What You Need to Know About Capital Improvement

Capital improvement is critical for organizations across public and private spheres. It creates value through public works, upgrades, or additions. 

Whether you’re a municipality aiming to revamp city hall or a university creating more student housing, capital improvement is essential. It’s a dependable way to ensure you’re attracting new residents, students, or patrons. 

To understand its importance and best practices associated with it, we’ll unpack the basics in this blog post. 

What is capital improvement? 

A capital improvement is a permanent structural change or upgrade. These improvements enhance a facility’s value, extend its useful life, or allow it to serve a new purpose. Capital improvement differs from maintenance, which preserves a facility’s existing condition.

Capital improvements require significant investments. They deliver long-term benefits that help a facility evolve and change to meet stakeholder needs.  

Capital improvement examples

• Infrastructure upgrades: Updating or replacing water pipes, power lines, or HVAC systems.
• Facility renovations: Enhancing or modernizing office buildings, educational facilities, or healthcare centers.
• New construction: Adding net new dormitories, recreation centers, or administrative offices.

Why is capital improvement important?

Capital improvement helps maintain long-term asset management strategies and infrastructure functionality. This is especially relevant in the U.S., where many assets are aging, infrastructure is becoming outdated, and regulatory requirements are increasing. 

Capital improvements are not just optional upgrades—they are necessary investments to maintain compliance, support growth, and meet operational needs.

Capital improvement benefits 

There are significant benefits to these initiatives. Here are a number of them. 

Enhance safety and compliance

Buildings must meet modern safety standards. Capital improvements reduce structural integrity, electrical system, and HVAC risks. 

For example, replacing an outdated HVAC system improves air quality. It can also prevent fire hazards.

Improve efficiency and reduce costs

Leaders can significantly reduce energy consumption and operational costs through capital improvements. Upgrading to energy-efficient windows, lighting, or HVAC systems lowers bills and increases sustainability. 

Increase property value and longevity

Capital improvements, roof replacements, or other extensive renovations increase building value, extend facility lifespans, and minimize repairs. 

Support growth

As organizations grow, so do facility needs. Adding new buildings or expanding existing ones allow institutions to accommodate more stakeholders. These projects support long-term institutional growth and development. But they require significant capital expenditures.

Boost sustainability efforts

Many of these projects support sustainability goals. Whether it’s installing solar panels, upgrading to energy-efficient appliances, or incorporating eco-friendly materials into renovations, they comply with certification standards and reduce their carbon footprints. They can also help organizations meet regulatory requirements and earn sustainability certifications like LEED.

Capital improvement vs. maintenance vs. repair

While capital improvements overlap with maintenance and repairs, it’s important to distinguish between these three categories. They differ in their purpose, timing, and financial implications.

Capital improvement

Capital improvements are significant. They involve long-term projects to upgrade a facility or asset. They increase facility value, functionality, and lifespan. Capital improvement expenses are capitalized, meaning the cost basis is spread over an asset’s lifespan. Examples include:

• Installing a new HVAC system
• Adding new wings or floors to a building
• Replacing an aging roof
• Upgrading to energy-efficient windows

Maintenance

Maintenance preserves the original condition of a facility or asset. It does not add significant new value but extends the asset lifecycle. Unlike capital improvements, routine maintenance costs are typically not capitalized. Some examples of maintenance:

• Regular inspections
• Cleaning
• Minor repairs 
• Building maintenance
• Capital asset tune-ups

Repair

Repair work is reactive to restore assets’ operational condition. Repairs do not extend lifespan or add new value. However, they are needed for bringing a facility back to functionality. Organizations incur repair costs after work completion. Examples of repairs include:

• Fixing a leaking roof
• Repairing broken motors or machinery
• Patching damaged walls

What is a capital improvement plan?

A capital improvement plan (CIP) is a long-term roadmap for physical asset investments. It defines facility needs, establishes a prioritization schedule, and sets a capital plan. They focus on investments that require significant funding and multi-year planning.

Capital improvement plan examples

Capital improvement projects are bucketed into distinct types. Here are some of the categories of capital improvements. 

Infrastructure and utility upgrades

• Replacing aging pipes or installing water-saving fixtures
• Upgrading electrical systems to support growth
• Improving drainage systems or repaving roadways 

Facility renovation

• Modernizing classrooms or adding new wings to accommodate growing student populations
• Renovating administrative offices to improve functionality and aesthetics

New construction

• Building new recreational facilities to serve students, employees, or community members
• Constructing additional parking to support growth
• New educational buildings for growing numbers of students

Public improvements

• Upgrading or adding new features like walking paths, benches, or sports facilities
• Enhancing the appearance and functionality of public spaces

How fixed asset management software helps

Fixed asset management software streamlines and optimizes capital improvement efforts. Here’s how it can help:

Monitoring progress

Fixed asset management software tracks project progress. It monitors timelines, task completion, and project milestones. Leaders leveraging this software ensure projects meet deadlines and budgets. 

Capital planning

Capital improvement budgets are complex, but these software solutions simplify the process. They allow users to manage expenditures, forecast costs, and allocate budgets efficiently.

Preventive maintenance and asset management

Fixed asset management software allows users to track new and current assets and create preventive maintenance schedules. From HVAC systems to infrastructure upgrades, the software helps assets.

FMX for capital improvement

FMX’s capital planning software provides essential features to support capital improvement planning and execution. Its robust capital planning capabilities allow users to allocate budgets, manage expenditures, and keep projects on track. 

It helps leaders manage their capital improvements more effectively, ensuring long-term sustainability, safety, and operational efficiency.