The Sharon Construction Corporation has been awarded a contract for the construction of a 20,000-seat stadium. The construction starts on Monday, February 15, 2016 and must be completed within 52 weeks. A penalty clause of $15,000 per week for each full or partial of delay beyond this date was written into the contract. Jim Brown, the president of the company, called a planning meeting. In the meeting he expressed great satisfaction at obtaining the contract and revealed that the company could net as much as $300,000 on the project. He was confident that the project could be completed on time with an allowance made for the usual delays anticipated in such a large project. Bonnie Green, the director of personnel, agreed that in a normal year only slight delays might develop due to a shortage of labor.
The technical details of the project are given in the appendix to this case. The management team was asked to consider alternatives for coping with the situation. At the end of the week, four proposals were submitted:
1. Expedite the pouring of seat gallery supports. This would cost $20,000 and cut the duration of the activity to six weeks.
2. Put a double shift on the filling of the field. A cost of $10,000 would result in a five week time reduction.
3. The roof is very important since it precedes several activities. The use of three shifts and some overtime could cut six weeks off the roofing at an additional cost of only $9,000.
4. Do nothing
It was determined that proposal #1 was the best option to chose from during the initial case study analysis. However, the cost of pouring the seat gallery has increased from $20,000 to $30,000 for proposal #1. In addition, management has identified a fifth proposal:
5. You can expedite (i.e., crash) any activity that has not started after a strike at the cost of $3,000 per week. However, the most you can expedite any activity is 1/3 of its normal duration. Furthermore, the only cost to the project during the strike is the overhead - workers do not get paid.
Develop a project schedule and budget that takes into consideration your risks.
Meaning, you are being evaluated on managing the project so that you are within planned schedule completion date and within planned baseline budget. In this case, you are protecting the $300,000 profit margin to the best of your ability. Even though the president has made the agreement to complete the project within 52 weeks and that date cannot move, determine the realistic baseline that best takes into account the risks the project is facing? First, choose the best proposal based on your analysis, and then explain how you would d adjust the project budget baseline for actively managing risk based on your analysis. Specifically, the cost for any planned activity to transfer or mitigate risks and a risk reserve budget for a contingency?
Second, explain how you would adjust the project schedule baseline for actively managing risks based and what a schedule reserve for a contingency for the proposal you choose? Your analysis is based on being risk neutral, meaning balancing impacts of all risks with the probability of risks occurring and the associated cost for mitigating the risks.