Seven Secrets for Success: A Practical Look at Capital Program Prioritization

There are seven key aspects that impact prioritizing new capital projects.

Utility, facility, and infrastructure owners face increased pressure to make effective use of limited capital funds. Formal processes and frameworks for developing a Capital Improvement Program (CIP) are common. However, regardless of utility size or the longevity of a formal CIP program, utilities continue to struggle with key aspects of CIP prioritization. This brief article examines seven key aspects that impact prioritizing new capital projects.

From the Real World

“I appreciate you coming in to help with this,” our project manager said as he picked me up at the airport. “Jeff, the COO, is not happy with our traditional capital project prioritization approach.”

“That’s what I understand,” I replied. “I think he is not getting the staff to bring forward his special projects that he believes will take the organization in a new direction.”

“That’s right,” confirmed our project manager. Maybe the staff in biased or maybe Jeff is, but they are on very different pages.”

The first words Jeff said as we shook hands were, “I am glad you are here. I understand you have come to re-align my staff’s thinking.”

“Something like that,” I replied. “I have some tools and approaches that will bring everyone back together. By the way, why don’t you just do those special projects you want to do?  Ust take them right off the top?”

“You are the first person to ask me that, and it’s the right question. I plan to do so. I just want to have their understanding and buy-in first.”

Key Aspects of Capital Program Prioritization

Project Definition

There is a practical appeal to categorization, or “buckets”, such as providing a budget for force main replacement or pump station rehabilitation. However, this approach makes prioritization difficult because specific projects are not.CIP implementation is also complicated and sometimes stalls because project selection decisions are driven too far down into the organization.

Tip: All projects should have clearly defined scopes, budgets, and schedules with key milestones. Each project also needs criteria for determining when it is complete. This sounds basic, but organizations often define projects inconsistently.

Prioritization Methodology

Using a multi-criteria approach is the industry standard. However, this process requires significant staff time. It also often does not match the organization's maturity or the decision's complexity.

Tip: Use both multi-criteria and forced ranking methods to develop a prioritized list. Most of the top-rated projects will be on each list. Explore and understand why some projects are on one list but not the other.

Timing (and Cash Flow)

Common CIP prioritization methods rank projects across the 5- or 7-year CIP cycle without accounting for cash flow. Cash flow considerations include the timing of expenditures and the infusion of grants or third-party participation.

Tip: Make sure to examine cash flows after initial project prioritization. It makes a difference in how you can stretch your dollars and potentially get more projects.

On-going Projects and Project Dependencies

Certain projects must precede others, so ranking projects independently can provide impractical results. This is most obvious for projects that are phased over the period covered by the CIP.

Tip: Make the decision upfront on how to handle on-going projects because it will impact the evaluation process. Good practice is to look at the funding requirements for on-going projects, reduce the total budget available for new projects, and then prioritize new projects without considering the on-going ones.

Size of Projects

Large projects are usually more important and tend to score or rank highly. However, because of their size, they may score or rank extremely low, as they eliminate many smaller projects that reviewers may consider necessary.

Tip: Break larger projects into their phases for prioritization purposes. It’s the cleanest way to make sure everyone compares apples to apples. Obviously, in some cases you can’t.

Special Projects and Studies

Special projects can include planning studies, energy management studies, emerging technologies, information technology/systems, and operations technology (such as SCADA or meters). The decision on whether to prioritize these projects with construction-intensive and often larger projects can impact the results and practical acceptability of the entire CIP process.

Tip: It’s not a democracy, so pull out the special projects and sturdies that are important to senior management. Reduce the capital budget accordingly and then rank the traditional projects that require design and construction.

Where to Draw the Budget Line

Balancing rate and user fee increases with the evaluation of “needs” versus “wants” is complicated. Another level of added complexity is deciding how much of a precious CIP budget should be dedicated to assets that are currently owned versus those that should be added for growth and enhancement.

Tip: Initially set aside one-third of the normal (year-over-year) capital budget for new projects. That means that two-thirds of the capital program is set aside for taking care of expanding and enhancing the facilities and infrastructure that you already own.

Getting More of What You Need

Effective CIP prioritization is about applying disciplined fundamentals with consistency. Organizations also make better decisions and avoid unnecessary churn. Utility, facility, and infrastructure owners who treat prioritization as an integrated process rather than a once‑a‑year exercise build capital programs that are defensible, fundable, and aligned with long‑term system needs. In the end, you get more of what you need.

---

Need help getting started? JD Solomon Inc. specializes in practical applications in project development, including capital project prioritization.