The award of the Scott contract on January 3, 1987, left Park Industries elated.The Scott Project, if

managed correctly, offered tremendous opportunities for follow-

on work over the next several years. Park’s management considered the Scott

Project as strategic in nature.

The Scott Project was a ten-month endeavor to develop a new product for

Scott Corporation. Scott informed Park Industries that sole-source production

contracts would follow, for at least five years, assuming that the initial R&D effort

proved satisfactory. All follow-on contracts were to be negotiated on a yearto-

year basis.

Jerry Dunlap was selected as project manager. Although he was young and

eager, he understood the importance of the effort for future growth of the company.

Dunlap was given some of the best employees to fill out his project office

as part of Park’s matrix organization. The Scott Project maintained a project office

of seven full-time people, including Dunlap, throughout the duration of the

project. In addition, eight people from the functional department were selected

for representation as functional project team members, four full-time and four

half-time.

Although the workload fluctuated, the manpower level for the project office

and team members was constant for the duration of the project at 2,080 hours per

month. The company assumed that each hour worked incurred a cost of $60.00

per person, fully burdened.

At the end of June, with four months remaining on the project, Scott

Corporation informed Park Industries that, owing to a projected cash flow problem,

follow-on work would not be awarded until the first week in March (1988).

This posed a tremendous problem for Jerry Dunlap because he did not wish to

break up the project office. If he permitted his key people to be assigned to other

projects, there would be no guarantee that he could get them back at the beginning

of the follow-on work. Good project office personnel are always in demand.

Jerry estimated that he needed $40,000 per month during the “bathtub” period

to support and maintain his key people. Fortunately, the bathtub period fell over

Christmas and New Year’s, a time when the plant would be shut down for seventeen

days. Between the vacation days that his key employees would be taking, and

the small special projects that this people could be temporarily assigned to on other

programs, Jerry revised his estimate to $125,000 for the entire bathtub period.

At the weekly team meeting, Jerry told the program team members that they

would have to “tighten their belts” in order to establish a management reserve of

$125,000. The project team understood the necessity for this action and began

rescheduling and re planning until a management reserve of this size could be realized.

Because the contract was firm-fixed-price, all schedules for administrative

support (i.e., project office and project team members) were extended through

February 28 on the supposition that this additional time was needed for final cost

data accountability and program report documentation.

Jerry informed his boss, Frank Howard, the division head for project management,

as to the problems with the bathtub period. Frank was the intermediary

between Jerry and the general manager. Frank agreed with Jerry’s approach to the

problem and requested to be kept informed.

On September 15, Frank told Jerry that he wanted to “book” the management

reserve of $125,000 as excess profit since it would influence his (Frank’s)

Christmas bonus. Frank and Jerry argued for a while, with Frank constantly saying,

“Don’t worry! You’ll get your key people back. I’ll see to that. But I want

those uncommitted funds recorded as profit and the program closed out by

November 1.”

Jerry was furious with Frank’s lack of interest in maintaining the current organizational

membership.

Questions:1.Should Jerry go to the general manager? Why, or why not? Think back to what is expected of a project manager and the project charter.

2.Should the key people be supported on overhead? Why, or why not?

3.If this were a cost-plus program, would you consider approaching the customer with your problem in hopes of relief? Why, or why not?

4.If you were the customer of this cost-plus program, what would your response be for additional funds for the bathtub period, assuming cost overrun? Why, or why not?

5. Would your previous answer change if the program had the money available as a result of being under budget? Why, or why not?

6. How do you prevent this situation from recurring on all yearly follow-up contracts?

 

Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"