You are on page 1of 11


IE 001 EC31FA2

Engineering Management Case Study Southeast Asia Offshore Oil

Drilling Problem
About the case study
This case study is part of a series designed to help students and younger engineers develop business
problem-solving skills through real engineering scenarios. Each case study will provide practical
applications of specific, real-life examples to develop the strategy skills that leading companies use to
succeed in the marketplace.

Our client, Petro-Oil, is a mid-sized oil and gas exploration and production company with major areas of
exploration located in South America, Gulf of Mexico, Western Africa, China, Eastern Europe, and several
other countries. The Board of Petro-Oil has just set an ambitious goal to be completed in the next five
years: To be the largest oil and gas producer in Asia by the end of 2017. A quick market research inquiry
shows three major competitor companies (Table 1) that are larger than our client. To support their new
aspirations, our client just purchased Ceylon-II, a large deepwater oilfield offshore in the South China
Sea. Table 1: Benchmark Results (million barrels of oil equivalent): [table id=27 /] Petro-Oil's management
team has hired your company to do a diagnostic of the company's current portfolio, operations, and
organization to help them understand what they need to do to achieve this goal.

Key points and assumptions

1. Production is generally correlated with reserves
2. Assume the reserves of each of the assets are exactly at the same rate of depletion
3. Assume that all competitors continue to seek additional reserves in the Pacific region
4. The current existing production rates in the area are significantly higher than the client's production rate

The current extraction rate of Competitors A, B, and C are much higher than our client and hold, at a
minimum, 10% extraction rate. The client's current production rate needs to increase and the new asset
has to meet the current standard of 10% extraction rate. Further exploration in the area to gain new assets
for additional production is key for growth and to increase the extraction rate. Even with these two current
assets, the client's current reserves are still less than the region's the largest producer.
IE 001 EC31FA2

Repeatability model for success

These principles were termed the Great Repeatable Model. Companies that adopt these principles can repeat their success,
hence the name repeatable model. According to the authors, there are three key principles:
1. Principle of Focus
2. Principle of Embeddedness
3. Principle of Adaptability

As per the first principle, companies need to identify how they differentiate in comparison to others. Faced with new markets or
changes, identification of a clear source of differentiation gives the company an edge over others. Many companies believe they
have differentiation, but customers might disagree. At this point, a genuine leader can identify the gaps to fill in and remodel to
deliver things differently.

E.g., Apple was able to repeat its success with the iPod, iPhone and the iPad. Apple provides its customers with a high quality
product that has excellent design. All its products aim at superior user experience. With iTunes integration, a customer is at ease
with the entire range of products.

The second principle emphasizes core values that a company must strive for and embed it into their culture. A leader must drive
these core values and be in-sync with the employees. The core values must drive all major decisions the company makes. A
customer must identify with these core values when he/she interfaces with the product or service provided by the company.

E.g., Google has been successful with many products like Search, Gmail and many others. Googles core values focus on the
user and rest will follow, fast is better than slow or great is not just good enough. A customer identifies these core values in each
of Googles products and company founders communicate and live these values as well.

The third principle is straightforward. A company has to adapt to changes. With failure or competitors catching up, it has to
question its assumptions and adapt its model. It is essential therefore that a company learns and the rate at which it learns (or
measures its product or service quality and performance). However, learning is not enough. A correct interpretation of the
learning helps in repeating success.

E.g., Zara the worlds leading fashion retailer deployed a new process to deliver shipment to its stores (more than 1500) globally
from its two warehouses in Spain by relying on operations research techniques. Zara was able to build an innovative and highly
responsive design, production and distribution structure. By determining the best shipment quantities to deliver, it was able to
increase its sales by 3 to 4% in 2007 and 2008.
IE 001 EC31FA2

Management Case Study Beer, Breweries, and Bottled Water

This case study scenario is designed to help students and younger engineers build
business problem-solving skills through engineering scenarios. While created to
mimic real-life situations, this scenario is hypothetical and for educational purposes


The client, one of the world's largest brewing companies, is a leading beer
brewer in the United States with many well-known brands of beer being sold in
numerous grocery and liquor stores. For the last 10 years, the client has been
experiencing stagnant sales and flat profits in an increasingly competitive industry.
Therefore, the senior management at the client's headquarters is trying to evaluate
every possible growth opportunity.

The client is facing increased competition from microbreweries and has already
explored ways to penetrate the international market. However, this alone will not
enable them to meet their current goals of increasing both sales and profits by 200%
within the next five years.

The following are key problems and issues that the client brought to your
consulting firm to develop various growth strategies: ? The client's Chief Marketing
Officer (CMO) has noticed a steady and substantial increase in the consumption of
bottled water products in the U.S. ? Believing that the assets required to produce
bottled water are very similar to that of beer (in terms of supply chain), the CMO
wants to recommend to the CEO that they begin production of bottled water products.
The CMO has asked your firm to help build the case for why they should enter the
bottled water market to achieve their sales and profit goals.
IE 001 EC31FA2

Management Case Study Supply Chain Distribution Problem:

Rail or Truck?
This case study scenario is designed to help all students or chemical engineers build
business problem-solving skills through engineering scenarios. While created to
mimic real-life situations, this scenario is hypothetical and for educational purposes


The client, one of the world's largest car manufacturers in the world, is producing
major cars in Wichita, Kansas (smack dab in the center of the country). The client has
the choice of transporting the cars either by train or by truck.

The CEO wants you to advise him on which mode of transportation the company
should choose and why. Also, he wants to know how much money in total they would
spend on car transportations every year. How would you go about analyzing this case

Additional Information

Cars are currently shipped by train to central distribution points. From there, they are
shipped by truck to the various car dealerships. ? The car manufacturer owns all the
distribution points. ? Trains require a minimum load of 100 cars. ? The cost of
shipping one car by train to a distribution point is $100. ? Trucks have no minimum
load requirement and can transport up to 10 cars at one time. ? The cost of
transporting one truckload of cars to any distribution point is $1500. ? Trucking costs
from the distribution point to the dealerships are $200 per load of up to ten cars. ?
The average truckload shipped to a dealer is 6 cars. ? Total demand for the cars is 1
million vehicles per year. 50% of car buyers do not take delivery from dealer stock,
but wait for factory delivery.
IE 001 EC31FA2

The Best Way To Make A Decision Is To Accept The Unknown

By Quora

What are some tools to use for effective decision making? originally appeared on Quora - the knowledge
sharing network where compelling questions are answered by people with unique insights

Here is what scientific studies say will help you make better decisions: Thinking through various,
contradictory possibilities, and then trying to force yourself to figure out which ones are more or less
likely, and why. This is known as probabilistic thinking, and studies show that it significantly increases
the quality of peoples decision making.

Say, for instance, that you are trying to decide whether your group of rebels should attack the Death
Star. Seems like an easy decision, right? After all, the Death Star is filled with jerks, and it has a big
glaring weakness that apparently no architect considered when designing the ship: one well placed shot
can blow up the entire thing.

If you are some hillbilly from Tatooine, youll charge off into space. Youll think about this decision in
binary terms (The Empire=bad. The rebels=good. What can go wrong?) But, if you are practiced at
decision making, youll probably do something a bit differently: youll sit down with Adm. Ackbar, and
youll try to envision the dozens of different outcomes that are possible. We could get defeated before
we make it to the ship. We could make it to the ship and not have enough X-wings. We could have
enough X-wings but then miss the shot. We could make the shot but our intel could be wrong. We could
have good intel and make the shot and the Death Star blows up, but our reward is Jar Jar Binks... You get
the point.

Now, heres the thing: you arent going to be very precise at assigning probabilities to all those
possibilities. (What are the odds that our intel is bad?) But forcing yourself to think through all the
possibilities and then simply trying to assign odds will be really helpful in revealing what you do and
dont know. So, maybe you are pretty certain that your intel is good, and maybe you are pretty certain
that, if they can get close to the Death Star, your pilots will hit the target (because, after all, youve got
the force on your side), but you arent particularly certain that you have enough X-wings to make sure
that youll get close to the Death Star. Now you know which parts of your plan are weakest, you know
what you need to learn more about and what problems you need to solve to increase the odds of success.

Our brains, left to their own devices, prefer to think about choices in binary terms and, from an
evolutionary standpoint, this is really efficient. But to make better decisions, we have to force ourselves
to think probabilistically, and then we need to get comofortable with the fact that probabilistic thinking
tends to reveal how much we dont know. It is scary to confront uncertainty. It can make you crazy and
anxious. Thats why it is so much easier to look at choices as binary options (Ill either succeed or fail)
or deterministic outcomes (I ended up married to her because she was my soulmate.) But if you
genuinely want to make better decisions, you have to fight that instinct, and make yourself think about
multiple possibilities - both the good and the bad - and be really honest with yourself about what you do
and dont know (and what is knowable and unknowable.) And then you have to take a leap, and make a
decision, and see it as an experiment that gives you data, rather than a success or failure that you should
congratulate yourself on/beat yourself up about.
IE 001 EC31FA2

Planning is key to project managementsuccess

Weve all heard the old adage measure twice, cut once. While it might be a clich, in the project
management world it takes on a critical meaning: Choosing to rush through or ignore the project
planning process can be a formula for failure.

Pick any major event, trip or undertaking in your life and think about the time, energy and work put into
making sure everything went off without a hitch. Then think about the stress and aggravation you
experienced those times when things didnt go as planned.

As a discipline, project management works the same way, except on a greater scale and involving many
stakeholders and a larger pool of resources. It can include external vendors, several other internal and
intra-departmental team members (as well as their schedules and input), additional parameters like
cost, quality, timing, constant coordination, communication and associated risks.

Imagine the consequences of poor project planning if any one of these things is not handled correctly. All
of the above factors and many others have an impact on and are in turn affected by the project
planning aspect of project management.

How does poor project planning produce potential problems?

Lack of strategic alignment. In How to align projects management with your business strategy, I
outlined the benefits and risks associated with project management and the need to consider an
enterprise project management office (EPMO) to ensure projects are consistently aligned with business

When it comes to planning and initiation, EPMO participation is critical in companywide planning
sessions in order to transform the traditional PMOs into high-performing teams that deliver significant
value. This will also help to establish a shared vision. According to PMI research, the success rates of
higher-performing PMOs also align with a companys financial performance.

Cost, quality and time constraint issues and scope creep. Determining the scope of a project is
difficult without spending a considerable amount of upfront time properly planning. Gathering
requirements, developing comprehensive project management plans, and determining and scheduling
activities among other things, require considerable thought, coordination and yes, a lot of time.

Without planning activities, these key project elements can lead to lack of stakeholder commitment and
resources because poor planning does not instill confidence or credibility. In turn, this has the potential
to discourage stakeholders from proceeding with the project manager or even with a project altogether.
Strong project leaders instill confidence by keeping on top of project planning activities and therefore,
remove the need for costly, time-consuming rework and increase success ratios throughout projects

Inefficient use of resources. Estimating costs and activity levels, scheduling resources, and continually
monitoring and adjusting them requires intense planning to ensure a project is moving in the right
direction. Effective planning identifies the tools and techniques required to accomplish these tasks and
reduces the risk of having unclear roles and responsibilities. Resources, whether financial or human are
usually limited these days and of high value to any business, so if squandered unnecessarily, it has the
potential to be disastrous. Given the consequences, this is an area where companies should carefully
plan how, when and where to employ limited resources to best maximize effectiveness.

Communication Issues. In 11 Communication Skills of Effective Project Leaders, trustworthiness,

transparency, focus and stability, objectivity and fairness, confidence, leading by example, energy and
motivation, consistency and flexibility, accessibility, clarity, and respect are underscored as essential
communication characteristics. It takes considerable thought and careful planning to ensure
communication plans take into account stakeholders needs; without these there is potential for
communication barriers which can translate into reduced confidence and jeopardize buy-in from team
members and stakeholders.

Increased Risk. Identifying risks and performing qualitative and quantitative risk analysis and
developing risk management strategies are key to successful project outcomes. These activities can
require a lot of time and considerable coordination to complete because they can range from simple to
sophisticated and complex depending on project, scope, size, and a range of other factors. The more risk
points or the greater the consequences, the more planning is required.

Project planning is not a guarantee that projects will go according to plans. In fact, despite all of the
planning that may surround a project, uncertainty is always there, lurking in the background waiting to
jump in and disrupt those plans. The key to having great project outcomes is to first recognize from the
projects inception why careful project planning is a critical component to reducing risks and increasing
success. It may seem more time consuming up front, but will save substantial undue stress, time and
costly rework later.

Project planning with precision can be an iterative process, but its worth it to measure twice and cut
once, when compared to the risks associated with poor planning. The important point here is to
remember that planning is vital to reducing project risks, which in turn increases the likelihood of a
successful project.

We started with one clich, we can end with another, this time courtesy of Ben Franklin: An ounce of
prevention is worth a pound of cure.
IE 001 EC31FA2

Function of Management: Controlling

Kenneth A. Merchant

The control function of management can be a critical determinant of organizational success. Most authors
discuss control only through feedback and adjustment processes. This article takes a broader perspective on
control and discusses the following questions: What is good control? Why are controls needed? How can good
control be achieved? If multiple control strategies are feasible, how should the choice among them be made?

After strategies are set and plans are made, management's primary task is to take steps to ensure that these
plans are carried out, or, if conditions warrant, that the plans are modified. This is the critical control function
of management. And since management involves directing the activities of others, a major part of the control
function is making sure other people do what should be done.

The management literature is filled with advice on how to achieve better control. This advice usually includes
a description of some type of measurement and feedback process:

The basic control process, wherever it is found and whatever it is found and whatever it controls, involves
three steps: (1) establishing standards. (2) measuring performance against these standards. and (3)
correcting deviations from standards and plans.1

A good management control system stimulates action by spotting the significantvariations from the original
plan and highlighting them for the people who can set things right.2

Controls need to focus on results.3

This focus on measurement and feedback, however, can be seriously misleading. In many circumstances, a
control system built around measurement and feedback is not feasible. And even when feasibility is not a
limitation, use of a feedback-oriented control system is often an inferior solution. Yet, good controls can be
established and maintained using other techniques.

What is needed is a broader perspective on control as a management function: this article addresses such a
perspective. The first part summarizes the general control problem by discussing the underlying reasons for
implementing controls and by describing what can realistically be achieved. In the second part, the various
types of controls available are identified. The last part discusses why the appropriate choice of controls is and
should be different in different settings.

Why Are Controls Needed?

If all personnel always did what was best for the organization, control and even management would not
be needed. But, obviously individuals are sometimes unable or unwilling to act in the organization's best
interest, and a set of controls must be implemented to guard against undesirable behavior and to encourage
desirable actions.

One important class of problems against which control systems guard may be called
personal limitations. People do not always understand what is expected of them nor how they can best
perform their jobs, as they may lack some requisite ability, training, or information. In addition, human beings
have a number of innate perceptual and cognitive biases, such as an inability to process new information
optimally or to make consistent decisions, and these biases can reduce organizational effectiveness.4 Some of
these personal limitations are correctable or avoidable, but for others, controls are required to guard against
their deleterious effects.

Even if employees are properly equipped to perform a job well, some choose not to do so, because individual
goals and organizational goals may not coincide perfectly. In other words, there is a lack of goal
congruence. Steps must often be taken either to increase goal congruence or to prevent employees from
acting in their own interest where goal incongruence exists.

If nothing is done to protect the organization against the possible occurrence of undesirable behavior or the
omission of desirable behavior caused by these personal limitations and motivational problems, severe
repercussions may result. At a minimum, inadequate control can result in lower performance or higher risk of
poor performance. At the extreme, if performance is not controlled on one or more critical performance
dimensions, the outcome could be organizational failure.

What Is Good Control?

Perfect control, meaning complete assurance that actual accomplishment will proceed according to plan, is
never possible because of the likely occurrence of unforeseen events. However, good control should mean
that an informed person could be reasonably confident that no major unpleasant surprises will occur. A high
probability of forthcoming poor performance, despite a reasonable operating plan, sometimes is given the
label out of control.

Some important characteristics of this desirable state of good control should be highlighted. First, control is
future-oriented: the goal is to have no unpleasant surprises in the future. The past is not relevant except as a
guide to the future, Second, control is multidimensional, and good control cannot be established over an
activity with multiple objectives unless performance on all significant dimensions has been considered. Thus,
for example, control of a production department cannot be considered good unless all the major performance
dimensions, including quality, efficiency, and asset management, are well controlled. Third, the assessment of
whether good performance assurance has been achieved is difficult and subjective. An informed expert might
judge that the control system in place is adequate because no major bad surprises are likely, but this
judgment is subject to error because adequacy must be measured against a future that can be very difficult to
assess. Fourth, better control is not always economically desirable. Like any other economic good, the control
tools are costly and should be implemented only if the expected benefits exceed the costs.

How Can Good Control Be Achieved?

Good control can be achieved by avoiding some behavioral problems and/or by implementing one or more
types of control to protect against the remaining problems. The following sections discuss the major control

Control-Problem Avoidance

In most situations, managers can avoid some control problems by allowing no opportunities for improper
behavior. One possibility is automation. Computers and other means of automation reduce the organization's
exposure to control problems because they can be set to perform appropriately (that is, as the organization
desires), and they will perform more consistently than do human beings. Consequently, control is improved.

Another avoidance possibility is centralization, such as that which takes place with very critical decisions at
most organization levels. If a manager makes all the decisions in certain areas, those areas cease to be control
problems in a managerial sense because no other persons are involved.
A third avoidance possibility is risk-sharing with an outside body, such as an insurance company. Many
companies bond employees in sensitive positions, and in so doing, they reduce the probability that the
employees' behavior will cause significant harm to the firm.

Finally, some control problems can and should be avoided by elimination of a business or an operation
entirely. Managers without the means to control certain activities, perhaps because they do not understand
the processes well, can eliminate the associated control problems by turning over their potential profits and
the associated risk to a third party, for example, by subcontracting or divesting.

If management cannot, or chooses not to avoid the control problems caused by relying on other individuals,
they must address the problems by implementing one or more control tactics. The large number of tactics
that are available to help achieve good control can be classified usefully into three main categories, according
to the object of control; that is, whether control is exercised over specific actions, results, or personnel. Table 1
shows many common controls classified according to their control object; these controls are described in the
following sections.

Control of Specific Actions

One type of control, specific-action control, attempts to ensure that individuals perform (or do not perform)
certain actions that are known to be desirable (or undesirable). Management can limit the incidence of some
types of obviously undesirable activity by using behavioral constraints that render the occurrence impossible,
or at least unlikely. These constraints include physical devices, such as locks and key-personnel identification
systems, and administrative constraints, such as segregation of duties, which make it very difficult for one
person to carry out an improper act.

A second type of specific action control is action accountability a type of feedback control system by which
employees are held accountable for their actions. The implementation of action-accountability control
systems requires: (1) defining the limits of acceptable behavior, as is done in procedures manuals; (2)
tracking the behaviors that employees are actually engaged in; and (3) rewarding or punishing deviations
from the defined limits. Although action-accountability systems involve the tracking and reporting of actual
behaviors, their objective is to motivate employees to behave appropriately in the future. These systems are
effective only if employees understand what is required of them, and they feel that their individual actions
will be noticed and rewarded or punished in some significant way.

A third type of specific-action control is preaction review. This involves observing the work of others before
the activity is complete, for example, through direct supervision, formal planning reviews, and approvals on
proposals for expenditures. Reviews can provide effective control in several ways by: correcting potentially
harmful behavior before the full damaging effects are felt; or influencing behavior just by the threat of an
impending review, such as causing extra care in the preparation of an expenditure proposal. One advantage of
reviews is that they can be used even when it is not possible to define exactly what is expected prior to the

Control of Results

Control can also be accomplished by focusing on results: this type of control comes in only one basic form,
results accountability, which involves holding employees responsible for certain results. Use of results-
accountability control systems requires: (1) defining the dimensions along which results are desired, such as
efficiency, quality, and service; (2) measuring performance on these dimensions; and (3) providing rewards
(punishments) to encourage (discourage) behavior that will lead (not lead) to those results. As with action-
accountability systems, results-accountability systems are future-oriented; they attempt to motivate people
to behave appropriately. But they are effective only if employees feel that their individual efforts will be
noticed and rewarded in some significant way.
Control of Personnel

A third type of control can be called personnel control because it emphasizes a reliance on the personnel
involved to do what is best for the organization, and it provides assistance for them as necessary. Personnel
controls can be very effective by themselves in some situations, such as in a small family business or in a
professional partnership, because the underlying causes of the needs for controls (personal limitations and
lack of goal congruence) are minimal. However, even when control problems are present, they can be reduced
to some extent by: (1) upgrading the capabilities of personnel in key positions, such as tightening hiring
policies, implementing training programs, or improving job assignments; (2) improving communications to
help individuals know and understand their roles better and how they can best coordinate their efforts with
those of other groups in the organization; and (3) encouraging peer (or subordinate) control by establishing
cohesive work groups with shared goals.

Feasibility Constraints on the Choice of Controls

The design of a control system often depends partly on the feasibility of the various types of controls: not all
of these tools can be used in every situation. Personnel controls are the most adaptable to a broad range of
situations. To some extent, all organizations rely on their employees to guide and motivate themselves, and
this self-control can be increased with some care in hiring, screening, and training. Even in a prison, where
administrators are faced with a sharp lack of goal congruence and where few control options are available
other than physical constraints, inmates are screened so that dangerous ones are not assigned to high-risk
positions, such as in a machine shop.

Most situations, however, require reinforcing personnel controls by placing controls over specific actions,
results, or a combination of the two. This is where feasibility becomes a limiting factor.

For control over specific actions, management must have some knowledge of which actions are desirable.
While it may be easy to define precisely the required behavior on a production line, the definition of
preferred behavior for a research engineer cannot be as precise. Being able to keep track of specific actions is
also necessary to enforce actions accountability; however, this is usually not a limiting factor, except in rare
situations such as a remote outpost, because actions can be observed directly or assessed indirectly through
action reports, such as hours worked, sales calls made, or procedural violations.

For control over results, the most serious constraint is the ability to measure the desired results effectively.
(Management usually knows what results are desirable.) Ideally, measurements should: (1) assess
the correct performance areas the ones for which results are truly desired; (2) be precise not
determined by only crude estimations; (3) be timely and (4) be objective not subject to manipulation. While
perfect measures are rarely available, reasonable surrogates can often be found or developed. For example,
complaints received might be a good (negative) indicator of the performance of hotel staff personnel along
the customer-service dimension. Significant difficulty in achieving any of these four measurement qualities,
however, can lead to failure of a results-oriented control system.