Schedule delays are highly expensive, as every project manager knows:
- For a programme in the size-range of London's US$26 billion Crossrail project – a new rail line to connect East and West London from 2017 – the expected average cost of delay is approximately $1.2 billion dollars per year, or about $3.3 million per day of delay.
- For a 1 billion dollar project, each year of delay would cost on average 46 million dollars, or approximately $127,000 per day.
In general, projects with longer implementation phases tend to have larger cost overruns. Based on data for 101 transport infrastructure projects, the following model was developed for the relationship between length of implementation phase and cost overrun:
∆C = 0.4 + 4.64*T
where
∆C = Cost overrun in % (in constant prices)
T = Length of implementation phase in years.
Thus a one year increase of the implementation phase results in an increase in percentage cost overrun of 4.64 percentage points. Length of implementation phase is defined, following convention, as the time period from decision to build until operations begin. Cost overrun is defined as the difference between actual and forecast construction costs in percentage of forecast construction costs.
These figures include only construction costs, that is, not financing costs. With financing costs included the figures would be considerably higher and would be even more sensitive to the time factor, because financing costs consist mainly of accrued interests. Financing costs are particularly sensitive to long delays, because delays defer income while interest, and interest of interest, keep accumulating. Long delays may result in projects ending up in the so-called "debt trap", where a combination of escalating construction costs, delays, and increasing interest payments result in a situation where income from a project cannot cover costs. This happened for both of the two longest underwater rail tunnels in Europe, the Channel tunnel and the Danish Great Belt rail link. Both had to be rescued by financial reorganisation. Many other projects have suffered the same fate.
In sum, delays and long implementation phases may be extremely expensive and project managers are well adviced to be concerned about sluggish planning and implementation. Consequently, before a project owner gives a project the go-ahead, every effort should be made to conduct preparation, planning, and authorisation in a manner where problems are negotiated and eliminated that may otherwise resurface as delays during implementation. Similarly, after the decision to go ahead with a project, it is of crucial importance that the project organisation and project management are set up and operated in ways that minimise the risk of delays. If those responsible for a project fail to take such precautions, aimed at pro-actively preventing delays and long implementation phases, the evidence indicate that the financiers--be they tax payers or private investors--are likely to be severely penalised in terms of cost overruns of a magnitude that could threaten project viability.
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