Causes and effects of project implementation delay on loan recovery performance: the case of selected projects financed by Development Bank of Ethiopia

Abstract

Project implementation delay can be defined as the late completion of work compared to the planned schedule. Project implementation delay can be minimized only when their cause are identified. The objective of this study was to identify the major causes of project implementation delay, the effects of delays, and methods of minimizing project implementation delays. This study was carried out based on literature review and a questionnaire survey and project financed by DBE was taken as a case study as a means of validating the results from the survey. Relative Importance Index was computed and the factors were ranked for all factors. The five most important causes of delays found to be shortage of equity contribution; miss utilization of the disbursed fund; ineffective planning and scheduling of project by the owners; conditions for effectiveness of the loan are not fulfilled in time to enable disbursement of loan and lack of comprehensives of feasibility study submitted by the project owners. Project owner/manager related delays was ranked the most significant groups that cause delays, followed by DBE related delays, cost escalation & suppliers related delays. Although time, cost overrun and low rate of successful implementation of projects ( poor quality of project), were the common effects of delays, the overall effects is poor loan recovery performance. To minimize delays in projects the top five effective methods has been identified this includes: effective strategic planning, use of adequate application screening criteria, verifying reliable source of equity contribution, through pre-credit risk assessment, revision of the policy & procedure of the Bank and to be certain on comprehensiveness of feasibility study and proper emphasis on past experience. Finally, the analysis result will be used as the baseline for the next research to find the causes of delay in the industry.