The Opportunity

This story takes place when the Icelandic economy has been booming for several years. This has created business opportunities for furniture. Bruce Sharpe persuaded Ronnys 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 Jon Carpenter for moving to completely new and more modern facilities. Jon Carpenter, with a vision of growth based on computer-controlled automation, talked over the idea with his father. Ronny 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 25 km further out from the residential area where most of them lived. Polarization of opinions rapidly became evident and so, in the spring Ronny called for 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 50 million. Ronny agreed to commit the company to a budget of 50 million as an absolute maximum for all proposed work and the target date for production would be eighteen months from now. To give Ronnys personnel a feeling of ownership, Molly Bussell proposed that the project should be called Ronnys Excellence. Spencer Moneysworth would take responsibility for Project Ronny Excellence.

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, Karl Cashman developed a monthly cash flow chart as follows. First, he set aside 5 million for contingencies. Then he assumed that expenditure would be 5m million in each of the first and last months, with an intervening ten months at 2,3m. 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 80 million and an eighteen-month schedule. After Moneysworth recovered from the shock, he persuaded Ronnys management that the price and schedule were excessive. (For their part, EID believed that Ronnys 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 Ronnys 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 paperwork. Jon 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 Jon 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 in developing the necessary production line control software program. However, early in design EID suggested that Ronnys 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 meters 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 official 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 Ronnys reputation was based.

Control

Costs arising from these and other changes, including the costs of delays in completion, were charged to Ronnys 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 Ronnys credit rating. From then on, Ronnys 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 Ronnys period of plant upgrading, construction activity in the Reykjavik region fell dramatically with general demand for Ronnys products falling similarly due to negative market conditions. 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 Ronnys contracts. John Carpenter, not a favourite with the older staff, was blamed for introducing these "new-fangled and unnecessarily complicated ideas".Because of this experience, Ronnys 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 shortcomings. Only a few formal notes of early project meetings could be traced. Most of the communication was on hand-written Post-It notes many of which were undated. However, interviews with the key players elicited considerable information, as has been outlined above.

the question is :

You, as part of the project planning team, participate in planning the project in context of project management discipline described in the textbook and lectures. The result of your work must be documented in an Extended Project Charter. This document is called extended because it contains a bit more than conventional project charter.

So, what is an Extended Project Charter (EPC)?

Usually a project charter is a formal document that authorizes the project and guides all project decisions. It identifies the project scope, reason for the project and what it is intended to accomplish, it identifies the project sponsors, it assigns implementation responsibility and spending authority, it identifies milestones and gives special directions and constraints and it contains high-level risk management and communication plans. However, in our case we are asking for a bit more. The EPC should cover as minimum:

1. Scope the project.

2. Define project objectives (SMART).

3. Prepare numbered WBS1.

4. Prepare OBS for the project

5. Connect WBS and OBS with a cost account system.

?