Capital Project Justification Criteria
- Date of Initiation/Revision
- Policy Classification
Office of Senior Vice President for Administration and Finance and CFO.
- Policy Summary
This document establishes the criteria to be used to justify significant capital projects that require approval by the Board of Trustees.
- Facilities Committee—Construction Projects and Real Estate
- $1.0M to $5.0M if approved in the capital budget
- $0.5M to $1.0M if not part of the approved capital budget
- Executive Committee—Construction Projects and Real Estate
- < $5.0M if approved in the capital budget
- < $1.0M if not part of the approved capital budget
- Related Policies
Financial Authorization and Signature Policy
- Delegation of Authority
This policy is distributed by the Office of the Senior Vice President for Administration and Finance and CFO ("Sr. VP and CFO"). There is no delegation of authority for this policy.
- Policy Statement
- Capital Project Justification Criteria
Each project should be justified based on the criteria within one or more of the categories below.
- Financially Justified Projects
- Increased revenue potential or revenue protection
- Cost reduction/productivity
- Net present value (NPV) is positive
- Other supporting financial analyses justifies the project
- Financial return meets divisional criteria and strategic objectives
- Analyses are made of the impact on the University’s financial statements and financial ratios. (See Attachment A for further discussion)
- Health, Safety, Regulatory Compliance Projects
- OSHA/ADA requirements
- Environmental, Health and Safety or other code requirements
- Accreditation (hospital, college)
- Life and safety
- Risk to University (Critical and High Risk items will be given priority)
- Required to meet accreditation approval/pass outside audit
- Alternative solutions are presented and it is demonstrated that this investment is the most cost/beneficial solution
- Life/health/safety remediation
- Maintenance/Capital Renewal and Replacement
- Facilities Master Plan
- Deferred Maintenance Program
- Risk to the University (Critical and High Risk items will be given priority)
- Facility condition analysis
- New faculty
- New programs
- New buildings or services
- Discussion of the strategic importance of the project.
- Benchmarking data of what our peers are doing in this area.
- Information System Technology
- Operational systems
- Financial justification as above
- Discussion of the strategic importance of the project/investment.
- Economic/Financial Analysis Requirements
An economic/financial analysis must be presented for each project being reviewed by the Board of Trustees or relevant Board Committee. See attachment A for additional discussion. Below is a discussion of the items that should be taken into consideration when preparing the applicable analyses.
- Revenue Projections—What revenue will be generated as a result of the project? Revenue projections should be presented for an appropriate term. Consideration should be given to sources including but not limited to:
- Indirect Cost Recovery
- Clinical and/or patient care revenues
- Expense Projections—What expenses will be generated as a result of the project? Expenditure projections should be presented for an appropriate term. Consideration should be given to:
- Building operating costs including utilities, maintenance, insurance, taxes, renewal and replacement reserves, etc.
- Equipment purchases
- Additional staffing costs
- Additional infrastructure and/or central service costs which may need to be added
- Environmental, health & safety regulatory, compliance costs such as testing and inspection of new equipment, labs, etc.
- Expense Avoidance—What costs are avoided as a result of the project?
- Faculty salaries which are grant funded vs. core budget funded
- Graduate student stipends
- Fixed or indirect cost recovery which will be covered
- Opportunity Costs and Strategic Trade-Offs
- What is the economic impact of not making this investment? Lost revenue, higher expenses, decline in quality?
- What is the economic impact of projects not done as a result of this project?
- Land use—What other uses are projected for this property? Has a land use cost been factored into the economic picture?
- Indirect Cost Considerations
- What is anticipated growth in sponsored research awards as a result of the project?
- What is the anticipated phase in of these awards over the next X years?
- How much of the new space will be classified as research space?
- What other activities will be in the new space?
- Will any space be vacant and if so for how long?
- Will any University start up funds be required prior to full sponsored research funding? If so, where will those funds come from?
- What is the estimated amount of annual (non federal funded):
- Depreciation on new buildings?
- Depreciation of new equipment?
- Interest on external debt?
- Operating and maintenance costs?
- Balance Sheet and Ratio Implications (University Budget Office)
- Increase in debt
- Increase in debt service
- Increase in property, plant and equipment
- Calculation of ratios
- Financing—how will the project be financed?
What is the priority of this project given the University's limited debt service?
- Government grants
- External Debt (Has this project been identified within the University's long-term external debt analyses?)
- Future fees or tuition
- Gifts—in hand/expected—timing
- Risk Factors to Proposal
- Government funding does not come through
- Patent/Royalty/Gift funding does not come through
- Unable to recruit faculty/staff required
- Change in indirect cost rate reimbursement rules
- General economic conditions
- Project cost overruns or time delays
- Alternative Solutions, Contingency Plans and Mitigation of Risk
What are the alternatives to making the investment and corresponding implications? (i.e.; do not build the building and therefore do not have XYZ program or decide to move XYZ program into an existing building)
If the objectives of this project are not achieved, what are the alternative strategies to achieve the objectives? (i.e.: investment was to bring in X revenue but does not, what are the alternative strategies to increase revenue?)
- Performance Measurements
- How will the success of this project be measured? (Measures should be both financial and non-financial)
- Over what time period?
Justification criteria and financial analyses should be reviewed with the Senior Vice President for Administration and Finance and CFO prior to presentation to the appropriate Board of Trustees Committee.
- Policy Review
As determined by the Sr. VP & CFO.
Economic and Financial Analyses
Divisions and departments should work with the University Budget Office to develop the appropriate financial analysis for the proposed project.
- Funding Sources and Uses—A worksheet should be provided detailing all funding sources, expected timing of receipts and expected timing of expenditures for the project. Construction projects expected to span multiple years should include details for all years.
- Analysis of Budgetary Impact—This analysis should detail all expected incremental revenues and expenses resulting from the project over a 10-year period including the overall net budgetary impact.
- Analysis of Savings—This statement should show status quo expenses as compared to proforma expenses with a calculation of the net present value of expected savings over the life of the project.
- Supplemental Information (as applicable):
- Incremental indirect cost calculations
- Debt service assumptions
- Gift pledges by individual and expected timing of receipts
- Royalty revenue including use of reserves (already received) and expected receipts
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