There are lots of factors that affect the requirements for improving the existing assets and each project should be looked at from different perspectives and different improvements considered to establish which one will have the best long-term results.
Understand the Objectives
- What is the object of the capital development? Does the organization want to increase the capacity or do they want to improve the existing capacity by modernizing?
- Will the new facilities be able to increase the output and reach the targeted figures over an extended period of time?
- It is important to take into consideration what is being achieved today and what will be required in the future and how it will all fit with progressing technology. The facility needs to have the flexibility to change along with new technology.
- The project scope is how the budget is derived and it needs to be clear. It is also important that all the management and staff are aware of the overall scope because any changes to this would have huge implications on the budget.
Current Conditions
- Firstly the age of the existing facilities needs to be considered. Are they able to be renovated to suit the future of the scope or do they need to be demolished and rebuilt?The life expectancy of the existing building needs to be considered when considering demolishing.
- The percentage of the existing facilities that are being utilized. If there is unused space perhaps that can be converted to accommodate the necessary project requirements
- Are there other facilities that can be incorporated with the existing ones to avoid any demolishing or rebuilding.
Deferred Maintenance
- Lots of institutions neglect some maintenance for various reasons therefore before any capital expenditure is undertaken it needs to be established which maintenance projects cannot be postponed any longer.
- Is there enough resources available for to undertake the projects. It could mean funds to do both the maintenance and the capital project. If not then the priority of which to do first would need to play a role
- With new buildings also come added maintenance costs. These demands have to be calculated over a long period as buildings are designed to be there for over 20 years. The staffing of the new facilities and what would be the financial burden on the existing business.
- Will the new project be built to replace a building or facility that is part of the neglected maintenance? What will be the result of this new project? Will it lessen the maintenance workload or increase it.
Capital Expenditure
- How will the project be funded? Will it be new debt and if so will the comp[any be able to get the required credit and how much of the operating profit will be required to fund such project.
- Has the right team been considered and do they understand the overall scope and their specific authority?
- How will the progress and administration be processed to keep track of all the costs etc? Is the process efficient so that decisions can be made quickly when higher authority is required?
- Does the organization have all the necessary technology to do all the designing and construction or is it going to be outsourced? If you have done this type of project before does the administration of the financial controls need to be upgraded?
