Case study

The Museum Company

Jovana Riddle Oleg Zahar,

the CEO of the Museum Company (MC), was an architect by training and had recently been appointment to the CEO role. His biggest challenge in this new position was getting his hands around the concept of baseline costs. Baseline costs are time - phased budgets used to measure and monitor the cost performance of projects. They ensure that each phase of a project is profi table and on time. Despite being very good at what it did and having a large backlog of contracts, MC had no positive cash flow at the end of each month. A detailed analysis revealed that the lack of cash was a result of the cash inflow (money the company earned) being less than the cash outflow (money the company paid out) during the course of its projects. The only time the company ' s inflow and outflow were the same was after the completion of the projects. Thus, this lack of cash meant that the company was struggling to meet its payroll obligations and had to borrow money from the bank and incur high interest rates each month to pay its employees. The high interest fees the company was paying to its bank significantly ate away at its profitability and could eventually lead to the company ' s collapse.

BACKGROUND

The Museum Company was a reputable military contractor whose main line of work was building museum exhibits. The company was founded in 1977 and its annual sales were approximately $ 20 million. The differentiating factor in this industry was that the military, unlike most other entities, was more concerned with the quality of its exhibits than with the cost of each one. Thus, if they were working with a reputable contractor who they had experience with they were unlikely to question the price charged for the work being done. MC was a reliable contractor that had the reputation of delivering on - time high quality exhibits among the industry players. Their reputation brought in a consistent stream of work and its pipeline was backfilled months in advance. However, despite its respectable external perceptions the internal practices of the Museum Company were questionable at best. Their biggest weakness, which was attributable to the lack of positive cash flow, was that they didn ' t negotiate payment deadlines in advance of performing/finishing work. 150 CASE STUDIES Thus, payments (cash inflows) would frequently be made long after project completion and were the root cause of the cash starvation the company was experiencing.

TRAINING

In order to address and fi x the Museum Company ' s cash infl ow issue, Oleg had some hard work ahead of him. First, he had to identify his most senior/ experienced 15 project managers who would help him turn the company around. Once this team was identifi ed he had to hire an experienced project management (PM) training company, which would set up a customized training program for him and his project managers to help them solve the cash fl ow problem. The company he hired helped him set up a four - day training that he and his core team would attend. The training consisted of four modules and would help the company ' s leaders identify/solve the cash infl ow problem. The training would cover the following areas of project management:

1. Scope During the first day of training the core team would identify a standard scope template to apply to each project. This would allow them to define what each project is supposed to accomplish and identify what the end result of each project should be. Furthermore, they would identify activities that would enable them to achieve the predetermined end result and the appropriate deliverables to accompany the project activities.

2. Time The second day would be spent putting together a standard Gantt chart that the company would use for all its future projects. The chart would help identify start and finish dates of the core elements of each project as well as payment points that would ensure positive cash flows during the duration of each project.

3. Cost The third day would allow the team to identify a standard cost estimate template to use for all upcoming projects. The cost estimates combined with cost contingencies and time - phased budgets would be used to establish cost baselines, which would ensure that all phases of a project would be profitable.

4. Integration The last day the team would integrate the scope, time, and cost modules to establish an execution strategy/plan for all future projects. This would include identifying all changes the company would have to make in its daily operations in order to implement its new execution strategy.

During the last hour of training, the team would apply its execution strategy to its new and existing projects to see if the new approach would eliminate the cash inflow problem. This exercise would test their ability to work as a cohesive team as well as their ability to apply new knowledge to the problem and save their company.

LEARNING

The final step in fixing the Museum Company would take place after the training was complete. Implementing the execution strategy would require all PMs to have in-depth knowledge of military exhibit design. In addition to understanding design, the team would have to understand how the architecture piece of each project fit in with the actual construction of each exhibit. Since this understanding could not be gained from a book, but rather from on-the-job experience, Oleg would have to hire a technical expert who would provide advice to the PMs and the young engineers until they gained the necessary knowledge and understanding of the coworkers of the two disciplines. Once the technical expert was in place and the execution strategy was implemented, the Museum Company would finally be on its way to being cash-flow positive during each phase of its projects.

Description

In your analysis of this case, you must ensure that you include the following:

• An introductory paragraph and brief summary of the Museum Company case
• An explanation the benefits of project cost management (provide at least three benefits), providing details as to how cost management was conducted in this case.
• Explain the components of a robust cost Management Plan and discuss how cost management was conducted in this case.
• A short paragraph as conclusion with your recommendations for improvement, as you see necessary.