Marshall Electronics project management methodology

In October 2003 Marshall Electronics won an 18-month labor-intensive product development contract awarded by Buffalo Industries. The award was a cost reimbursable contract with a cost target of $2.66 million and a fixed fee of 6.75 percent of the target. This contract would be Marshall's first attempt at using formal project management, including a newly developed project management methodology.

Marshall had won several previous contracts from Buffalo Industries, but they were all fixed-price contracts with no requirement to use formal project management with earned value reporting. The terms and conditions of this contract included the following key points:

Project management (formalized) was to be used.

Earned value cost schedule reporting was a requirement.

• The first earned value report was due at the end of the second month's effort and monthly thereafter.

There would be two technical interchange meetings, one at the end of the sixth month and another at the end of the twelfth month.

Earned value reporting was new to Marshall Electronics. In order to respond to the original request for proposal (RFP), a consultant was hired to conduct a four-hour seminar on earned value management. In attendance were the project manager who was assigned to the Buffalo RFP and would manage the contract after contract award, the entire cost accounting department, and two line managers, The cost accounting group was not happy about having to learn earned value management techniques, but they reluctantly agreed in order to bid on the Buffalo RFP. On previous projects with Buffalo Industries, monthly interchange meetings were held. On this contract, it seemed that Buffalo Industries believed that fewer interchange meeting would be necessary because the information necessary could just as easily be obtained through the earned value status reports. Buffalo appeared to have tremendous faith in the ability of the earned value measurement system to provide meaningful information. In the past, Buffalo had never mentioned that it was considering the possible implementation of an earned value measurement system as a requirement on all future contracts.

Marshall Electronics won the contact by being the lowest bidder. During the planning phase, a work breakdown structure was developed containing 45 work packages of which only 4 work packages would be occurring during the first four months of the project,

Marshall Electronics designed a very simple status report for the project, The table below contains the financial data provided to Buffalo at the end of the third month.

A week after sending the status report to Buffalo Industries, Marshall's project manager was asked to attend an emergency meeting requested by Buffalo's vice president for engineering, who was functioning as the project sponsor. The vice president was threatening to cancel the project because of poor performance. At the meeting, the vice president commented, "Over the past month the cost variance overrun has increased by 79 percent from $14,000 to $25,000, and the schedule variance slippage has increased by 42 percent from $313000 to $44,000. At these rates, we are easily looking at a significant cost overrun and schedule slippage. We cannot afford to let this project continue at this lackluster performance rate. If we cannot develop a plan to control time and cost any better than we have in the past three months, then I will just cancel the contract now, and we will find another contractor who can perform."

QUESTIONS

1. Are the vice president's comments about cost and schedule variance correct?
2. What information did the vice president fail to analyze?
3. What additional information should have been included in the status report?
4. Does Marshall Electronics understand earned value measurement? If not, then what went wrong?
5. Does Buffalo Industries understand project management?
6. Does proper earned value measurement serve as a replacement for interchange meetings?
7. What should the project manager from Marshall say in his defense?