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(solution) The Keflavik Paper Company is a case with the problem of


The Keflavik Paper Company is a case with the problem of determining a project management process for new product development. Answer the following questions:

What does this case demonstrate about the effect of poor project screening methods on a firm?s ability to manage projects effectively?

How would project portfolio management help to improve the situation at Keflavik?

If you think about it, all business problems are case studies. To effectively evaluate the situation, you must approach the problem in a methodological manner. A proven technique to do this is to

list the facts;
identify the issues;
based on the facts of the case and your knowledge, analyze the issues of the case;
prepare recommended solutions and their possible outcomes;
implement the optimal solution (not always the one with the best outcome, since the cost or other things could be impractical); and
monitor the implementation and the outcomes.
So when you read and prepare to respond to this case, please follow the above guidelines. I don't necessarily expect you to perform steps 4?6, but I do expect your response to be based on the facts and your knowledge.


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 timeconsuming). 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

 

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.

 


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