Question 1

Pellican Landing – Bender Corporation

Question 1: In what ways are Corbett & Lawson partners? Adversaries?

Answer:

Lawson is City Planning Officer of Springfield.

Corbett is Vice President, Bender Corporation.

Both the parties are members of the project with strong common interests. Both wanted to

develop the city (for different reasons).

Question 2: Interpret the case in terms of the four points of principles negotiation.

Answer:

4 points of principles negotiations are:

Separate the people from the problem

Focus on interests, not positions

Before trying to reach agreement, invent options for mutual gain

Insist on using objective criteria

Separate the people from the problem

Identification of issues for discussion

Focus on interests, not positions

Both the parties have a set of preferences and importance weights for each of the issues to

be resolved

E.g. On building inspector, focus on ‘Fast Growth’ instead of individual person

Parties should not hold to their subjective preferences and should move forward to the

common interest of developing the city

Before trying to reach agreement, invent options for mutual gain

More people are looking for homes near city. So both the parties are willing to develop

residential complex in the city

Developing a city that was ignored for long time

Insist on using objective criteria

The issues were graded using the pointing system

Question 3 (a): Whether Corbett’s estimate of the importance on each of the issues appears to

have a win-win situation?

Answer:

The scores are ranging from -440 to 1720. Corbett should work out his minimum score (within

the range) he would like to achieve in all issues. He should negotiate over and above that so that

he is not completely lost. Anything above the minimum score is beneficial to him.

Question 3 (b): Should Mr. Corbett reveals his position to Mr. Lawson to speed up the

negotiations and start of the project?

Answer:

Mr. Corbett can reveal his score to the other party subject to the following conditions:

He should not reveal his minimum score.

He can mark up the minimum score requirement and reveal it so that even in worst case he

will not lose below his minimum requirement.

This will help both the parties to negotiate around value revealed and finalize the deal.

Question 4: How would you suggest Mr. Corbett proceed with the negotiations?

Answer:

In the following ways Mr. Corbett would be suggested proceed with the negotiations.

Which issues should be discussed first?

Focus of negotiation to be a win–win situation.

Professionals have interest in living and working and city.

Professionals require apartments rather than condominiums.

It matches with the interest of Corbett and hence will create a win – win situation.

So start with Condo/apartment ratio.

Which last?

The issue of open space

Because city planner would require more open space which is conflicting with the

interests of Bender corporation

What position should Corbett take on each of the issues?

For issue of condo/apartment ratio, take a position that ratio to be 1:3

Justified by starting the income levels of young professionals

For issue of open space, take position in terms of interests like safety issues

Can justify that higher level of safety can be ensured with lesser open space as less

number of outsiders or non residents will enter into the area

Question 5: Consider one negotiation approach of coming to a strict compromise on each issue,

resolved one at time. Would another approach such as considering two or more issues at once,

offer a better solution to both the parties?

Answer:

“Let us never negotiate out of fear.

But let us never fear to negotiate.”

- President John F. Kennedy

One issue

- More systematic

- No interdependency

- Issues surface one by one

- Win/lose situation

- Order of issues discussed very important

Many issues

- Multiple options

- Trade off between issues for maximizing gains

- Can use a rating system

- Reduced chances of Dead lock and Fight

Pelican landing case

- Should go for many issues at once

- Lawson may not favor any inspector

- He may like to have more open space

Trade off possible

Question 6: If all possible outcomes were plotted in 2D space with each axis being the sum of the

results for each negotiator, what would the plot look like? What would the outer boundary

represent?

Answer:

City FinancingCorbett (X-axis) 450 350 250 150 50Lawson (Y-axis) 50 150 250 350 450

Retail SpaceCorbett (X-axis) 50 -10 -70 -130 -190Lawson (Y-axis) -190 -130 -70 -10 50

Local SubcontractorsCorbett (X-axis) 210 170 130 90 50Lawson (Y-axis) 50 90 130 170 210

Open SpaceCorbett (X-axis) 290 230 170 110 50Lawson (Y-axis) 50 110 170 230 290

Condo/ Apartment RatioCorbett (X-axis) 370 290 210 130 50Lawson (Y-axis) 50 130 210 290 370

Low/Moderate-Income unitsCorbett (X-axis) 130 110 90 70 0Lawson (Y-axis) 0 70 90 110 130

HeightCorbett (X-axis) 50 -100 -250 -400 -550Lawson (Y-axis) -550 -400 -250 -100 50

Building InspectorCorbett (X-axis) 170 140 110 80 50Lawson (Y-axis) 50 80 110 140 170

Numbers for Measure

Complex but effective

Assign issue priorities

Score the outcomes

Deal breakers

Case: Automotive Builders, Inc.: The STANHOPE project

Question 1: How did ABI handle forecast risk?

Answer:

The U.S. farm market will be a difficult battleground for world farm equipment manufacturers

and any forecast of a particular engine’s potential in this market must be considered as

particularly risky. Every effort should be made to minimize our exposure on this investment and

maximize our flexibility.

By following their business strategy guidelines:

Long term margins, long term technical abilities position, advanced technology, utilize

project champions, keep plants under 480 employees.

Long term variability in purchased equipment.

Investing versus non investing comparisons.

Maximizing flexibility while minimizing exposure.

Question 2: Were ABI’s Stanhope site costs in Table 2 derived by a top-down or bottom-up

process? Why?

Answer:

Top down process:

The cost estimates include past data based on similar activities

Individual elements are lacking in each task, but the overall estimates are adequately

developed to account for the entire project task

Question 3: What are the answers to Steve White’s questions?

Answer:

A. “Won’t this investment simply dilute current ROI?”

Yes because of the $7.1 million investment for the project that will be depreciated over the 8

year life. Total company ROI will be negative for the first several years because of the startup

costs and working capital required for the Stanhope project.

B. “Will the cost in new equipment be returned by an equivalent reduction in labor? Where is

the payoff?”

• No. Although the equipment cost is high, the relative amount of labor necessary to run this

technology will remain constant through time.

• The payoff is the through put by the new machines and the properly trained and

experienced employees.

C. “What asset protection is there?”

• The asset protection comes in the variability of the equipment to produce several other

types of metals and products.

D. “Does this proposal maximize ROI, sales potential or total profit?”

• This proposal will maximize the sales potential in the future for increased volumes and

other products that can be run on these machines.

• Through time and experience, this equipment may also be.

Article: Three Perceptions of Project Cost

Question 1: What is the major point of the article?

Answer:

There are three perceptions of cost to be understood by an effective project manager:

First, a commitment to project funds in accordance with a time based budget. Second, the

accounting department addresses expenses recognition related to a project or an organizational

profit and loss statement. Third, the comptroller of finance department views project cost as a

cash outflow (cash flow).

Project Manager must also realize that the timing of cost identification can affect projects and

corporate financial performance; they are improving cash flow, revenue and expense. And

perceiving the different costs which they are reported. With this knowledge, the project manager

can control more than the project’s cost of sales.

Question 2: How does the accountant view project costs?

Answer:

The project’s costs will be all project expenses, the accountant issues payment for expenses,

which are recognized upon receipt of an invoice of purchasing activity. And when the project is

completed, the account records revenues. Both expenses and revenues reported in the fiscal

period to showing profits.

To avoid serious problems in a long-term project in which expenses are accrued during each

reporting period with no attendant revenue, the statements report revenue and expense based on a

“percentage of completion” formulation. During each account period, “take down” an equitable

percentage of the total project revenue, assigning an appropriate level of expense to calculate an

acceptable period gross margin. At the end of each accounting year and at the end of project,

adjustments are made to the recorded expenses to account the actual expenses, which is divided

by the total estimated project budget expenses to calculate the percentage of total expense for the

period. This becomes the completed percentage of project to determine the revenue.

Question 3: How does the controller view project costs?

Answer:

The controller usually is the comptroller of finance department, he or she is responsible for

managing the organization’s funds, and assuring the availability of the appropriate amount of

cash for the project’s payment, the comptroller really views project cost as a cash outflow.

The comptroller knows a finite amount of cash will be required for the accounts payable at the

end of a fixed period, the comptroller provides the funds, payments is made, and the actual cash

outflow is recorded.

Question 4: How does the project manager view project costs?

Answer:

Project manager places the purchase order means a commitment, this commitment is made to the

supplier, the project manager deal with commitments when he or she is planning and reporting

project costs.

Many accounting systems are not support project cost reporting needs, and do not identify

commitments for providing a suitable information, so that the project manager cannot handle on

the budget status at the control process. In this situation, the project manager has the

responsibility of maintaining personal records to track the project’s commitments.

Questions 5: What other costs the project manager need to be cognizant of? What actions should

the PM take concerning these other costs?

Answer:

The project manager plans and executes the project can increase company’s profitability through

improving effectiveness and efficiency on reducing expenses, cash outflow. To be a complete

effective project manager that he or she must be full understanding in the cost accounting

practices, cost of goods sold, wages expense, utilities expense, depreciation expense, insurance

expense, interest expense, tax expense, and net profit (net income).

The PM must take care of what a project manager can do to influence cost of goods sold (project

cost), financial expense, and tax:

1) Cost of Goods Sold:

A directed and controlled investment in the evaluation of best alternative design concepts can

obtain significant saving of project cost.

Take care excessive safety and uncertain factors can be controlled without affecting project

performance.

Considering the budget contains an adequate contingency for the schedule change, and

economic inflation.

2) Financial Expense:

Considering deferred factors to minimize risk of penalty for delayed schedule in the

execution of all projects.

To minimize the lost interest from a delay in receiving payment, invoice must be processed

and send to the clients quickly.

3) Tax Expense:

The project manager should consider taxes gained from a capital investment project in the

project, which schedule the related tasks to meet the tax deadline.

Case Study: The Sharon Construction Corporation

Question 1: Analyze the five proposals and make recommendations based on expected costs?

Answer

About The management team was asked consider alter-natives for coping with the situation.

At the end of the week five proposals were submitted. We discuss below.

Expedite the pouring of seat gallery supports. This would cost $20,000 and cut the duration of

the activity to six weeks. The cost is high and the performance is low.

1. The same as proposal I, but in addition, put a double shift on the filling of the field. A cost of

$10,000 would result in a five-week time reduction. The cost is also high and the

performance is low.

2. The roof is very important since it precedes several activities. The use of three shifts and

some overtime could cut six weeks off the roofing at an additional cost of only $9000. The

cost is also high and the performance is high.

3. Do nothing special until December 1. Then, if December is indeed cold, defer the pouring of

the seat gallery supports until the cold wave breaks, schedule permitting, and heat whenever

necessary. If a strike occurs, wait until it is over (no other choice) and then expedite all

remaining activities. In that case, the duration of any activity could be cut but to no less than

one third of its normal duration. The additional cost per activity for any week which is cut

would be $3000. The cost is reasonable and the performance is high.

4. Do not take any special action; that is, hope and pray that no strike and no cold December

occur (no cost) and this is bad idea.

Analysis of Baseline & A5:

• Do nothing (Tcp = 48+x weeks)

Analysis of A1:

• Expedite pouring concrete for seat gallery supports ($20,000) (activity G from 12 to 6

weeks) (Tcp=42+x)

Analysis of A2:

• Expedite pouring concrete for seat gallery supports ($20,000) (G from 12 to 6 weeks) and

filling of the field ($10,000) (C from 14 to 9 weeks) (Tcp = 42+x)

Analysis of A3:

• Expedite the roofing ($9,000) (activity K from 8 to 2 weeks) (Tcp = 48+x)

Analysis of A4 with 8w strike:

• Do nothing until December 1st. If the cold is indeed extreme, postpone concrete pouring

or heat when necessary; if a strike occurs, expedite all activities after resolution ($3,000

per week cut) (Tcp = 52)

Analysis of A4 with 12w strike:

• Do nothing until December 1st. If the cold is indeed extreme, postpone concrete pouring

or heat when necessary; if a strike occurs, expedite all activities after resolution ($3,000

per week cut) (Tcp = 56)

Time analysis:

Project DurationProbability

StrikeStrike

Duration (x: weeks)

Alternative 1

Alternative 2

Alternative 3

Alternative 4

Alternative 5

0.50 0 42 42 48 48 48

0.35 8 50 50 56 52 56

0.15 12 54 54 60 56 60

E(x) 4.60 46.60 46.60 52.60 50.60 52.60

SD(x) 4.78 4.78 4.78 4.78 2.91 4.78

Cost analysis:

Summary Mild DecemberProbability

StrikeAlternative

1Alternative

2Alternative

3Alternative

4Alternative

50.50 $20,000 $30,000 $9,000 $0 $0

0.35 $21,000 $31,000 $73,000 $14,000 $64,000

0.15 $53,000 $63,000 $135,000 $76,000 $126,000

E(x) $25,300 $35,300 $50,300 $16,300 $41,300

SD(x) $11,645 $11,645 $45,927 $25,871 $45,927

Summary Cold DecemberProbability

StrikeAlternative

1Alternative

2Alternative

3Alternative

4Alternative

50.50 $20,000 $30,000 $9,668 $668 $668

0.35 $21,000 $31,000 $73,000 $14,000 $64,000

0.15 $53,000 $63,000 $135,000 $76,000 $126,000

E(x) $25,300 $35,300 $50,634 $16,634 $41,634

SD(x) $11,645 $11,645 $45,627 $25,662 $45,627

Recommendation:

1. A4: Do nothing until December 1st. If the cold is indeed extreme, postpone concrete

pouring; if a strike occurs, expedite all activities after resolution (lowest E(x))

2. A1: Expedite seat gallery supports (second lowest E(x))

• A1 is better than A2 and A3 if the probability/risk of a strike is considered.

• A4 provides the option of speeding up the remaining tasks in case of a strike and doing

nothing otherwise. This option is powerful.

• A4 has a lower E(x), but a higher uncertainty SD(x) (broad range of losses from $0 to

$76,000) than A1. The analysis of the risk profiles will help management to select the

alternative which fits the corporation’s risk strategy.

• If the corporation is adverse to risk, it could select A1 (losses are spread out from

$20,000 to $53,000). A1 has a lower uncertainty (SD(x)) than A4.

• The project duration could be a factor for the decision, if there are projects on hold due to

lack of resources.

Question 2: What other basis might be used to make a decision beside expected costs? What

then might the decision be?

Answer:

About the other basis might be used to make a decision besides expected costs. We also must

consider the politic, organizational, human, and environment pollution problem, and they might

the decision by the PM and general management.

Question 3: What other factors might enter into the decision such as behavioral, organizational

and political?

Answer:

About the other factors might enter into the decision such as we also must consider the politic

and human environment pollution problem, the staff and responsibility person is change etc.

Question 4: What decision would you make as the president?

Answer:

I would make decision to use the fourth proposals because IT does nothing-special time until

December 1. Then, if December is indeed cold, defer the pouring of the seat gallery supports

until the cold wave breaks, schedule permitting, and heat whenever necessary. If a strike occurs,

wait until it is over (no other choice) and then expedite all remaining activities. In that case, the

duration of any activity could be cut but to no less than one third of its normal duration. The

additional cost per activity for any week, which is cut, would be $3000. The time can control and

schedule and the cost is reasonable and the performance is high.