Memorandum (Final Report)

Attn: Mr. Jill Collins, Project Manager

Date: 19th May 2010

Project: Package No.3, Supply and installation of the Turbines, Generator, and associated
Equipments for the Hydropower generation project, Missouri
Subject: Tom Martin, Planning & Scheduling Manager Report

Dear Sir,
The following are our findings and observations with final recommendation included at
the end of the report for the given scheduling problem of the referred subject project.

A. Background
M/s Consolidated entered into a lump sum type of contract for referred project
package No.3 with NHPC a government owned Company with a total contract
value of $ 2,000,000.00. The delivery of this work package as agreed in the
contract duration is 60days. The liquidated damages as per the contract were
$50,000 per day for any delay beyond the agreed contract duration with a delay
penalty of 10% maximum of the Contract value and early completion bonus of
$25,000 per day. M/s Perfect Fabricators assigned as a contractor for fabrication
and the erection of steel structure works. Also a Japanese Manufacturer assigned
for supply of the Generators and Turbines.

B. Initial Findings
1. The schedule problem affecting the project delivery was that the revised forecast
as per current update indicates the project would be completed only on day No.66
against original duration of 60 days leading to a project delay of 6days due to an
error in progress reporting.

2. The alternative corrective actions available for recovery are as follows:

2.1 1st Corrective Action - Resources increase by M/s Perfect for outstanding
critical activities lead to additional cost of $150,000 and an early project
completion of 4 days
2.2 2nd Corrective Action - Changing the shipment of Generator & Turbines
from sea to air, their delivery time reduces from seven to three days with
additional cost of $ 80,000.
2.3 3rd Corrective action - After discussions with the Construction
superintenden,t it was revealed that an uncompleted activity “Electrical
cabling work” with an original duration of 22days can be crashed which will
reduce the activity duration up to a minimum of 14days with additional of
$25,000.00 per day
C. Evaluations and Recommendations:
1. Time and Cost impacts of three corrective actions:
1.1 On account of resource increase for Steel fabrication and erection works,
- Leads to Direct Additional Resource Cost of $150,000
- By subtracting 4days of gained time due to this activity from the total delay of
6days, a net project delay of 2days still applicable which results in delay
penalty of $100,000
- So total affect due to this corrective action is $(150,000+100,000) = $250,000

1.2 By changing the shipment of Generator & Turbines delivery from sea to air
- Difference in Sea to Air transportation cost is $80,000 (extra)
- Reduction of delivery time of changing the shipment from sea to air which is
not on the critical path would not reduce the project duration
- Cost of crashing for the electrical cabling work which has a float of 3 days
parallel with Generator & Turbines, $125,000 (8days x $25,000/day)
- Cost impact of this corrective action is $(80,000+125,000) = $205,000

1.3 Crashing of an uncompleted activity “Electrical cabling work”

- Crashing of the Electrical cabling work which is not on the critical path would
not reduce the project duration and hence is not a feasible option

2. Considering the maximum delay penalty as per the condition of contract, which is
10% of the Contract value = 10% x $2,000,000 = $200,000

D. Recommendation:
From the above analysis, it is clear that the Cost impact of implementation of any of
the above three corrective actions is not recommended as the maximum delay penalty
of 10% of contract value (i.e., $200,000) is better than the implementing corrective
actions. So our recommendation is that instead of going for above highlighted
corrective actions which costs higher than the maximum delay penalty amount, it is
better for our Company to accept a delay penalty subject to maximum of 10%
contract value (as per the contract) from the Client.