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.
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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.
