Hallmarks of a Successful Capital Project
Want to avoid capital project carnage? Here are some typical scenarios and ways to avoid them through careful strategic planning.
Which of these headlines have YOU read recently?
“Capital Campaign Falters – Project is Scuttled”
Think your major donors will honor their verbal commitments? Think again! A pledge that is not in writing is not an enforceable commitment – which is why auditors send annual written pledge confirmations to donors. Savvy non-profits do not count a pledge until it’s documented in writing.
Let’s change that headline – how does this sound?
“Capital campaign succeeds – agency surpasses goal!”
Don’t:
- Skip the capital campaign feasibility study
- Skip review of agency pledge forms
- Accept verbal pledges
Do:
- Announce the project only after feasibility has been completed and lead donors have committed in writing
- Ensure your existing pledge forms are modified for use on a capital project – additional data is needed
“Cost Estimate Soars – Architect is Dismissed”
Be sure to thoroughly interview your design team prior to selection. Ask tough questions! Include questions about how the team will handle cost issues – and call their references. Do check the headlines on their prior projects to ensure there were no major issues. Ask the team how they would avoid any existing issues, especially cost issues, on your project.
Let’s change that headline – how does this sound?
“Cost estimate on target – architect lauded!”
Don’t:
- Skip a formal interview with the design team
- Forego discussion regarding value engineering approaches
- Select a design or design team you cannot afford
Do:
- Be clear about your budget
- Select a “signature” architect only if your agency can afford it
- Insist that costing be monitored throughout the design phase
- Be ready to drop costly design elements, if needed
“Project Over Budget – Agency Saddled with Crushing Debt”
Capital project funding comes from two sources: fundraising and financing. When fundraising falls short, and the project budget is not cut, the variance must be made up for by increasing financing. Once the building is completed, however, principal and interest payments come due and can swamp the operating budget.
Let’s change that headline – how does this sound?
“Project on budget- agency retires debt with ease!”
Don’t:
- Forego comparing project cost commitments to pledges
- Forego a value engineering phase to reduce project costs, if necessary
- Attribute all loan costs to the operating budget
Do:
- Compare campaign progress on a monthly basis with project commitments; do not allow commitments to exceed pledges
- Have a value engineering approach mapped out with architect and owner’s rep before you issue RFP/Q for general contractor
- Include loan interest and fees during the design and construction phases in the capital budget; include interest only in the operating budget, AFTER the building opens, to avoid additional pressure on the annual campaign
“New Building Opens – Sans Furniture”
When costs are not allocated to the correct budgets – capital, operating or program – and the impact to fundraising is not considered, unfortunate things can happen. Most development professionals will agree that it is easier to raise funds for a capital campaign than for the annual campaign. Endeavor to include staff project management costs, opening day supplies such as light bulbs and restroom supplies, and all needed public amenities in the capital budget. If this is not done judiciously, undue pressure on the annual campaign can result.
Let’s change that headline – how does this sound?
“New Building Opens – Amenities Wow Public”
Don’t:
- Skip an analysis of new building operating costs
- Forget to review potential increased annual campaign requirements with the development team
- Forget to include staff and opening day supplies in the capital budget
Do:
- Include operational cost estimates in the project feasibility assessment
- Encourage the development and finance teams to work together to clarify all financial requirements
- Clarify allocation of costs to capital and operating budgets