How to calculate the costs of delays - Web Digital Media Group

How to calculate the costs of delays

In many organizations the delays accumulated by a project are only evaluated based on the impact they have on the overall duration of the work.

If the delay in question does not concern critical activities , it is made to fall within the normal circumstances that characterize the life cycle of each project.

In these realities the project managers do not have visibility on the financial aspects of the project and therefore they limit themselves to managing the delays in terms of work reprogramming.

But in some cases we cannot limit ourselves to reprogram the activity that has been delayed as this activity will be linked to other activities that follow in the performance of the work.

And it is not certain that the resources committed downstream may become available to develop their work after the times initially agreed in the planning phase.

In this way we witness the propagation and amplification of the initial delay with absolutely indifferent organizational impacts.

All this entails burdens and, even if the project manager does not have visibility on the economic and financial part of the project, it is necessary to calculate the costs of delays accurately because they risk eroding the margins of a project.

A delay can be compensated for by increasing the resources allocated to working in difficulty. Or assigning more qualified resources able to proceed more quickly. But all this has a cost.

Or you can accept that the activity in question is delayed but in this way it could become a critical activity capable of delaying the whole project.

If the actual duration of the whole project is brought into play, it is necessary to verify the agreements with the client and consider the possible penalties contractually provided for.

Finally, in calculating the costs of delays, the impacts in terms of value created must be considered.

For example, in some projects for the development of innovative products, solutions and services, time-to-market is a critical variable that a delay can call into question undermining the profitability of the initiative.

And therefore the analysis of the expected value of the project must be resumed identifying the extent of the deviation introduced by the accrued delay.

Posted by: Web Digital Media Group