Case Overview
The Peter’s Company is one of Corwin’s good customers. Corwin received a request from Peter’s to manufacturer a new rubber product. Peter’s had established a $250,000 budget for the project. However, they did not have the internal resources available to take on the project themselves. As a result, they decided to outsource the project and they wanted Corwin to design and manufacture the product for them.
Corwin was initially resistant to accepting the new project. Peters needed a proposal and acceptance from Corwin within a few days or they would lose the $250,000 budget for the project. However, Corwin was not comfortable with the required turnaround time. Peters offered a 5-year profit sharing deal to incent Corwin. One of Corwin’s managers instructed his staff to create a proposal for $250,000 to align with the Peter’s budget. Peters accepted the proposal.
The project started poorly. The project manager was not present at the kickoff meeting. In addition, Corwin allowed the customer direct access to engineering and manufacturing staff, which created a considerable amount of confusion and frustration within the Corwin organization. Continuous change and unclear requirements resulted in inconclusive results and additional frustration. The project quickly ran out of control. Ultimately, Peters terminated the project and Corwin was stuck with thousands of dollars in wasted project expenses.
Major Mistakes
Corwin made some major mistakes in its handling of the Peters project. The first mistake was in its project selection process. New product development does not fit within Corwin’s conservative, risk-adverse market expansion focus. Although Corwin had a product selection policy in place, they did not formally evaluate the request from Peters against the policy. Instead, management at Corwin allows the 5-year profit sharing incentive to influence negatively its decision making process. If Corwin had of followed its policy and process, the project might never have been accepted.
Corwin agreed to a fixed price contract. In a fixed price contract, the vendor takes on the majority of the financial risk. Fixed price contracts work well in situations where the requirements are clear and the vendor is confident that they can meet the requirements for the agreed price. However, the Peters project did not fit the criteria for a fixed price contract. Peters was only able to provide a rough draft of product specifications. Incomplete specifications are at high risk for change. Changes to product specifications can affect the cost, which can negatively affect Corwin in a fixed price contract. In addition, the contracts manager at Corwin was unfamiliar with fixed price contracts resulting in his inability to watch out for the best interests of the organization. If Corwin had followed its normal pricing process, they might have proposed a might higher cost for the project and Peters might never have accepted the proposal.
Senior management failed to engage in and support the project. Three of the four decisions makers were out of town during the proposal process. Due to the short turnaround requirements for the proposal presentation, senior management was unable to participate in the proposal process. In addition, senior management stayed at arm’s length during execution and only engaged once they became aware of major problems with the project. If senior management had been involved at the onset they might never have accepted the project.
Line managers were engaged too late in the process. Once the proposal was accepted, the project manager attempted to engage the line managers to obtain the resources needed to support the project. However, the line managers became upset because they were not involved earlier in the project. The project manager expected the line managers to provide resources to support the project but did not give them any opportunity to provide input during the proposal process. They were resistant to providing resources after the fact. If Corwin had involved its line managers early in the process, they might have been able to provide information that would have influenced the proposal.
Corwin decided to purchase all the projects raw material prior to formal contract signing. The procurement decision exposed Corwin to unnecessary risk. If a problem had developed between the companies before contract signing, Corwin might have been stuck with the expense of the raw materials. In addition, Corwin had only detailed five of 30 tests sufficiently to determine material needs. If the tests changed, the materials might have changed also.
Corwin did not use a structured change management process. The customer representative continuously changed the testing process resulting in inconclusive results. Since the contract was a fixed price, Corwin had to assume responsibility for costs related to the additional testing. When Peters requested an additional five tests beyond the agreed scope, Corwin should have evaluated the request and provided Peters with a proposal outlining the costs to add the tests to the scope. Uncontrolled change exposed Corwin to unnecessary risk.
Conclusion
In an attempt to please a good customer, Corwin accepted a project that did not fit its conservative and risk adverse culture. Corwin compounded this problem with additional major mistakes that eventually lead to its customer cancelling the project at significant cost to Corwin. This case study highlights the importance of a project selection process, senior management involvement and an organized change management process.
References
Kerzner, H. (2003). Project Management Case Studies. New Jersey: John Wiley & Sons.
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