Sean Cole has been appointed PM of the Preferred Sensor Company’s new sensor manufacturing process project. Sensors are extremely price-sensitive, and Preferred has done a great deal of quantitative work so it can accurately forecast changes in sales volume relative to changes in pricing.
The company president, “Dude” Sensor, has considerable faith in the firm’s sensitivity model and insists that all projects that affect the manufacturing cost of sensors be run against the sensitivity model in order to generate data to calculate the return on investment. The net result is that PMs, like Sean, are under a great deal of pressure to submit realistic budgets so go/no-go project decisions can be made quickly. Dude has canceled several projects that appeared marginal during their feasibility stages and recently fired a PM for overestimating project costs on a new model sensor. The project was killed very early in the design stage, and 6 months later, a competitor introduced a similar sensor that proved to be highly successful.
Sean’s dilemma is how to go about constructing a budget that accurately reflects the cost of the proposed new manufacturing process. Sean is an experienced executive and feels comfortable with his ability to come close to estimating the cost of the project. However, the recent firing of his colleague has made him a bit gun-shy. Only one stage out of the traditional four-stage sensor manufacturing process is being changed, so he has detailed cost information about a good percentage of the process. Unfortunately, the tasks involved in the process stage being modified are unclear at this point. Sean also believes that the new modification will cause someminor changes in the other three stages, but these changes have not been clearly identified. The stage being addressed by the project represents almost 50 percent of the manufacturing cost.
Under these circumstances, would Sean be wise to pursue a top-down or a bottom-up budgeting approach? Why? What factors are most relevant here?
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