Case:

NutriStarEnergy, Inc.9 S. Shafer:

Wesley James had recently arrived in Boston from Manchester, UK for a position as Project Owner atNutriStarEnergy, Inc. He was now meeting with Ava Smith, President ofNutriStar, to discuss his upcoming duties and responsibilities associated with their latest product, theNutri-Sports Energy Bar.

As Ava explained: "NutriStarproduces a line of vitamins and nutritional supplements. We recently introduced ourNutri-Sports Energy Bar, which is based on new scientific findings about the proper balance of macronutrients in the body. Fortunately, the energy bar has quickly become popular among elite athletes and others who focus on eating an optimal balance of macronutrients. One distinguishing feature of theNutri-Sports Energy Bar is that each bar contains 50 milligrams ofeicosapentaenoicacid (EPA), a substance strongly linked to reducing the risk of cancer but found in only a few foods, such as salmon. We were able to include EPA in our sports bars because we had previously developed and patented a process to refine EPA for our line of fish-oil capsules."

"Because of the success of theNutri-Sports Energy Bar in the United States, we are considering offering it in Latin America. With our domestic facility currently operating at capacity, we have decided to investigate the option of adding approximately 10,000 square feet of production space to our facility in Latin America, at a cost of $5.1 million."

This is where you come in, Wesley. The project to expand the Latin American facility involves four major phases: (1) concept development, (2) definition of the plan, (3) design and construction, and (4) start-up and turnover. During the concept development phase, a project owner, that will be you, is chosen to oversee all four phases of the project and given a budget to develop a plan. The outcome of the concept development phase consists of just a rough plan, feasibility estimates for the project, and a rough schedule. Also, a justification for the project and a budget for the next phase will be needed."

"In the plan definition phase, the project owner selects and works with a project manager to oversee the activities associated with this phase. Plan definition consists of four major activities that are completed more or less concurrently: (1) defining the project scope, (2) developing a broad schedule of activities, (3) developing detailed cost estimates, and (4) developing a plan for staffing. The outputs of this phase are combined into a detailed plan and proposal for management specifying how much the project will cost, how long it will take, and what the deliverables are."

"If the project gets management's approval and provides the appropriations, the project progresses to the third phase, design and construction. This phase consists of four major activities: (1) detailed engineering, (2) mobilization of the construction employees, (3) procurement of production equipment, and (4) construction of the facility. ."

Typically, the detailed engineering and the mobilization of the construction employees are done concurrently. Once these activities are completed, construction of the facility and procurement of the production equipment are done concurrently. The outcome of this phase is the physical construction of the facility."

"The final phase, start-up and turnover, consists of four major activities: pre-start-up inspection of the facility, recruiting and training the workforce, solving start-up problems, and determining optimal operating parameters (calledcenterlining). Once the pre-start-up inspection is completed, the workforce is recruited and trained at the same time that start-up problems are solved.Centerliningis initiated upon the completion of these activities. The desired outcome of this phase is a facility operating at design requirements."

"The cost to complete an activity depends on both the amount of time required to complete the task and the cost rate of performing the activity. I have compiled two tables here for you. Table A provides optimistic, most likely, and pessimistic

time estimates for the major activities. Table B provides similar estimates for the cost rates to complete the activities. Like time estimates, the cost rate to complete the facility expansion project can vary for a number of reasons such as using more or less expensive resources, price changes in labor and materials, the need to outsource work that was expected to be performed in-house, and so on. According to the data in Tables A and B, Concept Development is expected to cost $24,000, 12 months at $2,000/month."

"Well, that's it Wesley! We're glad to have you on board and look forward to working with you. Do you have any questions?

TABLE B Three Cost Rate Estimates for NutriStar Production Facility Expansion Project Optimistic Cost Rate Most Likely Cost Rate Pessimistic Cost Rate Activity ($/Month) ($/Month) ($/Month) A: Concept Development 1,900 2,000 2,300 Plan Definition B: Define project scope 23,750 25,000 28,750 C: Develop broad schedule 15,200 16,000 18,400 D: Detailed cost estimates 28,500 30,000 34,500 E: Develop staffing plan 27,000 30,000 33,000 Design and Construction F: Detailed engineering 360,000 400,000 440,000 G: Facility construction 112,500 125,000 156,250 H: Mobilization of employees 270,000 300,000 330,000 I: Procurement of equipment 360,000 400,000 440,000 Start-up and Turnover J: Pre-start-up inspection 90,000 100,000 110,000 K: Recruiting and training 540,000 600,000 660,000 L: Solving start-up problems 90,000 100,000 110,000 M: Centerlining 45,000 50,000 55,000 "Well, that's it Wesley! We're glad to have you on board and look forward to working with you. Do you have any questions?"TABLE B Three Cost Rate Estimates for NutriStar Production Facility Expansion Project Optimistic Cost Rate Most Likely Cost Rate Pessimistic Cost Rate Activity ($/Month) ($/Month) ($/Month) A: Concept Development 1,900 2,000 2,300 Plan Definition B: Define project scope 23,750 25,000 28,750 C: Develop broad schedule 15,200 16,000 18,400 D: Detailed cost estimates 28,500 30,000 34,500 E: Develop staffing plan 27,000 30,000 33,000 Design and Construction F: Detailed engineering 360,000 400,000 440,000 G: Facility construction 112,500 125,000 156,250 H: Mobilization of employees 270,000 300,000 330,000 I: Procurement of equipment 360,000 400,000 440,000 Start-up and Turnover J: Pre-start-up inspection 90,000 100,000 110,000 K: Recruiting and training 540,000 600,000 660,000 L: Solving start-up problems 90,000 100,000 110,000 M: Centerlining 45,000 50,000 55,000 "Well, that's it Wesley! We're glad to have you on board and look forward to working with you. Do you have any questions?"TABLE A Three Time Estimates for NutriStar Production Facility Expansion Project Optimistic Time Most Likely Time Pessimistic Time Activity (months) (months) (months) A: Concept Development 3 12 24 Plan Definition B: Define project scope 2 12 C: Develop broad schedule 0.25 0.5 1 D: Detailed cost estimates 0.2 0.3 0.5 E: Develop staffing plan 0.2 0.3 0.6 Design and Construction F: Detailed engineering N G: Facility construction 12 24 H: Mobilization of employees 0.5 I: Procurement of equipment - 12 Start-up and Turnover J: Pre-start-up inspection 0.25 0.5 K: Recruiting and training 0.25 0.5 L: Solving start-up problems O M: Centerlining O