Case Study 3.1: Keflavik Paper Company
In recent years, Keflavik Paper Company has been having
problems with its project management process. A number of
commercial projects, for example, have come in late and well over
budget, and product performance has been inconsistent. A
comprehensive analysis of the process has traced many of the
problems back to faulty project selection methods.
Keflavik is a medium-sized corporation that manufactures a variety
of paper products, including specialty papers and the coated papers
used in the photography and printing industries. Despite cyclical
downturns due to general economic conditions, the firm’s annual
sales have grown steadily though slowly. About five years ago,
Keflavik embarked on a project-based approach to new product
opportunities. The goal was to improve profitability and generate
additional sales volume by developing new commercial products
quickly, with better targeting to specific customer needs. The
results so far have not been encouraging. The company’s project
development record is spotty. Some projects have been delivered
on time, but others have been late; budgets have been routinely
overrun; and product performance has been inconsistent, with
some projects yielding good returns and others losing money.
Top management hired a consultant to analyze the firm’s processes
and determine the most efficient way to fix its project management
procedures. The consultant attributed the main problems not to the
project management processes themselves, but to the manner in
which projects are added to the company’s portfolio. The primary
mechanism for new project selection focused almost exclusively
on discounted cash flow models, such as net present value analysis.
Essentially, if a project promised profitable revenue streams, it was
approved by top management.
One result of this practice was the development of a “family” of
projects that were often almost completely unrelated. No one, it
seems, ever asked whether projects that were added to the portfolio
fit with other ongoing projects. Keflavik attempted to expand into
coated papers, photographic products, shipping and packaging
materials, and other lines that strayed far from the firm’s original
niche. New projects were rarely measured against the firm’s
strategic mission, and little effort was made to evaluate them
according to its technical resources. Some new projects, for
example, failed to fit because they required significant
organizational learning and new technical expertise and training
(all of which was expensive and time-consuming). The result was a
portfolio of diverse, mismatched projects that was difficult to
manage.
Further, the diverse nature of the new product line and
development processes decreased organizational learning and
made it impossible for Keflavik’s project managers to move easily
from one assignment to the next. The hodgepodge of projects made
it difficult for managers to apply lessons learned from one project
to the next. Because the skills acquired on one project were largely
nontransferable, project teams routinely had to relearn processes
whenever they moved to a new project.
The consultant suggested that Keflavik rethink its project selection
and screening processes. In order to lend some coherence to its
portfolio, the firm needed to include alternative screening
mechanisms. All new projects, for instance, had to be evaluated in
terms of the company’s strategic goals and were required to
demonstrate complementarity with its current portfolio. He further
recommended that in order to match project managers with the
types of projects that the company was increasingly undertaking, it
should analyze their current skill sets. Although Keflavik has
begun implementing these and other recommendations, progress so
far has been slow. In particular, top managers have found it hard to
reject opportunities
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that offer positive cash flow. They have also had to relearn the
importance of project prioritization. Nevertheless, a new
prioritization scheme is in place, and it seems to be improving both
the selection of new project opportunities and the company’s
ability to manage projects once they are funded.
List ONE fact from the case and briefly explain how it
may have (positively or negatively) impacted the
project planning process at Keflavik Paper Company.
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