Addressing the Material Impacts as an AIIM Investment Manager Case Study

Introduction

Cookhouse Wind Farm, one of the biggest wind farms in South Africa, was one of the prominent projects for the attention of AIIM managers. Despite their extensive industry experience and knowledge of operations and investments, they are not micromanagers. The goal is to participate in a wide range of large infrastructure projects to add high-level thinking. One such significant project was the Cookhouse Wind Farm (Onibokun et al., 2019). With the Suzlon Energy Company in danger of bankruptcy, AIIM managers had to consider every possible solution. Since the problem is non-standard in this case, the solution had to be tailored and treated accordingly (Mantel et al., 2017). In the following, there are a few planned actions AIIM managers can take in this situation.

Continued Cooperation with Suzlon EPC Supplier

For the first option, it can be offered to continue cooperation with Suzlon, counting on keeping its liquidity. Under such conditions, engineering, procurement, and construction work may not have been completed by the company on time or be of inadequate quality (Mantel et al., 2017). A company on the verge of bankruptcy may not have contributed to the timely financial closing of the project (Onibokun et al., 2019). Moreover, in the event such a contractor actually goes bankrupt, it is unlikely that liquidated damages or any other payment will be collected. In addition, investors and creditors, especially the senior creditor group, would have been minimally interested in contracting with a company of this status (Onibokun et al., 2019). Additional effort is needed to reach out to this stakeholder group, which could negatively impact the reputation of AIIM’s managers. Few would agree to such an investment without serious evidence of financial risk mitigation.

Option of Replacing the EPC Supplier

In this situation, given the financial and reputational state of Suzlon at the time the issue should be resolved, the logical option would be to replace the contractor and enter into a contract with a more stable one. Given the length of this process, equity investors still sought to avoid it (CDC Group, 2019). According to the official information, it could take up to three or four months to replace the contractor (Onibokun et al., 2019). With such a long lead time, the risks of increased costs are significantly increased, leading to a disruption in the timing and duration of some licenses and reducing the rate of return on equity.

With these inputs came a stalemate situation, a solution for which must be found by AIIM’s highly effective macro managers. South Africa’s infrastructure is suffering from power shortages, and the calculation was made for the project to be finished on time (Onibokun et al., 2019). The most rational solution was to devote all efforts to developing a particular plan for Suzlon to keep it as an EPC. Reducing the risks of financial instability is one of the main points of continuing to work with the contractor and saving the time needed for the project finalization.

AIIM Action Plan to Address the Situation

In order to maintain optimum quality and timing as stated, it is recommended that:

1. Managers should work with the lenders charged with financing 70% of the cost of the project in order to gain their trust (Onibokun et al., 2019). It is necessary to convince them that continuing to work with a contractor on the verge of bankruptcy will not affect the quality of the project, and it will be completed on time.
2. Managers should conduct credit counseling for the Indian manufacturing company Suzlon to help restructure the company’s existing loans.
3. Moreover, managers should work closely with Suzlon’s financial managers to form the most sustainable risk mitigation plan.
4. In addition, managers can be recommended to pay extra attention to the quality of work and supplies, as the stress of a company experiencing financial difficulties can lead to negative results with collateral problems (Mantel et al., 2017). Such problems may include damage to the environment, dissatisfaction of all stakeholders, and legal problems.
5. AIIM should likewise get Suzlon to focus as much as possible on the current project, which should help the company improve the quality of its work and increase cash flow.
6. Managers can consider maximizing cost reduction for the contractor and shifting all efforts to avoid bankruptcy.
7. It is equally possible to review the effectiveness of management managers in the field and recruit new ones if necessary.
8. It is imperative to work out the option of cooperation between AIIM and the government of India. Suzlon is the country’s infrastructure-forming company, so India can support the timely completion of the project without going beyond the initially agreed budget (Onibokun et al., 2019).

Correspondingly, if some or most of the necessary items are met, the feasibility of an acceptable completion scenario approaches. Three factors can be identified as the main risks that need to be emphasized: quality, time, and cost (Onibokun et al., 2019). Quality can suffer when there is a delay due to a vendor change or increased stress on a company on the verge of bankruptcy. Timing and increasing project costs can be inflated for the same reasons, further raising the risk of not finding a willing new contractor on time if a decision is made to change.

Accordingly, it is possible to highlight the main advantages and disadvantages of both leading plans, including the replacement of the contractor or keeping the same. It should be noted, however, that the risks of increased cost are lower in the case of contracting with an alternative firm than in the case of continuing to cooperate. In turn, the risk of delay is lower if Suzlon cooperates (Onibokun et al., 2019). These points are not full-fledged advantages, as they are still risks and are not entirely predictable.

Conclusion

Based on the above, it is recommended to follow a plan to complete the project with the same contractor. To address material impacts, AIIM managers should adhere to the following actions:

1. Actively work with Suzlon to monitor project completion dates.
2. Pay special attention to the quality of work and materials so that it does not suffer at the expense of speed.
3. Keep a finger on the pulse of the contractor’s financial condition and have alternate companies ready in case a change is inevitable.
4. Interact with the local community that owns 25% of the project (Onibokun et al., 2019). Public opinion should be on the side of the project, and people need assurance that it will be completed successfully.
5. Interact with the community through public environmental organizations. The role of the future power plant in alleviating the environmental situation should mitigate any negative opinions about the project.

References

CDC Group. (2019). Project design and construction. ESG Toolkit for Fund Managers. BII Toolkit. Web.

Mantel, S. J., Meredith, J. R., Shafer, S. M., & Sutton, M. M. (2017). Project Management in Practice (6th ed.). Wiley.

Onibokun, O., West, A., Boyd, S., & Dhlamini, X., (2019). The cookhouse wind farm project: How do you bank a bankrupt contract? In SAGE Business Cases. SAGE Publications, Ltd., Web.