Capital Project Management

What is capital project management?

As the name suggests, capital project management refers to the business activities related to initiating, launching, and monitoring complex projects. They are known as capital projects because they require significant investments or capital. 

Other characteristics of capital projects are the duration, as complex projects may take years, and the fact that each project is unique in its scope. A few examples of capital projects are the construction of a highway or railroad or the renovation of a power plant. 

Businesses use capital project management software to manage operations and costs related to these capital projects.

Types of capital project management

Depending on the purpose or industry, companies utilize one of the two types of capital project management. 

• Industry agnostic: Capital projects can be managed by companies in any industry, as the basic principles apply to all sectors. While agnostic capital project management can help any company, it may not always be the best option for some verticals.
• Vertical: In some industries like construction, capital project management requires features specific to the industry. For instance, construction projects require compliance with environmental and safety regulations, which aren’t needed in other verticals like professional services. 

Benefits of using capital project management

Using capital project management brings significant advantages, the most important being:

• Manage complexity: The complexity of capital projects makes them challenging to manage without robust software systems. Capital project management can help with planning and implementing hundreds or thousands of interrelated tasks spanning long periods.
• Improve operations: Despite the best planning and processes, exceptions and errors may occur while working on capital projects. Their impact on the project may be significant, so companies must adapt and adjust their operations to avoid losses and delays.
• Track costs: Capital projects can be expensive as they require multiple employees and contractors, equipment and tools, and often involve working with consultants, partners, or suppliers. All these generate costs that add up to significant amounts, often millions of dollars. 

Impacts of using capital project management

Capital project management could be positively or negatively impacted by: 

• Business processes: Complex projects require complicated processes, so how companies define and implement processes is critical for the success of capital projects. 
• Internal alignment: Since many stakeholders are involved in capital projects, they must be all on the same page when it comes to the objectives, methodologies, and challenges of the project. Misalignment can lead to delays and generate additional costs, thus jeopardizing the project's success.
• Collaboration: The complexity of capital projects makes collaboration critical, as many teams are involved at each project lifecycle stage. 

Basic elements of capital project management

The format for capital project management can vary, but a complete comprehensive plan will include the following elements:

• Capital planning: Planning is critical for capital projects as it defines the tasks, resources, and stakeholders involved. All parties must know who does what, when, and how to avoid delays and ensure project success.
• Portfolio management: A capital project is usually a mix of many smaller projects, also known as a project portfolio. Sometimes, multiple portfolios can be combined to deliver a capital project. 
• Resource management: Many human and equipment resources are needed to deliver capital projects. Tracking them can be difficult and time consuming, so companies need robust technology to manage, allocate, and monitor all resources required for capital projects. 
• Capital expenditures: Expenditures refer to any costs and expenses related to a capital project. Since they can add up to a substantial amount, expenditures must be monitored at the project level and for each significant milestone or deliverable to ensure that the company delivers projects within budget.

Capital project management best practices

To make capital project management work, users must follow these best practices:

• Choose the right type for your company: As mentioned above, vertical capital project management is preferable for highly regulated industries like manufacturing, oil and gas, or construction. Agnostic software is more beneficial to companies from industries like professional services, which are less complex and regulated.
• Consider industry-specific best practices: Other than compliance, which is mandatory, companies need to follow industry standards when delivering capital projects. While these are not required by law, customers often require compliance with standards such as ISO for quality assurance. 
• Integrate with your tech stack: While capital project management software provides various features, no solution covers all the company's needs. For instance, accounting functionality is usually not included. Integrating with other business software solutions, such as ERP or accounting, is essential.
• Monitor operations and implement corrective actions: As adjustments to capital projects are unavoidable, companies need to plan for these changes and define corrective actions for various scenarios. For instance, when working with suppliers, companies need at least two partners for each significant activity to replace one with the other if needed.

Capital project management vs. project and portfolio management vs. project management 

Project management refers to a short-term succession of repeatable tasks that do not require major adjustments. By contrast, capital projects take a lot of time to complete, are heavily customized, and can be changed regularly.

Project and portfolio management is used for related projects with many of the characteristics mentioned above. While a project portfolio can be complicated to manage, capital projects are much more complex and often include multiple project portfolios delivered and monitored simultaneously.

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