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Perspective on the Cost of Delayed Decision Making in Large Project Execution

FEATURED PAPER

By Bob Prieto

Fluor Corporation

Princeton, New Jersey, USA
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In this paper we will look at the cost impact of delay without a change in project scope or project rework. This condition is most closely associated with general delay as a result of:

  • Extended decision making time frames by the project owner
  • Project wide stop work orders from any of a variety of causes.

No loss of productivity from project disruption has been reflected except in the case considered at the end of this paper (Figure 13) where lost productivity from retrograde behavior of the site labor’s learning curve or production curve is specifically considered. This differs from the so called “measured mile” approach often used in calculating disruption impacts.

In actual project situations the cause of delay is often associated with changed scope or rework and disruption and concomitant loss of productivity are real factors. The simplified analysis presented here is intended to influence project decision making processes by better dimensioning the cost of delay in establishing evaluation and decision making time frames. The cost of a lack of timely decision making is seldom reflected in project governance processes.

The analyses in this paper have been based on unconstrained labor, equipment and material factors which would act to further exacerbate the cost of delay. In general this analysis represents likely minimum costs to be experienced by delay of a project.

Figure 1 illustrates the monthly cost of delay, at the point in time such a delay occurs, normalized as a function of the project’s initial estimate and duration. It considers the impacts of escalation and general condition costs, which persist during the delay period. In this example escalation throughout the project period was assumed to be constant. This would represent the general contractor’s view on cost growth associated with delay, excluding any impacts from disruption including lost learning curve.

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About the Author

flag-usabob prietoBob Prieto 

Senior Vice President

Fluor 

Princeton, NJ, USA 

Bob Prieto is a senior vice president of Fluor, one of the largest, publicly traded engineering and construction companies in the world. He is responsible for strategy for the firm’s Industrial & Infrastructure group which focuses on the development and delivery of large, complex projects worldwide. The group encompasses three major business lines including Infrastructure, with an emphasis on Public Private Partnerships; Mining; and Industrial Services. Bob consults with owners of large engineering & construction capital construction programs across all market sectors in the development of programmatic delivery strategies encompassing planning, engineering, procurement, construction and financing. He is author of “Strategic Program Management”, “The Giga Factor: Program Management in the Engineering and Construction Industry” and “Application of Life Cycle Analysis in the Capital Assets Industry” published by the Construction Management Association of America (CMAA) and “Topics in Strategic Program Management” as well as over 450 other papers and presentations.

Bob is a member of the ASCE Industry Leaders Council, National Academy of Construction and a Fellow of the Construction Management Association of America. Bob served until 2006 as one of three U.S. presidential appointees to the Asia Pacific Economic Cooperation (APEC) Business Advisory Council (ABAC), working with U.S. and Asia-Pacific business leaders to shape the framework for trade and economic growth and had previously served as both as Chairman of the Engineering and Construction Governors of the World Economic Forum and co-chair of the infrastructure task force formed after September 11th by the New York City Chamber of Commerce.  Previously, he served as Chairman at Parsons Brinckerhoff (PB), one of the world’s leading engineering companies.  Bob Prieto can be contacted at [email protected].