How do you calculate extra costs incurred if a project overruns its schedule?

Question

If a project doesn't meet its planned schedule, how do you calculate any losses per day incurred? Is there a graphing function in MS Project that I can use to depict losses per day?

Answer 1

TL;DR

There isn't really any such thing as a "daily loss" in project management, since most projects are cost centers rather than profit centers. For example, you'd be hard-pressed to treat most projects as the sole topic of a profit-and-loss statement.

However, you can certainly calculate the expenses of cost overruns due to a project exceeding its planned budget or schedule, and you may also be able to capture additional liabilities attributable to exceeding your planning values.

Costs of Exceeding Your Planning Values

Cost Overruns

Cost overruns are generally caused by exceeding your planned budget, which is often tied to your schedule. Overruns can often be calculated based on a daily "burn rate" for the project. For example, if your project costs $10,000/day in labor and resources to operate, then a project that is two weeks overdue will probably have exceeded the planned budget by around $100,000.

Other Costs

On the other hand, there are other costs that aren't really cost overruns, but may still be liabilities to the project or the business when a deliverable is late. Some examples include:

• Contractual penalties for late delivery.
• Opportunity costs.
• Lost market share.
• Intangibles such as tarnished branding or loss of goodwill.

Many of these numbers will be represented by project-specific planning values, and can't be generically calculated across projects, organizations, or industries. Your sales or marketing departments may be able to assist you in developing plug-in values for these additional liabilities if they aren't already part of your project's plan or cost structure.