This recent survey by the Project Management Institute showed capital projects have one of the highest rates of failure compared with other types of projects, with only 58% of projects meeting their original goals and business intent.
There are high stakes and large investments involved in capital projects: it's essential to have a solid understanding of what’s involved. In the rest of this article, I'll get you introduced to the world of capital project management.
How can project managers can successfully navigate the complexities of capital projects and deliver successful outcomes? Whether you're a seasoned project manager or new to the field, this guide will help get you off to a great start in capital project management!
I spent the first 10 years of my career managing all sorts of engineering projects and now lead a national consulting practice within a major firm in Canada.
In my work, I advise organizations and communities on all aspects of capital infrastructure projects, from strategic portfolio planning, to helping them oversee the design and construction of particular projects.
Past engagements have included community master planning, healthcare facilities, educational institutions, housing, civil infrastructure and special cultural projects, such as museums and Indigenous buildings.
Why you should read this. Maybe you're a project manager looking to take on capital projects, or even an experienced project manager from another field looking to pivot (pivaaat!). Either way, you're in the right place.
The global construction industry (read: capital project industry) is set to grow 85% to reach a value of $15.5 trillion by 2030. There’s a whole lot of opportunity out there and in this ultimate primer, I'll explore everything you need to know about capital project management, from planning to execution.
What Is Capital Project Management?
If you're new to the world of capital project management, don't worry—I'm here to help! This type of work generally involves overseeing large-scale projects that require significant investments of capital (money) over an extended period of time.
Capital project managers must juggle multiple stakeholders, budgets, and risks, all while ensuring compliance with often significant legal and regulatory requirements.
The keys to effective capital project management are careful planning, risk management, stakeholder engagement, and ongoing monitoring and adjustment to ensure successful outcomes. By mastering these skills, you can become a confident and successful capital project manager.
What Is A Capital Project?
A capital project is not just an investment in physical infrastructure or assets, but a transformative journey towards realizing a grand vision. Capital projects have the power to reshape entire industries, communities, and even societies, fueling innovation, progress, and prosperity over multiple generations.
Such initiatives are enterprise or wider in scale, often span multiple years, and generally require a uniquely broad mix of contributors and stakeholders to execute.
Capital Projects Vs Non Capital Projects
Capital projects usually involve the acquisition, construction, or renovation of a physical asset—like a building or road—that will be used for a long period of time, typically more than one year.
These projects require significant capital investments, and the costs and expenditures are usually capitalized, meaning they are spread out over the useful life of the resulting product (referred to as an asset).
Non-capital projects, like marketing campaigns or employee training, are all about products or services that do not involve creating a long-term capital asset. Other examples include software upgrades or mapping and streamlining a manufacturing process.
Understanding the difference between capital and non-capital projects is important because it can affect how the project is funded, accounted for, and reported on. Capital projects typically have more stringent approval processes and require more oversight, due to the significant investments involved.
Non-capital projects may have a more flexible approval process and require less oversight, but still require effective project management to ensure successful outcomes.
Examples Of Capital Projects
It’s all about the physical and built environment. Here are a few examples of capital projects:
- Developing a new residential community
- Installing a natural gas pipeline
- Constructing a new sports stadium
- Installing a new telecommunications network
- Building a water treatment facility
- Constructing a data center
Capital project management focuses on the natural environment too, for example:
- Restoring a wetland or marshland ecosystem
- Stabilizing a riverbank or shoreline to prevent erosion
- Installing a stormwater management system to reduce runoff and flooding
- Creating or improving a park
The Capital Project Management Life Cycle
The capital project lifecycle involves several phases, each of which plays an essential role in delivering a successful project.
The generic framework of project management still applies, and while specific processes and timelines may vary depending on the project's complexity and scope, the capital project life cycle typically includes the following phases.
During this phase, project managers work with stakeholders to define the project's goals and objectives, identify resources and constraints, and develop a preliminary budget and timeline.
Because capital projects entail such a big commitment of funds, the project planning stage is really about making the business case stable (ie. being sure the project will be a net benefit) and distributing the project’s value fairly among stakeholders, so that everyone is committed to the processes and shares the ultimate goals.
In the project design phase, capital project managers, in conjunction with a design team (architects and engineers) develop detailed plans and specifications for the project, considering user customer needs, technical requirements, safety considerations, and environmental regulations.
Usually an architect or engineer is required to be the principal designer, depending on the type of project. Residential and cultural buildings and other people-centric facilities are usually designed by architects, whereas bridges, roads, and utility infrastructure take an engineer’s lead.
As well as the principal designer (usually referred to as the prime consultant), it is expected a number of subconsultants, such as structural, civil, electrical, and mechanical engineers will also form part of the team.
A good prime consultant will be able to make smart decisions as to who should be on the team, for the benefit of the client.
The procurement phase involves getting ahold of the necessary materials, equipment, and services for the project. Managing the bid process can be tricky and there are often a ton of legal considerations to ensure fair competition.
Typically a Request for Proposals (RFP) process is undertaken, sometimes preceded by an Expression of Interest (EOI) to get a sense of the commercial market for contracting services (ie. who is out there and of those, who is interested in bidding).
Developing a bid response to an RFP is a significant investment of time and effort, so the process must be well managed.
The construction phase is where the actual physical work of building and installing the project takes place. This is where capital project managers, contractors, consultants, regulators, and other stakeholders must collaborate closely to ensure that the project is delivered on time and within budget.
The commissioning phase involves testing and verifying that the completed project meets all requirements and specifications.
As well as regular inspections throughout the project, to assure quality of work and integrity of the building, the mechanical and electrical systems also need testing and verification, to certify the finished product as fit for occupancy and use.
6. Operations and Maintenance
Once the project is commissioned, it enters the operations and maintenance phase, where ongoing maintenance and support ensure that the project continues to meet its intended purpose over time.
Handling this transition is important, to make sure the right knowledge is passed along to the operators of the complete asset and that the process for rectifying warranty defects is well understood.
Capital Project Management Vs Digital Project Management
Capital project management and digital project management have a bunch of similarities, differences, and their own quirks.
The former is concerned with physical projects, such as constructing buildings, bridges, and other infrastructure projects, while the latter involves managing projects that involve technology, software, and digital products.
Both types of projects require planning, organization, and management skills, but they differ in project scope, stakeholders, and delivery methodologies.
Capital projects are all about building things in the physical world. We're talking about constructing buildings, bridges, and other infrastructure projects that make our cities what they are. These projects require some serious planning, organization, and mad management skills.
Plus, they attract a bunch of external bodies like government regulators, investors, and communities: Everyone's got an opinion! And don't forget about the safety regulations and unexpected surprises that can pop up along the way. It's all worth it because these projects leave a lasting impact on our world.
Now, over to digital projects. These are all about technology, and making software and digital products. Instead of dealing with lots of external stakeholders (beyond a client, in some cases), digital projects focus more on the folks within the project team, like software developers and designers.
They all work together to create some really mind-blowing solutions. The great thing about digital projects is their agility. They can move with shorter development cycles and plenty of opportunities for testing and refining.
No matter which field of project management you're in, you’re still the boss and ultimately accountable for the project. You have to know how to communicate, collaborate, and lead your crew to success. It's a mix of being a technical guru, people person, and a pro at adapting to changes.
Finally, capital projects tend to have more external stakeholders, such as government regulators, investors, and communities, while digital projects may have more internal stakeholders, such as software developers and designers.
In addition, capital projects often have longer timelines, more stringent safety regulations, and a higher risk of unexpected delays and project cost overruns. Digital projects, on the other hand, can be more agile, with shorter development cycles and more opportunities for testing and iteration.
Ultimately, the success of both types of projects depends on effective project management, with a focus on delivering the project on time, within budget, and meeting stakeholder expectations.
4 Attributes Of Good Capital Project Management
Here’s what I think are the key components of good capital project management.
Effective capital project managers need to have a strong understanding of financial management and budgeting, given that capital projects often involve lots of money and significant financial risks.
As well as developing and managing project budgets, you’ll need to be able to make financially sound decisions to ensure the project stays viable. Larger projects require deep financial analysis, understanding of present value of future cash flows, and the impact of debt, which informs risk sensitivity analysis.
Secondly, excellent stakeholder management skills are key for capital project managers. They must be able to effectively liaise with a broad set of stakeholders, including investors, sponsors, government officials, community groups, and other project participants. Project success often depends on ensuring everyone is aligned and committed to agreed-upon outcomes.
Technical expertise in a relevant area of specialization is the third key attribute.
Capital projects often require specialized knowledge, such as engineering or architecture, to have an appreciation of the entire process, such that the project manager can make sound decisions around risk, finances and other critical determinants of success, within a strong contextual backdrop.
Finally, good capital project management requires a strong focus on risk management. Capital projects can be complex and often risky; the physical climate, site conditions, political context, availability of labor, financial stability of contributing stakeholders all carry uncertainty that may impact the project.
Project managers need to be able to effectively assess risks and develop mitigation strategies that are continually refined and implemented through the project’s life.
The benefits of effective capital project management are significant. These include:
- Improved financial performance through better budgeting and financial management
- Reduced issues and greater benefits realization through effective risk management
- Better stakeholder engagement and alignment, leading to greater support and buy-in for the project
- Improved project outcomes through strong technical expertise
- Greater accountability and transparency, which can lead to increased trust and support from stakeholders.
Capital project management is a complex and challenging field; it requires project management skills and unique expertise. By understanding the project life cycle, distinguishing it from digital and other forms of project management, and recognizing the attributes of good capital project management, you can successfully be part of managing capital projects.
Remember the important stuff, like prioritizing stakeholder engagement, effective communication, and risk management throughout the project, and to be adaptable when changes inevitably arise.
As capital project managers continue to navigate the ever-changing landscape of their field, it's a good idea to also consider the impact of emerging technologies, such as artificial intelligence and the Internet of Things.
As you delve deeper into the world of capital project management, consider how you can apply these principles and best practices to your own projects, even if you deal with digital, operational or other kinds of projects.
What ways can you improve stakeholder engagement and communication? How can you effectively manage risks and navigate uncertainties? What emerging technologies are you most excited about, and could they be incorporated into your capital projects?
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