Time and Cost Overruns in Implementation of Infrastructure Projects, Problems and Remedies

J.L.Narayan, Joint Adviser Infrastructure and Projects, Ministry of Statistics and Programme Implementation

Implementation of infrastructure projects in India has improved substantially. Although the complexity of infrastructure projects have increased but capacity to handle them efficiently is inadequate on many fronts that is why, time and cost overruns in projects still persists.

It emerges from the analysis of the Central Sector Projects by the Ministry of Statistics and Programme Implementation that many of the projects suffer from inadequacies in project formulation and implementation, resulting in large time and cost overruns, affecting the very viability of the projects and acting as drag on the economy. The analysis has also identified several factors responsible for time and cost overruns – some within the control of the enterprises and some beyond their control.

Nature of sector specific problems are summarised in the Table 1:

Table 1: Sector Specific Problems for Time and Cost Overruns
Sl.No. Sector Sector specific reasons for time and cost overrun
1. Atomic Energy In the Atomic Energy the cost increase in projects is due to exchange rate variation and delay in supplies from foreign vendors.  Delay in civil works is due to locational problems.
2. Civil Aviation Most of the projects in the Civil Aviation Sector are modernization projects.  The main reasons for delay is availability of adequate land and funds causing delay in modernization of non-profit airports.
3. Coal A number of Coal projects are under expansion and these projects are being funded from internal resources of the Coal Companies which is causing constraint in timely completion of expansion projects.  Since Coal projects are location specific, the problem of land acquisition and rehabilitation is a major constraint.
4. Steel In the Steel Sector, major modernization activities have been taken to expand the capacity of existing plants.  Due to very heavy pressure on vendors and suppliers because of large construction activities all over the world, supplies are getting delayed.  Delay in award and availability of suitable contractors for carrying out major activities is also causing delay in implementation.
5. Petroleum & Natural Gas The Refineries which are under expansion are facing supply problems from indigenous as well as foreign vendors.  The refineries which are being expanded for clean fuel production are facing constraints in redesigning their fluidized catalytic units which require shut down of their plants for a longer period.  In the development of oil exploration, projects encountered delays mainly due to geological problems.
6. Power The Power projects particularly, Hydro-electric projects are suffering delays due to law and order problems in the North East and in Kashmir.  Some projects are also facing problems of geological surprises.  Non-availability of contractors in difficult areas is posing a threat to timely completion of projects in Power Sector.
7. Railway The major problem of Railway Sector is the non-availability of adequate funds for large number of New Line, Gauge Conversion, Doubling projects.  A number of projects are also facing land acquisition, rehabilitation problems due to lack of proper response from the State Governments.
8. Road Transport & Highways Projects are delayed mainly due to basic reasons like land acquisition, realignment of public utilities like water supply, power supply line etc.  A number of projects have suffered due to lack of proper response from the State Government authorities.  Some projects have been delayed due to delay and slow progress made by the contractors requiring award of the contract afresh.
9. Telecommunication In the Telecommunication Sector projects are delayed due to lack of proper coordination and in some cases timely availability of equipment and material.  Since Telecommunication is very technology intensive, availability of required type of experts and material is also causing delays.
10. Urban Development The Urban Development projects are mostly of civil construction nature and they are being carried out by CPWD on behalf of the administrative Ministries.  Improper contract monitoring and follow up causes delay in civil work projects.

As an apex institution for monitoring, the Ministry of Statistics and Programme Implementation has initiated several measures in cooperation with various Ministries & PSUs to improve the system and procedures relating to project formulation, implementation and monitoring. These include 2-stage clearance, appointment of Nodal Officers, improved procedures for cost benefit analysis and approval, delegation of more powers at project level, release of project implementation manual, institution of MOU system, institution of 2-tier regular monitoring (Monthly & Quarterly), adoption of network based monitoring, extensive training of project managers, prioritization of projects matching with available resources, and several project based interventions. Amendment to Land Acquisition Act and development Standard Rehabilitation Package are important measures to reduce time and cost overruns.

The time and cost overruns in projects in the environment uncertainties, inadequate funding, delay in land acquisition, law and order problems, general escalation in costs and high cost of capital cannot be eliminated altogether but these can be controlled by suitable measures which have been highlighted above. The analysis of the Ministry of Statistics and Programme Implementation shows that cost overrun in projects even with respect to the original approved cost have come down from 62% in March, 1991 to 12% in March, 2008 and the increased to 21% in September 2010. This has resulted into indirect savings of more than Rs. 2,50,000 crore over a period of 10 years. This has been possible due to the dedicated effort of the Infrastructure and Project Monitoring Division of MOSPI and other Ministries. The increasing trend of in cost overruns in the recent years is mainly due to impact of high increase in the cost bulk materials such as cement and steel in 2006-07 and recent recession. The trend of cost overruns is depicted in the Figure 1.

Trend of cost overruns

The analysis of time overrun in terms of percentage of projects running behind their original schedule also shows a declining trend. Percentage of projects behind schedule declined from 62% in 1991 to lowest ever to 31.72% in March 2001, to 34.13% in March 2007 and increased again to 52.10%. The increasing trend of percentage of delayed projects is also due to the same reasons as in case of cost overruns. The projects in the Highway, Power, Petroleum, shipping and Ports, Telecommunication, Steel, fertilizers and Railway sectors suffered the most. The trend of percentage of delayed projects is depicted in the Figure 2.

Trend of percentage of delayed projects

As monitoring alone cannot reduce time and cost overruns in projects, the Ministry of Statistic and Programme Implementation is continuously taking steps to strengthen implementation mechanism. One of the steps initiated by the Ministry was the adoption of modern Standard Bidding and Contract documents which has been developed jointly by this Ministry and the Construction Industry Development Council. A Project Implementation Manual has been prepared recently to guide the project authorities/user agencies so that the projects are formulated as per the guidelines issued by the Government of India from time to time. It has taken views from large number of studies undertaken by this Ministry with the help of consultants and their recommendations. It is a revised manual which not only concentrates groups on Industrial infrastructure but it gives a checklist of almost all the sectors of the Indian economy. This Manual now incorporates a complete check-list for preparation of project/ program proposals in the prescribed formats for Infrastructure and Utility Sectors covering Roads, Bridges, Shipping & Ports, Airports And Civil Aviation, Energy And Power Generation, Telecommunication, Water Supplies, Sewerage and Drainage etc; and Social and Community Development Sectors which includes Education, HRD, Health and Medical Services; and Economic Sectors such as Agriculture, Fisheries, Forestry, Industrial Estates and Tourism. The guidelines make reference to the latest innovations to the PPP and make a reference to the websites of the Ministry of Finance and Planning Commission where most of the guidelines can be seen. For the preparation of the revised manual Ministry utilized the services of CIDC.

Time is the essence of project management, therefore the system of monitoring based on the monitoring of milestones drawn from the PERT/CPM charts of projects. The Ministry is concentrating on the time management aspect of projects through resolution of problems coming in the way of implementation and providing latest information without time lag to all concerned authorities and agencies to take immediate action. MOSPI has in place On-Line Computerised Monitoring System (OCMS) since 2005 which has a unique database of its kind in the world. At present, 90% of the projects report online which can be processed in a two- week time. Reports are submitted to the higher authorities with exceptions requiring attention and supports resolution of problems to keep the projects on proper track.

Besides the creation of awareness and system improvements, Ministry organises the training programmes and seminars in association with institution in the project management field to enhance knowledge of Project Managers and also share best practices experiences across sectors.

Lessons learnt from the implementation of infrastructure projects are going to lead the future strategies to improve project implementation scenario of central projects. These lessons are:
  • Monitoring is not enough to ensure timely completion of projects it must be backed with action oriented solutions and also it will require improving system and procedures,
  • the system must be backed up with latest management tools and techniques,
  • adequate financial and administrative powers be given at the enterprise and field levels,
  • remove constraints in obtaining multiple clearances,
  • re-engineering the process of obtaining approvals and posting of information on-line,
  • a system of reward and punishment is necessary to improve performance,
  • capacity building in the area of Project Management is vital to improve delivery and
  • top Management support is necessary for timely action, and
  • establishment of Committees at the Chief Secretary level to deal with land acquisition and clearances required from the State Governments.

About the Author:

Shri J.L. Narayan, Joint Adviser, Infrastructure and Project Monitoring Division of the Ministry of Statistics and Programme Implementation, with wide experience in Project Formulation, Implementation, Planning, Appraisal, and Control. He is B.Sc. (Mech. Engineering), Mechanical, Msc. Economics and MBA served Industry in Public Sector for 6½ years, & Government of India for 28 years, UNDP for 2 years as Management Expert and Commonwealth for 2 years as Economic Adviser. He has presented several papers in International forums, trained over 4000 Project Managers in last 10 years. He has been instrumental in preparation of Standard Contract Clauses and Bidding documents for Domestic Bidding. He authored the Project Implementation Manual released by the Government of India in 1989 and revised in June, 2010. Mr. Narayan has been the Member of PMI, USA and he is a founder of PMI North India Chapter. He is a qualified Project Manager and also an Institutional Member of International Project Management Association.

NBMCW January 2011

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