The True Cost of Project Delay

Earlier this week, the general contractor building what will soon be Austin's largest hotel filed a lawsuit seeking approximately $27 million in damages against a subcontractor that allegedly caused the project to fall behind schedule. And that article got me thinking…

How often do projects fall victim to delays? And furthermore, what is the typical cost of a project delay (outside of legal fees and fines like in the above example)?

According to research done by the Construction Industry Institute, projects typically begin on track; however, one major widespread event can throw the entire project off course with project teams never fully able to recover. The average delay caused by a widespread event seems to fall somewhere in the 20 percent to 30 percent range. So what does that mean in terms of costs?

Let’s take a project that has a contract value of $50 million with a duration of three years. That breaks down to a value per day of $45,662. If you use an average delay of 30 percent, that puts the average cost of delay just shy of $15 million. Imagine telling your customer that their $50 million project is actually going to cost $65 million – that’s a conversation I surely wouldn’t want to have!

And those are just the monetary costs. There’s also the ripple effect to consider, from the Executive Team to hands-on engineers, and from bottom line cash flow to follow-on customer work (which can ultimately impact future employment).

The true cost of project delay really starts to add up, doesn’t it?

Recently Deltek published a white paper on this very subject. It walks through the typical causes of project delays and offers insight into the solutions organizations can employ to avoid and overcome typical overruns. If you’ve ever faced a delay or had to have a tough conversation with your customer (or boss) about unexpected costs due to overruns, I encourage you to check out the white paper here.