IPYD - Cost of Delays

Those two words can be the signal impending doom: project delays. The seeming death knell of projects, many project managers (PMs) do not know the true cost of these hits to the project schedule. Although many project managers know at a high level that delays cost money, it's good to take a look at some of the hidden costs and what the costs can mean.

Lost Productivity, Lost Money

When projects get behind schedule, a common result is an increase in the number of overtime hours worked by the project team in an effort to make up time and get the project on track. Although this overtime can sometimes be charged back to the client, it still breeds a problem that costs money. When excessive overtime becomes the norm, productivity begins to suffer. It can easily be argued that the more people work overtime, the less productive they often become because of either exhaustion or loss of focus on the long-range goal. The result, ironically, is often the need to work more overtime, often because of rework. This cycle of excess cost can do irreparable damage to the project budget.

Cost of Additional Resources

Failing to get things done on time may mean having to allocate additional financial resources to the project. For the few very lucky PMs with plentiful resources, financial resources can be reallocated to accommodate this extra expense. For those with project budgets that are stretched from the onset, these overages can be the difference between completing the project on time or not completing it at all.

Project delays can also mean recruiting the aid of additional persons to get the project on track. Ironically, spending more money on additional resources so that money can be saved by avoiding a late completion date is a rationale that is followed by many project managers.

Cost of Missed Deadlines

Project managers need to bear in mind that even though the project may be off schedule, the deadline does not always shift to accommodate this weakness in the project team. More often than not, the agreed-upon delivery date remains firm. This leads to another financial cost of delay: making the customer unhappy. If the customer loses faith in the team because it does not deliver upon its promises, the customer may decide to reevaluate the relationship. Many customers decide to take their business elsewhere if they cannot get what they want, when they want it. Frustrated customers can lead to lost contracts, late payments, or refusal to pay.

Internal Cost of Delay

Along with the frustration the customer experiences, the frustration faced by members of the team must be considered. To keep up morale, the team members need to make contributions to a winning effort, at least some of the time. Project teams that continually miss milestones and report poor metrics can very quickly find themselves short a member or two. The financial costs of staffing up again for the effort can be huge. The money spent to recruit, hire, and educate a new team member as well as the costs associated with possible overtime to bring the team member up to speed can be significant.

Organizational Impact

Project delays also have an overriding impact on the organization's finances. What may seem like a 'little project,' can have a big effect on the bottom line enterprise-wide. Because the success of projects results in success for the organization, when projects are delayed, so is the benefit to the organization.

Addressing the Cost of Delay

The financial costs and budget must be continually monitored throughout the project. For excellent control of the projects, project managers must keep good records throughout the project, keeping an eye on the bottom line from start to finish. Unfortunately, many project managers wait until a project is finished to see what it actually cost. In tandem, project managers must proactively focus on the areas that commonly result in cost overruns (e.g., labor is a major area). Project managers must be competent in financial systems and accounting for the specific purpose of project management; if there is confusion or inaccuracy in the financial projections, the impact of project delays can be very damaging.

It cannot be overemphasized that project managers must merge their needs for resources with accurate financial information. By the time the project is late, it is much too late to be vigilant about project costs. The financial impact of project days can be offset by effective upfront planning.

Dionne Henderson Dyches