MSPM 6170 PMC Corporation Case Study
Part 1: PMC History and Organizational Structure
In 1947, Jim Kelly founded the PMC Corporation to build houses for an emerging market created by the return of veterans after World War II. PMC built standard houses in subdivisions throughout North Carolina and South Carolina and quickly gained a reputation for quality construction delivered on time and on budget. As the number of new homes and subdivisions grew, so did the demand for other amenities. PMC was well positioned to expand its business to meet the need in the market for commercial buildings and small industrial plants.
By 1960, PMC operated three divisions: housing, commercial building, and small industrial plants. During this time, PMC grew in size and profitability, increased its bonding capacity, and developed both technical and management expertise. During the 1970s, PMC diversified and began building manufacturing plants for the food, auto, steel and aluminum, and oil and pipeline industries. By 1976, PMC was out of the housing construction business and turned its focus to large industrial plants. It incorporated the mining and chemical industries into the range of industries it served. PMC also grew geographically, serving clients in North America, South America, Europe, Asia, and the Middle East.
PMC developed additional expertise, through acquisitions and in-house development, to offer a full range of engineering and construction services to its clients. By 2005, the company provided a full range of services, from site location to plant startup. PMC could help a client find a location for its plant, design the equipment and facilities, procure all the materials and equipment to build and start up the plant, and train the workforce for the new plant. A client could purchase any or all of the services needed to locate, design, construct, and start up a new plant.
By 2015, PMC was a public corporation, operating in 27 countries, and managing more than $10 billion in projects. PMC organized around three components for managing large industrial projects: technical knowledge and expertise, regional knowledge and administrative support, and industrial knowledge and relationships.
Today, PMC corporate headquarters houses executive leaders, who determine corporate strategy. Financial management, legal and human resources functions, and government relations staff are also housed at corporate headquarters. Staff at headquarters focus on strategy and how to deploy the strategy throughout the organization. For example, the director for safety and security establishes global policies and procedures for safety and security and the regional offices are responsible for regionalizing these policies and assuring compliance on all projects within the region.
Regional offices are established throughout the globe to manage the projects within that region. A senior vice president in the regional office manages operations, including all projects and sales and marketing. The regional vice president for sales and marketing and the regional vice president of operations report to the senior vice president for the region.
South Latin America Region (SLA)
The South Latin America region (SLA) includes responsibility for the seven countries in the southern cone of Latin America: Argentina, Brazil, Chile, Peru, Uruguay, Paraguay, and Bolivia. The headquarters for the SLA region is located in Santiago, Chile. The regional office provides logistical and administrative support to all of the projects within the region. That support includes accounting, legal, contract review, cultural and language support, sales and marketing, and project oversight.
The SLA regional office houses the industry leaders for those industries that have projects in the region. Industry leaders include managers with expertise in managing projects within their industry. Industry leaders report to the SLA vice president of operations. Industry sales and market personnel focus on developing and managing relationships with industry clients in the region. The sales and marketing teams report to the SLA vice president for sales and marketing.
Potential projects are identified by the industrial sales groups. They do an initial evaluation of the projects and then submit the potential projects to the regional office for final evaluation and selection.
Execution Capacity and Oversight
The project management office (PMO) is located in Santiago, Chile, and is managed by the SLA vice president of operations. The PMO provides support for the projects in the region. It also provides project management guidelines, project startup facilitation, templates, and project management plans. Safety, logistics, contract review, project accounting, technical and leadership training, and technical support are available as needed by the project. Project managers report to the SLA vice president of operations.
Part 2: Evaluating, Selecting, and Prioritizing Portfolio Projects
SLA Regional Goals
To support the PMC corporate strategy, the SLA region established the following goals:
· Introduce at least one new industry to the region.
· Develop additional technical expertise within the SLA region to reduce dependency on resources from the United States.
· Develop two new local partnerships with companies that have specific industry expertise.
· Promote safety.
· Contribute to the local economy by hiring and purchasing locally.
· Manage projects sustainability by following environmentally sustainable practices.
Currently, the mining, pipeline, infrastructure, commercial, and telecom industries have projects in the SLA region.
Project Evaluation and Selection
The SLA vice president for sales and marketing receives input from both the regional and industry group sales teams on prospective projects in the region. The SLA vice president for sales and marketing collects the information and records it in the Prospective Project Register. She then completes the Prospective Project Evaluation Form using established criteria for meeting the SLA regional goals. The prospective projects are then prioritized from the greatest to the lowest contribution potential for meeting strategic goals.
Les Walker, CEO of PMC Corporation, is visiting selected company locations on his annual “walk around tour.” The tour allows Les to visit several of the corporation’s operations and get into the details of the projects in those locations. This tour is promoted as an opportunity for employees to get to know the CEO and express their ideas about how the company can improve. Everyone knows that this is also an inspection, so the operation needs to be in good order. Les will attend the SLA Project Review Meeting, where the project managers present the project data, discuss opportunities and issues, and resolve problems.
Argentina has four active projects: two mining, one infrastructure, and one commercial.
The Jones Mining Company has two ongoing projects in Argentina. Jones Mining has been a good client for several years, and Les Walker has a personal relationship with Mike Jones, president of Jones Mining. He will be having dinner with Mike Jones after the project review meeting.
Argentina Copper Mine Uno
The Argentina Copper Mine Uno project is Jones Mining’s largest investment in South America and will represent 25% of the revenues in South America over the next decade. Jose Martin, the project manager, is considered one of the best project managers in South America and was requested by the client.
The safety record is excellent with no loss time accidents, and the safety training program at the project site was recognized by the corporate safety manager as the best in South America. The monthly client surveys indicate a high level of satisfaction with the project team, communication, responsiveness, and overall approach to the project. The client highlighted the cleanliness of the project site as an example of the project team understanding the client’s culture. The safety approach was also highlighted by the client as best in class. The local chamber of commerce recognized Jose Martin for establishing a training program in construction skills for local youth.
The original budget for the project was $250 million. The current cost metrics for the project are:
· Planned Value (PV) is $90 million
· Actual Cost (AC) is $95 million
· Earned Value (EV) is $100 million
· Estimate at Completion (EAC) is $265 million
Argentina Copper Mine Dos
The Argentina Copper Mine Dos project is a test project in a new region of Argentina to determine if there are greater opportunities in that area. If the project goes well and the region shows promise, Jones Mining plans to expand in this region. Glen Smith is a new project manager. This is the first time he is managing a project from the beginning of a project.
The project had a serious accident when one of the workers fell from a platform, and the accident investigation indicated that the worker was not properly tied off. The SLA region sent safety experts to conduct a project audit and provide additional training at the site. A second audit conducted 1 month later indicated all but three recommendations were fully implemented.
The client survey indicated concerns. The client rated the project communication as extremely low because they had not been informed about the accident until after the safety audit. Also, there are several outstanding change orders, so a project review has been scheduled by Mike Jones. There have been no environmental fines or complaints.
The original budget for the project was $15.1 million. The current cost metrics for the project are:
· Planned Value (PV) is $13 million
· Actual Cost (AC) is $15 million
· Earned Value (EV) is $12 million
· Estimate at Completion (EAC) is $15.5 million
The Catamarca Bridge project is the design and construction of a major highway bridge in the state of Catamarca, Argentina. This is the first infrastructure project for PMC Corporation in Argentina. This is an opportunity for the SLA region to develop a reputation for high-quality construction and also establish a relationship with decision makers. The state of Catamarca has plans for several major road and bridge projects in the next 10 years.
Sarah Lopez is an experienced infrastructure project manager in the United States, but this is her first project in South America. The project team developed new partnerships with local companies and suppliers in Catamarca. There have been no safety issues on the project. Ms Lopez is working closely with the mayor of Catamarca to address local complaints about the dust caused by the bridge construction. The client surveys indicate general satisfaction with project performance, but the client feels that Sarah could improve communications management.
The original budget for the project was $230 million. The current cost metrics for the project are:
· Planned Value (PV) is $74 million
· Actual Cost (AC) is $76 million
· Earned Value (EV) is $75 million
· Estimate at Completion (EAC) is $233 million
Shell Oil Office Building
The Shell Oil Office Building project resulted from the ongoing relationship between PMC and Shell Oil. PMC does billions of dollars in projects for Shell Oil around the world. Shell contracted with PMC to build corporate headquarters and an office complex. The project is almost complete with no safety concerns and the client seems very satisfied. The client praised the project for designing the building to meet the Green Building Standard as recognized by the Green Building Initiative. The project manager, Jose Pena, has requested to be transferred back to Chile. Jose has recommended that the assistant project manager be promoted and complete the project.
The original budget for the project was $17 million. The current cost metrics for the project are:
· Planned Value (PV) is $16.7 million
· Actual Cost (AC) is $16.9 million
· Earned Value (EV) is $16.9 million
· Estimate at Completion (EAC) is $17.1 million
Argentina Project Performance Report
|Project Status: Red, Yellow, or Green
· Red: Needs immediate attention of SLA and industry leadership
· Yellow: Issues have emerged, and SLA operation manager should be involved
· Green: No significant issue
· Provide SPI and discuss implications
· Provide CPI and discuss implications
· Evaluate current risk status
· Evaluate current status of relations with the client
· Summarize project issues and concerns, including management response
|Opportunities and alignment with SLA region goals:
· Opportunities for project improvement
· Opportunities for the SLA region
Part 4: Trouble Hits the SLA Region: Managing Risks in Project Portfolios
Sid Johnson, the PMC corporate safety officer, is visiting the region prior to the visit of CEO Les Walker. Mr. Johnson requested a complete risk analysis of the top three risk projects in the region. The regional safety manager met with the SLA region operations manager to select the top three risk projects.
Summary of the projects selected for analysis by the PMC corporate safety officer:
Argentina Copper Mine Dos
Glen Smith is a relatively new project manager but is considered an expert in mining technologies. An Argentine mining technical expert was hired to be the technical expert for the project but resigned because of “constant criticism from the project manager.”
The Argentina Copper Mine Dos is in a new region of South America for the client, and there is a significant lack of trained/skilled labor to perform the tasks needed for the project. The project manager was able to contract a significant portion of the construction work with Pico Construction Company. Pico Construction is a small local company with experience in housing and small industrial projects. Pico is a family business with all the managers related to Ernesto Pico, the founder and CEO. The project will need 50% of Pico’s workforce for the 6 months of the project to complete the work on time.
The project team submitted three change orders for additional work that was performed on the project. The client rejected the change orders, indicating that they had not approved the additional work. The project manager, Glen Smith, has requested a meeting with the stakeholders to negotiate the issue about the work orders.
Mike Jones, CEO of Jones Mining, indicated that this region of Argentina is looking less promising for possible expansion.
ATT Chile Fiber Optics
ATT Chile is expanding its fiber optics throughout the country. The Chilean government set a priority of “bringing high-speed Internet to every home in Chile.” This government initiative supports governmental goals related to increasing educational quality and access, heath care access and quality, and support of economic development with technology.
This is the first of 20 projects planned by ATT Chile. John Heinz managed a similar project in Chicago and brought his entire project management team from Chicago to manage the ATT Chile fiber optics project. The ATT Chile client sponsor, Juan Casales, does not speak English and no one on the project team speaks fluent Spanish.
A 6.8 earthquake hit Santiago, Chile, 3 weeks ago. A member of the client’s team was killed on the project site. The damage to the project work appears to be minimal. Although the contract states that the client is responsible for any damage caused by natural disasters, the client claims the work was not adequately protected for earthquake zones.
The Catamarca Bridge design is 75% complete and the steel has been ordered based on the approval of the structural drawing. To date, labor costs and steel costs have been below estimates that were developed based on experience in the United States. However, conversations with the new partners on the project indicate that lower performance in labor productivity and increased costs for specialized steel for the project are likely. The project manager, Sarah Lopez, has not revised cost estimates or schedule changes.
The two new Argentine partners are performing well and have established a good working relationship with the client. The project review meetings are very formal, and no issues have been raised during these meetings. After the meeting, the project partners share with Sarah concerns expressed privately to them. Although no major issues have arisen, Sarah is concerned that the partners have a much better relationship with the client than she does.
Below is the portfolio of projects in the SLA region based on the information provided by the project manager for each project. Safety is rated on a scale of one (1) to three (3), with 3 representing safety issues that need to be addressed. Risk was rated as either yes (Y) on no (N). Yes indicates there was a risk event identified in the initial risk assessment that occurred.
|Argentina Copper Mine Uno||Mining||05/12/17||Jones Mining||1||N||Project cost, schedule, and quality in line with project plan. Client surveys were very positive. Change orders are all approved.|
|Argentina Copper Mine Dos||Mining||04/12/16||Jones Mining||2||N||Safety audit found contractors without appropriate safety equipment. See audit report for details. Client expressed concern over safety audit findings.|
|Catamarca Bridge||Infrastructure||05/12/17||Catamarca||1||N||This is a lump sum contract. Project is on schedule and cost. No concerns.|
|Shell Oil Office Building||Commercial||10/12/16||Shell Oil||1||N||Project cost, schedule, and quality in line with project plan. Client surveys were very positive. Client is selecting colors for the various rooms. Ribbon cutting scheduled for Jan 1.|
|Chile Copper Mine Uno||Mining||04/10/17||Jones Mining||1||N||Project is on schedule and all change orders have been approved. Client is discussing another project in 2020.|
|Commercial||01/10/18||Exxon||1||Y||Project is on schedule and all change orders have been approved. The project is still assessing the earthquake damage from last week.|
|Fiber Optics||Telecom||07/01/16||ATT Chile||1||N||Project experienced small damage in earthquake after project signoff. The client insists that the project repair the damage. Currently, in discussions with the client.|
|Lima Pipeline||Pipeline||02/01/18||Ariba||1||Y||Cost of pipe significantly increased because of new tariffs. Client believes the cost increase should have been anticipated. Project could be cancelled.|
|Pacific Pipeline||Pipeline||02/01/16||Ariba||1||N||All pipe was in- country before tariff increase. Delays in permitting at the beginning of the project impacted the project end date.|
Part 5: SLA Procurement Resource
Issues with subcontractors in the SLA region caused significant problems for the region and loss of profits. The SLA president decided 3 years ago that all SLA region contracts with subcontractors must be developed by procurement specialists in the SLA region PMO. Contracts below $25,000 can be developed by the project management team.
The SLA has three procurement specialists that must develop contracts over $25,000.
· Contracts between $25,000 and $100,000 require 1 week to prepare
· Contracts between $100,000 and $200,000 require 2 weeks to prepare
· Contracts between $200,000 and $400,000 require 3 weeks to prepare
· Contracts over $400,000 require 4 weeks to prepare.
Weeks are based on a 40-hour work week. No one procurement specialist can work more than 20 hours overtime per week. Therefore, a contract requiring 4 weeks can be completed in less than 3 weeks with one procurement specialist using overtime.
The SLA procurement/contract specialists:
· Joe Spencer is the senior procurement specialist and has a reputation for developing error-free contracts and is always on time. Joe will work overtime, if required.
· Linda Rodriguez is new and can only be assigned to project contracts in Chile.
· Sam Smith is a senior procurement specialist from Peru who is now living in Chile. Sam will work overtime but not on a project in Peru.
The SLA region project managers have identified 20 contracts that need to be developed during the next 6 months. They are listed below by project, the estimated cost of the contract, and the due date for completing the contract by the procurement specialists.
Project A needs three contracts:
1. $275,000 by July 30
2. $574,000 by August 14
3. $630,000 November 30
Project B needs four contracts
1. $10,000 by August 30
2. $320,000 by September 30
3. $420,200 by September 30
4. $520,000 by December 30
Project C needs three contracts
1. $125,000 by July 31
2. $225,000 by October 30
3. $625,000 by November 21
Project D needs three contracts
1. $200,000 by November 1
2. $100,000 by November 1
3. $330,000 by December 31
Project E needs two contracts
1. $330,000 by July 31
2. $220,000 by September 30
Project F needs one contract
1. $670,000 by September 21
Project G needs two contracts
1. $500,000 by November 30
2. $637,000 by December 15
Project H needs two contracts
1. $75,000 by July 31
2. $330,000 by November 30
The SLA region president is concerned that the SLA region PMO is not prepared to support the procurement contract needs of the region and asks you to develop a resource plan.
Data Summary Sheet: