Deriving Value from Capital Expenditures on Construction Projects

by / Monday, 27 February 2017 / Published in How To's
capital expenditures on construction projects

Every business today has capital expenditures budgeted for their capital projects. Capital expenditures are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm.

Although, large capital projects are often not delivered at the lowest possible cost, nor do they always deliver maximum value at any given cost. This explains why companies tend to demand value from their capital expenditure.

So what are some of these values companies seek to derive from their capital expenditures on construction projects? The answer is the essence of this post.

Practical Values to Derive from Capital Expenditures on Construction Projects

Deriving value from a capital expenditures on construction projects is much more than just delivering projects on time and on cost. Even though these two metrics are equally important ROI to clients, it is also about the following:

  • Maximize Business Effectiveness

Capital expenditures on construction projects (such as building or renovating a facility) is undertaken to enable businesses conduct specific activities within them. That is, the capital project should allow business activities to be undertaken efficiently, economically and effectively.

Completed capital projects, such a building construction should be easily adaptable for future uses and be flexible to accommodate short, medium and long-term changes. This will help the business to maximize its effectiveness and derive value from their capital expenditures in achieving their short, medium and long term objectives.

  • Ensure Effective Project Management and Delivery

For capital expenditures on construction projects, there are opportunities available to maximize value and minimize waste at every stage of the construction and procurement process, from the minute that the need for a building is identified to when it is ready for use.

Effective management by an integrated project team is essential to achieving this value. This is dependent on the skill set and experience of the construction contractor you work with. We help our clients achieve this through our value engineering processes.

  • Achieve the Required Financial Performance

Big concerns for capital expenditures on construction projects are the affordability of the capital project, how to optimize costs and the benefits the organization will derive by using it. A sound financial management policy is vital in achieving the required financial performance.

Adopting a sound financial management practice is one of our core value propositions; to ensure that budgeted cost will accurately reflect the optimum balance between the required functionality of the capital project and the cost of providing it. And also help to mitigate against project cost variation and under-capitalization.

  • Minimize Operation and Maintenance Costs

Another key issue about capital expenditures on construction projects has to do with the cost of maintaining, operating and sustaining the capital project during construction, after and once in use. A good quality control/assurance management system is also essential in achieving this value.

Our effective quality management system through the compliance with health safety and environmental standards will provide practical engineering solutions that ensure less maintenance cost post construction.

Conclusion

Value for money in construction is about more than delivering a building on time, at available cost and with specified quality. In other words, the ultimate aim of capital expenditure for every construction project is not only to reduce or save cost, but to ensure that desired values (as listed above) are derived from such expenditure in the short, medium and long term.

The key question now is, are you deriving value from your capital expenditures on construction projects?

 

 

One Response to “Deriving Value from Capital Expenditures on Construction Projects”

  1. […] at the lowest possible cost. But with the application of value engineering, it helps companies to derive value from their capital project by not compromising the quality while delivering life time cost savings for the capital […]

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