84-B-M-L-P-M_(401)

Ringold’s Pool and Patio Supply John Ringold, Jr., just graduated from a local university with a degree in industrial management and joined his father’s company as executive vice-president of operations. Dad wants to break John in slowly and has decided to see how he can do on a project that John Sr. has never had time to investigate. Twenty percent of the company’s sales are derived from the sale of above-ground swimming pool kits. Ringold’s does not install the pools. John Sr. has asked John Jr. to determine whether or not they should get into that business. John Jr. has decided that the easiest way to impress Dad and get the project done is personally to estimate the cost to the company of setting up a pool and then call some competitors and see how much they charge. That will show whether or not it is profitable. John Jr. remembered a method called the work breakdown structure (WBS) that he thought might serve as a useful tool to estimate costs. Also, the use of such a tool could be passed along to the site supervisor to help evaluate the performance of work crews. John Jr.’s WBS is shown in Table A. The total cost John Jr. calculated was $185.00, based on 12.33 labor-hours at $15.00/labor-hour. John Jr. found that, on average, Ringold’s competitors charged $229.00 to install a similar pool. John Jr. thought he had a winner. He called his father and made an appointment to present his findings the next morning. Since he had never assembled a pool himself, he decided to increase the budget by 10 percent, “just in case.” Is John Jr.’s WBS projection reasonable? What aspects of the decision will John Sr. consider? SOLUTION Ringold’s Pool and Patio Supply This is a good opportunity to engage the class in a discussion of the importance of involving the team in developing plans and schedules. One way to do this is to engage the class in collectively creating the upper level or two of a WBS for the project. Chances are they will come up with several items that Junior missed in his, demonstrating the danger of working alone. John Sr. is asking a reasonable question, but his son is giving him a defective answer. Even though Junior’s WBS looks very precise, it would be dangerous to base any decision on it. Since it has not been validated by anyone who has actual experience in installing pools, there is no way of knowing if the estimates are reasonable, or even if it has accounted for all the work. Junior has made no effort to evaluate the requirements of the job. For example, he doesn’t list in his

WBS anything related to permitting, electrical or plumbing. In addition to these concerns, John Sr. must consider several business issues including whether his company has the staff, skills and equipment to take on this new area. He needs to consider whether this expansion matches his long-term goals for the business.