Project Management Involved Formation of Airbus

Project Management involved in Formation of Airbus

The report investigates factors that led to the A380 project crisis. Analysis of the project revealed that Airbus did not integrate an effective project management model into the project lifecycle leading the project to be two years behind schedule, which eventually led to the costs escalations. The report reveals several lessons to be learned from the A380 project crisis. A project management needs to integrate effective cost management, time management and risk management in the project lifecycle. A mega project such as A380 needs to integrate a detailed risk management, cost and time management plan before project’s implementation.

Introduction

The case illustrates how project management integration could lead to a project success. In 2000, Airbus undertook the largest and the most ambitious project ever developed by the company. Airbus undertook A380 project, which was projected to be similar to superjumbo jets capable of carrying 853 passengers and crew. The A380 project was the first biggest aircraft ever built by the Airbus and the project intended to address the market needs and hub airport congestion. The project was also to induce more than 200,000 jobs globally. Despite the benefits that the Airbus A380 was to deliver, the project faced several complexities before it was finally completed. The project was behind schedule leading to the escalation of the project costs. The development cost was estimated to $10 Billion; however, the development costs had increased to more than $14 Billion by the time the project was finally completed. The overall factors leading the project crisis was lack of effective integration of project management model in the project lifecycle. (Sinha, 2009).

Aim

This reports aims to investigate the impact of project management model on the Airbus A380 project. This paper reveals the shortcomings in the project and this was caused by failing to integrate project management model in the project life cycle. This paper presents several lessons to be learned from the Airbus A380 project crisis.

Problem Analysis

Airbus is a subsidiary of EADS focusing on manufacturing of commercial aircraft. Airbus is also a global leader in the manufacturing of aircraft. In enhancing its business operations, the company focuses in delivering efficient products for its customer. Over the years, the company has successfully completed many projects and part of the projects completed consist of the single-aisle A320 Family, the wide-body long-range A330/A340, next generation A350 XWB Family, and double-decker A380 Family. The company has also broadened its scope by expanding its expertise in military market, freighter aircraft. Despite the success of Airbus over the years, Airbus made headlines with the problem associated the Airbus A380 project. Typically, Airbus mega project was two-year behind schedule making the Airbus parent company to secure a loss of $6.1 billion. (Dougherty, 2006). The project failed because it suffered from several integration management problems. (Schwalbe, 2010). The launching of A380 project was supposed to be a huge success for the company and suppose to elevate the company in achieving a market leading position within the airline industry. However, the cancellation of customer’s orders of Airbus A380 following a delay in completing the project had been a major blow to the company, which could have pushed the company into a bankruptcy. The major cause of Airbus A380 failure was that the company did not integrate the strategic project management principles in project lifecycle. (Garfein, 2008).

Activities and Skills of Project Management

The concept project is undertaken to create new product and services and Airbus Company attempted to undertake a new project in order to create a new Air Bus A380. The huge costs that are always associated with project require stakeholders to integrate an effective project management to enhance successful completion of a project. The project management is the application of skill, knowledge, techniques and tools to project activities to meet project objectives. (Project Management Institute, 2007). A project manager must strive to meet specific time, scope, costs as well as quality goal of project before the entire project’s meet the needs of customer. (PricewaterhouseCoopers, 2004).The core functions of project management that must be integrated into a project lifecycle include:

Scope management

Time management

Cost management. (Claude and Brian 2006).

More importantly, project integration management must be included into the project life cycle to enhance project’s success. The project integration management includes:

Human resource management

Communications management

Risk management

Procurement management.

The Airbus A380 project failed to meet the project time and costs because management failed to integrate some of these project requirements listed above. The implication of these shortcomings made the A380 project to be two years behind schedule causing the Airbus parent company to secure a loss of $6.1 Billion within the span of four years.

To address the project’s problem such as A380 project, the report provides the activities of project management that must contribute to the project success or failure.

Success of project largely depends on a skilled project manager who has a wide knowledge on project integration management and core project functions. A project manager is a professional having ability to integrate the project integration management to meet the needs and expectation of stakeholders. A project manager must understand the topics related to accounting, procurement management, financial management, marketing, sales, logistics, strategic planning and supply chain. It is critical for project managers to have a lot of experience to make an important project decision. (Thomas, & Mullaiy, 2005).

Some of the activities and skilled that must be integrated into a project to achieve a project success include:

Project cost management: A project cost management involves preparing and managing a budget that must be used to complete a project. A management needs to carry out the return on investment (ROI), payback analysis, net present value, cost management plan and cost estimates of a project before embarking on a project to avoid a project failure and achieve a success in a project.

Project time management: A project time management involving successfully estimating the appropriate time to complete project. It is also critical to develop an appropriate time schedule to deliver a timely completion of a project. The tools and technique to enhance project time management is to use project network diagrams, Gantt chart, schedule performance measurements and critical path analysis to develop effective time management technique for a project. (Milosevic, & lewwongcharoen, 2004).

Project risk management: The project risk management is one of the most important aspects of project management. Project management must possess the risk management skills to avoid project failure and achieve a project success. A risk management includes ability to identify, analyze as well as responding to the risk related project. The risk registers, risk management plan, risk ranking and probability risk matrix are the important tools and techniques that could be used to manage a project risk.

Project communications management: is a technique of collecting, generating, storing and disseminating information project information. Some of the tools and techniques to enhance project communication management include kick-off meetings, status and progress reports, and project web sites.

Project procurement management: This involves procuring and acquiring the goods and services needed to complete a project. Requests for proposals or quotes, make-or-buy analyses, supplier evaluation matrices, and source selection are the tools and techniques used to integrate procurement management within the project lifecycle.

Project scope management: It involves managing and defining all works required to complete a project successfully. Scope management plans, statements of work, scope verification techniques, work breakdown structures, scope statements, requirements analyses, and scope change controls are the tools and techniques used to integrate project scope management to avoid a project failure.

Project quality management is to ensure that a project satisfies the stated requirements. A project management must use tools and techniques, which include quality control charts, statistical methods, Pareto diagrams, quality metrics, maturity models, checklists, and fishbone diagrams to access the quality of a project. Using combination of these tools will assist project management to deliver a quality project that meet the need of project stakeholders.

Project human resource management is very important in the success of a project, and human resources management is concerned with making effective use of workers involved in the project. To achieve a project success, a project manager must use combination of tools and techniques, which include motivation techniques, project organizational charts, empathic listening, team building exercise, resource histograms, and assignment matrices. (Chang Chuah, & Li 2004).

Airbus A380 Project Management

Despite the activities and skills needed to carry out the project’s success, Airbus management failed to integrate some of these project management skills in the project lifecycle. For example, the Airbus management failed to integrate risk management in the project, which led to the project failure. In 2005, the company announced that the project was behind schedule because of the technical problems. While the delay in delivering the A 380 aircraft was to last for 6 months, however, on the 13 June 2006, the company announced again that the project would be delayed for another 6 months. It is essential to realize that a mega project such as A380 t requires extensive risk management analysis, which include risk identification and risk management plan before the project implementation. The delay led to another shift in project delivery schedule. The company announced that project delay was attributed to aircraft wiring problems. (Robertson 2006, Clark 2006).

Communication problem was another factors leading to A380 crisis. The management did not formerly communicate the problems to appropriate stakeholders on time. It was already too late before the management actually communicated the problem to the appropriate stakeholders. Realistically, the Airbus did not have experienced in building a complex aircraft such as A380. Thus, the company did not integrate effective risk and time management in the project life cycle. The company did not accommodate the time constraints associated with big project into the project time management. Based on the delay in completing the project and escalation in the project costs, the A 380 project was far from being a successful project. The report illustrates features of a successive project.

Criteria of a Successive Project

Schwalbe, (2010) argues that a project manager must continue to develop his knowledge and skills to achieve a success in a project, and it is important to learn from the mistakes of former projects failure. The important criteria attributed to a project before a project could be ranked as being successful are as follows:

First, the project is a success if it meets the scope, time, and the costs budgeted for the project. The A380 would have been categorized as a successful project if it meets the time scheduled for the project. More importantly, a project has achieved a project success if the project is able to satisfy the customers. It is essentially to realize that a project could meet the initial scope, time, and cost goals, however, if customers were not happy with the project, a company might lose large amount of revenue from the project. (Project Management Institute, 2008). Conversely, a project might not meet the initial scope, time, and cost goals, and eventually customer could still be very satisfied with the project. This is the example of A 380 project where the company did not meet the costs and time goals, however, customer were still happy with the project when the project had finally completed. Airbus A380 total orders were 262, the company has finally delivered 101 orders, and 101 orders are still in operations. (Airbus, 2012).

More importantly, a project has been able to achieve a success if the results of the project meets its main objective, which include provide a good return on investment. Although, it is essential to realize that A380 project was a mega project, which development costs run into billion of dollars. It would take several years before the company could realize the return on investment (ROI). With the increase in the project costs and longer time to complete the project, it might take longer years for the company to record a ROI from the project. (Boom, 2009).

Based on the crisis identified, the paper provides the strategy in estimating and managing project costs as well as enhancing risk management. The report also investigates the strategy to translate planning into execution.

Project Planning and Implementation

Integration of strategic planning is very critical for a project success. Strategic planning is the most critical tool that a business manager used to identify a project that would deliver value to a company. The strategic planning assists an organization to study opportunities and threats within the business environment as well as predicting trends, which assists a business manager to identify and select a particular project.

Project Selection Technique

To select a project, an organization must identify project that would be part of its strategic planning process. Moreover, organizations should narrow down the project and select a project that would deliver the most financial benefits, which will deliver values to stakeholders.

Major techniques used in selecting a project are to use net preset value analysis. Net present value (NPV) is a financial tool used to calculate the expected return or monetary gains from an investment. The gain or loss that could be realized from a project could be calculated using the expected cash inflow and outflow associated to the project. A positive value of a project is the only criterion for the project selection; an organization should only choose a project that provides the positive NPV. The reason for choosing positive NPV is that the return from an investment will be greater that the costs of capital. Typically, a project with higher NPV is to be preferred than a project with lower NPV. Despite the benefits of NPV in the project selection, NPV is not sufficient alone to select a mega project such as A380 because the A 380 project was generally being influenced by several factors.

Weighting scoring model is an important tool that a business leader should use in selecting a project. Weighting scoring model is a systematic process of selecting a project based on many criteria, which include:

Ability to meet the business objective

Having a strong customer support

Provide a positive NPV

Has low risks and meet the goal, time and scope.

Using a realistic level of technology,

Having a strong internal sponsor.

The report assigns percentages to each criteria based on their importance to the project. Table 1 provides an example of weighting scoring model for a project selection.

Table 1: Weighting scoring model

A

B

C

D

Criteria

Weight

Ability to meet the business objective

25%

90

90

50

20

Having a strong internal sponsor.

15%

70

90

50

20

Having a strong customer support

15%

50

90

50

20

Using a realistic level of technology

10%

25

90

50

70

Provide a positive NPV

20%

50

70

50

50

Has low risks and meet the goal, time and scope.

10%

20

50

50

90

Weighted Project Scores

56

78.5

50

41.5

From the table, it is revealed that project 2 delivers highest weighted average score out of all the four projects. Having using the weighting scoring model, the next stage is to estimate and manage the costs associated to a project.

Cost Estimation and Cost Management

A cost estimate is very important before embarking on a project. The cost estimation is an accounting technique to estimate the total amount of money needed to complete a project. A cost accounting technique is an effective tool to estimate the costs of a project. Nikolaos et al. (2005) argues that a detailed cost accounting methodology is an important tool in estimating the costs of a project. Since a mega project such as A380 project could be influenced by inflation and other economic factors, there is a need to estimate the costs based on the current economic condition since 70% of the aircraft manufacturing costs are committed during the project development lifecycle. The cost analysis should be carried out when estimating the costs and sensitivity analysis should be carried out for the cost estimation. (Schoemaker, Randall, 2002).

A costs management is a strategy to keep the project on budget. A cost management plan is critical to ensure that the project costs are not more than the amount budgeted for the project. Airbus management failed to implement effective cost management plan to make the put the project on budget.

“To address costs that that threaten to rise beyond the initial projections, the project manager should consider how available resources can be reallocated. This can be a very useful cost management strategy that keeps the project on budget while addressing potential shortcomings.” (Villanova University 2012 P. 2).

The risk management is also very important in the project lifecycle. An organization needs to design risk register to manage risks associated with a project lifecycle. A risk register is a management tool used to manage risk in a project. A risk register lists all the risks associated with a project rank the risks based on their level of importance to a project. Having identified all the risks associated to a project, a project manager could use different tools to manage the risks. The risk matrix could be used to rank the risk based on their importance. A sample of a risk matrix is presented in the box below.

Risk Scoring Matrix

Impact

High / Critical

3

3

6

9

Medium / Serious

2

2

4

6

Low / Marginal

1

1

2

3

1

2

3

Low / Improbable

Medium / Could happen

High / Probable

Probability

Probability Categories

Description

Prob

Scale Value

H

Probable

>70%

3

M

Could happen

30-70%

2

L

Improbable

<30%

1

To manage the risk “the Project Manager shall review and update the Project Risk Log/Register/Schedule as part of the monthly/stage reporting. The Project Manager shall prepare risk management reports to support review of risk status and treatment. The Project Manager shall also liaise with the Cost Manager in order to update contingency costs for project cost at completion forecast.” (Imperial College London, 2012 P1).

Project execution is an important aspect of a project because it involves the overall project implementation. A project manager must execute major resources, which include time, money and human resources in the project execution. All major stakeholders should be involved in the project execution, and a project manager should adopt a leadership role throughout the project lifecycle. It is critical for a project leader to guide the subordinates in achieving project success. By integrating all important project management in the project lifecycle, a project stakeholder will achieve a success from a project.

Conclusion

The report investigates several factors that led to the A380 project crisis. The report identifies that the management did not integrate the project management model into the project lifecycle. The project was two years behind schedule leading to cost escalation. The report argues that a project management plan is critical for a mega project such as A380 project. The project stakeholders ought to have integrated risk management, costs management and time management in the project lifecycle.

References

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Chang D. Chuah K.B., & Li Z. (2004). A Study of Critical Success Factor of Information System Projects in China, Proceedings of PMI Research Conference. Retrieved May 16 From http://ieeexplore.ieee.org/xpl/login.jsp?tp=&arnumber=5566193&url=http%3A%2F%2Fieeexplore.ieee.org%2Fxpls%2Fabs_all.jsp%3Farnumber%3D5566193

Dougherty, C. (2006). Airbus delay blame: Plenty to go around – Business – International Herald Tribune 26 June 2006. Retrieved May 16 From http://www.nytimes.com/2006/06/26/business/worldbusiness/26iht-airbus.2056890.html

Claude B. And Brian H. (2006).The Potential Contribution and Perceived Value of Project Management Practices to Project Success, PMI Research Conference Proceedings . Retrieved May 16 From http://www.csun.edu/~aa2035/CourseBase/ProjectMgt/ProjectMgt2010/PMfromJump1/DrSwafford/PMValueofProjectPractices.pdf

Garfein, S.J., (2008), Strategic Portfolio Management: The Key to the Executive Suite, Proceedings of the PMI Global Congress EMEA, St. Julian, Malta.Retrieved May 16 From https://secure.associationsonline.com/amo/pspmi//files//PMI%20EMEA%20Global%20Congress%202008%20-%20Malta%20Preview%20for%20Puget%20Sound%20Chapter.pdf

Schwalbe, K.(2010). Information Technology (IT) Project Management: With Microsoft Project 2007. Cengage Learning. Retrieved May 16 From http://books.google.ci/books/about/Information_Technology_Project_Managemen.html?id=MPS_fT3diqAC&redir_esc=y

Imperial College London (2012). Manage and Close Out Risks. UK. Retrieved May 16 From http://www3.imperial.ac.uk/estatesprojects/projectprocedures/processes/pm/1.20/1.20.06

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Schoemaker, P.J.H., Randall, D., (2002). Managing Uncertainty: A Guide for Credit Unions. Madison, WI: Credit Union Executives Society (CUES). Retrieved May 16 From http://www.amazon.com/Managing-uncertainty-guide-credit-unions/dp/1889394793

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