Your name is Sam Mounir, you are the lead scheduler for Madras, a construction contractor on a

project building a Nuclear Power Plant located at Doha Qatar. The work is being done on two-shifts, 7
days per week, with contractor duration of 60 days. The contractors operating procedure for the Plant
project calls for the schedule on Thursday, you discover that the progress on a group of seven
activities, subcontracted to Al Mahmoud’s Fabricators, has been over-reported. The activities have
been shown to be more complete more than they actually are. Samir was not responsible for the
reporting error. The error has resulted in a forecasted project completion date of four days earlier
than is supported by the current information. Since the previous forecast indicated that the work is
completed just in time to meet the contractor’s contractual obligations, the revised forecast now
indicates that the project will be late by four days. As the liquidated damages are $15,000 per day,
the financial impact to the contractor will be great. The contractor earns a bonus of $40,000 per day
for early completion.

You have formulated two corrective courses of action to address the problem:

1. Samir has proposed to increase the manning of its work and provide additional equipment at
an estimated cost of $145,000. You have analyzed the proposal and determined that will
result in a project completion 2 days earlier than the contract date. Samir has indicated that it
is 90% confident that the cost will not exceed $145,000.
2. The second possible corrective course of action it to crash two key self-performed civil
construction activities that would result in a project completion five days prior to contract
date. You have discussed the matter with the Civil Department. The civil manager, Joseph
Smaha, stated that the cost would be approximately $180,000. Joseph was unable to give a
quantitative level of confidence but felt that the likelihood of success of the crash effort would
be high.

Assignment:

Draft a memorandum to Peter Davies, the Madra’s Project Manager, explaining in your own words:

a) The Problem
b) The possible correct courses of action, and
c) Your recommendations.

Include the reason for your recommendation.

TO:

Mr. Peter Devies,

Project Manager

PROJECT: NUCLEAR POWER PLANT

SUBJECT: ERROR IN PROGRESS UPDATE – CORRECTIVE ACTION

Dear Sir,

1.0 The Problem:

This is to report a problem in our latest updated project schedule. According to latest updated
schedule, our project is going to complete four days later than contract completion date. This
problem was not reflected in our previous forecast because a group of seven activities, subcontracted
to Al Mahmoud’s Fabrication were over reported. Even though Samir is responsible for these
activities, he was not responsible for reporting this error. However, we will conduct a thorough inquiry
on to this matter, to know the reasons for over reporting to avoid any such errors in future.

In the above context, I have formulated two corrective actions to resolve the issue.

2.0 Corrective action:

a) Option: 1

Samir has sent me a proposal upon my request. He would increase manpower and use additional
equipment to crash some activities and it will cost US$ 145,000. I analyzed his proposal and found
that if it is implemented, project will complete six days earlier than present forecast date and two
days earlier than contract completion date.

Commercial aspects of this option are as mentioned below.

• Bonus for each day of early completion is US$ 40,000.

• Bonus for two days of early completion is US$ 80,000
• Additional Cost for crashing is US$ 145,000Risk factor - 10%
• Cost of Crashing X Probability of risk US$ 14500
• Total Crashing cost including Risk US$ 159,500
• Total Profit/Loss on this effort: Bonus Earned – Additional Cost
• $ 80,000 – $159,000 = - $79,500
• There is Net loss of US$ - 79,500 with this option

b) Option: 2

I have prepared another corrective action with a proposal to crash two key civil activities. Upon
analyzing this proposal I determined that if it is implemented project will complete five days earlier
that contract completion date. I discussed this matter with Joseph Smaha, civil manager. He informed
me that this proposal will cost US$ 180,000 and likelihood of success of this effort is high. Commercial
aspects of this option are as mention below.

• Bonus for each day of early completion is US$ 40,000.

• Bonus for five days of early completion is US$ 200,000
• Additional Cost for crashing is US$ 180,000
• Risk Factor – High chances of success. Quantification not given.
• Total Profit/Loss on this effort: Bonus Earned – Additional Cost
• $ 200,000 – $180,000 = $ 20,000
• There is Net profit of US$ 20,000 with this option
c) Option: 3

In the third and final option, I am not proposing any corrective action but allowing the project to
complete as it is forecasted four days later than contract completion date.

Commercial aspects with this option are as mentioned below.

• Liquidated damages for delay of one day are US$ 15,000.

• Liquidated damages for delay of four days are US$ 60,000.
• There is Net loss of US$ 60,000 with this option.

3.0 Recommendation:

In Conclusion, I strongly recommend Option 2 to implement in the present scenario. Because Option
2 will earn US$ 20,000 whereas, Option 1 and 3 lose an amount of US$ 65,000 and US$ 60,000
respectively. Moreover, the cost of Risk occurred in case of choosing option-2, if occurred will be
charged to the subcontractor.