THE CUSTOM WOODWORKING COMPANY

Case # 4

Introduction

The incidents described 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 understanding of project management and its processes, the probability of such things happening are surprisingly high. We have set out the story of the project according to its natural evolution. The commercial environment described was very typical of that existing here at that time. The problems are not difficult to spot, but can you see why they happened? The case study is followed by a set of questions organized by project management knowledge area.

Background

The Custom Woodworking Company is a small-to-medium sized custom furniture and cabinet making company, with head-office and a spacious plant site at Industrial Estates, Someplace, BC. Its Chairman and Chief Executive Officer is Ron Carpenter now in his late-sixties. His wife Mrs. Emelia Carpenter, being an aggressive business woman and somewhat younger than her husband, now effectively runs the company.

Ron Carpenter is affectionately known to all as "Woody" and so the company is generally known as "Woody's". Woody, after an apprenticeship as a cabinet maker, started his small furniture manufacturing business back in 1954 and he and his wife moved to their present location in 1959. The company quickly gained a reputation for attractively designed and well-constructed furniture, using imported hardwoods and indigenous softwoods for its products. Woody'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 Carpenters continued to prosper and built up a loyal staff and work force. More recently their son, John Carpenter, has joined the company's management after having obtained a commerce degree at the local university. At John Carpenter'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. To date, Woody's has established a well-founded reputation for supplying millwork to the construction industry.

Woody's Corporate Profile

Head Office: Someplace, BC

Business: Furniture manufacturing, custom millwork, and hardwood importer; federal charter 1960; privately held; number of employees approx. 850

Major Shareholder: Emelia Holdings Ltd. At December 31, 199X, total assets were $181,000,000. In fiscal 199X, sales were $93,250,000 with net earnings of $6,540,000.

Directors: Chairman & CEO Ron Carpenter, President Mrs. Emelia Carpenter, Executive Vice President Kim Qualey, Director John Carpenter

Key Personnel: VP Production Miles Faster, VP Finance and Administration Spencer Moneysworth, VP Personnel Molly Bussell, VP Sales and Estimating Bruce Sharpe, Controller Kim Cashman

Other Key Players in this Case Study: I. Leadbetter (Ian): Woody's Project Manager. R. Schemers (Randy): Principal, Schemers and Plotters (S&P), industrial design consultants A. Fowler (Alfred): Director, Expert Industrial Developers (EID), industrial property developers and contractors I. Kontrak (Ivar): EID's Project Manager D. Rivett (Dave): I. Beam Construction Ltd., steel fabricators and installers B. Leakey (Bert): Classic Cladding Co., cladding and roofing contractors C. Droppe (Charlie): I. C. Rain Ltd., water-proofing contractors A. Dent (Amos): Tinknockers Associates, mechanical contractors O. Volta (Olaf): Zapp Electric Co., electrical contractors E. Forgot (Eddie): Piecemeal Corporation, equipment suppliers W. Easley (Win): Project management consultants

The Opportunity

In 1989 there was a mini-boom in commercial construction in south-western BC. With the possibility of a major airport expansion, and free-trade opportunities south of the border, Bruce Sharpe persuaded Woody's directors that they were well placed to expand their manufacturing business. Miles Faster, regularly complaining that the company's production efficiency was being thwarted by lack of manufacturing space, made a pitch to John Carpenter for moving to completely new and more modern facilities. John Carpenter, with a vision of growth based on computer controlled automation, talked over the idea with his father. Woody discussed it with his wife who in turn brought Kim Cashman and Spencer Moneysworth into the debate.

Cashman and Moneysworth felt strongly that they should remain where they were, since there was spare land on their property, even though not the most convenient for plant expansion. They argued that not only 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. Polarization of opinions rapidly became evident and so, in the spring of 1989, Woody 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 train, 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 $17 million. Woody agreed to commit the company to a budget of $17 million as an absolute maximum for all proposed work and the target date for production would be eighteen months from now. To give Woody's personnel a feeling of ownership, Molly Bussell proposed that the project should be called Woody 2000. Spencer Moneysworth would take responsibility for Project Woody 2000.

Planning

Moneysworth was keen to show his administrative abilities. He decided not to involve the production people as they were always too busy and, anyway, that would only delay progress. So, not one for wasting time (on planning) Moneysworth immediately invited Expert Industrial Developers (EID) 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 Cashman 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 Moneysworth's insistence, EID submitted a fixed-price quotation. It amounted to $20 million and an eighteen month schedule. After Moneysworth recovered from the shock, he persuaded Woody's management that the price and schedule were excessive. (For their part, EID believed that Woody's would need considerable help with their project planning and allowed for a number of uncertainties). Further negotiations followed in which EID offered to undertake the work based on a fully reimbursable contract.

Moneysworth started inquiries elsewhere but EID countered with an offer to do their own work on cost plus but solicit fixed price quotations for all sub-trade work. Under this arrangement EID 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 EID would employ Schemers and Plotters (S&P) for the building and industrial design work. Moneysworth felt that the proposed hourly rate was reasonable and that the hours could be monitored effectively. He persuaded Woody's 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, Moneysworth found he needed assistance to cope with the paper work. John Carpenter suggested he use Ian Leadbetter, a bright young mechanical engineer who had specialized in programming semi-automatic manufacturing machinery. Moneysworth realized that this knowledge would be an asset to the project and gave Leadbetter responsibility for running the project. Ian was keen to demonstrate his software skills to his friend John Carpenter. 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 Leadbetter made good progress on developing the necessary production line control software program. However, early in design EID suggested that Woody's should take over the procurement of the production train directly, since they were more knowledgeable of their requirements. Miles Faster jumped at the opportunity to get involved and decided to change the production train specification to increase capacity. Because of this, the software program had to be mostly rewritten, severely limiting Leadbetter's time for managing the project. It also resulted in errors requiring increased debugging at startup. Neither Moneysworth nor Leadbetter was conscious of the need for any review and approval procedures for specifications and shop drawings submitted directly by either S&P or by Eddie Forgot of Piecemeal Corporation, the suppliers of the production train. In one two-week period, during which both Faster and Leadbetter were on vacation, the manufacturing drawings for this critical long-lead equipment sat in a junior clerk's in-tray awaiting approval. For this reason alone, the delivery schedule slipped two weeks, contributing to a later construction schedule conflict in tying-in the new services.

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 train specification 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 train were laid out on site, long after the perimeter 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. Leadbetter was not entirely satisfied with the installation of the mechanical 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 loath to discuss the matter with Ivar Kontrak. Instead, he dealt directly with Amos Dent of Tinknockers 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.

Startup

Two years after the project was first launched, the time to get the plant into production rapidly approached. However, neither Moneysworth nor Leadbetter 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 train. They also failed to insist that EID obtain the building occupation certificate. Moreover, due to late delivery of the production train, 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 millwork elsewhere. Finished goods inventories were depleted to the point that other sales opportunities were also lost in the special products areas on which Woodys reputation was based.

Control

Costs arising from these and other changes, including the costs of delays in completion, were charged to Woody's 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. Cashman was forced to scramble for an additional line of credit in project financing at prime plus 2-1/2%, an excessive premium given Woody's credit rating. From then on, Woody's were in a fire fighting mode and their ability to control the project diminished rapidly. They found themselves throwing money at every problem in an effort to get the plant operational. During Woodys period of plant upgrading, construction activity in the region fell dramatically with general demand for Woodys 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 under-utilized. Production morale ebbed. Some staff publicly voiced their view that the over-supply of commercial space could have been foreseen even before the project started, especially the oversupply of retail and hotel space, the prime source of Woody's contracts. John Carpenter, not a favorite with the older staff, was blamed for introducing these "new-fangled and unnecessarily complicated ideas". Because of this experience, Woody's President Emelia Carpenter retained project management consultant Win Easley of W. Easley Associates to conduct a post project appraisal. Easley 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, many of which were undated. However, interviews with the key players elicited considerable information, as has been outlined above.

Case Study Exercise #4

The incidents described in this case study are typical of the types of things that happen in real-life projects. They are a reflection of peoples' attitudes and the way they do things. 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. However, the project has served to bring to light many of Woody's management short-comings and the need for change.

Can you spot the real source of the problems and what needs to be done to fix them?

ANSWER Case #4

The real source of the problems is the lack of project management experience and expertise from the project team. One of the major benefits of project management is in the management of requirement volatility. Requirement volatility occurs when the requirements set out in the project charter is changed by the client for varying reasons.

A competent project manager can manage requirement volatility by correctly documenting the changes, adjusting the project budget and timeline to accommodate the changes and informing vendors and all others involved in the project implementation. Ian Leadbetter, the appointed Project Manager in this case has strong engineering experience but lacks the project management experience to oversee such a vital project. This was the genesis of the problem.

Another problem highlighted from this case was certain decisions being undertaken without adequate investigation of the impact on the project timeline. For example, the decision to increase the production train specification by Miles Faster was one that greatly impaced the project timeline but appears to have been solely taken by Miles without adequate consultation of stakeholders nor a simple analysis of what will be required to install the new specifications. If a simple analysis was done, they would have discovered that the software for the new specifications will need to be rewritten and the increase in construction costs for the new specification. This could have dissuaded the company from changing the specification.

The solution in this kind of case is not necessarily preventing requirement volatility, in most projects, the initial requirement may not be the eventual deliverable. The solution is competently managing this volatility. A competent and experienced project manager ought to have been hired. The duties of this project manager would involve:

managing the project charter

manage the review and approval process of technical specification alterations

stakeholder management; ensuring stakeholders in the latter stages of the project are adequately informed of changes that may impact them

management of the project workflow with a tool like Gantt chart; a well designed gantt chart would have ensured that the construction phase would only begin when the specifications are already

I believe a competent project manager may have brought this project on time and on budget or would have prepared the company by informing them ahead of any delays in the project timeline.

Case #5

THE CUSTOM WOODWORKING COMPANY (part 2)

Please answer the questions using material from Case 4.

Project Appraisal Questionnaire

The purpose of project management is to achieve a successful project and all that this implies. So, if you were Win Easley, the project management consultant, what would you report?

1. Project Concept and Strategy

a. Was the Woody 2000 project well-conceived? Give reasons for your opinion.

b. What were Woodys real objectives that could and should have been articulated?

c. What strategies were there for achieving these objectives? What would you recommend?

d. Did they consider other solutions? Give Examples.

e. How would you gauge the projects success? Could success be measured? If so, when?

2. Project Planning

a. What should be included in a Woody 2000 project plan? What use would it be?

b. Evaluate Woody's plans for managing the project, including their approach to contracting for professional services and construction work. What would you have done and would that change for successive phases of the project?

3. Communication and People Management

a. Should Leadbetter have been left to run the project? Would training have helped?

b. How should the Woody 2000 project plan be communicated and when?

4. Cost Control

a. Why was EIDs first price so high? Was their position reasonable?

b. When did Woodys know they were in trouble with over expenditure? What was the result?

5. Facility Startup and Project Closeout

a. How was startup managed on the Woody project? How should it have been managed?

b. The Woody 2000 project was evidently not well run. Why? Give reasons for your opinion.