Project Management Leadership And Skills - Launching Carillion Business Under A New Name- Report Assessment Answer

Project Management Leadership And Skills Assignment

Case Scenario

The assignment contains information from news and other sources. We have sought to make this as close as possible to a live project brief. You may wish to conduct relevant research but please do not contact anyone involved without first contacting your module tutor.

Assignment Task

Article 1: Carillion's risky road shows the short, sharp shocks of building for the long term

The Aberdeen Western Peripheral Route was billed as a “major infrastructure project that will significantly improve travel in north east Scotland”. But, for Carillion at least, it has turned out to be a major headache that significantly hurt its finances.

The troubled firm was part of the consortium – with partners Balfour Beatty and Galliford Try – that was awarded the contract to build the road in December 2014.

At the time, the decision was widely welcomed by both the Scottish Government and the local council. There had been a long wait for the 36-mile (58km) route and the project was expected to provide thousands of jobs for local people, many of whom had suffered as the oil industry slowed.

However, at some point the scheme went wildly off course. Indeed, the road in Aberdeen typifies Carillion’s problems: a project that should have been relatively simple has been dogged by delays, pushing costs up and leaving the firm with a serious cash flow problem.

It is likely to be one of a handful of projects that contributed to the £845m write-down Carillion announced two weeks ago, along with two further UK projects and others in the Middle East and Canada.

At the heart of the matter lies a problem of procurement: why do contractors often get the prices and timescales on major projects so wrong? It all comes down to risk, and who is willing to take it, explains Richard Steer, chairman of construction consultancy Gleeds.

Contractors are the risk takers, which is where they can make their profits, but it can backfireRichard Steer, chairman of Gleeds

“Naturally the client wants to minimise their exposure to risk,” he says. “Contractors are the risk takers, which is where they can make their profits, but it can backfire.”

Companies are forced to bid for five or 10-year projects at a fixed cost, particularly when the client is a public sector body, he says.

“What’s been happening is that contractors have been pitching for jobs and they’ll put a price in. Then they start talking to subcontractors, and then the subcontractors come back with prices that are more expensive.”

He says that the current environment, where there is a shortage of labour, means costs have risen for subcontractors. It is also notoriously difficult to predict what the labour market or the cost of materials, such as steel, will be over the life of a project, meaning that a fixed cost at the start of a contract might seem wildly ambitious by the end. All this chips away at wafer-thin margins, which could be only 2pc to start with.

Others have suggested that the problem for Carillionand its peers lies in the subcontractors themselves. Over the years, companies have cut back on what is carried out in-house, meaning they have less control over the work being done.

In Aberdeen, Carillion, Balfour Beatty and Galliford Try tendered for subcontractors to do work including drainage, plant and equipment hire, earthworks, steel reinforcement and rock crushing, through contracts worth almost £200m.

“Contractors are increasingly really struggling to manage their business,” says Mark Farmer, who recently wrote a Government-commissioned report called Modernise or Die on improving construction efficiency.

“Although employing subcontractors helps businesses avoid a large payroll and keeps overheads down, it does have its downsides,” he says. “Many companies now want to have more control over who’s delivering the work, which means moving away from subcontractors.”

Some might say that Carillion should have predicted the problems it would face in Aberdeen. The new road route had been on the cards for nine years before it was finally approved by ministers in 2012; by then, the cost of the scheme had swelled from an initial government estimate of between £295m and £395m, to £745m.

Many companies now want to have more control over who’s delivering the work, which means moving away from subcontractorsMark Farmer

The consortium had to fight off three other groups in order to win the contract, amid fierce bidding and ministerial pressure to keep the cost of the project down.

Construction finally got under way in February 2015, with the road due to open later this year. But by November 2016 it became clear the target was not going to be met. The consortium had failed to carry out crucial work on the site before winter began, meaning they had to delay until the weather became warmer. More minor problems, including delays brought about by fears over pollution risks to nearby rivers, added weeks at a time to the project.

At the time, Keith Brown, the Scottish transport minister, told a worried public that the cost of the delays would be borne by the contractors, not by taxpayers.

“The contractor is only paid when the road is open. The only payments that we make in relation to the road being completed are those set out in the contract,” he told a meeting of the Scottish Government’s rural economy and connectivity committee. Amid concerns that many large public contracts are being put in private hands, politicians have been keen to spend as little public money as possible, ensuring that locals can see value in large projects.

But this means that contractors are often put in a difficult position, says Joe Brent, analyst at Liberum.

“The public perception is that these companies have been gouging out the eyes of government for ages, but it’s actually the other way round,” he says.

“They are often under pressure to takeon contracts at very unattractive terms.”

It is not just Carillion that has suffered on the Aberdeen road project: two months ago, Galliford Try announced that it had been forced to set aside £98m to cover the costs of completing two major infrastructure jobs – one of which is thought to be the Aberdeen project and the other the Queensferry Crossing in Scotland.

Every time work is pushed back or they run into a problem, companies have to shell out more money for extra labour costs, extra materials, machine hire and a host of other costs.

What’s more, once they are in trouble, many companies do not own many assets, and so have difficulty-raising money to bail themselves out. “There are other ways of procuring, such as two-stage tendering where more risks are transferred to the customer,” says MrBrent.

Mr Steer agrees: “What should happen is clients should be more flexible in their approach in accepting and allocating risk,” he says. “It’s a fine line that they’re treading.”

What is clear is that there is a pinch point between the needs of the client and the contractor, which comes down to having to offer work at a competitive rate, while also making sure that the work can be carried out for the right cost.

The Scottish Government, through Mr Brown, has insisted that the Aberdeen road project will not be affected by Carillion’s recent woes and it is now scheduled to open next year. But for Carillion, the troublesome road is merely indicative. If it is to survive, it, along with many of its rivals, may have to completely rethink the way it does business.

Article 2: Carillion under pressure to inject funds amid growing pension concerns

Strickenbuilding contractor Carillion is facing growing calls to launch an emergency fundraising as it threatens to plunge further into financial crisis.

It has emerged that the Government is rapidly severing links with big UK outsourcers, cutting off a vital source of revenue and exacerbating the damageto the company’s fragile balance sheet.

Carillion is one of the biggest casualtiesof a public procurement blitz that has resulted in Whitehall reducing its reliance on large outsourcers to less than 5pc of the total public sector contracts awarded in the last 12 months.

The value of the contracts it has won from the public sector has plummeted 81pc, making it second only to rival Capita in the list of those who have lost out, according to new research from Tussell, the analyst.

It comes amid fresh figures that show Carillion’s debt is set to spiral to almost £700m in the first half of this year, and its pension deficit could more than double to £800m.

Shares in Carillion finished 70pc lower on Friday night, after a stunning profit warning earlier in the week. Over four extraordinary days, almost £600m was wiped from its stock market value amid aggressive hedge fund shorting. It is estimated that speculative investors made around £140m betting against the shares.

Carillion is one of Britain’s largest construction and support services companies, employing 50,000 worldwide.

The Sunday Telegraph understands that pension trustees favour a rights issue as a way of injecting cash into the business and shoring up its retirement scheme. Carillion’s £2.3bn pension fund had a deficit of £393m at the end of 2015. This could have grown to as much as £800m, according to Stephen Rawlinson, the independent analyst.

Andrew Nussey at Peel Hunt said the firm “probably needs to raise £500m through disposals and an equity raise”, and other analysts suggested that a fundraising would be a more likely rescue strategy.

Carillion is the most shorted stock on the UK market, and while the overall amount of shorted shares had fallen slightly between Monday and Friday, there had not been a wider sell-out.

Some funds, including AHL Partners and Gladstone Capital Management, had actually increased their short position during the week, suggesting that they thought the share price still had further to fall.

After Monday’s profit warning, Keith Cochrane, Carillion’s rapidly appointed chief executive, said he would be undertaking an urgent root and branch review of the business that may include the sale of some of its divisions.

However, no one business is valuable enough to solve Carillion’s cash flow problems, meaning it would have to butcher its portfolio in order to raise enough cash. While the problems lie mostly in its construction arm, its support services unit has signed new contracts for the coming year.

Carillion could also try to woo rivals Balfour Beatty and Kier, who compete with Carillion on construction work, to launch rescue takeover bids. However, both have ruled out a deal for now.

Mike van Dulken, analyst at Accendo Markets suggested that without serious financial intervention, the company could sink without a trace.

An investment company who wish to re - launch Carillion under a new name after recently buying the business has recently appointed you but they have concerns over the problems that caused Carillion’s share price to fall.

Your assignment is to write a report on the prospective New Carillion as a project – considering what is likely to go well and what not so well. Your report should therefore focus on the project management aspects including the key risks e.g. loss of money and overrunning its schedule and not meeting the performance requirements expected from a project of this type

You will need to produce a detailed business case and project plan, and any recommendations to the Project Board that you consider appropriate. You may want to use some of the sub-headings below, but that is entirely up to your team, this is not a template.

• Introduction

Identify the major planning problems with the Carillion project and suggest how project management techniques might have helped to mitigate these problems.

Discuss in your report, the following for your suggested project

• Project objectives
• Performance Measurement/ Management of quality
• Stakeholder analysis
• Activities to be carried out and scheduling including any milestones: your project plan must include a schedule created with Microsoft Project (MSP).
• Resources to be used including project budget
• Constraints and Risks
• Communications to be used

In addition please discuss the following in your report:

• Possible success/ failure factors for this project
• Considerations concerning future operations

RESOURCES

In order to complete the Aberdeenroad project mainly 4 types of resources would be needed by Carillion and those are detailed below:

• Human resources: Human resources are required for every project to get accomplished and without them project cannot be completed. Furthermore, human resources are required in the form of labors, team members, supervisors, engineers, etc. However, it has been analyzed that labors are scarce in which means that the project manager requires large quantity of labors in order to accomplish this task (Kerzner, 2013). Without them, project cannot be started. Moreover, the shortage of human resources will increase an unnecessary cost to the subcontractor. Furthermore, it is important to search for the labors who can work at Aberdeen for the purpose of road construction. Furthermore, it is liable to the company to pay good remuneration to the labors in order to hold them for longer time (Burke, 2013).

Human resources will play essential role in re-launching of the project. Human resource department will take care of all the employees and workers if they are working well or not. The human resources will include project manager, project team members, IT professional, engineers, HR manager, finance manager and other employees who will help in doing various activities for re-launching the project properly. The activities which will be entailed by Human resources will be management of employees, handling technical work and budgeting for project re-launch, monitoring the project progress and related work. Meeting will also be organized by the HR manager among the stakeholders of the company for discussing ideas, strategies and objectives behind the re-launch of project.

• Financial resources:Finance is a life blood of any businesses and it is essential to have the enough finance to carry out any project in an efficient manner (Meredith and Mantel, 2011). Moreover, without finance, a firm could not continue its work as at every step money is required to pay off. Furthermore, finance will be required by Carillion to buy physical resources for project, to pay the salary to the human resources, to maintain the technical resources, etc. The financial resources will help in creating new budget, review of share price, pension plans and investment portfolio. Along with this, financial sustainability will be achieved by the project by doing planning, involving stakeholders, ensuring vision and mission, considering external impacts, brainstorming revenue generation. Company will have to create both short and long term plans regarding the financial sustainability. The activities considered by financial manager include review of pricing strategy and selection of new pricing strategy. However, company is going through financial crunch and due to this company has to face many difficulties in completing the project (Schwalbe, 2015). Moreover, the firm can get the financial resources through bank loans or through shares so that it can resume this project for high profit.Moreover, with the abundantfinance, company could hire more number of labours in order to finish the work before the given deadline which will build good credibility of the company.

• Technical resources:It is often requiring in today’s era because without technology, none of the company could carry out its operation. Furthermore, to handle the road construction project, various technologies are required in order to accomplish it in an effective manner and within a given time frame (Fleming and Koppelman, 2016). Moreover, it is also required to bring improvement in the communication, to enhance efficiency and mobility. Similarly, Carillion also requires technical resources for carrying out its project. However, the firm will require high amount of fund to hire these high-end technical resources but for better completion of the resources, it is important for the firm to hire these technical resources (Flyvbjerg, 2013). He firm will require various machines, communication tools, cutting and drilling machines, etc. Technical resources will be required by the company such as computer, telephone, internet, etc for accomplishing the objectives regarding the formation of new innovation strategies and holding innovation network event. Along with this, a database will be needed by the firm for storing all the information from project planning to implementation. Different technologies like ERP system, CRM, etc will help organization in managing all the detail about the project progress, risk handling, barriers, etc. With the help of CRM, company will able to communicate with the stakeholders for knowing their reviews and informing them about the growth of the project. On the other hand, re-launching project will also need various construction machines, tools and devices for doing the required construction regarding the project. With the help of technology, organization will able to conduct market research for knowing the feedbacks of the customers and current market trends.
• Material Resources: Organization will need various materials such as steel, concrete, water, heavy metals, infrastructure (tables and chairs), etc for fulfilling the requirements of the re-launching project. These materials will help company in conducting its project properly as per the planning. Other materials which are required for the construction of the building like paint, black stones, tiles, etc which will lead to proper construction.
• Operational resources:They are also most important resource which will be needed by the Carillion firm in carrying out the road construction project (Shields and Rangarajan, 2013). This type of resource includes facilities, physical resources, buildings, warehouses, etc. In order to build a road, a steel lining is required and for that company has to obtain the steel. Further, the company will also require a warehouse where it can keep all the materials used for road construction like concrete, paint, black stones, etc. furthermore, the firm will also need a building where all the labors could stay whom have been hired outside the city (Leach, 2014). Thus, these are some of the operational resources which would be required for completing the project in an efficient manner.

COMMUNICATIONS

Communication basically meansthe exchange of information from one person to another though speaking, writing or using some other medium. Furthermore, when any information is passed through one person to another then it is termed as communication (Meskendahl, 2010). To communicate is to pass the information to another person or to a group of persons. Moreover, communication is considered as one of the efficient means in a business as this makes the business stronger. If there is a lack of communication then company could not excel in its life. Furthermore, communication also plays very important role during the accomplishment of project (Gido, Clements and Clements, 2014). Similarly, it is also required for the current project which is of road construction at Aberdeen. Moreover, different types of communication will be taken place between employees and those have been described below:

Communication between project manager and its team

When they are on the work that time formal communication will take place between them and most of the time free flow communication in order to have clear ideas regarding the work. Furthermore, communication will mainly takes place through mail or through telephone (Fleming and Koppelman, 2016). Further, it is very important to have communication between them so that waste of the work could be avoided and project could get completed on a given time line.

Communication between engineers and labours

Again a formal communication will be done between them and almost all the time work related communication will take place (Shields and Rangarajan, 2013). The communication will be done face to face or through telephones. Moreover, engineer would be the one who will be a sender and all the labours will be receiver. Further top to down vertical communication will take place. It is very important to have the communication between them as labours are the one who will be working on the project in actual manner. Furthermore, any mistake by them will turn into increase in cost and time. Therefore, engineer must communicate with them on a regular basis in order to avoid any issues (Leach, 2014).

Communication between each other

In this case, each team member or each labour will have communication with each other. The communication may not be related to work and that could be personal communication. Furthermore, the type communication between everyone will be considered as informal communication (Meskendahl, 2010). Moreover, there will be free flow communication pattern where any employee can communicate with any other employee irrespective of their level. Furthermore, this type of communication must be encouraged in order to identify any issue going on during the project. Moreover, this type of communication will also enhance the morale among the employees so theywill be motivated to work towards the achievement of project goals (Gido, Clements and Clements, 2014).