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Project Risk and Cost Management Essay

EXECUTIVE SUMMARY:

Sleepmore mattress is one of the leading manufacturers of mattresses and has recently acquired its competitor. This acquisition has brought in a unique proposition wherein the company has to decide if it wants to consolidate the existing plants with the acquired plants or let them both run separately. This poses a unique administrative challenge to the president of the company. The president knew that calculating the dollar savings due to the consolidation of the facilities will be easy but considering the qualitative factors before making the decision will be difficult. Hence, The President of the company asked W. Carl Lerhos, his chief assistant to come up with a plan to simplify the decision of choosing between consolidating the facilities or running them separate. Carl chose three major factors in evaluating the consolidation plan. They were maximize manufacturing benefit, maximize sales benefit and maximize direct financial benefit.

These three objectives were to be evaluated against 13 criteria, which Carl arrived upon after discussing with the management. These 13 attributes were assigned a value from 0 to 10 against each plant being considered for consolidation. Through these measurements quantitative terms such as Annual savings, Plant location, Space availability and Initial Cost were quantified. But for assigning weights to the remaining qualitative terms, Carl had to rely upon his meeting with President, Vice President of Operations and Vice President of Human Resources. Based on their inputs Carl arrived at the below weights. Based on President’s input Annual Savings will be twice the weight given to Plant Size. Labor is twice the weightage of the average of all the thirteen attributes. Quality and Service will be weighed more than the average of all the thirteen attributes.

Management will be weighed as the average of all the thirteen attributes. Plant location and Plant Size will be given equal weightage. Product line complexity is two thirds the importance of Management talent. Stability, Training and layout individually has very small effect but collectively were considered to be twice the weightage of Product line complexity. Based on the above details available, Lerhos has to effectively combine and arrive at the decision. AHP was developed for both the qualitative and the quantitative measurements. Based on quantitative and qualitative measurements it was evident that merging the location 1a with location 1b will prove to be a good decision rather than merging location 2a with 2b or location 3a with 3b.

STATEMENT OF PROBLEM

Mergers always involves making complicated decisions. Decisions that should be in the interest of both the companies which were merged. While making these decision they have to take into account both the qualitative and the quantitative and weigh them according to the severity of the decision. Below are some of the problems which need to be tackled by Lerhos in order to arrive at a decision.

1. Quantitative measurements.

Both the company president and the vice presidents knew that making decisions based on the quantitative terms was easier. After discussion with the management, the measurement parameters in order to consider consolidation of the plants were Annual Savings, Initial cost involved in the consolidation, Plant size and Space availability. All the three plants being considered for consolidation were to be calculated for these values using Analytical Hierarchical Process in order to arrive at a decision whether to go ahead with the consolidation. Similarly, a standard value of five was given to the decision of keeping the plants separate. AHC is to be calculated even for this decision. After the individual calculations, decision to whether to keep these plants separate or to go ahead with merger were to be made.

2. Qualitative measurements.

Both the company president and the vice presidents knew that making decisions based on the qualitative terms was much difficult. After discussion with the management, the measurement parameters in order to consider consolidation of the plants were Labour, Quality, Service, Management Talent, Plant Location, Product line complexity, Production stability, training and Plant layout. As mentioned in the executive summary the individual weights for the qualitative terms were assigned as per the inputs given by vice president of Operations and Human Resources. All the three plants being considered for consolidation were to be calculated for these values using Analytical Hierarchical Process in order to arrive at a decision whether to go ahead with the consolidation.

Similarly, a standard value of five was given to these measurements for the decision of keeping the plants separate. AHC is to be calculated even for this decision. After the individual calculations, decision to whether to keep these plants separate or to go ahead with merger were to be made. Making an effective decision by taking into consideration, both the qualitative and the quantitative terms and the individual weights assigned to these measurements is indeed a difficult decision. There is always the danger of assigning weights without considering how sensitive they might be and how they might affect the overall decision.

BACKGROUND:

After every team member read the case study we had an initial discussion on our approach to the project. We came to the conclusion that we will have to calculate AHP separately for both the Qualitative measurements and Quantitative measurements. Analytical Hierarchical Process will help us in assigning weights to individual measurements and also to check how they fare with each of the plants. This calculations lead to us to arrive at the conclusion that for the quantitative measurement, Location 1 will be best suited for merger and as per qualitative measurement location 2 will be the best suited one for consolidation. AHP calculations were elaborate and we had to create two different matrices. One a 4*4 matrix for Qualitative measurements and a 9*9 matrix for qualitative measurements. Similarly a 3*4 matrix for individual plants for quantitative measurements and a 3*9 matrices for qualitative measurements were created.

METHODOLOGY:-

To arrive at the solution we will be categorizing the following sections into two categories: 1. Quantitative Analysis :- Here, we will be taking the following four parameters (Annual Savings, Initial cost, plant size and Space availability) with respect to consolidation of the plants. All the three plants being considered for consolidation were to be calculated for these values using Analytical Hierarchical Process in order to arrive at a decision whether to go ahead with the consolidation. AHC is to be calculated for all the decisions. After performing the individual calculations, decision to whether to keep these plants separate or to go ahead with merger will be made.

2. Qualitative Analysis:- Here, we will be taking the following parameters (Labor, Quality, Service, Management Talent, Plant Location, Product line complexity, Production stability, training and Plant layout) with respect to consolidation of the plants. As mentioned in the executive summary the individual weights for the qualitative terms were assigned as per the inputs given by vice president of Operations and Human Resources. So, we will be considering all the three plants for consolidation to calculate the values using AHP in order to arrive at a decision.


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