1.0 IntroductionAcoustic Energy (AE) is a small British firm selling high quality sound systems. The core value of the business is centred on fabricating and pioneering innovative speakers to cater for all areas of the market, with prices ranging from £200 to £20,000.
AE is owned by FPI based in Malaysia and have achieved productive efficiency because low end and middle of the range speakers can be produced in large numbers with greater cost effectiveness than in the UK. AE manufactures its top of the range speakers in house in Britain.AE realises positive synergies by having R&D facilities and top end speaker production based at the same unit in Cirencester. However, this has created a range of problems for AE since R&D originates in the UK while the majority of production is based overseas.
Subsequently, issues are raised with regard to quality control, communication, time to market and cost. As a result, when the decision was made to increase the number of product lines in R&D it was deemed necessary to address these problems by introducing a wide ranging project management strategy.This report considers the impact of the recent implementation of the new project management department at AE, contains detailed analysis of how the firm currently manages its projects, and areas for improvement where appropriate.1.1 Project Issues OverviewIssueTheoretical PerspectiveApproach of AEProject Definitiono New Product Development Modelo Scope managemento Scope Creepo Lack of effective idea screeningCommunicationo Meetings used as a forum for idea generationo Integrated communication channels when outsourcingo Representative based in Malaysian manufacturing planto Monday meetingsCosto Target costingo Wishful thinkingo Fear of having budget reducedQualityo 'The Iron Triangle' implementation of project management processes to reduce trade offso High trade-offs in favour of qualityTimeo Critical Path Analysiso Increase time to market leads to increased profito Gantt Chartso Uncertainties over time allocated to various activitiesReview processo Project Completion Review Processo Stakeholder Involvemento Not yet designed2.
0 Project Definition and ScopeAE's success is based on selling high quality products. In order to compete in a declining market it is essential that the firm produces products that are innovative and original. Consequently AE has a relatively effective new product development process.New product development theory (see Fig. 1) is characterised by an increasing number of ideas and possibilities developed during the planning stage which are then filtered through several screening processes.
Figure 1 - New Product Development Theory1Upon closer inspection it became apparent that AE's idea creation and suggestion carried on throughout the concept development stage and showed no signs of slowing as products reached their delivery stage.This approach benefits AE as it does not involve restrictive processes focused on tight deadlines or short-term results, instead allowing a flexible open process which fosters the creative thinking required by the firm to continually satisfy consumer demand at the top end of the speaker market. The main advantage of this system is that it enables the company to alter its products before final delivery to best match consumer demand.However, the lack of an effective process to harness the company's creativity has led to various products specifications changing form after the planning process. We believe that AE has been suffering from the phenomenon of 'scope creep'.
Through not implementing effective screening processes the company allows additions/changes to product specifications without fully appreciating the effects this will have on the increased time, cost and delay to market release of the new product.2.1 Product Scope RecommendationsAE must implement efficient processes that enable more effective scope management, whilst at the same time utilising the exceptional creativity that exists within the company. There are two key areas for improvement:1. To filter the more extreme ideas out earlier.
Thoughts can be screened through a variety of different tests, these include whether or not the idea fits with company philosophy and the current markets needs2. A fundamental consideration is whether the company can actually produce the prototype in bulk.2. To reduce the threat of scope creep delaying time to market and increasing costs.Following the idea generation stage AE must produce a detailed product specification document that satisfies the requirements of all key departments. This document must be signed by the departments stating that it is a viable project that can be delivered.
By securing stakeholder commitment to this document the process of managing the project through to completion will be greatly simplified. The greatest implication of adopting this method is that products will be released to the market quicker because their production partner in Malaysia can prepare production processes in advance.3.0 CommunicationEffective communication is a vital part of any project, yet the establishment and maintenance of clear communication networks and procedures is often neglected. Theory states that "effective project communication ensures that all relevant parties can contribute to the project to their fullest extent to meet and exceed expectations."3Prior to creating the new project management department it is unclear whether AE had formal communication and review systems in place.
3.1 A Multinational OrganisationLarge volume production was relocated to Malaysia in order to gain greater productive efficiency. AE realised lower unit costs due to economies of scale and lower labour costs at FPI. Initially there were several quality control issues due to the difficulty of communicating ideas from the UK to Malaysia.
To overcome this AE realised the importance of gaining control over production at FPI. An experienced production manager was sent to Malaysia to liaise and oversee the production of AE products on a daily basis. This offered several communications solutions:* He had specific understanding of the products and their production, making transfer of information, particularly technical information, simpler.* He was able to monitor production and indeed improve the process for AE products by changing it from line production to 'U-teams'.
* Mike was also able to act as an influential intermediary between AE in the UK and FPI in Malaysia representing their case and negotiating more effectively than previous remote communications.Thus it is clear that a method to overcome the communication problem often brought about by outsourcing is to integrate the process by involving experienced and effective team members in the outsourcing operation.3.2 Managing CommunicationFrequent updates are a key aspect of communication, Maylor (2003) states that a company should have "regular face to face meetings to ensure that communications are working and to keep the team engaged with the project'. This is an integral part of project management within AE, involving a weekly meeting in which all project managers held progress reports. Furthermore these meetings were the forum in which new projects were kicked off, the sort of practise recommended in the PMI body of knowledge 4These meetings offer several advantages.
* Information sharing - chance to share advice on overcoming problems* Accountability - pressure on individuals to run projects efficiently* Clarity between support functions- regular meetings ensured functions such as sales and finance were kept informed of changes and progress in order that they may be able to advise appropriately.?Finance need updates to ensure projects costs are under control and eventual product cost remains on track.?This financial information is also imperative to sales as they need to ensure end product cost will be at a saleable level for the target segment.?Sales need to know product progress in order that they can give accurate forecasts to retailers on when they can expect products and when to start promotions.Another advantage offered through early dialogue with individual project managers was that they were able to offer their opinion and advice on the feasibility of forecasts. One project manager stated, '.
..key to the relationship is the ability to offer our opinions on the project plan in order that they are accurate and reasonable...
'5Evidence suggests that AE has an efficient communication process in place contributing to a transparent and responsive network that facilitates effective project management.4.0 CostAE place limited restraints on project budgets since FPI provide all the funding required for R&D. Clearly this permits AE to push the boundaries as the firm strives to be innovative and original.
However FPI's "blank cheque" approach encourages AE to digress from original project specifications. (See Appendix - Case A). The budgeting problem is compounded since AE is reluctant to deliver products under budget for fear that future funding will be reduced.A well defined product, which is well planned and does not run over-time is unlikely to go over budget. As AE has little pressure to reduce costs, going over budget may not be as serious as for other companies, however if they can control the cost of the project this will enable higher profits.
New product costing within the organisation is guided by a principal of 'Target Costing' (Maylor, 2003) whereby a final retail price is decided, relevant to the quality and complexity of the speaker system, that will be competitive in the target price bracket for the market segment. In theory this price is then worked backwards down to individual component level, as was done with one of their previous projects when the decision was made to produce a speaker system originally at £300 value for £150.Within AE, due to shifting scope, the eventual product can easily cost significantly more than expected, so a meeting is held and it is decided whether or not to retail the product at a higher price. This is what happened with Case A, whereby the product was moved up into a higher price bracket, which undermines the concept of target costing.
As their cost estimating technique appears to follow an 'As...But..
.' technique it is easier to estimate than a first timer. The company has designed many speaker lines before, and in some cases they are re-designing an existing system, therefore they can use previous costs to give a good baseline prediction, and then add to this the cost of any expected product alterations.4.
1 Cost RecommendationsAs described, the budgeting method can be mapped from similar completed projects, therefore the only area of uncertainty (providing they do not go over time constraints) is in whichever part they are re-designing. Using an 'As...But..
' estimating technique which corresponds well with the projects being run by our company, budgets should be realistic and relatively accurate. However, unless product scope and time are controlled, no budget target can expect to be met.5.0 QualityAE's business strategy is centred on producing extremely high quality products, consequently several of its speakers have received five star awards in magazine reviews, e.
g. 'What Hi-Fi?' Maylor (2003) contends that with all projects there is a trade-off between cost, quality and speed (see fig. 2). However, this area of project management has been previously over-looked by AE who have focused exclusively on product quality concentrating on performance, conformance, features, reliability, durability, serviceability, perceived quality and aesthetics. As a result AE consistently release products later than their competitors. Furthermore the majority of projects fail to meet the target cost forcing AE to increase prices.
Figure 2 - Project Performance & Conformance ObjectivesAnalysis of AE's past projects suggests that the strive for quality has resulted in significant time and cost implications that restricts the growth of the firm. Historically these problems have been compounded since AE had extremely limited project management facilities. The P5 project missed targets on cost and timing since the unit was repeatedly modified in order to ensure the product was cutting edge and extremely high quality. Consequently Project P5 (addition of DVD rw) was £300 per unit over budget and introduced to the market months behind schedule. This example typified AE's product orientated approach.
AE would reject the notion that projects were failing since the firm's budgeting policy was defined as "...as much as we needed, within reason.
.."6To AE's credit, management recognised that things could be done better. In order to address these problems AE established a project management department 18 months ago. Subsequently AE now considers quality in terms of organisational strategy and customer requirements. An important function of the project management department is to ensure quality remains high.
