Case Study 1
THE MANAGEMENT RESERVE
Background
A project sponsor forces the project management to include a management reserve in the cost of a project. However, the project sponsor intends to use the management reserve for his own “pet” project and this creates problems for the project manager.
Sole-Source Contract
The Structural Engineering Department at Avcon, Inc. made a breakthrough in the development of a high-quality, low-weight composite material. Avcon believed that the new material could be manufactured inexpensively and Avcon’s clients would benefit by lowering their manufacturing and shipping costs.
News of the breakthrough spread through the industry. Avcon was asked by one of its most important clients to submit an unsolicited proposal for design, development, and testing of products for the client using the new material. Jane would be the project manager. She had worked with the client previously as the project manager on several other projects that were considered successes.
Meeting with Tim
Because of the relative newness of the technology, both Avcon and the client understood that this could not be a firm-fixed-price contract. They ultimately agreed to a cost-plus-incentive-fee contract type. However, the target costs still had to be determined. Jane worked with all of the functional managers to determine what their efforts would be on this contract. The only unknown was the time and cost needed for structural testing. Structural testing would be done by the Structural Engineering Department, which was responsible for making the technical breakthrough. Tim was head of the Structural Engineering Department. Jane set up a meeting to discuss the cost of testing on this project. During the meeting, Tim replied:
A full test matrix will cost about $100,000. I believe that we should price out the full test matrix and also include a management reserve of at least $100,000 should anything go wrong.
Jane was a little perplexed about adding in a management reserve. Tim was usually right on the money on his estimates and Jane knew from previous experience that a full test matrix might not be needed. But Tim was the subject matter expert and Jane reluctantly agreed to include in the contract a management reserve of $100,000. As Jane was about to exit Tim’s office, Tim remarked:
Jane, I had requested to be your project sponsor on this effort and management has given me the okay. You and I will be working together on this effort. As such, I would like to see all of the cost figures before submitting the final bid to the client.
Reviewing Cost Figures
Jane had worked with Tim before but not in a situation where Tim would be the project sponsor. However, it was common on some contracts that lower and middle levels of management would assume the sponsorship role rather than having all sponsorship at the top of the organization. Jane met with Tim and showed him the following information, which would appear in the proposal:
Sharing rat ...
Case Study 1THE MANAGEMENT RESERVEBackgroundA project spon
1. Case Study 1
THE MANAGEMENT RESERVE
Background
A project sponsor forces the project management to include a
management reserve in the cost of a project. However, the
project sponsor intends to use the management reserve for his
own “pet” project and this creates problems for the project
manager.
Sole-Source Contract
The Structural Engineering Department at Avcon, Inc. made a
breakthrough in the development of a high-quality, low-weight
composite material. Avcon believed that the new material could
be manufactured inexpensively and Avcon’s clients would
benefit by lowering their manufacturing and shipping costs.
News of the breakthrough spread through the industry. Avcon
was asked by one of its most important clients to submit an
unsolicited proposal for design, development, and testing of
products for the client using the new material. Jane would be
the project manager. She had worked with the client previously
as the project manager on several other projects that were
considered successes.
Meeting with Tim
Because of the relative newness of the technology, both Avcon
and the client understood that this could not be a firm-fixed-
price contract. They ultimately agreed to a cost-plus-incentive-
fee contract type. However, the target costs still had to be
determined. Jane worked with all of the functional managers to
determine what their efforts would be on this contract. The only
unknown was the time and cost needed for structural testing.
Structural testing would be done by the Structural Engineering
2. Department, which was responsible for making the technical
breakthrough. Tim was head of the Structural Engineering
Department. Jane set up a meeting to discuss the cost of testing
on this project. During the meeting, Tim replied:
A full test matrix will cost about $100,000. I believe that we
should price out the full test matrix and also include a
management reserve of at least $100,000 should anything go
wrong.
Jane was a little perplexed about adding in a management
reserve. Tim was usually right on the money on his estimates
and Jane knew from previous experience that a full test matrix
might not be needed. But Tim was the subject matter expert and
Jane reluctantly agreed to include in the contract a management
reserve of $100,000. As Jane was about to exit Tim’s office,
Tim remarked:
Jane, I had requested to be your project sponsor on this effort
and management has given me the okay. You and I will be
working together on this effort. As such, I would like to see all
of the cost figures before submitting the final bid to the client.
Reviewing Cost Figures
Jane had worked with Tim before but not in a situation where
Tim would be the project sponsor. However, it was common on
some contracts that lower and middle levels of management
would assume the sponsorship role rather than having all
sponsorship at the top of the organization. Jane met with Tim
and showed him the following information, which would appear
in the proposal:
Sharing ratio: 90–10%
Contract cost target: $800,000
Contract profit target: $50,000
Management reserve: $100,000
3. Profit ceiling: $70,000
Profit floor: $35,000
Tim looked at the numbers and Jane could see that he was
somewhat unhappy. Tim then stated:
Jane, I do not want to identify to the client that we have a
management reserve. Let’s place the management reserve in
with the $800,000 and change the target cost to $900,000. I
know that the cost baseline should not include the management
reserve, but in this case I believe it is necessary to do so.
Jane knew that the cost baseline of a project does not include
the management reserve, but there was nothing she could do;
Tim was the sponsor and had the final say. Jane simply could
not understand why Tim was trying to hide the management
reserve.
Execution Begins
Tim instructed Jane to include in the structural test matrix work
package the entire management reserve of $100,000. Jane knew
from previous experience that a full test matrix was not required
and that the typical cost of this work package should be between
$75,000 and $90,000. Establishing a work package of $200,000
meant that Tim had complete control over the management
reserve and how it would be used.
Jane was now convinced that Tim had a hidden agenda. Unsure
what to do next, Jane contacted a colleague in the Project
Management Office. The colleague informed Jane that Tim had
tried unsuccessfully to get some of his pet projects included in
the portfolio of projects, but management refused to include any
of Tim’s projects in the budget for the portfolio.
It was now clear what Tim was asking Jane to be part of and
why Tim had requested to be the project sponsor. Tim was
forcing Jane to violate PMI’s Code of Ethics and Professional
4. Conduct.
QUESTIONS
1. Why did Tim want to add in a management reserve?
2. Why did Tim want to become the project sponsor?
3. Are Tim’s actions a violation of the Code of Ethics and
Professional Conduct?
4. If Jane follows Tim instructions, is Jane also in violation of
the Code of Ethics and Professional Conduct?
5. What are Jane’s options if she decides not to follow Tim’s
instructions?
Case study 2
The Estimating Problem
Barbara just received the good news: She was assigned as the
project manager for a project that her company won as part of
competitive bidding. Whenever a request for proposal (RFP)
comes into Barbara’s company, a committee composed mainly
of senior managers reviews the RFP. If the decision is made to
bid on the job, the RFP is turned over to the Proposal
Department. Part of the Proposal Department is an estimating
group that is responsible for estimating all work. If the
estimating group has no previous history with some of the
deliverables or work packages and is unsure about the time and
cost for the work, the estimating team will then ask the
5. functional managers for assistance with estimating.
Project managers like Barbara do not often participate in the
bidding process. Usually their first knowledge about a project
comes after the contract is awarded to their company and they
are assigned as the project manager. Some project managers are
highly optimistic and trust the estimates that were submitted in
the bid implicitly unless, of course, a significant span of time
has elapsed between the date of submittal of the proposal and
the final contract award date. Barbara, however, is somewhat
pessimistic. She believes that accepting the estimates as they
were submitted in the proposal is like playing Russian roulette.
As such, Barbara prefers to review the estimates. One of the
most critical work packages in the project was estimated at 12
weeks using one grade 7 employee full time. Barbara had
performed this task on previous projects, and it required one
person full time for 14 weeks. Barbara asked the estimating
group how they arrived at this estimate. The estimating group
responded that they used the three-point estimate where the
optimistic time was four weeks, the most likely time was 13
weeks, and the pessimistic time was 16 weeks.
Barbara believed that the three-point estimate was way off of
the mark. The only way that this work package could ever be
completed in four weeks would be for a very small project
nowhere near the complexity of Barbara’s project. Therefore,
the estimating group was not considering any complexity factors
when using the three-point estimate. Had the estimating group
used the triangular distribution where each of the three
estimates had an equal likelihood of occurrence, the final
estimate would have been 13 weeks. This was closer to the 14
weeks that Barbara thought the work package would take. While
a difference of one week seems small, it could have a serious
impact on Barbara’s project and incur penalties for late
delivery.
6. Barbara was still confused and decided to talk to Peter, the
employee assigned to do this task. Barbara had worked with
Peter on previous projects. Peter was a grade 9 employee and
considered to be an expert in this work package. As part of the
discussions with Barbara, Peter said: “I have seen estimating
data bases that include this type of work package, and they all
estimate the work package at about 14 weeks. I do not
understand why our estimating group prefers to use the three-
point estimate.”
“Does the typical data base account for project complexity when
considering the estimates?” asked Barbara.
Peter responded:
Some databases have techniques for considering complexity, but
mostly they just assume an average complexity level. When
complexity is important, as it is in our project, analogy
estimating would be better. Using analogy estimating and
comparing the complexity of the work package on this project to
the similar works packages I have completed, I would say that
16–17 weeks is closer to reality, and let’s hope I do not get
removed from the project to put out a fire somewhere else in the
company. That would be terrible. It is impossible for me to get
it done in 12 weeks. And adding more people to this work
package will not shorten the schedule. It may even make it
worse.
Barbara then asked Peter one more question: “Peter, you are a
grade 9 and considered as the subject matter expert. If a grade 7
had been assigned, as the estimating group had said, how long
would it have taken the grade 7 to do the job?”
“Probably about 20 weeks or so,” responded Peter.
QUESTIONS
7. How many different estimating techniques were discussed in the
case?
If each estimate is different, how does a project manager decide
that one estimate is better than another?
If you were the project manager, which estimate would you use?
UV5979
Rev. Sept. 5, 2019
Husk Power Systems: Scaling Up a Start-Up
It was January 2009 when Manoj Sinha, a student at the Figure
1. An HPS generator in a rural
Darden School of Business, drove to Washington, DC, to meet
village in India, 2008.
8. a potential investor in Husk Power Systems (HPS), a start-up
company that built feedstock-fueled generators in rural India
(Figure 1). He parked his car, entered a modern hotel, and sat
down with Stefan Ramdas to discuss HPS’s funding needs.
Sinha had expected Ramdas to be interested in financial
projections and EBITDA margins, and he was pleasantly
surprised to find that one of Ramdas’s biggest concerns was
not financial but operational in nature. The investor wanted to
understand Sinha’s plan for scaling up his operations in India
and other rice-producing countries. Sinha had thought about
this quite a bit and had considered several options. For a brief
moment, the entirety of his start-up journey flashed through his
mind because he knew his response to this important question
could make or break his chance at “getting to yes” with this
investor.
A Breakthrough Energy Start-Up
Thinking back through the genesis of HPS, Sinha mused on the
four-man partnership that made up the
company:
The conception of the project was way back in late 2006.
Gyanesh Pandey and I went to undergrad
together in India…We thought about giving back to the
community we grew up in. We were
exploring education and power. Growing up, we did not have
more than five, six, or seven hours of
power every day. So we decided [power generation] would be
best.
Gyanesh had another friend, Ratnesh Yadav, whom he had gone
to school with from the 4th
through the 10th grade. He had a better idea about the villages
and the logistics than we had. The
fourth partner, Chip Ransler, was my Darden classmate…He
9. joined us in late 2007.
We started exploring different options to supply power to these
rural areas. We looked at solar, fuel
cell, wind, and jatropha biodiesel [made from the seeds of the
Jatropha plant]. These were all too
Source: Gyanesh Pandey, Husk Power Systems.
Used with permission.
This case was prepared by Manoj Sinha (MBA ’09) and Rebecca
Goldberg under the supervision of Raul Chao, Assistant
Professor of Business
Administration. It was written as a basis for class discussion
rather than to illustrate effective or ineffective handling of an
administrative situation.
Foundation, Charlottesville, VA. All rights reserved. To order
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[email protected]
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difficult or too hard to make or maintain…Then we looked at
using rice husks for fuel. Burning the
rice and running turbines—this was too expensive.
Gasification technology was from World War II. That
technology was already available. We
experimented by trial and error for a couple of months, and then
we met the generator supplier. It
was all meant to happen. We were meeting a lot of people and
running experiments. It all happened
at the same time, on August 15, 2007…our first successful
experiment. The gasifier heated up the
rice husks to a high temperature, with very little oxygen, and
produced gas. That gas was filtered and
went into a generator. It was a completely carbon-neutral
process.
11. The four partners had high hopes for HPS. They intended to
provide power to millions of rural Indians
in a financially sustainable, scalable, environmentally friendly,
and profitable manner. HPS had created a
proprietary technology that cost-effectively converted rice
husks into electricity. The organization had
developed a power supply and distribution system that used 35-
to-50-kilowatt (kW) mini power plants in
villages of 400 to 500 households within the Indian “Rice Belt”
and offered electricity as a pay-for-use
service. HPS had successfully implemented its service in 20
villages in Bihar, India, and planned to expand its
footprint to 45 villages in 2009. One power plant served three
neighboring villages on average. HPS electricity
replaced much of the diesel and kerosene that villagers used at
the time for power generation, yielding cost
savings of over 35% for agricultural and commercial customers
and dramatically improving cost efficiency for
household consumers. HPS projected each installation to be
operationally profitable at 40% utilization and to
break even in three to four years. Each power plant had an
estimated life of 12 to 15 years. HPS had
identified 25,000 villages of India’s 125,000 unelectrified
villages within the Rice Belt as feasible
implementation sites.
At the time of the meeting between Sinha and Ramdas, HPS had
been operational for 18 months and
had successfully deployed seven power plants. Each power plant
could generate 35 to 45 kW of energy.
Running the entire business on only seven operational power
plants had its own set of challenges, and the
management team had invested a lot of time ironing out
operations, sales, marketing, billing, and collections
issues. One of the keys to the success of the direct energy
provider business was to have a collection rate
12. exceeding 90%. Although this rate would have been easy to
attain in the United States, collection for energy
consumption in India had its own challenges. To enhance its
political image, the Indian government had
promised to provide free electricity to off-grid rural villages
and often provided other subsidies. Indians had
come to believe they should not be charged for using electricity.
Indian energy companies lost between 35%
and 40% of their revenue to power theft and payment default.
HPS had developed several proprietary
methods that raised the collection rate to more than 95%.
Sinha was proud of the ways in which HPS had responded
creatively to these cultural challenges. He
recalled:
On average, power stealing and default in India is close to 20%
to 25%. For us, it is less than 5%.
What happens in the villages is, it’s very easy to tap into wires
and hook your house with electricity.
It’s hard to catch them. Almost everyone does it. HPS is
decentralized. Our wires don’t run more
than one to two kilometers in length. Also, we use double-
shielded aluminum wire and insulator
coating on top of that. You can’t just hook onto the wire; you
have to cut into it.
As Sinha prepared to respond to Ramdas, he reflected that HPS
faced challenges related to expanding
service to 1,500 villages over the next three to four years. He
had come so far and was slightly nervous as he
thought, “The next 70 generators will not be that much harder
than the first 25. The next 500 to 1,000 is a
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huge deal.” He classified the issues of scale-up into three main
categories: upstream, production, and
downstream.
Supply Concerns
Upstream concerns primarily focused on the procurement of
equipment, which included a gasifier, a
generator set, and service contracts. At the time, HPS procured
its generator sets from a single supplier,
Prakash Genset (Prakash), which owned a patent on gas-based
generator set technology. The cost was
approximately $10,8001 per set. In an ideal world, the supplier
would promptly provide and service the
14. equipment; however, this had not been the case. Because HPS
had only ordered seven sets in the last year,
Prakash, which sold nearly 6,000 sets in that time, had not been
providing HPS with high-quality customer
service. A poor relationship with one’s supplier could become a
critical roadblock during the expansion phase
of a start-up.
Given that the company operated in India, the potential for
illegal competition was high. HPS needed to
maintain a competitive advantage through advanced technology
and bare-bones cost. The company also
wanted to avoid the bottleneck issue that might arise with a
single-source supplier. HPS had considered three
possible ways to resolve its upstream goal of reliably and
cheaply procuring its generators at any scale.
Develop a relationship with an alternate supplier. Ankur
Scientific was a large, global gasifier supplier that
charged a 60% to 75% premium for its products. Benefits to
using this supplier were that capacity, quality
control, and production were less risky. Drawbacks included
cost, lack of a personalized customer
relationship, and the diminished potential for jointly developed
technology.
Find a less expensive supplier in China. Uncertainties involvi ng
delivery, government regulations, tariffs, lead
time, and lack of data regarding quantity and quality made this
option less desirable, in Sinha’s opinion.
Invest in Prakash. Developing a long-term relationship with
Prakash held some promise. In the past three
months, HPS had been able to place orders for four new sets. It
had also given Prakash $50,000 to ensure
that all new orders were handled with the utmost importance. In
15. response, Prakash had shown an inclination
to negotiate a possible 7% to 8% discount. Because HPS worked
closely with the gasifier supplier, it held an
exclusive right to any improvements HPS engineers or scientists
brought to the technology. Prakash’s
competition manufactured similar equipment sold at a 150% to
200% premium.
If HPS wanted to ramp up production with Prakash, it would
need to make capital investments to enable
Prakash to scale up production and prevent obstacles. This
solution implied vertical integration, and the small
management team of a start-up company might not be capable of
handling these expanded responsibilities.
Timing was also a concern. If the expansion strategy did not
come to fruition until 2011 or 2012, it would
mean less return to existing investors and difficulties in raising
the next round of funds. Series B fundraising
efforts were targeted at $10 million to $15 million.
Develop an in-house generator set and outsource manufacture to
a new supplier. If HPS succeeded in developing a
new technology with a new supplier for the generator set, that
would surely attract Prakash’s attention. HPS
would have to invest in R&D from its limited reserve of capital
to develop alternative technologies and
communicate the design and production to a new supplier. HPS
had actually succeeded in developing an
indigenous generator set but had not tested it rigorously. It
would take another year before HPS could
confidently use its own generator set. There were other
implications: If Prakash came to know about the in-
1 The exchange rate was (Indian rupee) INR0.45 per (US
dollars) USD1.00.
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house generator set during the testing phase, it might react and
increase its prices, or, in an extreme situation,
might not sell its equipment to HPS. This was a delicate issue
and needed to be handled with the utmost care.
Cost Drivers
The main cost drivers for manufacturing generators lay in
design, geography, execution, and facilities
technology.
Design: direct material and training cost. The expense of the
17. generator was primarily dependent on parts and
training cost. Costing out the most expensive parts enabled HPS
to evaluate potential part substitutes. See
Exhibit 1 for a breakdown cost analysis of three generator
alternatives that HPS considered in the early
stages of decision-making. Given that HPS was responsible for
training the technicians who operated the
villages’ generators, simplicity was key. Any increase in the
generator design’s complexity was directly
proportional to the training costs. There was significant risk
inherent in managing the cost of training and in
identifying and hiring skilled technicians in rural India.
Geography: transportation costs, wage rate, and excise duty.
Remote locations in India were accessible by road.
Local, reliable suppliers minimized initial transportation
charges and reduced the time required to procure
spare and maintenance parts. Wage rates for skilled technicians
working on a small scale in rural areas were
higher than what was required for the same technician in an
urban area working in a larger-scale facility. The
excise rate was also different for each Indian state and at times
could be up to 15% of the cost of the
equipment. Consequently, strategic geographic placement of the
plants could have a large impact on the site’s
profitability.
Staffing: Staffing depended on the scale of the facility as well
as the level of technology and amount of
automation used there. A large facility with high automation
and a steady demand could be easier to staff than
a smaller facility with erratic demand. Part-time workers were
not easy to find; the availability of a skilled
workforce was inconsistent. Newly trained workers might easily
take their skills and find higher wages in
another location.
18. Generator production: Sinha found that production costs could
be significantly reduced by using more
advanced manufacturing technology. Unfortunately, this
automation was capital-intensive, and until his
capital needs were met, HPS would be forced to focus resources
on more expensive, less technologically
advanced generator production. Another factor was capacity:
Prakash produced 6,000 generators per year,
whereas a smaller, local manufacturing facility would produce
50 generators per year.
Internal Capabilities
Sinha knew that with scale came not only challenges, but also
opportunities to realize efficiencies. By far,
the most difficult challenge HPS faced in scaling up internal
operations was in locating and training people
and empowering them to participate in process improvement and
in their own career advancement. “Human
ability is so important,” he recalled. “Pay a premium to the
workers. We do a road show, we advertise, and get
talented people on the team. That’s the only way to achieve that
milestone.”
Process improvement planning was something Sinha and his
management team had thoughtfully
considered. Sinha knew that ground-level operators and
technicians would discover potential operational
improvements. Because the workforce was relatively uneducated
and used to working under a chain of
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19. Page 5 UV5979
command, however, employees were afraid to question
anything. HPS intended to take steps to empower its
employees so process improvement would take place at the
ground level.
The establishment of an independent training center seemed like
a good idea. HPS management had
observed that operators were afraid to tinker around with the
machines because they feared the power plant
would fail during regular hours of operation. To circumvent this
issue, the company planned to invest in
building a small workshop and training center that would
facilitate training a sufficient number of people for
expansion and allow trainees to share ideas with each other. It
20. was management’s responsibility to dispel the
fear of failure and instill in the workers the ability to take
calculated risks. Management was contemplating a
new policy of “no punishment for breaking stuff worth $2,500”
in the hope that it would allow trainees to
take calculated risks in experimenting with new ideas and give
them a sense of ownership. HPS’s long-term
goal was to share innovative best practices across the
organization.
At the time, HPS was already training all the operators, plant
developers, and accountants to carry out
daily activities. To motivate these employees, HPS had come up
with an incentive structure to ensure that
every employee received a fair chance to enhance his or her
skills and grow as a leader of the organization.
The company had developed a road map for each technical
operator and collections associate that he or she
could take to become a cluster manager within two to three
years. The operations supervisor’s responsibilities
included leading a set of seven to eight power plants, training
the employees of these plants, and eventually
helping to execute HPS’s plan of organic growth. Similarly, the
person in the role of billing and collections
could grow into the role of cluster accountant. By creati ng such
a road map, HPS management hoped to
encourage employees and set them up for long-term success.
The HPS management team hoped to discover new ways to
reduce the company’s overall cost and
increase efficiency in the central part of its process. Power
plants operated above 60% capacity in the evening
when households received power. During the day, however,
only small businesses and irrigation pumps were
supplied with electricity, which resulted in an average
utilization of 35% to 40%. HPS management planned
21. to overlap these two operations to maximize the utilization to
about 85% at peak and increase average
utilization to more than 60%.
Downstream Process
HPS’s primary downstream challenge was marketing. When
selecting a site, HPS required an abundant
rice husk supply, and it needed to be able to light over 1,000
compact fluorescent lights (CFLs) in the first
90 days of installation, which translated to 400 to 500
households in a three-village area. Marketing challenges
existed primarily in educating the consumer about the cost,
consistency, and environmental benefits to the
energy HPS provided.
Although HPS provided a cheaper and more efficient substitute
to kerosene-based lanterns, it
consistently experienced difficulty increasing the total
penetration rate beyond 50% to 60%. Individually
educating people about the benefits of clean lighting, the
improved luminosity of CFLs as compared with
kerosene lanterns per rupee, and other advantages was time-
consuming and had limited success.
HPS formed a development committee that was similar to the
sales department of a big corporation.
Employees of this division received a hefty bonus if they
succeeded in helping HPS meet its initial goal of
1,000 CFLs in the first 45 to 60 days of installation. The
committee was responsible for commissioning the
basic infrastructure, which included leasing land, constructing a
slab for equipment, signing up customers in
advance, and meeting a target of at least 300 connections in a
period of 30 to 45 days. These workers were
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paid on a sliding scale basis that depended on the time it took to
meet the target and the number of
connections achieved above 400 households.
It was also critical that HPS grow organically to increase the
utilization rate to more than 75%. HPS had
two approaches to solving this problem, which included offering
bulk discounts and collaborating with
appliance manufacturers to promote other appliance uses.
23. If a household signed up to use four CFLs, there was no
monthly charge for using a fifth CFL. The
minimum was two CFL connections for any household. This
strategy helped HPS quickly reach the 1,000-
CFL mark, but it resulted in a loss of customers who thought it
was too expensive to pay the $1.50 monthly
fee. But the reality was that these households would save $2.00
by not burning seven to eight liters of
kerosene for lighting lanterns.
It was important for HPS to inform customers about the benefits
of TV and other electrical appliances to
promote their uses. HPS planned to collaborate with big
corporations such as General Electric Company,
Videocon (an Indian consumer electronics/electrical appliance
supplier), and Wipro Limited (an Indian
information technology services firm) to showcase uses of low -
wattage appliances that could increase
household efficiencies. HPS management hoped this strategy
would increase overall power usage per
household.
The use of electricity had other quality-of-life benefits that
extended far beyond the ability to watch
television. Sinha spoke of his experiences watching the lights
come on in a village for the first time:
It is an amazing feeling to see a village light up at night. The
children who used to hang out and play
when there was no light source—they used to play video games.
Now they are studying. Although we
are a for-profit company, the satisfaction we get is amazing. We
have really seen a lot of changes. The
first is education. Another—the women can do other things, not
just cleaning. They have more time
on their hands. This is what motivates me.
24. Marketing to increase the number of HPS applicants was
another downstream concern. Newspapers and
other traditional advertising media did not exist in rural India.
To mitigate this problem, HPS management
asked employees to visit their villages and surrounding areas to
tell people about their experiences with HPS.
In the past two months, applications had increased to exceed 20.
The Investor’s Concerns
Sinha explained HPS’s short- and long-term goals to Ramdas:
Right now, the immediate goal is to raise money so we can do
50 more plants in the next six quarters,
by the end of 2010. I’m going to remain in the United States for
another eight to twelve months to
raise money and move to India in 2010.
HPS is also undergoing the gold standard carbon certification
process. Another potential source of
revenue for us is the sale of carbon offsets. The protocol for
this is up for review in 2012 and may
benefit us tremendously.
A third potential source of revenue is a secondary product that
we are experimenting with that uses
the waste product of our burning of the risk husks, called rice
husk ash (RHA). You can use RHA
waste in multiple applications. If you mix RHA with 5% to 10%
cow dung, you get ash balls. This
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QSO-700-X1494 Proj Mgmt & Ops Capstone 22TW1 at
Southern New Hampshire University, 2022.
25. Page 7 UV5979
can act as a replacement to charcoal. It has similar heat content
to coal but is much cheaper to
produce. We are planning to call it green coal.
Sinha further articulated to the investor the details of HPS’s
long-term expansion plans in India and other
emerging countries, including strategies for optimizing growth,
developing a team of motivated employees,
minimizing the risk of failure, and maximizi ng returns to
potential investors. He shared his cash flow
(Exhibit 2) and profit and loss (Exhibit 3) projections with
Ramdas as well. Sinha and his team were
determined to get some of these alternatives implemented on-
ground to enable explosive growth in the next
three to four years. Sinha believed firmly that it was “okay to be
80% correct and to try different alternatives
on the ground rather than waiting for the best strategy that is
100% right.”
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QSO-700-X1494 Proj Mgmt & Ops Capstone 22TW1 at
Southern New Hampshire University, 2022.
26. Page 8 UV5979
Exhibit 1
Husk Power Systems: Scaling up a Start-Up
Cost Comparison of Generator Alternatives
Source: All exhibits are from Husk Power Systems. Used with
permission.
Exhibit 2
Husk Power Systems: Scaling up a Start-Up
Electricity Revenue Projections
Elecricity Revenue Workings
Year 2009 2010 2011 2012 2013 2014
Default/Stealing Rate 5% 7% 8% 5% 5% 5%
No. of Villages
27. Year 1 20 20 20 20 20 20
Year 2 100 100 100 100 100
Year 3 200 200 200 200
Year 4 300 300 300
Year 5 500 500
Year 6 500
Total Villages 20 120 320 620 1120 1620
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QSO-700-X1494 Proj Mgmt & Ops Capstone 22TW1 at
Southern New Hampshire University, 2022.
Page 9 UV5979
Exhibit 3
Husk Power Systems: Scaling up a Start-Up
29. 3146.85
EBIT (59.14) (95.61) 155.22 1319.52 3733.93 8198.87
Tax 30% 0.00 0.00 46.57 395.85 1120.18 2459.66
NOPAT (59.14) (95.61) 108.66 923.66 2613.75 5739.21
This document is authorized for use only by Tiffany Everson in
QSO-700-X1494 Proj Mgmt & Ops Capstone 22TW1 at
Southern New Hampshire University, 2022.
Overview: For the final project, you will create a Product
Launch Comprehensive Strategy and Professional Reflection to
demonstrate proficiency in all areas of operations and project
management. In Milestone One, you will submit a Product
Launch Strategy and Planning Brief, which will also become
part of Component 1, due in Module Seven.
In Milestone One, you will explain which case you have
selected, provide a rationale for why you selected this particular
organization, and describe what new product or service you are
proposing for the organization. Include the proposed approach
you will use for product/process development.
Also include a high-level deployment strategy and the overall
plan with a
Gantt chart that will be used as the framework to
introduce a new product or service into an existing facility. You
can begin identifying key stakeholders that will need to be
involved in the project. The instructor will provide feedback on
this milestone to help you shape your final capstone project.
Critical Elements
Rationale: Lay out the rationale for the case selection and fit
for the new product or service.
Problem or Opportunity: Identify the problem or opportunity
the new product or service will address. Company: Explain how
30. the new product or service fits with the company culture and
competitive marketplace.
Approach: Identify, at a high level, the framework for
developing the new product or service. Include any quality tools
or techniques that you might incorporate.
Methodology and Planning: Define the methodology you think
fits best for the particular product or service development
within this given organization.
Begin the high-level planning with a project Gantt chart,
leveraging tools such as Microsoft Project. Rubric Guidelines
for Submission: Your brief must contain all of the elements
listed above. It should be 3–5 pages in length (excluding the
title page and references), using 12-point Times New Roman
font with one-inch margins.
You may include summary
pictures, charts, graphs, or other explanatory diagrams
as needed to successfully explain the concept and
implementation, but this detailed supporting documentation
should be provided in appendices. Your paper should follow
APA guidelines. You must include at least three scholarly
sources. Cite your sources within the text of your paper and
then include those sources on a reference page.