I would meet up with the top management and inform them of the problems that the project was facing. I would explain to them that the cost they had estimated was off by $1,250,000. It is important for the top management to know because they had made wrong estimates before taking time to investigate whether the product could be produced at a cost less than $200. The excitement of availing a color laser printer to the market overshadowed the reality of the costs that would be incurred.
The brainstorming meeting held with significant stakeholders yielded numerous suggestions. Some of the suggestions were helpful and could help see the project reach its end. Some of the helpful suggestions include outsourcing the technology design; and partnering with other organizations or building a research consortium so as to share costs. Outsourcing the technology design would enable the company to reduce its costs. The company can outsource cheaper services that would significantly reduce the cost of the project.
Partnering with other organizations can enable the company to share the cost of the project with its partners. As a result, the cost burden will be less. However, such a move will require clearly defined conditions so that the company does not lose its project completely. Sharp Printing AG will have to decide on whether it want to share the project wholly with another organization or whether it wants to fully possess the project after a given duration of time. The company may decide to let the partnering organization to own a smaller percentage of the project so that it can be the controlling company. Sharp Printing AG can also lay out some agreements with the partnering company that allows the partner to pay itself within a given time frame.
The top management did not act correctly when they developed a cost estimate of the project. Cost estimates should not be based on assumptions. The top management had estimated the cost based on prior experience. The business environment keeps on changing and the current cost of materials or equipment is not equal to the same cost ten years ago. The changes in cost are caused by economic conditions and technological advancements. The economy is affected by factors such as fiscal policies; monetary policies; interest rates; foreign exchange rates; and inflation rate (Makos, 2012). High inflation rates can make the costs of materials and equipment to rise. Technological advancements leads to changes in the methods and techniques used to develop products. The use of newer and faster methods can increase the cost of production.
The estimating techniques to be used for such a project include experience with similar projects; planning horizon; project duration; and people required to execute the project (PMS, 2016). Using a person who has experience in similar projects will increase the chances of making the project a success. Planning horizon enables the management to set a timeframe within which the project should be completed. The duration of the project should be carefully determined so as to prevent the great uncertainty that goes with longer periods or the greater costs that accompany shorter periods. It is important to determine the number of people required to complete the project within the estimated time. It is not easy to determine the number of people needed for the project at the initial stages. As a result the cost estimates are usually uncertain at this stage.
References
PMS, (2016). Project Cost Estimating Tools and Techniques. Project Management Skills. Retrieved from: http://www.project-management-skills.com/project-cost-estimating.html
Makos, J., (2012). PESTEL Analysis: Business Environmental Analysis. PESTEL Analysis. Retrieved from: http://pestleanalysis.com/pestle-analysis-business-environmental-analysis/
