Project Delays: What Do They Really Cost You?
A project delay can start as a headache but can quickly turn into a nightmare. Causes can include governing agencies/municipalities entitlement approvals, insufficient budgeting, lack of working capital, subcontractor labor constraints, utility provider delays, and subpar project management.
These contributing factors can result in unanticipated project costs in the tens of thousands of dollars, profit loss, and even reputation damage.
Costs of Project Delays
More often than not, project delays are serious. Even the most established and reputable construction firms face the threat of delays that will impact not only their operations, but contractors, subcontractors, lenders, consultants, and other parties.
The financial cost of project delays can vary widely; however, they are usually realized in the following areas:
- Interest Reserve
- Disrupted cash flow
- Material price increases
- Penalties or fees for falling behind schedule
- Missing the market and closed sales window opportunities
- Negative impact on worker morale
4 Tips to Avoid Delays and Unexpected Costs
Take advantage of these tips to help each project stay on schedule and within budget.
1. Begin by creating a budget that covers financial and time requirements. As you create a budget, factor in the possibility of having to rebalance or inject equity into your project due to increased costs to complete. Due to the time lag between completing the project proforma, to loan committee approval, to receiving building permits and finally starting construction, months can pass by and construction costs can quickly change. Often, projects need more capital than initially anticipated.
2. Don’t lower your expectations for talent — especially for project manager positions. Experienced project managers don’t just manage projects, they anticipate delays and create solutions before a crisis strikes. During the interview process, ask for qualifications and certifications. Then, go a step further and contact the candidate’s references. Hire the best candidate you can afford. Hint, the best PM’s are already working, so talk to your network and get the word out. You never know who’s looking to change or when their project will finish up.
3. Create a construction schedule that is aggressive but realistic — and share it with all parties. The key is to share it and keep everyone engaged and updated. Lenders, major trade partners, and even your Building Inspector should know your plans and goals. Keep the lines of communication open and send out regular progress updates. Clear, consistent communication is the key to prevent or minimize delays.
4. Don’t let billing fall behind. Otherwise, you’ll face the Mount Everest of paperwork. Cash is king and quick payment to subcontractors and suppliers is the single best way to keep them working on your project. Submit regular and consistent Draw Requests. By doing so, your vendors know when to invoice and expect payment. Remember, they’re also fighting to keep their employees and stave off competitor’s offers.
When a delay does occur, the Borrower’s first call should always be to their Lender explaining the situation. By doing so, you help your Lender as well as yourself. A seasoned and successful Builder told us “Good news or bad, I always call my bank first.” Subcontractors, consultants, and other interested parties should also be personally informed. It’s always better to get ahead of the bad news by delivering it quickly and directly, then having them find out this information has been kept from them. Even when delays occur, it’s important to focus on keeping relationships intact and maintaining trust.
The Golden — or Green — Ticket
At the end of the day, the best way to avoid or reduce project delays is through proper planning and adequate capital. Proactive project management and money are what gets the job done and on time. Properly managing both will help prevent the headaches caused by delays and preserve profitability.
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