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THE ORGANIZATIONS OR DEPARTMENTS THAT PARTICIPATE IN THE PROJECT LIFECYCLE

The ETO environment has four roles or disciplines not normally asso­ciated with traditional discrete manufacturing:

      bidding and estimating

      project management (except for capital projects and new product
development)

     contracts

     installation management.

In addition, there are two roles that have a superficial similarity but are different in either level of authority or technique:

     engineering—very active throughout the project lifecycle. The de­
sign engineer is king!

     project accounting—it's a costing function, but the technique is radically different from standard costing.

THE CRITICAL BUSINESS ISSUES THAT EACH DEPARTMENT MUST ADDRESS

Now that we've discussed the overall business environment of a com­pany operating on an ETO basis, we can examine some of the critical business issues each department or function must deal with. Since there are many functions involved and they experience many challenges, I'll limit the discussion. For seven different departments or functions I'll cover just a few issues. Since this paper is written for the resource man­agement professional and also the project management professional, we will examine and be more expansive on issues that directly impact them. A disclaimer—every role or function I describe is a generalization. The ETO community is very creative and pragmatic on job responsi­bilities and reporting relationships!

Bidding and Estimating (Proposal Management)

This is a difficult role to play. The bid process is an integral part of the front-end processes. During this phase (see figures 1 and 2), two critical objectives are extracting a workable and reasonably accurate require­ments definition or specification from the customer. The second objective is to select the strategy to satisfy delivery and the cost requirements. This selection is complicated in that not only will machinery be deliv­ered, but also value-added services. Decisions must be made such as should we subcontract or perform this activity in house? How much project reserve should we incorporate and not damage our ability to get the contract? Can I use a blended labor rate for my esti­mates? How reliable are the estimates I've gotten from engineering, procurement, etc.? Do I have enough his­torical data on similar projects, and how accurate is it?

 

The people responsible for bidding and estimating work collaboratively with engineering, project man­agement, and contracts. They will have historical data to work with and will use data from past projects or templates that are similar to the bid under development.

 

Most if not all of the computerized systems they use are stand­alone, that is, not integrated with the other major systems in use in the company. This lack of integration between systems is not unusual in companies operating on an ETO basis and serving the commercial mar­ketplace. Figure 3 depicts the unintegrated nature of systems in a typi­cal ETO environment.

The bidding and estimating team is very much aware of the day-to­day, week-to-week, and month-to-month activities and problems in their company. "Head knowledge" is critical for success and intuition is fre­quently applied.

There are a number of critical business issues that cause problems for the bidding and estimating professional.1 Since the length of this paper is limited, the discussion will be kept to two issues:

      unrealistic schedules

      limited availability of knowledge workers and craftsmen.


Unrealistic schedules—If you're responsible for bidding the con­
tract, you are interested in performance to schedules. Since there may be a penalty clause in the contract, your power of concentration relative to schedule integrity is enhanced. Unfortunately, the information you receive from co-workers on new tasks and deliverables that is usedin the bid are often faulty. Since they do not have reliable data and simulation tools, the estimates on effort and time are often well off the mark. They do not have a problem of personal integrity; they just do not have the appropriate means to estimate time and effort. Then there's
the problem of the CEO or managing director.

Right at a critical point in contract negotiations, the CEO gives away the project contingency reserve not only in terms of budget but deliv­ery. The end result — unrealistic schedules. If Diogenes2 had gotten his priorities straight and had he worked in an ETO environment, he would have looked for a realistic schedule, not an honest man. Today we are looking for the means to give a realistic estimate and put to­gether a realistic schedule. Later in this paper we will discuss how to do both.

Limited availability of craftsmen and knowledge workers—The reality that every company operating on an ETO basis cannot escape is limited knowledge worker resources. In other words, there just aren't enough craftsmen around. This is an extreme issue for those producing complex mechanical machinery. A valid and achievable bid and con­tract both in terms of schedule and cost is very dependent on leverag­ing these critical resources. Unfortunately the "islands of information" typical of an ETO environment do not facilitate resource or constraint planning for these critical resources. The end result—poor schedulereliability, integrity, and credibility and high costs. Everyone involved in the bidding and estimating function wants to leverage these critical resources and get the maximum possible value-added contribution from them. Unfortunately, their systems conspire against them.

To Be Continued


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