The Airbus A380 Project Decision Making Failure and Cost Overrun - Report Example

PROJECT MANAGEMENT Critical Assessment of Project Methodology The Airbus A380 Project Decision Making Failure and Cost Overrun Abstract Project success is often attributed to systematic project managers who carefully worked out the details of the project, make appropriate decisions, implement effective control of risks, and consistent with the project management methodology adopted. The Airbus A380 project was launched by a large European aircraft company in 2004 involving 39 companies in over 16 countries and with a budget of over 11 billion Euros, It was an ambitious and a well-publicised civil aviation project but suddenly failed due to design flaws caused by disintegrated computer software systems. Many believed that it was a technical issue but critical assessment of the project reveal that the root cause was poor project management. . Table of Contents Contents Contents 3 5.1 Analysis of Airbus A380 project failure and their relevance to PRINCE2 stages and processes 12 5.2 Recommended Project Management Strategy for Airbus A380 Project 13 1. Introduction Project management is not merely about managing people and resources but a principled and methodological approach to effective planning of project work, scheduling, decision-making, controlling, and re-planning of activities . Project management increases the likelihood of project success through systematic management of risks and challenges associated with project scope, constraints, implementation, and control. In particular, large projects similar to Airbus A380 project demands an effective method for managing and controlling resources, processes, quality, and cost thus managerial skills and ability to apply a project methodology is critical to project managers. Airbus A380 project failure and subsequent cost overrun in 2006 was largely attributed to technical issues involve in the design of A380 wiring system rather than project management and skills of people managing a transnational aircraft building project. The following is a critical assessment of the Airbus A380 Megajet Project’s management method, analysis and discussion of project key stages, failure and success, PRINCE2 project methodology, and recommendations for preventing project failure using PRINCE2 Process Model. 2. Description of the Airbus A380 Megajet Project In 1988, a group of specialist project engineers decided to design and build a giant aircraft larger than the Boeing 747 and can carry 800 passengers. The design took 4 years to complete and in 1992 a joint feasibility study was undertaken. The aircraft configuration was completed in 2001 and the project began in January of 2002 with €11 billion budget. However, the project encounters several problems resulting to two years delay in product delivery, damaged reputation, lost of customer trust, and cost overrun of about €5.5 billion . One the key issue commonly cited in literature is failure in integration management as the project involves 39 companies in 16 countries. The manufacturing process was transnational involving known firms in UK, Germany, France, and Spain along with hundreds of suppliers, contractors, subcontractors . According to the Airbus A380 crisis was mainly due to the inability of project management to harmonised different global teams. For instance, designers in Germany and UK used different computer-aided design software and no automatic update was being provided to those working in the final production plant in France. Moreover, aside from incompatibility and disintegration, detailed analysis of the project conducted in 2006 suggest that there was lack of leadership to orchestrate the work and common knowledge of management system being implemented.. There is no change control while specifications were not standardised across the working group . 3. A380 Project Decision-Making Failure and Cost Overrun As discussed earlier, there is strong evidence to suggest that the root of the problem is the inability of project management to make a critical decision regarding the use of different CAD systems. The decision to proceed despite evidence incompatibility resulted to inconsistencies in calculations and design of wiring and subsequent re-designs and stripping of those already installed in the prototype. The actual assembly work in France was slowed to near-standstill as workers pull every useless wire that did not fit properly into the plane . According to , although the heart of the problem is a technical issue, the most probable reason for this failure is inadequate understanding of responsibility and limited competence of often uninformed project leaders. It was clear from the beginning that size of the A389 project is large enough to require significant technical, infrastructure, and inter-cultural challenges but it went ahead with classical project management technique . The imbalance between project management and product development process for instance resulted to unnecessary delays and cost overruns . Poor decision making and overruns according to , are often consequence of misinformation about cost, schedules, benefits, risks and undermining the project’s complexity. In fact, literature on project underperformance points to project planners’ systematic underestimation of risks complexity (optimism), scope of changes during development, and poor decision-making ability . Moreover, failure analysis of various project identified faulty, untimely, and absence of decision are root causes of failed projects , In Airbus A380 project, it is somewhat evident from the report that those in the manufacturing plant in Germany, UK, France, and Spain were just victims of unresponsive project management who provided them with wrong tools and assigned wrong people in the job. For instance, the speech of Airbus CEO in 2006 as cited in , specifically mentioned incompatibilities in the engineering tools and the problem was only noticed when the electrical harnesses were installed in the real aircraft. The Airbus solutions to these problems were to provide the right tools and putting in place “the right people, the right training, the right oversight”. The “right people” in this case are those who replaced the project manager and the overall executive in charge of A380 project. More importantly, Airbus CEO specifically mentioned the establishment of a new kind of project management – cross functional, fully transversal, and cross-sites- that in the latter part of the speech turned out to be nothing but basic project management activities such as daily reporting and tracking of issues and progress. The above speech revealed the true identity of the root causes that by analysis are purely administrative in nature. For instance, a project manager is supposed to lead, provide vision, direction, encouragement, and ensure realism, and essentiality of the project but when a simple software incompatibility problem create two year delays and billions of overruns, the project manager is either poorly skilled or totally absent from the project. More importantly, the issue regarding project management failure was also clarified in the speech when Airbus CEO proudly announced the introduction of daily reporting and progress tracking in the system . It is now become obvious that there were no basic project management activities before thus the root cause of the problem is directly relevant to total absence of project management methodology or previous project manager’s poor management skills and inability to implement a project management method such as PRINCE2 and PMBOK. 4. PRINCE2 Project Management Method 4.1 PRINCE2 Concept, Features, and Advantage PRINCE2 stands for Project In Controlled Environment, a process-oriented approach that is considered the de facto standard in project management. It was launched by the UK government in 1996 The difference between PRINCE2 and PMBOK is the fact that the term Project Management Body of Knowledge is not a methodology or project management process but basic reference for project management . According to , PRINCE2 and PMBOK complement each other and they can be integrated when required. In terms of project management, PRINCE2 has several useful features to offer and these include the “Business Case” concept where projects are clearly justified based on its benefits, cost and time effectiveness, and worth. Product-based planning, a planning technique based on creation and delivery of required outputs. It has limited and clear life cycle, and an organisational structure with clear responsibilities to manage the project . Since PRINCE2 encourages project managers to focus on the product and its business justification, the subsequent project plan according to is centred on delivery of products specified by the customer. To realise this, PRINCE2 also include clear project team structure where roles and responsibilities of each team member is clear described including extent of authority, delegation of work, and communication requirements . Similar to milestones, PRINCE2 turn projects into manageable stages and make use of status reporting to reduce time consumed on daily meetings. More importantly, PRINCE2 ensure resource availability before the project begin and allow effective communication exchange across stakeholders . Some of the known advantage of PRINCE2 over other project management methodology is its independence to any application domain thus applicable to any projects or in multidiscipline project teams. Another advantage is the fact that PRINCE2 is in public domain where service, consultancy, and tools can be easily obtained. It is widely used, applicable to large or small projects, and has an integrated change management . 4.2 PRINCE2 Process Model The PRINCE2 process model as shown below consists of four management levels – corporate (Project mandate), direction (Project Board), management (Project Manager, and delivery (Team Manager). The project manager works in Level 3 or the controlling stage where he can lead activities, initiate processes, and control stages of the project. The products are created in Level 4 and are managed for delivery. Note that this level is the result of all management levels above thus only delivery management is performed here . PRINCE2 process begins at the Level 1 where the project obtains its mandate (approval from corporate). It then goes to SU or starting up, to project brief, obtain authority from the board, and back again to Project Management level for project documentation of requirements. The project actually starts after the second board authorization at Level 3 and received final authorization in Level 3. Figure 1 - PRINCE2 PROCESS MODEL For simplicity and better understanding, the PRINCE2 process model can viewed as stages – Pre-project, Initiation, Continuation, and the Closing Stage. As shown below, it has seven main processes that must be strictly followed throughout the project . Figure 2 PRINCE2 Process Model as Stages with 7 Main Processes The first of the two management stages is always the initiation stage. P6 or the “Managing Stage Boundaries” only appears once in this stage and repeated at the end of all following stages except closing stage. The purpose of these processes according to is to: a) P1 – ensure that all information required to initiate the project is available. b) P2 – ensure that all parties are aware of the products that the project needs to deliver including cost, quality requirements, and time of delivery. c) P3 – ensure successful execution and timely delivery of product. d) P4 – ensure project manager perform his prescribed daily activities, e) P5 – ensure that appropriate management activities are performed regarding cost, quality, and delivery time of products. f) P6 – ensure that project manager close and start preparation for every stage of the project. g) P7 – ensure that activities required to close the project is performed including release of project manager commitments. In relation to Airbus A380 project, processes P2 to P7 were missing otherwise simple integration problem will never occur. For instance, it there was indeed some form of project management method in place, all designers and other parties will be aware of similar products details (P2), problem from integration will be detected sooner due to daily report and progress tracking (P3-P5), and questionable designs will never reach manufacturing because the project manager will never allow it (P5-P6). 5. Preventing Failure and Enhancing Airbus A380 Project Through PRINCE2 Project Methodology 5.1 Analysis of Airbus A380 project failure and their relevance to PRINCE2 stages and processes There is no clear indication of project management methodology application in the Airbus A380 project but there is evidence to suggest that there was a project manager who either not use a standard process or implement one inappropriately. Note that as discussed earlier, the primary problem was software integration but the solutions applied by Airbus was overhauling of key management and application of simple project management activities such as reporting and progress tracking. Evidently, the project started with a clear business case but no product-based planning and organisational structure with clear responsibilities. For instance, the idea to build an A380 was conceived way back in the 1980s, Airbus parent company EADS or The European Aeronautic Defence and Space Company formed a separate division for the project in 1996, Airbus consortium was transformed into a single integrated company to satisfy the need of the project, EADS allocated billions of Euros for the project, manufacturing of key components and redevelopment work in Heathrow airport to accommodate the large A380 commenced in May 2004 . Clearly, these events occur because EADS’s top management saw a clear business case for the project. However, as indicated in the timeline of events, the project suffered considerable delay and was declared over budget just 7 months after mainly because of incompatible design software. By analysis, this disintegration occurs due to lack of planning and control over production and management of project stage boundaries. These project management failures in Airbus A320 project can be viewed in relation to PRINCE2 project management stages and processes as follows. a) It was initiated with insufficient Information about the project. The project was initiated in the absence of information regarding the impact of incompatible design software. b) Parties are not aware of all project needs. Production team were not aware of their needs because project management has limited information from the very beginning. c) Project manager was not aware or did not implement proper project management procedure. There is no indication that proper project management was implemented and as evidenced by continuous stage progression from design to manufacturing and from manufacturing to prototype, project manager has no control over the phases of the stages of the project. d) Project manager is not aware of his primary responsibilities. It took months before the issue was identified and this will not happen if the project manager was given and aware of his responsibilities to monitor activities and track progress. e) There was inadequate or no reporting and progress tracking mechanism. This problem is also a consequence of (d) and may be corrected by P4 in the Controlling Stage of PRINCE2 f) Project manager allowed project progression despite design problems. Like (e) this problem was caused by (d) and may be corrected in PRINCE2’s P2 to P4. 5.2 Recommended Project Management Strategy for Airbus A380 Project This recommendation is based on knowledge of PRINCE2 project methodology and best practices in project management. The problem as enumerated in Section 5.1 from (a) to (f) can be prevented by following recommended PRINCE2 Process Model and development of essential project management skills. These include building a business case with both risks and economic benefits , conducting product-oriented planning with resource implications in mind, workable organisational structure with clear roles and responsibilities , authority, delegation, and communication procedure , well-defined and manageable stages, status reporting procedure and frequency, and a project providing common language across all stakeholders . Based on PRINCE2 Process Model’s Management Level 3 and 4, the recommended strategy for Airbus A380 Project includes: I) Management Level 3 a. Stage 1- Pre-Project 1. Develop a realistic business case that considers both risks and economic benefits. Information on resource requirements and challenges associated with transnational manufacturing of aircraft parts should be clear stated in the business case. 2. Elevate the business case to Level 1 only when all information required to initiate a project is available. 3. Project Manager’s ability to plan and execute a large and complex aircraft building project should be evaluated carefully along with his knowledge of cost estimation, schedules, budget planning, and technology-based design specifications. This project manager should be able to analyse status information, prepare clear report, and conduct project audits in a regular basis. b. Stage 2 – Initiation Stage 1. Project manager should ensure that all parties are informed and well-aware of not only the cost, quality, and delivery of the aircraft to be produced but their roles and responsibilities, limitations in resources, complexity of their working relationship with other manufacturing plants, and their responsibility to report matters that can significantly affect the quality, cost, and delivery of the product, 2. Project manager should be aware of his responsibility in closing and starting a new stage of the project. He should ensure that the requirements for this stage are fully complied and all problems are resolved. c. Stage 3 –Subsequent Stages 1. Project manager should perform his prescribed daily activities such monitoring or progress tracking and control and reporting. 2. He should check everything before closing a particular stage and ensure adequate preparation is made before allowing anyone to proceed in the next stage. d. Final Stage 1. Perform c(1), c(2), b( 2) II) Management Level 4 1. Ensure that all required management activities are performed in the production side. He should use his integration skills to resolve coordination issues the soonest possible time. 6. Conclusion The technical issue in the design of A380 aircraft was a product of disintegration between designers and their CAD systems. However, further investigation shows that the root cause of this integration problem is poor project management. Analysis of events leading to cost overrun suggests that there was indeed a business case to proceed but Airbus failed to apply appropriate project management methodology. In fact, even basic reporting and progress tracking were missed out thus no means of monitoring and control. Evaluating A380 project against PRINCE2‘s project stages and processes suggest that the project manager was not only aware of his role and responsibilities but unskilled to perform even the most basic project management activity. The recommended strategy is based on understanding of best practices and PRINCE2 process. It is specifically intended to enhance the performance of Airbus A380 project and improve the effectiveness it’s Project Manager. 7. References Read More