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Project Management Case Study

Project Management Case StudyThe Custom Woodworking Company — Woody 2000 ProjectR. Max WidemanAEW Services, Vancouver, BC, Canada, 2002IntroductionI first developed this case study in 1993 for a local construction project management course. Theincidents described are typical of the types of things that happen in real-life projects and I have seenmost of them. Hopefully, they do not all happen on the same project, but the reality is that if projectsponsors do not start out with an understanding of project management and its processes, the probabilityof such things happening are surprisingly high.I have set out the story of the project according to its natural evolution. The commercial environmentdescribed was very typical of that existing here at that time. The problems are not difficult to spot, butcan you see why they happened?The case study is followed by a set of questions organized by project management knowledge area. Youmay use the case study and questions as you wish, subject to the copyright limitations.BackgroundThe Custom Woodworking Company is a small-to-medium sized custom furniture and cabinet makingcompany, with head-office and a spacious plant site at Industrial Estates, Someplace, BC. Its Chairmanand 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 thecompany.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 manufacturingbusiness back in 1954 and he and his wife moved to their present location in 1959. The companyquickly gained a reputation for attractively designed and well constructed furniture, using importedhardwoods 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 andbathroom cabinets, including units made to order.Over the years the Carpenters continued to prosper and built up a loyal staff and work force. Morerecently their son, John Carpenter, has joined the company's management after having obtained acommerce degree at the local university. At John Carpenter's insistence, lured by longer production runsand higher and more consistent mark-ups, the company has moved into subcontract work supplying andinstalling counter-tops, cabinets and similar fixtures for new commercial construction. To date, Woody'shas established a well-founded reputation for supplying millwork to the construction industry.Woody's Corporate ProfileHead Office: Someplace, BCBusiness: Furniture manufacturing, custom millwork, and hardwood importer; federal charter 1960;privately held; number of employees approx. 850. Major Shareholder: Emelia HoldingsLtd. 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 CarpenterPresident Mrs. Emelia CarpenterExecutive Vice President Kim QualeyDirector John CarpenterKey Personnel:VP Production Miles FasterVP Finance and Administration Spencer MoneysworthVP Personnel Molly BussellVP Sales and Estimating Bruce SharpeController Kim CashmanOther Key Players in this Case Study:I. Leadbetter (Ian): Woody's Project Manager.R. Schemers (Randy): Principal, Schemers and Plotters (S&P), industrial design consultantsA. Fowler (Alfred): Director, Expert Industrial Developers (EID), industrial propertydevelopers and contractorsI. Kontrak (Ivar): EID's Project ManagerD. Rivett (Dave): I. Beam Construction Ltd., steel fabricators and installersB. Leakey (Bert): Classic Cladding Co., cladding and roofing contractorsC. Droppe (Charlie): I. C. Rain Ltd., water-proofing contractorsA. Dent (Amos): Tinknockers Associates, mechanical contractorsO. Volta (Olaf): Zapp Electric Co., electrical contractorsE. Forgot (Eddie): Piecemeal Corporation, equipment suppliersW. Easley (Win): Project management consultantsThe OpportunityIn 1989 there was a mini-boom in commercial construction in south-western BC. With the possibility ofa major airport expansion, and free-trade opportunities south of the border, Bruce Sharpe persuadedWoody'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 ofmanufacturing space, made a pitch to John Carpenter for moving to completely new and more modernfacilities. John Carpenter, with a vision of growth based on computer controlled automation, talked overthe idea with his father. Woody discussed it with his wife who in turn brought Kim Cashman andSpencer Moneysworth into the debate.Cashman and Moneysworth felt strongly that they should remain where they were, since there was spareland on their property, even though not the most convenient for plant expansion. They argued that notonly would this avoid the costs of buying and selling property, but more importantly avoid theinterruption to production while relocating their existing equipment. Besides, the nearest potentiallocation at an attractive price was at least fifteen miles further out from the residential area where mostof them lived. Polarization of opinions rapidly became evident and so, in the spring of 1989, Woodycalled a meeting of the directors and key personnel to resolve the issue. After a visit to the factory floorand a prolonged and sometimes bitter argument lasting into the early hours, it was agreed that thecompany would stay put on its existing property.The Project ConceptIt was agreed at the meeting that additional production capacity would be added equivalent to 25% ofthe existing floor area. The opportunity would also be taken to install air-conditioning and a dust-freepaint and finishing shop complete with additional compressor capacity. Equipment would include asemi-automatic woodworking production train, requiring the development and installation of softwareand 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 $17million. Woody agreed to commit the company to a budget of $17 million as an absolute maximum forall proposed work and the target date for production would be eighteen months from now. To giveWoody's personnel a feeling of ownership, Molly Bussell proposed that the project should be calledWoody 2000. Spencer Moneysworth would take responsibility for Project Woody 2000.PlanningMoneysworth was keen to show his administrative abilities. He decided not to involve the productionpeople as they were always too busy and, anyway, that would only delay progress. So, not one forwasting time (on planning) Moneysworth immediately invited Expert Industrial Developers (EID) toquote on the planned expansion. He reasoned that this contractor's prominence on the industrial estateand 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 onemillion for contingencies. Then he assumed that expenditure would be one million in each of the firstand last months, with an intervening ten months at $1.4 million. He carefully locked the chart away inhis drawer for future reference. All actual costs associated with the project would be recorded as part ofthe company's normal book-keeping.Upon Moneysworth's insistence, EID submitted a fixed-price quotation. It amounted to $20 million andan eighteen month schedule. After Moneysworth recovered from the shock, he persuaded Woody'smanagement that the price and schedule were excessive. (For their part, EID believed that Woody'swould 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 reimbursableMoneysworth started inquiries elsewhere but EID countered with an offer to do their own work on costplus but solicit fixed price quotations for all sub-trade work. Under this arrangement EID would be paidan hourly rate covering direct wages or salaries, payroll burden, head-office overhead and profit. Thisrate would extend to all engineering, procurement, construction and commissioning for which EIDwould employ Schemers and Plotters (S&P) for the building and industrial design work. Moneysworthfelt that the proposed hourly rate was reasonable and that the hours could be monitored effectively. Hepersuaded Woody's directors to proceed accordingly.The DesignA couple of months later as S&P commenced their preliminary designs and raised questions and issuesfor decision, Moneysworth found he needed assistance to cope with the paper work. John Carpentersuggested he use Ian Leadbetter, a bright young mechanical engineer who had specialized inprogramming semi-automatic manufacturing machinery. Moneysworth realized that this knowledgewould be an asset to the project and gave Leadbetter responsibility for running the project. Ian was keento demonstrate his software skills to his friend John Carpenter. So, while he lacked project managementtraining and experience (especially any understanding of "project life-cycle" and "control concepts") hereadily accepted the responsibility.During the initial phases of the mechanical design, Ian Leadbetter made good progress on developingthe necessary production line control software program. However, early in design EID suggested thatWoody's should take over the procurement of the production train directly, since they were moreknowledgeable of their requirements. Miles Faster jumped at the opportunity to get involved anddecided to change the production train specification to increase capacity. Because of this, the softwareprogram had to be mostly rewritten, severely limiting Leadbetter's time for managing the project. It alsoresulted in errors requiring increased debugging at startup.Neither Moneysworth nor Leadbetter was conscious of the need for any review and approval proceduresfor specifications and shop drawings submitted directly by either S&P or by Eddie Forgot of PiecemealCorporation, the suppliers of the production train. In one two-week period, during which both Faster andLeadbetter were on vacation, the manufacturing drawings for this critical long-lead equipment sat in ajunior 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.ConstructionSite clearing was tackled early on with little difficulty. However, as the main construction got into fullswing some eight months later, more significant problems began to appear. The change in productiontrain specification made it necessary to add another five feet to the length of the new building. This wasonly discovered when holding-down bolts for the new train were laid out on site, long after the perimeterfoundations had been poured. The catalogue descriptions and specifications for other equipment selectedwere similarly not received and reviewed until after the foundations had been pouredLeadbetter was not entirely satisfied with the installation of the mechanical equipment for the dust-freepaint shop. As a registered mechanical engineer, he knewthat the specifications governed the quality ofequipment, workmanship and performance. However, since these documents had still not been formallyapproved, he was loathto discuss the matter with Ivar Kontrak. Instead, he dealt directly with AmosDent of Tinknockers Associates, the mechanical sub-contractor. This led to strainedrelations on the site.Another difficulty arose with the paint shop because the local inspection authority insisted that thesurplus paint disposal arrangements beupgraded to meet the latest environmental standards.StartupTwo years after the project was first launched, the time to get the plant into production rapidlyapproached.However, neither Moneysworth nor Leadbetter had prepared any meaningful planning forcompletion such as owner's inspection and acceptance of the building, or testing,dry-running andproduction start-up of the production train. They also failed to insist that EID obtain the buildingoccupation certificate. Moreover, due to latedelivery of the production train, the "tie-in" of power andother utility connections scheduled for the annual two-week maintenance shut-down could not in facttakeplace until two weeks later.These factors together resulted in a loss of several weeks of production. Customer delivery dates weremissed and some general contractorscancelled their contracts and placed their orders for millworkelsewhere. Finished goods inventories were depleted to the point that other sales opportunities werealsolost in the special products areas on which Woody’s reputation was based.ControlCosts arising from these and other changes, including the costs of delays incompletion, were charged toWoody's account. Project overrun finally became reality when actual expenditures exceeded the budgetand it was apparent to everyone that theproject was at best only 85% complete. Cashman was forced toscramble for an additional line of credit in project financing at prime plus 2-1/2%, an excessivepremiumgiven Woody's credit rating. From then on, Woody's were in a fire fighting mode and their ability tocontrol the project diminished rapidly. They foundthemselves throwing money at every problem in aneffort to get the plant operational.During Woody’s period of plant upgrading, construction activity in the region felldramatically withgeneral demand for Woody’s products falling similarly. Even though Sharpe launched an expensivemarketing effort to try to regain customer loyalty, ithad only a marginal effect.Post Project AppraisalThe net result was that when the new equipment eventually did come on stream, it was seriously underutilized.Production morale ebbed. Some staff publicly voiced their view that the over-supply ofcommercial space could have been foreseen even before the project started,especially the oversupply ofretail and hotel space, the prime source of Woody's contracts. John Carpenter, not a favorite with theolder staff, was blamed for introducing these "new fangled and unnecessarily complicated ideas".Because of this experience, Woody's President Emelia Carpenter retained project managementconsultant Win Easley of W. Easley Associates to conduct a post project appraisal. Easley had somedifficulty in extracting solid information because relevant data was scattered amongst various staff, whowere not keen to reveal their short-comings. Only a few formal notes of early project meetings could betraced. 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 ExerciseThe incidents described in this case study are typical of the types of things that happen in real-lifeprojects. They are a reflection of peoples' attitudes and the way they do things. Perhaps they do not allhappen on the same project. Yet the reality is that if project sponsors do not start out with anunderstanding of project management and its processes, the probability of these kinds of happenings arequite 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 lightmany of Woody's management short-comings and the need for change. Can you spot the real source ofthe problems and what needs to be done to fix them?Your task is to show how you would run this project properly from the beginning.Project Appraisal Questionnaire:The purpose of project management is to achieve a successful project and all that this implies. So, if youwere Win Easley, the project management consultant,what would you report? Specific issues for yourconsideration follow. You will not find all the answers written into the case study. Some of the answersarematters of opinion and you will need to search my site for ways to approach many of them.1. Project Concept and Strategya. Was the Woody 2000 project well conceived? Give reasons for your opinion.b. What were Woody’s real objectives that could andshould have been articulated?c. What strategies were there for achieving these objectives? What would you recommend?d. Did they consider other solutions? GiveExamples.e. How would you gauge the project’s success, Could success be measured? If so, when?2. Project Scopea. Why do you suppose renovation of the President and Executive Vice President’s offices wereincluded in the project and was that a goodidea?b. Write a simple project scope statementc. Develop a work breakdown structure.3. Project Planninga. What should be included in a Woody 2000 project plan? What use would it be?b. Evaluate Woody's plans for managing the project, includingtheir approach to contracting forprofessional services and construction work. What would you have done and would that changefor successive phases of theproject?c. Did the project plan explain how the project and any changes would be controlled? Should this bepart of the plan? Give reasons.4. Qualitya. How should quality be approached, and what does it mean?b. Why did Leadbetter not invoke the specifications to ensure quality? What was theresult?c. What is the importance of Quality to a project like this?

5. Planning and Schedulinga. Identify and describe a set of project schedule milestones from project concept to projectcompletion.b. Illustrate your milestones ona simple bar chart scaled to the information provided in the CaseStudy.c. Would a good baseline plan have helped to show that the project would not meet itsschedule? Ifso, how?d. How should float on the critical path have been managed? Would this have helped to complete ontime?6. Cost Estimatinga. Develop a high-levelestimate by "guesstimation".b. How should the estimate be presented?c. Is life-cycle costing a factor on this project?d. Cashman kept his cash flow chart a secret.Why, and what would you have done?7. Contracting for Engineering and Construction Servicesa. What were the contracting alternatives open to Woody’s? Which wouldhave been best and whatwould that have involved?b. How should the contract(s) be organized and tendered?c. How should they be administered?d. Were the originalWoody 2000 project requirements delivered?8. Communication and People Managementa. Draw a project organization chart. What were the real relationships?b. ShouldLeadbetter have been left to run the project? Would training have helped?c. How should the Woody 2000 project plan be communicated and when?d. What communication(coordination) would you expect to see during execution?9. Progress Monitoring and Controla. Would a good baseline plan have helped to make up time?b. Draw aresponsibility chart for effective control.c. What would you have done when you saw that the project would not meets its schedule?d. Project records wereapparently poor. What records should have been kept and how?

10. Cost Controla. Why was EID’s first price so high? Was their position reasonable?b. When did Woody’s know they were in trouble with over expenditure? What wasthe result?c. How should the project budget and expenditures be set out for cost control?d. Draw a simple flow chart for processing changes?11. Risk Identificationand Managementa. How did EID handle their risks? Was this effective? What might they have done?b. List Woody’s actual surprises and add other possible surprises.What was, or should have been,done to prepare for and respond to them?c. Were there changes? What were the impacts?12. Facility Startup and Project Closeouta. Howwas 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 youropinion.c. Develop a list of "Key Success Indicators" that could and should have been measured oncompletion. Rank them in order of priority for this project.

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