Calculating the Effect of Delay and Inflation on Project Costs
Seymour I. Schwartz
AbstractEnvironmental and safety regulations have been criticized for causing excessive delays in construction projects of various types, and for adding greatly to their cost. However, most studies of the costs of regulating housing development calculate the costs of delay incorrectly, usually because of careless treatment of the time dimension and improper treatment of inflation. This article examines the sources of confusion in treating inflation and delay, and presents a model for determining the effect of delay and inflation in terms of the discounted present value of construction costs. The model is applied to the case of housing construction, and the results show that the present value cost of a delayed project can be smaller than the costs of an undelayed project.
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