The Handy’s Woodworking Company is a small-to-medium sizedcustom furniture and cabinet making company, with head-office and aspacious plant site at Industrial Estates, Melbourne. It’s Chairmanand Chief Executive Officer is Ron Haywood now in his late-sixties.His wife Mrs. Emy Haywood, being an aggressive business woman andsomewhat younger than her husband, now effectively runs thecompany. Ron Heywood is affectionately known to all as \"Handy\" andso the company is generally known as \"Handy's\". Handy, after anapprenticeship as a cabinet maker, started his small furnituremanufacturing business back in 1964 and he and his wife moved totheir present location in 1969. The company quickly gained areputation for attractively designed and well constructedfurniture, using imported hardwoods and indigenous softwoods forits products. Handy's now produces custom furniture to order,several lines of furniture for wholesaler/retailers, and a numberof variations of standard kitchen and bathroom cabinets, includingunits made to order. Over the years the Haywoods continued toprosper and built up a loyal staff and work force. More recentlytheir son, John Haywood, has joined the company's management afterhaving obtained a commerce degree at the local university. At JohnHaywood's insistence, lured by longer production runs and higherand more consistent mark-ups, the company has moved intosubcontract work supplying and installing counter-tops, cabinetsand similar fixtures for new commercial construction. To date,Handy's has established a well-founded reputation for supplyingmillwork to the construction industry. The Opportunity There hasbeen a mini-boom in commercial construction in Western suburbs ofMelbourne. Bruce Sharpe (VP of Sales and Estimating) persuadedHandy's directors that they were well placed to expand theirmanufacturing business. Miles Faster (VP of Production), regularlycomplained that the company's production efficiency was beingthwarted by lack of manufacturing space, made a pitch to JohnHaywood for moving to completely new and more modern facilities.John Haywood, with a vision of growth based on computer controlledautomation, talked over the idea with his father. Handy discussedit with his wife who in turn brought Kim Cashman (Controller) andSpencer Moneysworth (VP of Finance and Administration) into thedebate. Cashman and Moneysworth felt strongly that they shouldremain in their current location since there was spare land ontheir property, even though it was not the most convenient forplant expansion. They argued that not only would this avoid thecosts of buying and selling property, but more importantly avoidthe interruption to production while relocating their existingequipment. Besides, the nearest potential location at an attractiveprice was at least 20 kms further out from the residential areawhere most of them lived. Polarization of opinions rapidly becameevident and so, in the spring of 2010, Handy called a meeting ofthe directors and key personnel to resolve the issue. After a visitto the factory floor and a prolonged and sometimes bitter argumentlasting into the early hours, it was agreed that the company wouldstay put on its existing property. Handy's Corporate Profile HeadOffice Melbourne, Victoria Business Furniture manufacturing, custommillwork, and hardwood importer; federal charter 1960; privatelyheld; number of employees approx. 850. Major Shareholder: RainwoodHoldings Ltd. On December 31, 2010, total assets were $181,000,000.In fiscal 2010, sales were $93,250,000 with net earnings of$6,540,000. Directors Chairman & CEO Ron Haywood President Mrs.Emy Haywood Executive Vice President Kim Qualey Director JohnHaywood Key personnel VP Production Miles Faster VP Finance andAdministration Spencer Moneysworth VP Personnel Molly Bussell VPSales and Estimating Bruce Sharpe Controller Kim Cashman Other keyplayers Ian Leadbetter Handy’s project manager Randy SchemersIndustrial design consultant, Schemers and Plotters (S&P)Alfred Fowler Industrial property developers, Director, ExpertDevelopers (ED) Ivar Kontark ED's Project Manager Dave Rivett I.Beam Construction Ltd., steel fabricators and installers Bert LeakyClassic Cladding Co., cladding and roofing contractors CharlieDroppe Water proofing contractor, Rain Water Ltd. Amos DentMechanical equipment contract, Reece Associate Olaf VoltaElectrical contractor, Zapp Electrical Eddie Forgot Equipmentsupplier, Piecemeal Corporation Win Easley Project managementconsultant The Project Concept It was agreed at the meeting thatadditional production capacity would be added equivalent to 25% ofthe existing floor area. The opportunity would also be taken toinstall air-conditioning and a dust-free paint and finishing shopcomplete with additional compressor capacity. Equipment wouldinclude a semi-automatic woodworking production train, requiringthe development and installation of software and hardware to runit. The President and Executive Vice Presidents' offices would alsobe renovated. At the meeting, the total cost of the work, notincluding office renovation, was roughly estimated at $17 million.Handy agreed to commit the company to a budget of $17 million as anabsolute maximum for all proposed work and the target date forproduction would be eighteen months from now. To give Handy'spersonnel a feeling of ownership, Molly Bussell (VP of Personnel)proposed that the project should be called Handy 2010. SpencerMoneysworth would take responsibility for Project Handy 2010.Planning Moneysworth was keen to show his administrative abilities.He decided not to involve the production people as they were alwaystoo busy and, anyway, that would only delay progress. So, not onefor wasting time (on planning), Moneysworth immediately invitedExpert Developers (ED) to quote on the planned expansion. Hereasoned that this contractor's prominence on the industrial estateand their knowledge of industrial work would result in a lowertotal project cost. Meanwhile, Kim Cashman developed a monthly cashflow chart as follows: First he set aside one million forcontingencies. Then he assumed expenditures would be one million ineach of the first and last months, with an intervening ten monthsat $1.4 million each. He carefully locked the cash flow chart awayin his drawer for future reference. All actual costs associatedwith the project would be recorded as part of the company's normalbook-keeping. Upon Moneysworth's insistence, ED submitted afixed-price quotation. It amounted to $20 million and aneighteen-month schedule. After Moneysworth recovered from theshock, he persuaded Handy's management that the price and schedulewere excessive. (For their part, ED believed that Handy's wouldneed considerable help with their project planning and allowed fora number of uncertainties). Further negotiations followed in whichED offered to undertake the work based on a fully reimbursablecontract. Moneysworth started inquiries elsewhere but ED counteredwith an offer to do their own work on cost plus but solicit fixedprice quotations for all sub-trade work. Under this arrangement EDwould be paid an hourly rate covering direct wages or salaries,payroll burden, head-office overhead and profit. This rate wouldextend to all engineering, procurement, construction andcommissioning for which ED would employ Schemers and Plotters(S&P) for the building and industrial design work. Moneysworthfelt that the proposed hourly rate was reasonable and that thehours could be monitored effectively. He persuaded Handy'sdirectors to proceed accordingly. The Design A couple of monthslater as S&P commenced their preliminary designs and raisedquestions and issues for decision, Moneysworth found he neededassistance to cope with the paper work. John Haywood suggested heuse Ian Leadbetter, a bright young mechanical engineer who hadspecialized in programming semi-automatic manufacturing machinery.Moneysworth realized that this knowledge would be an asset to theproject and gave Leadbetter responsibility for running the project.Ian was keen to demonstrate his software skills to his friend JohnHaywood. So, while he lacked project management training andexperience (especially any understanding of \"project life-cycle\"and \"control concepts\") he readily accepted the responsibility.During the initial phases of the mechanical design, Ian Leadbettermade good progress on developing the necessary production linecontrol software program. However, early in design ED suggestedthat Handy's should take over the procurement of the productiontrain directly, since they were more knowledgeable of theirrequirements. Miles Faster jumped at the opportunity to getinvolved and decided to change the production train specificationto increase capacity. Because of this, the software program had tobe mostly rewritten, severely limiting Leadbetter's time formanaging the project. It also resulted in errors requiringincreased debugging at startup. Neither Moneysworth nor Leadbetterwas conscious of the need for any review and approval proceduresfor specifications and shop drawings submitted directly by eitherS&P or by Eddie Forgot of Piecemeal Corporation, the suppliersof the production train. In one two-week period, during which bothFaster and Leadbetter were on vacation, the manufacturing drawingsfor this critical long-lead equipment sat in a junior clerk'sin-tray awaiting approval. For this reason alone, the deliveryschedule slipped two weeks, contributing to a later constructionschedule conflict in tying-in the new services. Construction Siteclearing was tackled early on with little difficulty. However, asthe main construction got into full swing some eight months later,more significant problems began to appear. The change in productiontrain specification made it necessary to add another five feet tothe length of the new building. This was only discovered whenholding-down bolts for the new train were laid out on site, longafter the perimeter foundations had been poured. The cataloguedescriptions and specifications for other equipment selected weresimilarly not received and reviewed until after the foundations hadbeen poured. Leadbetter was not entirely satisfied with theinstallation of the mechanical equipment for the dust-free paintshop. As a registered mechanical engineer, he knew that thespecifications governed the quality of equipment, workmanship andperformance. However, since these documents had still not beenformally approved, he was loath to discuss the matter with IvarKontrak. Instead, he dealt directly with Amos Dent of ReeceAssociates, the mechanical sub-contractor. This led to strainedrelations on the site. Another difficulty arose with the paint shopbecause the local inspection authority insisted that the surpluspaint disposal arrangements be upgraded to meet the latestenvironmental standards. Startup Two years after the project wasfirst launched, the time to get the plant into production rapidlyapproached. However, neither Moneysworth nor Leadbetter hadprepared any meaningful planning for completion such as owner'sinspection and acceptance of the building, or testing, dry-runningand production start-up of the production train. They also failedto insist that ED 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 theannual two-week maintenance shut-down could not in fact take placeuntil two weeks later. These factors together resulted in a loss ofseveral weeks of production. Customer delivery dates were missedand some general contractors cancelled their contracts and placedtheir orders for millwork elsewhere. Finished goods inventorieswere depleted to the point that other sales opportunities were alsolost in the special products areas on which Handy’s reputation wasbased. Control Costs arising from these and other changes,including the costs of delays in completion, were charged toHandy's account. Project overrun finally became reality when actualexpenditures exceeded the budget and it was apparent to everyonethat the project was at best only 85% complete. Cashman was forcedto scramble for an additional line of credit in project-financingat prime plus 2-1/2%, an excessive premium given Handy's creditrating. From then on, Handy was in a fire fighting mode and theirability to control the project diminished rapidly. They foundthemselves throwing money at every problem in an effort to get theplant operational. During Handy’s period of plant upgrading,construction activity in the region fell dramatically with generaldemand for Handy’s products falling similarly. Even though Sharpelaunched an expensive marketing effort to try to regain customerloyalty, it had only a marginal effect. Post Project Appraisal Thenet result was that when the new equipment eventually did comeon-line, it was seriously under-utilized. Production morale ebbed.Some staff publicly voiced their view that the over-supply ofcommercial space could have been foreseen even before the projectstarted, especially the oversupply of retail and hotel space, theprime source of Handy's contracts. John Haywood, not a favoritewith the older staff, was blamed for introducing these \"new fangledand unnecessarily complicated ideas\". Because of this experience,Handy's President Emy Haywood retained project managementconsultant Win Easley of W. Easley Associates to conduct a postproject appraisal. Easley had some difficulty in extracting solidinformation because relevant data was scattered amongst variousstaff who were not keen to reveal their short-comings. Only a fewformal notes of early project meetings could be traced. Most of thecommunication was on hand-written memos, many of which were notdated. However, interviews with the key players elicitedconsiderable info, as mentioned above. Prepare your reportfollowing the format and the rubrics of Handy 2010 Project Casestudy: ‘Handy’s 2010 Project’ Project appraisal questions:
a)Was the Handy’s 2010 project well-conceived? Give reasons foryour opinion. (2.5 marks)
b)Write a simple project scope statement of the Handy 2010project. Why do you suppose renovation of the President andExecutive Vice President’s offices were included in the project andwas that a good idea? (2.5 marks)
c)Was Leadbetter qualified to be a project manager? ShouldLeadbetter (project manager) have been left to run the project? -rationale your answer? (2.5 marks)
d)Discuss- how did the Handy 2010 project handle risks? Whatmight they have done better? (2.5 marks)
e)What type of contract(s) were awarded in Handy’s project.Rationalise the choice of contracts in this project (contractingfor professional services and construction work). (2.5 marks)
f) Identify and describe a set of project schedule milestonesfrom project concept to project completion. What would you havedone when you saw that the project would not meet its schedule?(2.5 marks)
g)Evaluate project cost performance. Identify two major causesof cost variation. How should the project budget and expendituresbe set out for cost control? (2.5 marks)
