms and related words + - To do business and relating to doing business account after hours asset ... Explore Thesaurus
American definition and synonyms of capital project from the online English dictionary from Macmillan Education.
This is the American English definition of capital project . View British English definition of capital project .
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View the pronunciation for capital project .
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An investigatory project is a project that tries to find the answer to a question by using the scientific method. According to About.com, science-fair projects are usually investigatory projects.
A greenfield project refers to an activity in a completely new area of investment, according to Cambridge Dictionaries. The original connotation of a greenfield project revolved around construction and development on land that had never bee...
A turnkey project is one that is fully operable when it is handed over to the project manager. A turnkey project can exist within a business setting or can be the actual business. Turnkey means that the project manager will only have to tur...
A capital project is a long-term, capital-intensive investment to build upon, add to, or improve a capital asset. Capital projects are defined by their
Definition - What is a Capital Project? · It is a new construction, expansion, renovation, or replacement project for an existing facility or facilities. · It is
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
A capital project is an asset acquisition or maintenance project of a significant capital asset that either adds to it, builds upon or improves
A capital project is an investment in the procurement or construction of a significant fixed asset. Capital projects tend to involve a much larger
Grants made by the state to fund capital projects for other entities are also included in the capital budget. Capital projects are usually funded by sources
capital project meaning: a large and expensive project to build or improve a capital asset such as a factory, etc.: . Learn more.
The loose definition of a “capital project.” is: a long-term, high-value endeavor with the express purpose of building upon or adding to or improving the
Capital Project means a project consisting of the construction, rehabilitation, demolition, relocation, preservation, acquisition, or other physical
A capital project is a project embarked upon in order to improve, replace, or maintain a capital asset. Capital assets include land, roads, buildings
Definition of CAPITAL PROJECT (noun): major project that helps an organization increase production.