Project Scope Time and Cost Management of Anglo-American Coal-Mining Company - Case Study Example

Scope, Time and Cost Student’s Name Subject Professor University/Institution Location Date Table of Contents Table of Contents 2 Executive Summary 3 1.0 Introduction 4 2.0 Project Scope management 4 3.0 Financial analysis 8 3.1 Factors to consider in choosing discount rate 8 4.0 Conclusion 10 5.0 Recommendations 11 6.0 References 13 Executive Summary Anglo-American coal mining company currently uses traditional methods in its mining operation and production. Due to the nature of changing business needs and coal demands, the traditional mining system is insufficient to meet the business needs. A better system is required to reduce duplication of work, decrease mining support personnel and resources and thus Anglo-American has sought to deploy a three year project during which the current operations will be in transition to continue expanding infrastructural demands (namely bottom roadways and Underground Conveyor Systems) to strengthen mining operations. This project would include but not limited to make it easy to transport coal from underground, review operation processes as necessary to meet the demand by quicker processes and supporting self-support operations. Integrate interactive production software with possibility of tracking production capacities. It has been considered that, by incorporating electronic software in the long-wall, Anglo-American mining programs will be more efficient, secure and promote coordination to mana ge activities related to production and management. It will also enhance timely completion of activities by streamlining mining activities and relaying the correct information related to quantity and quality of coal by efficient software that synchronizes departmental operations. The project estimated timeline depend on the number of stages that run between 2 to 6 months and expected to be completed in a span of 3 years. Resources estimation depends on the number of deliverables expected. Funding for Grosvenor Project is estimated at a value of A $264.5 Million. The major role of project manager will be to manage the project scope, time and cost. 1.0 Introduction Anglo-American has carried coal mining activities at Grosvenor since 1998. From 2013, Anglo-American was committed to integrate efficiency and capacity across its coal drilling operation and mining. The organization is focused to reduce duplication of effort, inefficiencies and streamline mining operation to support increased needs for production and coal supply. As part of business, a new electronic system and technology is being developed to promote coal access and connect to organization operations to provide core data about quantity, quality, and infrastructure and support requirements. A project scope and cost management in incorporated to delineate the sphere of project deliverables and cost analysis. The scope deal with a number of new tools for mining operation support across Anglo-American, assist staff meet business needs, broader customers expectation and regulatory obligations. Project cost identifies the resources required beside staff for purchase of hardware and software. Cost analysis will break-down the estimated cost and the reasons. 2.0 Project Scope management The main project objective is to create new tool that are necessary for supporting mining operation and information sharing across the organization. Specifically, the project uses a methodology in designing and implementing mining system and associated guidance to: Assist in development of electronic system and operation management system which will be linked to Anglo-American mining operations. Create Anglo-American specific functions, activities that can be merged at one point to cover the functional and administrative processes. Implement a merged system across Anglo-American and ensure application in all departments and assist in identifying policy and procedures for operation management tools as required for the support of above functions. Anglo-American Metallurgical Coal project (Phase I) will be carried out for a duration of three years. The scope of works for Grosvenor Project is set to: Construct workshop facilities and temporary office and installation of two portal arches. Secondly, construct backfill box-cuts and infrastructures that where coal will be deposited after it is mined from underground. Compile EPBM excavator with 967 m conveyor Drift and transport drift. Finally, it will develop a 2, 520 m bottom area roadways with 10,550m of long wall tailgate (Anglo American Metallurgical Coal 2014. The project is broken into nine main stages with each stage assigned its specific duration as shown in fig. 1.0 below. Stage/task Duration 1. Establishment Office and Workshop Facilities 2 months 2. Install portal arches 2 months 3. Backfill box-cut infrastructure 2 months 4. Excavate drifts by EPBM method 4 months 5. Install permanent roadway in drifts 6 months 6. Excavate pit bottom roadways 6 months 7. Excavate first tailgate 6 months 8. Installation of Underground Conveyor Systems 3 months 9. Installation of Permanent Mine Services 5 months The scope has been verified and formally accepted by the stakeholders. The deliverables and work results are divided in a way to ensure that each stage if completed in a correct and satisfactory way. A comprehensive work break-down such as the one above is important to ensure acceptance and focus on work results. A description of project constituent components should be tangible, with verifiable results and one that can facilitate performance measurements (Atkinson, Crawford & Ward 2006). Generally, the constituent components in this project have defined how the project work will be organized and accomplish project work. In turn, it is also possible to structure status reporting for instance, for those stages with shorter duration (2-3 months) weekly status reports are suitable while those with longer duration, reporting can be done on a fortnightly or monthly basis. Scope management is generally involved with any modification that arises to the agreed-upon scope as defined and broken down in WBS (Keil 1995). In turn, it influences adjustment of time, costs, project objectives and quality as Baker, Murphy & Fisher (2008) observes. Project Manager has access to the project scope and thus, it is possible to control scope change. The Project Manager offers a feedback through planning, technical, planning and updating the needs for resources, time and appropriate personnel (Atkinson 1999; Davila 2000; & Highsmith 2009). There are influencing factors that can lead to scope change such as revision of a stage, longer consultation and recommendation for additional deliverables. In turn, changes should be agreed upon and manage actual changes when they occur. As Sutterfield, Friday-Stroud & Shivers-Blackwell (2006) observes, most of the initial stages and deliverable might not have any need for scope change since they involve the common construction activities that are carried out quite often. It would be easy for the contractor to foresee some major factors and control them effectively to ensure that the stage is delivered on time. However, some of the stages require technical work. Stages like excavation of drifts, installation of underground conveyors and permanent mine services can lead to changes in project scope. Shift in technology is one factor that affect a project and since the project is destined to take a longer duration, new technology may be developed during project to meet the needs of customers in a better way than what is already planned would have attained (Holland & Light 1999). If more benefits are seen with the new technology, then the scope will change to accommodate such new facility and installation. As Khan (2006) observes, in some cases, the relevance of change in scope is unquestionable with the potential deliverables, work content and services that are foreseen. In turn, there are four major reasons to have project scope management as a top priority for project’s success. According to Dumont, Gibson Jr & Fish (1997), project scope is directly related to costs, schedule, quality and morale. Scope changes sometimes affect the work that has already been performed. In turn, rework costs are incurred for the work that has already been started or worse still, completed. As Duncan (1996) posits, scope change requires project resources to be diverted to other activities not identified in the initial scope. Pressure results on project schedule and project critical path. It is critical for the project manager in Grosvenor’s project to identify the project critical path and determine the time for quick response before a stage is completed and thus save on costs. The schedule can be adjusted where subsequent stages can be delivered in a faster manner to compensate for the lost time. Even when the project may not stick to the initial schedule, the changes in project completion should be minimal to avoid implications to the customer. According to Helgason (2011), quality is a major aspect to consider if at all the project scope is affected. The project manager should analyze quality in a thorough manner since scope change can in turn lead to quick fixes which can lead to negative impact on quality. The project manager can take more time planning for quality and discuss with other suppliers to deliver quality products. The last factor related to scope change involves project personnel morale. Burke (2013) argues that, change can lead to loss of control of the planned work and affect the project team. Changing focus and direction in order to meet requests can adversely impact on team’s morale. However, the project manger can seek way to communicate and motivate project teams. Change requests is the most significant factor that may change the deliverable. The budget in this case and team may not influence such changes. 3.0 Financial analysis 3.1 Factors to consider in choosing discount rate According to Bierman Jr & Smidt (2012), discounting cash flows in project analysis enables one to compare the value of projects so that one is able to determine their viability. The NPV is among the methods used in discounting the cash flow so that an individual is able to determine the viability of the projects. For the NPV to be effectively calculated it is important that the discounting rate is well determined with all the factors influencing it being put into consideration. As supported by Arrow, & Lind, (2013), the time that the project is expected to last is an important factor in the consideration of discounting rate. This is because the long term projects have higher risks compared to short term projects, which means that a company cannot adopt universal discount rates for the projects but it will be set in relevance to the time expected to be spent before the project can be completed. Therefore, the discount rate adopted in determining NPV of our project should reflect the risks involved in the project due to the expected time frame (Damodaran, 2012). As supported by Osborne, (2010), the cost of capital involved in any project is also important factor to consider in the coming up with the discount rate to be used in NPV analysis for the project. This is because different business projects will have different cost of capitals which makes important for any company to come up with their discounting rate based on cost of capital that is specific to the project so that accuracy is achieved in calculating the NPV to be used in analysis of project performance. Cost- benefit analysis of the project is also a factor that one can consider before coming up with the discount rate to be used in analysis of NPV for projects according Demir, & Bostanci, (2010). This is because NPV is used to inform us on the sensitivity scenario and risks that a business will be faced with in coming up with the viability of the project. Projects involve much of opportunity costs, thus in choosing the discount rate it is important for one to consider the opportunity cost incurred when one project is implemented and not the other. 3.2 Comparison of IRR and NPV According to Berk (2012), NPV and IRR are used in analyzing the returns expected from a project. The two use different criteria since the NPV measure project performance by considering profit in monetary terms while IRR considers profit as a percentage. It is very important to use the two when comparing the viability of different projects since one is able to make proper evaluation of our projected. The use of IRR means that the project analysis assumes that profits are reinvested. Thus, in our project analysis we will use both NPV and IRR to come up with the monetary returns and the percentage of returns derived from the project. From the analysis of the project the NPV and IRR are used so that the project is viable since NPV and IRR. Item Cost Armco structures x2 8.0m diameter Robbins EPB TBM x 1 Jaicon MSV x2 300 t/hr conveyor systems Joy 12CM212 Continuous Miners x2 Joy 12SC42 Shuttle Cars x2 Drift runners x2 Purchase of software Travel costs Total = A$264.5 Million 4.0 Conclusion Anglo-American Mining Limited is an established Australian gold producer that carries out mining operations and sells coal to industries. With increased demand for coal around the world, its management team has been committed to see the growth of demand and reduce the cost of mining activities. Improved technology has promoted advanced exploration and development of operations. A three year project will employ project management expertise to ensure that Anglo-American mining project is completed as planned in its scope; align to the schedule and costs. Project manager has to be committed to ensure the highest standards of project management ensure team’s responsibility as well as deliver the products according to the requirement and the quality agreed with the customer. With project work broken down, the project pipeline is demonstrated and integrated a single unit where resources, risk and potential changes can be controlled. During the course of the project, unexpected changes such as those related to technology improvement and which are not foreseeable at the beginning of the project may be considered and end up causing changes to the project. In turn, the project manager need to come up with mechanisms to control changes in costs, schedule, quality and project team’s morale due to changes in scope. 5.0 Recommendations During planning, Anglo-American Mining Limited should work with the project manager and teams to have a better outlook and understand the changes that might affect the project. The teams should be ready to anticipate and respond to project scope changes by spending more time agreeing on the requirements. Generally, there should be a contingency plan indicating how such changes would be met with specified corrective actions, schedules and resources (Meredith & Mantel Jr 2011). The mining company would incur significant losses if a completed stage has to be re-worked entirely. Constant reporting can promote clear project valuation through brainstorming and promote application of creative and innovative measure to meet the project deliverables. The customer will also have to recommend changes in the process of stage delivery (Cho & Gibson Jr 2001). Where changes have to occur, the project manager and the team should agree on changes in other stages to compensate for the costs and re-align the project to its initial plan (Munns & Bjeirmi 1996). 6.0 References Anglo American Metallurgical Coal, 2014, Grosvenor Mine Moranbah, central Queensland Retrieved: http://wwwredpathminingcom/wp-content/uploads/2014/03/Grosvenor-Mine-Project-Profilepdf [Accessed 9 April 2014]. Atkinson, R 1999, Project management: cost, time and quality, two best guesses and a phenomenon, its time to accept other success criteriaInternational journal of project management, 176, 337-342. Atkinson, R, Crawford, L, & Ward, S 2006, Fundamental uncertainties in projects and the scope of project management International journal of project management, 248, 687-698. Baker, B N, Murphy, D C, & Fisher, D 2008, Factors affecting project success Project Management Handbook, Second Edition, 902-919. Burke, R 2013, Project management: planning and control techniques. 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Keil, M 1995, Pulling the plug: software project management and the problem of project escalation Mis Quarterly, 421-447. Khan, A 2006, Project scope management Cost engineering, 486, 12-16 Meredith, J R, & Mantel Jr, S J 2011, Project management: a managerial approach John Wiley & Sons. Munns, A K, & Bjeirmi, B F 1996, The role of project management in achieving project success International journal of project management, 142, 81-87. Somers, T M, & Nelson, K 2001, January The impact of critical success factors across the stages of enterprise resource planning implementations InSystem Sciences, 2001 Proceedings of the 34th Annual Hawaii International Conference on pp 10-pp IEEE. Sutterfield, J S, Friday-Stroud, S S, & Shivers-Blackwell, S L 2006, A case study of project and stakeholder management failures: lessons learnedProject Management Quarterly, 375, 26. Bierman Jr, H, & Smidt, S, 2012, the capital budgeting decision: economic analysis of investment projects, Routledge. Arrow, K, J, & Lind, R, C, 2013, uncertainty and the evaluation of public investment decisions, journal of natural resources policy research, (ahead-of-print), Pp1-16. Damodaran, A, 2012, investment valuation: tools and techniques for determining the value of any asset, John Wiley & Sons. Osborne, M, J, 2010, a resolution to the NPV–IRR debate, the quarterly review of Economics and Finance, Vol.50,Iss.(2), Pp234-239. Demir, H, & Bostanci, B, 2010, decision-support analysis for risk management, Afr. J. Bus. Manage, Vol.4, Is.(8), Pp1586-1604. Berk, J, DeMarzo, P, & Harford, J, 2012, fundamentals of corporate finance, 1/e. Read More