Critical Thinking: Cost Control With Scope Changes

by Joseph_Phillips on November 15, 2012

Consider this scenario: Mary is the project manager of a home construction project. In the project she is using oak floors from a particular vendor. The vendor reports that he will be late delivery the oak floors. If Mary considers purchasing the materials from another vendor the price will increase significantly, but the vendor can guarantee a delivery date. What should Mary consider as part of this decision?

Sound familiar? Do you have this in your projects? What can Mary do?

First, Mary should consider if she is contractually obligated to purchase from her original vendor. Her contract with her original vendor may allow the vendor to be late with or without fines and penalties. If she is obligated to purchase from the original vendor, due to the terms of the contract, there is nothing she can do outside the boundaries of the contract terms. Many contracts, however, allow the purchaser to leave the contract if the terms, such as delivery date, cannot be met.

If Mary is allowed to cancel the contract with the original vendor then she must consider the cost-benefits analysis of purchasing from the second vendor. While the second vendor can guarantee delivery of the materials Mary needs to examine if it is worth the additional fees to have the materials in the project. She may be able to change the project schedule to shift the usage of the materials and stay with the original vendor, if feasible. If that is not an option and she must have the materials to complete the project by a given date Mary may want to examine the project to see where there are other cost savings.

The worst case scenario is that Mary uses monies from a contingency reserve for this instance. The contingency reserve is a portion of the project’s monies, separate from the budgeted cost of the project work, for risk responses. In this instance it may be worthwhile to use the risk reserve monies to purchase the materials from a new vendor and have the materials on-hand.

Of course the conditions of this question do not tell the project status, the urgency for the project completion, and any terms and conditions for payment that Mary may be operating under. A completion examination of the project is due to see the possible affect of this change:

Scope – are the materials provided from the new vendor identical to the project needs?

Schedule – how does the vendor guarantee the delivery of the materials?

Cost – how significant is the cost difference?

Quality – are the materials identical and of the expected quality?

Human resources – are there contracted resources that may be affected by the shift in vendors?

Communications – what stakeholders need to be contacted about this issue and pending change?

Risks – what risks are introduced by the new vendor and the replacement of the original vendor?

Procurement – what contracting terms must be addressed for the old vendor and the new vendor?

The above questions are examples of queries that the project manager must ask as part of project integration management. You may have discovered other questions and concerns in this scenario, but this is the most approachable response.

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