Project cost dynamics for development policy-making

Cost and time overruns have been a common characteristic of development projects in many countries. This paper presents a theory of cost and time overruns based on project cost structure. The cost of a development project consists of base cost and progress cost. Base cost keeps a project ready for physical progress. Progress cost creates real physical progress on the project. This cost structure has an important inherent dynamic characteristic with implications for the efficiency and effectiveness of project management. An imbalance between annual budget and ongoing projects results in an increasing inefficiency and ineffectiveness unrelated to the quality of management of individual projects. The policy governing the starting rate of the new projects becomes very important in improving project performances. The paper also suggests some policy recommendations for commencing new projects.