The True Cost of Delays at Scale
July 26, 2023
In a study conducted by Oxford University - with the help of our own Dr. Atif Ansar - it was found that project delays on large dams experience delays of approximately 44 percent on average. An additional study published by Mckinsey found that 98% of megaprojects face delays of up to 20 months.
Delays in megaprojects are a problem and they cause both cost overruns and diminished benefits. What’s worse is that the problem doesn’t seem to be going away.
In this article, we’ll explore the true costs of delays at scale and explain how project teams can use AI-driven insights to better predict and navigate the path forward.
The True Cost of Project Delays
When a massive infrastructure project experiences delays, it can impact the success of the project in two main ways: by diminishing the financial returns for stakeholders and also by diminishing the benefits to society.
There appears to be a correlation between cost overruns and the length of a project’s implementation phase. According to Bent Flyvbjerg, “on average a one-year delay or other extension of the implementation phase correlates with an increase in percentage cost overrun of 4.64 percent.”
That means that the longer the project is delayed, the cost overrun starts to increase at an almost exponential rate.
Delay-related costs can include:
- Extended general conditions
- Longer time to generate revenue
- Acceleration & inefficiencies
- Interest carry on bank loans
- Dispute resolutions and claim management fees
- Liquidated damages
- Mismanaged project turnover
- Impacted of relationships
Reducing even just one of these risks could save a project several millions of dollars.
To illustrate this concept further, Flyvberg states that “for a project the size of London’s 26 billion dollars Crossrail project, a one-year delay would cost 1.2 billion dollars extra, or 3.3 million dollars per day.”
Simply put, project delays are expensive. The longer the implementation phase is dragged out, the more likely the project is to be a financial failure.
Diminishing the benefits of the project
Cost overruns are not the only problem caused by project delays. In many cases, extended timelines can lead to what we call “benefit shortfalls.” This is when the finished project under delivers on the benefits it promised.
A good example of this would be the English Channel tunnel. Costs for this project went 80 percent over budget for construction and 140 percent over budget for financing. Revenue has also fallen short of expectations, deeming the project a financial failure.
But this isn’t bad news just for the project’s stakeholders - it’s also bad for the British economy, resulting in a loss of $17.8 billion. A cost benefit appraisal of the project revealed the losses outweighed the benefits of the project and concluded that “the British economy would have been better off had the Tunnel never been constructed.”
Why do megaprojects so frequently run over schedule?
Schedule delays are an inherent issue with megaprojects mainly because it is so hard to predict and avoid risks. There is no universal danger that all megaprojects need protection from; it is nearly impossible to prepare for all the things that can - and do - go wrong. And since every project is unique, it is difficult for contractors to learn from previous projects.
That being said, there are two primary reasons why megaprojects frequently run over schedule:
- Cost overruns - Yes, cost overruns are both a cause and a result of scheduling delays. Miscalculating spend at the start of a project can lead to low funds later one. When this happens, productivity slows down and projects may even become suspended until more funding is secured.
- Labor/Resource allocation - Overstaffing can lead to the budgeting problems mentioned above while understaffing can hamper productivity and cause the project to fall behind schedule.
In some cases, these risks can be predicted through the use of technology such as AI and Machine Learning.
Project Teams Need Predictive Analysis
One thing that so many distressed projects have in common is that they lack risk-analysis or risk-management protocols. Their technology stack also does not provide real-time reporting on progress in regards to budgets and project timelines. The data most project teams rely on is outdated and does not reflect the true state of the project.
Until now, Primavera P6 and MS-project were the default systems available to help teams execute megaprojects. These systems of record still hold tremendous value, but it’s clear megaproject teams need something more. They need a system of intelligence that can work with these softwares to analyze project data, draw out important insights, and coordinate action.
Deliver Projects Up to 10% Faster with Foresight AI Engine
Unlike existing softwares, Foresight goes beyond answering simple questions like, “What happened?” to reveal what will happen in the future and what teams should do about it.
Accelerate your project delivery with Foresight, the only AI scheduling platform that unlocks the full value of your schedule data. Book a demo today to discover how Foresight can help you build your projects faster.