Delays in Construction Projects-A perspective on Cash flow and Working Capital Management

India is a country with enormous requirements of infrastructure development and up-gradation. The development of the country depends on building sustainable infrastructure with a challenge of getting it done real fast to catch up with the huge and rising demand. The role of the construction industry in the economic growth of a country is enormous and immeasurable. The challenge of providing needed quality infrastructure is in the hands of construction Industry. However in our country, almost all construction projects, suffer major delays and cost overruns. In some cases get terminated midcourse and do not get completed at all. Out of the total 766 central projects of value Rs 150 crore and more, 237 projects are delayed (~30.94%), while the cost of these projects have gone up from 10,68,206.97 crore to 12,73,650.02 crore (~19.20%)1.

The reasons for the delays and cost overruns on these projects are plenty. Delay in land acquisition, right of access, delayed financial clearances, delayed / in adequate designs, scope creep, incorrect estimates, etc. to name a few.

In a well-planned project, meticulous and thought of cash flow management and smooth project execution, has to go on hand in hand. Delays in construction projects as above can jeopardize the cash flow plan and disturb the working capital cycle ultimately turn a healthy, cash positive project into a cash negative sick project. This paper illustrates the impact of delays on net cash flow of projects also explains the importance of cash flow monitoring indicators, various cash flow mitigation strategies to overcome these problems.