1. How did the laser cutter "save" Peerless Saw Company when it could not be justified on payback or ROI grounds? Does this mean that the economics of automation are not important, or at least were not for Peerless?

2. Compare the decision Ted faces now—the 1200-watt laser purchase—with the decision he faced in 1981 when he was considering the three punch presses. Structure the investment decision for each of these cases. (Assume a computer cost in the neighborhood of $20,000 and software costs of $80,000. Training costs are included in this charge.) Consider costs, benefits, and risks. How has the decision environment changed? Is Ted more or less comfortable with this decision? How is this decision easier? How is it harder?

3. What do you think the potential problems might be in purchasing the 1200-watt laser? What about the potential benefits? Will this laser have the same impact on the business as the first laser? What are the strategic variables involved in these decisions?

4. Estimate costs and revenues for this new system to perform a payback analysis. Use the variable cost data in Exhibit 3; assume the laser cuts at the rate of 40 inches per minute, that a typical blade of 14 inches sells for S25 (33% discount for volumes near 100 units), and the same computer and software will be used as currently. Material load time for a 10-blade sheet of steel is one minute. Use a 3 inch arbor hole size and assume that a cut tooth doubles the cut distance. How would you address the quantification of the intan gible benefits the new system might provide? Is the new system justified on an economic basis? How might this system be more or less justifiable on an economic basis than the first laser system?

5. What are the organizational/behavioral considerations involved in this purchase? Are they the same as the first laser? How might this system be more or less justifiable on a non-economic basis than the first laser system?

6. Ted is thinking about offering 25 of his largest customers the opportunity to tie into his system directly from their offices. What benefits would this offer to the customers and Peerless? What problems might it pose?

7. Advise Ted on the purchase of the new laser system.

This adaptation is from a well-known classic in the complexities of managing projects. Initially, it describes the details of organizing a project and its unique characteristics in terms of scope, unfamiliarity, complexity, and stake. This is followed by a description of the special sources of trouble to which projects often give rise. Next, the actions required of executives, particularly top management, are described as guidelines. Finally, the author gives some advice concerning the management of human beings in a project setting.

Classic Reading


Late last year, with a good deal of local fanfare, a leading food producer opened a new plant in a small mid-western town. For the community it was a festive day. For top management, however, the celebration was somewhat dampened by the fact that the plant had missed its original target date by six months and had overrun estimated costs by a cool $5 million.

A new high-speed, four-color press installed by a leading eastern printing concern has enabled a major consumer magazine to sharply increase its color pages and offer advertisers unprecedented schedule convenience. The printer will not be making money on the press for years, however. Developing and installing it took twice as long and cost nearly three times as much as management had expected.

Fiascos such as these are as old as business itself—as old, indeed, as organized human effort. The unfortunate Egyptian overseer who was obliged, 5000 years ago, to report to King Cheops that construction work on the Great Pyramid at Giza had fallen a year behind schedule had much in common with the vice-president who recoils in dismay as he and the chief executive discover that their new plant will be months late in delivering the production on which a major

Sources for the Readings and Cases are given in the Sourcenotes at the end of the text. "Classic" readings are articles that have been recognized over the years as being particularly well-written and offering timeless and invaluable advice.

customer's contract depends. The common thread: poor management of a large, complex, one-time "project" undertaking.

But unlike the Egyptian overseer, today's manager has available a set of new and powerful management tools with the demonstrated capacity to avert time and cost overruns on massive, complex projects. These tools can be successfully applied to a host of important, nonroutine undertakings where conventional planning and control techniques fail—undertakings ranging from a new product introduction or the launching of a national advertising campaign to the installation of an EDP system or a merger of two major corporations (Figure 1).

Project Management Organization

Commercial project management is usually a compromise between two basic forms of organization—pure project management and the more standard functional alignment. In the aerospace and construction companies (Figure 2), complete responsibility for the task, as well as all the resources needed for its accomplishment, is usually assigned to one project manager. Very large projects resemble a regular division, relatively independent of any other division or staff group. Outside the aerospace and construction industries, however, the project manager is usually not assigned complete responsibility for resources. Instead, the manager shares them with the rest of the organization, perhaps having only a handful of workers on temporary assignment from the regular functional organization. The functional managers, however, retain their direct line authority, monitor their staffs' contributions to the project, and continue to make all major personnel decisions.

The companies that have grasped the significance of project management concepts and learned to apply them enjoy an extraordinary advantage. They are bringing new products to market faster than their competitors, completing major expansions on schedule, and meeting crucial commitments more reliably than ever before.

Project management, however, is far from being a cure-all for the embarrassments, expenses, and delays that plague even the best-managed companies. First, project management requires temporary shifts of responsibilities and reporting relationships that may disturb the smooth functioning of the regular organization. Second, it requires unusually disciplined executive effort.

Basic to successful project management is the ability to recognize where it is needed and where it is not. When, in short, is a project a project? Executives must have methods to identify those undertakings that cannot be successfully managed by the regular functional organization working with routine planning and control methods. Although there are no simple rules of thumb, management can determine whether a given undertaking possesses this critical mass by applying four yardsticks: scope, unfamiliarity, complexity, and stake.

Hardcore problem resolution

-18 Months

Figure 1 : Labor commitment to a merger project.

Hardcore problem resolution

-18 Months

Figure 1 : Labor commitment to a merger project.

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