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Poor project management a case study in organo vietnam company limited poor project management a case study in organo vietnam company limited

UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
-------------------------------------

Lam Thi Dieu Hien

POOR PROJECT MANAGEMENT
A CASE STUDY IN ORGANO VIETNAM
COMPANY LIMITED

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh city – Year 2018


UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
-------------------------------------

Lam Thi Dieu Hien


POOR PROJECT MANAGEMENT
A CASE STUDY IN ORGANO VIETNAM
COMPANY LIMITED
MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: DR. TRAN PHUONG THAO
Ho Chi Minh city – Year 2018


TABLE OF CONTENTS
LIST OF FIGURES
LIST OF TABLE
EXECUTIVE SUMMARY
CHAPTER 1: PROBLEM IDENTIFICATION

1

1.1

PROBLEM CONTEXT

1

1.1.1

Introduction on water Industry and Organo Vietnam

1

1.1.1.1

Overview of Water industry

1

1.1.1.2

An introduction on Organo Vietnam

2



1.1.2

Symptom in company

7

1.2

PROBLEM ANALYSIS

10

1.2.1

Weak technical engineer performance

11

1.2.2

Poor performance of process team

12

1.2.3

Poor performance of mechanical team

15

1.2.4

Poor project management

16

1.2.5

External factors from customer

21

1.3

MAIN PROBLEM VALIDATIONS

22

1.4

CENTRAL PROBLEM DEFINITION AND CONSEQUENCES

25

1.4.1

Central problem definition

25

1.4.2

An important of central problem

26

CHAPTER 2: SOLUTION

30

2.1

CAUSE VALIDATION

30

2.1.1

Lack of skills

30

2.1.2

Lack of experience

32

2.2

ALTERNATIVE SOLUTIONS

34

2.2.1

Possible solution

34

2.2.1.1

Skills training

34


2.2.1.2

Method of training

37

2.2.2

Solution selection

39

2.3

ACTION PLAN

41

CHAPTER 3: SUPPORTING INFORMATION

44

3.1

METHODOLOGY

44

3.2

TRANSCRIPTION

44

APPENDIX
REFERENCES

LIST OF FIGURES
Figure 1: OV chart
Figure 2: Chart of proportion of sales
Figure 3: Proportion of cost
Figure 4: Parts of OV water treatment project
Figure 5: Initial map from interviews
Figure 6: Updated map
Figure 7: Cause - effect map

LIST OF TABLE
Table 1: The proportion of sales revenue
Table 2: Estimated cost for solution
Table 3: Action plan

67


EXECUTIVE SUMMARY
Project management is in the family category of both the hardest and most significant
projects in the development of organizations and society. Managing this type of project
requires commitment and knowledge. It is an ambitious challenge for everyone involved
in the project. Organizations initiate projects with the best of intentions to succeed. The
management of project constraints explains, if not fully, why many projects fail. There are
many of researches on project management. Due to complex nature of project activities,
and the challenges associated with managing a project restriction or constraints of budget,
quality and time are also unique and ever changing. The ideal goal of effective project
management is to reach the expected outcome of a project on time and within budget. It
will help company survive in fierce competition environment. This thesis used interviews,
secondary data of company and literature reviews to analyze. A key finding of thesis will
show the problem of company is poor project management. A list of these causes was
collected through an extensive literature reviews, historical projects records and expert
opinions. The overall results showed that project manager lack of skills and experience
was considered the root causes of problem. Training is suggested the best solution for the
company. This thesis uses both qualitative and quantitative method. The findings of
problem and solution discussed with manager will help company run projects effectively
and increase profit of company.


1

CHAPTER 1: PROBLEM INDENTIFICATION
1.1

PROBLEM CONTEXT

1.1.1 Introduction on water Industry and Organo Vietnam
1.1.1.1 Overview of Water industry
The status of planning urban areas is not associated with the problem of waste treatment,
waste water treatment still in stock in large cities, industrial parks, urban areas.
Environmental pollution is at an alarming rate. It is estimated that out of the total 183
industrial parks in the country, over 60% of industrial parks do not have a concentrated
wastewater treatment system. In urban areas, only 60% - 70% of solid waste is collected,
wastewater and wastewater treatment facilities and wastes should not meet the
requirements of environmental protection. Most of wastewater contaminated with grease,
chemical detergents, dye chemicals, etc., has not been treated directly into rivers and
lakes. An example of public concern, the case of Thi Vai River is polluted by chemicals
discharged from the factory of Vedan company for 14 consecutive years.
At present, there are a lot of companies run in water treatment with high competiveness.
Local companies provide system services and products with cheap price. There is a high
degree of rivalry in the Vietnamese water treatment systems market, especially in the
different segments of the market. The rivalry already starts on a low-level scale, with
household water treatment equipment, and continues all the way up to the big plants.
Rivalry can clearly be seen at the water treatment plants designed for industrial zones.
Nowadays, the government for the IZ or the IZ itself usually does not take the cheapest
design, but decides for what they think is the most efficient or cost-effective plant.
Pollution violations by industrial manufacturers have drawn much attention recently.
Public interest groups have begun to focus on the impact of industrial waste has on the
environment and economy. Violating manufacturers are beginning to feel the impacts of
boycotts by their associates and customers.

These companies have also had some

difficulty accessing bank funding, as more banks are adjusting their policies to avoid
clients on the environment black list. Recent developments have triggered an


2

intensification of monitoring and inspection of industrial pollution. Industrial parks
represent an attractive market for wastewater treatment plants since the government is
pushing industry harder on environmental compliance.
According to Petrus Ghita1: “Water Industries in Vietnam include: Chemical/Non
chemical Water Treatment companies, Water Delivering companies, Industrial waste
water treatment companies, Municipal waste water companies, Waste Water Recycling
Systems, Water Filtration & Purification , Water treatment facilities & equipment
companies. There are a lot of drinking water companies in Vietnam who provide clean
water. The problem is that they have a lack of technology. Most of these companies are
Vietnamese and owned or supported by the government.” The focus of new water
treatment companies should be on the large cities in Vietnam.
A clear trend is that most cities have one water treatment company which is state owned
and which possess a monopoly in their own area because they are the only ones active in
those local smaller markets. On the national level these companies are part of the
oligopoly of Vietnam water treatment market. This is changing at the moment. The
foreign companies are trying to penetrate the Vietnamese market and collide with the
existing companies while national companies try to obtain larger market shares which
results in both international and local companies that are starting to compete.
Water resources are very significant, especially natural water sources in the rural areas of
Vietnam as they are the sources of economic, social and cultural activities. The
government of Vietnam is tackling the water resources management issues in the country
by implementing policies and programs relating to this. Some of the challenges that still
exist include improving access to clean water and sanitation for both urban and rural
population, improving public participation and knowledge and strengthening river basin
management.
1.1.1.2 An introduction on Organo Vietnam
Organo is a general water treatment engineering company that operates in the areas of
water treatment engineering and functional product. The water treatment engineering


3

business includes manufacturing, delivery and maintenance of pure water systems,
ultrapure water systems and waste water treatment systems for industries, condensate
demineralizers for power stations, waterworks and sewage treatment systems for the
public sector. The functional product business encompasses the sale of standardized water
treatment equipment, water treatment chemicals, and food processing materials.
Organo Vietnam is formed in Vietnam by Organo Corporation. Organo is Japanese
Company. It specializes in environment treatment such as providing chemical treatment,
design and construct wastewater treatment system, maintenance service.
Their corporation is based in Tokyo, Japan. The number of employees at the company as
in the end of 2016 is 91. The main activities of the company are installing WWT system,
DI water system, RO water system, super-pure water system. Organo (Viet Nam)
Company Limited has accumulated priceless experience in Vietnam in the past more than
6 years. Vietnam is a developing country and many countries have invested in Vietnam.
Many industrial parks and plants were grown but the water treatment systems are so old
so it make the water in Vietnam more and more polluted. Specializing in Water
Treatment, Ultra pure water, Waste Water, Commissioning, Hardware and Equipment
Design and Maintenance, Organo has been establishing in September 2010 but it has an
promising future. Organo Planning & Design team work hand in hand with customers in
conceptualizing, planning and implementing specific system according to their
requirements. Organo also supply highly functional equipment and engineering systems,
which is at the forefront of the industry.
Organo business is water treatment for plants for: electronic industries, general industries,
power stations, water work and sewage, medical care and pharmaceutical industries. For
electronic industries, Ultra pure water for cleaning semiconductors, liquid crystal panels
and other electronic materials and parts is used not only by leading Japanese
manufacturers but also by overseas companies. In step with the trend towards larger
factories, Organo responds to needs for large flow volumes off 2000 cubic meters hour
and is working to promote environmentally friendly closed systems that emit no effluent.


4

For general industries, Organo provide systems for efficiently manufacturing and treating
process water, by effectively combining different systems to meet the needs off chemical,
oil refinery, food, paper and pulp, textile, dyeing, automotive, plating and other industries.
For power station, water treatments for domestic thermal and nuclear power stations need
to be highly reliable. Organo hold a 70% markets share in this sector and a particularly
high market share in the market for water treatment systems for nuclear power stations.
For medical are and pharmaceutical industries, Organo effectively combines different
technologies, including distilled water production equipment for producing injection
water and pure water steam generators for protecting drug manufacturing facilities from
bacteria.
Projects of company include DI Water Treatment Plant, Waste Water Treatment, Sewage
Treatment Plant, Purified Water Treatment Plant. Material and equipment almost are
bought from oversea, especially from Japan. Budget for buying goods from oversea
weight 70%, meanwhile, goods buying from Japan occupy around 60%. OV’s customers
are big companies in pharmaceutical, cosmetics, power plants, industrial zones: Vedan,
Mekophar, SMC Manufacturing, Mtek, Thermal Plant, Rohto, Shiseido, Naris, Mekophar,
etc. Company also has some projects exported to Japan.
Goods are material and equipment to build the system, water treatment chemical, and
outsource service. OV will design and consult the systems. The goods include product
made in Vietnam and imported goods. Imported goods are pumps, pipe, fittings,
equipment, tank. Foreign origin goods include goods are directly imported by Organo and
goods via agencies in Vietnam. Goods are bought via local suppliers for vessel
fabrication,

installation,

construction,

consumable

material.

Vessel

fabrication,

installation, construction cost a lot of money for a project.
Human resources of company are young Vietnamese engineers and Japanese managers.
Young engineers with a keen spirit of learning and dedication contribute to the
development of company. They have many advantages are they are active, enthusiastic,
and progressive.


5

OV structure
Company has head office in HCM city, one workshop in Hung Yen and one branch in
Hanoi. Head office and customize engineering design for customer, propose the best
solution to meet the client’s budget and technical requirements. Permanent construction
team (more than 40 people) including Japanese experts, professional engineers and welltrained workers strictly control the quality and progress, coordinate the installation work
at site and in our workshop to ensure the efficiency and quality at its best.
Departments of company includes: Technology (Process), Mechanical, Procurement,
Accounting, Maintenance, Huaman Resources and Administration, QA-QC teams.
Technology Department play an important role of company because characteristic of
water industry.
General Director

Engineer
Department

General
Manager
Corporate
Management
Department

Corporate
Management
Department

Sales Dept.

Manager

Manager

Process
Human
Resource

Accounting

Administration

Figure 1: OV chart

ME &
Maintenance

E & IC

Procurement


6

There are advantages for organizing projects within the existing functional organization:
in-depth expertise, flexibility. However, functional organizational structure have
disadvantages are lack of focus, poor integration and lack of ownership. These
disadvantages are particularly pronounced when the scope of the project is broad and one
functional department does not take the dominant technological and managerial lead on
the project. For example, the marketing department may consider the project urgent while
the operations people considered it only of secondary importance. Imagine the tension if
the marketing people have to wait for the operations people to complete their segment of
the project before they proceed. The motivation of people assigned to the project can be
weak. The project may be seen as an additional burden that is not directly linked to their
professional development or advancement. Furthermore, because they are working on
only a segment of the project, professionals do not identify with the project.
Mission
Organo

concept

is

values

harmony

between

people

and

the

environment

“ECOLOGICALLY CLEAN”. Water is a valuable asset given and shared by all life on
earth. Valuing water more than anything else, Organo Group studies it, makes use of it in
all parts of life and industry and creates new value from this priceless asset. With the
concept of “Coexistence with Earth” in mind, Organo expands its business in every
territory ranging from our daily lives to social infrastructure and advanced industries.
Organo Philosophy is: “Organo Group looks ahead to the future of the earth and creates
the value of the water with “HEART” and “TECHNOLOGY.”
Organo’s Management Philosophy:
“We constantly re-examine the way we manage our company to ensure that we:
 Treasure the world in which we all live
 Take good care of our customers
 Respect and nurture our employees
 Develop and use technology for the benefit of all


7

 Build value for our stockholders”.
Water is a gift to us that is shared by all human beings and all other life on planet.
Valuing this “gift of water” above all else, Organo studies it, make use of it in various
aspects of life and industry, and creates new value with this priceless asset. Keeping
“What’s best for the earth” in mind, Organo is expanding its operations with respect to
water in fields ranging widely from our daily lives to our social infrastructure and
advance industries. Organo looks ahead to the future of the earth, and creates value
through the use of water with “Heart and Technology”.
The cleaning process of semiconductor manufacturing and nuclear power stations require
ultra-pure water, in which impurities have been reduced to the extreme. Used for
manufacturing this ultra-pure water, ion exchange resins require special refining
processes including elution reduction.
Organo is the only water treatment engineering manufacturer in Japan that has a factory
dedicated to refining ion exchange resins, namely the Tsukuba Factory located in the
industrial park of the Techno Park Toyosato in the city of Tsukuba, Ibaraki Prefecture. In
operation since 1990, it is one of the world's largest factories exclusively refining ion
exchange resins. It manufactures refined ion exchange resins by processing the
Amberlight resin produced by U.S. firm Rohm and Haas in accordance with Organo's
proprietary refining method. The refined ion exchange resins are customized to the
specifications designated by different customers. Ultra- pure water manufacturing systems
designed and built by Organo satisfy the wide-ranging needs of numerous customers.
1.1.2 Symptoms in the company
Revenue of the company mainly comes from the projects and from the services (trading).
Trading job includes maintenance for water treatment system, selling water treatment
chemicals for existing treatment systems. At present, the revenue from the project is the
majority but according to evaluation of accountant department the profit from the project
is low. Contributing revenue from the project and trading jobs over years as follows:
Table 1: The proportion of sales revenue


8

Unit: 1,000,000 VND
Year

2013

2014

2015

2016

2017

Project

87,432

85%

122,829

82%

81,219

78%

55,148

69%

103,066

73%

Trading

15,429

15%

26,962

18%

22,907

22%

24,777

31%

38,119

27%

Source from Sales Dep.
140,000
122,829
120,000
103,066
100,000
87,432
81,219
80,000
Project
55,148

60,000

38,119

40,000
26,962
20,000

Trading

22,907

24,777

15,429

2013

2014

2015

2016

2017

Figure 2: Chart of proportion of sales
Company got lost for several years and get little profit in 2017. We can see that
proportion of project sales is high over the years. According interview, increasing sales is
difficult because the human resources of OV are limited. Besides, sales strategy bases on
sales strategy of company and corporation. OV is new and has to achieve some big
projects to increase the rating in the market. Via interviews, author finds that costs for
company as well as cost of projects are not well controlled while profit of company is
low.


9

In end year meeting, General Director defined: “revenue of project is still main income of
company for next 2 years. However, getting profit from projects still difficult”.
Low profits from projects
From fiscal year report, gross profit margin of company year 2017 is 27.69%. That mean
if projects get net profit below this rate, after deduct operating cost and other cost, it will
be negative. And according numbers of Sales department, gross profit of project is very
low. Projects do not run effectively.
Table 3: Average gross profit
Source: Sales Department
Cost overrun on project
According interview, profit from projects is very low. Project manager, after here called
PM, calculate direct cost, they said project still has profit. They do not know or cannot
calculate general cost and management cost of the company. They do not know how
Accounting department allocate these costs. According to Ms Van, an accountant, after
add these costs, projects can be lost depend on projects: “situation of our company is get
lost every year. If we have estimated cost and revenue, still have profit but we calculate
other costs, our company does not get profit”. Direct costs for very project are estimated
by process team. An evaluation of the project is based on real cost and estimated cost.
The difference between estimated cost and real cost is high. Especially, the rate of project
with estimated cost different with actual cost is high rate (see in appendix). PMs have to
explain reason why profit of project is low compared to estimation. PMs have to explain
but sometimes the person give budget is different person who use budget.
An example of project SP-17-014, SMC Pneumatic (Vietnam) (See appendix 2), Details
are as follow:
- Project: Sewage Treatment plant 250m3 per day.
- Location is in Long Thanh, Dongnai Province.


10

- Cost is estimated from Process team, Electrical team, Mechanical team.
After implimenting the project, the results show the difference between the estimated
amount and the budget amount. Specifically, the estimated amount of this project is
54,679 USD, budget amount is 49,532 USD and ordered amount is 59,123 USD. The
difference between budget and order amount is 19% includes installation is over 4.8
times. Installation belongs to mechanical sector. This amount is very high and difficult to
accept. For case of over budget, manager has to evaluate and the person in charge have to
explain and break down the cost. It takes time for manager, PM and team leader.
Electrical design, cost estimation is exact and rarely over.
The difference between actual cost and estimated cost because inexact estimation or cost
management or both. Indeed, when 2 subcontractors give quotation, we will know the
price. Via interview of estimator of fabrication, author cannot find updating price of
material of fabrication and he does not show technique of estimation with anyone.
Estimation is based on their experience and guess. Price of other items usually is showed
for everyone in a team of project.
Project budget is a financial and personnel disposal limits that are needed for the project
implementation. It helps to define the maximal of money, work costs and resources
necessary for the certain project. The project budget is approved in a project order. The
operations for the budget preparation are therefore not completed. The changes, which are
not corresponding to the planned budget, can occur during the project.
1.2 PROBLEM ANALYSIS
A large number of factors leading to project cost overruns have already been identified by
previous studies. This study takes such previous studies one step forward by identifying
the main potential factors leading to cost overrun within different contexts. So, it is very
important to identify the reasons cost over run on project.
To conduct the analysis, the thesis applies an interview method with staffs belonging to
different teams associated with the project performance. They are procurement staff,


11

process engineer, mechanical engineer, accountant and sales man. After interviewing and
combining with examining relevant literatures on cost overrun on project, the key
potential problem at OV are:
-

Weak technical engineer performance

-

Poor performance of process team

-

Poor performance of mechanical team

-

Poor project manager performance

-

External factors

1.2.1 Weak technical engineer performance
Sometimes, the designs or drawings that form the basis of the project are not realistic. It is
found that combination of specified features is difficult to achieve or that drawings show
an incorrect arrangement. Executing the project as specified will either cost extra or cause
problems that must be resolved later at additional cost. As project manager, he has to
continuously compare plans with executed work to find such discrepancies early and
correct them.
In OV, design missing usually happen. Mr Tuan, Mechanical Dep., said: “It relates
progress, including subjective and objective factors, calculation of design, choose wrong
installation lead to increase crane cost, estimate is not enough. At planning step, we can
not predict all”. Engineers try to hide their mistakes and blame for objective factors. “For
installation, it depends on objective and subjective factors. About progress of handover of
the ground, the ground is enough or not, we can do all work at the same time or not.
Sometimes they only give us a part of the ground. We have to do but we cannot do
continuously. The progress of work is extended while the weight of work does not
change. Man power of our company is increased”.
Design engineering greatly influences the amount of time to handle a procurement
assignment. According to Shelen2: “Engineering usually has the initial responsibility for
preparing the technical specifications for an organization’s products and the materials that
go into them. To exercise this responsibility effectively, engineering must have the


12

constant help of procurement. A number of organizations have initiated early
Procurement and early supplier involvement programs to assist this effort.” The prices
paid for production materials and the cost to fabricate are inextricably related to their
specifications.
Company change designs in many cases. This is because skills and careless of estimator.
Besides, this is due to communication not enough. Input information should be enough
and detailed in the planning stage. Mr Huy said: “we meet problem of wrong design,
wrong data, we do not have enough data. For example, for waste water with complex
characters, if we get one or two samples, we meet problem as Matsumura have mistaken”.
John3 said: “Human error is a mistake that causes a loss. It is traditionally common for
accidents, problems, incidents and low quality outcomes to be explained by human error”.
Based on previous research there are some impacts resulting from design errors.
Designers, who do not have extensive knowledge, can produce incorrect design that
produces poor quality work that leads the project to exaggerate its cost and time. It turns
design errors into project failure. Design errors also contribute significantly to the
incremental cost and timeframe of social infrastructure projects and lead to engineering
failure, which can lead to accidents and loss of life.
Abdulnabi

4

state that: “Claims are caused by the design engineer when Conducting a

study of the project including documents and drawings and specifications, where it is
possible that the engineer commits unintended errors due to lack of awareness or
weakness of experience in the design work as a result of Insufficient time, which, these
errors can cause disagreements between the parties of the project resulting in financial
and time claims of both the contractor and the owner, and an increase in the quantity and
volume of these errors increases the volume of the project. These errors are called Design
error”.
1.2.2 Poor performance of process team
Process estimate wrongly


13

Cost estimate is the process of defining the approximate of the total costs needed to
complete the project. During the project lifecycle the cost estimations are reviewed and
refined, based on the information that becomes available. Costs will be approximately
calculated for all resources planned to be used to complete the project, such as human
resources, materials, equipment, facilities, and services. There are many techniques to
define the cost estimates. For example, analogous cost estimating calculates the cost and
budget using the actual values from previous similar projects, considering also the actual
duration, scope, complexity and other values from the previous projects. However, it is
commonly used in the beginning of the project, when there is a limited amount of
information available.
Person takes part in estimation includes team member of process , mechanical and
electrical departments. Costs will be collected from these teams. Mr Tien said: “We do
not know initial estimation is true or not. Mechanical team will give a number, process
will give a number, and electrical team will give a number. 3 sides will contribute to the
total number”. Process team will assume all. Estimator will sum cost from department
under instruction of process team. Process team will estimate for overall system, choose
technology. They will list equipment used for the system. They includes: equipment,
instrument, valves, chemical and so on. These items have price list and a library of
makers.
Source: Procurement Dep.


14

Cost Sector
6%
11%
44%
Process
Mechanical
Electrical
Others
39%

Figure 3: Proportion of cost
Ms Bich Thuy, Procurement Dep., said: “Sometimes, PM does not understand clearly
about the price, fabrication, site work. PM also does not know clearly because they are
not on site. For difficult construction, they will choose regular supplier who worked with
us many times. Price of tanks are based on previous projects or asking 2, 3 suppliers”.
Mr Vu, Process Dep., said: “Equipment can be over. Firstly we can choose a equipment
with price 100 vnd in contract, but when in a project, information of customer is not true
we must choose equipment with price 200 vnd. For example, filter press, we quote
customer 10,000 USD. But when we ask again in Taiwan, the cost can be 15,000 USD
due to rate exchange and other causes”. When were asked what is over budget, Mr Huy,
Process Dep., said; “Equipment usually have over budget”.
In OV, different departments are involved in budgeting. They include: process team,
mechanical team, electrical team, sometimes procurement and accounting. Team leader
of department is the person gives the number. According to Izhar (1990), the budgeters,
who prepare and are responsible for their budget, are their departmental line managers.
They may or may not involve the sub–ordinate depending on their style of management


15

and relationship with their juniors. In converting their budget into money terms they may
enlist the help of an accountant. The person whose function is to coordinate the many
individual budgets of the line men is the appointed budget officer normally an accountant.
But in OV, accounting is not relating much in budgeting. Ms Van said: “Engineers do not
collect data from accounting. They usually use number of collecting PO from Ms Oanh.
Operating cost, I only give some cost. It is not enough. Only number from accounting is
enough but manager do not need. Engineers usually collect by themselves, do not ask
from accounting. After projects finish, they do not compare with actual cost from
accounting. Accounting data is used to report to tax and the corporation”. Budgeting for
the whole organization can be very complex process indeed, co-ordination of which is far
beyond the limit of any one person. Here a budget committee may be set up comprising of
high level executives in charge of the major functional department of the business.
1.2.3 Poor performance of mechanical team
Mechanical team will estimate cost for tank, piping and site work. Mechanical team
usually gets quotation by themselves and do not share with procurement. Procurement
also has little experience in this sector. Team leader who give the cost is evaluated is
negligent person. He usually complains about overload work.
Ms Thuy said: “Mechanical work independently and do not share with procurement. They
usually give us quotation and ask to make PO. Sometimes they push procurement for
payment the job which procurement do not know. They do or negotiate what with
supplier we do not know. That team works mysteriously”. When were asked who give the
incorrect number, Mr Tien said: “it may be mechanical team”. He also said: “Mechanical
side has a lot of questions”. Mr Vu, process engineer said: “Quotation of installation is
not exact”.
Mr Huy, Process Dep., said: “Mechanical team gives low budget. Usually lost, give
different budget. For pipe they only guess. Especially Mr Cau, he is very negligent.
Mechanical team does not update price fully and do not update price of steel”.


16

Liz5 stated that: “Accurate time estimation is a skill essential for good project
management. It is important to get time estimates right for two main reasons:
 Time estimates drive the setting of deadlines for delivery and planning of projects,
and hence will impact on other people’s assessment of your reliability and
competence as a project manager.
 Time estimates often determine the pricing of contracts and hence the profitability
of the contract/project in commercial terms".
Mr Cau said: “We estimate as close as possible to get the project. After that, the project is
in progress, cost is raised. When we quote to customer, drawings are not issued all.
Quotation is in 100kg steel, real design can be 150kg. It is called become over budget. In
our company, rarely happens those cases”.
1.2.4 Poor project management
Poor cost management
Cost management is the process of planning and controlling the budget of a business.
Cost management is a form of management accounting that allows a business to predict
impending expenditures to help reduce the chance of going over budget. Bannerman6
said: “In the literature, project success variously refers to “on time, within budget, to
specification” completion; success of the product produced; or success in achieving the
business objectives of the project. Also, these measures are often contested, making it
difficult to determine whether there is a problem at all”.
Many businesses employ cost management plans for specific projects, as well as for the
over-all business model. When applying it to a project, expected costs are calculated
while the project is still in the planning period and are approved beforehand. During the
project, all expenses are recorded and monitored to make sure they stay in line with the
cost management plan. After the project is finished, the predicted costs and actual costs
can be compared and analyzed, helping future cost management predictions and budgets.


17

General operating and management expenses allocated to the project. These are the costs
of the company not directly related to a particular project. For example, the company's
expenses cover many products and projects such as advertising costs, accounting and
information systems, and salary costs for the company's executives. These costs are
allocated to the project depending on the type of project and vary between companies. For
example, a project executed under a customer contract, the company will allocate the
general management costs of the company and add the expected profit to a certain
percentage of the cost. Direct to form the price charged to customers.
Poor planning
First step defines common perception of what the project will deliver, when it will be
complete, what it will cost, who will do the work, how the work will be done, and what
the benefits will be. The larger the project, the more important it is that this information
be mapped out formally and explicitly. All projects should start with this type of upfront
planning to prevent problems caused by differing viewpoints on the basic terms of the
project. Mr Huy, process Dept. said: “We meet problem of wrong design, wrong data, not
have enough data. For example, for waste water with different characters, if we get one or
two samples”.
Once the project deliverables and work are clearly identified, following up with an
internal communication plan is vital. Stories abound of poor communication as a major
contributor to project failure. Having a robust communications plan can go a long way
toward mitigating project problems and can ensure that customers, team members, and
other stakeholders have the information to do their jobs.
In OV, cost of transportation and import tax are not shared to PM as well as sales team.
This amount is not small, especially delivery cost of imported items. This amount is
calculated and decided by team leader of procurement. This is subjective. Process team
suggests public cost of import of equipment. Mr Huy said: “process do not know
transportation fee, custom clearance, tax”.


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Cross-functional feature means that a project often involves people with different skills,
from different areas of knowledge, and different organizations. In order to develop
projects, accurate and timely communication should be presented in all phases. The
project leader needs to express clearly what is needed and what is happening with
suppliers, contractors, crew/team members and administrators. Individual team members
likewise need to communicate well among themselves. Misunderstandings during
planning and execution lead to tasks not being carried out properly. Correcting the
situation can cause time delays and budget overruns.
At the strategic level top-down estimating methods are used to evaluate the project
proposal. Sometimes much of the information needed to derive accurate time and cost
estimates is not available in the initial phase of the project—for example, design is not
finalized. In these situations top-down estimates are used until the tasks in the WBS are
clearly defined.
If the project is similar to past projects, the costs from past projects can be used as a
starting point for the new project. Differences in the new project can be noted and costs
adjusted to reflect these differences. Differences from the appropriate standardized project
are noted (for times, costs, and resources) and changes are made. This approach enables
the firm to develop a potential schedule, estimate costs, and develop a budget in a very
short time span. Development of such templates in a database can quickly reduce estimate
errors.7
The main disadvantage of top-down approaches to estimating is simply that the time and
cost for a specific task are not considered. Grouping many tasks into a common basket
encourages errors of omission and the use of imposed times and costs.
Involving the designer in the supply chain, there may be a number of professional design
teams (mechanical engineer, electrical engineer and process engineer) that need to be
involved. On the other hand, where the supply chain is established to deliver a
component, the designer may be embedded within one of the supply chain partners. Either
way, the designer’s role is central to deliver optional functionality, lowest cost of


19

ownership through a value for money focus on lowest through-life cost, safe construction
using least amount labor and minimum waste. Designers play an important role in
decision to choose the cost of project.
Lack of data
This process defines the cost baseline by summing the estimated costs of each activity and
each work package. Costs estimates are summed by aggregating the cost estimates for
work packages based on decomposition levels, from the lowest to the highest level – the
entire project. In addition, historical information about previous similar projects and/or
expert judgment is used to develop mathematical models to predict the project budget.
The mission is in supporting, optimizing and simplifying project management work, but
also in finding a common platform for project initiation. New projects should not be
started from the “scratch” but instead, previous project templates should be utilized in the
project initiation (Braglia & Frosolini, 2014). The shift from the current project
management solutions, heavily based on the stand-alone Microsoft Office tools, to a more
sophisticated and digitalized web- and cloud-based solutions could perhaps give the
required support for the project managers, but also provide a relief to the project initiation
and planning.
Interviewees are asked about records and they said “they can refer by old projects”. But
according to Mr Tien: “weakness of our company does not record the cost of old
projects”. If a person wants to find one item, they have to open file of every project. We
cannot deny that they can collect useful information on project time, but they do not have
all information about the item as well as comments for suppliers. Data of price also
change over time. Sometimes, PM give cost with very old price. In the past, the supplier
was good, but at presents no one sure about that. When old people quit job, the
knowledge follow them to go. New persons do not have clearly information source as
reference.
Water treatment plant or system includes parts as below.


20

WT Project

Fabrication
(Tank, &
system…)
Installation
Outsource

Technology
Equipment
and
material:
- Pump, motor
- Valve
- Pipe
-Consumable material
Chemical

Electrical
control panel
Electrical site
work
Outsource

Figure 4: Parts of OV water treatment project
It has practices in company that for fabrication has 2 or more quotations from different
suppliers, the person decide to choose which supplier is Project Manager. Company
happened the case that for one fabrication item, the design team wants to choose this
supplier but Project Manager want to choose another supplier. The question asked by
Project Manager: “the price from this supplier is cheaper why we do not choose this
supplier”. Project manager is responsible for the whole project, especially profit, lost,
handover time, other teams involved in the project.
Poor communication between mechanical team and process team
The communication plan is usually created by the project manager and/or the project team
in the early stage of project planning. Communication is a key component in coordinating
and tracking project schedules, issues, and action items. The plan maps out the flow of
information to different stakeholders and becomes an integral part of the overall project


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