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The High Cost of Projects Essay


Introduction

Projects are considered to be an array of activities that are supposed to be executed within a predetermined period. Companies prefer to handle certain assignments in the form of projects to achieve certain deadlines at a low cost.

Such activities cannot always be carried out during normal operations of the business due to factors such as complexity or urgency. The capital providers of a project expect to receive the output promptly and a cost-efficient manner.

This will enable them to realize the full benefits of investments made on the project. Thus, during the feasibility study of a project, the project manager identified suitable providers. This helps in improving the amount of time that the project will take.

The paper will discuss the impact of the high cost of doing projects in Australia. The paper will compare the results in Australia and the US. Finally, the paper will give recommendations to the government Australia on various ways of improving the long term growth of the economy.

The impact of the high cost of doing business on the growth of the Australian economy

The ultimate aim of a project manager or a business manager is to make a profit. Profit is considered as the difference between the amount of revenue earned and the cost of bringing that goods and services to a state that they can be sold.

In most cases, the amount of revenue to be earned can always be determined with a high degree of certainty because the market provides an indication of prices to be charged. Thus, the company can increase revenue by increasing the number of units sold.

Also, the project manager can control the amount of profit that the company earnings by controlling the cost of the product. Lower costs create a room for earning more profit.

From the case study of Australia, it can be observed that the wages cost more at about $80 per hour in Australia while in the US the average wage rate is $68 per hour.

The wage rate is about 20% to 30% more than the US. Higher wages imply a significant increase in the amount of the cost of labor hence a higher amount of the project.

Further, apart from the fact that the amount of wages in high in Australia, the productivity and the efficiency of the labor available is quite low. It is an indication that the management will need to hire more workers to ensure that the project is complete in time.

The high cost of labor translates to a high cost of construction hence a higher cost of doing projects in Australia when compared with other countries such as the US.

The high cost of doing a project indicates that there will be a substantial impact on the ability of Australia to compete for projects if prevailing high wage rate and low productivity are extended to a private project.

Further, the high cost of wages and the inefficiency of the wages is an indication the cost of raw material that can be obtained locally is quite high. This implies that the project manager will choose to seek cheaper sources of raw material.

This is likely to increase the cost of the project because the project manager will have to incur some avoidable costs such as the cost of freight among others.

The implication of undertaking project is that replacing the wages for the prevailing market wages in Australia, on average, will cost the project more in by about 35% in Australia than in competitor regions such as the US.

The higher cost will push the project manager to increase the markup of the project. This implies that the company will charge higher prices for the same product or services than its competitors. This implies that the products of the company will not compete fairly in the market.

Apart from the high cost of carrying out projects in Australia about other developed countries such as the US, there is also a high probability that the project will not be delivered on time.

Failure to complete the project on time will cost the company. It is because the life of a project is separated into the cost of construction of the project and the cost of earning the benefit.

For instance, if the construction period of the project is three years while streams of benefit are expected to start trickling in from the fourth year to the tenth year.

A delay in completion of the project as per the schedule implies that the management will be denied the revenue that they ought to be earning during that period. Besides, the company will incur more cost to maintain the delayed project.

Delay of projects can impact more on a project with a short life span. For instance, IT projects have a short life span due to constantly changing technology. Thus, any slight delay in the project might render the whole project obsolete.

Apart from negatively impacting on the company in terms of lost profitability and additional cost, the country will also lose from fines that are always imposed by the project manager.

The high cost of labor, low productivity of workers and delays in delivering projects in Australia impact negatively on the overall economic growth and development of the country since all economic activities that take place in the country contributes to the growth of the gross domestic product of the country.

In as much as it is difficult to estimate with the accuracy of the amount of loss that the company will incur massive losses due to these inefficiencies pointed out in the sections above.

For instance, the Business Council of Australia forces a loss of $921 billion in terms of projects that relate to infrastructure, energy, and resources. Apart from the financial loss, the country is also likely to lose competitive advantage.

The country will lose its customers to competitor countries such as the US among others. This will lead to a substantial reduction in the amount of revenue generated from the sector.

Strategies that may promote the growth of the Australian economy

Considering that project management is a key pillar of economic growth of the country, it is of utmost importance that the government needs to intervene and salvage the sector of the economy before it completely vanishes away.

Besides, the intervention of the government will save the sector about $921 billion and penalties it is likely to pay due to the inability to fulfill the contractual agreements with the customers.

One key reason that contributes to the high cost of labor in the country is the small proportion of the labor force about the total population. This implies that the country is experiencing a shortage in the supply of labor. Thus, the labor supply curve is quite sensitive to changes in wage rates.

Since the demand for workers is higher than supply, this pushes the wages up in the labor market. Various key players in the economy have suggested that there is a need to open the labor market of Australia.

This will enable the country to import skilled workers and increase the current capacity to a level that can handle bigger projects and clear the current outstanding projects.

When the labor market of the country is open to the rest of the world, there will be a significant increase in the number of labor supply. This will create competition in the labor market.

The competition will result in a reduction in wage rates and increase the productivity of the workforce. Besides, it will provide the amount of labor that is required to complete the projects on time.

Conclusion

The paper discussed the impact of the high cost of doing projects in Australia. It compared the results in Australia and the US. Finally, the paper gave recommendations on ways of improving efficiency in Australia.

The discussion above shows that the performance of a single sector of an economy has a significant impact on the overall performance of the economy. Besides, the discussion reveals that the labor market plays a significant role in the growth of the economy.

Further, the lack of an adequate labor supply can create a serious impact on the productivity of the country.

Besides, the government needs to be aware of and be ready to solve various macroeconomic and microeconomic problems that a country faces. This will protect the country from losing a substantial amount of revenue.

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IvyPanda. (2020, March 15). The High Cost of Projects. Retrieved from https://ivypanda.com/essays/the-high-cost-of-projects/

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"The High Cost of Projects." IvyPanda, 15 Mar. 2020, ivypanda.com/essays/the-high-cost-of-projects/.

1. IvyPanda. "The High Cost of Projects." March 15, 2020. https://ivypanda.com/essays/the-high-cost-of-projects/.


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IvyPanda. "The High Cost of Projects." March 15, 2020. https://ivypanda.com/essays/the-high-cost-of-projects/.

References

IvyPanda. 2020. "The High Cost of Projects." March 15, 2020. https://ivypanda.com/essays/the-high-cost-of-projects/.

References

IvyPanda. (2020) 'The High Cost of Projects'. 15 March.

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