Risk Assessment for Boeing Commercial Airplanes - Case Study Example

Project Management: Case Analysis REVISION Name: Lecturer: Course: Date: Table of Contents Table of Contents 2 Introduction 3 Business case and Risk Assessment 3 Risk Assessment 4 Financial Uncertainties 4 Technical uncertainties 5 Business environment uncertainties 5 Social uncertainties 5 Environmental uncertainties 6 Recommendation 6 Risk Mitigation Strategies 6 Risk avoidance 7 Risk sharing 7 Risk reduction 8 Risk Transfer 9 Tools and Techniques 9 Work Breakdown Structure 9 Monitoring and Control 11 Implementation of Change 13 Conclusion 15 Introduction Risk is an event whose likely occurrence can threaten the existence or successful delivery of a project (Barker 2007). It is any probable uncertainty that is controllable or that can be monitored. This report presents a case analysis of Boeing 787 project, where unfavourable financial, business, environmental and technical risks hindered its successful delivery. Based on the assumption that risks cannot be prevented from happening, the report seeks ways to control and mitigate the risks and their impacts. A plan is proposed that aimed at ensuring the company takes advantage of the favourable uncertainties while at the same time stopping the risk from progressing into a calamity. It is proposed that a risk response plan that Boeing should use has to integrate activities or actions the company should adopt to mitigate the risks facing the project. Business case and Risk Assessment In 2007, airplane maker Boeing Commercial Airplanes engaged in a project to implement a new development project for its 230- to 350-passenger plane. Situated in Seattle, an area that has a geographic fault, the company expected the project to meet the needs of a range of hub-to-hub, hub-to-point and hub-to-point. More particularly, Boeing officials wanted the plane be upgraded for transportation of spectators to the 2008 Olympic Games. Target market was China due to increased demand for point-to-point flight. The new jet was originally dubbed 7E7, although it was later renamed to 787. The jet model was upgraded to be fuel-efficient. The plane’s leasing company became its financial partner. Basically, original intention was to design it for lightweight composites that would be sustained by titanium structures. The new plane would not endure crash (Gater 2007b). Originally, the company had used the strategy in military planes. In which case, it had never been tested for commercial planes. From the outset, it seemed that company did not want to replicate an earlier experience of high development costs associated with subcontractors in a range of countries. The whole project had to minimize costs, despite the company’s vision of relocating base in the same year to Everett in Washington. This was however a blunder as the company failed to assess risks. All together, the speed of developing the plane was a key priority to ensure that the plane was ready before the 2008 Olympic Games (Selyukh 2013). However, their major supplier was in the verge of financial default. Due to lack of effective risk assessment and management strategies, the project failed to reach its targets (Gates 2007a). Risk Assessment Financial Uncertainties Unfavourable uncertainty: company’s major supplier of plane components faced the risk of going into financial default. This could hinder the project from delivering prototypes of the plane. Favourable uncertainty: The Company’s leasing firm became a financial partner in creation of the plane. Technical uncertainties Unfavourable uncertainty: the composite fuselage of Boeing 787 would not endure a crash as its structural features made it more inflexible than aluminium. Favourable uncertainty: Boeing could capitalise on technology advances from the Boeing 787 program to develop its space and defence initiatives to a greater level than ever before. Business environment uncertainties Unfavourable uncertainty: Fluctuating demand for point-to-point travel using medium-sized aircrafts. Favourable uncertainty: hiked fuel costs could trigger increased demand for the supply of fuel-efficient commercial aircrafts. Social uncertainties Unfavourable uncertainty: the components of the airplanes were to be built outside the United States and be assembled in newer spaces in the company’s facility in Everett Washington, hence creating extensive job losses. Unfavourable uncertainty: consumer-advocacy groups could become vehemently vocal on the inconveniences caused by the hub-to-hub option for travelling. This could instigate public campaigns that had the potential to influence the purchase decision for airplanes. Environmental uncertainties Unfavourable uncertainty included: The home of Boeing Commercial Airplanes was in Seattle, an area that has a geographic fault. Geographically, the fault is vulnerable to devastating earthquakes with the potential to damage the company’s facilities and operations. Favourable facility: In the event of earthquake, Boeing may uncover certain protective structural solutions, which it could patent to be sold to other companies. Recommendation Based on the risk assessment, Boeing should come up with strategies that aim at ensuring the company takes advantage of the favourable uncertainties while at the same time stopping the risk from progressing into a calamity. A risk response plan that Boeing should use has to integrate activities or actions the company should take to mitigate the risks facing its Boeing 787 project. Risk Mitigation Strategies After identification and evaluation of the risks that the project faces, a risk mitigation plan is developed for the company to mitigate the impact of the likely events (PMBOK 2008). The process involves avoiding the indentified unfavourable risks, as well as sharing, reducing and transferring them. Each of the techniques is an essential tool in reduction of individual risks the Boeing 787 project faced (Kutzavitch, K 2010). Risk avoidance In regards to risk avoidance, Boeing should employ the use of tools and technologies that can ensure higher probability of success, despite being relatively costly in delivering the project successfully. A typical risk avoidance plan that Boeing should use includes employing existing yet proven technologies instead of adopting new techniques (PMBOK 2008). The project team at Boeing should find another supplier who has a proven track record and financial stability than its current one. The new supplier should offer substantial price initiatives to avert the risks associated with working with a new supplier. Risk sharing Boeing should seek partnerships with firms that share responsibility for the risky ventures. A possible risk sharing strategy is by establishing more alliance than just its leasing companies. Seeking partnerships from airlines for its new its 230- to 350-passenger plane will mitigate business environment uncertainties such as fluctuating demand for point-to-point travel using medium-sized aircrafts. It will also trigger the new airline partners to purchase its fuel-efficient commercial aircrafts due to rise in cost of fuel. Partnerships and joint ventures can also mitigate social uncertainties associated with job loss that could happen once its relocates its company’s facility to Everett Washington (PMBOK 2008). Under this arrangement, in case Boeing seeks to relocate, some of its staff would be absorbed by partner companies. The partners will also be able to derive some benefits from the project in the event that it becomes successful. Risk reduction In the process of risk reduction, Boeing should invest funds in micro-projects with the view of mitigating the impacts of risks on the project. For instance, to mitigate social uncertainties such as the likelihood of consumer-advocacy groups becoming vehemently vocal on the inconveniences caused by the hub-to-hub option for travelling, Boeing should engage in marketing campaigns to emphasise the benefits of using the plane, such as its, flexibility, cost-efficiency and affordability. The company should also hire an expert to review its technical plans and the cost estimate of the projects potential to increase confidence to the plan. This will mitigate technological uncertainties regarding the composite fuselage of Boeing 787 that would not endure a crash since its structural features made it more inflexible than aluminium. The company should also set up a skilled project team to manage technology-related high-risk activities that can conduct researches on how to make the fuselage stronger (McGill 2005). To mitigate environmental uncertainty, the expert team should also survey high-risk areas such as the places that Boeing plant is situated where geographic fault. They can predict earthquakes and to find solutions that could be used to prevent the calamity from negatively impacting the company. To further mitigate risks related to likely earthquake, Boeing should use state-of-the-art digital designs that are stored in its databases. It also needs to seek a backup supplier, who would be ready to “fast ramp-up” whenever necessary. Risk Transfer In regards to risk transfer, Boeing can channel the risks from its 787 project to a different party. Purchasing insurance for the project can transfer the risks, where they are shifted to an insurance company. Boeing should purchase insurance for like disasters such as earthquake that could damage its Seattle facility, where the project is being carried out. To mitigate likely risks due to worker strikes after it relocates it base leading to job losses, Boeing can insure the project. To further transfer the risks, Boeing may also place responsibility of its errant supplier to be controlled by an intermediary supplier who has financial strength and the means to offer service as business advisor (PMBOK 2008). Tools and Techniques Work Breakdown Structure As a project management tool, Work Breakdown Structure (WBS) helps identify the requirements and the tasks involved in mitigating risks in the 787 project. In using the tool, resources are that Boeing should use identified for the items involved in a project, hence facilitating the assignment of responsibilities. With this respect, the tool determines the critical path to be undertaken in the 787 project. It also creates schedules on how the risks should be mitigated (Colenson 2000). In adopting a solution to structuring the problems in the risk management initiative for the project, WBS should involve as many levels as possible. In this respect, the hierarchical structure known as Risk Breakdown Structure (RBS) should be used. RBS helps group the risks in the project to determine its total risk exposure. Table 1: RBS for Boeing Project 787 Level 0 Level 1 Level 2 Level3 Project Risks Product engineering Plane Design Stability Crash endurance Completeness Feasibility Engineering specialities Maintainability Testability Reliability Security Development environment Work environment Security Cooperation Management method Planning Management experience Monitoring Quality assurance Management Process Project organisation Planning Process organisation Program constraints Resources Budget Facilities Program Interfaces Subcontractors Customers Corporate management Financial Supplier in financial default Environment Insurance against earthquakes Product environment Market Stabilise demand for point-to-point travel Social Advertising to counter consumer advocacy groups influences Using the concept of Work Breakdown Structure, a Risk Breakdown Structure (RBS) is developed to structure the risks in a way that they can be addressed, controlled and monitored (Table 1). To perform these important functions, WBS should be placed as a core hierarchy of the tangible outcomes and the deliverables (Colenson 2000). Using the RBS, each risk mitigation strategy is broken down into levels. Each level offers a more comprehensive outlook of the identified risk (Table 1). In the RBS for Boeing 787 project, Level 1 identifies the technical requirements, Level 2 includes functional requirements, while level 3 lists the strategies (Colenson 2000). Monitoring and Control Monitoring and control involves the last process in the risk management of the Boeing 787 project. Monitoring and control should however be done at the start, in the course and at the close of a project. Essentially, the process involves rechecking the Boeing 787 project plan, the risk log, and the objectives. This is to establish whether the already identified risks have been managed efficiently, and whether a potential risk exists (Lucas 2009). Monitoring from the beginning of the project should aim at seeing to it that the risk responses are implemented in a timely manner in order to make sure that the risk has a beneficial outcome to the project. Risk monitoring of the project should also constantly aim to achieve accurate understanding of the status of risk even as the project's time line advances. In the case, constant reviews of the risks should be done with the hope of finishing the project before the 2008 Olympic Games. The Boeing 787 management should aim to control time and costs accurately as well as the quality and circumstances and the resources. This is important as the management can control the impact of the risk to the project objectives. Figure 1: Risk management, monitoring and control To ensure that risk mitigation strategies are implemented during the project lifecycle, monitoring and controlling should be done throughout the course of working on the project. This will be effective, as it will ensure that the project is monitored for outdated risks that have already been mitigate or risks that may recur. The process applies a range of techniques such as trend analysis and variance, which need the application of performance information that is created during the implementation of the project (Marshall 2007). Additionally, the Boeing 787 project management team will be able to determine the project assumptions that are valid, and whether the risk has been changed or mitigated, and that the risk management policies are being pursued. Additional tools such as earned value management. Earned value management (EVM) Earned value management can be used to measure the progress and performance of the project. Areas to examine include whether the project meets its scope, is on schedule and is aligned to the budget. It also integrates mechanics to allow for the use of WBS. For instance, it can be used for monitoring the general performance of the Boeing 787 project based on a baseline plan. Findings from EVM, or earned valued analysis, will show the potential deviation of the project from the targets. In situations where the project deviates significantly from the base line, the updated risks need to be performed (Marshall 2007). Implementation of Change Based on PMBOK Guide, changes caused due to implementation of risk management strategies can be managed using a risk management implementation strategy. Boeing 787 project management team should initiate risk management practices within the organisation. This should be encouraged by encouraging risk management culture in the project, as well as those participating. At this stage, the management should create awareness of the change, its significance, urgency and significance to embrace the change. Participants in the project should be categorised based on their competence/commitment matrix. In the process of implementing the change, the project managers need to supervise the total project implementation and help participants in the project. They should further identify the agents of change within the organisation and to engage them in the project. For instance, the management should identify a team to engage in risk management implementation (Futron 2006). The next step should involve tailoring risk management practices. At this stage, success criteria’s are identified. These include the goals and objective that should be pursued to ensure acceptance of change. The success criteria should afterwards be analysed to establish the impacts of non-achievement. In the process, the organisational Key Performance Indicators (KPI) have to be considered for effective risk analysis and control. The management should develop a detailed project plan. This can be ensured through creating risk management plan to document the extent of risk management implementation in the project. The management should then apply the use of risk management tools to support the entire risk management process (PMBOK 2008). Such tools may include questionnaires that are focused on the areas that are considered as threat to the change process and risk mitigation strategies. The tools can be used to determine the forecasted effectiveness of risk-handling plans and attitudes towards change (Ciric & Rakovic 2010). Participants in the project can then be classified basing on their capacity to create change, implement it and to cope with the changes. They should also be classified based on their commitment, or attitudes towards effectively implementing change. Individuals with high competence and commitment should be identified and given some leadership position to carry out the change, as they can play a critical role in effective implementation of the change (Fig 2) (Ciric & Rakovic 2010). Figure 2: Competence and change management matrix (Ciric & Rakovic 2010) Conclusion In the case of Boeing 787, a project was pursued to test military planes for commercial planes, an area that had not been tried before. The project was however faced by a range of social, environmental, businesses and technical risks that made the project to fail. Based on the risk assessment, Boeing should come up with strategies that aim at ensuring the company takes advantage of the favourable uncertainties while at the same time stopping the risk from progressing into a calamity. A risk response plan that Boeing should use has to integrate activities or actions the company should take to mitigate the risks facing its Boeing 787 project. Monitoring and control should be done at the start, in the course and at the close of a project. Essentially, the process should involve rechecking the Boeing 787 project plan, the risk log, and the objectives. In mitigating the risks, Boeing should select a supplier who has proven track record over the current one. Boeing should also make sure that it uses state-of-the-art digital designs that are stored in its databases. 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