Two Rivers Mall in Nairobi whose launch was delayed. FILE PHOTO | NMG
What you need to know:
In a bid to leverage their target market and increase sales, companies involved in major capital expenditure projects such as in real estate, buy advertising space and pledge being ready on time.
Companies can lose up to $15 million (Sh1.5bn) in profits due to a failure in submitting client projects within the stipulated time, research has found. In a bid to leverage their target market and increase sales, companies involved in major capital expenditure projects such as in real estate, buy advertising space and pledge being ready on time.
However, this strategy can fail when the project is delayed due to financial strains or unexpected red tape processes among other factors, leading to the postponement of the launch date, therefore clients incur an unanticipated cost.
According to a report by Construction Industry Institute, a consortium of leading owners, engineering-contractor and supplier firms from both the public and private based in the US, for every day late, it equates to thousands of dollars lost and a 10 per cent overrun can lead to five million dollars blow to project profitability.
“With the average 20 per cent to 30 per cent delay that most projects report you are looking at a significant profit loss—one that is just shy of $15m,” reported Construction Industry Institute.
Two Rivers Mall, for instance, the largest shopping complex in Kenya, postponed its launch dates thrice before finally opening in February last year.
It was initially scheduled to open its doors in October 2015 but it was later pushed to March 2016 then to September 2016 and later to Valentine’s Day last year when it was finally opened. The developer attributed the delays to its increased letting space capacity and underestimation in the scale of work involved.
Delays reduce returns for its investors while ready tenants miss out on revenues attributed to the shopping sprees within a particular lucrative season.
“Delays in project delivery can cost an organisation a significant percentage of its return on investment. Also it triggers a surge of negative issues such as drop in share prices on the stock market, profit reduction which can be hard to recover in the long term and a loss of interest from consumers, thus are forced to spend more in advertising and marketing in order to gather the initial momentum,” said Stella Kimani, a brand strategist.
In the technology industry, for instance, Microsoft in 2006, lost 10 per cent of its expected sales because of delays in the launch of the Vista and Office 2007 globally. It shares dropped 2.1 per cent to close at $27.15 on the Nasdaq Stock Market following the announcement of the delay.
The same year, Sony reported a 48 per cent fall in company’s operating profits in the fiscal year to March 2007 due to the design issues that led to the day of its PlayStation3 video game launch. It took it four years to recover the profits on the product.
When there are no delays in project delivery, companies can realize profitability of up to $31.5 million according to a report by Integer Holdings Corporation, a global manufacturer of innovative and high-quality medical technologies.
“Time-to-market is a vital economic success factor that is often underappreciated. Delays that creep into a project as a result of a lack of resources, technical difficulties or limited capacity significantly impact time to break-even, peak product revenue as well as the length of the product lifecycle,” reported Integer Holdings Corporation.
“Considering that hitting a market window of opportunity can easily make the difference between gaining first-mover advantage versus launching a me-too product in a competitive market, the cost of launch delay should be a key metric for decision making.”
- African Laughter
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
