ASSIGNMENT/COURSEWORK PROFORMA
Module code: Assessment title: Module leader:
EE5508 Project Management Dr. H Makatsoris
Please submit no later than 16.00 on Monday, 27 April 2009, at the Taught Programmes
Office
School of Engineering and Design
UG and PG Taught Programmes
Capstick Limited is a medium sized company employing 300 people that was
established 30 years ago by the present Chairman, John Smith. The organisation and
key individuals are described in figure 1. John is an engineer and takes a great interest
in the technical challenges faced by his company, and who has built his business
based on a close relationship with his customers where he has endeavoured to support
his design creativity with the ability to control directly the manufacturing quality. The
company manufactures automotive components for major tier one suppliers to the car
manufacturers and is constantly under price and quality pressure. The components are
machined alloy castings, with pressed in bearings and shafts and perform a critical
function in a car engine. The company owns the technology inherent in the product,
although the customer specifies the design specification and mating dimensions. One
major customer has demanded that the products be reduced in price from £18 to £15
each, although he is prepared to negotiate a 5-year contract to take these products at a
rate of 100000 per year at this new price. If the company continues to charge more
than £15, the customer, depending on the price, is likely to take their business
elsewhere. There is therefore a risk that the 100000 units sold each year will cease to
be ordered. The company currently manufactures the products on a ‘semi-automatic’
production line, which, if the business were lost, would cost £85k to close down. In
addition the Company has recently specified and received a quote for a fully
automated line that will offer significant cost savings.
The current production equipment is written off, so there are no depreciation costs,
however, there are maintenance costs of £10k per year, with an attendant risk,
estimated at 30% in 5 years, of a major breakdown costing £50k to rectify.
The proposed new automated equipment will cost £500k, paid after commissioning
and funded by money from the Company’s investment account where it receives 15%
per year growth. The company policy is to depreciate such equipment to zero over 5
years so that it would have no residual worth after 5 years. Any breakdowns will be
subject to warranty cover over the first three years and this is included in the price:
subsequent maintenance charges will be £20k and £30k in years 4 and 5 respectively.
The Company has estimated the risks of the customer taking their business elsewhere
as follows:
The Company also came up with an alternative strategy: to close the present facility
and to sub-contract the manufacture of the products. It obtained a quotation for this at
£15.50 per unit for 100000 units per year for 5 years.
School of Engineering and Design
UG and PG Taught Programmes
2.(a)Calculate the discounted cash flow over 5 years for the proposed new automatic
equipment, were the Company to quote a unit price of £15 to the customer.
(b)Comment on the Net Present Value of the new proposal to the other possible
alternatives and recommend the preferred option.
(c)What different qualitative factors do you think that the new equipment introduces
that the Company should take into account in their decision?
The Company decided to go ahead with the new production line. The line would
automatically link into the design office CAD system for direct implementation of
design changes. It would also monitor production rate, material used and units
manufactured and relay this information to the financial and stock control systems,
and would enable batch progress information to be readily accessible by the sales
team. They are considering appointing a new Manager since they are aware that they
have a number of important project challenges ahead of them.
The project team have defined the activities and other parameters of the project, as
shown in figure 2. It is not important what the activities are for this purpose.
4. Draw the network for the project and determine the critical path using both
CPM and PERT.
6. What specific rules could be adopted to decide how to schedule this project
and what constraints must be taken into account? Clearly explain your reasons.
8. Find the minimum cost increase to reduce the expected duration of the project
by 2 weeks.
9. Calculate and draw a chart of the Labour profile required to complete the
project for an early start schedule.
The Company assessed the costs of the project at important milestones at the outset as
shown in Figure 3. After some weeks, the project manager asked the task supervisors
for progress reports and the feedback shown in Figure 3 was reported.
12. At the end of the project, the total cost of implementation was £560k and the
performance resulted in product unit cost being £13.30.
(a)Revise the DCF calculation and calculate the real net present value of the project.
(b)With hindsight, does this affect the strategic decision taken at the outset and why?
School of Engineering and Design
UG and PG Taught Programmes
Peter Jones
Managing Director
Task Preceding Optimistic Most likely Pessimistic Normal cost Crash cost Crashed Crew size
activities time time time (per week) (per week) duration
estimates estimates estimates
A - 25 30 45 5000 12500 20 5
B - 10 15 20 5000 12500 8 3
C - 20 25 35 5000 7500 18 3
D A 3 3 5 4000 6000 2 5
E C 5 7 12 3750 5000 4 7
F B 1 1 1 10000 - - 5
G D,F 4 5 7 3750 5000 2 4
H D,F 2 2 3 5000 7500 1 4
I E,F 4 4 6 4000 5000 2 5
J H,I 8 10 14 4000 5000 6 6
K G,J 6 8 15 5000 6000 5 5