Project Management review

Question 1 – Slippage problem and post-project review
ASW is a software house which specialises in producing software packages for insurance companies. ASW has a basic software package for the insurance industry that can be used immediately out of the box. However, most customers wish ASW to tailor the package to reflect their own products and requirements. In a typical ASW project, ASW’s business analysts define the gap between the customer’s requirements and the basic package. These business analysts then specify the complete software requirement in a system specification. This specification is used by its programmers to produce a customised version of the software. It is also used by the system testers at ASW to perform their system tests before releasing it to the customer for acceptance testing.

One of ASW’s new customers is CaetInsure. Initially CaetInsure sent ASW a set of requirements for their proposed new system. Business analysts from ASW then worked with CaetInsure staff to produce a full system specification for CaetInsure’s specific requirements. ASW do not begin any development until this system specification is signed off. After some delay (see below), the system specification was eventually signed off by CaetInsure.

Since sign-off, ASW developers have been working on tailoring the product to obtain an appropriate software solution. The project is currently at week 16 and the software is ready for system testing. The remaining activities in the project are shown in figure 1. This simple plan has been put together by the project manager. It also shows who has responsibility for undertaking the activities shown on the plan.

The problem that the project manager faces is that the plan now suggests that implementation (parallel running) cannot take place until part way through week 28. The original plan was for implementation in week 23. Three weeks of the delay were due to problems in signing off the system specification. Key CaetInsure employees were unavailable to make decisions about requirements, particularly in the re-insurance part of the system. Too many requirements in this module were either unclear or kept changing as users sought clarification from their managers. There have also been two further weeks of slippage since the sign-off of the system specification.

The CaetInsure contract had been won in the face of stiff competition. As part of securing the deal, the ASW sales account manager responsible for the CaetInsure contract agreed that penalty clauses could be inserted into the contract. The financial penalty for late delivery of the software increases with every week’s delay. CaetInsure had insisted on these clauses as they have tied the delivery of the software in with the launch of a new product. Although the delay in signing off the system specification was due to CaetInsure, the penalty clauses still remain in the contract. When the delay was discussed with the customer and ASW’s project manager, the sales account manager assured CaetInsure that the ‘time could be made up in programming’.

The initial planned delivery date (week 23) is now only seven weeks away. The project manager is now under intense pressure to come up with solutions which address the project slippage.

Required:

(a)    Evaluate the alternative strategies available to ASW’s project manager to address the slippage problem in the CaetInsure project.                                                                                        (10 marks)
(b)    As a result of your evaluation, recommend and justify your preferred solution to the slippage problem in the CaetInsure project.                                                                                                (6 marks)
(c)    Explain what is meant by a post-project review and demonstrate how carrying out such review could be of benefit to ASW.                                                                                                      (9 marks)
                                                                                                                                    (25 marks)
                                                         (Amended ACCA P3 Business Analysis December 2008 Q3)

Question 2 – Business case, project initiation document and effective project management
A clothing company sells 40% of its goods directly to customers through its website. The marketing manager of the company (MM) has decided that this is insufficient and has put a small team together to re-design the site. MM feels that the site looks ‘amateur and old-fashioned and does not project the right image’. The board of the company has given the go-ahead for the MM ‘to re-design the website’. The following notes summarise the outcomes of the meetings on the website re-design. The team consists of the marketing manager (MM), a product range manager (RP), a marketing image consultant (IC) and a technical developer (TD).

Meeting 1: 9 July attended by MM, RP, IC and TD
The need for a re-designed website to increase sales volume through the website and to ‘improve our market visibility’ was explained by MM. IC was asked to produce a draft design.

Meeting 2: 16 August attended by MM, RP, IC and TD
IC presented a draft design. MM and RP were happy with its image but not its functionality, suggesting that it was too similar to the current site. ‘We expected it to do much more’ was their view.

Meeting 3: 4 September attended by MM, RP and IC
IC produced a re-drafted design. This overall design was agreed and the go-ahead was given for TD to produce a prototype of the design to show to the board.

Meeting 4: 11 September attended by RP, IC and TD
TD explained that elements of the drafted re-design were not technically feasible to implement in the programming language being used. Changes to the design were agreed at the meeting to overcome these issues and signed off by RP.

Meeting 5: 13 October attended by MM, RP, IC and TD
The prototype re-design was demonstrated by TD. MM was unhappy with the re-design as it was ‘moving too far away from the original objective and lacked functionality that should be there’. TD agreed to write a technical report to explain why the original design (agreed on 4 September) could not be adhered to.

Meeting 6: 9 November attended by MM, IC and TD
It was agreed to return to the 4 September design with slight alterations to make it technically feasible. TD expressed concerns that the suggested design would not work properly with all web browsers.

 

At the board meeting of 9 December the board expressed concern about the time taken to produce the re-design and the finance director highlighted the rising costs (currently $25,000) of the project. They asked MM to produce a formal cost-benefit of the re-design. The board were also concerned that the scope of the project, which they had felt to be about re-design, had somehow been interpreted as including development and implementation.

On 22 December MM produced the following cost-benefit analysis of the project and confirmed that the word ‘redesign’ had been interpreted as including the development and implementation of the website.

	Year 1	Year 2	Year 3	Year 4	Year 5
Costs	$50,000	$10,000	$10,000	$10,000	$10,000
*Benefits	0	$15,000	$25,000	$35,000	$35,000

*These benefits are extra sales volumes created by the website’s extra functionality and the company’s increased visibility in the market place.

On 4 January the board gave the go ahead for the development and implementation of the website with a further budget of $25,000 and a delivery date of 1 March. TD expressed concern that he did not have enough developers to deliver the re-designed website on time.

Meeting 7: 24 February attended by MM, RP, IC and TD
A partial prototype system was demonstrated by TD. RP felt that the functionality of the re-design was too limited and that the software was not robust enough. It had crashed twice during the demonstration. He suggested that the company delay the introduction of the re-designed website until it was complete and robust. MM declared this to be impossible.

Conclusion
The re-designed website was launched on 1 March. MM declared the re-design a success that ‘had come in on time and under budget’. On 2 and 3 March, numerous complaints were received from customers. The website was unreliable and did not work with a particular popular web browser. On 4 March an emergency board meeting decided to withdraw the site and reinstate the old one. On 5 March, MM resigned.

Required:

Most project management methods have an initiation or definition stage which includes the production of a document that serves as an agreement between the sponsors and deliverers of the project. This may be called a project initiation document or a project charter. Defining the business case is also an important part of the initiation or definition stage of the project.

(a)    Explain how a business case and a project initiation document would have helped prevent some of the problems that emerged during the conduct of the website re-design project.
                                                                                                                                    (15 marks)
(b)    Analyse how effective project management could have further improved both the process and the outcomes of the website re-design project.                                                                           (10 marks)
                                                                                                                                    (25 marks)
                                                                        (ACCA P3 Business Analysis December 2007 Q2)

Question 3 – Good project management and Harmon’s process-strategy matrix
Branch rationalisation project
Four years ago Lowlands Bank acquired Doe Bank, one of its smaller rivals. Both had relatively large local branch bank networks and the newly merged bank (now called LDB) found that it now had duplicated branches in many towns. One year after the takeover was finalised, LDB set up a project to review the branch bank network and carry out a rationalisation that aimed to cut the number of branches by at least 20% and branch employment costs by at least 10%. It was agreed that the project should be completed in two years. There were to be no compulsory staff redundancies. All branch employment savings would have to be realised through voluntary redundancy and natural wastage.

LDB appointed its operations director, Len Peters as the sponsor of the project. The designated project manager was Glenys Hopkins, an experienced project manager who had worked for Lowlands Bank for over fifteen years. The project team consisted of six employees who formerly worked for Lowlands Bank and six employees who formerly worked for Doe Bank. They were seconded full-time to the project.

Project issues and conclusion
During the project there were two major issues. The first concerned the precise terms of the voluntary redundancy arrangements. The terms of the offer were quickly specified by Len Peters. The second issue arose one year into the project and it concerned the amount of time it took to dispose of unwanted branches. The original project estimates had underestimated how long it would take to sell property the bank owned or to re-assign or terminate the leases for branches it rented. The project board overseeing the project agreed to the project manager’s submission that the estimates had been too optimistic and they extended the project deadline for a further six months.

The project team completed the required changes one week before the rearranged deadline. Glenys Hopkins was able to confirm that the branch network had been cut by 23%. Six months later, in a benefits realisation review, she was also able to confirm that branch employment costs had been reduced by 12%. At a post-project review the project support office of the bank confirmed that they had changed their project estimating assumptions to reflect the experience of the project team.

Potential process initiatives
LDB is now ready to undertake three process initiatives in the Information Technology area. The IT departments and systems of the two banks are still separate. The three process initiatives under consideration are:
1.      The integration of the two bespoke payroll systems currently operated by the two banks into one consolidated payroll system. This will save the costs of updating and maintaining two separate systems.
2.      The updating of all personal desktop computer hardware and software to reflect contemporary technologies and the subsequent maintenance of that hardware. This will allow the desktop to be standardised and bring staff efficiency savings.
3.      The bank has recently identified the need for a private personal banking service for wealthy customers. Processes, systems and software have to be developed to support this new service. High net worth customers have been identified by the bank as an important growth area.

The bank will consider three solution options for each initiative. These are outsourcing or software package solution or bespoke development.

Required:

(a)     The branch rationalization was a successful project.

Identify and analyse the elements of good project management that helped make the branch rationalization project successful.                                                                                               (12 marks)
(b)     The bank has identified three further desirable process initiatives (see above).
(i)      Explain, using Harmon’s process-strategy matrix, how the complexity and strategic importance of process initiatives can be classified.                                                              (4 marks)
(ii)     Recommend and justify a solution option for each of the three process initiatives.
                                                                                                                              (9 marks)
                                                                                                                            (25 marks)
                                                                         (ACCA P3 Business Analysis December 2009 Q3)

Question 4 – Benefits and costs of adopting e-assessment and business case
Introduction
The Institute of Administrative Accountants (IAA) has a professional scheme of examinations leading to certification. The scheme consists of six examinations (three foundation and three advanced) all of which are currently assessed using conventional paper-based, written examinations. The majority of the candidates are at the foundation level and they currently account for 70% of the IAA’s venue and invigilation costs.

There are two examination sittings per year and these sittings are held in 320 centres all over the world. Each centre is administered by a paid invigilation team who give out the examination paper, monitor the conduct of the examination and take in completed scripts at the end. Invigilators are also responsible for validating the identity of candidates who must bring along appropriate identification documents. At over half of the centres there are usually less than ten candidates taking the foundation level examination and no candidates at all at the advanced level. However, the IAA strives to be a world-wide examination body and so continues to run examinations at these centres, even though they
make a financial loss at these centres by doing so.

Recent increases in invigilation costs have made the situation even worse. However, the principles of equality and access are important to the IAA and the IAA would like to increase the availability of their examinations, not reduce it. Furthermore, the IAA is under increased financial pressure. The twice-yearly examination schedule creates peaks and troughs in cash flow which the Institute finds increasingly hard to manage. The Institute uses its $5m loan and overdraft facility for at least four months every year and incurred bank charges of $350,000 in the last financial year.

Examinations
All examinations are set in English by contracted examiners who are paid for each examination they write. All examinations are three-hour, closed-book examinations marked by contracted markers at $10 per script. Invigilators send completed scripts directly to markers by courier. Once scripts have been marked they are sent (again by courier) to a centralised IAA checking team who check the arithmetic accuracy of the marking. Any marking errors are resolved by the examiner. Once all marks have been verified, the examination results are released. This usually takes place 16 weeks after the examination date and candidates are critical of this long delay. The arithmetic checking of scripts and the production of examination results places significant demands on IAA full-time administrative staff, with many being asked to work unpaid overtime. The IAA also employs a significant number of temporary staff during the results processing period.

 

E-assessment
The new head of education at the IAA has suggested e-assessment initiatives at both the foundation and advanced levels.

He has suggested that all foundation level examinations should be assessed by multiple-choice examinations delivered over the Internet. They can be sat anytime, anyday, anywhere. ‘Candidates can sit these examinations at home or at college. Anywhere where there is a personal computer and a reliable broadband connection.’

Advanced-level examinations will continue to be held twice-yearly at designated examination centres. However, candidates will be provided with personal computers which they will use to type in their answers. These answers will then be electronically sent to markers who will use online marking software to mark these answers on the screen. The software also has arithmetic checking facilities that mean that marks are automatically totalled for each question. ‘100% arithmetic accuracy of marking is guaranteed.’

He has also suggested that there is no need to make a formal business case for the adoption of the new technology. ‘Its justification is so self-evident that defining a business case, managing benefits and undertaking benefits realization would just be a pointless exercise. It would slow us down at a time when we need to speed up.’

Required:

(a)     Evaluate the perceived benefits and costs of adopting e-assessment at the IAA.  (15 marks)
(b)     Explain why establishing a business case, managing benefits and undertaking benefits realisation are essential requirements despite the claimed ‘self-evident’ justification of adopting e-assessment at the IAA.                                                                                                                            (10 marks)
                                                                                                                                     (25 marks)
                                                                         (ACCA P3 Business Analysis December 2010 Q4)

Question 5 – Investment appraisal and organizational structure
8-Hats Promotions was formed twenty years ago by Barry Gorkov to plan, organise and run folk festivals in Arcadia. It soon established itself as a major events organiser and diversified into running events for the staff and customers of major companies. For example, for many years it has organised launch events, staff reward days and customer experiences for Kuizan, the car manufacturer. 8-Hats has grown through a combination of organic growth and acquiring similar and complementary companies. Recently, it purchased a travel agent (now operated as the travel department of 8-Hats) to provide travel to and from the events that it organised.

Barry Gorkov is himself a flamboyant figure who, in the early years of the company, changed his name to Barry Blunt to reflect his image and approach. He calls all the events ‘jobs’, a terminology used throughout the company. A distinction is made between external jobs (for customers) and internal jobs (within 8-Hats itself). The company is organised on functional lines. The sales and marketing department tenders for external jobs and negotiates contracts. Sales managers receive turnover-related bonuses and 8-Hats is known in the industry for its aggressive pricing policies. Once a contract is signed, responsibility for the job is passed to the events department which actually organises the event. It is known for its creativity and passion. The operations department has responsibility for running the event (job) on the day and for delivering the vision defined by the events department. The travel department is responsible for any travel arrangements associated with the job. Finally, the finance department is responsible for managing cash flow throughout the job, raising customer invoices, paying supplier invoices and chasing any late payments.

However, there is increasing friction between the departments. The operations department is often unable to deliver the features and functionality defined by the events department within the budget agreed by the sales manager. Finance is unaware of the cash flow implications of the job. Recently, an event was in jeopardy because suppliers had not been paid. They threatened to withdraw their services from the event. Eventually, Barry Blunt had to resolve friction between finance and other departments by acquiring further funding from the bank. The event went ahead, but it unsettled Kuizan which had commissioned the job. The sales and marketing department has also complained about the margins expected by the travel department, claiming that they are making the company uncompetitive.

There has been a considerable amount of discussion at 8-Hats about the investment appraisal approach used to evaluate internal jobs. The company does not have sufficient money and resources to carry out all the internal jobs that need doing. Consequently, the finance department has used the Net Present Value (NPV) technique as a way of choosing which jobs should be undertaken. Figure 1 shows an example comparison of two computer system applications that had been under consideration. Job One was selected because its Net Present Value (NPV) was higher ($25,015) than Job Two ($2,090).

‘I don’t want to tell you about the specific details of the two applications, so I have called them Job One and Job Two’ said Barry. ‘However, in the end, Job One was a disaster. Looking back, we should have gone with Job Two, not Job One. We should have used simple payback, as I am certain that Job Two, even on the initial figures, paid back much sooner than Job One. That approach would have suited our mentality at the time – quick wins. Whoever chose a discount rate of 8% should be fired – inflation has been well below this for the last five years. We should have used 3% or 4%. Also, calculating the IRR would have been useful, as I am sure that Job Two would have shown a better IRR than Job One, particularly as the intangible benefits of improved staff morale appear to be underestimated. Intangible benefits are just as important as tangible benefits. Finally, we should definitely have performed a benefits realisation analysis at the end of the feasibility study. Leaving it to after the project had ended was a ridiculous idea.’

Figure 1: NPV calculation for two projects at 8-Hats (with a discount rate of 8%)

 

Required:

(a)     Barry Blunt has criticised the investment appraisal approach used at 8-Hats to evaluate internal jobs. He has made specific comments on payback, discount rate, IRR, intangible benefits and benefits realisation.

Critically evaluate Barry’s comments on the investment appraisal approach used at 8-Hats to evaluate internal jobs.                                                                                                       (15 marks)
(b)     Discuss the principles, benefits and problems of introducing a matrix management structure at 8-Hats.                                                                                                                            (10 marks)
                                                                                                                                     (25 marks)
                                                                                 (ACCA P3 Business Analysis June 2011 Q2)

Question 6 – Formal terms of reference (project initial documents) and business case
The country of Mahem is in a long and deep economic recession with unemployment at its highest since the country became an independent nation. In an attempt to stimulate the economy the government has launched a Private/Public investment policy where the government invests in capital projects with the aim of stimulating the involvement of private sector firms. The building of a new community centre in the industrial city of Tillo is an example of such an initiative. Community centres are central to the culture of Mahem. They are designed as places where people can meet socially, local organisations can hold conferences and meetings and farmers can sell their produce to the local community. The centres are seen as contributing to a vibrant community life. The community centre in Tillo is in a sprawling old building rented (at $12,000 per month) from a local landowner. The current community centre is also relatively energy inefficient.

In 2010 a business case was put forward to build a new centre on local authority owned land on the outskirts of Tillo. The costs and benefits of the business case are shown in Figure 1. As required by the Private/Public investment policy the project showed payback during year four of the investment.

Figure 1: Costs and benefits of the business case for the community centre at Tillo

 

New buildings built under the Private/Public investment policy must attain energy level targets and this is the basis for the estimation, above, of the energy savings. It is expected that the new centre will attract more customers who will pay for the centre’s use as well as increasing the use of facilities such as the cafeteria, shop and business centre. These benefits are estimated, above, under increased income. Finally, it is felt that staff will be happier in the new building and their motivation and morale will increase. The centre currently employs 20 staff, 16 of whom have been with the centre for more than five years. All employees were transferred from the old to the new centre. These benefits are shown as better staff morale in Figure 1.

Construction of the centre 2010–2011
In October 2010 the centre was commissioned with a planned delivery date of June 2011 at a cost of $600,000 (as per Figure 1). Building the centre went relatively smoothly. Progress was monitored and issues resolved in monthly meetings between the company constructing the centre and representatives of the local authority. These meetings focused on the building of the centre, monitoring progress and resolving issues. Most of these issues were relatively minor because requirements were well specified in standard architectural drawings originally agreed between the project sponsor and the company constructing the centre. Unfortunately, the original project sponsor (an employee of the local authority) who had been heavily involved in the initial design, suffered ill health and died in April 2011. The new project sponsor (again an employee of the local authority) was less enthusiastic about the project and began to raise a number of objections. Her first concern was that the construction company had used sub-contracted labour and had sourced less than 80% of timber used in the building from sustainable resources. She pointed out the contractual terms of supply for the Private/Public policy investment initiatives mandated that sub-contracting was not allowed without the local authority’s permission and that at least 80% of the timber used must come from sustainable forests. The company said that this had not been brought to their attention at the start of the project. However, they would try to comply with these requirements for the rest of the contract. The new sponsor also refused to sign off acceptance of the centre because of the poor quality of the internal paintwork. The construction company explained that this was the intended finish quality of the centre and had been agreed with the previous sponsor. They produced a letter to verify this. However, the letter was not counter-signed by the sponsor and so its validity was questioned. In the end, the construction company agreed to improve the internal painting at their own cost. The new sponsor felt that she had delivered ‘value for money’ by challenging the construction company. Despite this problem with the internal painting, the centre was finished in May 2011 at a cost of $600,000. The centre also included disability access built at the initiative of the construction company. It had found it difficult to find local authority staff willing and able to discuss disability access and so it was therefore left alone to interpret relevant legal requirements. Fortunately, their interpretation was correct and the new centre was deemed, by an independent assessor, to meet accessibility requirements.

Unfortunately, the new centre was not as successful as had been predicted, with income in the first year well below expectations. The project sponsor began to be increasingly critical of the builders of the centre and questioned the whole value of the project. She was openly sceptical of the project to her fellow local authority employees. She suggested that the project to build a cost-effective centre had failed and called for an inquiry into the performance of the project manager of the construction company who was responsible for building the centre. ‘We need him to explain to us why the centre is not delivering the benefits we expected’, she explained.

Required:

(a)     The local authority has commissioned the independent Project Audit Agency (PAA) to look into how the project had been commissioned and managed. The PAA believes that a formal ‘terms of reference’ or ‘project initiation document’ would have resolved or clarified some of the problems and issues encountered in the project. It also feels that there are important lessons to be learnt by both the local authority and the construction company.

Analyse how a formal ‘terms of reference’ (project initiation document) would have helped address problems encountered in the project to construct the community centre and lead to improved project management in future projects.                                                                                                    (13 marks)
(b)     The PAA also believes that the four sets of benefits identified in the original business case (rental savings, energy savings, increased income and better staff morale) should have been justified more explicitly.

Draft an analysis for the PAA that formally categorises and critically evaluates each of the four sets of proposed benefits defined in the original business case.                                      (12 marks)
                                                                                                                            (25 marks)
                                                                        (ACCA P3 Business Analysis June 2012 Q3)