Imposed durations or catch up

ISBN: 0073403342 Author: Erik W. Larson, Clifford F. Gray Title: Project Management

Front endsheets Color: 2 Pages: 2,3

Chapter 1 Modern Project Management 1.2 Project defined 1.3 Project management defined 1.4 Projects and programs (.2) 2.1 The project life cycle (.2.3) App. G.1 The project manager App. G.7 Political and social environments F.1 Integration of project management processes [3.1]

Chapter 2 Organization Strategy and Project Selection 1.4 Projects and programs (.2) 1.4.1 Managing the portfolio 1.4.3 Strategy and projects 2.3 Stakeholders and review boards 12.1 RFP’s and vendor selection (.3.4.5) 11.2.2.6 SWAT analysis

Chapter 3 Organization: Structure and Culture 2.4.1 Organization cultures [G.7] 2.4.2 Organization structure [9.1.3] 9.1.1 Organization charts 1.4.4 Project offices

Chapter 4 Defining the Project 4.1 Project charter 5.1 Gather requirements 5.2 Defining scope 5.3 Creating a WBS 5.4 Tools and techniques 6.1 Define activities 9.1.2. Responsibility matrixes 10.1 Communication planning (.2.3.4) [App. G-4]

Chapter 5 Estimating Times and Costs 6.4 Activity duration estimates (.3) 6.4.2 Estimating tools (.1.3.4) 6.3.1 Identifying resources 7.1 Activity cost estimates (.2.3.4.5) 5.1.2.4 Delphi method

Chapter 6 Developing a Project Plan 4.2.2 Planning tools 6.2 Sequence activities [1.2] 6.5.1 Bar and milestone charts 6.5.2 Critical path method (.2) 6.5.2.6 Lead and lag activities [6.2.3] F.3 Project duration

Chapter 7 Managing Risk 11.1 Risk management process [F.8] 11.2 Identifying risks 11.3.2.2 Impact matrix 11.4 Risk assessment 11.5 Risk responses (.2–.1.2) 11.6 Risk register 7.1.2.5 PERT analysis 7.1.2.6.3 Contingency reserves 7.3.3.4 Change control management

Chapter 8 Scheduling resources and cost 6.5.2 Setting a schedule baseline [8.1.4] 6.5.3.1 Setting a resource schedule 6.5.2.4 Resource leveling 7.2 Setting a cost and time baseline schedule (1.3.5) [8.1.3] 6.5.2.3 Critical chain method

Chapter 9 Reducing Project Duration 6.5.2.7 Schedule compression

Chapter 10 Leadership 9.4.2.5 Leadership skills G.1 Project leadership 10.1 Stakeholder management

Chapter 11 Teams 9.2 Building the team (.1.3) & [3.5.3] [App G.2 Building teams] 9.4 Managing the team 9.3.2 Team building activities 9.2.4 Virtual teams 9.3.3.1 Team performance [9.4.2.2] 9.4.2.3 Conflict management 9.3.2.6 Recognition and awards

Chapter 12 Outsourcing 12.1.1 Procurement requirements [G.8] 12.1.2.3 Contract types 9.4.2.3 Conflict management 12.2.7 The art of negotiating 12.2.3.5 Change requests

Chapter 13 Monitoring Progress 10.5.3 Cost/schedule system (.1) 6.6 .2.1 Time performance 7.2.3.1 Cost baseline development 7.3.2.1 Earned value system (F.4) 7.3.2.4 E.V., performance status report 7.3.2.2 E.V., forecasts 7.3.2.3 EV., to complete index (EAC) 7.3.2.5 Schedule and cost variance

Chapter 14 Project closure Closure report 4.5.1.4 Organization processes (.5) & [4.5.3 & 4.6.3.2] 4.6.1 Administrative tasks (.3) & [3.7.1, & 12.4] 10.3.3.1 Lessons learned [8.3.3.4] 9.4.2.2 Individual performance appraisals

Chapter 15 International Projects G.7 Culture awareness

Chapter 16 Oversight 1.4.4 Project offices 8.1.2 Continuous improvement 5.1 Requirements vs. actual [5.3]

Chapter 17 Agile PM 6.1.2.2 Rolling wave

Cross Reference of Project Management Body of Knowledge (PMBOK) Concepts to Text Topics

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Project Management

The Managerial Process

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The McGraw-Hill/Irwin Series Operations and Decision Sciences

OPERATIONS MANAGEMENT

Beckman and Rosenfield, Operations, Strategy: Competing in the 21st Century, First Edition

Benton, Purchasing and Supply Chain Management, Second Edition

Bowersox, Closs, and Cooper, Supply Chain Logistics Management, Third Edition

Brown and Hyer, Managing Projects: A Team-Based Approach, First Edition

Burt, Petcavage, and Pinkerton, Supply Management, Eighth Edition

Cachon and Terwiesch, Matching Supply with Demand: An Introduction to Operations Management, Second Edition

Finch, Interactive Models for Operations and Supply Chain Management, First Edition

Fitzsimmons and Fitzsimmons, Service Management: Operations, Strategy, Information Technology, Seventh Edition

Gehrlein, Operations Management Cases, First Edition

Harrison and Samson, Technology Management, First Edition

Hayen, SAP R/3 Enterprise Software: An Introduction, First Edition

Hill, Manufacturing Strategy: Text & Cases, Third Edition

Hopp, Supply Chain Science, First Edition

Hopp and Spearman, Factory Physics, Third Edition

Jacobs, Berry, Whybark, and Vollmann Manufacturing Planning & Control for Supply Chain Management, Sixth Edition

Jacobs and Chase, Operations and Supply Management: The Core, Second Edition

Jacobs and Chase Operations and Supply Management, Thirteenth Edition

Jacobs and Whybark, Why ERP? First Edition

Larson and Gray, Project Management: The Managerial Process, Fifth Edition

Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition

Nahmias, Production and Operations Analysis, Sixth Edition

Olson, Introduction to Information Systems Project Management, Second Edition

Schroeder, Goldstein, Rungtusanatham, Operations Management: Contemporary Concepts and Cases, Fifth Edition

Seppanen, Kumar, and Chandra, Process Analysis and Improvement, First Edition

Simchi-Levi, Kaminsky, and Simchi-Levi, Designing and Managing the Supply Chain: Concepts, Strategies, Case Studies, Third Edition

Sterman, Business Dynamics: Systems Thinking and Modeling for Complex World, First Edition

Stevenson, Operations Management, 10th Edition

Swink, Melnyk, Cooper, and Hartley, Managing Operations Across the Supply Chain, First Edition

Thomke, Managing Product and Service Development: Text and Cases, First Edition

Ulrich and Eppinger, Product Design and Development, Fourth Edition

Zipkin, Foundations of Inventory Management, First Edition

QUANTITATIVE METHODS AND MANAGEMENT SCIENCE

Hillier and Hillier, Introduction to Management Science: A Modeling and Case Studies Approach with Spreadsheets, Fourth Edition

Stevenson and Ozgur, Introduction to Management Science with Spreadsheets, First Edition

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Project Management

The Managerial Process Fifth Edition

Erik W. Larson Oregon State University

Clifford F. Gray Oregon State University

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PROJECT MANAGEMENT: THE MANAGERIAL PROCESS

Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 WVR/WVR 0 9 8 7

ISBN 978-0-07-340334-2 MHID 0-07-340334-2

Editorial director: Stewart Mattson Publisher: Tim Vertovec Executive editor: Richard T. Hercher, Jr. Developmental editor: Gail Korosa Associate marketing manager: Jaime Halterman Project manager: Harvey Yep Production supervisor: Carol Bielski Designer: Mary Kazak Vander Photo researcher: Jeremy Cheshareck Media project manager: Cathy Tepper Cover image: © Veer Images Typeface: 10.5/12 Times Roman Compositor: Aptara®, Inc. Printer: Worldcolor

Library of Congress Cataloging-in-Publication Data

Larson, Erik W., 1952- Project management: the managerial process / Erik W. Larson, Clifford F. Gray. —5th ed. p. cm. —(The McGraw-Hill/Irwin series, operations and decision sciences) Gray’s name appears first on the earlier editions. Includes index. ISBN-13: 978-0-07-340334-2 (alk. paper) ISBN-10: 0-07-340334-2 (alk. paper) 1. Project management. 2. Time management. 3. Risk management. I. Gray, Clifford F. II. Gray, Clifford F. Project management. III. Title. HD69.P75G72 2011 658.4904—dc22 2009054318

www.mhhe.com

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v

About the Authors Erik W. Larson ERIK W. LARSON is professor of project management at the College of Busi- ness, Oregon State University. He teaches executive, graduate, and undergraduate courses on project management, organizational behavior, and leadership. His research and consulting activities focus on project management. He has published numerous articles on matrix management, product development, and project part- nering. He has been honored with teaching awards from both the Oregon State University MBA program and the University of Oregon Executive MBA program. He has been a member of the Portland, Oregon, chapter of the Project Manage- ment Institute since 1984. In 1995 he worked as a Fulbright scholar with faculty at the Krakow Academy of Economics on modernizing Polish business education. In 2005 he was a visiting professor at Chulalongkorn University in Bangkok, Thailand. He received a B.A. in psychology from Claremont McKenna College and a Ph.D. in management from State University of New York at Buffalo. He is a certified project management professional (PMP) and Scrum Master.

Clifford F. Gray CLIFFORD F. GRAY is professor emeritus of management at the College of Business, Oregon State University. He continues to teach undergraduate and grad- uate project management courses overseas and in the United States; he has per- sonally taught more than 100 executive development seminars and workshops. His research and consulting interests have been divided equally between opera- tions management and project management; he has published numerous articles in these areas, plus a text on project management. He has also conducted research with colleagues in the International Project Management Association. Cliff has been a member of the Project Management Institute since 1976 and was one of the founders of the Portland, Oregon, chapter. He was a visiting professor at Kasetsart University in Bangkok, Thailand in 2005. He was the president of Project Man- agement International, Inc. (a training and consulting firm specializing in project management) 1977–2005. He received his B.A. in economics and management from Millikin University, M.B.A. from Indiana University, and doctorate in oper- ations management from the College of Business, University of Oregon. He is certified Scrum Master.

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“Man’s mind, once stretched by a new idea, never regains its original dimensions.”

Oliver Wendell Holmes, Jr.

To my family who have always encircled me with love and encouragement—my parents (Samuel and Charlotte), my wife (Mary), my sons and their wives (Kevin and Dawn, Robert and Sally) and their children (Ryan, Carly, Connor and Lauren).

C.F.G.

“We must not cease from exploration and the end of all exploring will be to arrive where we begin and to know the place for the first time.”

T. S. Eliot

To Ann whose love and support has brought out the best in me. And, to our girls Mary, Rachel, and Tor-Tor for the joy and pride they give me. Finally, to my muse, Neil, for the faith and inspiration he instills.

E.W.L

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vii

Preface Since you are reading this text, you have made a decision that learning more about project management will have a positive impact for you. You are absolutely right! Project management has become an organization-wide core competency; nearly every manager, regardless of discipline is involved in managing one or more proj- ects. This text is designed to provide project managers and prospective project managers with the knowledge and skills that are transferable across industries and countries. Our motivation for writing this text was to provide students with a holistic, integrative view of project management. A holistic view focuses on how projects contribute to the strategic goals of the organization. The linkages for integration include the process of selecting projects that best support the strategy of a partic- ular organization and that in turn can be supported by the technical and manage- rial processes made available by the organization to bring projects to completion. The goals for prospective project managers are to understand the role of a project in their organizations and to master the project management tools, techniques, and interpersonal skills necessary to orchestrate projects from start to finish. The role of projects in organizations is receiving increasing attention. Projects are the major tool for implementing and achieving the strategic goals of the orga- nization. In the face of intense, worldwide competition, many organizations have reorganized around a philosophy of innovation, renewal, and organizational learning to survive. This philosophy suggests an organization that is flexible and project driven. Project management has developed to the point where it is a pro- fessional discipline having its own body of knowledge and skills. Today it is nearly impossible to imagine anyone at any level in the organization who would not ben- efit from some degree of expertise in the process of managing projects.

Audience

This text is written for a wide audience. It covers concepts and skills that are used by managers to propose, plan, secure resources, budget, and lead project teams to successful completions of their projects. The text should prove useful to students and prospective project managers in helping them understand why organizations have developed a formal project management process to gain a competitive advan- tage. Readers will find the concepts and techniques discussed in enough detail to be immediately useful in new-project situations. Practicing project managers will find the text to be a valuable guide and reference when dealing with typical problems that arise in the course of a project. Managers will also find the text useful in understanding the role of projects in the missions of their organizations. Analysts will find the text useful in helping to explain the data needed for project implemen- tation as well as the operations of inherited or purchased software. Members of the Project Management Institute will find the text is well structured to meet the needs of those wishing to prepare for PMP (Project Management Professional) or CAPM (Certified Associate in Project Management) certification exams. The text has in- depth coverage of the most critical topics found in PMI’s Project Management

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Body of Knowledge (PMBOK). People at all levels in the organization assigned to work on projects will find the text useful not only in providing them with a ratio- nale for the use of project management tools and techniques but also because of the insights they will gain on how to enhance their contributions to project success. Our emphasis is not only on how the management process works, but more importantly, on why it works. The concepts, principles, and techniques are univer- sally applicable. That is, the text does not specialize by industry type or project scope. Instead, the text is written for the individual who will be required to man- age a variety of projects in a variety of different organizational settings. In the case of some small projects, a few of the steps of the techniques can be omitted, but the conceptual framework applies to all organizations in which projects are important to survival. The approach can be used in pure project organizations such as construction, research organizations, and engineering consultancy firms. At the same time, this approach will benefit organizations that carry out many small projects while the daily effort of delivering products or services continues.

Content

In this latest edition of the book, we have responded to feedback received from both students and teachers, which is deeply appreciated. As a result of the this feedback, the following changes have been made to the fifth edition:

• Restructuring of text to include four supplemental chapters that cover topics beyond the project management core.

• Inclusion of a supplemental chapter on agile project management which has enjoyed success on new product and software development projects.

• Terms and concepts have been updated to be consistent with the fourth edition of the Project Management Body of Knowledge (2008).

• Revised Chapter 14 to include project retrospectives. Chapters 2, 4, 6, 7, and 12, have been updated.

• New student exercises and cases have been added to most chapters. • Answers to selected exercises are now available in Appendix 1 • A third major computer exercise has been added to the Appendix 2; • The “Snapshot from Practice” boxes feature a number of new examples of

project management in action as well as new research highlights that continue to promote practical application of project management.

Overall the text addresses the major questions and issues the authors have encoun- tered over their 60 combined years of teaching project management and consult- ing with practicing project managers in domestic and foreign environments. The following questions represent the issues and problems practicing project managers find consuming most of their effort: What is the strategic role of projects in con- temporary organizations? How are projects prioritized? What organizational and managerial styles will improve chances of project success? How do project manag- ers orchestrate the complex network of relationships involving vendors, subcon- tractors, project team members, senior management, functional managers, and customers that affect project success? What factors contribute to the development of a high-performance project team? What project management system can be set

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up to gain some measure of control? How do managers prepare for a new interna- tional project in a foreign culture? How does one pursue a career in project management? Project managers must deal with all these concerns to be effective. All of these issues and problems represent linkages to an integrative project management view. The chapter content of the text has been placed within an overall framework that integrates these topics in a holistic manner. Cases and snapshots are included from the experiences of practicing managers. The future for project managers appears to be promising. Careers will be determined by success in managing projects.

Student Learning Aids

The text Web site (www.mhhe.com/larsongray5e) includes study outlines, online quizzes, PowerPoint slides, videos, Microsoft Project Video Tutorials and Web links. The trial version of Microsoft Project software is included on its own CD-ROM free with the text.

Acknowledgments

We would like to thank Richard Bruce, Ottawa University for updating the Test Bank and Online Quizzes; Charlie Cook, University of West Alabama for revising the PowerPoint slides; Oliver F. Lehmann for providing access to PMBOK study questions; and Mink for accuracy checking the text and Instructor’s Resource Manual content. Next, it is important to note that the text includes contributions from numerous students, colleagues, friends, and managers gleaned from professional conversa- tions. We want them to know we sincerely appreciate their counsel and suggestions. Almost every exercise, case, and example in the text is drawn from a real-world project. Special thanks to managers who graciously shared their current project as ideas for exercises, subjects for cases, and examples for the text. Shlomo Cohen, John A. Drexler, Jim Moran, John Sloan, Pat Taylor, and John Wold, whose work is printed, are gratefully acknowledged. Special gratitude is due Robert Breitbarth of Interact Management, who shared invaluable insights on prioritizing projects. University students and managers deserve special accolades for identifying prob- lems with earlier drafts of the text and exercises. We are indebted to the reviewers of past editions who shared our commitment to elevating the instruction of project management. The reviewers include Paul S. Allen, Rice University; Denis F. Cioffi, George Washington University; Joseph D. DeVoss, DeVry University; Edward J. Glantz, Pennsylvania State University; Michael Godfrey, University of Wisconsin–Oshkosh; Robert Key, University of Phoenix; Dennis Krumwiede, Idaho State University; Nicholas C. Petruzzi, University of Illinois–Urbana/Champaign; William R. Sherrard, San Diego State University; S. Narayan Bodapati, Southern Illinois University at Edwardsville; Warren J. Boe, University of Iowa; Burton Dean, San Jose State University; Kwasi Amoako-Gyampah, University of North Carolina–Greensboro; Owen P. Hall, Pepperdine University; Bruce C. Hartman, University of Arizona; Rich- ard Irving, York University; Robert T. Jones, DePaul University; Richard L. Luebbe, Miami University of Ohio; William Moylan, Lawrence Technological College of Business; Edward Pascal, University of Ottawa; James H. Patterson, Indiana University; Art Rogers, City University; Christy Strbiak, U.S. Air Force

Preface ix

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Academy; David A. Vaughan, City University; and Ronald W. Witzel, Keller Graduate School of Management. Nabil Bedewi, Georgetown University; Scott Bailey, Troy University; Michael Ensby, Clarkson University; Eldon Larsen, Mar- shall University; Steve Machon, DeVry University–Tinley Park; William Mat- thews, William Patterson University; Erin Sims, DeVry University–Pomona; Kenneth Solheim, DeVry University–Federal Way; and Oya Tukel, Cleveland State University. In the fifth edition we continue to commit to improving the text content and improving instruction of project management. We are grateful to those reviewers who provided helpful critiques and insights on the fourth edition, which helped us prepare this revision. The reviewers for the fifth edition include. Gregory Anderson, Weber State University; Dana Bachman, Colorado Christian University; Alan Cannon, University of Texas, Arlington; Susan Cholette, San Francisco State; Michael Ensby, Clarkson University; Charles Franz, University of Missouri, Columbia; Raouf Ghattas, DeVry University; Robert Groff, Westwood College; Raffael Guidone, New York City College of Technology; George Kenyon, Lamar University; Elias Konwufine, Keiser University; Rafael Landaeta, Old Dominion University; Muhammad Obeidat, Southern Polytechnic State University; Linda Rose, Westwood College; Oya Tukel, Cleveland State University; and Mahmoud Watad, William Paterson University. We thank you for your many thoughtful suggestions and for making our book better. Of course we accept responsibility for the final version of the text. In addition, we would like to thank our colleagues in the College of Business at Oregon State University for their support and help in completing this project. In particular, we recognize Ray Brooks, Jim Moran and Ping-Hung Hsieh for their helpful advice and suggestions. We also wish to thank the many students who helped us at different stages of this project, most notably Neil Young, Rebecca Keepers, Katherine Knox, Dat Nguyen, Lacey McNeely and Amanda Bosworth. Mary Gray deserves special credit for editing and working under tight deadlines on earlier editions. Special thanks go to Pinyarat Sirisomboonsuk for her help in preparing the last two editions. Finally, we want to extend our thanks to all the people at McGraw-Hill/Irwin for their efforts and support. First, we would like to thank Dick Hercher for con- tinuing to champion and provide editorial direction and guidance, and Gail Korosa, who took over management of the book’s development fifth edition. And we would also like to thank Denise Showers, Carol Blelski, Mary Sander, Jeremy Cheshareck, Grey Bates, and Harvey Yep for managing the final production, design, supplement, and media phases of the fifth edition.

Erik W. Larson

Clifford F. Gray

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Note to Student You will find the content of this text highly practical, relevant, and current. The concepts discussed are relatively simple and intuitive. As you study each chapter we suggest you try to grasp not only how things work, but why things work. You are encouraged to use the text as a handbook as you move through the three levels of competency:

I know.

I can do.

I can adapt to new situations.

Project management is both people and technical oriented. Project manage- ment involves understanding the cause-effect relationships and interactions among the sociotechnical dimensions of projects. Improved competency in these dimen- sions will greatly enhance your competitive edge as a project manager. The field of project management is growing in importance and at an exponen- tial rate. It is nearly impossible to imagine a future management career that does not include management of projects. Résumés of managers will soon be primarily a description of the individual’s participation in and contributions to projects. Good luck on your journey through the text and on your future projects.

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Brief Contents Preface vii

1. Modern Project Management 2

2. Organization Strategy and Project Selection 22

3. Organization: Structure and Culture 64

4. Defining the Project 100

5. Estimating Project Times and Costs 126

6. Developing a Project Plan 156

7. Managing Risk 210

8. Scheduling Resources and Costs 252

9. Reducing Project Duration 304

10. Leadership: Being an Effective Project Manager 338

11. Managing Project Teams 374

12. Outsourcing: Managing Interorganizational Relations 418

13. Progress and Performance Measurement and Evaluation 452

14. Project Closure 504

15. International Projects 532

16. Oversight 564

17. An Introduction to Agile Project Management 582

18. Project Management Career Paths 602

APPENDIX One Solutions to Selected Exercises 611

Two Computer Project Exercises 625

GLOSSARY 642 ACRONYMS 651 PROJECT MANAGEMENT EQUATIONS 652 INDEX 653

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Contents Preface vii

Chapter 1 Modern Project Management 2

What Is a Project? 5 The Project Life Cycle 7 The Project Manager 10

The Importance of Project Management 10 Project Management Today—An Integrative Approach 13

Integration of Projects with Organizational Strategy 13 Integration of Projects through Portfolio Management 14 Integration of the Process of Implementing Actual Projects 15

Summary 16

Chapter 2 Organization Strategy and Project Selection 22

The Strategic Management Process: An Overview 24

Four Activities of the Strategic Management Process 26

Scenario Planning: A Supplement to Traditional Strategic Planning 30 The Need for an Effective Project Portfolio Management System 32

Problem 1: The Implementation Gap 32 Problem 2: Organization Politics 33 Problem 3: Resource Conflicts and Multitasking 34

A Portfolio Management System 36 Classification of the Project 36 Financial Criteria 37 Nonfinancial Criteria 39

Applying a Selection Model 42 Sources and Solicitation of Project Proposals 43 Ranking Proposals and Selection of Projects 44

Managing the Portfolio System 47 Balancing the Portfolio for Risks and Types of Projects 48

Summary 49 Appendix 2.1: Request for Proposal (RFP) 60

Chapter 3 Organization: Structure and Culture 64

Project Management Structures 65 Organizing Projects within the Functional Organization 66 Organizing Projects as Dedicated Teams 69 Organizing Projects within a Matrix Arrangement 72 Different Matrix Forms 73

What Is the Right Project Management Structure? 77

Organization Considerations 77 Project Considerations 77

Organizational Culture 79 What Is Organizational Culture? 79 Identifying Cultural Characteristics 82

Implications of Organizational Culture for Organizing Projects 84 Summary 87

Chapter 4 Defining the Project 100

Step 1: Defining the Project Scope 102 Employing a Project Scope Checklist 102

Step 2: Establishing Project Priorities 106 Step 3: Creating the Work Breakdown Structure 108

Major Groupings Found in a WBS 108 How WBS Helps the Project Manager 109 WBS Development 109

Step 4: Integrating the WBS with the Organization 113 Step 5: Coding the WBS for the Information System 114 Responsibility Matrices 116 Project Communication Plan 119 Summary 121

Chapter 5 Estimating Project Times and Costs 126

Factors Influencing the Quality of Estimates 128 Estimating Guidelines for Times, Costs, and Resources 129

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Top-Down Versus Bottom-Up Estimating 131 Methods for Estimating Project Times and Costs 133

Top-Down Approaches for Estimating Project Times and Costs 133 Bottom-Up Approaches for Estimating Project Times and Costs 137 A Hybrid: Phase Estimating 139

Level of Detail 141 Types of Costs 142 Refining Estimates 144 Creating a Database for Estimating 146 Summary 147 Appendix 5.1: Learning Curves for Estimating 151

Chapter 6 Developing a Project Plan 156

Developing the Project Network 157 From Work Package to Network 158 Constructing a Project Network 160

Terminology 160 Two Approaches 160 Basic Rules to Follow in Developing Project Networks 161

Activity-on-Node (AON) Fundamentals 161 Network Computation Process 164

Forward Pass—Earliest Times 166 Backward Pass—Latest Times 168 Determining Slack (or Float) 169 Free Slack (Float) 171

Using the Forward and Backward Pass Information 172 Level of Detail for Activities 173 Practical Considerations 173

Network Logic Errors 173 Activity Numbering 174 Use of Computers to Develop Networks 174 Calendar Dates 174 Multiple Starts and Multiple Projects 177

Extended Network Techniques to Come Closer to Reality 177

Laddering 177 Use of Lags 178 An Example Using Lag Relationships—The Forward and Backward Pass 181 Hammock Activities 183

Summary 184 Appendix 6.1: Activity-on-Arrow Method 199

Chapter 7 Managing Risk 210

Risk Management Process 211 Step 1: Risk Identification 213 Step 2: Risk Assessment 216

Probability Analysis 219 Step 3: Risk Response Development 219

Mitigating Risk 219 Avoiding Risk 220 Transferring Risk 221 Retaining Risk 222

Contingency Planning 223 Technical Risks 224 Schedule Risks 225 Cost Risks 226 Funding Risks 226

Opportunity Management 227 Contingency Funding and Time Buffers 227

Budget Reserves 228 Management Reserves 228 Time Buffers 229

Step 4: Risk Response Control 229 Change Control Management 230 Summary 234 Appendix 7.1: PERT and PERT Simulation 242

Chapter 8 Scheduling Resources and Costs 252

Overview of the Resource Scheduling Problem 253 Types of Resource Constraints 255 Classification of a Scheduling Problem 257 Resource Allocation Methods 257

Assumptions 257 Time-Constrained Project: Smoothing Resource Demand 257 Resource-Constrained Projects 259

Computer Demonstration of Resource- Constrained Scheduling 264

The Impacts of Resource-Constrained Scheduling 270 Splitting Activities 270 Benefits of Scheduling Resources 272 Assigning Project Work 272 Multiproject Resource Schedules 273 Using the Resource Schedule to Develop a Project Cost Baseline 275

Why a Time-Phased Budget Baseline Is Needed 275 Creating a Time-Phased Budget 276

Summary 281 Appendix 8.1: The Critical-Chain Approach 295

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Chapter 9 Reducing Project Duration 304

Rationale for Reducing Project Duration 305 Options for Accelerating Project Completion 307

Options When Resources Are Not Constrained 308 Options When Resources Are Constrained 310

Project Cost–Duration Graph 313 Explanation of Project Costs 313

Constructing a Project Cost–Duration Graph 314 Determining the Activities to Shorten 314 A Simplified Example 316

Practical Considerations 318 Using the Project Cost–Duration Graph 318 Crash Times 319 Linearity Assumption 319 Choice of Activities to Crash Revisited 319 Time Reduction Decisions and Sensitivity 320

What if Cost, Not Time, Is the Issue? 321 Summary 323

Chapter 10 Leadership: Being an Effective Project Manager 338

Managing versus Leading a Project 339 Managing Project Stakeholders 340 Influence as Exchange 344

Task-Related Currencies 345 Position-Related Currencies 346 Inspiration-Related Currencies 346 Relationship-Related Currencies 346 Personal-Related Currencies 347

Social Network Building 347 Mapping Dependencies 347 Management by Wandering Around (MBWA) 349 Managing Upward Relations 350 Leading by Example 352

Ethics and Project Management 355 Building Trust: The Key to Exercising Influence 357 Qualities of an Effective Project Manager 359 Summary 362

Chapter 11 Managing Project Teams 374

The Five-Stage Team Development Model 377 Situational Factors Affecting Team Development 378

Building High-Performance Project Teams 380 Recruiting Project Members 381 Conducting Project Meetings 383 Establishing a Team Identity 387 Creating a Shared Vision 389 Managing Project Reward Systems 391 Orchestrating the Decision-Making Process 393 Managing Conflict within the Project 396 Rejuvenating the Project Team 399

Managing Virtual Project Teams 400 Project Team Pitfalls 404

Groupthink 404 Bureaucratic Bypass Syndrome 404 Team Spirit Becomes Team Infatuation 405 Going Native 405

Summary 406

Chapter 12 Outsourcing: Managing Interorganizational Relations 418

Outsourcing Project Work 419 Best Practices in Outsourcing Project Work 423

Well-Defined Requirements and Procedures 423 Extensive Training and Team-Building Activities 424 Well-Established Conflict Management Processes in Place 426 Frequent Review and Status Updates 426 Co-Location When Needed 428 Fair and Incentive-Laden Contracts 429 Long-Term Outsourcing Relationships 430

The Art of Negotiating 431 1. Separate the People from the

Problem 432 2. Focus on Interests, Not Positions 433 3. Invent Options for Mutual Gain 434 4. When Possible, Use Objective Criteria 434 Dealing with Unreasonable People 435

A Note on Managing Customer Relations 436 Summary 438 Appendix 12.1: Contract Management 446

Chapter 13 Progress and Performance Measurement and Evaluation 452

Structure of a Project Monitoring Information System 453 The Project Control Process 454 Monitoring Time Performance 455

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Development of an Earned Value Cost/Schedule System 458

What Costs Are Included in Baselines? 461 Methods of Variance Analysis 461

Developing a Status Report: A Hypothetical Example 463

Assumptions 463 Baseline Development 463 Development of the Status Report 464

Indexes to Monitor Progress 469 Performance Indexes 469 Project Percent Complete Index 469 Technical Performance Measurement 471 Software for Project Cost/Schedule Systems 471 Additional Earned Value Rules 471

Forecasting Final Project Cost 472 Other Control Issues 475

Scope Creep 475 Baseline Changes 477 The Costs and Problems of Data Acquisition 478

Summary 479 Appendix 13.1: The Application of Additional Earned Value Rules 495 Appendix 13.2: Obtaining Project Performance Information from MS Project 501

Chapter 14 Project Closure 504

Types of Project Closure 506 Wrap-up Closure Activities 507

Creating the Final Report 510 Post-Implementation Evaluation 511

Team Evaluation 511 Individual, Team Member, and Project Manager Performance Reviews 514

Retrospectives 516 Why Retrospectives? 516 Initiating the Retrospective Review 517 Use of an Independent Facilitator 518 Roles of a Facilitator 518 Managing a Retrospective 519 Overseeing a Post-Project Retrospective 520 Utilization of Retrospectives 523 Archiving Retrospectives 523 Concluding Retrospective Notes 524

Summary 524 Appendix 14.1: Project Closeout Checklist 526 Appendix 14.2: Euro Conversion—Project Closure Checklist 529

Chapter 15 International Projects 532

Environmental Factors 534 Legal/Political 534 Security 535 Geography 536 Economic 536 Infrastructure 538 Culture 538

Project Site Selection 540 Cross-Cultural Considerations: A Closer Look 541

Adjustments 542 Working in Mexico 545 Working in France 546 Working in Saudi Arabia 547 Working in China 549 Working in the United States 550 Summary Comments about Working in Different Cultures 552 Culture Shock 553 Coping with Culture Shock 554

Selection and Training for International Projects 555 Summary 558

Chapter 16 Oversight 564

Project Oversight 565 Importance of Oversight to the Project Manager 566 Portfolio Project Management 566 Project Office 566 Phase Gate Methodology 568

Organization Project Management in the Long Run 574

Organization Project Management Maturity 574 The Balanced Scorecard Model 578

Summary 579

Chapter 17 An Introduction to Agile Project Management 582

Traditional versus Agile Methods 583 Agile PM 585 Agile PM in Action: Scrum 585

Roles and Responsibilities 589 Scrum Meetings 590 Product and Sprint Backlogs 591

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Applying Agile PM to Large Projects 592 Limitations and Concerns 593 Summary 595

Chapter 18 Project Management Career Paths 602

Career Paths 603 Temporary Assignments 604 Pursuing a Career 605 Professional Training and Certification 605 Gaining Visibility 606 Mentors 607 Success in Key Projects 608 Summary 608

Appendix 1: Solutions to Selected Exercises 611

Appendix 2: Computer Project Exercises 625

Glossary 642

Acronyms 651

Project Management Equations 652

Index 653

Contents 1

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2

Project networks

6

Managing risk 7

Monitoring progress

13

Teams 11

Outsourcing 12

Leadership 10

Strategy 2

Introduction 1

Organization 3

Schedule resources & costs

8

Inter natio

nal

proje cts

15

18

Oversig ht

Agile PM

Career paths

17

16 Project closure

14

Estimate 5

Reducing duration

9

Define project

4

C H A P T E R O N E

Modern Project Management

Modern Project Management What Is a Project?

The Importance of Project Management

Project Management Today—An Integrative Approach

Summary

Text Overview

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All of mankind’s greatest accomplishments—from building the great pyra- mids to discovering a cure for polio to putting a man on the moon—began as a project.

This is a good time to be reading a book about project management. Business lead- ers and experts have proclaimed that project management is a strategic imperative. Project management provides people with a powerful set of tools that improves their ability to plan, implement, and manage activities to accomplish specific orga- nizational objectives. But project management is more than just a set of tools; it is a results-oriented management style that places a premium on building collabora- tive relationships among a diverse cast of characters. Exciting opportunities await people skilled in project management. The project approach has long been the style of doing business in the construction industry, U.S. Department of Defense contracts, and Hollywood as well as big con- sulting firms. Now project management has spread to all avenues of work. Today, project teams carry out everything from port expansions to hospital restructuring to upgrading information systems. They are creating next generation, fuel efficient vehi- cles, developing sustainable sources of energy, and exploring the farthest reaches of outer space. The impact of project management is most profound in the electronics industry, where the new folk heroes are young professionals whose Herculean efforts lead to the constant flow of new hardware and software products. Project management is not limited to the private sector. Project management is also a vehicle for doing good deeds and solving social problems. Endeavors such as providing emergency aid to the Gulf Coast devastated by hurricane Katrina, devising a strategy for reducing crime and drug abuse within a city, or organizing a community effort to renovate a public playground would and do benefit from the application of modern project management skills and techniques. Perhaps the best indicator of demand for project management can be seen in the rapid expansion of the Project Management Institute (PMI), a professional organization for project managers. PMI membership has grown from 93,000 in 2002 to more than 270,000 currently. See the PMI Snapshot from Practice for information regarding professional certification in project management. It’s nearly impossible to pick up a newspaper or business periodical and not find something about projects. This is no surprise! Approximately $2.5 trillion (about 25 percent of the U.S. gross national product) are spent on projects each year in the United States alone. Other countries are increasingly spending more on projects. Millions of people around the world consider project management the major task in their profession. Project management is not without problems. The Standish Group has tracked the management of information technology (IT) projects since 1994. This firm’s periodic landmark reports summarize the continued need for improved project management. For over a decade the Standish Reports of management of IT projects showed improvements. In 1994 approximately 16 percent of IT projects were completed on time, on budget; in 2004 the success rate moved up to 29 percent.

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4 Chapter 1 Modern Project Management

The Project Management Institute (PMI) was founded in 1969 as an international society for project managers. Today PMI has members from more than 125 countries and more than 270,000

members. PMI professionals come from virtually every major in- dustry, including aerospace, automotive, business management, construction, engineering, financial services, information tech- nology, pharmaceuticals, health care, and telecommunications. PMI provides certification as a Project Management Pro- fessional (PMP)—someone who has documented sufficient project experience, agreed to follow the PMI code of profes- sional conduct, and demonstrated mastery of the field of proj- ect management by passing a comprehensive examination. The number of people earning PMP status has grown dramati- cally in recent years. In 1996 there were fewer than 3,000 cer- tified project management professionals. By the end of 2009 there were more than 350,000 PMPs!

S N A P S H O T F R O M P R A C T I C E The Project Management Institute

Just as the CPA exam is a standard for accountants, passing the PMP exam may become the standard for project managers. Some companies are requiring that all their project managers be PMP certified. Moreover, many job postings are restricted to PMPs. Job seekers, in general, are finding that being PMP certified is an advantage in the marketplace. PMI recently added a certification as a Certified Associ- ate in Project Management (CAPM). CAPM is designed for project team members and entry-level project managers, as well as qualified undergraduate and graduate students who want a credential to recognize their mastery of the project management body of knowledge. CAPM does not require the extensive project management experience associated with the PMP. For more details on PMP and CAPM, “google” PMI to find the current Web site for the Project Manage- ment Institute.

Failed projects also declined from 31 percent in 1994 to 18 percent in 2004. How- ever, the CHAOS Summary 2009 report shows a small decrease in the numbers. This survey report shows only 32 percent of IT projects were delivered on time and within budget. However, 44 percent were “challenged,” which means they were late, over budget, and/or missed meeting performance requirements. In addi- tion, 24 percent failed, were cancelled, or never used. Jim Crear, Standish Group CIO, notes this is the highest failure rate in over a decade. The need for elevating performance continues to challenge the project manage- ment profession. The waste on failed projects and cost overruns is estimated in the neighborhood of over $150 billion! Most of the people who excel at managing projects never have the title of project manager. They include accountants, lawyers, administrators, scientists, contractors, public health officials, teachers, and community advocates whose success depends upon being able to lead and manage project work. For them project management is not a title but a critical job requirement. It is hard to think of a profession or a career path that would not benefit from being good at managing projects. Not only is project management critical to most careers, the skill set is transfer- able across most businesses and professions. At its core, project management fundamentals are universal. The same project management methodology that is used to develop a new product can be adapted to create new services, organize events, refurbish aging operations, and so forth. In a world where it is estimated that each person is likely to experience three to four career changes, managing projects is a talent worthy of development. The significance of project management can also be seen in the classroom. Twenty years ago major universities offered one or two classes in project management, primarily for engineers. Today, most universities offer multiple sections of project management classes, with the core group of engineers being supplemented by business students majoring in marketing, management information systems (MIS), and finance, as well as students from other disciplines such as oceanography, health sciences, computer sciences, and liberal arts. These students are finding that their

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Chapter 1 Modern Project Management 5

exposure to project management is providing them with distinct advantages when it comes time to look for jobs. More and more employers are looking for graduates with project management skills. The logical starting point for developing these skills is understanding the uniqueness of a project and of project managers.

What Is a Project? What do the following headlines have in common?

Superbowl half-time show scores a touchdown Citywide WiFi system set to go live 1000 acre Wind Farm turns on the juice Apple’s new iPhone hits the market City receives stimulus funds to expand light rail system

All of these events represent projects.

The Project Management Institute provides the following definition of a project:

A project is a temporary endeavor undertaken to create a unique product, service, or result.

Like most organizational effort, the major goal of a project is to satisfy a customer’s need. Beyond this fundamental similarity, the characteristics of a project help differentiate it from other endeavors of the organization. The major characteristics of a project are as follows:

1. An established objective. 2. A defined life span with a beginning and an end. 3. Usually, the involvement of several departments and professionals. 4. Typically, doing something that has never been done before. 5. Specific time, cost, and performance requirements.

First, projects have a defined objective—whether it is constructing a 12-story apartment complex by January 1 or releasing version 2.0 of a specific software

Photo by: Paul Drinkwater/NBCU Photobank via AP Images

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6 Chapter 1 Modern Project Management

package as quickly as possible. This singular purpose is often lacking in daily or- ganizational life in which workers perform repetitive operations each day. Second, because there is a specified objective, projects have a defined endpoint, which is contrary to the ongoing duties and responsibilities of traditional jobs. In many cases, individuals move from one project to the next as opposed to staying in one job. After helping to install a security system, an IT engineer may be assigned to develop a database for a different client. Third, unlike much organizational work that is segmented according to func- tional specialty, projects typically require the combined efforts of a variety of spe- cialists. Instead of working in separate offices under separate managers, project participants, whether they be engineers, financial analysts, marketing profession- als, or quality control specialists, work closely together under the guidance of a project manager to complete a project. The fourth characteristic of a project is that it is nonroutine and has some unique elements. This is not an either/or issue but a matter of degree. Obviously, accomplishing something that has never been done before, such as building a hybrid (electric/gas) automobile or landing two mechanical rovers on Mars, requires solving previously unsolved problems and breakthrough technology. On the other hand, even basic construction projects that involve established sets of routines and procedures require some degree of customization that makes them unique. Finally, specific time, cost, and performance requirements bind projects. Proj- ects are evaluated according to accomplishment, cost, and time spent. These triple constraints impose a higher degree of accountability than you typically find in most jobs. These three also highlight one of the primary functions of project man- agement, which is balancing the trade-offs between time, cost, and performance while ultimately satisfying the customer.

What a Project Is Not Projects should not be confused with everyday work. A proj- ect is not routine, repetitive work! Ordinary daily work typically requires doing the same or similar work over and over, while a project is done only once; a new product or service exists when the project is completed. Examine the list in Table 1.1 that com- pares routine, repetitive work and projects. Recognizing the difference is important because too often resources can be used up on daily operations which may not con- tribute to longer range organization strategies that require innovative new products.

Program versus Project In practice the terms project and program cause confusion. They are often used synonymously. A program is a group of related projects designed to accomplish a common goal over an extended period of time. Each project within a program has a project manager. The major differences lie in scale and time span. Program management is the process of managing a group of ongoing, inter- dependent, related projects in a coordinated way to achieve strategic objectives. For

TABLE 1.1 Comparison of Routine Work with Projects

Routine, Repetitive Work Projects

Taking class notes Writing a term paper Daily entering sales receipts into the Setting up a sales kiosk for a professional accounting ledger accounting meeting Responding to a supply-chain request Developing a supply-chain information system Practicing scales on the piano Writing a new piano piece Routine manufacture of an Apple iPod Designing an iPod that is approximately 2 3 4 inches, interfaces with PC, and stores 10,000 songs Attaching tags on a manufactured product Wire-tag projects for GE and Wal-Mart

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