Altex Corporation - Case Study

BACKGROUND

Following World War II, the United States entered into a Cold Warwith Russia. To win this Cold War, the United States had to developsophisticated weapon systems with such destructive power that anyaggressor knew that the retaliatory capability of the United Statescould and would inflict vast destruction.

Hundreds of millions of dollars were committed to ideas concerningtechnology that had not been developed as yet. Aerospace anddefence contractors were growing without bounds, thanks tocost-plus- percentage-of-cost contract awards. Speed andtechnological capability were judged to be significantly moreimportant than cost. To make matters worse, contracts were oftenawarded to the second or third most qualified bidder for the solepurpose of maintaining competition and maximizing the total numberof defence contractors.

CONTRACT AWARD

During this period Altex Corporation was elated when it learnedthat it had just been awarded the R&D phase of the AdvancedTactical Missile Program (ATMP). The terms of the contractspecified that Altex had to submit to the Army, within 60 daysafter contract award, a formal project plan for the two-year ATMPeffort. Contracts at that time did not require that a riskmanagement plan be developed. A meeting was held with projectmanager of R&D to assess the risks in the ATMPeffort.

PM: "I'm in the process of developing the project plan. Should Ialso develop a risk management plan as part of the projectplan?"

Sponsor-: “Absolutely not! Most new weapon systems requirements areestablished by military personnel who have no sense of realityabout what it takes to develop a weapon system based upontechnology that doesn't even exist yet. We'll be lucky if we candeliver 60-70 percent of the specification imposed uponus.”

PM: "But that's not what we stated in our proposal. I wasn'tbrought on board until after we won the award, so I wasn'tprivileged to know the thought process that went into the proposal.The proposal even went so far as to imply that we might be able toexceed the specification limits, and now you're saying that weshould be happy with 60-70 percent."

Sponsor: “We say what we have to say to win the bid. Everyone doesit. It is common practice. Whoever wins the R&D portion of thecontract will also be first in line for the manufacturing effortand that's where the megabucks come from! If we can achieve 60-70percent of specifications, it should placate the Army enough togive us a follow-on contract. If we told the Army the true cost ofdeveloping the technology to meet the specification limits, wewould never get the contract. The program might even be cancelled.The military people want this weapon system. They're not stupid!They know what is happening and they do not want to go to theirsuperiors for more money until later on, downstream, after approvalby DoD and project kickoff. The government wants the lowest costand we want long-term, follow-on production contracts, which cangenerate huge profits.”

PM: "Aren't we simply telling lies in our proposal?"

Sponsor: "My engineers and scientists are highly optimistic andbelieve they can do the impossible. This is how technologicalbreakthroughs are made. I prefer to call it 'over-optimism oftechnical capability' rather
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Prepared by: Samira Baho Moderated by: Dr Karthik Nagarajan July2020
than 'telling lies.' If my engineers and scientists have to developa risk management plan, they may become pessimistic, and that's notgood for us!"

PM: "The problem with letting your engineers and scientists beoptimistic is that they become reactive rather than proactivethinkers. Without proactive thinkers, we end up with virtually norisk management or contingency plans. When problems surface thatrequire significantly more in the way of resources than we budgetedfor, we will be forced to accept crisis management as a way oflife. Our costs will increase and that's not going to make the Armyhappy."

Sponsor: "But the Army won't penalize us for failing to meet costor for allowing the schedule to slip. If we fail to meet at least60-70 percent of the specification limits, however, then we maywell be in trouble. The Army knows there will be a follow-oncontract request if we cannot meet specification limits. I consider60- 70 percent of the specifications to be the minimum acceptablelimits for the Army. The Army wants the program kicked off rightnow.

"Another important point is that long-term contracts and follow-onproduction contracts allow us to build up a good workingrelationship with the Army. This is critical. Once we get theinitial contract, as we did, the Army will always work with us forfollow-on efforts. Whoever gets the R&D effort will almostalways get the lucrative production contract. Military officers areunder pressure to work with us because their careers may be injeopardy if they have to tell their superiors that millions ofdollars were awarded to the wrong defence contractor. From a careerstandpoint, the military officers are better off allowing us todowngrade the requirements than admitting that a mistake wasmade."

PM: "I'm just a little nervous managing a project that is sooptimistic that major advances in the state of the art must occurto meet specifications. This is why I want to prepare a riskmanagement plan."

Sponsor "You don't need a risk management plan when you know youcan spend as much as you want and also let the schedule slip. Ifyou prepare a risk management plan, you will end up exposing amultitude of risks, especially technical risks. The Army might notknow about many of these risks, so why expose them and open upPandora's box'? Personally, I believe that the Army does alreadyknow many of these risks, but does not want them publicized totheir superiors”.

"If you want to develop a risk management plan, then do it byyourself, and I really mean by yourself. Past experience has shownthat our employees will be talking informally to Army personnel atleast two to three times a week. I don't want anyone telling thecustomer that we have a risk management plan. The customer willobviously want to see it, and that's not good for us”.

"If you are so incensed that you feel obligated to tell thecustomer what you're doing, then wait about a year and a half. Bythat time, the Army will have made a considerable investment inboth us and the project, and they'll be locked into us forfollow-on work. Because of the strategic timing and additionalcosts, they will never want to qualify a second supplier so late inthe game. Just keep the risk management plan to yourself fornow”.

"If it looks like the Army might cancel the program, then we'llshow them the risk management plan, and perhaps that will keep theprogram alive."

References:

Kerzner, H 2003, Project Management Case Study, John Wiley &Sons. Inc. Retrieved April, 7 2018 http://213.55.83.214:8181/Project%20mgt%20bks1/Project%20management%20case%20studies.pdf







Assignment Tasks
1a: Ethical Analysis of the case study Prepare areport of about 500 words that gives an ethical analysis of theissues raised in the case study. Your report should at leastinclude the following:
Executive Summary
o You should provide a brief summary of your main findings andresearch so that the reader can know its main purpose.
Introduction
o In this section you should (briefly) state the case study beinganalysed. You should also discuss the purpose and scope of thereport and the sources of the information that you have used.
Ethical Analysis of the case study
o In this section you should identify the ethical issues of thecase study and relevant requirement of PMI code related to casestudy.

PLEASE TRY TO ANSWER IN DETAIL ELABORATING ALL THREE SECTIONSPLEASE!!!