A Capital Improvement Plan, or CIP, is a short-range plan, usually four to six years, which identifies capital projects and equipment purchases, provides a planning schedule and identifies options for financing the plan.
Prior to undertaking the development of the CIP, the entity will want to define the criteria for what kind of projects or equipment are to be included and organize a process for developing the plan. What is defined as a capital project or capital purchase may vary by Organization. Generally, they will be tangible items that have a life expectancy greater than five year.
A local organization will also need to forecast where it believes it will face future demands and growth, which will involve an inventory of existing facilities, infrastructure and equipment. In addition, the organization will want to develop basic policies for implementing the plan.
A CIP provides many benefits:
*Allows for a systematic evaluation of all potential projects at the same time.
*The ability to stabilize debt and consolidate projects to reduce borrowing costs.
*Serve as a public relations and economic development tool.
*An opportunity to foster cooperation among departments and an ability to inform other units of the entity's priorities.
The Specific Steps of a CIP include:
*Establish a Capital Planning Committee with Bylaws
*Take Inventory of Existing Capital Assets
*Evaluate Previously Approved, Unimplemented or Incomplete Projects
*Assess Financial Capacity
*Solicit, Compile and Evaluate New Project Requests
*Prioritize Projects
*Develop a Financing Plan
*Adopt a Capital Improvements Program
*Monitor and Manage Approved Projects within the CIP
*Update Existing/Ongoing Capital Programs
The CIP typically includes:
*A listing of the capital projects or equipment to be purchased.
*The projects ranked in order of preference.
*The plan for financing the projects.
*A timetable for the construction or completion of the project.
*Justification for the project.