With Wiles selection being made, it was then time for him to enter the negotiating phase with the contractor’s project manager, alma Roadrunner. Since this project would operate under a fixed-price contract Or a contract that provides for a price which normally is not subject to any adjustment unless certain provisions are included in the agreements alma provided Wiley with a departmental salary structure during this phase. On top of this projections, Wiley also requested for the timing of when project resources would align, to which alma showed him a graphed spending curve wowing the payment plan for the customer to the contractor.
By the end of the negotiation phase Wiley had eliminated all penalty clauses in the contract but lowered the contractor’s profit margin from eh percent to 10 percent. The contract itself also changed from a fixed-price to a fixed-price-incentive- fee contract, a type of contract where the buyer pays the seller the fixed price predicted by the contract upon completion of the project irrespective of the seller’s actual cost plus an additional amount as incentive if the seller meets predefined performance criteria in order to help alma make up the lost two ND a half percent.
Furthermore alma agreed to provide a monthly earned value report to Wiley throughout the project. At the end of the first month Wiley was given his first earned value report, which led him to believe that the project would be completed early and under budget, but by the fifth month Imam informed him that the project would be completed within costs, but two months behind schedule. This would result in a $200,000 profit loss for the Acme Corporation and the project would be a failure for Wiley Coyote. So what went wrong to set this project behind? Was it doomed to fail from the tart?
What oversights did Wiley miss? All these questions will be answered in this case study as we take a closer look at the critical information included in the bid, salary structure for the engineers that was provided, the spending curve, the negotiation phase between the project manager, and the first earned value report. Analysis Process Starting with the contract information, taking into consideration the contractor’s company pay structure, the spending curve and the 1st month report we will try to find what went wrong with Wiles earned value analysis.
The contract: The contract is a Fixed Price Incentive Fee (IF) type of contract. The total burdened labor was set on 2000 hours at a pay rate of $120 an hour. The project duration would be approximately 6 months. The overhead rate was 150% and was comprehensive of lama’s salary. The profit negotiated dropped from 12. 5% to 10%. All of the workers would have been at the same pay grade and assigned full time for the project. NO penalties for late delivery.
The first month report that Imam sent to Wiley showed: PA=ASK with 350 hours of work EVE=ASK with 400 hours of work AC=ASK with 400 hours of work Wiley Earned Value Analysis: C.V. = EVE-AC = ASK-ASK= ask under budget ICP = EVE/AC = ASK/ASK= 1. 41 this mean that for each dollar spent will have a $1. 41 worth of work or EVE C.V.% = C.V./EVE = ASK/ASK = 0. 29 the project is 29% under budget EVE-PA ASK-ASK k ahead of schedule SIP = EVE/PA = 48042K = 1. 14 SF/PA K/ASK = 0. 14 the project is ahead of schedule by 14% EACH = = $239,957 EACH = AC+BACK.
EVE = ask+kick. Ask = $226,000 ETC = = $205,957 ETC = 1 92,000 If we consider that the project duration is 6 months with an average of 20 working days each month the project is almost 17 working days ahead of schedule (Cox. 14) and significantly under budget. At the end of the 5th month alma informed Wiley that the project would be completed within the costs with a 2 months delay creating a $200,000 loss to ACME Corporation. If we look more closely the information given from alma to Wiley we can see many incongruence.
Taking into consideration the total burden of labor of 2000 hours at a $120 an hour rate the total labor cost would be $240,000. To have the total price of the contract we need to add the contractor profit rate of = 24,000 The price of the contract is 264’000$ If we analyze singularly the information given by Imam we can notice that from he PA She planned for the first month a errors amount of work and a $42,000 value added She planned to have almost 1/6 of the project done by the end of the 1st month (5. 1) If we round the previous number to 1/6 of the project in the 1st month, the total cost of the project will be $252,000 in 2100 working hours. The average labor cost is $1 20 an hour From the EVE The number of hours the claim team worked for the 1 SST month are more than she planned 1/5 of the work is completed The project will cost as estimated and will finish on time The average labor cost is $120 an hour From AC /7 of the project budget was spent in 1/5 of the project duration.
The average labor cost is $85 an hour that is not what established in the contract Therefore we need to take in consideration that a specific finish date for the project was never established in the contract and only a 6 month approximation of the duration of the project was given. alma also agreed to drop her profit rate so she could not deal with a late delivery penalty and also convinced Wiley to sign an IF type of contract.
A IF type contract is a contract where the buyer agrees to pay a fixed price (target cost) a profit for he seller is established (target profit for the seller) and also agrees on a maximum price for eventual cost overruns. The maximum price agreed between buyer and seller called also “the most pessimistic view of cost” or “ceiling price” is the eventual maximum costs that the buyer is expecting to pay. Beyond this point all the extra costs will be sustained by the seller and will not be charged. 3 On the other hand if the seller will be able to finish the work at lower costs he will increase his profit.
A tool used by the seller to have control over the profit is called Point of Total Assumption (PTA)4. Beyond the PTA the sellers profit start to decrease because the costs almost reached the ceiling price. If the Budget at Completion (BACK) or Estimated at Completion (EACH) exceed the PTA is most likely that the seller will experience a profit decrease or profit loss, This way the contract not only didn’t give alma any incentive to deliver a project on time but also an incentive to finish a project under budget.
Proof of that can be found if we analyze Imam’s actual costs report. The data relative to the actual cost of the project shows an $85 an hour of which average that means that the workforce used is not imposed by Senior Engineers but Junior Engineers It is also unclear if the reported actual costs are the one sustained by the sellers and so they are related to the company’s planned costs or are to refer to the customer’s payment plan that is obviously delayed in time.
As we can see in the Appendix C the cost effort for the customer runs under the level of sellers costs and if we chose a point in time that is not project start and/or end day, customer’s costs will always be lower than sellers costs and therefore, not reliable if compared to a planned value or earned value measurement.
SOOT Analysis Strengths Low bidder contractor PVC PM Earned Value Expert A rewarding contract for Acme Corporation Peaceful negotiations between both parties Over 8 bidders to negotiate with for best package Weaknesses No Late delivery penalties IF type of contract No previous work history with the contractor company Contractor had no FEM. experience & had never used It Unclear specification about project scope and project duration Late delivery of project Opportunities Future profitable contracts for Acme Corporation Development of future relationships with engineering contractors
Opportunity to work with other Amp’s on future projects The retreats Damaged reputation for delayed project could affect future contracts Strong competition from other engineering contractors Findings & Core Issues The focus of this case is that an agreed upon contract for a project will not be completed on time. The project manager is responsible for making sure that the project is completed on time with deliverables at a significant cost savings for Acme Corporation. Wiley Coyote the project manager and alma Roadrunner the contractor successfully negotiated a contract that would benefit both parties.
However the contractor informed the project manager at the end of the fifth month that although the project would be completed within cost, the completion date would be two months late. This was a problem and we believe that there was one main core issue that contributed to the project not being completed on time. The main core issue is alma Roadrunner had limited knowledge of the Earned Value Measurement (FEM.) and has never used it. FEM. makes sure that all the project parameters are on track. FEM. is a management technique that relates resource planning to schedules and technical performance requirements.
Without an FEM. it is very difficult to determine the status of a project. Although the contractor agreed to provide monthly reports to show planned value, earned value and actual cost, these techniques were not sufficient for monitoring the schedule of the project. The planned value (BOWS) measures the sum of the budgets for all work scheduled to be completed in a given period of time; the earned value (BPCS) measures the completed work that is equal to the budget planned for such work; the actual cost (GAWP) measures the actual cost of the work performed within a given time. All of these are cost variances and since he project was within cost these would not help to determine if the project would be delivered late. The cost variance compares deviations only from the budget and does not provide a measure of comparison between work scheduled and work accomplished. 7 Thus Wiley Coyote had no appropriate measure in place to identify the completion Status Of the overall project.
Case Summary & Recommendation The facts of The Trouble in Paradise Case Study is that Acme Corporation rewarded Wiley Coyote, the very first Project Management Professional (PM) of the company, an important six-month project that is critically relying on the miming of each deliverable – a delay in the schedule would cost the company a loss of 1 00,000 dollars per month. Wiley Coyote first decided as part of a solicitation package, to select only one out of eight engineering contractors who was the contractor candidate with the bid’s final cost being significantly the lowest.
In the aftermath of Wiles selection, alma Roadrunner, was the project manager responsible for leading the negotiations on the contracting activity side. The negotiations then started based on several elements: critical information in the contractor proposal (Appendix A), the salary structure for engineering (Appendix B), the timing of when resources would be assigned (Appendix C), and the payment plan from the customer to the contractor (Appendix C).
Both parties agreed to nullify penalties clauses for delivery if the contractor could reduce the profit margin by eh percent by completing the project under budget. The bottom line of this agreement was however that the contract be a fixed-price-incentive-fee contract as opposed to what was initially specified in the solicitation package – that it be a fixed-price contract with penalties for delivery. With a project so strictly tight on schedule and budget constraints, Wiley requested that earned value measurement be employed during the course of the project.
Obviously empowered by his knowledge as a PM, Wiley knew that when it comes to controlling and monitoring a project schedule and time, Earned Value Management provides project managers with an “early warning’ tool to identify and control problems before they became insurmountable and greater insight into potential risk areas. However, no earned value analysis and reporting were specified in the contract and the contracting activity side had little knowledge about it and never used it before.
The contractor was only asked to provide the three basic quantities (planned value, earned value, and actual costs) which form the basis for cost performance measurement using Earned Value Management. It happened that at the end of the first month Acme, represented by project manager Wiley Coyote, received a highly simplified earned value status report with apparently satisfactory results proving that Wiles plan to go with the lowest cost supplier was great, significant cost saving was made and the profit margin was reduced by twenty percent.
Nevertheless, at the end of the fifth month, things changed or this project. While Imam Roadrunner announced that the project would be completed within budget, she also announced that it would be behind schedule and completed two months later than expected. In the following lines, we as a team have identified several problems regarding the Trouble in paradise Case Study, and recommend corrective actions. We have however discussed one of them as the most significant. The first problem – Wiley Coyote’s strategy in selecting this supplier was not good at all.
Wiley Coyote sole selection criterion was the lowest cost supplier. This is quite surprising cause, a PM should know a basic principle in supply chain management when it comes to selecting a contractor: a supply chain is never stronger than its weakest points. This means that the weakest link in a supply chain can shatter a whole supply chain and lead to important project delays and cost overruns. With such a basic but strong principle a project manager is committed to perform a background check to detect risks that supplier weaknesses can cause and come up with an adequate plan.
The problem mentioned in this section is therefore less the fact that Wiley Coyote selected he lowest cost supplier than the fact he failed to apply a basic principle. There was obviously no risk management plan. Wiley never included such mandatory requirements in the solicitation package. Had he done this, he would have been able to detect major uncertainties such as the contractor did not have an essential knowledge and the skills that he wanted to apply during the course of the project. We suggest leading as soon as possible a project status meeting with alma Roadrunner to discuss the delay critical issue.
We suggest performing a Root Cause Analysis (RCA) to identify WHAT – the sis factors germane to this supplier that Wiley failed to consider – causing exactly the delays O. With that done, we will be able to come up with a quick recovery solution with contingency and/or mitigation plans depending on the identified causes. The second problem -As part of the procurement process of the project, Wiley failed in selecting an appropriate contract. A fixed-price- incentive contract was probably not a good fit for this project.
From a contractor’s perspective, a fixed-price-incentive contract was indeed an advantageous contract since it offered a win-win deal where the client paved he contractor a set amount (defined by the contract) while the contractor may have earned an additional amount if the client met defined performance criteria-1 1 The fact that alma Roadrunner wanted to eliminate penalty clauses for late delivery was in fact an early warning that Wiley failed to detect. Furthermore, in a procurement plan, a key factor in selecting a contract approach is determining which party will take the most risks. 2 As a project is never a “perfect world”, Wile’s decision was therefore a terrible mistake which meant that Acme Corporation was the party which would assume all he risks of any late delivery. In selecting the contract approach, he did not address other important questions such as: How well known was the scope of work? (The work was poorly defined) Whether the procurement of the goods be on the project schedule’s critical path? How much float was there on those activities? What project milestones were important?
We suggest the following corrective actions. Firstly, in the project status meeting mentioned above, we suggest a recovery plan to re-negotiate the contract with Imam Roadrunner to eliminate the profit margin compensation and to include a penalty clause on the delivery’. Maintaining penalty clauses are must-haves to protect Acme Corporation’s business goals. In exchange for alma Roadrunner’s agreement to re-negotiate the contract, obtain an agreement from a top manager to extend a partnership with her company on future possible projects.
We suggest as another solution, to request that management reserves be applied at this critical phase of the project so that it is possible to crash the schedule to meet the deadly nee. The third problem – There was no earned value analysis and reporting specified in the contract and the contractor had little knowledge about Earned Value Management FEM.). The earned value metrics system was poor and inefficient. A planning and control system was necessary to identify and define a larger variety of FEM. metrics and the frequency Of the measurement.
Wiley has a very high level and simplified earned value status report. A Variance and Trend Analysis was necessary in order to forecast potential deviation of the project at completion from cost and schedule targets, and to detect any deviation from the baseline plan to anticipate issues which would have showed any impact of threats. All this should have been part of the solicitation package (RAP) as a acquirement. Each contractor should have been held accountable to have internal or external subject matter experts on FEM..
And the fact that the contractor’s project manager would not have this important knowledge and skills would have been irrelevant. As a whole, this case study refers to a duo of characters from the Loony Tunes and Merrier Melodies series of cartoons. In the cartoons, Coyote repeatedly attempted to catch and subsequently eat the Road Runner, a fast-running ground bird, but was never successful 3. Our recommendations and corrective actions would help this project to be successful. We identified the third problem as the main problem of this case study.