The manager of the structural analysis department strongly opposed the closing out of the work order prior to the testing of the first plant’s high-pressure pneumatic and electrical systems. During the next month’s test, the plant exploded. Postanalysis indicated that the failure was due to a structural deficiency.
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BACKGROUND
On November 15, 1998, the Department of Energy Resources awarded Telestar a $475,000 contract for the developing and testing of two waste treatment plants. Telestar had spent the better part of the last two years developing waste treatment technology under its own R&D activities. This new contract would give Telestar the opportunity to “break into a new field”—that of waste treatment. The contract was negotiated at a firm-fixed price. Any cost overruns would have to be incurred by Telestar. The original bid was priced out at $847,000. Telestar’s management, however, wanted to win this one. The decision was made that Telestar would “buy in” at $475,000 so that they could at least get their foot into the new marketplace. The original estimate of $847,000 was very “rough” because Telestar did not have any good man-hour standards, in the area of waste treatment, on which to base their man-hour projections. Corporate management was willing to spend up to $400,000 of their own funds in order to compensate the bid of $475,000. By February 15, 1999, costs were increasing to such a point where overrun would be occurring well ahead of schedule. Anticipated costs to completion were now $943,000. The project manager decided to stop all activities in certain functional departments, one of which was structural analysis. The manager of the structural analysis department strongly opposed the closing out of the work order prior to the testing of the first plant’s high-pressure pneumatic and electrical systems.
Structures manager: “You’re running a risk if you close out this work order. How will you know if the hardware can withstand the stresses that will be imposed during the test? After all, the test is scheduled for next month and I can probably finish the analysis by then.”
Project manager: “I understand your concern, but I cannot risk a cost overrun. My boss expects me to do the work within cost. The plant design is similar to one that we have tested before, without any structural problems being detected. On this basis I consider your analysis unnecessary.”
Structures manager: “Just because two plants are similar does not mean that they will be identical in performance. There can be major structural deficiencies.”
Project manager: “I guess the risk is mine.”
Structures manager: “Yes, but I get concerned when a failure can reflect on the integrity of my department. You know, we’re performing on schedule and within the time and money budgeted. You’re setting a bad example by cutting off our budget without any real justification.”
Project manager: “I understand your concern, but we must pull out all the stops when overrun costs are inevitable.”
Structures manager: “There’s no question in my mind that this analysis should be completed. However, I’m not going to complete it on my overhead budget. I’ll reassign my people tomorrow. Incidentally, you had better be careful; my people are not very happy to work for a project that can be canceled immediately. I may have trouble getting volunteers next time.”
Project manager: “Well, I’m sure you’ll be able to adequately handle any future work. I’ll report to my boss that I have issued a work stoppage order to your department.”
During the next month’s test, the plant exploded. Postanalysis indicated that the failure was due to a structural deficiency.
Who is at fault?
Based on the information provided, the situation demonstrates a multifaceted decision-making scenario with multiple parties involved. Telestar’s corporate management made a strategic decision to “buy in” at a substantially lower price than the original estimate, driven by the ambition to venture into a new market. Their decision was based on rough estimations, lacking precise man-hour standards for waste treatment projects. By significantly undercutting the original estimate, they unintentionally steered the project towards numerous obstacles.
The project manager’s role is central to the events that unfolded. Faced with the pressure to prevent a cost overrun, the project manager made the critical decision to halt essential activities, including the structural analysis. This was done despite clear warnings about the potential dangers. By opting to rely on past experiences rather than the advice and current analysis from the structures department, the project manager compromised both the safety and integrity of the project.
The structures manager, on the other hand, acted responsibly. He clearly articulated the risks and remained committed to performing the necessary analysis. He stood firm in his decision not to complete the analysis without the appropriate budget. While his refusal to absorb the costs might have been a matter of principle, the catastrophic outcome underscores the importance of his initial concerns. Nonetheless, the structures manager lacked the final decision-making authority in this context.
In sum, the primary blame rests with the project manager, who, despite being warned of the potential risks, chose to forgo the structural analysis. This decision was the direct precursor to the plant’s tragic failure. Telestar’s corporate management also bears responsibility. Their aggressive and significantly lowered bid set the project up for potential pitfalls from the outset. While the structures manager did express worries and behaved responsibly within his realm of authority, the main accountability lies with the project manager and Telestar’s corporate strategy.
Should the structures manager have been dedicated enough to continue the work on his own?
The question of whether the structures manager should have been dedicated enough to continue the work on his own is a matter of both professional ethics and organizational dynamics. On one hand, the structures manager had a duty to uphold the integrity of his department and to ensure that safety standards were met. His awareness of the potential risks and the significance of the structural analysis underscores the importance of his role. In light of the potential dangers, a strong argument can be made that the structures manager should have pursued every avenue, including completing the work on his own or escalating the concerns higher within the organization, to ensure the safety of the project.
On the other hand, the structures manager also had to navigate the organizational constraints and the directives of the project manager. Continuing the work without the allocated budget or authorization might have had repercussions, both for the manager’s department and for their professional standing. Additionally, it could set a precedent where departments are expected to absorb costs or work beyond their allocated resources, which isn’t sustainable in the long term.
This case, and questions, is take from the book “Project Management Case Studies – Sixth Edition” – 2022, by Harold Kerzner.
