Thursday, January 15, 2015

The Cost of Working Without Trust

photo in public domain

This month’s story, the first of a two-part series about working with and without trust, is about a manufacturing plant in a well-known consumer goods corporation.
     Three years ago we began a “grass-roots” plan to expand production capacity for a successful product. The project started in a wheat field and was to end two years later with a multi-million dollar plant. Unfortunately, the eventual plant cost became a troublesome issue in an otherwise successful project.
Management blind to the facts  
     To begin with, upper management believed the project should cost $40 million, a figure based solely on their own experience and not on the facts. Management declared the conceptual study’s estimate of $55 million to be unacceptable because it had already agreed to staff and develop a conceptual study based on their $40 million figure. They questioned the cost engineer's credibility, even though he was quite experienced and used proven methods to develop the estimate. There were even discussions that the scope and estimate were “gold-plated” and that we really wouldn’t build the plant like that. After reducing the project scope to appease management (reduced building size, eliminated some non-process scope, etc.), a compromise estimate of $50 million was accepted for the project's appropriation.
     Immediately after appropriation, the eliminated scope was returned to the project because the scope reduction decisions had been based on cost criteria alone, with no consideration for the actual needs of the project. For example, reducing the building size meant a key piece of production machinery would no longer fit, so the building had to be returned to its original dimensions. Despite valid scope additions such as this, management refused to approve changes. They said, “You already have $10 million more than you need. We're not going to give you any more fat!”
Given management’s attitude, the project team maintained very little cost consciousness. Since management was ignoring valid cost estimating and trending data, the team didn't bother with cost control and the cost situation soon became disruptive. The project team knew they were exceeding the appropriated amount, but since management refused to listen to the team's concerns, cost control became a big joke.
     So the scope grew while the cost predictions remained the same. When the project team completed definition and design, a second estimate was published at $58 million.  When construction took over, the estimated cost of the plant increased to $64 million (the amount the contractors originally estimated for the project). Even the most dedicated effort of a competent project team cannot deliver a successful project without the trust and support of upper management. Trust is a two-way street:  the trust of senior managers in the project team facilitates the trust of the team in the senior leadership.
     At project close, the project team had done an excellent job of building a $64-million plant. The start-up was on time and one of the best in the company. The only criterion the project failed to meet was cost, due to management's stubborn arrogance and unbending devotion to its own target cost. Unreasonable pressure from management to pursue unrealistic objectives does not ensure the achievement of those objectives.
     When it comes to organizational performance it is a balancing act to challenge people to achieve high performance. Set the bar too low and it only calls for minimal effort to reach. However, if the bar is set too high, with unrealistic objectives, failure is the assured outcome. And what was upper management’s response to the outcome in this story? The contractors were hung.
Part 2 of this two-part series will be published next month, with a story about working with trust.

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