Refurbishing of the Production Facility - Coursework Example

Refurbishing of the production facility Table of content 1.0 Introduction…………………………………………………………………………………..3 2.0 Scope statement……………………………………………………………………………….3 3.0 Stakeholder management plan………………………………………………………………...5 4.0 Benefit-cost analysis and Net Present Value analysis………………………………………...9 5.0 Work breakdown structure…………………………………………………………………...12 6.0 Risk analysis…………………………………………………………………………………13 7.0 Gantt chart and critical path…………………………………………………………………17 8.0 Cost baseline and contingencies……………………………………………………………..18 9.0 Conclusion…………………………………………………………………………………...19 10.0 References……………………………………………………………………………….20 1.0 Introduction Projects are being carried out daily by either, government, firms or individuals. The aim of projects is to enhance the quality of life by enhancing service and product quality. Regardless of the size of a project basic principles should be applied to its success. In this paper, discussion on a project to refurbish the production facility of a dog food processing firm will be elaborate. The project will involve removal of the wall, installing new machinery, and extending the floor. 2.0 Scope statement Business need: A project can be defined as a set of activities that are interrelated and need to be done in a given sequence. One feature of a project is that it is temporary (beginning and end). It will end once the project is over. A project usually has set of goals and objectives that need to be accomplished; therefore the activities are designed to meet the ultimate goal of the project1. In this project production facility of a firm need to be expanded by demolishing the wall, extending the wall, installation of new machinery, and adding electricity supply to the production facility. As it can be noted the project has set of goals and the activities that will be conducted should aim at realizing those objectives. It is at this point that project management skills become requisite. Project management is the use of techniques, and processes in planning, coordinating, organizing, execution, and controlling of a project to ensure the ultimate goal is achieved2. Assumption: During the execution of the project it is assumed the weather will be conducive (not rainy). Rainy weather will hamper the construction processes. Since this is a production facility, and it is being extended, it can therefore, be assumed that, the demand for the product has increased that has overwhelmed the existing facility. Installation of the new machinery will increase efficiency in the production facility and also enhance the quality of food dog Requirements: For the completion of this project the following material are required; cement, ballast, sand, steel, new machinery, and electric equipment. Sometimes human resource is forgotten as an essential requirement, and yet they are the determinant of project quality3. People recruited to undertake different tasks in this project should possess the relevant skills. The installation of the new machinery decision regarding its location within the facility should be done by the top management. Construction permit from relevant authorities should be applied for and be granted for the construction to take place. Boundaries: They set the limits of the project. Therefore, in this project the extension of production facility should not inconvenience other operations that were running smoothly previously. Constraints: Regardless of a project magnitude, constraints are always there. However, the constraints should not compromise on the quality expected from the project. For this project, constraints revolve around the resources allocated towards this project. The project will have to be completed using the resources allocated; it is upon the project manager, to ensure resources are utilized to the maximum within the time-frame. Since this is a production facility time is conscious, thus activities have to be done with haste so that production might resume for demand satisfaction from various clients. Deliverable and acceptable criteria: Deliverables are what aspects are expected to be achieved at the completion of the project. They are used to monitor and evaluate the state and progress of a project. The deliverables for this project are; install new machinery, extension of floor, and removal of the wall. All deliverables are must be within acceptable criteria to be considered to have met the expectation. Acceptable criteria are; completed within stipulated time-frame, cost-effective, and beneficial to all stakeholders. 3.0 Stakeholder management plan Key stakeholders; Stakeholders refers to all individuals or organization that will be affected by the project or who have an influence on the progress of the project. The interests and responsibility of all stakeholders should be considered as the project is being planned. Successfulness significantly depends on the relationship among the key players in the project. Communication gas been identified as a “tool” in ensuring all stakeholders are moving in the right direction for the sake of project prosperity4. In this project the stakeholders are; project manager, contractor, team, client, employees of the firm (dog food producers), and the government. Client is expected to provide resources required for the completion of the project and the expectation from the project completion. The project manager should ensure the all activities run according to the schedule and cost of the project is within the budgeted amount. The contractor should ensure the expectations of the client(s) towards the project are met. Quality of a project depends on the close cooperation of the project manager and contractor during the execution process. The group, recruited by the contractor will aid the completion of the project within the stipulated time. Skills endowed by the team will be reflected on the quality of the completed project. Employees also play a part in the success of the project, since this is an extension of production facility, the production manager along with the team can give suggestions on how to design the facility. Other employees within the firm can offer catering service to the contractor and team to build on energy for project completion. The government on its part will issue a permit for extension and inspect the newly refurbished production facility and determine its acceptability as per the set standards. Table 1.1 List of Key Stakeholders Name Responsibility Information Medium Time Project Manager Ensures schedule is on track Risk, Issues Meeting and interview Daily Client Accept Project Progress Report Daily Contractors Execution of the project Schedule Meeting Daily Team Facilitate project execution Requirement, issues Meeting Daily Employees of the firm Accept Project Issues Word of mouth Once (Beginning of the project) Government Accept Project Requirement Report Completion of the project (After two weeks) Project management plan: it refers to a written document that details all information concerning the stakeholders. The document is delivered to the project team. The document answers the why, when, who, what, how, where and for whom questions of the project. Coordination among the group members is enhanced by the specification of responsibility and duties for each member in the team. The plan can be considered as the pillar for the cooperation and success of the team, since instances of conflict over task execution are resolved by the document5. Table 1.2 Stakeholder management plan Level of influence Level of importance Responsibility Name High High Ensures schedule is on track Project Manager High High Accept Project Client High High Execution of the project Contractors Low High Facilitate project execution Team Low Low Accept Project Employees of the firm High low Accept Project Government Table 1.3 Stakeholder matrix Level of importance Unknown (low) Little importance(low) Significant important (high) Level of influence Unknown influence (low) C (employee of the firm) D ( Team) Little influence(low) Significant influence (high) A (government) B (project manager, contractor, and client) 4.0 Benefit Analysis and Net Present Value Analysis Benefit Analysis: In the field of business any cost incurred must have a benefit to the firm, and therefore the cost to be consumed for the refurbishing the production facility should prove beyond any doubts its benefits. Investors and others stakeholders need to be assured that the cost to be incurred will actually enhance one or two thing within the organization. Answering all questions regarding cost and benefit, a cost-benefit analysis is conducted. Costs are the value of resources a firm incurred when implementing a given project while benefits refer to the proceeds that will be derived from the project. A long-term project has long-term benefit, whose benefits (annual) levels are normally lower ratio compared to the costs incurred6. Some projects give back the benefits at a faster rate thus recouping the amount invested; however the project becomes obsolete within a short-time frame. A project cannot be accepted if the benefits anticipated are lower or equal to the cost of investment. In this case, stakeholders prefer other solution to be sought. The firm (dog food processing firm) expects that if it refurbishes the production facility, benefits in terms of income, service level and efficiency of the firm will enhance. Stakeholders of the firm have to analyze the feasibility of the project before they conclude on budget allocation. Investing in a new production facility is expensive since the investment is a long-term one. The management of Dog Food producing firm needs to analyze the cost it will incur in the refurbishing the production facility. Time set aside to stop production process should be inclusive of the overall cost. The value of time can be estimated by using historical data. The value of dog food produced per day should be multiplied by the duration of the project. Benefits of the project should be evidenced in the firm’s financial statements. Increase in sales transforms income level thus reflecting a high return on equity for the shareholders. Service level of the production team should also enhance since the installation of the new machinery should create an ambient environment for efficiency. Some benefits cannot be measured in monetary terms, but the values attached to them are exceptional. Net present value: NPV is a financial tool used to measure the value of future cash inflow to the present day. It is being argued that a dollar today is much stronger than a dollar tomorrow7. Calculating Net Present Value (NPV) a discounting rate is needed. Discounting rate is the rate that is used to estimate the present value of future cash inflow. The following formula applies {net period cash flow / (1+DR) ^T} - initial investment. For a project to be considered worthwhile, it has to have a positive NPV. This being the case, the firm has to estimate the durability of the investment for instance ten years, and the estimated annual cash inflow. The projected is estimated to cost $ 120,000. The firm’s average annual income is $20,000 and hopes the income will increase by 8% after the completion of the project. The income will increase by 5% for the next seven years. The estimated future cash inflows are then calculated to their present value and the cost incurred in executing the refurbishment of the production facility. However, NPV can be manipulated by the cost of investment. As a project manager, one has to ensure no other cost is incurred and the budgeted cost does not necessarily have to be depleted8. Through, the skills of cost minimization the cost of investment can be reduced, thus NPV increased. Investors and other stakeholders will be willing to finance a project if the NPV is reasonable and beneficial. The uncertainty surrounding the financial market requires one to make sound decisions when investing to determine the NPV of the project. To be on the safer side it is prudent to have a discount rate or factor that is higher than that of current market9. The essence of this is to minimize losses that can be incurred. For this project the discounting rate is 10%. Table 1.4 Net Present Value of the project Year Income Discounted income (DR-10%){net period cash flow / (1+DR) ^T} NPV= Discounted income-120,000 1 20,000 * 1.08= $ 21,600 21,600/(1.1^1)= $ 19,636 $ -100,364 2 21,600 * 1.05= $ 22,680 22,680/(1.1^2)= $ 18,744 $ -81,620 3 21,600 * 1.05= $ 22,680 22,680/(1.1^3)= $ 17,040 $ -64,580 4 21,600 * 1.05= $ 22,680 22,680/(1.1^4)= $ 15, 491 $ -49,089 5 21,600 * 1.05= $ 22,680 22,680/(1.1^5)= $ 14,082 $ -35,007 6 21,600 * 1.05= $ 22,680 22,680/(1.1^6)= $ 12,802 $ -22,205 7 21,600 * 1.05= $ 22,680 22,680/(1.1^7)= $ 11, 638 $ -10,567 8 21,600 * 1.05= $ 22,680 22,680/(1.1^8)= $ 10,580 $ 13 9 21,600 * 1.05= $ 22,680 22,680/(1.1^9)= $ 9,619 $ 9,632 10 21,600 * 1.05= $ 22,680 22,680/(1.1^10)= $ 8,744 $ 19,376 The Net Present Value of the project is $ 19,376. This clearly shows that the project is worthy being invested. At the end of year eight, the firm would have recouped the amount invested in the project. In the tenth year, the firm would have made a 16.15% {(19,376/120,000) * 100} profit which is a good indicator of a prosperous investment. 5.0 Work breakdown structure The project as whole is complex and may result in confusion where one can start and end certain activities. Work breakdown structure split the entire project into small achievable activities10. In so doing responsibility for each task is allocated to a specific individual who will be accountable. Work breakdown structure (WBS) allows smooth flow of operation in a given project. The goals for a project might not be clear to all stakeholders, but WBS put it in clear statement the role played by each one of the in meeting the overall goal. The project aims to demolish a wall, extend the floor, and installation of new machinery. In general the project aims to refurbish the production facility. Figure 1.5 work breakdown structure (WBS) for the project 1.3 1.1 1.2 1.12 1.31 1.21 1.32 1.13 1.33 1.22 1.14 1.34 6.0 Risk analysis Risks are inevitable in any project and, therefore, measures have to be in place to prevent or minimize the impact they can have on a project. The complexity of a project makes the project more vulnerable to risks11. As a team working, the completion of a project it is vital to analyze various risks and their impact on the project. The sources should not be left out, because it is from the source where the risks can be controlled. Some risks have high impact on a project, and they should be monitored at all stages of the project. However, such risks have low chances of occurring, but that does not mean they cannot occur. Project management team should always be on a high alert with a contingency plan if risks occur. The aim of the contingency plan is to ensure the project remains in course even after a risk occurs. Low impact risks are the most notable risks found in projects. This is because most project managers fail to develop measures of controlling them because of their low level of impact, thus the risks have a high probability level of occurring. The project on refurbishing the production facility has both categories of risks (low-impact and high-impact risks). Project manager along with the contractors must design a plan on how to avoid such risks from occurring. Decision making organ and control for each risk that can occur should be included in the plan. Possible risks to occur in this project are; delay of construction material, financial constraints, injuries, change in weather condition, inadequacy workforce, and requisite skills. All the above risks have their probability level and impact level, and therefore, contingency measures should be underway. Achieving deliverables of a project does not depend on the plan for activities flow, but also how risks are controlled. The table below shows the risk register. Figure 1.6 Risk register for the project Impact Probability Impact 1 - Very Low 1 - Very Low 2 - Low 2 - Low 3 - Medium 3 - Medium 4 - High 4 - High 5 - Very High 5 - Very High Table 1.7 Risk analysis table Review Possible risks Strategy Priority Probability Impact Source Delay of construction material Ordering the materials in advance Having the materials on time 1 5 Late ordering Financial constraints Having the accurate figures for each activity and material involved To have the adequate finance 2 4 Budget estimate Injuries Training the team on health and safety measures No injury during the project execution 2 3 Lack of training and safety gears change in weather condition Get forecasted weather pattern during the project from the meteorological department Weather changes not to halt the project 1 3 Failure to contact meteorological department inadequacy workforce Recruiting sufficient workforce for the project Having the right number of workforce for the project 2 2 Poor labor planning inadequacy requisite skills Assessing the skills and experience endowed by the recruit. Having a team with the requisite skills 1 4 Poor recruitment and selection process Team motivation Motivating the team by giving incentives like rewards for exemplary performance Motivated staff to finish the project on time 3 4 Lack of commitment 7.0 Gantt chart and critical path Gantt chart is a time management tool, thus vital to the success of a project12. Activities that are supposed to be conducted to achieve the set goal or deliverables are allocated certain period for completion. In some cases, some activities have to be completed first before other activities start. Gantt chart aids in allocating time for such activities. The project has three deliverables; wall demolition, floor extension, and new machinery installation. All those activities cannot be conducted simultaneously. Activities involving wall demolition will be the first deliverable to be achieved, followed by the installation of the new machinery, and finally extension of the floor. Critical activities are those activities that consume much time of the project completion13. Wall demolition will consume four days, installation of new machinery will consume five days, and extension of the floor will consume five days. Figure 1.8 Gantt chart for the project ID Duration task start day finish day late start late finish free slack total slack May May 2 May 1 4 Wall demolition 5th- May 8th-May 5th- May 8th-May 0 0   2 5 Installation of machinery 9th-May 13th-May 12th-May 17th-May 1 1   3 5 Extension of floor 14th-May 18th-May 18th-May 24Th-May 2 2   8.0 Cost baseline and contingencies Cost baseline is a useful tool in a project since it estimates the total cost the project will cost. It goes further and breaks down the cost and time-frame for single activities14. With the help of cost baseline, projects are executed on a cost-effective basis, thus eliminating duplication of costs. Wall demolition will take the less time as per the figure above. The cost of demolishing the wall is less than that of installing new machinery and extending the floor. Project management can assess the performance of the contractor and the team using the cost baseline. If the cost incurred during the execution of the project was within what was budgeted, the team is regarded to have performed exemplary. Failure to operate within the budget results to analysis of the entire project to identify the reason for cost increment, for example, inflation can be the possible reason. Future projects to be conducted by the firm will include such “misfortune” when drafting the budget. Performance of each activity as far as time is concerned can be evaluated. Project expected to consume short time are required to consume less cost altogether, but in some cases the team might delay in one activity thus, increasing the cost of the project. The project is conducted in a production facility, which means production has been halted. The firm had estimated the loss it will incur during that period, which adds up to the cost. Further delay increases losses thus pushing the cost of the project high. 9.0 Conclusion For a smooth running of project activities coordination of all stakeholders is of paramount. Projects are known t be hectic especially when it comes to closing, simply because of the unmet deliverable. Targets set by a project should keep the project on course and detect any deviations that may arise. Those entitled to manage a project should ensure the schedule is fooled and relevant approval to avoid unnecessary legal battles. Last, but not least risks are inherent in any project and, therefore, control measures should be in place should they arise. 10.0 References Adithan, M. Process Planning and Cost Estimation. New Delhi: New Age International (P), Publishers, 2007. Clark, Wallace. The Gantt Chart: A Working Tool of Management. 2.nd ed. 1946. Doloi, Hemanta Kumar. 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