Boeing virtual fence project management

Case Study

Questions:

The U.S. Department of Defense has a long history of sponsoring projects that have questionable usefulness. If you were assigned as a member of a project review team for a defense project, what criteria would you insist such a project has in order to be supported? In other words, what are the bare essentials needed to support such a project?
Why, in your opinion, is there such a long history of defense projects overshooting their budgets or failing some critical performance metrics? (Consider other project cases in this text, including the Expeditionary Fighting Vehicle discussed in Chapter 5.)
"The mystery is not that the Zumwalt was canceled. The mystery is why it took so long for it to be canceled." Do you agree with this assessment? Why or why not?
Google "criticisms of the Littoral Combat Ship" and identify some of the problems that critics have listed. In light of these problems, why do you think the Navy has pressed ahead with the development of the LCS?
Writing Requirements

5-7 pages in length (excluding cover page, abstract, and reference list)
APA format, Use the APA template located in the Student Resource Center to complete the assignment.
Please use the Case Study Guide as a reference point for writing your case study.

List of Cases by Chapter

Chapter 1 Development Projects in Lagos, Nigeria 2 “Throwing Good Money after Bad”: the BBC’s

Digital Media Initiative 10 MegaTech, Inc. 29 The IT Department at Hamelin Hospital 30 Disney’s Expedition Everest 31 Rescue of Chilean Miners 32

Chapter 2 Tesla’s $5 Billion Gamble 37 Electronic Arts and the Power of Strong Culture

in Design Teams 64 Rolls-Royce Corporation 67 Classic Case: Paradise Lost—The Xerox Alto 68 Project Task Estimation and the Culture of “Gotcha!” 69 Widgets ’R Us 70

Chapter 3 Project Selection Procedures: A Cross-Industry

Sampler 77 Project Selection and Screening at GE: The Tollgate

Process 97 Keflavik Paper Company 111 Project Selection at Nova Western, Inc. 112

Chapter 4 Leading by Example for the London Olympics—

Sir John Armitt 116 Dr. Elattuvalapil Sreedharan, India’s Project

Management Guru 126 The Challenge of Managing Internationally 133 In Search of Effective Project Managers 137 Finding the Emotional Intelligence to Be a Real Leader 137 Problems with John 138

Chapter 5 “We look like fools.”—Oregon’s Failed Rollout

of Its ObamacareWeb Site 145 Statements of Work: Then and Now 151 Defining a Project Work Package 163 Boeing’s Virtual Fence 172 California’s High-Speed Rail Project 173 Project Management at Dotcom.com 175 The Expeditionary Fighting Vehicle 176

Chapter 6 Engineers Without Borders: Project Teams Impacting

Lives 187 Tele-Immersion Technology Eases the Use of Virtual

Teams 203 Columbus Instruments 215 The Bean Counter and the Cowboy 216 Johnson & Rogers Software Engineering, Inc. 217

Chapter 7 The Building that Melted Cars 224 Bank of America Completely Misjudges Its Customers 230 Collapse of Shanghai Apartment Building 239 Classic Case: de Havilland’s Falling Comet 245 The Spanish Navy Pays Nearly $3 Billion for a Submarine

That Will Sink Like a Stone 248 Classic Case: Tacoma Narrows Suspension Bridge 249

Chapter 8 Sochi Olympics—What’s the Cost of National

Prestige? 257 The Hidden Costs of Infrastructure Projects—The Case

of Building Dams 286 Boston’s Central Artery/Tunnel Project 288

Chapter 9 After 20 Years and More Than $50 Billion, Oil is No Closer

to the Surface: The Caspian Kashagan Project 297

Chapter 10 Enlarging the Panama Canal 331 Project Scheduling at Blanque Cheque Construction (A) 360 Project Scheduling at Blanque Cheque Construction (B) 360

Chapter 11 Developing Projects Through Kickstarter—Do Delivery

Dates Mean Anything? 367 Eli Lilly Pharmaceuticals and Its Commitment to Critical

Chain Project Management 385 It’s an Agile World 396 Ramstein Products, Inc. 397

Chapter 12 Hong Kong Connects to the World’s Longest Natural

Gas Pipeline 401 The Problems of Multitasking 427

Chapter 13 New York City’s CityTime Project 432 Earned Value at Northrop Grumman 451 The IT Department at Kimble College 463 The Superconducting Supercollider 464 Boeing’s 787 Dreamliner: Failure to Launch 465

Chapter 14 Duke Energy and Its Cancelled Levy County Nuclear

Power Plant 478 Aftermath of a “Feeding Frenzy”: Dubai and Cancelled

Construction Projects 490 New Jersey Kills Hudson River Tunnel Project 497 The Project That Wouldn’t Die 499 The Navy Scraps Development of Its Showpiece

Warship—Until the Next Bad Idea 500

Project ManageMent achieving coMPetitive advantage

Jeffrey K. Pinto Pennsylvania State University

Boston Columbus Indianapolis New York San Francisco Hoboken Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi

Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

F o u r t h E d i t i o n

To Mary Beth, my wife, with the most profound thanks and love for her unwavering support. And, to our children, Emily, AJ, and Joseph—three “projects” that are definitely

over budget but that are performing far better than I could have hoped!

VP, Product Management: Donna Battista Editor-in-Chief: Stephanie Wall Acquisitions Editor: Dan Tylman Program Manager Team Lead: Ashley Santora Program Manager: Claudia Fernandes Editorial Assistant: Linda Albelli VP, Marketing: Maggie Moylan Product Marketing Manager: Anne Fahlgren Field Marketing Manager: Lenny Raper Strategic Marketing Manager: Erin Gardner Project Manager Team Lead: Judy Leale Project Manager: Nicole Suddeth Operations Specialist: Carol Melville Cover Designer: Lumina Datamatics, Inc Cover Photo: f11photo/Fotolia

VP, Director of Digital Strategy & Assessment: Paul Gentile Manager of Learning Applications: Paul Deluca Digital Editor: Brian Surette Digital Studio Manager: Diane Lombardo Digital Studio Project Manager: Robin Lazrus Digital Studio Project Manager: Alana Coles Digital Studio Project Manager: Monique Lawrence Digital Studio Project Manager: Regina DaSilva Full-Service Project Management and Composition: Integra Printer/Binder: Edwards Brothers Cover Printer: Phoenix Color/Hagerstown Text Font: 10/12 Palatino

Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text.

Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published as part of the services for any purpose. All such documents and related graphics are provided “as is” without warranty of any kind. Microsoft and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all warranties and conditions of merchantability, whether express, implied or statutory, fitness for a particular purpose, title and non-infringement. In no event shall Microsoft and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from the services. The documents and related graphics contained herein could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Microsoft and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time. Partial screen shots may be viewed in full within the software version specified.

Microsoft® Windows®, and Microsoft Office® are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries. This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation.

Copyright © 2016, 2013, 2010, 2007 by Pearson Education, Inc. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. For information regarding permissions, request forms and the appropriate contacts within the Pearson Education Global Rights & Permissions department, please visit www.pearsoned.com/permissions/.

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Library of Congress Cataloging-in-Publication Data

Pinto, Jeffrey K. Project management : achieving competitive advantage/Jeffrey K. Pinto.—Fourth edition. pages cm Includes index. ISBN 978-0-13-379807-4 (alk. paper)—ISBN 0-13-379807-0 (alk. paper) 1. Project management. I. Title. HD69.P75P5498 2016 658.4'04—dc23 2014036595

10 9 8 7 6 5 4 3 2 1

ISBN 10: 0-13-379807-0 ISBN 13: 978-0-13-379807-4

http://www.pearsoned.com/permissions/
iii

BrIEF COnTEnTS

Preface xiii

Chapter 1 Introduction: Why Project Management? 1

Chapter 2 The Organizational Context: Strategy, Structure, and Culture 36

Chapter 3 Project Selection and Portfolio Management 76

Chapter 4 Leadership and the Project Manager 115

Chapter 5 Scope Management 144

Chapter 6 Project Team Building, Conflict, and Negotiation 186

Chapter 7 Risk Management 223

Chapter 8 Cost Estimation and Budgeting 256

Chapter 9 Project Scheduling: Networks, Duration Estimation, and Critical Path 296

Chapter 10 Project Scheduling: Lagging, Crashing, and Activity Networks 330

Chapter 11 Advanced Topics in Planning and Scheduling: Agile and Critical Chain 366

Chapter 12 Resource Management 400

Chapter 13 Project Evaluation and Control 431

Chapter 14 Project Closeout and Termination 477

Appendix A The Cumulative Standard Normal Distribution 509

Appendix B Tutorial for MS Project 2013 510

Appendix C Project Plan Template 520

Glossary 524

Company Index 534

Name Index 535

Subject Index 538

iv

COnTEnTS

Preface xiii

Chapter 1 IntroduCtIon: Why ProjeCt ManageMent? 1 Project Profile: Development Projects in Lagos, Nigeria 2

Introduction 4

1.1 What Is a Project? 5 General Project Characteristics 6

1.2 Why Are Projects Important? 9 Project Profile: “Throwing Good Money after Bad”: the BBC’s Digital

Media Initiative 10

1.3 Project Life Cycles 13 ◾ Box 1.1: Project Managers in Practice 15

1.4 Determinants of Project Success 16 ◾ Box 1.2: Project Management Research in Brief 19

1.5 Developing Project Management Maturity 19

1.6 Project Elements and Text Organization 23 Summary  27  •  Key Terms  29  •  Discussion Questions  29 •  Case Study 1.1 MegaTech, Inc.  29  •  Case Study 1.2 The IT  Department at Hamelin Hospital  30  •  Case Study 1.3 Disney’s Expedition  Everest  31  •  Case Study 1.4 Rescue of Chilean Miners  32  •  Internet  Exercises  33  •  PMP Certification Sample Questions  34  •  Notes  34

Chapter 2 the organIzatIonal Context: Strategy, StruCture, and Culture 36

Project Profile: Tesla’s $5 Billion Gamble 37

Introduction 38

2.1 Projects and Organizational Strategy 39

2.2 Stakeholder Management 41 Identifying Project Stakeholders 42 Managing Stakeholders 45

2.3 Organizational Structure 47

2.4 Forms of Organizational Structure 48 Functional Organizations 48 Project Organizations 50 Matrix Organizations 53 Moving to Heavyweight Project Organizations 55

◾ Box 2.1: Project Management Research in Brief 56

2.5 Project Management Offices 57

2.6 Organizational Culture 59 How Do Cultures Form? 61 Organizational Culture and Project Management 63 Project Profile: Electronic Arts and the Power of Strong Culture in Design Teams 64

Summary  65  •  Key Terms  67  •  Discussion Questions  67  •  Case Study 2.1 Rolls-Royce Corporation  67  •  Case Study 2.2 Classic Case: Paradise Lost—The Xerox Alto  68  •  Case Study 2.3 Project Task Estimation and the Culture of “Gotcha!”  69  •  Case Study 2.4 Widgets ’R Us 70 •  Internet Exercises  70  •  PMP Certification Sample Questions  70  •  Integrated Project—Building Your Project Plan  72  •  Notes  74

Contents v

Chapter 3 ProjeCt SeleCtIon and PortfolIo ManageMent 76 Project Profile: Project Selection Procedures: A Cross-Industry Sampler 77

Introduction 78

3.1 Project Selection 78

3.2 Approaches to Project Screening and Selection 80 Method One: Checklist Model 80 Method Two: Simplified Scoring Models 82 Limitations of Scoring Models 84 Method Three: The Analytical Hierarchy Process 84 Method Four: Profile Models 88

3.3 Financial Models 90 Payback Period 90 Net Present Value 92 Discounted Payback 94 Internal Rate of Return 94 Choosing a Project Selection Approach 96 Project Profile: Project Selection and Screening at GE: The Tollgate Process 97

3.4 Project Portfolio Management 98 Objectives and Initiatives 99 Developing a Proactive Portfolio 100 Keys to Successful Project Portfolio Management 103 Problems in Implementing Portfolio Management 104

Summary  105  •  Key Terms  106  •  Solved Problems  107  •  Discussion Questions  108  •  Problems  108  •  Case Study 3.1 Keflavik Paper Company  111  •  Case Study 3.2 Project Selection at Nova Western, Inc.  112  •  Internet Exercises  113  •  Notes  113

Chapter 4 leaderShIP and the ProjeCt Manager 115 Project Profile: Leading by Example for the London Olympics—Sir John Armitt 116

Introduction 117

4.1 Leaders Versus Managers 118

4.2 How the Project Manager Leads 119 Acquiring Project Resources 119 Motivating and Building Teams 120 Having a Vision and Fighting Fires 121 Communicating 121

◾ Box 4.1: Project Management Research in Brief 124

4.3 Traits of Effective Project Leaders 125 Conclusions about Project Leaders 126 Project Profile: Dr. Elattuvalapil Sreedharan, India’s Project Management Guru 126

4.4 Project Champions 127 Champions—Who Are They? 128 What Do Champions Do? 129 How to Make a Champion 130

4.5 The New Project Leadership 131 ◾ Box 4.2: Project Managers in Practice 132

Project Profile: The Challenge of Managing Internationally 133

4.6 Project Management Professionalism 134

vi Contents

Summary  135  •  Key Terms  136  •  Discussion Questions  136  •  Case Study 4.1 In Search of Effective Project Managers 137 •  Case Study 4.2 Finding the Emotional Intelligence to Be a Real Leader 137 •  Case Study 4.3 Problems with John  138  •  Internet Exercises  141 •  PMP Certification Sample Questions  141  •  Notes  142

Chapter 5 SCoPe ManageMent 144 Project Profile: “We look like fools.”—Oregon’s Failed Rollout of Its Obamacare

Web Site 145

Introduction 146

5.1 Conceptual Development 148 The Statement of Work 150 The Project Charter 151 Project Profile: Statements of Work: Then and Now 151

5.2 The Scope Statement 153 The Work Breakdown Structure 153 Purposes of the Work Breakdown Structure 154 The Organization Breakdown Structure 159 The Responsibility Assignment Matrix 160

5.3 Work Authorization 161 Project Profile: Defining a Project Work Package 163

5.4 Scope Reporting 164 ◾ Box 5.1: Project Management Research in Brief 165

5.5 Control Systems 167 Configuration Management 167

5.6 Project Closeout 169 Summary  170  •  Key Terms  171  •  Discussion Questions  171  •  Problems  172  •  Case Study 5.1 Boeing’s Virtual Fence 172 •  Case Study 5.2 California’s High-Speed Rail Project  173  •  Case Study 5.3 Project Management at Dotcom.com  175  •  Case Study 5.4 The Expeditionary Fighting Vehicle  176  •  Internet Exercises  178  •  PMP Certification Sample Questions  178  •  MS Project Exercises  179  •  Appendix 5.1: Sample Project Charter  180  •  Integrated Project— Developing the Work Breakdown Structure  182  •  Notes  184

Chapter 6 ProjeCt teaM BuIldIng, ConflICt, and negotIatIon 186 Project Profile: Engineers Without Borders: Project Teams Impacting Lives 187

Introduction 188

6.1 Building the Project Team 189 Identify Necessary Skill Sets 189 Identify People Who Match the Skills 189 Talk to Potential Team Members and Negotiate with Functional Heads 189 Build in Fallback Positions 191 Assemble the Team 191

6.2 Characteristics of Effective Project Teams 192 A Clear Sense of Mission 192 A Productive Interdependency 192 Cohesiveness 193 Trust 193 Enthusiasm 193 Results Orientation 194

Contents vii

6.3 Reasons Why Teams Fail 194 Poorly Developed or Unclear Goals 194 Poorly Defined Project Team Roles and Interdependencies 194 Lack of Project Team Motivation 195 Poor Communication 195 Poor Leadership 195 Turnover Among Project Team Members 196 Dysfunctional Behavior 196

6.4 Stages in Group Development 196 Stage One: Forming 197 Stage Two: Storming 197 Stage Three: Norming 198 Stage Four: Performing 198 Stage Five: Adjourning 198 Punctuated Equilibrium 198

6.5 Achieving Cross-Functional Cooperation 199 Superordinate Goals 199 Rules and Procedures 200 Physical Proximity 201 Accessibility 201 Outcomes of Cooperation: Task and Psychosocial Results 201

6.6 Virtual Project Teams 202 Project Profile: Tele-Immersion Technology Eases the Use

of Virtual Teams 203

6.7  Conflict Management  204 What Is Conflict? 205 Sources of Conflict 206 Methods for Resolving Conflict 208

6.8 Negotiation 209 Questions to Ask Prior to the Negotiation 209 Principled Negotiation 210 Invent Options for Mutual Gain 212 Insist on Using Objective Criteria 213

Summary  214  •  Key Terms  214  •  Discussion Questions  215  •  Case Study 6.1 Columbus Instruments  215  •  Case Study 6.2 The Bean Counter and the Cowboy  216  •  Case Study 6.3 Johnson & Rogers Software Engineering, Inc.  217  •  Exercise in Negotiation  219  •  Internet  Exercises  220  •  PMP Certification Sample Questions  220  •  Notes  221

Chapter 7 rISk ManageMent 223 Project Profile: The Building that Melted Cars 224

Introduction 225 ◾ Box 7.1: Project Managers in Practice 227

7.1 Risk Management: A Four-Stage Process 228 Risk Identification 228 Project Profile: Bank of America Completely Misjudges Its Customers 230

Risk Breakdown Structures 231 Analysis of Probability and Consequences 231 Risk Mitigation Strategies 234

viii Contents

Use of Contingency Reserves 236 Other Mitigation Strategies 237 Control and Documentation 237 Project Profile: Collapse of Shanghai Apartment Building 239

7.2 Project Risk Management: An Integrated Approach 241 Summary  243  •  Key Terms  244  •  Solved Problem  244  •  Discussion  Questions  244  •  Problems  244  •  Case Study 7.1 Classic Case: de Havilland’s Falling Comet  245  •  Case Study 7.2 The Spanish Navy Pays Nearly $3 Billion for a Submarine That Will Sink Like a Stone  248  •  Case Study 7.3 Classic Case: Tacoma Narrows Suspension Bridge  249  •  Internet  Exercises  251  •  PMP Certification Sample Questions  251  •  Integrated  Project—Project Risk Assessment  253  •  Notes  255

Chapter 8 CoSt eStIMatIon and BudgetIng 256 Project Profile: Sochi Olympics—What’s the Cost of National Prestige? 257

8.1 Cost Management 259 Direct Versus Indirect Costs 260 Recurring Versus Nonrecurring Costs 261 Fixed Versus Variable Costs 261 Normal Versus Expedited Costs 262

8.2 Cost Estimation 262 Learning Curves in Cost Estimation 266

◾ Box 8.1: Project Management Research in Brief 270 Problems with Cost Estimation 272

◾ Box 8.2: Project Management Research in Brief 274

8.3 Creating a Project Budget 275 Top-Down Budgeting 275 Bottom-Up Budgeting 276 Activity-Based Costing 276

8.4 Developing Budget Contingencies 278 Summary  280  •  Key Terms  281  •  Solved Problems  282  •  Discussion Questions  283  •  Problems  284  •  Case Study 8.1 The Hidden Costs of Infrastructure Projects—The Case of Building Dams 286 •  Case Study 8.2 Boston’s Central Artery/Tunnel Project  288  •  Internet  Exercises  290  •  PMP Certification Sample Questions  290  •  Integrated  Project—Developing the Cost Estimates and Budget  292  •  Notes  294

Chapter 9 ProjeCt SChedulIng: netWorkS, duratIon eStIMatIon, and CrItICal Path 296

Project Profile: After 20 Years and More Than $50 Billion, Oil is No Closer to the Surface: The Caspian Kashagan Project 297

Introduction 298

9.1 Project Scheduling 299

9.2  Key Scheduling Terminology  300

9.3 Developing a Network 302 Labeling Nodes 303 Serial Activities 303 Concurrent Activities 303 Merge Activities 304 Burst Activities 305

9.4 Duration Estimation 307

Contents ix

9.5 Constructing the Critical Path 311 Calculating the Network 311 The Forward Pass 312 The Backward Pass 314 Probability of Project Completion 316 Laddering Activities 318 Hammock Activities 319 Options for Reducing the Critical Path 320

◾ Box 9.1: Project Management Research in Brief 321 Summary  322  •  Key Terms  323  •  Solved Problems  323  •  Discussion Questions  325  •  Problems  325  •  Internet  Exercises  327  •  MS Project Exercises  328  •  PMP Certification  Sample Questions  328  •  Notes  329

Chapter 10 ProjeCt SChedulIng: laggIng, CraShIng, and aCtIvIty netWorkS 330

Project Profile: Enlarging the Panama Canal 331

Introduction 333

10.1 Lags in Precedence Relationships 333 Finish to Start 333 Finish to Finish 334 Start to Start 334 Start to Finish 335

10.2 Gantt Charts 335 Adding Resources to Gantt Charts 337 Incorporating Lags in Gantt Charts 338 ◾ Box 10.1: Project Managers in Practice 338

10.3 Crashing Projects 340 Options for Accelerating Projects 340 Crashing the Project: Budget Effects 346

10.4 Activity-on-Arrow Networks 348 How Are They Different? 348 Dummy Activities 351 Forward and Backward Passes with AOA Networks 352 AOA Versus AON 353

10.5 Controversies in the Use of Networks 354 Conclusions 356 Summary  356  •  Key Terms  357  •  Solved Problems  357  •  Discussion  Questions  358  •  Problems  358  •  Case Study 10.1 Project Scheduling at Blanque Cheque Construction (A)  360  •  Case Study 10.2 Project Scheduling at Blanque Cheque Construction (B)  360  •  MS Project  Exercises  361  •  PMP Certification Sample Questions  361  •  Integrated  Project—Developing the Project Schedule  363  •  Notes  365

Chapter 11 advanCed toPICS In PlannIng and SChedulIng: agIle and CrItICal ChaIn 366

Project Profile: Developing Projects Through Kickstarter—Do Delivery Dates Mean Anything? 367

Introduction 368

11.1 Agile Project Management 369 What Is Unique About Agile PM? 370

x Contents

Tasks Versus Stories 371 Key Terms in Agile PM 372 Steps in Agile 373 Sprint Planning 374 Daily Scrums 374 The Development Work 374 Sprint Reviews 375 Sprint Retrospective 376 Problems with Agile 376

◾ Box 11.1: Project Management Research in Brief 376

11.2 Extreme Programming (XP) 377

11.3 The Theory of Constraints and Critical Chain Project Scheduling 377 Theory of Constraints 378

11.4 The Critical Chain Solution to Project Scheduling 379 Developing the Critical Chain Activity Network 381 Critical Chain Solutions Versus Critical Path Solutions 383

Project Profile: Eli Lilly Pharmaceuticals and Its Commitment to Critical Chain Project Management 385

11.5  Critical Chain Solutions to Resource Conflicts  386

11.6 Critical Chain Project Portfolio Management 387 ◾ Box 11.2: Project Management Research in Brief 390

11.7 Critiques of CCPM 391 Summary  391  •  Key Terms  393  •  Solved Problem  393  •  Discussion Questions  394  •  Problems  394  •  Case Study 11.1 It’s an Agile World  396  •  Case Study 11.2 Ramstein Products, Inc. 397 •  Internet Exercises  398  •  Notes  398

Chapter 12 reSourCe ManageMent 400 Project Profile: Hong Kong Connects to the World’s Longest Natural

Gas Pipeline 401

Introduction 402

12.1 The Basics of Resource Constraints 402 Time and Resource Scarcity 403

12.2 Resource Loading 405

12.3 Resource Leveling 407 Step One: Develop the Resource-Loading Table 411 Step Two: Determine Activity Late Finish Dates 412 Step Three: Identify Resource Overallocation 412 Step Four: Level the Resource-Loading Table 412

12.4 Resource-Loading Charts 416 ◾ Box 12.1: Project Managers in Practice 418

12.5 Managing Resources in Multiproject Environments 420 Schedule Slippage 420 Resource Utilization 420 In-Process Inventory 421 Resolving Resource Decisions in Multiproject Environments 421 Summary  423  •  Key Terms  424  •  Solved Problem  424  •  Discussion Questions  425  •  Problems  425  •  Case Study 12.1 The Problems of Multitasking  427  •  Internet Exercises  428  •  MS Project  Exercises  428  •  PMP Certification Sample Questions  429  •  Integrated  Project—Managing Your Project’s Resources  430  •  Notes  430

Contents xi

Chapter 13 ProjeCt evaluatIon and Control 431 Project Profile: New York City’s CityTime Project 432

Introduction 433

13.1 Control Cycles—A General Model 434

13.2 Monitoring Project Performance 435 The Project S-Curve: A Basic Tool 435 S-Curve Drawbacks 436 Milestone Analysis 437 Problems with Milestones 438 The Tracking Gantt Chart 439 Benefits and Drawbacks of Tracking Gantt Charts 440

13.3 Earned Value Management 440 Terminology for Earned Value 441 Creating Project Baselines 442 Why Use Earned Value? 443 Steps in Earned Value Management 444 Assessing a Project’s Earned Value 445

13.4 Using Earned Value to Manage a Portfolio of Projects 450 Project Profile: Earned Value at Northrop Grumman 451

13.5 Issues in the Effective Use of Earned Value Management 452

13.6 Human Factors in Project Evaluation and Control 454 Critical Success Factor Definitions 456 Conclusions 458 Summary  458  •  Key Terms  459  •  Solved Problem  459  •  Discussion Questions  460  •  Problems  461  •  Case Study 13.1 The IT Department at Kimble College  463  •  Case Study 13.2 The Supercon- ducting Supercollider  464  •  Case Study 13.3 Boeing’s 787 Dreamliner: Failure to Launch  465  •  Internet Exercises  468  •  MS Project  Exercises  468  •  PMP Certification Sample Questions  469  •  Appendix 13.1: Earned Schedule*  470  •  Notes  475

Chapter 14 ProjeCt CloSeout and terMInatIon 477 Project Profile: Duke Energy and Its Cancelled Levy County Nuclear

Power Plant 478

Introduction 479

14.1 Types of Project Termination 480 ◾ Box 14.1: Project Managers in Practice 480

14.2 Natural Termination—The Closeout Process 482 Finishing the Work 482 Handing Over the Project 482 Gaining Acceptance for the Project 483 Harvesting the Benefits 483 Reviewing How It All Went 483 Putting It All to Bed 485 Disbanding the Team 486 What Prevents Effective Project Closeouts? 486

14.3 Early Termination for Projects 487 Making the Early Termination Decision 489 Project Profile: Aftermath of a “Feeding Frenzy”: Dubai and Cancelled

Construction Projects 490

xii Contents

Shutting Down the Project 490 ◾ Box 14.2: Project Management Research in Brief 492

Allowing for Claims and Disputes 493

14.4 Preparing the Final Project Report 494 Conclusion 496 Summary  496  •  Key Terms  497  •  Discussion Questions  497  •  Case Study 14.1 New Jersey Kills Hudson River Tunnel Project  497  •  Case Study 14.2 The Project That Wouldn’t Die  499  •  Case Study 14.3 The Navy Scraps Development of Its Showpiece Warship—Until the Next Bad Idea  500  •  Internet Exercises  501  •  PMP Certification Sample  Questions  502  •  Appendix 14.1: Sample Pages from Project Sign-off  Document  503  •  Notes  507

Appendix A The Cumulative Standard Normal Distribution 509

Appendix B Tutorial for MS Project 2013 510

Appendix C Project Plan Template 520

Glossary 524

Company Index 534

Name Index 535

Subject Index 538

xiii

PrEFACE

Project management has become central to operations in industries as diverse as construction and information technology, architecture and hospitality, and engineering and new product development; therefore, this text simultaneously embraces the general principles of project management while addressing specific examples across the wide assortment of its applications. This text approaches each chapter from the perspective of both the material that is general to all disciplines and project types and that which is more specific to alternative forms of projects. One way this is accomplished is through the use of specific, discipline-based examples to illus- trate general principles as well as the inclusion of cases and Project Profiles that focus on more specific topics (e.g., Chapter 5’s treatment of IT “death march” projects).

Students in project management classes come from a wide and diverse cross section of uni- versity majors and career tracks. Schools of health, business, architecture, engineering, information systems, and hospitality are all adding project management courses to their catalogs in response to the demands from organizations and professional groups that see their value for students’ future careers. Why has project management become a discipline of such tremendous interest and applica- tion? The simple truth is that we live in a “projectized” world. Everywhere we look we see people engaged in project management. In fact, project management has become an integral part of practi- cally every firm’s business model.

This text takes a holistic, integrated approach to managing projects, exploring both technical and managerial challenges. It not only emphasizes individual project execution, but also provides a strategic perspective, demonstrating the means with which to manage projects at both the program and portfolio levels.

At one time, project management was almost exclusively the property of civil and con- struction engineering programs where it was taught in a highly quantitative, technical man- ner. “Master the science of project management,” we once argued, “and the ‘art’ of project management will be equally clear to you.” Project management today is a complex, “manage- ment” challenge requiring not only technical skills but a broad-based set of people skills as well. Project management has become the management of technology, people, culture, stake- holders, and other diverse elements necessary to successfully complete a project. It requires knowledge of leadership, team building, conflict resolution, negotiation, and influence in equal measure with the traditional, technical skill set. Thus, this textbook broadens our focus beyond the traditional project management activities of planning and scheduling, project control, and termination, to a more general, inclusive, and, hence, more valuable perspective of the project management process.

What’s NeW iN the foUrth editioN?

New features

• Agile Project Management • Project Charters • MS Project 2013 Step-by-Step Tutorials • Appendix—Project Execution Plan Template • New Project Managers in Practice Profiles • Risk Breakdown Structures • Extreme Programming • Updated Problems in Chapters • New Project Management Research in Brief: “Does Agile Work?” • All MS Project Examples and Screen Captures Updated to MS Project 2013 • All Project Management Body of Knowledge (PMBOK) Referencing Updated to

5th Edition • Quarterly Updates for All Book Adopters on Latest Cases and Examples in Project

Management

Updated Project Profiles

Chapter 1 Introduction: Why Project Management? • Development Projects in Lagos, Nigeria • “Throwing Good Money after Bad”: The BBC’s Digital Media Initiative

Chapter 2 The Organizational Context: Strategy, Structure, and Culture • Tesla’s $5 Billion Gamble • Electronic Arts and the Power of Strong Culture in Design Teams

Chapter 3 Project Selection and Portfolio Management • Project Selection Procedures: A Cross-Industry Sampler

Chapter 4 Leadership and the Project Manager • Leading by Example for the London Olympics—Sir John Armitt • Dr. E. Sreedharan, India’s Project Management Guru

Chapter 5 Scope Management • “We look like fools.” Oregon’s Failed Rollout of Their Obamacare Website • Boeing’s Virtual Fence • California’s High-Speed Rail Project—What’s the Latest News? • The Expeditionary Fighting Vehicle

Chapter 6 Project Team Building, Conflict, and Negotiation • Engineers without Borders: Project Teams Impacting Lives

Chapter 7 Risk Management • The Building That Melted Cars • Bank of America Completely Misjudges Its Customers • Collapse of Shanghai Apartment Building • The Spanish Navy Pays Nearly $3 Billion for a Submarine That Will Sink Like a Stone

Chapter 8 Cost Estimation and Budgeting • Sochi Olympics—What’s the Cost of National Prestige? • The Hidden Costs of Infrastructure ProjectsThe Case of Building Dams

Chapter 9 Project Scheduling: Networks, Duration Estimation, and Critical Path • After 20 Years and More than $50 Billion, Oil Is No Closer to the Surface: The Caspian

Kashagan Project Chapter 10 Project Scheduling: Lagging, Crashing, and Activity Networks • Enlarging the Panama Canal

Chapter 11 Critical Chain Project Scheduling • Developing Projects through Kickstarter—Do Delivery Dates Mean Anything? • Eli Lilly Pharmaceutical’s Commitment to Critical Chain Project Scheduling

Chapter 12 Resource Management • Hong Kong Connects to the World’s Longest Natural Gas Pipeline

Chapter 13 Project Evaluation and Control • New York City’s CityTime Project • Boeing’s 787 Dreamliner: Failure to Launch (with update) • Earned Value Management at Northrop Grumman

Chapter 14 Project Closeout and Termination • Duke Energy and Its Cancelled Levy County Nuclear Power Plant • Aftermath of a “Feeding Frenzy”—Dubai and Cancelled Construction Projects • New Jersey Kills Hudson River Tunnel Project • The Navy Scraps Development of Its Showpiece Warship—Until the Next Bad Idea

oUr focUs

This textbook employs a managerial, business-oriented approach to the management of projects. Thus we have integrated Project Profiles into the text.

• Project Profiles—Each chapter contains one or more Project Profiles that highlight cur- rent examples of project management in action. Some of the profiles reflect on significant

xiv Preface

Preface xv

achievements; others detail famous (and not-so-famous) examples of project failures. Because they cover diverse ground (IT projects, construction, new product development, and so forth), there should be at least one profile per chapter that is meaningful to the class’s focus. There is a deliberate effort made to offer a combination of project success stories and project failures. While successful projects can be instructive, we often learn far more from examining the variety of reasons why projects fail. As much as possible, these stories of success and failure are intended to match up with the chapters to which they are attached. For example, as we study the uses of projects to implement corporate strategy, it is useful to consider Elon Musk’s $5 billion dollar decision to develop a “gigafactory” to produce batteries for his Tesla automobiles.

The book blends project management within the context of the operations of any successful or- ganization, whether publicly held, private, or not-for-profit. We illustrate this through the use of end-of-chapter cases.

• Cases—At the end of each chapter are some final cases that take specific examples of the material covered in the chapter and apply them in the alternate format of case studies. Some of the cases are fictitious, but the majority of them are based on real situations, even where aliases mask the real names of organizations. These cases include discussion ques- tions that can be used either for homework or to facilitate classroom discussions. There are several “classic” project cases as well, highlighting some famous (and infamous) examples of projects whose experiences have shaped our understanding of the discipline and its best practices.

Further, we explore both the challenges in the management of individual projects as well as broad- ening out this context to include strategic, portfolio-level concepts. To do this, we ask students to develop a project plan using MS Project 2013.

• Integrated Project Exercises—Many of the chapters include an end-of-chapter feature that is unique to this text: the opportunity to develop a detailed project plan. A very beneficial exercise in project management classes is to require students, either in teams or individu- ally, to learn the mechanics of developing a detailed and comprehensive project plan, in- cluding scope, scheduling, risk assessment, budgeting, and cost estimation. The Integrated Project exercises afford students the opportunity to develop such a plan by assigning these activities and illustrating a completed project (ABCups, Inc.) in each chapter. Thus, students are assigned their project planning activities and have a template that helps them complete these exercises.

And finally, we have integrated the standards set forth by the world’s largest governing body for project management. The Project Management Institute (PMI) created the Project Management Body of Knowledge (PMBOK), which is generally regarded as one of the most comprehensive frameworks for identifying the critical knowledge areas that project managers must understand if they are to master their discipline. The PMBOK has become the basis for the Project Management Professional (PMP) certification offered by PMI for professional project managers.

• Integration with the PMBOK—As a means to demonstrate the coverage of the critical PMBOK elements, readers will find that the chapters in this text identify and cross-list the corresponding knowledge areas from the latest, fifth edition of PMBOK. Further, all terms (including the Glossary) are taken directly from the most recent edition of the PMBOK.

• Inclusion of Sample PMP Certification Exam Questions—The Project Management Professional (PMP) certification represents the highest standard of professional qualifi- cation for a practicing project manager and is administered by the Project Management Institute. As of 2014, there were more than 600,000 PMPs worldwide. In order to attain PMP certification, it is necessary for candidates to undergo a comprehensive exam that tests their knowledge of all components of the PMBOK. This text includes a set of sample PMP certification exam questions at the end of most of the chapters, in order to give read- ers an idea of the types of questions typically asked on the exam and how those topics are treated in this book.

xvi Preface

other PoiNts of distiNctioN

The textbook places special emphasis on blending current theory, practice, research, and case studies in such a manner that readers are given a multiple-perspective exposure to the project management process. A number of in-chapter features are designed to enhance student learning, including:

• MS Project Exercises—An additional feature of the text is the inclusion at the end of several chapters of some sample problems or activities that require students to generate MS Project output files. For example, in Chapter 9 on scheduling, students must create an MS Project network diagram. Likewise, other reports can be assigned to help students become mini- mally adept at interacting with this program. It is not the purpose of this text to fully develop these skills but rather to plant the seeds for future application.

• Research in Brief—A unique feature of this text is to include short (usually one-page) text boxes that highlight the results of current research on the topics of interest. Students often find it useful to read about actual studies that highlight the text material and provide additional information that expands their learning. Although not every chapter includes a “Research in Brief” box, most have one and, in some cases, two examples of this feature.

• Project Managers in Practice—An addition to this text is the inclusion of several short profiles of real, practicing project managers from a variety of corporate and project settings. These profiles have been added to give students a sense of the types of real-world challenges project managers routinely face, the wide range of projects they are called to manage, and the satisfac- tions and career opportunities available to students interested in pursuing project manage- ment as a career.

• Internet Exercises—Each chapter contains a set of Internet exercises that require students to search the Web for key information and perform other activities that lead to student learn- ing through outside-of-class, hands-on activities. Internet exercises are a useful supplement, particularly in the area of project management, because so much is available on the World Wide Web relating to projects, including cases, news releases, and Internet-based tools for analyzing project activities.

• MS Project 2013 Tutorials—Appendix B at the end of the text features two in-depth tutorials that instruct students in the rudiments of developing a project schedule, resource leveling, and critical path development. A second tutorial instructs students in methods for updating the project plan, generating output files such as earned value metrics, and tracking ongoing project activities. These tutorials are not intended to substitute for fuller instruction in this valuable software, but they do provide a critical means for initial familiarization with the package.

• Project Execution Plan Template—Appendix C provides a template for developing a fully evolved project execution plan. Instructors using previous versions of this text noted the value in requiring that students be able to create a project plan and requested a more comprehensive template that could be employed. This template addresses the critical elements of project scope, as well as offers a method for putting these details in a logical sequence.

instructor resources At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supple- ments that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers.

The following supplements are available with this text:

• Instructor’s Solutions Manual • Test Bank • TestGen® Computerized Test Bank • PowerPoint Presentation

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Preface xvii

ackNoWledgmeNts

In acknowledging the contributions of past and present colleagues to the creation of this text, I must first convey my deepest thanks and appreciation for the 30-year association with my origi- nal mentor, Dr. Dennis Slevin of the University of Pittsburgh’s Katz Graduate School of Business. My collaboration with Denny on numerous projects has been fruitful and extremely gratifying, both professionally and personally. In addition, Dr. David Cleland’s friendship and partnership in several ventures has been a great source of satisfaction through the years. A frequent collaborator who has had a massive influence on my thinking and approach to understanding project manage- ment is Professor Peter W.G. Morris, lately of University College London. Working with him has been a genuine joy and constant source of inspiration. Additional mentors and colleagues who have strongly influenced my thinking include Samuel Mantel, Jr., Rodney Turner, Erik Larson, David Frame, Francis Hartman, Jonas Soderlund, Young Kwak, Rolf Lundin, Lynn Crawford, Graham Winch, Terry Williams, Francis Webster, Terry Cooke-Davies, Hans Thamhain, and Karlos Artto. Each of these individuals has had a profound impact on the manner in which I view, study, and write about project management. Sadly, 2014 saw the passing of three of these outstanding project management scholars—Hans Thamhain, Sam Mantel and Francis Hartman. I hope that my efforts help, in some small part, to keep their vision and contributions alive.

Over the years, I have also been fortunate to develop friendships with some professional project managers whose work I admire enormously. They are genuine examples of the best type of project manager: one who makes it all seem effortless while consistently performing minor miracles. In par- ticular, I wish to thank Mike Brown of Rolls-Royce for his friendship and example. I would also like to thank friends and colleagues from the Project Management Institute, including Lew Gedansky, Harry Stephanou, and Eva Goldman, for their support for and impact on this work.

I am indebted to the reviewers of this text whose numerous suggestions and critiques have been an invaluable aid in shaping its content. Among them, I would like to especially thank the following:

Kwasi Amoako-Gyampah— University of North Carolina, Greensboro Ravi Behara—George Mason University Jeffrey L. Brewer—Purdue University Dennis Cioffi—George Washington University David Clapp—Florida Institute of Technology Bruce DeRuntz—Southern Illinois University at Carbondale Ike Ehie—Kansas State University Michael H. Ensby—Clarkson University Lynn Fish—Canisius College Linda Fried—University of Colorado, Denver Mario Guimaraes—Kennesaw State University Richard Gunther—California State University, Northridge Brian Gurney—Montana State University, Billings Gary Hackbarth—Iowa State University Mamoon M. Hammad—George Washington University Scott Robert Homan—Purdue University John Hoxmeier—Colorado State University Alex Hutchins—ITT Technical Institute Richard Jensen—Hofstra University Robert Key—University of Phoenix Homayoun Khamooshi—George Washington University Dennis Krumwiede—Idaho State University George Mechling—Western Carolina University Julia Miyaoka—San Francisco State University

xviii Preface

LaWanda Morant—ITT Technical Institute Robert Morris—Florida State College at Jacksonville James Muller—Cleveland State University Kenneth E. Murphy—Willamette University John Nazemetz—Oklahoma State University Patrick Penfield—Syracuse University Ronald Price—ITT Techincal Institute Ronny Richardson—Southern Polytechnic State University John Sherlock—Iona College Gregory Shreve—Kent State University Randall G. Sleeth—Virginia Commonwealth University Kimberlee Snyder—Winona State University Jeff Trailer—California State University, Chico Leo Trudel—University of Maine Oya Tukel—Cleveland State University Darien Unger—Howard University Amy Valente—Cayuga Community College Stephen Whitehead—Hilbert College

I would also like to thank my colleagues in the Samuel Black School of Business at Penn State, the Behrend College. Additionally, my thanks goes to Dana Johnson of Michigan Technological University for preparing the PowerPoints for this edition, and Geoff Willis of University of Central Oklahoma for preparing the Test Bank. Extra-special thanks go to Kerri Tomasso for her help in preparing the final manuscript and for her integral role in permissions research and acquisitions. I am espe- cially indebted to Khurrum Bhutta, who accuracy checked this edition. I am very grateful for his time and effort, and any errors that may remain are entirely my own.

In developing the cases for this edition of the textbook, I was truly fortunate to develop wonderful professional relationships with a number of individuals. Andrea Finger and Kathleen Prihoda of Disney were wonderfully helpful and made time in their busy schedules to assist me in developing the Expedition Everest case for this text. Stephanie Smith, Mohammed Al-Sadiq, Bill Mowery, Mike Brown, Julia Sweet, and Kevin O’Donnell provided me with invaluable information on their job responsibilities and what it takes to be a successful project manager.

Finally, I wish to extend my sincere thanks to the people at Pearson for their support for the text during its development, including Dan Tylman, editor, and Claudia Fernandes, program manager. I also would like to thank the Pearson editorial, production, and marketing staffs.

feedBack

The textbook team and I would appreciate hearing from you. Let us know what you think about this textbook by writing to college.marketing@pearson.com. Please include “Feedback about Pinto” in the subject line.

If you have questions related to this product, please contact our customer service department online at http://247pearsoned.custhelp.com.

Finally, it is important to reflect on an additional salient issue as you begin your study of project management: Most of you will be running a project long before you are given wider management responsibilities in your organizations. Successful project managers are the lifeblood of organizations and bear the imprint of the fast track. I wish you great success!

Jeffrey K. Pinto, Ph.D. Andrew Morrow and Elizabeth Lee Black Chair

Management of Technology Samuel Black School of Business Penn State, the Behrend College

jkp4@psu.edu

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1

1 ■ ■ ■

Introduction Why Project Management?

Chapter Outline Project Profile

Development Projects in Lagos, Nigeria introduction 1.1 What is a Project?

General Project Characteristics 1.2 Why are Projects imPortant?

Project Profile “Throwing Good Money after Bad”:

The BBC’s Digital Media Initiative 1.3 Project life cycles Project managers in Practice

Stephanie Smith, Westinghouse Electric Company

1.4 determinants of Project success Project Management Research in Brief Assessing Information Technology (IT) Project

Success

1.5 develoPing Project management maturity

1.6 Project elements and text organization

Summary Key Terms Discussion Questions Case Study 1.1 MegaTech, Inc. Case Study 1.2 The IT Department at Hamelin

Hospital Case Study 1.3 Disney’s Expedition Everest Case Study 1.4 Rescue of Chilean Miners Internet Exercises PMP Certification Sample Questions Notes

Chapter Objectives After completing this chapter, you should be able to:

1. Understand why project management is becoming such a powerful and popular practice in business.

2. Recognize the basic properties of projects, including their definition. 3. Understand why effective project management is such a challenge. 4. Differentiate between project management practices and more traditional, process-oriented

business functions. 5. Recognize the key motivators that are pushing companies to adopt project management

practices. 6. Understand and explain the project life cycle, its stages, and the activities that typically occur

at each stage in the project. 7. Understand the concept of project “success,” including various definitions of success, as well

as the alternative models of success.

2 Chapter 1 • Introduction

8. Understand the purpose of project management maturity models and the process of bench- marking in organizations.

9. Identify the relevant maturity stages that organizations go through to become proficient in their use of project management techniques.

Project MAnAgeMent Body of Knowledge core concePts covered in this chAPter

1. Definition of a Project (PMBoK sec. 1.2) 2. Definition of Project Management (PMBoK sec. 1.3) 3. Relationship to Other Management Disciplines (PMBoK sec. 1.4) 4. Project Phases and the Project Life Cycle (PMBoK sec. 2.1)

The world acquires value only through its extremes and endures only through moderation; extremists make the world great, the moderates give it stability.1

Project Profile

Development Projects in lagos, Nigeria

Lagos is the capital of Nigeria and home to an estimated 15–20 million people, making its population larger than London or Beijing. As the largest and fastest-growing city in sub-Saharan Africa (estimates are that 600,000 people are added to Lagos’ population each year), Lagos is in desperate need of developing and maintaining infrastructure to support its population, while supporting its claim as a high-technology hub on the African continent. Considering that about 85% of the world’s population resides in the developing world and transitioning economies, and nearly two-thirds of that population is below the age of 35, the need for infrastructure to support critical human needs is im- mense. About 70% of the city’s population is believed to live in slums, while a 2006 United Nations report estimated that only 10% of households in the Lagos Metropolitan area were directly connected to a municipal water supply. In spite of these problems, Nigeria is Africa’s biggest economy, driven by economic growth in Lagos, home to film and fashion industries, financial markets, and consumer goods manufacturers.

The list of critical items on the list for urban improvement is large. For example, for a city of more than 15 million, electricity is scarcely to be found. Lagos power stations only generate a mere 2,000 megawatts of electricity—less than half of that available for a single city block in midtown Manhattan! “We have about two hours, maybe, of public power a day,” says Kola Karim, CEO of Nigeria’s Shoreline Energy International. “It’s unbearable.” Everywhere in the city people are using gasoline or diesel generators to supply power when the inevitable rolling blackouts resume.

Additionally, Lagos is critically short on housing. To overcome this shortage people of Lagos resort to living in shanty towns, one such shanty town is Makoko. Makoko is situated on the mainland’s Lagos lagoon. Home to several hundred thousand inhabitants, Makoko lacks access to basic services, including clean drinking water, electricity, and waste disposal, and is prone to severe environmental and health hazards. Consisting of rickety dwellings on stilts perched over the foul-smelling lagoon, Makoko is one of the many chaotic human settlements that have sprouted in Lagos in recent years. As these cities spread out and move too close to major bridges or electrical towers, the govern- ment periodically sends in troops to demolish portions of the floating village.

How did the city get to this point? A big reason was a lack of forethought and development planning. In metro- politan Lagos there are 20,000 people per square kilometer with thousands more arriving each day. Given the physical constraints of the city, originally built on a narrow strip of land and bordering the ocean, there is just not enough space to absorb the new inhabitants. Urban planning, as we know it today, simply did not exist and the city swelled organi- cally, without forethought or a sense of direction. Thus, Lagos has no urban transportation system, few functioning traffic lights, and a crumbling and outdated road system.

The problems do not stop there. Land prices in Lagos are extremely high, due to lack of space for commercial development. However, because of the unreliable electricity supply that makes elevator use questionable, there are few high-rise apartments or office buildings in the city. Banks have been reluctant to invest in real estate trans- actions because of past failures and general economic instability. Faced with the need to drastically change the direction of the city, Babatunde Fashola, Lagos’ visionary governor who took power in 2010, has launched a series

Project Profile 3

of urban development projects to address a variety of the city’s needs. Fashola has announced $50 billion in new infrastructure projects for Lagos, to be developed over the next 10 years. These new project initiatives include the following:

lagos Metro Blue line

The blue line is a major cosmopolitan light-rail transport project to connect districts in Nigeria’s largest city. Designed to ease congestion and speed up journey times for the city’s inhabitants, the Blue Line will run between Marina and Okokomaiko, stopping at 13 stations, and is part of the Lagos Rail Mass Transit program implemented by the govern- ment. Originally proposed in 2008, funding issues have pushed the launch of the Blue Line back to at least 2015. The Line is set to cost $1.2 billion and will be funded by the Lagos State Government.

eko Atlantic

Eko Atlantic is an ambitious land reclamation project, a pioneering residential and business development located on Victoria Island, along its upmarket Bar Beach coastline. The project is being built on three and a half square miles of land reclaimed from the Atlantic Ocean and is expected to provide accommodation for 250,000 people and employ- ment opportunities for a further 150,000. The complex will function as a city-within-a-city, including recreational facilities, business and shopping districts, and modern conveniences.

Bus rapid-transit System

To ease the crush of public transportation, the Bus Rapid Transport (BRT) system was introduced 10 years ago to streamline and modernize the motley collection of buses that had transported residents around the city. Lagos has long suffered from an unregulated transportation system in which a variety of different “buses,” ranging from bat- tered minibuses to old, yellow-painted school buses, competed for customers. Fares were also unregulated, leaving

Figure 1.1 traffic congestion in lagos, Nigeria

Source: Femi Ipaye/Xinhua Press/Corbis

(continued)

4 Chapter 1 • Introduction

introduction

Projects are one of the principal means by which we change our world. Whether the goal is to split the atom, tunnel under the English Channel, introduce Windows 9, or plan the next Summer Olympic Games in Rio de Janeiro, the means through which to achieve these challenges remains the same: project management. Project management has become one of the most popular tools for organizations, both public and private, to improve internal operations, respond rapidly to exter- nal opportunities, achieve technological breakthroughs, streamline new product development, and more robustly manage the challenges arising from the business environment. Consider what Tom Peters, best-selling author and management consultant, has to say about project management and its place in business: “Projects, rather than repetitive tasks, are now the basis for most value- added in business.”3 Project management has become a critical component of successful business operations in worldwide organizations.

One of the key features of modern business is the nature of the opportunities and threats posed by external events. As never before, companies face international competition and the need to pursue commercial opportunities rapidly. They must modify and introduce products constantly, respond to customers as fast as possible, and maintain competitive cost and operating levels. Does performing all these tasks seem impossible? At one time, it was. Conventional wisdom held that a company could compete using a low-cost strategy or as a product innovator or with a focus on customer service. In short, we had to pick our competitive niches and concede others their claim to market share. In the past 20 years, however, everything turned upside down. Companies such as General Electric, Apple, Ericksson, Boeing, and Oracle became increasingly effective at realiz- ing all of these goals rather than settling for just one. These companies seemed to be successful in every aspect of the competitive model: They were fast to market and efficient, cost-conscious and customer-focused. How were they performing the impossible?

Obviously, there is no one answer to this complex question. There is no doubt, however, that these companies shared at least one characteristic: They had developed and committed themselves to project management as a competitive tool. Old middle managers, reported Fortune magazine,

are dinosaurs, [and] a new class of manager mammal is evolving to fill the niche they once ruled: project managers. Unlike his biological counterpart, the project manager is more agile and adaptable than the beast he’s displacing, more likely to live by his wits than throwing his weight around.4

Effective project managers will remain an indispensable commodity for successful organiza- tions in the coming years. More and more companies are coming to this conclusion and adopting

drivers free to charge whatever fares they chose. “They might charge $1 in the morning for one trip one way and by afternoon they can go to $3,” says Dayo Mobereola, managing director of the Lagos Metropolitan Area Transport Authority, noting that commuters spend on average 40% of their income on transportation. Before the project was announced, the city had projected that it would transport 60,000 passengers daily, but now it transports over 200,000 passengers daily. The BRT system has reduced waiting times at bus stops, the travel time across the city, all at a reduced rate when compared to the old system.

Schools, Bridges, and Power Plants

Part of the aggressive infrastructure modernization includes improving traffic by building the first suspension bridge in West Africa, as well as adding a number of new schools around the city. Two new power plants are also slated to be constructed, bringing a more dependable source of power to the city, including powering street lights to ease crime and other problems. The city has even launched a fleet of brand new garbage trucks to deal with the 10,000 tons of waste generated every day.

Lagos’ modernization efforts in recent years have come not a moment too soon in support of its citizens. As Professor Falade observed, these efforts to modernize the city’s facilities are a breath of fresh air. “The difference is clear, the evidence is the improved landscape of Lagos in the urban regeneration project.”2

1.1 What Is a Project? 5

project management as a way of life. Indeed, companies in such diverse industries as construction, heavy manufacturing, insurance, health care, finance, public utilities, and software are becoming project savvy and expecting their employees to do the same.

1.1 What is a Project?

Although there are a number of general definitions of the term project, we must recognize at the outset that projects are distinct from other organizational processes. As a rule, a process refers to ongoing, day-to-day activities in which an organization engages while producing goods or services. Processes use existing systems, properties, and capabilities in a continuous, fairly repetitive manner.5 Projects, on the other hand, take place outside the normal, process-oriented world of the firm. Certainly, in some organizations, such as construction, day-to-day processes center on the creation and development of projects. Nevertheless, for the majority of organizations, project management activities remain unique and separate from the manner in which more routine, process-driven work is performed. Project work is continuously evolving, establishes its own work rules, and is the antith- esis of repetition in the workplace. As a result, it represents an exciting alternative to business as usual for many companies. The challenges are great, but so are the rewards of success.

First, we need a clear understanding of the properties that make projects and project manage- ment so unique. Consider the following definitions of projects:

A project is a unique venture with a beginning and end, conducted by people to meet estab- lished goals within parameters of cost, schedule, and quality.6

Projects [are] goal-oriented, involve the coordinated undertaking of interrelated activities, are of finite duration, and are all, to a degree, unique.7

A project can be considered to be any series of activities and tasks that: • Have a specific objective to be completed within certain specifications • Have defined start and end dates • Have funding limits (if applicable) • Consume human and nonhuman resources (i.e., money, people, equipment) • Are multifunctional (i.e., cut across several functional lines)8

[A project is] [o]rganized work toward a predefined goal or objective that requires resources and effort, a unique (and therefore risky) venture having a budget and schedule.9

Probably the simplest definition is found in the Project Management Body of Knowledge (PMBoK) guide of the Project Management Institute (PMI). PMI is the world’s largest professional project management association, with more than 450,000 members worldwide as of 2014. In the PMBoK guide, a project is defined as “a temporary endeavor undertaken to create a unique product, ser- vice, or result” (p. 553).10

Let us examine the various elements of projects, as identified by these set of definitions.

• Projects are complex, one-time processes. A project arises for a specific purpose or to meet a stated goal. It is complex because it typically requires the coordinated inputs of numerous members of the organization. Project members may be from different departments or other organizational units or from one functional area. For example, a project to develop a new software application for a retail company may require only the output of members of the Information Systems group working with the marketing staff. On the other hand, some proj- ects, such as new product introductions, work best with representation from many functions, including marketing, engineering, production, and design. Because a project is intended to fulfill a stated goal, it is temporary. It exists only until its goal has been met, and at that point, it is dissolved.

• Projects are limited by budget, schedule, and resources. Project work requires that members work with limited financial and human resources for a specified time period. They do not run indefinitely. Once the assignment is completed, the project team disbands. Until that point, all its activities are constrained by limitations on budget and personnel availability. Projects are “resource-constrained” activities.

• Projects are developed to resolve a clear goal or set of goals. There is no such thing as a project team with an ongoing, nonspecific purpose. The project’s goals, or deliverables,

6 Chapter 1 • Introduction

define the nature of the project and that of its team. Projects are designed to yield a tangible result, either as a new product or service. Whether the goal is to build a bridge, implement a new accounts receivable system, or win a presidential election, the goal must be specific and the project organized to achieve a stated aim.

• Projects are customer-focused. Whether the project is responding to the needs of an internal organizational unit (e.g., accounting) or intended to exploit a market opportunity external to the organization, the underlying purpose of any project is to satisfy customer needs. In the past, this goal was sometimes overlooked. Projects were considered successful if they attained technical, budgetary, and scheduling goals. More and more, however, companies have real- ized that the primary goal of a project is customer satisfaction. If that goal is neglected, a firm runs the risk of “doing the wrong things well”—pursuing projects that may be done efficiently but that ignore customer needs or fail commercially.

general Project characteristics

Using these definitional elements, we can create a sense of the key attributes that all projects share. These characteristics are not only useful for better understanding projects, but also offer the basis for seeing how project-based work differs from other activities most organizations under- take. Projects represent a special type of undertaking by any organization. Not surprisingly, the challenges in performing them right are sometimes daunting. Nevertheless, given the manner in which business continues to evolve on a worldwide scale, becoming “project savvy” is no longer a luxury: It is rapidly becoming a necessity.

Projects are characterized by the following properties:11

1. Projects are ad hoc endeavors with a clear life cycle. Projects are nontraditional; they are activities that are initiated as needed, operate for a specified time period over a fairly well understood development cycle, and are then disbanded. They are temporary operations.

2. Projects are building blocks in the design and execution of organizational strategies. As we will see in later chapters, projects allow organizations to implement companywide strategies. They are the principal means by which companies operationalize corporate-level objectives. In effect, projects are the vehicles for realizing company goals. For example, Intel’s strat- egy for market penetration with ever newer, smaller, and faster computer chips is realized through its commitment to a steady stream of research and development projects that allows the company to continually explore the technological boundaries of electrical and computer engineering.

3. Projects are responsible for the newest and most improved products, services, and organi- zational processes. Projects are tools for innovation. Because they complement (and often transform) traditional process-oriented activities, many companies rely on projects as vehi- cles for going beyond conventional activities. Projects are the stepping-stones by which we move forward.

4. Projects provide a philosophy and strategy for the management of change. “Change” is an abstract concept until we establish the means by which we can make real alterations in the things we do and produce. Projects allow organizations to go beyond simple statements of intent and to achieve actual innovation. For example, whether it is Chevrolet’s Volt electric car or Apple’s newest iPhone upgrade, successful organizations routinely ask for customer input and feedback to better understand their likes and dislikes. As the vehicle of change, the manner in which a company develops its projects has much to say about its ability to inno- vate and commitment to change.

5. Project management entails crossing functional and organizational boundaries. Projects epitomize internal organizational collaboration by bringing together people from various functions across the company. A project aimed at new product development may require the combined work of engineering, finance, marketing, design, and so forth. Likewise, in the global business environment, many companies have crossed organizational boundaries by forming long-term partnerships with other firms in order to maximize opportunities while emphasizing efficiency and keeping a lid on costs. Projects are among the most common means of promoting collaboration, both across functions and across organizations.

6. The traditional management functions of planning, organizing, motivation, directing, and control apply to project management. Project managers must be technically well versed,

1.1 What Is a Project? 7

proficient at administrative functions, willing and able to assume leadership roles, and, above all, goal-oriented: The project manager is the person most responsible for keeping track of the big picture. The nature of project management responsibilities should never be underestimated because these responsibilities are both diverse and critical to project success.

7. The principal outcomes of a project are the satisfaction of customer requirements within the constraints of technical, cost, and schedule objectives. Projects are defined by their limitations. They have finite budgets, definite schedules, and carefully stated specifica- tions for completion. For example, a term paper assignment in a college class might include details regarding form, length, number of primary and secondary sources to cite, and so forth. Likewise, in the Disney’s Expedition Everest case example at the end of the chapter, the executive leading the change process established clear guidelines regarding performance expectations. All these constraints both limit and narrowly define the focus of the project and the options available to the project team. It is the very task of managing successful project development within such specific constraints that makes the field so challenging.

8. Projects are terminated upon successful completion of performance objectives—or earlier in their life cycle, if results no longer promise an operational or strategic advantage. As we have seen, projects differ from conventional processes in that they are defined by limited life cycles. They are initiated, completed, and dissolved. As important alternatives to conven- tional organizational activities, they are sometimes called “temporary organizations.”12

Projects, then, differ from better-known organizational activities, which often involve repetitive processes. The traditional model of most firms views organizational activities as consistently performing a discrete set of activities. For example, a retail-clothing establishment buys, stocks, and sells clothes in a continuous cycle. A steel plant orders raw materials, makes steel, and ships finished products, again in a recurring cycle. The nature of these operations focuses our atten- tion on a “process orientation,” that is, the need to perform work as efficiently as possible in an ongoing manner. When its processes are well understood, the organization always seeks better, more efficient ways of doing the same essential tasks. Projects, because they are discrete activities, violate the idea of repetition. They are temporary activities that operate outside formal channels. They may bring together a disparate collection of team members with different kinds of functional expertise. Projects function under conditions of uncertainty, and usually have the effect of “shaking up” normal corporate activities. Because of their unique characteristics, they do not conform to common standards of operations; they do things differently and often reveal new and better ways of doing things. Table 1.1 offers some other distinctions between project-based work and the more traditional, process-based activities. Note a recurring theme: Projects operate in radical ways that consistently violate the standard, process-based view of organizations.

Consider Apple’s development of the iPod, a portable MP3 player that can be integrated with Apple’s popular iTunes site to record and play music downloads. Apple, headed by its former chairman, the late Steven Jobs, recognized the potential in the MP3 market, given the enormous popularity (and, some would say, notoriety) of file-sharing and downloading music through

table 1.1 Differences Between Process and Project Management13

Process Project

Repeat process or product New process or product Several objectives One objective Ongoing One shot—limited life People are homogenous More heterogeneous Well-established systems in place to integrate efforts Systems must be created to integrate efforts Greater certainty of performance, cost, schedule Greater uncertainty of performance, cost, schedule Part of line organization Outside of line organization Bastions of established practice Violates established practice Supports status quo Upsets status quo

Source: R. J. Graham. (1992). “A Survival Guide for the Accidental Project Manager,” Proceedings of the Annual Project Management Institute Symposium. Drexel Hill, PA: Project Management Institute, pp. 355–61. Copyright and all rights reserved. Material from this publication has been reproduced with the permission of PMI.

8 Chapter 1 • Introduction

the Internet. The company hoped to capitalize on the need for a customer-friendly MP3 player, while offering a legitimate alternative to illegal music downloading. Since its introduction in 2003, consumers have bought nearly 400 million iPods and purchased more than 25 billion songs through Apple’s iTunes online store. In fact, Apple’s iTunes division is now the largest U.S. market for music sales, accounting for 29% of all music sold in the United States and 64% of the digital music market.

In an interview, Jobs acknowledged that Apple’s business needed some shaking up, given the steady but unspectacular growth in sales of its flagship Macintosh personal computer, still holding approximately 13% of the overall PC market. The iPod, as a unique venture within Apple, became a billion-dollar business for the company in only its second year of existence. So popular has the iPod become for Apple that the firm created a separate business unit, moving the product and its support staff away from the Mac group. “Needless to say, iPod has become incredibly popular, even among people who aren’t diehard Apple fanatics,” industry analyst Paolo Pescatore told NewsFactor, noting that Apple recently introduced a smaller version of the product with great success. “In short, they have been very successful thus far, and I would guess they are looking at this realignment as a way to ensure that success will continue.”14

A similar set of events are currently unfolding, centered on Apple’s introduction and succes- sive upgrades of its iPad tablet. Among the numerous features offered by the iPad is the ability to download books (including college textbooks) directly from publishers, effectively eliminating the traditional middlemen—bookstores—from the process. So radical are the implications of the iPad that competitors have introduced their own models (such as Samsung’s Galaxy tablet) to capture a share of this market. Meanwhile, large bookstores are hoping to adapt their business models to the new electronic reality of book purchase by offering their own readers (for example, Kindle for Amazon). Some experts are suggesting that within a decade, tablets and other electronic readers will make traditional books obsolete, capturing the majority of the publishing market. These are just some examples of the way that project-driven technological change, such as that at Apple, is reshaping the competitive landscape.

Given the enthusiasm with which project management is being embraced by so many orga- nizations, we should note that the same factors that make project management a unique undertak- ing are also among the main reasons why successful project management is so difficult. The track record of project management is by no means one of uninterrupted success, in part because many companies encounter deep-rooted resistance to the kinds of changes needed to accommodate a “project philosophy.” Indeed, recent research into the success rates for projects offers some grim conclusions:

• A study of more than 300 large companies conducted by the consulting firm Peat Marwick found that software and/or hardware development projects fail at the rate of 65%. Of compa- nies studied, 65% reported projects that went grossly over budget, fell behind schedule, did not perform as expected, or all of the above. Half of the managers responding indicated that these findings were considered “normal.”15

• A study by the META Group found that “more than half of all (information technology) IT projects become runaways—overshooting their budgets and timetables while failing to deliver fully on their goals.”16

• Joe Harley, the Chief Information Officer at the Department for Work and Pensions for the UK government, stated that “only 30%” of technology-based projects and programs are a success—at a time when taxes are funding an annual budget of £14bn (over $22 billion) on public sector IT, equivalent to building 7,000 new primary schools or 75 hospitals a year.17

• The United States Nuclear Security Administration has racked up $16 billion in cost over- runs on 10 major projects that are a combined 38 years behind schedule, the Government Accountability Office reports. For example, at Los Alamos National Laboratory, a seven-year, $213 million upgrade to the security system that protects the lab’s most sensitive nuclear bomb-making facilities does not work. A party familiar with the organization cites a “perva- sive culture of tolerating the intolerable and accepting the unacceptable.”18

• According to the 2004 PriceWaterhouseCoopers Survey of 10,640 projects valued at $7.2 billion, across a broad range of industries, large and small, only 2.5% of global businesses achieved 100% project success, and more than 50% of global business projects failed. The Chaos Summary 2013 survey by The Standish Group reported similar findings: The majority of all projects were

1.2 Why Are Projects Important? 9

either “challenged” (due to late delivery, being over budget, or delivering less than required features) or “failed” and were canceled prior to completion, or the product developed was never used. Researchers have concluded that the average success rate of business-critical application development projects is 39%. Their statistics have remained remarkably steady since 1994.19

• The Special Inspector General for Iraq Reconstruction (SIGIR) reported that more than $8 billion of the $53 billion the Pentagon spent on thousands of Iraqi reconstruction projects was lost due to “fraud, waste, and abuse.” Hundreds were eventually canceled, with 42% of the terminated projects ended because of mismanagement or shoddy construction. As part of their final 2013 report, SIGIR noted: “We found that incomplete and unstandardized databases left us unable to identify the specific use of billions of dollars spent on projects.”20

These findings underscore an important point: Although project management is becoming popular, it is not easy to assimilate into the conventional processes of most firms. For every firm discovering the benefits of projects, many more underestimate the problems involved in becoming “project savvy.”

These studies also point to a core truth about project management: We should not overesti- mate the benefits to be gained from project management while underestimating the commitment required to make a project work. There are no magic bullets or quick fixes in the discipline. Like any other valuable activity, project management requires preparation, knowledge, training, and commitment to basic principles. Organizations wanting to make use of project-based work must recognize, as Table 1.1 demonstrates, that its very strength often causes it to operate in direct con- tradiction to standard, process-oriented business practices.

1.2 Why are Projects imPortant?

There are a number of reasons why projects and project management can be crucial in helping an organization achieve its strategic goals. David Cleland, a noted project management researcher, suggests that many of these reasons arise from the very pressures that organizations find them- selves facing.21

1. Shortened product life cycles. The days when a company could offer a new product and depend on having years of competitive domination are gone. Increasingly, the life cycle of new products is measured in terms of months or even weeks, rather than years. One has only to look at new products in electronics or computer hardware and software to observe this trend. Interestingly, we are seeing similar signs in traditional service-sector firms, which also have recognized the need for agility in offering and upgrading new services at an increas- ingly rapid pace.

2. Narrow product launch windows. Another time-related issue concerns the nature of oppor- tunity. Organizations are aware of the dangers of missing the optimum point at which to launch a new product and must take a proactive view toward the timing of product intro- ductions. For example, while reaping the profits from the successful sale of Product A, smart firms are already plotting the best point at which to launch Product B, either as a product upgrade or a new offering. Because of fierce competition, these optimal launch opportunities are measured in terms of months. Miss your launch window, even by a matter of weeks, and you run the risk of rolling out an also-ran.

3. Increasingly complex and technical products. It has been well-documented that the average automobile today has more computing power than the Apollo 11 space capsule that allowed astronauts to walk on the moon. This illustrates a clear point: the world today is complex. Products are complicated, technically sophisticated, and difficult to produce efficiently. The public’s appetite for “the next big thing” continues unabated and substantially unsatisfied. We want the new models of our consumer goods to be better, bigger (or smaller), faster, and more complex than the old ones. Firms constantly upgrade product and service lines to feed this demand. That causes multiple problems in design and production as we continually seek to push the technical limits. Further, in anticipating future demand, many firms embark on expensive programs of research and development while attempting to discern con- sumer tastes. The effect can be to erroneously create expensive and technically sophisticated

10 Chapter 1 • Introduction

projects that we assume the customer will want. For example, Rauma Corporation of Finland developed a state-of-the-art “loader” for the logging industry. Rauma’s engineers loaded the product with the latest computerized gadgetry and technologies that gave the machine a space-age feel. Unfortunately, the chief customer for the product worked in remote regions of Indonesia, with logistics problems that made servicing and repairing the loaders impracti- cal. Machines that broke down had to be airlifted more than 1,000 miles to service centers. Since the inception of this project, sales of the logging machinery have been disappointing. The project was an expensive failure for Rauma and serves to illustrate an important point: Unless companies find a way to maintain control of the process, an “engineering for engi- neering’s sake” mentality can quickly run out of control.22

4. Global markets. The early twenty-first century has seen the emergence of enormous new markets for almost every type of product and service. Former closed or socialist societies, as well as rapidly developing economies such as Brazil, China, Vietnam, and India, have added huge numbers of consumers and competitors to the global business arena. The increased glo- balization of the economy, coupled with enhanced methods for quickly interacting with cus- tomers and suppliers, has created a new set of challenges for business. These challenges also encompass unique opportunities for those firms that can quickly adjust to this new reality. In the global setting, project management techniques provide companies with the ability to link multiple business partners, and respond quickly to market demand and supplier needs, while remaining agile enough to anticipate and respond to rapid shifts in consumer tastes. Using project management, successful organizations of the future will recognize and learn to rapidly exploit the prospects offered by a global business environment.

5. An economic period marked by low inflation. One of the key indicators of economic health is the fact that inflation has been kept under control. In most of the developed Western econo- mies, low inflation has helped to trigger a long period of economic expansion, while also helping provide the impetus for emerging economies, such as those in India and China, to expand rapidly. Unfortunately, low inflation also limits the ability of businesses to maintain profitability by passing along cost increases. Companies cannot continue to increase profit margins through simply raising prices for their products or services. Successful firms in the future will be those that enhance profits by streamlining internal processes—those that save money by “doing it better” than the competition. As a tool designed to realize goals like inter- nal efficiency, project management is a means by which to bolster profits.

These are just some of the more obvious challenges facing business today. The key point is that the forces giving rise to these challenges are not likely to abate in the near future. In order to meet these challenges, large, successful companies such as General Electric, 3M, Apple, Samsung, Bechtel, and Microsoft have made project management a key aspect of their operating philosophies.

Project Profile

“throwing Good Money after Bad”: the BBc’s Digital Media initiative

The British Broadcasting Corporation (BBC) recently announced the cancelation of a major Information Technology (IT) project intended to update their vast broadcast operations. The project, called the Digital Media Initiative (DMI), was originally budgeted at £81.7 million ($140 million) and was developed to eliminate the outdated filing systems and use of old-fashioned, analog videotape with its expensive archival storage. The BBC is one of the world’s largest and most widely recognized news and media organizations; it is publically funded and under British government oversight. The DMI project was intended to save the organization millions annually by eliminating the cost of expensive and out- dated storage facilities, while moving all media content to a modern, digital format. As an example of a large-scale IT project, the plan for DMI involved media asset management, archive storage and retrieval systems, and media sharing capabilities.

The DMI project was begun in 2008 when the BBC contracted with technology service provider Siemens, with consulting expertise to be provided by Deloitte. Interestingly, the BBC never put the contract out for competitive bid- ding, reasoning that it already had a 10-year support contract with Siemens and trusted Siemens’ judgment on project development. As part of this “hands-off” attitude, executives at the BBC gave Siemens full control of the project, and

1.2 Why Are Projects Important? 11

apparently little communication flowed back and forth between the organizations. The BBC finally grew concerned with the distant relationship that was developing between itself and the contractor when Siemens began missing important delivery milestones and encountering technical difficulties. After one year, the BBC terminated its $65 million contract with Siemens and sued the company for damages, collecting approximately $47 million in a court settlement. Still, losing nearly $20 million in taxpayer money after only one year, with nothing to show for it, did not bode well for the future.

Having been burned by this relationship with an outside contractor, the BBC next tried to move the project “in house,” assigning its own staff and project manager to continue developing the DMI. The project was under the overall control of the BBC’s Chief Technology Officer, John Linwood. It was hoped that the lessons learned from the first-round failure of the project would help improve the technology and delivery of the system throughout the organization. Unfortunately, the project did no better under BBC control. Reports started surfacing as early as 2011 that the project was way behind schedule, was not living up to its promises, and, in fact, had been failing most testing along the way. However, although there are claims that the BBC was well aware of the flaws in the project as early as 2011, the picture it presented to the outside world, including Parliamentary oversight committees, was relentlessly upbeat. The BBC’s Director General, Mark Thompson, appeared before a committee in 2011 and told them DMI was definitely on schedule and was actually working already: “There are many programs that are already being made with DMI and some have gone to air and are going to air,” he told Members of Parliament.

The trouble was, the project was not working well at all. Continual failures with the technology were widely known within the project team and company executives, but reports suggest that concerns were buried under a flood of rosy projections. In fact, a later report on the project by an outside consulting firm suggests that throughout 2012, the deteriorating fortunes of DMI were not accurately reported either within management or, critically, to the BBC Trust. For example, the BBC’s own internal project management office issued a “code red” warning of imminent project failure in February that wasn’t reported to the trust until six months later. The CTO, John Linwood, maintained that the project did work, would lead to a streamlined and more cost-effective method for producing media, and did not waver from that view throughout these years.

This rosy view hid a deeper problem: the technology just was not working well. Different views emerged as to why DMI was not progressing. To the “technologists,” there was nothing wrong with the system; it did deliver work- ing technology, but the project was undermined by would-be users who never bought into the original vision and who continually changed their requirements. They believed that DMI was failing not because it did not work, but as a result of internal politics. On the other side were those who questioned the development of the project because the technology, whether it had been “delivered” or not, never really worked, certainly not at the scale required to make it adopted across the whole organization. Further, it was becoming evident that off-the-shelf technology existed in the marketplace which did some of what DMI promised but which, critically, already worked well. Why, then, was the BBC spending so much time and money trying to create its own system out of thin air?

Figure 1.2 BBc Digital initiative Project

Source: Roberto Herrett/Loop Images/Corbis (continued)

12 Chapter 1 • Introduction

Project management also serves as an excellent training ground for future senior executives in most organizations. One unique aspect of projects is how they blend technical and behavioral chal- lenges. The technical side of project management requires managers to become skilled in project selection, budgeting and resource management, planning and scheduling, and tracking projects. Each of these skills will be discussed in subsequent chapters. At the same time, however, project managers face the equally strong challenge of managing the behavioral, or “people,” side of proj- ects. Projects, being temporary endeavors, require project managers to bring together individuals from across the organization, quickly mold them into an effective team, manage conflict, provide leadership, and engage in negotiation and appropriate political behavior, all in the name of project success. Again, we will address these behavioral challenges in this text. One thing we know is: Project managers who emphasize one challenge and ignore the other, whether they choose to focus on the technical or behavioral side of project management, are not nearly as successful as those who seek to become experts in both. Why is project management such a useful training ground for senior executives? Because it provides the first true test of an individual’s ability to master both the technical and human challenges that characterize effective leaders in business. Project managers, and their projects, create the kind of value that companies need to survive and prosper.

According to a news report, it was not until April 2013 that events demonstrated the ongoing problems with DMI. During BBC coverage of the death and funeral of Margaret Thatcher, news staff worked feverishly to transfer old archived analog videotape to digital format in order to produce footage for background on the life and career of the former Prime Minister. So poorly did the new digital archive system work that it was reported that tapes had to be physically transported around London by taxi and subway system to get to their locations while video transfer work was being carried out by private production companies. All this after nearly four years working to develop DMI!

The failure of the system during Thatcher’s funeral was the final straw. In May 2013 the new Director General of the BBC, Lord Hall, announced the cancellation of the project and that the BBC’s chief technology officer, John Linwood, was to be suspended pending an external investigation into the management of the DMI project. It was later revealed that a senior BBC manager had expressed grave doubts about DMI to BBC Chairman Lord Patten one year before the project was cancelled. He had also claimed that there was a “very significant risk” that the National Audit Office had been misled about the actual progress of DMI in 2011. Other BBC executives had also voiced similar concerns for about two years before DMI was abandoned. The final cost of the project to the BBC and British taxpayers has been estimated at about $160 million. BBC Trust member Anthony Fry remarked that the DMI had been a “complete catastrophe” and said that the project was “probably the most serious, embarrassing thing I have ever seen.”

Members of Parliament, looking into the failure of DMI, also had a number of very pointed criticisms of the project, executive oversight of DMI, and the operations of the BBC in general. Margaret Hodge MP, Chair of the Committee of Public Accounts, summed up the project in her Parliament report:

“The BBC’s Digital Media Initiative was a complete failure. License fee payers paid nearly £100 million ($160 million) for this supposedly essential system but got virtually nothing in return.

The main output from the DMI is an archive catalogue and ordering system that is slower and more cumbersome than the 40-year-old system it was designed to replace. It has only 163 regular users and a running cost of £3 million ($5.1 million) a year, compared to £780,000 ($1.3 million) a year for the old system.

When my Committee examined the DMI’s progress in February 2011, the BBC told us that the DMI was “an abso- lutely essential have to have” and that a lot of the BBC’s future was tied up in the successful delivery of the DMI.

The BBC also told us that it was using the DMI to make many programs and was on track to complete the system in 2011 with no further delays. This turned out not to be the case.

The BBC was far too complacent about the high risks involved in taking it in-house. No single individual had overall responsibility or accountability for delivering the DMI and achieving the benefits, or took ownership of problems when they arose.

Lack of clearly defined responsibility and accountability meant the Corporation failed to respond to warning sig- nals that the program was in trouble.”

Bad planning, poor corporate governance, excessively optimistic projections, and a cloak of secrecy regarding the real status of the Digital Media Initiative project all resulted in a very public black eye for one of the most respected broadcasting organizations in the world. It is likely that the causes of the failure of the DMI project will be debated for years to come, but at a minimum this story should be a cautionary tale for organizations developing sophisticated IT projects.23

1.3 Project Life Cycles 13

1.3 Project liFe cycles

Imagine receiving a term paper assignment in a college class. Our first step would be to develop a sense of the assignment itself—what the professor is looking for, how long the paper should be, the number of references required, stylistic expectations, and so forth. Once we have familiarized our- selves with the assignment, our next step would be to develop a plan for how we intend to proceed with the project in order to complete it by the due date. We make a rough guess about how much time will be needed for the research, writing the first draft, proofreading the paper, and completing the final draft; we use this information to create some tentative milestones for the various compo- nents of the assignment. Next, we begin to execute our plan, doing the library or online research, creating an outline, writing a draft, and so forth. Our goal is to complete the assignment on time, doing the work to our best possible ability. Finally, after turning in the paper, we file or discard our reference materials, return any books to the library, breathe a sigh of relief, and wait for the grade.

This example represents a simplified but useful illustration of a project’s life cycle. In this case, the project consisted of completing the term paper to the standards expected of the instructor in the time allowed. A project life cycle refers to the stages in a project’s development. Life cycles are important because they demonstrate the logic that governs a project. They also help us develop our plans for carrying out the project. They help us decide, for example, when we should devote resources to the project, how we should evaluate its progress, and so forth. Consider the simplified model of the project life cycle shown in Figure 1.3, which divides the life cycle into four distinct phases: conceptualization, planning, execution, and termination.

• Conceptualization refers to the development of the initial goal and technical specifications for a project. The scope of the work is determined, necessary resources (people, money, physical plant) identified, and important organizational contributors or stakeholders signed on.

• Planning is the stage in which all detailed specifications, schematics, schedules, and other plans are developed. The individual pieces of the project, often called work packages, are bro- ken down, individual assignments made, and the process for completion clearly delineated. For example, in planning our approach to complete the term paper, we determine all the necessary steps (research, drafts, editing, etc.) in the process.

• During execution, the actual “work” of the project is performed, the system developed, or the product created and fabricated. It is during the execution phase that the bulk of project team labor is performed. As Figure 1.3 shows, project costs (in man hours) ramp up rapidly during this stage.

• Termination occurs when the completed project is transferred to the customer, its resources reassigned, and the project formally closed out. As specific subactivities are completed, the project shrinks in scope and costs decline rapidly.

These stages are the waypoints at which the project team can evaluate both its performance and the project’s overall status. Remember, however, that the life cycle is relevant only after the proj- ect has actually begun. The life cycle is signaled by the actual kickoff of project development,