A month's delay increases project cost by 0.95%: BIDS

Highlights:

• Development projects tend to go through multiple phases of revision 
• Overruns delay benefits and can make them irrelevant
• RHD implemented only 13.61% projects within the stipulated in 10 years
• Delays cause welfare loss and hurt complementary private investment 

A month delay in the duration of development projects leads to an average of 0.95 percentage point increase in their implementation costs, according to findings of a research conducted by the Bangladesh Institute of Development Studies (BIDS).

For perspective, a project estimated at Tk10,000 crore can cost Tk95 crore more when its tenure faces escalation for a month due to various reasons, particularly delay in land acquisition.

Without any reformation in existing practice of land acquisition, it would be difficult to mitigate time and cost overruns, the BIDS said. 

The information was revealed at a session on the second day of the BIDS Research Almanac 2023 on Thursday. Jayed Bin Satter, research associate of the BIDS presented the highlights of a research titled "Time and Cost Overrun in Development Projects: Evidence from Audit Reports of Roads Projects". 

Other key reasons for time escalation include delayed work order placements, price escalations, lack of skilled manpower, negotiation with stakeholders, and consultant recruitment by donor agencies.

Development projects in Bangladesh have a tendency to go through multiple phases of revision resulting in time escalation and cost escalation, the research finds. 

Time and cost overruns delay expected benefits from the project making them irrelevant, and in financial terms, delays cause welfare loss and hurt complementary private investment. 

"In the case of projects financed through borrowing, longer implementation periods have high rates of interest and add to more repayment schedule," according to research findings. 

For instance, the Roads and Highways Department (RHD) managed to implement only 13.61% of its development projects within the stipulated time and cost in the last ten years, Jayed Bin Satter said at the event. 

Furthermore, the tenure of about 80% of projects implemented by the RHD from FY13 to FY22 has seen an increase. At the same time, the cost of about 56% of the projects has been increased. 

He said the government placed the highest priority on the transportation and communication sector in the last decade and the allocation for the sector increased to 28.7% of the total Annual Development Programme (ADP) in the current fiscal year from 23.3% in FY14.

Dr Mohammad Emdad Ullah Mian, member of the Physical Infrastructure Division of the Planning Commission said that land acquisition is not the single reason for the delay in project implementation.

Although much importance is given by the concerned organisation at the time of project preparation and approval, it is neglected during the implementation phase, he added.

He also acknowledged that financing constraints are a significant cause of delays.