When a construction crane collapsed at 3 a.m., investigators discovered the project had followed standard protocols, passed inspections, and stayed within budget. The failure actually occurred before construction began: incomplete planning allowed the project to advance without a full risk analysis.
San Diego infrastructure projects consumed 264% more funding than initial estimates. Across the United States, 63% of capital projects experience cost overruns and 72% face schedule delays. The infrastructure investment gap has reached $2.588 trillion, representing a 43.6% funding shortfall. For municipal officials, corporate risk managers, and insurance professionals, inadequate planning translates directly into increased liability exposure and escalating costs.
What is Capital Improvement Planning?
Capital improvement planning is the systematic process for evaluating, prioritizing, funding, and executing infrastructure projects from initial assessment through completion and performance monitoring. Effective planning follows eight operational phases: asset assessment, project prioritization, funding strategy development, stakeholder engagement, execution planning, construction management, performance monitoring, and continuous improvement.
The following sections provide a phase-by-phase roadmap for implementing capital improvement planning in 2026, including failure prevention strategies, case studies from AAA-rated municipalities, and technology tools for asset management and risk scoring.
The Eight Phases From Idea to Implementation
Capital improvement planning follows eight sequential phases that transform infrastructure needs into completed projects: asset inventory and condition assessment, project prioritization, financial analysis and funding strategies, multi-year capital budgeting, stakeholder engagement and approval, execution planning and procurement, implementation and construction management, and monitoring and continuous improvement. Each phase builds on the previous one to support projects that are justified, funded, approved, and executed according to plan.
This section provides implementation guidance for each phase, including key activities, decision frameworks, and documentation requirements for the 2026 planning cycle.
Phase 1: Asset inventory and condition assessment
Asset inventory and condition assessment is the systematic evaluation and documentation of existing infrastructure to establish baseline conditions, identify deficiencies, and support investment decisions. This phase uses satellite imagery for regional analysis, aerial imagery for city-wide assessments, drone imagery for site inspections, and LiDAR for detailed evaluation.
Effective assessment includes objective scoring metrics tracking current replacement value, average age versus service life, and performance metrics. The City of Markham demonstrates this approach with a $17.5 billion portfolio where 90% of assets perform as intended despite an average age of 34 years.
Comprehensive baseline documentation can provide critical support in liability claims by demonstrating due diligence in infrastructure management.
Phase 2: Project prioritization
Project prioritization uses multi-criteria frameworks to rank competing capital needs based on objective scoring. Core criteria include public safety and health (weighted 15-25%), regulatory compliance (highest weight when applicable), risk assessment, financial considerations, and community impact.
Apply weighted scoring to each project:
- Public Safety and Health (weighted 15-25%): Infrastructure failures posing immediate safety risks
- Regulatory/Legal Compliance (highest weight when applicable): Projects required by federal, state, or provincial mandates
- Risk Assessment: Failure consequence analysis, likelihood scoring, infrastructure condition ratings
- Financial Considerations: Return on investment, cost-benefit ratios, lifecycle cost analysis
- Community Impact: Consider delivery improvements and equity considerations for community spaces
- Strategic Alignment: Consistency with master plans and comprehensive plans
Projects scoring above 7.0 typically receive Tier 1 priority funding. Systematic prioritization frameworks document defensible decision-making processes and can help reduce exposure to claims of arbitrary infrastructure neglect.
Example of weighted scoring: In this example, a bridge replacement scores may look like this:
- Public Safety (25% × 9/10 = 2.25)
- Regulatory Compliance (20% × 10/10 = 2.0)
- Risk Assessment (20% × 8/10 = 1.6)
- Financial ROI (15% × 6/10 = 0.9)
- Community Impact (10% × 7/10 = 0.7)
- Strategic Alignment (10% × 8/10 = 0.8)
Total Score: 8.25/10. Projects scoring above 7.0 receive Tier 1 priority funding per San Diego’s framework.
Effective prioritization frameworks enable municipalities to defend infrastructure investment decisions, allocate limited resources toward highest-risk assets, and maintain documentation that supports due diligence in liability proceedings.
Phase 3: Financial analysis and funding strategies
Financial analysis determines project costs and identifies funding sources to help ensure the capital plan is achievable within available resources. The 2024-2025 U.S. municipal bond market exceeded $500 billion in new issue volume, creating opportunities for infrastructure financing.
Primary funding mechanisms in the United States include:
- General Obligation and Revenue Bonds: Tax-exempt bonds represent the primary mechanism for raising capital per Government Finance Officers Association (GFOA)
- Federal Infrastructure Grants: The Infrastructure Investment and Jobs Act provides approximately $350 billion for federal highway programs over fiscal years 2022-2026
- ARPA Funds: Annual reporting deadline is April 30, 2025, with all expenditure obligations required by December 31, 2026 per the Missouri League.
Project contingencies should meet minimum 80% confidence levels per AACE International recommended practices. However, the actual U.S. infrastructure funding gap stands at 43.6%, requiring transparent communication of risk to elected officials and documentation of the gap between professional standards and available resources.
Sound financial analysis may reduce cost overrun frequency, strengthen credit ratings through demonstrated fiscal planning, and provide documentation of resource constraints when projects exceed initial estimates.
Phase 4: Draft the multi-year capital budget
The multi-year capital budget translates prioritized projects into annual spend profiles with specific funding sources. Wake County, North Carolina maintains a rolling 7-year CIP updated annually with an 80% debt/20% cash funding mix.
Key components include annual spend profiles, debt service capacity analysis, capital reserves, and integration of operating budget impacts for future maintenance costs. Detailed cost estimates should be based on site-specific conditions, historical project data, and current market rates.
Multi-year capital budgets demonstrate proactive infrastructure planning and can provide documentation of systematic maintenance protocols.
Phase 5: Stakeholder engagement and approval
Stakeholder engagement secures community input and formal approval before project execution. County boards and city councils must present the CIP publicly, gather input, and obtain formal adoption.
Conduct official needs and risk assessments and seek opinions from all community stakeholders to maximize funding effectiveness. Modern CIP reporting includes interactive website-based CIP books and capital improvement transparency websites allowing residents to track project financials, phases, timelines, and updates.
Public engagement records document community notification of infrastructure conditions.
Phase 6: Execution planning and procurement
Execution planning selects the project delivery method and establishes contracts. The three primary delivery methods are Design-Bid-Build (traditional approach with separate design and construction contracts), Design-Build (single entity handles both design and construction), and Construction Manager at Risk (early collaboration with construction manager during design).
Design-Build delivery shows faster project delivery with more reliable performance and less cost and schedule growth. Design-Bid-Build places significant risk burdens on public owners including design risk, coordination risk, and schedule risk.
Delivery method selection creates distinct risk allocation frameworks critical for evaluating municipal exposure to construction claims.
Phase 7: Implementation and construction management
Implementation and construction management involves executing the project according to plans while managing changes, maintaining safety, and controlling costs. Establish baseline schedules, implement tracking systems, maintain safety plans, and manage change orders through documented procedures.
Change orders are common in almost every construction project, often resulting in increases of 5-10% in contract price. Construction changes should not be made until the contractor has an approved change order.
Constructability reviews during design phases identify potential field conflicts before construction begins and can help reduce change order frequency.
Phase 8: Monitoring, reporting, and continuous improvement
Performance monitoring tracks whether projects deliver expected outcomes within budget and schedule. Monitor both financial results (budget vs. actual) and service delivery (whether services and capital are provided as expected).
Implement real-time dashboards monitoring debt service ratios, capital ratios, funding mix targets, and project schedule adherence. Wake County uses this approach to maintain accountability and identify issues early.
Performance monitoring can provide ongoing documentation of maintenance protocols and demonstrate systematic oversight.
Key terms for capital improvement planning
Understanding standard capital planning terminology ensures clear communication across stakeholders and compliance with regulatory requirements.
Capital Improvement Plan (CIP): A multi-year plan that identifies infrastructure projects, prioritizes them based on need and available funding, and establishes implementation schedules.
Capital Project: Infrastructure investments with significant costs and extended useful lives, including land, buildings, construction, and major equipment.
Capital Budget vs. Operating Budget: Capital budgets fund long-term infrastructure investments with useful lives exceeding one year. Operating budgets cover day-to-day expenses including personnel, utilities, and routine maintenance.
Life-Cycle Cost: The total cost of owning an asset from acquisition through operation, maintenance, and eventual replacement.
General Obligation Bonds: Municipal debt secured by the issuer’s full taxing authority, typically requiring voter approval and offering lower interest rates due to this security.
Revenue Bonds: Bonds secured by specific revenue streams such as utilities, tolls, or user fees rather than general taxing authority.
Grant: Financial assistance from federal, state, or provincial agencies that does not require repayment, typically awarded competitively for specific infrastructure purposes.
Public-Private Partnership (PPP): Contractual agreements between public agencies and private entities to finance, design, construct, or operate infrastructure projects with shared risk and reward allocation.
Risk Exposure: The potential financial liability a municipality faces from infrastructure failures, accidents, or regulatory non-compliance, measured by probability and consequence severity.
Why CIPs fail during execution
Capital improvement plans fail during execution because of six interconnected causes: scope creep, unforeseen site conditions, inadequate technical planning, insufficient contingency budgets, poor change order management, and project delays. These failures are statistically normal. In the United States, 63% of projects experience cost overruns, 72% face schedule delays, and 52% suffer from scope creep. Federal government projects average 50% cost overruns.
Scope creep
Scope creep affects 52% of projects when undefined requirements expand during execution. Establish strict change-order approval thresholds requiring executive sign-off for significant changes and implement formal scope validation at design milestones.
Unforeseen site conditions
Unknown underground utilities, contaminated soil, or unexpected geological features cause millions in overruns. Conduct comprehensive geotechnical investigations and utility locates before the design phase. Include contingency line items specifically for site condition surprises.
Inadequate technical planning
Projects advance without complete designs, permits, or approvals. In one case, risk assessments were not completed properly before construction began. Implement early warning KPI dashboards tracking design completion, permit status, and approval timelines with go/no-go decision gates.
Insufficient contingency budgets
Industry best practices from AACE International recommend project contingencies at 80% confidence levels, but municipal projects like those in Ontario may face a debt-to-GDP shortfall of up to 39%. This percentage point gap between professional standards and available resources creates inevitable cost overruns. Adopt phased notice-to-proceed protocols releasing funding in stages tied to completion milestones.
Poor change order management
Many jurisdictions impose change order limits, though specific thresholds vary by state, province, and municipality. In California, for instance, constitutional and statutory provisions set debt limits for local governments as a percentage of assessed property value, with specific caps varying by public agency type, such as different percentage ceilings for various kinds of school districts., while other jurisdictions may have different or no statutory limits. Organizations should review applicable local regulations and establish pre-approved unit price catalogs with detailed cost justification requirements for all changes. Maintain a separate change order reserve fund rather than allowing uncontrolled draws from project contingencies.
Project delays
Schedule delays compound costs through extended overhead, escalating material prices, and contract penalties. What begins as a minor setback like late material delivery or permit approval quickly amplifies as contractors idle on site, weather windows close, financing carry costs accumulate, and cascading impacts force subsequent trades to work in compressed or suboptimal conditions.
Case studies: Planning success and failure
Effective capital improvement planning produces measurable outcomes including stable credit ratings, reduced liability claims, and predictable project costs. Understanding the difference between systematic planning and inadequate front-end analysis can help organizations identify vulnerabilities in their own capital programs, implement proven governance structures, and develop documentation practices that support both operational efficiency and liability defense.
Success: Wake County, North Carolina (United States)
Wake County achieved AAA credit ratings while sustaining stable tax rates through systematic capital planning. The county maintains a rolling 7-year CIP with annual updates, an 80% debt/20% cash funding mix, real-time dashboard monitoring, and a cross-departmental CIP Advisory Committee with formal scoring protocols.
Success: Durham Region, Ontario
Durham Region’s investment strategy was successfully supporting its long-term capital plan. The prudent investment portfolio was valued almost exactly at its carrying cost, and no impairment was recorded because the portfolio is structured for long-term stability. This approach helps the Region align investment performance with future capital requirements and maintain predictable cash flow planning. Ontario municipalities operate under Ontario Regulation 588/17, which mandates asset management planning requirements.
Failure: San Diego, California (United States)
San Diego’s capital planning failures demonstrate the cost of inadequate front-end analysis. They found that projects with insufficient planning cost 264% more than initial estimates. The root cause was inadequate planning at the approval stage before complete cost analysis and scope definition.
Next up: Rimkus
For claims managers and corporate risk managers, comprehensive capital improvement planning provides the documentation framework, preventive protocols, and systematic risk identification that may help reduce liability exposure and demonstrate due diligence in infrastructure management. When these systems fail, Rimkus forensic experts provide the technical analysis and expert testimony needed to determine causation and resolve complex infrastructure disputes.
Rimkus forensic experts deploy these technologies alongside 3D laser scanning and materials testing to provide litigation-ready documentation supporting both capital budget prioritization and liability defense in construction defect disputes. Contact Rimkus for assistance in capital planning.
Frequently asked questions
What is the difference between a capital improvement plan and a capital budget?
A capital improvement plan (CIP) is a multi-year strategic document that identifies, prioritizes, and schedules infrastructure projects over a five to seven year horizon. A capital budget is the annual financial allocation that funds specific projects from the CIP during a single fiscal year. The CIP provides the roadmap; the capital budget provides the funding mechanism for each year’s approved projects.
How often should municipalities update their capital improvement plans?
Most municipalities with AAA credit ratings update their capital improvement plans annually through a rolling process. Wake County, North Carolina maintains a 7-year CIP with annual updates, which allows the plan to incorporate new infrastructure assessments, changing regulatory requirements, and evolving community priorities while maintaining long-term strategic alignment.
What contingency percentage should capital projects include?
AACE International recommends project contingencies at minimum 80% confidence levels, which typically translates to 10-20% of project costs depending on complexity and design completion stage. Projects in early planning phases require higher contingencies than those with completed designs. Inadequate contingency budgets represent one of the six primary causes of capital project failure. Specific contingency requirements may also be set by state, provincial, or local regulations.
This article aims to offer insights into the prevailing industry practices. Nonetheless, it should not be construed as legal or professional advice in any form.