Turnaround Initiatives of the Company - Research Paper Example

Contents- 1. Introduction 2. Aims and objectives 3. Scope of work 4. Audit details 4.1. Investigation 4.1.1. Facts 4.1.2. Estimates 4.1.3. Assumptions 4.2. Analysis 4.2.1. Organisation 4.2.2. Planning 4.2.3. Contractors 4.2.4. Costs 4.2.5. Logistics 4.3. Recommendations 4.3.1. Organisation 4.3.2. Planning 4.3.3. Contractors 4.3.4. Costs 4.3.5. Logistics 4.4. Conclusions References 1. Introduction- This audit report is primarily based on the report on the Turnaround submitted by the Plant Manager along with the basic Information Gathering Model and the Model for Excellence for Turnarounds. Turnaround of the company is aimed at reviving its sagging profits, image and also aimed at introducing new initiatives that would help the company weather various kinds of risks and sustain. Turnaround initiatives are found to be targeted at the company’s profits and operations to help sustain. Also, such initiatives are desperate moves by companies that are on the verge of a fall or need to survive competition that have the potential to over throw the company out of its business, mostly its core business. More often that not, companies in such a situation employ outside consultants to do the analysis and recommend a strategic plan that can be implemented successfully and help revive its economic and brand position in the market. Although the decision to take a turnaround and bring major changes in its planning, marketing, operations, etc. May or may not bring about the desired changes in the company that is implementing, it nevertheless becomes imperative that the company forge ahead with such an initiative as a saving grace in most of the cases. One such example of a successful turnaround is in the case of IBM in 1992 when Gerstner with little experience in Information Technology field planned and successfully implemented a major Turnaround that revived the company’s falling economy. It is seen that Gerstner initiated major changes in the way IBM did business, cut costs, realigned the strategies and reoriented the employee mindset and commitment (Gerstner, 2002, pp 9-278). This audit report analyses the failure of the turnaround attempt of the company based on the Plant Manager’s report which is seen as the primary source of information available. Recommendations are based on the findings of the Plant Manager’s report and the standard models for information gathering and excellence in turnarounds. 2. Aims and objectives – Aims - This audit report aims to investigate the report submitted by the Plant Manager, Des Troy on the Turnaround of the company in July 2006. Objectives – a. The case is investigated while considering the facts, estimates and assumptions of the team as well as the individual assumptions in the absence of concrete reporting of events and figures. b. Also, a detailed analysis of the five elements of the Turnaround, Organisation, Planning, Contractors, Costs and Logistics is done and the indicative shortcomings are identified. c. Further, for each of the five elements, a set of three recommendations as to the improvements that can be implemented in the future Turnaround attempts are discussed with each of them categorised as being of High, Medium or Low in terms of feasibility of implementation. d. Also, recommendations as to the ways in which the report and its findings can be done in future turnaround initiatives within the framework of standard models of planning and analysis, and if there can be improvements to the models and the report itself, are discussed briefly. 3. Scope of work- Since the audit report is based on the report submitted by the Plant Manager with no additional tools and reports that have been placed on record during the process of turnaround; the scope of the audit report is limited to investigating the Manager’s report, analysing the factors for the failure of the turnaround attempt and recommending feasible strategies for future turnarounds to be successful. It is to be noted that this report can be used as an effective tool for further improvement in the strategic planning that the company has with commitment to incorporate the audit’s recommendations for successful future turnarounds. 4. Audit details- 4.1. Investigation- 4.1.1. Facts- It is a fact that the turnaround attempt of the company in July 2006 has been disastrous and grossly failed to achieve its targets in terms of revenue, operations, organisation management, and planning among others. It is observed that the duration of the turnaround was planned for 16days but the plant Manager’s report indicates that the turnaround process was implemented for 23 days. It is also not clear if the plan for turnaround was supposed to be for product-to-product or for scheduled work. However, it is clear that the plan had overrun in terms of time as well as budget. The company incurred £560,000 loss towards lost profits due to the duration overrun. Also, the expenses towards the hiring of the crane services has cost more by £12,000 as it was hired at £3,000 a day and it remained at the site by four more days after the completion of the work. Further, the replacement cost for the damaged compressor rotor is an extra expense with £5,000 more than the previous cost, notwithstanding the additional cost in procuring the rotor the second time. The initial start up process has been good with some 28 leaks which is common in plant operation but the impact on work could have been minimised had the maintenance not failed. Also, the stores worked well with no hold ups. However, with just 3 people issuing Permits, it took 4400 man-hrs long for the same, which is a huge loss of time. Further, there are two main areas of turnaround implementation, area A and B, where area A hired one main contractor and the company personnel controlled area B which went on well. The main contractor’s work was sub-standard with 26 out of 128 welds failing the radiographic inspection. Also, it is a fact that the whole process was disorganised as the roles and responsibilities were not clearly communicated. An example of this is that in spite of the availability of a detailed plot plan of the site, many people wasted time finding their way on the site. There is also a lack of one point contact or responsible manager with experience in turnarounds, to overlook the smooth implementation of the plan. The plant manager himself has been given the responsibility by the senior management to oversee the turnaround plan. The overall success for the turnaround is 27% which is seen as acceptable by the manager. Further, the start up of the plant was taken care of with a proper plan based on previous experience that necessitated the preparation to get it running once it stopped; the shutdown of the plant could not be studied in detail to chart out a plan for the same although the plant had been offline four times in 12 months. 4.1.2. Estimates- It is estimated that the safety planning has achieved most of its targets with very few minor accidents and three major accidents involving shutting and starting of plant by the company personnel. It is estimated that the operating problems existed due to the lack of time for studying the problem of shutting down and planning for a solution for the same. Also, it is estimated that the budget for the turnaround came from three different departments, maintenance budget, plant manager’s fund and the engineer’s budget. Hence, it is not clear what kind of work and how much is to be done and with what budget. His indicates a lack of proper planning as to the nature of work, the cost involved, etc. The quality of work suffered due to the contracting of part of the work in the turnaround. Area A of the turnaround was contracted to a main contractor with several sub-contractors under him. However, it is estimated that the work in area B, which is done by the company personnel is much better than that done by the contractor’s team and one reason for this low quality is attributed to the frequent changing of the men by the contractor. Also, there is an overlap of work areas A and B as the roles were not clear. Although the contract team was supposed to be experienced in planning the turnaround process, they were not clear of their roles and responsibilities and expected the company to list them out more clearly to them which the company could not do effectively. Further, the cost estimates were not accurate and the cost had overrun because they were merely indicative figures and broad-based. The failure of 26 welds in radiographic inspection indicates that there has been a lack of clear communication to the contractors about the weld specifications. The main contractor’s allegation that some of the sub-contractors were imposed on to him is one reason for resulting in the poor quality of work in area A done by the contractor. However, it is estimated that the budget for the main contractor’s work had not overrun the negotiated amount as he was able to manage the workforce by removing them when not required. This efficient workforce management by the main contractor helped to keep the budget for contracting as planned. It is also estimated that the schedule did not work and was not used at all after the first day. The planning also has been a failure as the planning engineer’s planners had no plan for the start day of the turnaround. 4.1.3. Assumptions- It is assumed that the time spent on safety inspections was a waste of time. Also, the planning of jobs was not done by competent planners which led to the schedule failure. The schedule of the plan is assumed to be useless as the plant manager feels that it was not necessary given their experience in the work. And although the work could have finished two days earlier, it was delayed due to the delay in repair and delivering of the two steam valves. It also estimated that the event costs might have overrun the estimated costs and the budget allocated from the three different departments has been over spent although the exact amount overspent is not calculated. Further, it is assumed that the overlapping of some of the tasks in areas A and B were the main cause of the delay in the completion of the plan as the planning was not clear and the roles and responsibilities of each personnel were not clear which affected the work. 4.2. Analysis- The analysis of the factors influencing the success of the plan is based on the Model of Excellence where the five elements of the plan; Organisation, Planning, Contractors, Costs and Logistics are analysed and the shortcomings in the planning and implementation are identified. 4.2.1. Organisation- For an organisation to initiate a turnaround, it needs to have several teams that are experienced in turnarounds and planning, managing and monitoring the implementation. Also, a steering group that sets the objectives and policies for the turnaround needs to form an effective strategy and delegate work accordingly. A member of the steering group is also needed to be involved in the day-to-day realisation of the plan and steer it in the direction to be successful. Team culture should be inculcated for the plan to be successful and it needs to be incorporated before the commencement of the work and also during the process. Along with the working conditions, the standards of the engineering practices, infrastructure, resource allocation, project integration and monitoring need to be planned efficiently. In the July 2006 turnaround of the company, although a loose plan existed for the process to run, it is observed that the initiation planning was not done by the Planning Engineer which led to hi losing track of the events in the next two months. This can be seen as the failure of the stakeholders and the decision making management which needs to steer the event clearly by appointing competent personnel to do the planning and ensure that the whole steering team is aware of the consequences of the initiation. They also did not have a full time turnaround manager but delegated the work to the Plant manager who has little experience in turnarounds or lacks an integrated approach towards the plan. There is a lack of a dedicated technical or even business team to over see the process from start to finish with proper planning for issuing permits, identify and communicate roles and responsibilities, time schedules, standards to be maintained in the process and reporting practices. The plan also lacked an effective line of command for reporting and problem solving. There is a need to have proper plans for the crucial tasks like shutting and starting of the plant. Risk management has not been planned for in the turnaround as evident from the lack of communication in terms of maintenance of the rotor, delivery schedule of the valves, resource allocation, costs overrun, and procurement of permits or material. 4.2.2. Planning- For excellent turnaround results, an organisation should have models for planning the process. It also needs to have proper strategies in place for detailed planning of the tasks, estimating the project budget, scheduling, and needs to have a strategy for project integration by identifying and defining the tasks, framing the work list, have documentation for all job tasks and schedule and execute the work list. The updating criteria and the role of supervisor in delegating work also need to be planned prior to the commencement of the work. Added to this, optimisation strategies need to be framed to address the risks in the duration and costs of the project. The company failed to have a clear philosophy and approach to turnaround as evident from the lack of planning, work list and work scope documentation, estimates and optimisation schedules. Since the work was not scheduled and communicated to the employees, the planning engineer failed to monitor the process to address the issues of time and costs overrun though it was evident that there was no control over these parameters. The damage of the rotor is also an example of failure of the project’s optimisation scheduling which seems to be absent in the plan. Further, the procurement of the same at an increased expense indicates that the resource estimates and the strategy for the same are needed. Production-to-production duration is not scheduled nor optimised which can be seen as the reason for the delay in the overall project schedule due to lack of planning for risks in work variations since the tasks are not integrated though it was intended to be an integrated plan. 4.2.3. Contracts- There needs to be a contract policy for the stakeholders to decide when the need arises. The administration of the contract needs to be detailed in terms of the type of contract, the specific roles and responsibilities of the different parties involved, the incentive schemes, a mobilisation and demobilisation plan, performance monitoring and risk management. The company is found to be lacking in a detailed and specific contract policy with the plant manager opining that the area A that the company decided to delegate to the main contractor could have been done more efficiently by the employees of the company thus saving time and costs. There is also a lack of competent workforce in the company to handle turnaround or even communicate the requirements to the contractors. This defect in quality control is a major set back to the company when assigning work to an outside contractor. Further, the allegation that the contractor had been forced to take some of the sub-contractors whom he would not have preferred to take work from is a concern as the integration and communication is bound to be affected, ultimately leading to sub-standard work. There is a lack of proper incentive scheme either for the employees or the contractors for ensuring the work being done as per the plan. This is also seen as an important task as the motivation of the team is an integral part of human resource planning to ensure the success of the initiatives. Also, the case of the crane services being engaged for an extended period even when the work is completed is indicative of the need for higher commitment and monitoring of the mobilisation and demobilisation plan. A strategic approach to risk management and conflict resolution could have avoided the loss due to failure to demobilise the crane services, blame game by the contractors as excuse for the sub-standard work on the welds. Also, the absence of monitoring of the sub-contractors according to a scheduled strategic plan can be considered as a factor for failing to sticking to the scheduled 16 days of work. 4.2.4. Cost- There needs to be a framework for charting the pricing strategy, which would be helpful in the cost breakdown, budget allocation and having a contingency plan for price estimates and adjustments as well. A detailed plan for allocating the costs for outsourcing of work is very much imperative for an organisation. There needs to be scope for planning for the man-hour costs, level of client supervision along with provision for accommodating variations to contract rules with the advancement of the project plan. A need for a contingency plan to minimise wasteful expenditure, control costs and set cost targets arises in any project implementation and it is of particular importance when it is o be planned for a turnaround. Hence, the detailed cost map and expenses tracking is useful in monitoring the budget allocation and the effectiveness of the plan. Further, the closing-out accounts need to be taken care of with an update cost model. Also, there needs to be a cost recovery strategy for risk management. It is observed that the pricing strategy is absent in the turnaround plan as the budget is allocated from three different sources and the cost break down is not done due to which there is an overrun of expenses on the crane services and the rotor procurement. Although a certain amount of +/- 20% uncertainty is allowed in the cost estimation, an overrun of costs could have served as a warning to control costs and minimise waste. For this the lack of monitoring of the costs during the event also is a factor to be taken care of in future plans. Regular data gathering on the costs incurred could have averted the increase in the final cost of the project. As the plant manager reports, the final cost of the project has not been estimated and it is suspected that the costs may have overrun significantly. This can be attributed to the lack of proper risk management strategies to control and identify underestimated costs. 4.2.5. Logistics- With the logistics plan, there is a need to organise the different elements and control them. The materials and property procurement, facilities, infrastructure, transport, etc. need to be planned for procurement and distribution. Before distribution, the stores need to inspect, verify, protect and supply the material to the different areas of work based on the invoice raised and the project requirement plan. For this the project tasks need to be integrated and the services updated. Also, the tracking of the materials and mobilising and demobilising the material are of importance in the logistics plan. Should there be delay in procurement or a material is unavailable, there needs to be a contingency plan for an alternate solution of procurements and distribution. It is observed that the company has had a fairly good procurement and distribution plan with the plant manager observing that the stores had fared well in discharging its duties according to the plan as there were no shortages or delays in the issue of materials to the pre-determined tasks. However, the delay in obtaining the steam valves sent for repair to the workshop had caused the schedule plan to be delayed a further two days. Also, the lack of a demobilising plan had caused a loss of £12,000 to the company as the crane services were left without being demobilised. Also, the risk management plan for the logistics was not in place which cold have saved the company a further £5,000 towards the compressor rotor procurement at the eleventh hour as the stores failed to co-ordinate with the maintenance engineer in storing the rotor in the right position which led to it being damaged and rendered useless. As the plant manager observed, the whole schedule itself had been disorganised and hence there was no way to have the logistic procurement and distribution to be according to a strategic plan although the stores had utilised the existing plan to ensure regular and scheduled supply of the material to the project. However, the overrun of costs when identified may indicate a deviation in the implementation or even the planning of the logistic strategic plan. 4.3. Recommendations- 4.3.1. Organisation – a. High– The appointment of a full time Turnaround manger with experience in turnarounds that is responsible in steering the team can contribute to the success of future turnarounds in the company. This is of high importance as there appears to be enough experience in charting a plan but there is a lack of monitoring by an experienced turnaround manager who is knowledgeable about the implementation loop holes that can arise. This calls for experience in risk management. b. Medium- Planning the tasks, identifying the process requirements, resource allocation plan and risk management plan is necessary for the smooth implementation of the turnaround. c. Low- the involvement of the stakeholders at all stages of the plan after they delegate work is also important to monitor the project plan implementation. 4.3.2. Planning- a. High- An effective planning philosophy would be useful in guiding the strategic planning identifying the project requirements, scheduling the tasks, prioritising the tasks, work list control, updating and optimisation along with effective risk management. For this to be effective, an integrated approach to planning is to be stressed and the same has to be documented for clarity in identifying, delegating, controlling and optimising work list strategy. b. Medium- The updated work list is to be made available for every one in the team and there is a need to stress that all the employees stick to the detailed plan specifying the jobs steps, tasks, resources to be used, time allocated for each task, etc. c. Low- Defining the supervisor’s role in ensuring the adherence to the plan may be helpful to an extent in exercising control on the execution of the plan. This can also help in adhering to the scheduled plan. 4.3.3. Contracts- a. High- Defining the total work scope clearly by the company and making the appropriate contract policy based on the quality assurance standards of the company is imperative in successfully utilizing the services of an outside contractor in the turnarounds. Since turnarounds themselves are supposed to bail out the company out of a sticky situation, this strategic move has to be planned accurately as the financial stakes are high. b. Medium- Performance monitoring of the contractors based on the KPIs agreed upon with clear mobilisation and demobilisation plans are required to be strategically planned and implemented. c. Low- Sub-contractors and their work need to be evaluated at regular intervals by the company as it is a part of the turnaround plan. This enables the company to plan for updating its risk management plans. 4.3.4. Costs- a. High- Key cost generators are to be identified and the budget is allocated with a cost break down structure in the contingency plan for pricing. The cost break down structure allows for estimate refinement and cost control along with the monitoring of the costs. b. Medium- Contract pricing should be determined based on a particular pricing framework that is best suitable for the company and estimate for the expenses should be able to accommodate a +/-20% uncertainty in costs. Further to this, the effective monitoring of the work done or the spend trend, incentive schemes and the closing accounts needs to be taken care of. c. Low- Based on a detailed cost map, the anticipated final cost needs to be communicated to the concerned department along with the impact of the cots overrun and the possible cost recovery strategy. 4.3.5. Logistics- a. High- Demobilisation plan implemented effectively can give a clear idea of the achievements of the turnaround strategy plan. This is particularly useful in gauging the success of the plan. b. Medium- Organising the different elements in terms of priorities and procuring the same for controlled distribution can help minimise waste and ensure quality of work. c. Low- Risk management strategy for emergent work, delays and unavailability of resources can help avert possible delays in the plan. 5. Conclusions- The report by the plant manager is the main source of information based on which this audit report is generated. The report by the manager is analysed and suitable recommendations are put forth for implementation in future turnarounds. The report by Des Troy could have been more helpful if the contents were presented in the format categorised into the five different elements of the plan as this would be helpful to evaluate based on the Excellence for Turnaround Model. Further, the Information gathering model can be fully utilized should data from the two methods be available for an accurate estimation of the success of the turnaround. The model for excellence for turnaround itself can be improvised by clearly segregating the different tasks based on the priorities of the company’s turnaround. References- 1. Gerstner, V Louis Jr. 2002. “Who Says Elephants Can’t Dance?”. Harper Business. Pp 9-278. Read More