The Cost of Delay: How the Schedule Drives Project Cost

Project budgets are built as a list of things to buy: steel, equipment, engineering hours, contractors. Delays are then reported as a schedule problem, measured in weeks. That split hides the most expensive fact in capital projects: a large part of the cost is not driven by what you build, but by how long it takes to build it.

Every month a project stays open, it pays for its site, its supervision, its rented equipment, its owner's team and the interest on the money already spent. And every month the asset is not running, the business loses the margin it was built to earn. Finance can put a price on a month of delay, and once it does, many project decisions change.

The anatomy of a month of delay

Take a 120 million processing plant with a 24-month build, expected to generate 30 million of EBITDA a year once it runs. A month of delay near completion costs, roughly:

• Time-related site costs (preliminaries, supervision, site facilities, cranes and rented equipment): about 0.9 million.
• The owner's team and consultants, who stay until handover: about 0.3 million.
• Interest during construction on some 100 million already drawn at 8%: about 0.7 million, which is capitalised and depreciated, but paid in cash.
• Escalation on the work not yet bought, which is now bought later at higher prices: about 0.15 million.
• Deferred margin: the whole stream of operating cash flows moves one month later. At a 10% discount rate, that costs about 2 million of present value per month.

That is around 4 million a month, more than 130,000 a day, and less than a third of it ever appears in the project's cost report. The rest sits in the business case, where nobody is tracking it.

The curve is not a straight line. After three or four months, delays start to cause disruption: crews are demobilised and remobilised, work is done out of sequence, productivity falls and contractors file claims. A six-month delay costs this project about 26 million, more than a fifth of its capital budget, while a 10% cost overrun on the same plant would cost 12.

Spending money to save time

Once a month has a price, acceleration becomes an investment decision rather than a panic measure. Extra shifts, a second crane, air-freighting a critical transformer or paying a supplier an early-delivery premium each buy back time at a cost. The first months are cheap to recover; each further month costs more, because the easy options are used first.

The rule is the one economists use for any marginal decision: keep accelerating while the cost of the next month recovered is lower than the value of that month. Here, recovering four months costs 8.1 million and saves 16, a net gain of almost 8 million. Recovering a fifth would cost 5.5 million to save 4. The same logic works in reverse: a project team that refuses a 2 million acceleration to protect its cost budget may be destroying value for the company as a whole.

How to put schedule into the numbers

1. Publish the cost of a day. One agreed figure, split between project costs and business value, so that every schedule decision is also a financial decision.
2. Separate time-related from quantity-related costs in the estimate. Only then can the forecast react correctly when the schedule moves.
3. Link the cost forecast to the schedule forecast. If the critical path slips two months, the estimate at completion must move the same day, not at the next budget review.
4. Price float, not just delay. Activities off the critical path can slip for free until they consume their float; activities on it cost the full daily rate from the first day.