A capital project is a lengthy investment to create, add or improve on a project. It is a project that requires the use of significant financial capital and labor capital, to start and finish the project.
Capital projects, new and/or additional space allocation, design, and construction requests are submitted each year as part of the annual budgeting process. This approach allows all potential projects to be reviewed together on an annual basis, assuring that financial and staff resources are allocated in close alignment with the vision and strategy of the company.
Capital project requests also allow the company to prioritize, schedule, and fund capital projects on an annual basis. Occasionally, unanticipated capital needs may require consideration outside of this annual cycle. The off-cycle capital review process allows evaluation of these projects within the same rigorous criteria as the review of projects submitted during the annual budgeting cycle. However, the project already assumes a calculated risk with the expectation that the capital asset pays of.
To accelerate the growth of a company, new facilities, structures, and system is necessary. With the help of the capital projects, it proves how the investment provides an improvement, new feature or benefit like the capacity of the expansion, the cost reduction, or the production of new components.
There are capital projects financed by public funds, other additional funding sources are bonds, grants, bank loans, existing cash reserves, company operation budgets and private funding.
Projects that require debt financing should make sure that the financier will be able to recover the funds. The economic conditions and regulatory changes have an impact on the start or completion of capital projects.
It is important for the capital project report to be managed properly since it requires a significant commitment of the resources and time of the company.