What Explains the Relationship Between Engineering Requirements and Available Engineering Capacity At Prequip?

ENG2006 ECONOMICS & MANAGEMENT FOR ENGINEERS

ASSIGNMENT 2003

ENG 2006 ECONOMICS AND MANAGEMENT FOR ENGINEERS

ASSIGNMENT 1 – AGGREGATE PROJECT PLANNING

1. CONSIDER EXHIBIT 4-1. WHAT EXPLAINS THE RELATIONSHIP BETWEEN ENGINEERING REQUIREMENTS AND AVAILABLE ENGINEERING CAPACITY AT PREQUIP?

WHAT ARE THE IMPLICATIONS OF THE PATTERNS IN THE EXHIBIT?

The patterns between the Engineering Requirement and the Available Engineering Capacity are such that long-term projects such as Project 4 which requires 286 Engineering Months are being stretched throughout several years instead of completing it and allocating the resources elsewhere. Due to the limited time available, time should be spent completing as much as Project 4 as possible instead of delaying until the second year and finalising it in another. If the Project was completed in two years then the resources would be available for other projects in the third. Along with reducing the number of Projects that are active at any one time, the company would be in a better position to deal with the Projects that need completing.

The implications of the patterns seen in Exhibit 4-1 indicate the large problem of over committing. The company has too few resources to cope with the large ‘active’ list. These implications ensure that PreQuip are always assigning inaccurate levels of resources to projects which over time will prevent them from completing any project. Loss of business may follow and the company would eventually collapse do their incompetence to effective project planning.

2. WHAT IS A PLATFORM PROJECT? HOW DOES IT DIFFER FROM A BREAKTHROUGH PROJECT? WHAT SPECIFIC CRITERIA WOULD YOU RECOMMEND THAT COMPANIES ESTABLISH TO DEFINE PLATFORM AND BREAKTHROUGH PROJECTS?

A platform project is a project set up to provide the company with a platform from which new products and processes can be developed. This proposed development is designed to benefit the company over a set period of time with the aim to release new profitable products. Platform projects, if designed correctly, can provide numerous add-ons and enhancements to this new products extending the product life cycle further by potentially being able to reach into new and untapped markets, thus extending the profitability further too.

An example of this would be the development of ‘The Sims’ computer game. The game and the idea behind the game has evolved and has enabled the developers to turn a non-profitable game using obsolete technology into the most sold computer game to date. The development of the artificial intelligence required to bring realism, creativity and graphic design has been included into more and more versions eventually leading to the introduction of ‘The Sims’ games where you control all aspects of the character’s lives. New developments have been introduced to meet the artificial lives that are being controlled which stem from the original idea, the original platform project. Even more recently sees the launch of Sim City 4 which uses the same A.I from ‘The Sims’ but strapped on to the original concept of managing a city. These products are now aimed at a much younger market where the likelihood of success is greater due to the ‘cartoony’ graphics and playability. The success of the game has been very rewarding from the developer’s view as sales indicate ‘The Sims’ as being the largest selling computer game of all time.

Platform and breakthrough projects differ by the way the time scales are laid down. Whereas the platform project is focussed on setting a base for further products and processes over time, breakthrough projects are the initial projects that lead to the original product being launched in the market. It could be argued that platform and breakthrough projects go hand in hand as breakthrough projects could be developed into platform projects once the initial product has been launched. This can be seen again using ‘The Sims’ computer game. Originally, ‘The Sims’ would have been a breakthrough project as the concept behind it was new and unique. Once the game had caught on, it was turned into a platform project where new versions could be introduced to the market. ‘The Sims’ technology, as a breakthrough project, would have been designed using processes and materials that possibly wouldn’t have normally be used to create a game, because of the importance to launch the project and any corresponding products into the market. This lenient management technique towards the project is how the breakthrough project got its name, by using concepts and processes that would produce a brand new product in all areas concerned with its development.

I would recommend that companies looked for the following when determining a platform project. Firstly, that the project solves the solution to consumer needs otherwise it won’t be purchased in the market and derivatives won’t be possible. Solutions need to adopt the 4 Marketing Ps, the right Product, at the right Place, at the right Price and also using the right Promotion to advertise the product. The platform project must as well as solving the consumer needs be open to development where enhancements and derivatives can be introduced on to the market. This produces the product and process family from which more and more products can be launched, all different from the original product. Finally, the platform project needs to act as a link between previous and future generation platform projects without disrupting the consumer. The link needs to be a natural progression from generation to generation so that consumers just ‘float’ to the next platform project without realising.

A breakthrough project needs to provide the consumer base with a solution to a need that no other product provides or to a need that they didn’t think they had. A good breakthrough product will develop on its own and usually be the market leader for a while until competitors joined the market. Hooch was an example of this in the alcoholic drinks market until loads of other manufacturers released their own versions. A breakthrough project also needs to have the capability of being a platform project after a period of time. Although it is breakthrough, it does not mean that other projects cannot be based on the same idea and developed further.

3. WHAT CONSIDERATIONS ARE IMPORTANT IN DETERMINING THE APPROPRIATE MIX OF DEVELOPMENT PROJECTS?

Industry maturity
Rate of technological advancements
Level of resources within the company
Economic State of country aiming to break
SWOT analysis

Many considerations need to be understood before deciding upon which projects continue to be developed or scrapped and this understanding of the way the project could be initiated is important to ensure it is successful. Failure to understand this and develop projects that will be beneficial to the company will otherwise be a waste of time and money to the company.

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3. WHAT CONSIDERATIONS ARE IMPORTANT IN DETERMINING THE APPROPRIATE MIX OF DEVELOPMENT PROJECTS?

Industry maturity
Rate of technological advancements
Level of resources within the company
Economic State of country aiming to break
SWOT analysis

The industry that the project is developed for is a main consideration because of the large spectrum of products available to the customer in each market. Introducing a product that has derived from a breakthrough project would be harder due to consumer knowledge and expectation being driven higher from the number of products available on the market. Many consumers would be looking for a trusted brand or manufacturers that introduce the same quality product with enhancements. This thinking leads to platform projects and their relevant products succeeding in mature markets. This can be seen by the success of car companies, if a consumer has consistently purchased brand new Ford cars over a number of years, even the development of a car that technically could be better than a Ford would not persuade the consumer to swap. However, saying this, very high quality breakthrough products could succeed in transferring loyal customers of a product to the new launched product i.e. high quality sports cars, swapping from a Porsche to the brand new TVR model.

These consumer trends lead manufacturers to over commit on their development projects by investing more in the enhancement and development of already mature products e.g. Ford introducing new features on the Mondeo model such as increased engine size, enhanced performance, a turbo engine, including a sun roof, free child seats etc etc. These enhancements are all example of increasing the life cycle for their product but effectively keeping the same product to keep initial development costs low.

Other factors that are influential in determining the mix of development projects include the actual level of resources within the company. There would be no point in committing to (x) number of projects unless you can effectively manage and produce a product that is profitable after taking in consideration of all resource costs. This was the problem with PreQuip, the resources weren’t available to them but still they continued to develop new projects expecting them all to succeed.

Economic stability could also influence the development of projects. Projects could be designed to focus on developing a market, expanding an existing market or simply introducing a product to market that was based in a particular area. If the economic stability became uncertain then those projects that were focussed could be under threat and potentially doomed to failure so the processes within the project may be better off being cancelled and the resources assigned to the project re-allocated. For example, BP have recently decided to venture into Russia to develop a rival power company searching for unexploited oil and gas reserves, but if the economy in Russia deepened into further problems then the investment BP have made may be under threat possibly reducing them to lower their investment. The rewards if successful for BP would be tremendous if their searches are successful so the balance has to weighed up.

SWOT (Strength, Weakness, Opportunities, Threat) analysis would be used by BP to see what they could reap from investing in Russia but would also be important to consider on each project a company would be thinking of developing. What initially was designed as a breakthrough project may after SWOT analysis be better developed into becoming a more substantial platform project in a few years time. Constructing a aggregate product plan is all about getting the right mix of projects that would provide the company with a basis for designing and developing products to sell, essentially for profit. Using SWOT analysis would be a major tool to see what project would be best able to provide that profit, over the suitable period of time.

4. CONSIDER EXHIBIT 4-4. WHAT IS THE DIFFERENCE BETWEEN A STEADY STREAM AND A SECONDARY WAVE STRATEGY? UNDER WHAT CONDITIONS WILL ONE BE MORE IMPORTANT THAN THE OTHER?

A steady stream strategy is based around developing a platform from which processes and products can be launched. Once this has been achieved, new enhanced products are released increase sales to continue the original trend from people purchasing the original. Once these derivatives have been launched, a new platform is created and continued to develop in the same way as before. An example of this is the ‘Star Wars’ films. George Lucas’ epic has produced millions of dollars due to following what could be argued a ‘stream wave’ strategy. Films were created which created the cult status, producing the platform from which others could be based. The steady stream aspect comes into the equation when you consider the merchandising in all aspects which grabs the consumer’s attention and produces a build up for the next line of films. Other films get released and the same happens, another film etc etc. Due to filming and other time constraints on producing the films, enough time passes until the next one where the merchandising can be focussed on until the next film gets released where it all happens again. Once the whole ‘Star Wars’ product has been completed, who’s to say what George Lucas will produce or create to continue his steady stream strategy.

Secondary Wave is where the original project is returned too once the derivatives have all been released. The original platform project is designed and released and then once it has been completed, more and more derivatives keep being released to ensure market share. It sounds very similar to steady stream but it is the returning to the original that keeps them entirely different. Examples of this in business would include the car companies releasing a model and then keep releasing new models every year with added extras, keeping the same designs, thus keeping development costs low but effectively producing a different car. This could be done because of the slow rate of technology that comes into the car industry. Engines have been engines for a long time but a newly developed car may have a more powerful engine or improved performance. Colours for cars are also a common feature to be updated due to the paint colours being able to be digitally designed. MG are currently offering free fuel for a model on their product range that has been available for a few years but it may entice consumers to purchase it because of the offer.

Once the derivatives have been released on to the market, the car company will go back to the original design and perhaps design a new model based on it aiming to attract the consumers which bought the original. Another method would be too overhaul the design of the car and re-release it with a new version, an example of this is the Ford Mondeo. Originally when the car was released there was a model called the Mondeo Ghia, but over time the look of the car got out dated so Ford redesigned it, re packaged it and released the Mondeo Zetec. This Zetec version had a new brake system, engine capacity, a modern look, modern media options etc etc. The general look of the Zetec was modern and used to update the whole Ford range bringing with it the Fiesta, Ka and Focus etc.

5. WHAT PROBLEMS MIGHT A COMPANY LIKE PREQUIP CONFRONT IN DEFINING ITS DEVELOPMENT CAPACITY? HOW WOULD YOU PROPOSE TO ADDRESS THESE PROBLEMS?

Clarity of information to ensure up to date decisions being made
Incorrect approaches to business – being over ambitious
Over committing resources & key personnel
Increased cost due to all of the above

The capacity of the company allows management to make decisions on what projects to undertake and develop in order to create profits. In order to make these decisions, management must have up to date, clear and accurate information about the company at that time.

Problems such as not having the clear information restrict management from making the right choice on what to do. The clarity of information depends on other internal problems such as operating incorrect procedures. The development capacity of the company is in the hands of the people within the company maintaining projects in ways laid down by the company. This is because senior management know the aims and objectives they want to achieve. If development teams aren’t following the correct procedures then the correct methods of developing ideas and the projects could be threatened reducing the effectiveness of the company’s development. Overall, inaccurate figures are being produced to management who make decisions about the capacity at which the company works. Clarity of information is also instrumental if the wrong approach to business is taken. The wrong approach to the business could lead to over committing the company to too many projects at any one time. This immediately stretches the companies resources in a way that cannot be changed unless more resources are brought in; doing this however will reduce the benefits the company would receive from completing the projects. A balance is needed comparing the amount of available resources to the benefits of projects completed. PreQuips problems were along these lines where too many projects were started without considering the correct approaches to start them in the first place.

This over committing resources also threatens projects that are correctly started. Key personnel within the company can only focus on a couple of projects at any one time and although initially productivity increases, over time is decreases due to the lack of concentration the personnel are able to provide to the projects. I would suggest that before a project is set up, the key personnel should be declared available to provide input to the project to guarantee they can fully co-operate to the projects assigned to them. If key personnel are stretched then unless there is sufficient time before completion date then the project should be carefully considered before accepting it to the ‘active’ list. Doing this simple operation would reduce the wrong levels of resources being assigned to the wrong types of projects and vice versa, getting the right resources to the right projects as this increases the likelihood of a successful project.

Once the correct procedures are followed within a corporate planning department, using the aggregate plan, then other problems are minimised. PreQuip once they had identified they were undertaking too many projects had to re-organise their planning thinking from scratch. (see Fig1.0).

Fig1.0

Resources from Alan MacCormack, Harvard Business School, May 2001

The initial corporate planning strategies, above, are unorganised, unsuccessfully implemented and subsequently needing to be overhauled and planned again. By doing this projects may have to be cancelled incrementing costs and also, the planning will need to be rethought out, again increasing costs.

This shows how important getting the right mix of projects is, to ensure the capacity of the company isn’t stretched. The diagram below, Fig1.1, shows how the mix of projects has been planned afterwards.

Fig1.1

Resources from Alan MacCormack, Harvard Business School, May 2001

6. SET OUT A PROCESS AND SUGGEST PLANNING TOOLS THAT WOULD HELP INTEGRATE AGGREGATE PROJECT PLANNING WITH CORPORATE PLANNING?

The integration of aggregate project planning and the corporate planning can be initiated by using a series of steps that have been laid down to ensure the correct mix of projects that in turn ensures the company’s ‘active’ list is accurate and clear. It must be made clear that the two planning strategies are closely related and one cannot be implemented without the use of the other. If it was then the company would be potentially focussing on completing procedures and developing projects that wouldn’t tie in with the current status of the company which again could potentially lead to producing products that wouldn’t succeed in the marketplace.

To ensure the integration of the two planning strategies, steps are required detailing what is needed at each stage before any decision is made as to what projects are developed further. The first step identifies what types of development projects are available and able to be covered in the aggregate project plan. By identifying the project types, corporate planners can match the objectives of the company to projects and be aware of whereabouts they exist and operate. For example, knowing that breakthrough projects are available would allow the corporate plans to include any aims of the company to introduce a new product into the market within a given time period. To ensure this is done correctly, criteria is laid down which the type of project must comply.

Another tool that can be implemented is the definition of critical resources and the allocation of time required to complete one project from the types of projects previously identified. This would involve seeing what personnel are needed, what level of expertise is needed, the use of machinery needed and the different processes required in order to complete each project.

After this, identifying what are the actual resources available to you would be necessary to calculate. This would help integrate the two planning strategies by seeing if extra resources are needed to be purchased or hired or whether there is too much and resources need to be sold. Overall objectives are already known and this would see whether those objectives can be started or whether more time and money is needed to get them started.

The next step in the integration would be calculating the overall capacity that can be produced by the company using the current resources for each project type. Time scales are produced as well as the number of components, products, ideas etc that would be possible to produce within that time. By using this tool, the company can see whether the current state of the company is sufficient to provide the level of projects it wants. Decisions on the future of the company in relation to taking on more projects can instantly as the level of capacity has been ascertained which would reduce the risk of being committed to more projects than the company can handle.

Once the capacity of the company has been identified, the company can decide on the type of projects it wished to undertake. This may largely depend on the management’s aims and objectives for the company. The company may already have plans for introducing a new product on to the market, or to develop an existing product but because of the work already completed in terms of planning, these plans can be added to an aggregate project plan that as we already have seen, lays down the type of projects in way that is clear, logical and easy to understand. (see Fig1.0). Various project types including platform, breakthrough, derivative and support projects are available and depending on the level of resources, capacity etc that has already been defined, projects can be slotted into the corresponding areas within the diagram.

However, even with an aggregate project plan, these decisions as to where they lie are still only strategic plans and not a practical reality. Success is only going to occur if the processes laid down within the company are finite and followed and even then only if they produce the desired results. Once all of this has been implemented, a decision has to made as to which projects will be chosen and developed further. Problems may arise during this planning which may affect the overall decision. Markets, economies and other external factors may mean that the projects the company were originally planning to develop may already be obsolete and pointless in continuing with. However, since the company has identified what its resources are, the potential capacity is, who its key personnel are, it would be in a better shape to quickly identify what else it can develop and predict where the markets are heading towards. This prediction is evidence of the integration of the two planning strategies as the aggregate project plan is helping the corporate planners what the best thing to do actually is and without it the corporate planners wouldn’t be able to effectively forecast anything.

7. SUPPOSE YOU ARE IN CHARGE OF R&D FOR A MANUFACTURER OF COMPUTER PRINTERS. YOU DISCOVER THAT THE FIRM HAS 15 PROJECTS UNDERWAY, BUT ONLY HAS THE RESOURCES TO COMPLETE 6 OF THEM. HOW WOULD YOU RECOMMEND THE COMPANY PROCEED TO REDUCE THE NUMBER OF PROJECTS? WHAT ISSUES MUST THE COMPANY CONFRONT?

Calculate potential profits from current projects – continue with most profitable
Calculate level of resources assigned to each project – assess situation
Out-source some, scrap others – which ones? Breakthrough/Platform/Derivative/Support
Increase time-scales for current projects, slowly reduce them by concentrating resources

Re-allocation of staff around company
Productivity on current projects – profitable ones may falter if swapped around
Over-committing
Hiring/Firing of staff
Increased costs – scrap, design, outsourcing

If I were in charge of R&D for this company I would recommend the following steps to counter-act the problems that the company were facing. However, the success of my proposals would depend on the way that the company viewed them. All of the steps would be recommendations to have a look at and not necessarily just implement them all straight off. The steps that I would propose would also have the corresponding issues as a consequence of the actions taken.

Firstly, the primary task I would undertake would be to see which of the current projects that were being undertaken was potentially the most profitable to the company. Although money may not be the primary objective, it may provide the most information and ideas along with the benefit of providing the most stable products and processes. The most profitable may not be the most stable but the allocation of resources into the project could ensure it was completed. Stability would be the main concern as a R&D planner to create some kind of balance and platform to work from where new procedures could be developed to create new projects.

There are various methods that could ascertain the profitability of the project to the company. I would use the Internal Rate of Return (IRR), where the economic viability of the project is identified to see whether it is worth completing as well as the Discounted Cash Flow (DCF) which assesses the return on the investment put into the project. Both of these methods rely on estimates being made on the cash generated from the project’s eventual introduction of products into the market.

Secondly, I would look at calculating the level of resources that were currently assigned to each project. Resources could then be allocated to projects that were near completion which would then free up the resources. Assessing the current level of resources would also allow the company to look into the possibility of purchasing or hiring new resources to allow for expansion once the balance of the projects was met. Once the balance had been met, the company would be in a better state to deal with more projects increasing productivity after the slump of reducing projects.

To actually undertake the reducing of projects once the most useful projects have been allocated resources, the option of out-sourcing some projects could be used. Although the project would then be out of the companies control it is allowing the company to take control of more important projects. The allocation of resources assigned to that projects would become available and free to be used elsewhere. Projects that fall outside of the parameters of out-sourcing or continuing could either be scrapped completely or adjusted to meet other needs of the company. Scrapping projects would not be ideal as development that has already been invested into that project would be lost which no gain for the company. However, there may be a possibility of altering the time scales assigned to those projects preventing them from being scrapped and allowing them to be kept on hold until resources become available. By concentrating resources in one place, it would allow for the projects to be completed quicker and hopefully get projects that required less work out of the way to concentrate on other more important projects.

By doing this, a balance between completing smaller projects and continuing with important projects could be made making the companies planning easier to implement in the future.

With all these proposal issues would crop up which would affect whether my proposals could be followed through. Resource allocation, mainly staff could cause unrest and confusion as to what their jobs actually were. This could reduce productivity on projects assigned to be continued with and on projects that were still undecided.

Another issue that could crop up would be over-committing. This could be a problem if projects were completed using all available resources and then once the project was completed the resources not accurately allocated to other projects. Strong management decisions will need to be made on ensuring the resources had projects to operate on and if there isn’t then deciding what to do with the staff. The level of resources would also be overseen and decisions made as to whether the level of staff was too high or low. If high then redundancies may need to be made and if low then issues regarding recruitment may need to be considered.

On top of these issues, the threat of increased costs would be ever present during the reorganisation of the company and the way it developed and implemented projects. Scrapping projects is a waste of investment but the development of a pointless project is also a waste. Ensuring that costs are kept minimal would lead management to make the decision as to what is kept and what isn’t. Out-sourcing projects wouldn’t be cheap but could be balanced by the availability of resources to concentrate on profitable projects. Re-designing the way projects were developed would also accrue costs but not doing so could lead to more investment being wasted. It would also benefit future projects as the chances of them being scrapped would be reduced by implementing correct and accurate planning in the first place.

Tim Corke