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Capital projects are high-risk, high-reward activities for both the company and the executives involved with the project. Project success is critical to the long-term financial success of a company. Projects can be a business's main engine for profitable organic growth by introducing new products or services or by increasing the production capacity of existing products and services. For example, a financial services company may have invented a new algorithm for web-based investment advice but still needs to design the application and deploy the IT infrastructure to handle the expected growth in customers. A specialty chemical company may have struck an advantageous marketing deal with a foreign partner but now needs to build a plant to make the product. A manufacturing company may have spent years developing a new technology that will cut production costs in half, allowing it to undercut its competition and take market share, but needs to build a factory to deploy the technology. Projects can also make a business more efficient or solve nagging problems. For example, a project might purchase and deploy new software systems that make the company's sales force better. Even seemingly mundane projects to upgrade or refurbish existing assets represent significant commitments of capital that need to pay off to keep the company competitive.

Capital projects actually create value when the benefits from the asset created or modified by the project exceed the project cost. The most common method for measuring the added value of a project is the net present value (NPV) generated by the investment. The formal definition of NPV is the present value of future cash flows discounted at the appropriate cost of capital, minus the initial net cash outlay. More simply, NPV is the amount of shareholder wealth created from a capital investment after accounting for the total cost of the investment and the time value of money. For example, a $10 million capital project that generates $1 million in NPV has enriched the company owners by $1 million. Positive NPV from a capital investment is a good thing. Unfortunately, it is entirely possible for a capital project to make shareholders worse off than when they started. About one in seven projects will lose all of that $10 million capital investment.