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Perhaps they do not all happen on the same project. Yet the reality is that if project sponsors do not start out with an understanding of project management and its processes, the probability of these kinds of happenings are quite high! One of the best ways of learning is from mistakes preferably from those of other people. The focus of this case study centers on construction industry. However, the project has served to bring to light many of Smithy’s management short. Com inns and the need for change.
To prepare for the exam you will need to read the case and be familiar with all aspects of the case. When you get to the exam you will have 2 hours to answer a series of questions about the case. You ill take the role of Win Easy the project management consultant and you will be offering advice and recommendations to Smithy Board of Directors. You will not know what questions I will ask but it will be on the material we have taken in this course, both lectures and your REP assignment but applied to this case.
This will be fully open book, open internet and as such you will have access to any and all resources except for your class mates. Ground Rules will take the part of Ron Smith as have always wanted to be CEO of wood manufacturing business. As such you can ask any question you need to for clarification but I will not answer any question in person. If you have a question you need answered then it must be asked through the Model Discussion Forum. This way all students will have access to the same information.
BASIN 6070 Project Management and Consulting Final Exam Summer 2014 Page 1 of 11 Start of Formal Case Case overview: The incidents described in this case are typical of the types of things that happen in real-life projects, Hopefully, they do not all happen on the same project, but the reality is that if project sponsors do not start out with an such things happening are surprisingly high. This is the story of the project according to its natural evolution. The commercial environment described was very typical of many past projects.
The problems are not difficult to spot, but can you see why they happened? Background The Smith Woodworking Company is a small-to-medium sized custom furniture and cabinet making company, with head-office and a spacious plant site on East Trans-Canada Highway, Sampson, BC. It’s Chairman and Chief Executive Officer is Ron Smith now in his late-sixties. His wife Mrs.. Amelia Smith, being an aggressive business woman and somewhat younger than her husband, now effectively runs the company. Ron Smith is affectionately now to all as “Smithy” and so the company is generally known as “Smithy”.
Smithy, after an apprenticeship as a cabinet maker, started his small furniture manufacturing business back in 1 974 and he and his wife moved to their present location in 1979. The company quickly gained a reputation for attractively designed and well-constructed furniture, using imported hardwoods and indigenous softwoods for its products. Smithy’s now produces custom furniture to order, several lines of furniture for wholesaler/retailers, and a number of variations of standard kitchen and bathroom cabinets, including units made to order.
Over the years the Smiths contain due to prosper and built up a loyal staff and work force. More recently their son, Bob Smith, has joined the company’s management after having obtained a MBA degree at TRUE. At Bob Smith’s insistence, lured by longer production runs and higher and more consistent mark-ups, the company has moved into subcontract work supplying and installing counter-tops, cabinets and similar fixtures for new commercial construction, most notably Shoppers and Recall Drug Marts and various hotels throughout BC.
To date, Smithy’s has established a well-founded reputation for supplying millions and undertows to the construction industry. BUSS 6070 project Management and consulting Page 2 of 11 Smithy Corporate Profile Head Office: Sampson, BC Business: Furniture manufacturing, custom millions, and hardwood importer; federal charter 1980; privately held; number of employees proxy. 250. Major Shareholder: Amelia Holdings Ltd. At December 31, 2013, total assets were $1 81 In fiscal 201 3, sales were with net earnings of $6,540,000. Directors: Chairman & CEO Ron Smith president Mrs..
Amelia Smith Executive Vice Kim Equally President Director Bob Smith Key Personnel: UP production Miles Faster UP Finance and Spencer Moneybags Administration UP Human Molly Bushel Resources UP Sales and Bruce Sharpe Estimating Controller Kim Cushman BUSS 6070 Project Management and Consulting Final Exam summer 2014 page 3 of 11 Other Key Players in this Case Study: l. Leader (Ian) Smithy Project Manager R. Schemers Principal, Schemers and Plotters (S&P), industrial design consultants (Randy) A. Fowler (Alfred) Director, Expert Industrial Developers (DID), industrial property developers and contractors I.
Contras (IVR) Id’s Project Manager D. Rivet (Dave) l. Beam Construction Ltd. , steel fabricators and installers B. Leaky (Bert) Classic Cladding Co. Cladding and roofing contractors C. Dropped (Charlie) . C. Rain Ltd. , water-proofing contractors A. Dent (Amos) Tinker’s Associates, mechanical contractors O. Volta (Loaf) Zap Electric Co. , electrical contractors E. Forgot (Eddie) Piecemeal Corporation, equipment suppliers W. Easily (Win) Project management consultants The Opportunity In 2009 there was a mini-boom in commercial construction in the interior of BC.
With the possibility of a major airport expansion, and free-trade opportunities south of the border, Bruce Sharpe (UP – Sales) persuaded Smite}/s directors that they were well placed to expand their manufacturing equines. Miles Faster (UP – Production), regularly complained that the company’s production efficiency was being constrained by lack of manufacturing space. Because of these constant complaints he made a pitch to Bob Smith (Director) for moving to completely new and more modern facilities. Bob Smith, with a vision Of growth based on computer controlled automation, talked over the idea with his father.
Ron Smith (CEO) discussed it with his wife, Amelia Smith (President) who in turn brought Kim Cushman (Controller) and Spencer Moneybags (UP – Finance) into the debate. Cushman and Moneybags felt strongly that they should remain where they ere, since there was spare land on their property, even though it was not the most convenient for plant expansion. They argued that not only Page 4 of 11 would this avoid the costs of buying and selling property, but more importantly avoid the interruption to production while relocating their existing equipment.
Besides, the nearest potential location at an attractive price was at least fifteen miles further out from the residential area where most of them lived. Popularization of opinions rapidly became evident and so, in the spring of 2009, Ron Smith (CEO) called a meeting of the directors and key personnel to resolve the issue. After a visit to the factory floor and a prolonged and sometimes bitter argument lasting into the early hours, it was agreed that the company would stay put on its existing property.
The Project Concept It was agreed at the meeting that additional production capacity would be added equivalent to 25% of the existing floor area. The opportunity would also be taken to install air-conditioning and a dust-free paint and finishing shop complete with additional compressor capacity. Equipment would include a semi-automatic woodworking production line, requiring the development and installation Of software and hardware to run it. The President and Executive Vice Presidents’ offices would also be renovated.
At the meeting, the total cost of the work, not including office renovation, was roughly estimated at $1 7 million. Ron Smith agreed to commit the company to a budget of $1 7 million as an absolute maximum for all proposed work and the target date for production would be eighteen months from now. To give Smithy personnel a feeling of ownership, Molly Bushel (UP – Human Resources) proposed that the project should be called Smithy 2020. Spencer Moneybags would take responsibility for Project Smithy 2020. Planning Moneybags was keen to show his administrative abilities.
He decided not to involve the production people as they were always too busy and, navy, that would only delay progress. So, not one for wasting time (on planning) Moneybags immediately invited Expert Industrial Developers (DID) to quote on the planned expansion. He reasoned that this contractor’s prominence on the industrial estate and their knowledge of industrial work would result in a lower total project cost. Meanwhile, Kim Cushman developed a monthly cash flow chart as follows. First he set aside one million for contingencies.
Then he assumed that expenditure would be one million in each of the first and last months, with an intervening ten months at $1. 4 million. He carefully locked the chart away in his drawer for future reference. All actual costs associated with the project would be recorded as part of the company’s normal book-keeping. Upon Moneybag’s insistence, DID submitted a fixed-price quotation. It amounted to $20 million and an eighteen month schedule. After Moneybags recovered from the shock, he persuaded Smithy management that the price and schedule were excessive. For their part, DID believed that Smithy’s would need considerable Page 5 of 11 help with their project planning and allowed for a number of uncertainties). Further negotiations followed in which DID offered to undertake the work based on a fully reimbursable contract. Moneybags started inquiries elsewhere, but DID countered with an offer to do their own work on cost plus but solicit fixed price quotations for all sub-trade work. Gender this arrangement DID would be paid an hourly rate covering direct wages or salaries, payroll burden, head-office overhead and profit.
This rate would extend to all engineering, procurement, construction and commissioning for which DID would employ Schemers and Plotters (S&P) for the building and industrial design work. Moneybags felt that the proposed hourly rate was reasonable and that the hours could be monitored effectively. He persuaded Smithy directors to proceed accordingly. The Design A couple of months later as S&P commenced their preliminary designs and raised questions and issues for decision, Moneybags found he needed assistance to cope with the paper work. B Smith suggested he use Ian Leader, a bright young mechanical engineer who had specialized in programming semi-automatic manufacturing machinery. Moneybags realized that this knowledge would be an asset to the project and gave Leader responsibility for running the project. Ian was keen to demonstrate his software skills to his friend Bob Smith. So, while he lacked project management training and experience (especially any understanding of “project life-cycle” and “control concepts”) he readily accepted the responsibility.
During the initial phases of the mechanical design, Ian Leader made good progress on developing the necessary production line control software programs. However, early in design DID suggested that Smithy”s would take over the procurement of the production line directly, since they were more knowledgeable of their requirements. Miles Faster jumped at the opportunity to get involved and decided to change the production line specification to increase capacity. Because of this, the software program had to be mostly rewritten, severely limiting Leader’s time for managing the project.
It also resulted in errors requiring increased debugging at startup. Neither Moneybags nor Leader was conscious of the need for any review and approval procedures for specifications and shop drawings submitted directly y either S or by Eddie Forgot of Piecemeal Corporation, the suppliers of the production line. In one two-week period, during which both Faster and Leader were on vacation, the manufacturing drawings for this critical customized production line equipment that took 6 months to order and build (very long lead time) Sat in a junior clerk’s in-tray awaiting approval.
For this reason alone, the delivery schedule slipped Non weeks, contributing to a later construction schedule conflict in incorporating the new services. Page 6 of 11 Construction Site clearing was tackled early on with little difficulty. However, as the main construction got into full swing some eight months later, more significant problems began to appear. The change in production line specifications made it necessary to add another five feet to the length of the new building.
This was only discovered when holding-down bolts for the new line were laid out on site, long after the perimeter concrete foundations had been poured. The catalogue descriptions and specifications for other equipment selected were similarly not received and reviewed until after the foundations had been poured. Leader was not entirely satisfied with the installation of the canonical equipment for the dust-free paint shop. As a registered mechanical engineer, he knew that the specifications governed the quality of equipment, workmanship and performance.
However, since these documents had still not been formally approved, he was reluctant to discuss the matter with IVR Contras. Instead, he dealt directly with Amos Dent of Tinker’s Associates, the mechanical sub-contractor. This led to strained relations on the site. Another difficulty arose with the paint shop because the local inspection authority insisted that the surplus paint disposal arrangements be upgraded to meet the latest environmental standards. Start-up Two years after the project was first launched, the time to get the plant into production rapidly approached.
However, neither Moneybags nor Leader had prepared any meaningful planning for completion such as owner’s inspection and acceptance of the building, or testing, dry-running and production start- up of the production line. They also failed to insist that DID obtain the building occupation certificate. Moreover, due to late delivery of the long lead time production line equipment, the “tie-in” of power and other utility connections scheduled for the annual two-week maintenance shut-down could not in fact take place until two weeks later. These factors together resulted in a loss of several weeks of production.
Customer delivery dates were missed and some general contractors cancelled their contracts and placed their orders for millions elsewhere. Finished goods inventories were depleted to the point that other sales opportunities were also lost in the special products areas on which Smithy’s reputation was based. Control Costs arising from these and other changes, including the costs of delays in completion, were charged to Smithy account. Project overrun finally became reality when actual expenditures exceeded the budget and it was apparent to everyone that the project was at best only 85% complete.
Cushman was forced to scramble for an additional line of credit in project financing at prime plus 2-1/2%, an excessive premium given Smithy credit rating. From then on, Smithy were in a fire fighting mode and their ability to control the project Page 7 of 11 diminished rapidly. They found themselves throwing money at every problem in an effort to get the plant operational. During Smithy”s period of plant upgrading, construction activity in the region ell dramatically with general demand for Smithy products falling similarly.
Even though Sharpe launched an expensive marketing effort to try to regain customer loyalty, it had only a marginal effect. Post Project Appraisal The net result was that when the new equipment eventually did come on stream, it was seriously neutralized. Production crew morale was at an all- time low as rumors of layoffs were everywhere. Some staff also publicly voiced their view that the over-supply of commercial space could have been foreseen even before the project started, especially given the oversupply of detail and hotel space, the prime source of Smithy contracts.
Bob Smith, not a favorite with the older staff, was blamed for introducing these “new-fangled and unnecessarily complicated ideas”. Because of this experience, Smithy’s President Amelia Smith retained project management consultant Win Easily of W. Easily Associates to conduct a post project appraisal. Easily had some difficulty in extracting solid information because relevant data was scattered amongst various staff, who were not keen to reveal their short-comings. Only a few formal notes of early project meetings could be traced.
Most of the communication was on hand-written Speedy memos or post-it notes, many of which were undated. However, interviews with the key players elicited considerable information, as has been outlined above. End of Formal Case Page 8 of 11 Preparation Since this is an open book exam you do not have to memorize anything but rather organize it! Personally if I was doing this exam I would take all the class Overprints put them into a single file and this would allow me to search them much faster than going through multiple files. In addition I would have available your team’s full report and Excel project management tools we seed.
In addition I would prepare but sketching out answers or at least thinking about all the possible list of questions below. I certainly will not ask you all of these questions but will be asking similar things. Note: The focus of my questions will be on the first 2 phases Project Initiation and Project Planning but may ask some more general questions on the remaining phases of project management. The purpose of project management is to achieve a successful project and all that this implies. You need to be able to spot the real source of the problems and what needs to be done to fix them?