The physical distribution component of a major project, including transportation of raw materials, project materials, machinery and equipment and such infrastructure facilities as roads, vehicles etc., usually accounts for 20 to 30% of the total capital cost.
The general scarcity of various goods, unpredictable nature of the economy and economic behavior on the part of the business community and the bureaucracy in India make it all the more necessary for one to plan well ahead. In fact, planning of transportation and infrastructure must be done well ahead of general planning, so that resources spent on other parts of the project do not result in in – fructuous expenditure.
In developed countries, these facilities are already available in abundance or are provided for well in advance. In developing countries, action is generally initiated only after the project has been partially put through or when it becomes totally inescapable to do so.
On the other hand, because of lack of these facilities, such problems are faced even during construction.
Eg. Trucks get stuck in muddy roads, work sites remain unapproachable, and serious vehicular accidents are caused near the project areas.
In developing countries, for the supervision of construction of a building, usually no qualified individual is appointed for the co ordination and planning of transportation infrastructure, which forms a major fraction of the total cost of a project running into crores.
For a major project, the average total cost to the economy of a project costing Rs. 100 crores which is delayed by one year from the date of targeted completion is 39% more than the original budgeted cost on account of the following:
- The rate of interest on capital may be taken at nearly 12%.
- The profit on income per year about 12%
- The cost of depreciation on account of obsolescence or rusting without running of the plant at 5%.
- The cost of escalation of the project cost at 10%.
The cost of delay in the completion of the project would therefore be roughly about Rs.11 lakhs per day or Rs. 3.25 crores per month. It would be worthwhile to educate senior executives to recognize these facts, for this aspect of the project is usually ignored by project authorities.
Project authorities do not hold themselves responsible for the transportation bottlenecks and resulting delays. These delays are due to non-receipt of equipment, machinery, raw materials etc. and these delays generally run into months. Due to such delays, the project suffers heavy losses, which occur because of congestion in the ports, traffic jams, railway restrictions etc. Therefore, it is financially more practical to obtain critical equipment, machinery and raw materials, critical not from the point of view of availability in the market but critical form the standpoint of transportation bottlenecks- so that the likely delays are avoided.
A proper transportation planning of materials, therefore, may well save a project as well as the economy form the ill effects of wasteful expenditure. At the same time it would help speed up production.
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