Analysis of cost and schedule performance of international development projects

951607 陳毅泰 951651 林以鈞 951610 范博鈞 951653 林耕懋951611 吳宛儒 951654 陳俊義951615 陳緯育 951656 廖哲誠951620 陳盈志 951763 吳浩瑋

Summarized from.: Ahsan, K. and Gunawan, I., 2010, International Journal of Project Management, 28, p. 68-78.

Abstract

This study focuses on cost and schedule issues of international development (ID) projects.

The study identifies that most late projects experience cost underrun – an unusual cost and schedule variation relation in projects

identify the root causes of project delay and cost underrun

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Introduction

Public sector development projects or programs specifically designed for economic and social needs of developing countries, usually financed by a donor are known as international development (ID) projects.

implemented by donor country or implementing partner

For improvement of living standards Is not concerned with profitability and business

focus

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Introduction (cont.)

many stakeholders involved funding agency that pays for but does not directly

use project output implementing unit target beneficiaries who benefit from project

output but usually do not pay for the project

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Introduction (cont.)

Most ID projects are financed by the five major multilateral development banks (MDBs)

The 49 Least Developed Countries (LDC’s) received US$55.15 billion in official development assistance

amount to 8.9% of the LDC’s total GDP

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Introduction (cont.)

most ID projects face time and cost overrun and require major costly re-engineering

Khang and Moe identify sets of ID project success criteria and factors in phases of the project life cycle

Project completion within time, cost and scope, and maintaining quality throughout are very common dimensions of success factors

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Introduction (cont.)

the causes of schedule delay as follows: financial processes economic problems changes in drawings Equipment unavailability poor supervision Construction mistakes poor coordination on site changes in specifications

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Introduction (cont.)

The purpose of this study is to explicate unexplored issues in ID project time and cost performance through empirical research

By analyzing the post-project reports we investigate project size in terms of budget and duration project performance in terms of time and cost root causes of poor performance.

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2. Formal analysis of ID projects International development is conducted or sp

onsored by international organizations for an emerging, developing or least developed country.

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2. Formal analysis of ID projects (cont.) ID projects are also known as aid projects and are a sub-sector

of project management like other areas such as information technology education construction engineering telecommunications manufacturing the service industries

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2. Formal analysis of ID projects (cont.) The success of an ID project Depends on how well it is prepared, and

the policies behind its design Long-term impact on the prosperity and

development of the local population

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2.1 ID project process

The process of the ID project is complex because there are many parties involved

the lender or donor the Ministry of Finance of the host country the client stakeholders project implementation unit

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2.1 ID project process (cont.) The client - Sectoral ministry or institution of

the host country. They are the official representative of all bene

ficiaries, participate in the project assessment phase, and need to closely monitor the project implementation process.

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2.1 ID project process (cont.)

The solid arrows - communication between involved parties The dotted arrows - likely communication between parties

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ID project life cycle

Two generic project life cycles for ID project ： One from the point of view of the host country

The other from the point of view of the donors

The key difference of the life cycle is ‘financing’

phase from the host countries’ point of view

The host country needs to attract project financing from

donor agencies

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10 steps that a well planned project should proceed through

1. identification and definition2. formulation, preparation and design3. appraisal4. selection, negotiation and approval5. activation and organization6. implementation and operation7. supervision, coordination and control8. termination and completion9. dissemination of output and transition to normal administration10. post-evaluation and follow-up

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Examine project life cycle steps of five different international

organizations: the Word Bank、 United Nations Development

Programme、 Food and Agricultural Organizations、 ADB and Islamic Development Bank

Donor organizations follow their own style of project phases to explain the ID project life cycle

It is apparent that most organizations have common stages in the life cycle:

project identification、 preparation、 appraisal and

approval、 implementation and evaluation

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ID project life cycle

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ID Project classification

Identifying project type can be valuable in deciding how best to manage the project.

Characteristics of projects : product project, service project, continuous improvement project.

Feature areas of project classification are based on size, application area, priority, degree of risk, cash flow, technology, business experience, and deliverables.

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ID Project classification

According to Turner and Cochrane there are four types of project:1. Goals and methods are well defined.

2. Goals are well defined but the methods are not.

3. Goals are not well defined but methods are.

4. Neither the goal nor the methods are well defined.

ID projects can be classified as type 2 projects.

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ID Project classification

Picture from : New Directions in Project Performance and Progress EvaluationBy Douglas C. Bower, B.Arch., MBA, MSc

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ID Project classification Crawford and Pollack Hard and soft projects: a framework for analysis Seven dimensions:

goal/objective clarity goal/objective tangibility success measures project permeability number of solution options degree of participation and practitioner role stakeholder expectations.

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ID Project classification

Picture from : Hard and soft projects in the NSW public sectorLynn Crawford, Julien Pollack, Kerry Costello - University of Technology, Sydney

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ID Project classification

Examples of hard projects: agricultural, infrastructure development, water supply and sanitation.

Examples of soft projects: resettlement, basic health care, education, social welfare.

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Research procedure and data analysis Research is based on secondary data from

ADB.

Offer great opportunities for new studies in operations and supply chain management.

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Research procedure and data analysis (cont.) The advantages of using ADB are

First, temporary nature of projects it is difficult to obtain necessary past project data from primary sources.

Second, this data is widely available from a sources and less expensive to analyse.

Third, data sources from archives is even more objective than primary survey data.

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Research procedure and data analysis (cont.) The major data from computers or reports are

not always accurate and results depend on quality and comprehensiveness of project reports.

Many data are quite noisy Above those benefits and limitation, using

ADB project to research. ADB is Asian Development Bank

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Research procedure and data analysis (cont.) Project is a temporary endeavor. Many projects do not conduct post-project

appraisal. If project write and store a project appraisal

report will be beneficial to learn about project process and management.

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Research procedure and data analysis (cont.) The ADB plays an important role of donor for

development projects. The post-project appraisal report is prepared

at the end of the project to record project related practices, learned lessons, and performance in regards to “triple constrains” – scope, time, and cost.

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Research procedure and data analysis (cont.) As the ADB deals with Asian country project.

Two emerging economies: China and IndiaOne developing economy: ThailandOne least developed economy: Bangladesh.

Some areas of developments such as • agriculture• infrastructure• public health• financial sector• social welfare• environment• education

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Project duration and cost

This study perform issues of ID projects in terms of the project elements of time and cost.

To describe the time parameter – planned duration and actual duration.

Two parameters to check budget – planned budget and actual cost.

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Cost variationCost variation(CV)-

is measured as the difference between planned co

st and actual cost. A negative CV

means over budget or overspent project and a positiv

e CV means an under budget project.

CV percentage(%)-

is the ratio between average CV and average planned cost of all the projects.

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Schedule variation

Schedule variation(SV)-

Is difference between planned and estimated duration. A negative SV means the project is late while a positive SV means the project has been completed before scheduled time.

SV percentage(%)-

SV percentage is the ratio between average SV and average planned duration of all the projects.

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ID project cost and time performance

planned duration-actual durationTime variation(%)= planned duration

planned cost-actual costCost variation(%)= planned cost

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Countrywide comparison of cost and schedule variations

India average schedule overrun is the highest (55% of actual schedule) compared to other studied nations.

Even though projects in India take more time than planned, in the end the amount of cost underrun is around 26% of planned cost.

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Comparisons of project performance

Overall the percentage of schedule overrun and cost underrun projects is higher compared to cost overrun and schedule underrun projects.

Schedule overrun - on average 86% of projects are late, time overrun is almost 2 years, and projects take approximately 39% more time than planned average.

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Comparisons of project performance

A schedule underrun project on average has US$79 million cost underrun which is 19% of project average planned cost.

On the other hand, of the cost underrun projects 86% of projects were completed within or under budget, these projects were behind schedule by 16 months with about 29% SV . Projects with cost overrun are few(14%) and the average amount of overspending is US$73 million, i.e., 22% of average planned project cost.

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Overall Project Performance

The performance of an ADB project by performance rating(WA)

WA = weighted average is calculated based on these criteria:

1.Relevancy : with host country and ADB strategy2.Effectiveness: in achieving objectives3.Efficiency : in achieving outcome and out put4.Sustainability: with weights

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The ADB Project Performance RanksThe outcome varies amongst the countries Highly successful : WA >= 2.7 Successful : WA = 1.6 - 2.7 Partially successful : WA = 0.8 - 1.6 Unsuccessful : WA < 0.8

Example : The failure rate for Bangladesh is high whereas for Thailand is low

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The Project Success Rate For cost variance : the more cost underrun, the

higher the project success rate For schedule variance : the later the schedule ,t

he higher he project success rate

Cost variance(CV) and schedule variance(SV) is not independent

Further, a two-factor ANOVA-analysis without replication shows interaction between SV and CV means are not significant.

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Cost variance and schedule varianceCost variance = BCWP – ACWPBCWP = budgeted cost of work performance

ACWP = actual cost of work performance

CPI(cost performance index) = BCWP / ACWP

When CPI > 1 ,it means the performance of cost is excellent

When CPI < 1 ,it means the performance of cost is lower

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Cost variance and schedule variance

Schedule variance = BCWP – BCWSBCWP = budgeted cost of work performance

BCWS = budgeted cost of work scheduled

SPI(schedule performance index ) = BCWP / BCWS

When SPI > 1 ,it means the performance of schedule is excellent

When SPI < 1 ,it means the performance of schedule is lower

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What is time overrun?

Project time overrun indicates an extension of project completion time from the planned duration.

Ex post evaluation and completion reports demonstrate the various reasons for delay.

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Summarizing the reasons of schedule delay Lengthy procedure for contract evaluation and award Procurement delay Civil works and land acquisition delay Consultant recruitment delay Natural calamities Government procedural delay Local politics and economic problem Loan approval and disbursement delay Project staff hiring delay New scope addition Frequent change of project staff (manager, director)

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Comparative list of causes and their frequency

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Major causes of delay

Procurement Civil works and land acquisition Consultant recruitment Natural calamities Government procedures

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Procurement delay

Delays in procurement are often caused by long bid evaluation time, operational delays of implementing organizations, and inexperience of local authorities in international procurement.

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Civil works and land acquisition delay ID projects can often take longer due to protr

acted land acquisition problems which occur as a result of local politics, land law and religious issues.

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Consultant recruitment delay

Consultants are recruited to help in a wide range of activities below ：

policy advice management engineering services construction supervision financial services procurement services social and environmental studies identification preparation and implementation

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Natural calamities

The consequence of floods, landslides, and rivers changing course, tsunami or inaccessibility of work location often leads to project delay.

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Government procedural delay Governmental bureaucratic problems include

a slow decision making process and institutional or other border issues, and cause frequent policy changes leading to project schedule delay.

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Identified number of cases delay

It can be seen that most projects (47)identify “contract evaluation and award” as the main cause of delay.

“Lengthy procurement process” is found to be the second most important cause of delay for 41 projects.

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Causes of delay according to country For Bangladesh out of 24 projects, 21 experience delay due to

lengthy “contract evaluation and award”

20 experience delay because of lengthy “consultant recruitment”

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Causes of delay according to country(2) For China out of 17 projects, 13 projects are late due to

lengthy “civil works and land acquisition”

the next major cause of delay found in 10 projects is due to “contract evaluation and award”

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Causes of delay according to country(3) For India Out of 20 projects, 12 projects experience

delay due to prolonged “procurement of goods and services”

11 projects experience “contract evaluation” delay

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Causes of delay according to country(4) For Thailand Out of 12 projects, 10 faced finance related

restrictions that caused by Local politics and economic problem.

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Conclusion

we can say most causes of ID project delay are related to the host country and the project procurement and contracting process.

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What is cost underrun?

Cost underrun implies the project is completed under budgeted cost, in other words allocated money is unused and accounted for as a loan surplus.

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Budget costs

Foreign exchange costs:

The local currency value of all goods and services that are procured for the project within the country.

Local currency costs:

The sum of direct payments made in currencies other than the currency of the borrowing country for equipment and materials and consulting services.

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Budget costs (cont.)

If a project spends more in local currency and reduces expenditure in foreign currency then the project will have a loan surplus.

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Causes of cost underrun

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Causes of cost underrun (cont.) The most frequently identified causes :

Depreciation / devaluation of local currency. Lower than estimated bid price. International competitive bidding. Less use of contingency funds .

Other important causes :

Project scope cut. Project design change. Local taxes and Interest policy changes.

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Depreciation / devaluation of local currency.

The case of currency devaluation is serious for all the countries and is identified as a cause of cost underrun in 40 projects.

Bangladesh: 16 projects . On average a cost underrun project has 41% inflation.

Thailand: 12 projects . Devaluation of local currency by 46% .

India: 10 projects . On average a cost underrun project has 80% inflation.

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Lower than estimated bid price. A total of 32 projects experienced lower than estimated price for

procurement of goods, services, and turnkey contracts.

The main reasons : The significant cost reduction are vigorous competition

in the bidding process of equipment and materials.

Policy changes for taxes and interest rates.

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International competitive bidding Competitive bidding of imported goods and services is the third

most common cause of cost underrun.

A total of 25 projects experienced International competitive bidding.

Amongst all countries, ID projects from China (9) experienced

the greatest advantage.

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Less use of contingency funds 14 projects recognised the unused portion of contingency funds

as an important cause of cost underrun.

The main reasons : To avoid a possible funding crisis caused by fluctuatio

ns in the price of goods and services there is a tendency to keep a high contingency in the ID project budget.

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Conclusion

This study can be considered as a unique empirical research that analyses performance of international development projects.

This study analyse Asian Development Bank funded projects of four countries in Asia. (China,India,Thailand, Bangladesh)

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Conclusion (cont.)

Many stakeholders are involved to carry out physical implementation of components , and activities of the project.

The international development projects have five stages in the life cycle, which are identification, preparation, appraisal and approval, implementation, and evaluation.

identification preparation appraisal and approval

implementation evaluation

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Conclusion (cont.)

Both donor and host country must work together to plan and implement the project for success.

It Will contribute to the ID project body of knowledge.

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Conclusion (cont.)

Through this study, it’s so importance of time and cost.

The most projects experience schedule delay and cost underrun.

Generally, projects taking more time cost more money.

The most scheduled overrun ID projects experience cost underrun.

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Conclusion (cont.)

Project delay reasons ： Natural calamities Host country bureaucracy Local currency devaluation (The amount of c

urrency devaluations had insufficient funds can buy things, so need to apply for loans, will affect the project schedule)

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Conclusion (cont.)

Project delay reasons (cont.) ： Competitive bidding price Lower then estimated bid Large contingency budgets

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Conclusion (cont.)

The identified nature of ID projects will assist planners and professionals to better plan future projects.

This study will stimulate interest in international development projects.

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Conclusion (cont.)

The scope of the study covers projects from emerging, developing and least developed countries of Asia.

This study cultural issues can be solved.

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