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Solution - Comprehensive Case Study
The real life problem which as project manager, I had faced recently and effectively controlled to complete the project as per the company goals and the customer expectations is:
The Scenario and the project:
I had been executing a project export and execution order of design supply, construction and commissioning of an onsite industrial project in an oil refinery.
The project was being done in a Middle East Country, being handled from an Asian country, with materials like equipment, machines, instruments, and other bulk materials from many countries across the world. All these materials from the sources (Supplier’s shops) were dispatched to three locations in three separate countries. Two lots were going to different workshops, for preassembly in two countries and one lot was going to the host country, for later use during construction at site.
The current status:
The first stage gate of design completion was achieved with only a minor punch-list of issues to be addressed later. All these issues had been logged and the associated risks also had been registered in the risk register and progress into the second stage was authorized.
The second stage was the procurement of materials and ordering for pre-fabrication in two selected workshops. It also included the logistics of all the materials and equipment. A SAP based ERP tool to manage the material purchasing, logistics to respective locations, quality and quantity control and matching with the master material control register was going on. Almost 80% of the materials were ordered and moved to the workshops.
The prefabrication and the assembly of the skids also started.
The major contract of site construction for a value of $200 Million was also awarded. The scope of work and the quantities were all mentioned in the contract.
The contractor started mobilizing the site as materials from the suppliers shops had started reaching the site and the some of the skids fabricated in two shops were getting ready for dispatch. The site contractor needs to be available at site for receiving, unloading and erection of these skids and fabrication of the materials already reached site.
At this stage the customer, due to issues in arranging and providing us electrical power for our jobs and also due to some regulatory needs asked us to stop the delivery of skids to site and wanted some mock-up assembly of skids at the shops, do tests, in their (Customer’s) witness and then only dispatch the skids to site for final inspection.
No extra time allotted for this change.
The revised Jobs involved:
To implement the revised conditions of the customer, we had to:
1. Reschedule the deliveries of many materials.
2. Bring the prefabricated skids to a new location for assembly and testing.
3. Rework and change the purchase order on the site contractor for new requirements. Their overall scope of work was reducing drastically. They wanted to implement penalty on us and also exercise their option whether to accept the new order or not.
4. A major issue in material flow management and logistics had to be exercised. This included many custom clearance issues in many countries.
Analysis and Issues in managing new revised scope and schedule:
The discussion with the customers were held in managing this change with cost to be shared filly by them and also an extra period of 12 months was required.
The customer was not ready to share any cost and also said no extra time shall be allowed as they were within their rights to affect the required changes to ensure the quality of the project supplied by us.
The contract entered the arbitration stage for a resolution.
Ultimately the customer agreed to pay for the extra material handling involved and any extra cost of the site contractor for revised quantities, no penalties.
They also agreed for an extra time for 12 months but no reimbursements for any extra labor hours or any other condition of the revised order.
Solutions at our end:
The Solutions Implemented:
We calculated the extra costs on us for all the revised conditions of the new order.
Included, without clear and discrete mention in the invoice to the customer, the costs of extra labor hours and asked for 20% advance payments.
We reduced our financing costs and some other operations costs with reduced supervision, increased working hours and reworking with our suppliers for sharing the costs of this revision.
We also ensured the completion of overall project in 8 months of the extra period approved by the customer.
We could also levy some penalties on the customer for late delivery of power at site and also late availability of site access roads.
The Project Results:
The profits in the project were seriously effected and reduce by almost 50%.
We had to monitor very closely the project progress and the risk management of the projects, ensuring the best ways to avoid the risks.
With the before time completion of the project and the type of resources that we had mobilized at site, the customer was more than satisfied with our project management experience and awarded us some other site works to offset some of our losses.
We also are now negotiating with the same customer another expansion project utilizing all our facilities developed for the previous project.