Harvard Case - Turner Construction Company: Project Management Control Systems
"Turner Construction Company: Project Management Control Systems" Harvard business case study is written by Robert Simons, Hilary A. Weston. It deals with the challenges in the field of Accounting. The case study is 20 page(s) long and it was first published on : Mar 29, 1990
At Fern Fort University, we recommend that Turner Construction Company implement a comprehensive project management control system that leverages technology, integrates financial and operational data, and fosters a culture of accountability. This system should prioritize data-driven decision making, streamline processes, and enhance communication across all levels of the organization.
2. Background
Turner Construction Company, a leading construction firm, faces challenges in managing project costs and schedules effectively. The case study highlights the company's reliance on decentralized decision-making, leading to inconsistencies in project management practices and a lack of centralized control over project costs. This situation has resulted in missed deadlines, budget overruns, and a decline in profitability.
The main protagonists of the case study are:
- Peter J. Turchan, the CEO of Turner Construction Company, who is concerned about the company's financial performance and the need for improved project management controls.
- The Project Management Team, responsible for managing individual projects and reporting to regional managers.
- The Regional Managers, overseeing multiple projects and reporting to the CEO.
3. Analysis of the Case Study
To analyze the situation, we can apply the following frameworks:
- Financial Performance Measurement: The case study highlights the company's declining profitability, which can be analyzed using key financial indicators like gross profit margin, return on assets, and cash flow.
- Management Control System: Turner Construction Company lacks a robust management control system that integrates financial and operational data, leading to poor project cost control and ineffective communication.
- Organizational Structure and Design: The decentralized decision-making structure, while fostering autonomy, creates inconsistencies in project management practices and hinders centralized control over project costs.
- IT Management: The company needs to leverage technology to improve data collection, analysis, and communication to enhance project management control.
4. Recommendations
To address the challenges faced by Turner Construction Company, we recommend the following:
Implement a Centralized Project Management Control System: This system should integrate financial and operational data, providing a comprehensive view of project performance. This will enable the company to:
- Track project costs and schedules in real-time: This will allow for proactive identification and mitigation of potential cost overruns and delays.
- Standardize project management processes: This will ensure consistency across all projects and regions, improving efficiency and effectiveness.
- Centralize data analysis and reporting: This will provide clear insights into project performance and facilitate data-driven decision making.
Develop a Comprehensive Cost Accounting System: This system should incorporate activity-based costing to accurately allocate costs to specific projects. This will enable the company to:
- Track project costs more accurately: This will provide a more realistic understanding of project profitability.
- Identify cost drivers: This will allow the company to focus on reducing costs in specific areas.
- Improve pricing strategy: This will enable the company to accurately price projects based on their actual costs.
Leverage Technology for Improved Project Management: This includes:
- Project Management Software: This will streamline project planning, scheduling, and communication.
- Data Analytics Tools: This will enable the company to analyze project data and identify trends and patterns.
- Cloud-based Collaboration Platforms: This will facilitate communication and collaboration among project teams, regional managers, and the CEO.
Foster a Culture of Accountability: This involves:
- Clear Performance Expectations: Establishing clear performance targets for project managers and regional managers will create a culture of accountability.
- Employee Incentives: Implementing performance-based incentives will motivate employees to achieve project goals and improve overall efficiency.
- Regular Performance Reviews: Regular performance reviews will provide feedback and identify areas for improvement.
5. Basis of Recommendations
These recommendations consider the following factors:
- Core Competencies and Consistency with Mission: The proposed system aligns with Turner Construction Company's mission of delivering high-quality construction projects on time and within budget.
- External Customers and Internal Clients: The improved project management control system will benefit external customers by ensuring timely project completion and meeting their expectations. Internal clients will benefit from improved communication and transparency.
- Competitors: Implementing a robust project management control system will help Turner Construction Company stay competitive in the construction industry by improving efficiency and profitability.
- Attractiveness ' Quantitative Measures: The proposed system is expected to improve project profitability by reducing costs and increasing efficiency. This will be measured by key financial indicators like gross profit margin, return on assets, and cash flow.
6. Conclusion
By implementing a comprehensive project management control system, Turner Construction Company can achieve significant improvements in project cost control, schedule management, and overall profitability. This system will enable the company to leverage technology, integrate financial and operational data, and foster a culture of accountability, ultimately leading to enhanced performance and sustained growth.
7. Discussion
Other alternatives not selected include:
- Outsourcing Project Management: This option would involve hiring external consultants to manage projects. However, this approach could lead to a loss of control over project execution and potentially increase costs.
- Centralized Decision-Making: This option would involve shifting all decision-making authority to the CEO. However, this could stifle innovation and reduce the autonomy of project managers.
The key assumptions of our recommendation are:
- The company is committed to investing in the necessary technology and resources to implement the proposed system.
- Employees are willing to embrace the new system and adopt new practices.
- The company has a strong internal control environment that will ensure the accuracy and reliability of data.
8. Next Steps
To implement the recommendations, Turner Construction Company should follow these steps:
- Phase 1 (Short-Term):
- Develop a detailed implementation plan: This should outline the scope of the project, key milestones, and resource requirements.
- Select and implement project management software: This should be done in consultation with key stakeholders.
- Train employees on the new system: This will ensure that all employees are familiar with the new processes and procedures.
- Phase 2 (Medium-Term):
- Develop a comprehensive cost accounting system: This should include activity-based costing to accurately allocate costs to projects.
- Implement data analytics tools: This will enable the company to analyze project data and identify trends and patterns.
- Phase 3 (Long-Term):
- Continuously evaluate and improve the system: This will ensure that the system remains effective and meets the evolving needs of the company.
By following these steps, Turner Construction Company can effectively implement a comprehensive project management control system that will drive improved performance and sustained growth.
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Case Description
After providing a brief overview of Turner Construction Co.'s structure and project work, the case gives a detailed description of its project management control system, the IOR system. In addition to explaining the mechanics of the IOR system, the case identifies the uses and benefits of the system from the perspectives of different level managers. Finally, the role of the IOR system as a decision support tool is illustrated through a specific dilemma on a project in progress.
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