Reference no: EM133336911

Project Overrun

The Green Company production project was completed three months behind schedule and at a cost overrun of approximately 60 percent. Following submittal of the final report, Phil Graham, the director of project management, called a meeting to discuss the problems encountered on the project.

Phil Graham: "We're not here to point the finger at anyone. We're here to analyze what went wrong and to see if we can develop any policies and/or procedures that will prevent this from happening in the future. What went wrong?"

Project manager: "When we accepted the contract, Green did not have a fixed delivery schedule for us to go by because they weren't sure when their new production plant would be ready to begin production activities. So, we estimated 3,000 units per month for months 5 through 12 of the project. When Green found that the production plant would be available two months ahead of schedule, they asked us to accelerate our production activities. So, we put all .0our production people on overtime in order to satisfy their schedule. This was our mistake, because we accepted a fixed delivery date and budget before we understood everything."

Functional manager: "Our problem was that the customer could not provide us with a fixed set of specifications, because the final set of specifications depended on OSHA and EPA requirements, which could not be confirmed until initial testing of the new plant. Our people, therefore, were asked to commit to man-hours before specifications could be reviewed.

"Six months after project go-ahead, Green Company issued the final specifications. We had to remake 6,000 production units because they did not live up to the new specifications."

Project manager: "The customer was willing to pay for the remake units. This was established in the contract. Unfortunately, our contract people didn't tell me that we were still liable for the penalty payments if we didn't adhere to the original schedule."

Phil Graham: "Don't you feel that misinterpretation of the terms and conditions is your responsibility?"

Project manager: "I guess I'll have to take some of the blame."

Functional manager: "We need specific documentation on what to do in case of specification changes. I don't think that our people realize that user approval of specification is not a contract agreed to in blood. Specifications can change, even in the middle of a project. Our people must understand that, as well as the necessary

procedures for implementing change."

Phil Graham: "I've heard that the functional employees on the assembly line are grumbling about the Green Project. What's their gripe?"

Functional manager: "We were directed to cut out all overtime on all projects. But when the Green Project got into trouble, overtime became a way of life. For nine months, the functional employees on the Green Project had as much overtime as they wanted. This made the functional employees on other projects very unhappy.

"To make matters worse, the functional employees got used to a big take home paycheck and started living beyond their means. When the project ended, so did their overtime. Now they claim that we should give them the opportunity for more overtime. Everybody hates us."

Phil Graham: "Well, now we know the causes of the problem. Any recommendations for cures and future prevention activities?"

Question 1. What are the critical issues in the case?

Question 2. How should they be resolved?