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Project Management:

The Managerial Process Seventh Edition

Erik W. Larson

Clifford F. Gray Oregon State University

PROJECT MANAGEMENT: THE MANAGERIAL PROCESS, SEVENTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2014 and 2011. 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 McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

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Library of Congress Cataloging-in-Publication Data

Names: Gray, Clifford F., author. | Larson, Erik W., 1952 author. Title: Project management : the managerial process / Erik W. Larson, Oregon State University, Clifford F. Gray, Oregon State University. Description: Seventh edition. | New York, NY : McGraw-Hill Education, [2018] | Clifford F. Gray is the first named author on the earlier editions. Identifiers: LCCN 2016040029 | ISBN 9781259666094 | ISBN 1259666093 (alk. paper) Subjects: LCSH: Project management. | Time management. | Risk management. Classification: LCC HD69.P75 G72 2018 | DDC 658.4/04—dc23 LC record available at https://lccn.loc.gov/

2016040029

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

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Erik W. Larson ERIK W. LARSON is professor of project management at the College of Business, Oregon State University. He teaches executive, graduate, and undergraduate courses on project management and leadership. His research and consulting activities focus on project management. He has published numerous articles on matrix management, product development, and project partnering. 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 Management Institute since 1984. In 1995 he worked as a Ful- bright scholar with faculty at the Krakow Academy of Economics on modernizing Polish business education. He was a visiting professor at Chulalongkorn University in Bangkok, Thailand, and at Baden-Wuerttemberg Cooperative State University in Bad Mergentheim, Germany. 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 Busi- ness, Oregon State University. He has personally taught more than 100 executive development seminars and workshops. Cliff has been a member of the Project Man- agement 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 Management 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 Univer- sity, and doctorate in operations management from the College of Business, University of Oregon. He is certified Scrum Master.

About the Authors

vii

“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 began and to know the place for the first time.”

T. S. Eliot

To Ann, whose love and support have brought out the best in me. To our girls Mary, Rachel, and Tor-Tor for the joy and pride they give me. And to our grandkids, Mr. B, Livvy, and Xmo, whose future depends upon effective project management. Finally, to my muse, Neil—Walk on!

E.W.L

viii

Our motivation in writing this text continues to be to provide a realistic, socio-technical view of project management. In the past, textbooks on project management focused almost exclusively on the tools and processes used to manage projects and not the human dimension. This baffled us since people not tools complete projects! While we firmly believe that mastering tools and processes is essential to successful project management, we also believe that the effectiveness of these tools and methods is shaped and determined by the prevailing culture of the organization and interpersonal dynamics of the people involved. Thus, we try to provide a holistic view that focuses on both of these dimensions and how they interact to determine the fate of projects. The role of projects in organizations is receiving increasing attention. Projects are the major tool for implementing and achieving the strategic goals of the organization. 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 professional 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 benefit 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 suc- cessful 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 advantage. Readers will find the concepts and techniques discussed in enough detail to be imme- diately 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 implementation as well as the opera- tions of inherited or purchased software. Members of the Project Management Insti- tute 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 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 rationale for the use of project management processes 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 impor- tantly, on why it works. The concepts, principles, and techniques are universally

Preface

x Preface

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 manage 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 frame- work applies to all organizations in which projects are important to survival. The approach can be used in pure project organizations such as construction, research orga- nizations, and engineering consultancy firms. At the same time, this approach will benefit organizations that carry out many small projects while the daily effort of deliv- ering products or services continues.

Content

In this and other editions we continue to try to resist the forces that engender scope creep and focus only on essential tools and concepts that are being used in the real world. We have been guided by feedback from practitioners, teachers, and students. Some changes are minor and incremental, designed to clarify and reduce confusion. Other changes are significant. They represent new developments in the field or better ways of teaching project management principles. Below are major changes to the seventh edition. ∙ Learning objectives have been established for each chapter and the corresponding

segment has been marked in the text. ∙ Chapter 16 Oversight has been eliminated and critical information on project matu-

rity models is now part of Chapter 14. ∙ Chapter 18 Project Management Career Paths has been eliminated and essential

information from this chapter is now in Chapter 1. ∙ A new set of network exercises have been developed for Chapter 6. ∙ A new set of crashing exercises have been developed for Chapter 9 which introduce

crashing concepts in a developmental way. ∙ The Chapter 2 Appendix on Request for Proposal is now part of Chapter 12. ∙ Terms and concepts have been updated to be consistent with the sixth edition of the

Project Management Body of Knowledge (2015). ∙ New student exercises and cases have been added to chapters. ∙ 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.

∙ The Instructor’s Manual contains a listing of current YouTube videos that corre- spond to key concepts and Snapshots from Practice.

Overall the text addresses the major questions and challenges the authors have encountered over their 60 combined years of teaching project management and con- sulting with practicing project managers in domestic and foreign environments. These questions include: What is the strategic role of projects in contemporary organiza- tions? How are projects prioritized? What organizational and managerial styles will improve chances of project success? How do project managers orchestrate the complex network of relationships involving vendors, subcontractors, 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 up to gain some measure of control? How do managers prepare for a new international project in a foreign culture?

Preface xi

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 inte- grates 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

Student resources include study outlines, online quizzes, PowerPoint slides, videos, Microsoft Project Video Tutorials and web links. These can be found in Connect.

Acknowledgments

We would like to thank Scott Bailey for building the end-of-chapter exercises for Connect and Tracie Lee for reviewing them; Pinyarat Sirisomboonsuk for revising the PowerPoint slides; Oliver F. Lehmann for providing access to PMBOK study questions; Ronny Richardson for updating the Instructor’s Manual; Angelo Serra for updating the Test Bank; and Pinyarat Sirisomboonsuk for providing new Snapshot from Practice questions. Next, it is important to note that the text includes contributions from numerous stu- dents, colleagues, friends, and managers gleaned from professional conversations. 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 stu- dents and managers deserve special accolades for identifying problems 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 Krum- wiede, 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; Richard 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 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, Marshall University; Steve Machon, DeVry University–Tinley Park; William Matthews, William Patterson

xii Preface

University; Erin Sims, DeVry University–Pomona; Kenneth Solheim, DeVry University–Federal Way; and Oya Tukel, Cleveland State University. 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. Victor Allen, Lawrence Technological University; Mark Angolia, East Carolina University; Alan Cannon, University of Texas at Arlington; Robert Cope, Southeastern Louisiana University; Kenneth DaRin, Clarkson University; Ron Darnell, Amberton University; Jay Goldberg, Marquette University; Mark Huber, University of Georgia; Marshall Issen, Clarkson University; Charles Lesko, East Carolina University; Lacey McNeely, Oregon State University; Donald Smith, Texas A&M University; Peter Sutanto, Prairie View A&M University; Jon Tomlinson, University of Northwestern Ohio. 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 par- ticular, we recognize Lacey McNeely, Prem Mathew, Keith Leavitt and Pauline Schlip- zand 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, Saajan Patel, Katherine Knox, Dat Nguyen, and David Dempsey. Mary Gray deserves special credit for editing and working under tight deadlines on earlier editions. Special thanks go to Pinyarat (“Minkster”) Sirisomboonsuk for her help in preparing the last four editions. Finally, we want to extend our thanks to all the people at McGraw-Hill Education for their efforts and support. First, we would like to thank Dolly Womack, and Christina Holt, for providing editorial direction, guidance, and management of the book’s devel- opment for the seventh edition. And we would also like to thank Melissa Leick, Jennifer Pickel, Egzon Shaqiri, Bruce Gin, and Karen Jozefowicz for managing the final production, design, supplement, and media phases of the seventh edition.

Erik W. Larson

Clifford F. Gray

xiii

Guided Tour Established Learning Objectives Learning objectives have been added to this edition to help stu- dents target key areas of learning. Learning objectives are listed both at the beginning of each chapter and are called out as mar- ginal elements throughout the narrative in each chapter.

End-of-Chapter Content Both static and algorithmic end-of-chapter content, including Review Questions and Exercises, are now assignable in Connect.

SmartBook The SmartBook has been updated with new highlights and probes for optimal student learning.

Snapshots The Snapshot from Practice boxes have been updated to include a number of new exam- ples of project management in action. New questions based on the Snapshots are also now assignable in Connect.

New and Updated Cases Included at the end of each chapter are between one and five cases which demonstrate key ideas from the text and help students understand how Project Management comes into play in the real world. New cases have been added across several chapters in the 7th edition.

Organization Strategy and Project Selection2

LEARNING OBJECTIVES After reading this chapter you should be able to:

2-1 Explain why it is important for project managers to understand their organization’s strategy.

2-2 Identify the significant role projects contribute to the strategic direction of the organization.

2-3 Understand the need for a project priority system.

2-4 Apply financial and nonfinancial criteria to assess the value of projects.

2-5 Understand how multi-criteria models can be used to select projects.

2-6 Apply an objective priority system to project selection.

2-7 Understand the need to manage the project portfolio.

OUTLINE 2.1 The Strategic Management Process: An

Overview

2.2 The Need for a Project Priority System

2.3 A Portfolio Management System

2.4 Selection Criteria

2.5 Applying a Selection Model

2.6 Managing the Portfolio System

Summary

C H A P T E R T W O

Lar66093_ch02_026-065.indd 26 10/4/16 4:52 PM

28 Chapter 2 Organization Strategy and Project Selection

alignment even more essential for success. Ensuring a strong link between the strategic plan and projects is a difficult task that demands constant attention from top and mid- dle management. The larger and more diverse an organization, the more difficult it is to create and maintain this strong link. Companies today are under enormous pressure to manage a process that clearly aligns projects to organization strategy. Ample evidence still sug- gests that many organizations have not developed a process that clearly aligns project selection to the strategic plan. The result is poor utilization of the organization’s resources—people, money, equipment, and core competencies. Conversely, organiza- tions that have a coherent link of projects to strategy have more cooperation across the organization, perform better on projects, and have fewer projects. How can an organization ensure this link and alignment? The answer requires inte- gration of projects with the strategic plan. Integration assumes the existence of a stra- tegic plan and a process for prioritizing projects by their contribution to the plan. A crucial factor to ensure the success of integrating the plan with projects lies in the creation of a process that is open and transparent for all participants to review. This chapter presents an overview of the importance of strategic planning and the process for developing a strategic plan. Typical problems encountered when strategy and proj- ects are not linked are noted. A generic methodology that ensures integration by creat- ing very strong linkages of project selection and priority to the strategic plan is then discussed. The intended outcomes are clear organization focus, best use of scarce orga- nization resources (people, equipment, capital), and improved communication across projects and departments.

Why Project Managers Need to Understand Strategy Project management historically has been preoccupied solely with the planning and exe- cution of projects. Strategy was considered to be under the purview of senior manage- ment. This is old-school thinking. New-school thinking recognizes that project management is at the apex of strategy and operations. Aaron Shenhar speaks to this issue when he states, “. . . it is time to expand the traditional role of the project manager from an operational to a more strategic perspective. In the modern evolving organization, proj- ect managers will be focused on business aspects, and their role will expand from getting the job done to achieving the business results and winning in the marketplace.”1 There are two main reasons why project managers need to understand their organiza- tion’s mission and strategy. The first reason is so they can make appropriate decisions and adjustments. For example, how a project manager would respond to a suggestion to modify the design of a product to enhance performance will vary depending upon whether his company strives to be a product leader through innovation or to achieve operational excellence through low cost solutions. Similarly, how a project manager would respond to delays may vary depending upon strategic concerns. A project man- ager will authorize overtime if her firm places a premium on getting to the market first. Another project manager will accept the delay if speed is not essential. The second reason project managers need to understand their organization’s strat- egy is so they can be effective project advocates. Project managers have to be able to demonstrate to senior management how their project contributes to their firm’s mis- sion. Protection and continued support come from being aligned with corporate objec- tives. Project managers also need to be able to explain to team members and other

Explain why it is impor- tant for project managers to understand their orga- nization’s strategy.

2-1LO

1 Shenhar, A., and Dov Dvie, Reinventing Project Management (Harvard Business School, 2007), p. 5.

Lar66093_ch02_026-065.indd 28 10/4/16 4:52 PM

84 Chapter 3 Organization: Structure and Culture

In 2016 Google Inc. topped Fortune magazine’s list of best companies to work at for the seventh time in the past ten years. When one enters the 24-hour Googleplex located in

Mountain View, California, you feel that you are walking through a new-age college campus rather than the corporate office of a billion-dollar business. The collection of interconnected low-rise buildings with colorful, glass-encased offices feature upscale trappings—free gourmet meals three times a day, free use of an outdoor wave pool, indoor gym and large child care facility, private shuttle bus service to and from San Francisco and other residential areas— that are the envy of workers across the Bay area. These perks and others reflect Google’s culture of keeping people happy and thinking in unconven- tional ways. The importance of corporate culture is no more evi- dent than in the fact that the head of Human Resources, Stacy Savides Sullivan, also has the title of Chief Cul- ture Officer. Her task is to try to preserve the innovative culture of a start-up as Google quickly evolves into a mammoth international corporation. Sullivan character- izes Google culture as “team-oriented, very collabora- tive and encouraging people to think nontraditionally, different from where they ever worked before—work with integrity and for the good of the company and for the good of the world, which is tied to our overall mis- sion of making information accessible to the world.” Google goes to great lengths to screen new employees to not only make sure that they have outstanding tech- nical capabilities but also that they are going to fit Google’s culture. Sullivan goes on to define a Google-y employee as somebody who is “flexible, adaptable, and not focusing on titles and hierarchy, and just gets stuff done.” Google’s culture is rich with customs and traditions not found in corporate America. For example, project

S N A P S H O T F R O M P R A C T I C E 3 . 4 Google-y*

teams typically have daily “stand-up” meetings seven min- utes after the hour. Why seven minutes after the hour? Because Google cofounder Sergey Brin once estimated that it took seven minutes to walk across the Google cam- pus. Everybody stands to make sure no one gets too com- fortable and no time is wasted during the rapid-fire update. As one manager noted, “The whole concept of the stand-up is to talk through what everyone’s doing, so if someone is working on what you’re working on, you can discover and collaborate not duplicate.” Another custom is “dogfooding.” This is when a project team releases the functional prototype of a future product to Google employees for them to test drive. There is a strong norm within Google to test new products and provide feedback to the developers. The project team receives feedback from thousands of Google-ys. The internal focus group can log bugs or simply comment on design or functionality. Fellow Google-ys do not hold back on their feedback and are quick to point out things they don’t like. This often leads to significant product improvements.

simply rely on what people report about their culture. The physical environment in which people work, as well as how people act and respond to different events that occur, must be examined. Figure 3.6 contains a worksheet for diagnosing the culture of an organization. Although by no means exhaustive, the checklist often yields clues about the norms, customs, and values of an organization: 1. Study the physical characteristics of an organization. What does the external

architecture look like? What image does it convey? Is it unique? Are the buildings

* Walters, H., “How Google Got Its New Look,” BusinessWeek, May 10, 2010; Goo, S. K., “Building a ‘Googley’ Workforce,“ Washington Post, October 21, 2006; Mills, E., “Meet Google’s Culture Czar,” CNET News.com, April 27, 2007.

Lar66093_ch03_066-099.indd 84 10/4/16 5:10 PM

xiv

Note to Student You will find the content of this text highly practical, relevant, and current. The con- cepts discussed are relatively simple and intuitive. As you study each chapter we sug- gest 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 management involves understanding the cause-effect relationships and interactions among the sociotechnical dimensions of projects. Improved competency in these dimensions will greatly enhance your competitive edge as a project manager. The field of project management is growing in importance and at an exponential 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.

Chapter-by-Chapter Revisions for the Seventh Edition Chapter 1: Modern Project Management

∙ New Snapshot: Project Management in Action 2016. ∙ Information updated. ∙ New Snapshot: Ron Parker replaced Research Highlight: Works well with others. ∙ New case: The Hokie Lunch Group.

Chapter 2: Organization Strategy and Project Selection

∙ New Snapshot: Project Code Names replaced HP’s Strategy Revision.

Chapter 3: Organization: Structure and Culture

∙ Learning objectives established. ∙ Snapshot: Google-y updated. ∙ Snapshot: Skunk Works at Lockheed Martin updated.

Chapter 4: Defining the Project

∙ Learning objectives established. ∙ New case: Home Improvement Project.

Note to Student xv

Chapter 5: Estimating Project Times and Costs

∙ Learning objectives established. ∙ New Snapshot: London 2012 Olympics: Avoiding White Elephant curse. ∙ Expanded discussion of Mega Projects including the emergence of white

elephants.

Chapter 6: Developing a Project Schedule

∙ Learning objectives established. ∙ New Exercises 2-15 and Lag Exercises 18-21. ∙ Shoreline Stadium case replaces Greendale Stadium case.

Chapter 7: Managing Risk

∙ Learning objectives established.

Chapter 8 Appendix 1: The Critical-Chain Approach

∙ Learning objectives established.

Chapter 9: Reducing Project Duration

∙ Learning objectives established. ∙ Snapshot: Smartphone Wars updated. ∙ New exercises 1-7.

Chapter 10: Leadership: Being an Effective Project Manager

∙ Learning objectives established. ∙ New Research Highlight: Give and Take. ∙ Ethics discussion expanded.

Chapter 11: Managing Project Teams

∙ Learning objectives established. ∙ Expanded discussion on project vision.

Chapter 12: Outsourcing: Managing Interorganizational Relations

∙ Learning objectives established. ∙ Discussion of RFP process. ∙ New Snapshot: U.S. Department of Defense’s Value Engineering Awards 2015.

Chapter 13 Progress and Performance Measurement and Evaluation

∙ Learning Objectives established. ∙ Discussion of milestone schedules. ∙ New Snapshot: Guidelines for Setting Milestones. ∙ Discussion of Management Reserve Index. ∙ New case: Shoreline Stadium Status Report.

xvi Note to Student

Chapter 14: Project Closure

∙ Major Revision of chapter with more attention to project audit and closing activities.

∙ New Snapshot: The Wake. ∙ New Snapshot: 2015 PMO of the Year. ∙ New Snapshot: Operation Eagle Claw. ∙ Project Management Maturity model introduced.

Chapter 15: International Projects

∙ Learning Objectives established.

Chapter 16: An Introduction to Agile Project Management

∙ Learning Objectives established. ∙ New Snapshot: Kanban.

xvii

Preface ix

1. Modern Project Management 2

2. Organization Strategy and Project Selection 26

3. Organization: Structure and Culture 66

4. Defining the Project 100

5. Estimating Project Times and Costs 128

6. Developing a Project Plan 162

7. Managing Risk 206

8. Scheduling Resources and Costs 250

9. Reducing Project Duration 304

10. Being an Effective Project Manager 338

11. Managing Project Teams 374

12. Outsourcing: Managing Interorganizational Relations 418

Brief Contents 13. Progress and Performance Measurement

and Evaluation 458

14. Project Closure 514

15. International Projects 544

16. An Introduction to Agile Project Management 578

APPENDIX One Solutions to Selected Exercises 603 Two Computer Project Exercises 616

GLOSSARY 633 ACRONYMS 640 PROJECT MANAGEMENT EQUATIONS 641 CROSS REFERENCE OF PROJECT MANAGEMENT 642 SOCIO-TECHNICAL APPROACH TO PROJECT MANAGEMENT 643 INDEX 644

xviii

Contents Preface ix

Chapter 1 Modern Project Management 2 1.1 What Is a Project? 6

What a Project Is Not 7 Program versus Project 7 The Project Life Cycle 8 The Project Manager 9 Being Part of a Project Team 11

1.2 Current Drivers of Project Management 12 Compression of the Product Life Cycle 12 Knowledge Explosion 12 Triple Bottom Line (Planet, People, Profit) 12 Increased Customer Focus 12 Small Projects Represent Big Problems 15

1.3 Project Governance 15 Alignment of Projects with Organizational Strategy 16

1.4 Project Management Today: A Socio-Technical Approach 17

Summary 18

Chapter 2 Organization Strategy and Project Selection 26 2.1 The Strategic Management Process:

An Overview 29 Four Activities of the Strategic Management Process 29

2.2 The Need for a Project Priority System 34 Problem 1: The Implementation Gap 34 Problem 2: Organization Politics 35 Problem 3: Resource Conflicts and Multitasking 36

2.3 A Portfolio Management System 37 Classification of the Project 37

2.4 Selection Criteria 38 Financial Criteria 38 Nonfinancial Criteria 40

2.5 Applying a Selection Model 43 Project Classification 43 Sources and Solicitation of Project Proposals 44 Ranking Proposals and Selection of Projects 46

2.6 Managing the Portfolio System 48 Senior Management Input 48 The Governance Team Responsibilities 49 Balancing the Portfolio for Risks and Types of Projects 50

Summary 51

Chapter 3 Organization: Structure and Culture 66 3.1 Project Management Structures 68

Organizing Projects within the Functional Organization 68 Organizing Projects as Dedicated Teams 71 Organizing Projects within a Matrix Arrangement 75 Different Matrix Forms 76

3.2 What Is the Right Project Management Structure? 79 Organization Considerations 79 Project Considerations 79

3.3 Organizational Culture 81 What Is Organizational Culture? 81 Identifying Cultural Characteristics 83

3.4 Implications of Organizational Culture for Organizing Projects 86

Summary 89

Chapter 4 Defining the Project 100 4.1 Step 1: Defining the Project Scope 102

Employing a Project Scope Checklist 103 4.2 Step 2: Establishing Project Priorities 106 4.3 Step 3: Creating the Work Breakdown

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

4.4 Step 4: Integrating the WBS with the Organization 113

4.5 Step 5: Coding the WBS for the Information System 113

4.6 Process Breakdown Structure 116

Contents xix

4.7 Responsibility Matrices 117 4.8 Project Communication Plan 119 Summary 121

Chapter 5 Estimating Project Times and Costs 128 5.1 Factors Influencing the Quality of

Estimates 130 Planning Horizon 130 Project Complexity 130 People 131 Project Structure and Organization 131 Padding Estimates 131 Organization Culture 131 Other Factors 131

5.2 Estimating Guidelines for Times, Costs, and Resources 132

5.3 Top-Down versus Bottom-Up Estimating 134

5.4 Methods for Estimating Project Times and Costs 136 Top-Down Approaches for Estimating Project Times and Costs 136 Bottom-Up Approaches for Estimating Project Times and Costs 140 A Hybrid: Phase Estimating 141

5.5 Level of Detail 143 5.6 Types of Costs 144

Direct Costs 145 Direct Project Overhead Costs 145 General and Administrative (G&A) Overhead Costs 145

5.7 Refining Estimates 146 5.8 Creating a Database for Estimating 148 5.9 Mega Projects: A Special Case 149 Summary 151 Appendix 5.1: Learning Curves for Estimating 157

Chapter 6 Developing a Project Plan 162 6.1 Developing the Project Network 163 6.2 From Work Package to Network 164 6.3 Constructing a Project Network 166

Terminology 166 Basic Rules to Follow in Developing Project Networks 166

6.4 Activity-on-Node (AON) Fundamentals 167 6.5 Network Computation Process 171

Forward Pass—Earliest Times 171 Backward Pass—Latest Times 173 Determining Slack (or Float) 175

6.6 Using the Forward and Backward Pass Information 177

6.7 Level of Detail for Activities 178 6.8 Practical Considerations 178

Network Logic Errors 178 Activity Numbering 179 Use of Computers to Develop Networks 179 Calendar Dates 182 Multiple Starts and Multiple Projects 182

6.9 Extended Network Techniques to Come Closer to Reality 182 Laddering 182 Use of Lags to Reduce Schedule Detail and Project Duration 183 An Example Using Lag Relationships—The Forward and Backward Pass 186 Hammock Activities 188

Summary 189

Chapter 7 Managing Risk 206 7.1 Risk Management Process 208 7.2 Step 1: Risk Identification 210 7.3 Step 2: Risk Assessment 212

Probability Analysis 215 7.4 Step 3: Risk Response Development 216

Mitigating Risk 216 Avoiding Risk 217 Transferring Risk 217 Accept Risk 218

7.5 Contingency Planning 219 Technical Risks 220 Schedule Risks 222 Cost Risks 222 Funding Risks 222

7.6 Opportunity Management 223 7.7 Contingency Funding and Time Buffers 223

Budget Reserves 224 Management Reserves 224 Time Buffers 225

7.8 Step 4: Risk Response Control 225 7.9 Change Control Management 226 Summary 230 Appendix 7.1: PERT and PERT Simulation 240

xx Contents

Chapter 8 Scheduling Resources and Costs 250 8.1 Overview of the Resource Scheduling

Problem 252 8.2 Types of Resource Constraints 254 8.3 Classification of a Scheduling

Problem 255 8.4 Resource Allocation Methods 255

Assumptions 255 Time-Constrained Project: Smoothing Resource Demand 256 Resource-Constrained Projects 257

8.5 Computer Demonstration of Resource- Constrained Scheduling 262 The Impacts of Resource-Constrained Scheduling 266

8.6 Splitting Activities 269 8.7 Benefits of Scheduling Resources 270 8.8 Assigning Project Work 271 8.9 Multiproject Resource Schedules 272 8.10 Using the Resource Schedule to Develop a

Project Cost Baseline 273 Why a Time-Phased Budget Baseline Is Needed 273 Creating a Time-Phased Budget 274

Summary 279 Appendix 8.1: The Critical-Chain Approach 294

Chapter 9 Reducing Project Duration 304 9.1 Rationale for Reducing Project

Duration 306 9.2 Options for Accelerating Project

Completion 307 Options When Resources Are Not Constrained 308 Options When Resources Are Constrained 310

9.3 Project Cost–Duration Graph 313 Explanation of Project Costs 313

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

9.5 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

9.6 What If Cost, Not Time, Is the Issue? 321 Reduce Project Scope 322 Have Owner Take on More Responsibility 322 Outsourcing Project Activities or Even the Entire Project 322 Brainstorming Cost Savings Options 322

Summary 323

Chapter 10 Being an Effective Project Manager 338 10.1 Managing versus Leading a Project 340 10.2 Managing Project Stakeholders 341 10.3 Influence as Exchange 345

Task-Related Currencies 345 Position-Related Currencies 346 Inspiration-Related Currencies 347 Relationship-Related Currencies 347 Personal-Related Currencies 348

10.4 Social Network Building 348 Mapping Stakeholder Dependencies 348 Management by Wandering Around (MBWA) 350 Managing Upward Relations 351 Leading by Example 353

10.5 Ethics and Project Management 356 10.6 Building Trust: The Key to Exercising

Influence 357 10.7 Qualities of an Effective Project Manager 359 Summary 362

Chapter 11 Managing Project Teams 374 11.1 The Five-Stage Team Development Model 377 11.2 Situational Factors Affecting Team

Development 379 11.3 Building High-Performance Project Teams 381

Recruiting Project Members 381 Conducting Project Meetings 383 Establishing Team Norms 385 Establishing a Team Identity 387 Creating a Shared Vision 388 Managing Project Reward Systems 391 Orchestrating the Decision-Making Process 392 Managing Conflict within the Project 394 Rejuvenating the Project Team 398

11.4 Managing Virtual Project Teams 399 11.5 Project Team Pitfalls 403

Groupthink 403 Bureaucratic Bypass Syndrome 404

Contents xxi

Team Spirit Becomes Team Infatuation 404 Going Native 404

Summary 405

Chapter 12 Outsourcing: Managing Interorganizational Relations 418 12.1 Outsourcing Project Work 420 12.2 Request for Proposal (RFP) 424

Selection of Contractor from Bid Proposals 425 12.3 Best Practices in Outsourcing Project Work 426

Well-Defined Requirements and Procedures 426 Extensive Training and Team-Building Activities 428 Well-Established Conflict Management Processes in Place 429 Frequent Review and Status Updates 431 Co-Location When Needed 432 Fair and Incentive-Laden Contracts 432 Long-Term Outsourcing Relationships 433

12.4 The Art of Negotiating 434 1. Separate the People from the Problem 435 2. Focus on Interests, Not Positions 436 3. Invent Options for Mutual Gain 437 4. When Possible, Use Objective Criteria 138 Dealing with Unreasonable People 438

12.5 A Note on Managing Customer Relations 439 Summary 442 Appendix 12.1: Contract Management 451

Chapter 13 Progress and Performance Measurement and Evaluation 458 13.1 Structure of a Project Monitoring Information

System 460 What Data Are Collected? 460 Collecting Data and Analysis 460 Reports and Reporting 460

13.2 The Project Control Process 461 Step 1: Setting a Baseline Plan 461 Step 2: Measuring Progress and Performance 461 Step 3: Comparing Plan against Actual 462 Step 4: Taking Action 462

13.3 Monitoring Time Performance 462 Tracking Gantt Chart 463 Control Chart 463 Milestone Schedules 464

13.4 Development of an Earned Value Cost/Schedule System 467

Percent Complete Rule 467 What Costs Are Included in Baselines? 467 Methods of Variance Analysis 468

13.5 Developing a Status Report: A Hypothetical Example 470 Assumptions 470 Baseline Development 470 Development of the Status Report 471

13.6 Indexes to Monitor Progress 475 Performance Indexes 477 Project Percent Complete Indexes 474 Software for Project Cost/Schedule Systems 477 Additional Earned Value Rules 478

13.7 Forecasting Final Project Cost 476 13.8 Other Control Issues 481

Technical Performance Measurement 481 Scope Creep 483 Baseline Changes 483 The Costs and Problems of Data Acquisition 485

Summary 486 Appendix 13.1: The Application of Additional Earned Value Rules 505 Appendix 13.2: Obtaining Project Performance Information from MS Project 2010 or 2015 511

Chapter 14 Project Closure 514 14.1 Types of Project Closure 516 14.2 Wrap-up Closure Activities 518 14.3 Project Audits 521

The Project Audit Process 522 Project Retrospectives 525 Project Audits: The Bigger Picture 529

14.4 Post-Implementation Evaluation 532 Team Evaluation 532 Individual, Team Member, and Project Manager Performance Reviews 534

Summary 537 Appendix 14.1: Project Closeout Checklist 539 Appendix 14.2: Euro Conversion—Project Closure Checklist 541

Chapter 15 International Projects 544 15.1 Environmental Factors 546

Legal/Political 546 Security 547 Geography 548

xxii Contents

Economic 549 Infrastructure 550 Culture 551

15.2 Project Site Selection 553 15.3 Cross-Cultural Considerations:

A Closer Look 554 Adjustments 555 Working in Mexico 556 Working in France 559 Working in Saudi Arabia 560 Working in China 562 Working in the United States 563 Summary Comments about Working in Different Cultures 565 Culture Shock 565 Coping with Culture Shock 567

15.4 Selection and Training for International Projects 568

Summary 571

Chapter 16 An Introduction to Agile Project Management 578 16.1 Traditional versus Agile Methods 580 16.2 Agile PM 582

16.3 Agile PM in Action: Scrum 585 Roles and Responsibilities 586 Scrum Meetings 587 Product and Sprint Backlogs 588 Sprint and Release Burndown Charts 589

16.4 Applying Agile PM to Large Projects 592 16.5 Limitations and Concerns 593 Summary 595

Appendix One: Solutions to Selected Exercise 603

Appendix Two: Computer Project Exercises 616

Glossary 633 Acronyms 640 Project Management Equations 641 Cross Reference of Project Management 642 Socio-Technical Approach to Project Management 643 Index 644

Project Management:

The Managerial Process

Modern Project Management1 LEARNING OBJECTIVES After reading this chapter you should be able to:

1-1 Understand why project management is crucial in today’s world.

1-2 Distinguish a project from routine operations.

1-3 Identify the different stages of project life cycle.

1-4 Understand the importance of projects in implementing organization strategy.

1-5 Understand that managing projects involves balancing the technical and sociocultural dimensions of the project.

OUTLINE 1.1 What Is a Project?

1.2 Current Drivers of Project Management

1.3 Project Governance

1.4 Project Management Today—A Socio-Technical Approach

Summary

Text Overview

C H A P T E R O N E

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 leaders and experts have proclaimed that project management is critical to sustainable eco- nomic growth. New jobs and competitive advantage are achieved by constant innova- tion, developing new products and services, and improving both productivity and quality of work. This is the world of project management. Project management pro- vides people with a powerful set of tools that improves their ability to plan, implement, and manage activities to accomplish specific 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 collaborative 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,

Understand why project management is crucial in today’s world.

1-1LO

Project networks

Managing risk 7

Monitoring progress

Teams 11

Outsourcing 12

Project manager

Strategy 2

Introduction 1

Organization 3

Schedule resources & costs

Intern ation

proje cts

Agile PM 16

Project closure

Estimate 5

Reducing duration

Define project

4 Chapter 1 Modern Project Management

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 provid- ing emergency aid to areas hit by natural disasters, 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 man- agement 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 organiza- tion for project managers. PMI membership has grown from 93,000 in 2002 to more than 478,000 currently. See Snapshot from Practice 1.1 for information regarding pro- fessional 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 per- cent of the U.S. gross national product) is 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. Most of the people who excel at managing projects never have the title of project manager. They include accountants, lawyers, administrators, scientists, contractors, pub- lic health officials, teachers, and community advocates whose success depends upon being able to lead and manage project work. For some, the very nature of their work is project driven. Projects may be cases for lawyers, audits for accountants, events for

The Project Management Institute (PMI) was founded in 1969 as an international society for project managers. Today PMI has members from more than 180 coun- tries and more than 478,500 members.

PMI professionals come from virtually every major indus- try, including aerospace, automotive, business manage- ment, construction, engineering, financial services, information technology, pharmaceuticals, health care, and telecommunications. PMI provides certification as a Project Management Professional (PMP)—someone who has documented sufficient project experience, agreed to follow the PMI code of professional conduct, and demonstrated mas- tery of the field of project management by passing a comprehensive examination. The number of people earning PMP status has grown dramatically in recent years. In 1996 there were fewer than 3,000 certified project management professionals. By 2016 there were more than 695,000 Professional credential holders.

S N A P S H O T F R O M P R A C T I C E 1 . 1 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 added a certification as a Certified Associate in Project Management (CAPM). CAPM is designed for project team members and entry-level project manag- ers, as well as qualified undergraduate and graduate students who want a credential to recognize their mas- tery of the project management body of knowledge. CAPM does not require the extensive project manage- ment experience associated with the PMP. For more details on PMP and CAPM, google PMI to find the cur- rent website for the Project Management Institute.

*PMI Today, March 2016, p. 4.

Chapter 1 Modern Project Management 5

artists, and renovations for contractors. For others, projects may be a small, but critical part of their work. For example, a high school teacher who teaches four classes a day is responsible for coaching a group of students to compete in a national debate competition. A store manager who oversees daily operations is charged with developing an employee retention program. A sales account executive is given the additional assignment of team lead to launch daily deals into a new city. A public health official who manages a clinic is also responsible for organizing a Homeless Youth Connect event. For these and others, 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 transferable 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 prod- uct 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 man- agement classes, with the core group of engineers being supplemented by business stu- dents 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 exposure to project man- agement 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.

1. Business information: Join a proj- ect team charged with installing new data security system.

2. Physical education: Design and develop a new fitness program for

senior citizens that combines principles of yoga and aerobics.

3. Marketing: Execute a sales program for new home air purifier.

4. Industrial engineering: Manage a team to create a value chain report for every aspect of key product from design to customer delivery.

5. Chemistry: Develop a quality control program for organization’s drug production facilities.

6. Management: Implement a new store layout design.

7. Pre-med neurology student: Join project team link- ing mind mapping to an imbedded prosthetic that will allow blind people to function near normally.

8. Sports communication: Join Olympic project team that will promote women’s sports products for the 2016 Games in Rio de Janeiro, Brazil.

""9. Systems engineer: Become a project team member of a project to develop data mining of medical pa- pers and studies related to drug efficacy.

10. Accounting: Work on an audit of a major client.

11. Public health: Research and design a medical mari- juana educational program.

12. English: Create a web-based user manual for new electronics product.

S N A P S H O T F R O M P R A C T I C E 1 . 2 A Dozen Examples of Projects Given to Recent College Graduates

6 Chapter 1 Modern Project Management

See the nearby Snapshot from Practice 1.2 for examples of projects given to recent col- lege graduates. The logical starting point for developing these skills is understanding the uniqueness of a project and of project managers.

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

Millions watch Olympic Opening Ceremony Citywide WiFi System Set to Go Live Hospitals Respond to New Healthcare Reforms 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 efforts, the major goal of a project is to satisfy a customer’s need. Beyond this fundamental similarity, the characteristics of a project help

Distinguish a project from routine operations.

1-2LO

Chapter 1 Modern Project Management 7

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 apart- ment complex by January 1 or releasing version 2.0 of a specific software package as quickly as possible. This singular purpose is often lacking in daily organizational 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 functional specialty, projects typically require the combined efforts of a variety of specialists. Instead of working in separate offices under separate managers, project participants, whether they be engineers, financial analysts, marketing professionals, or quality con- trol specialists, work closely together under the guidance of a project manager to com- plete 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, accomplish- ing something that has never been done before, such as building an electric automobile or landing two mechanical rovers on Mars, requires solving previously unsolved prob- lems and using 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. Projects are evaluated according to accomplishment, cost, and time spent. These triple con- straints impose a higher degree of accountability than you typically find in most jobs. These three also highlight one of the primary functions of project management, which is balancing the trade-offs among time, cost, and performance while ultimately satisfy- ing the customer.

What a Project Is Not Projects should not be confused with everyday work. A project is not routine, repeti- tive 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 compares routine, repetitive work and projects. Recognizing the difference is important because too often resources can be used up on daily operations which may not contribute to longer range organiza- tion strategies that require innovative new products.

Program versus Project In practice the terms project and program cause confusion. They are often used syn- onymously. A program is a group of related projects designed to accomplish a

8 Chapter 1 Modern Project Management

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, interdepen- dent, related projects in a coordinated way to achieve strategic objectives. For example, a pharmaceutical organization could have a program for curing cancer. The cancer pro- gram includes and coordinates all cancer projects that continue over an extended time horizon (Gray, 2011). Coordinating all cancer projects under the oversight of a cancer team provides benefits not available from managing them individually. This cancer team also oversees the selection and prioritizing of cancer projects that are included in their special “Cancer” portfolio. Although each project retains its own goals and scope, the project manager and team are also motivated by the higher program goal. Program goals are closely related to broad strategic organization goals.

The Project Life Cycle Another way of illustrating the unique nature of project work is in terms of the project life cycle. Some project managers find it useful to use the project life cycle as the cor- nerstone for managing projects. The life cycle recognizes that projects have a limited life span and that there are predictable changes in level of effort and focus over the life of the project. There are a number of different life-cycle models in project management literature. Many are unique to a specific industry or type of project. For example, a new software development project may consist of five phases: definition, design, code, inte- gration/test, and maintenance. A generic cycle is depicted in Figure 1.1. The project life cycle typically passes sequentially through four stages: defining, planning, executing, and delivering. The starting point begins the moment the project is given the go-ahead. Project effort starts slowly, builds to a peak, and then declines to delivery of the project to the customer. 1. Defining stage: Specifications of the project are defined; project objectives are

established; teams are formed; major responsibilities are assigned. 2. Planning stage: The level of effort increases, and plans are developed to determine

what the project will entail, when it will be scheduled, whom it will benefit, what quality level should be maintained, and what the budget will be.

3. Executing stage: A major portion of the project work takes place—both physical and mental. The physical product is produced (a bridge, a report, a software pro- gram). Time, cost, and specification measures are used for control. Is the project on schedule, on budget, and meeting specifications? What are the forecasts of each of these measures? What revisions/changes are necessary?

4. Closing stage: Closing includes three activities: delivering the project product to the customer, redeploying project resources, and post-project review. Delivery of

Identify the different stages of project life cycle.

1-3LO

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 accounting ledger 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 × 4 inches,

interfaces with PC, and stores 10,000 songs Attaching tags on a manufactured product Wire-tag projects for GE and Walmart

Chapter 1 Modern Project Management 9

the project might include customer training and transferring documents. Redeploy- ment usually involves releasing project equipment/materials to other projects and finding new assignments for team members. Post-project reviews include not only assessing performance but also capturing lessons learned.

In practice, the project life cycle is used by some project groups to depict the timing of major tasks over the life of the project. For example, the design team might plan a major commitment of resources in the defining stage, while the quality team would expect their major effort to increase in the latter stages of the project life cycle. Because most organizations have a portfolio of projects going on concurrently, each at a differ- ent stage of each project’s life cycle, careful planning and management at the organiza- tion and project levels are imperative.

The Project Manager At first glance project managers perform the same functions as other managers. That is, they plan, schedule, motivate, and control. However, what makes them unique is that they manage temporary, nonrepetitive activities, to complete a fixed life project. Unlike functional managers, who take over existing operations, project managers cre- ate a project team and organization where none existed before. They must decide what and how things should be done instead of simply managing set processes. They must meet the challenges of each phase of the project life cycle, and even oversee the dis- solution of their operation when the project is completed. Project managers must work with a diverse troupe of characters to complete proj- ects. They are typically the direct link to the customer and must manage the tension between customer expectations and what is feasible and reasonable. Project managers provide direction, coordination, and integration to the project team, which is often made up of part-time participants loyal to their functional departments. They often must work with a cadre of outsiders—vendors, suppliers, subcontractors—who do not necessarily share their project allegience.

Le ve

l o f e

ff or

1. Goals 2. Specifications 3. Tasks 4. Responsibilities

1. Schedules 2. Budgets 3. Resources 4. Risks 5. Staffing

1. Status reports 2. Changes 3. Quality 4. Forecasts

1. Train customer 2. Transfer documents 3. Release resources 4. Evaluation 5. Lessons learned

Defining

Start Time End

Planning

Executing

Closing

FIGURE 1.1 Project Life Cycle

10 Chapter 1 Modern Project Management

Project managers are ultimately responsible for performance (frequently with too little authority). They must ensure that appropriate trade-offs are made among the time, cost, and performance requirements of the project. At the same time, unlike their functional counterparts, project managers generally possess only rudimentary techni- cal knowledge to make such decisions. Instead, they must orchestrate the completion of the project by inducing the right people, at the right time, to address the right issues and make the right decisions. While project management is not for the timid, working on projects can be an extremely rewarding experience. Life on projects is rarely boring; each day is different from the last. Since most projects are directed at solving some tangible problem or pursuing some useful opportunity, project managers find their work personally mean- ingful and satisfying. They enjoy the act of creating something new and innovative. Project managers and team members can feel immense pride in their accomplishment, whether it is a new bridge, a new product, or needed service. Project managers are often stars in their organization and well compensated. Good project managers are always in demand. Every industry is looking for effective people who can get the right things done on time. See Snapshot from Practice 1.3: Ron Parker for an example of a former student who leveraged his ability to manage

1986 B.S. Business Administration–Oregon State University

1986–1990 Food Products Manufacturing

1990–1994 Wood Products Manufacturing 1994–Current Glass Products Manufacturing

Upon completion of my business degree at OSU, I was recruited by a Fortune 100 food products company for a first line production supervisor position. In that role, an opportunity came up for me to manage a project that involved rolling out a new statistical package-weight- control program throughout the factory. Successfully completing that project was instrumental in accelerating my career within the company, advancing from supervi- sor to product manager in less than three years. After four years in food products I accepted an offer to join a wood products manufacturing company. Initially my role in this company was Human Resources Manager. My HR responsibilities included managing several projects to improve safety and employee retention. Successful com- pletion of these projects led to a promotion to Plant Man- ager. In the Plant Manager role, I was tasked with building and managing a new wood door manufacturing factory. After successfully taking that factory to full production, I was promoted again to Corporate Manager of Continuous Improvement. This “culture change” project involved

S N A P S H O T F R O M P R A C T I C E 1 . 3 Ron Parker

implementing Total Quality Management throughout 13 different manufacturing factories as well as all the indirect and support functions within the corporation. Shortly after we successfully ingrained this new culture in the company, the owner passed away, leading me to look for other employment. I was able to leverage my previous experience and success to convince the owner of a struggling glass fab- rication company to hire me. In this new role as General Manager, I was tasked with turning the company around. This was my largest project yet. Turning a com- pany around involves a myriad of smaller improvement projects spanning from facilities and equipment improvements to product line additions and deletions to sales and marketing strategy and everything in between. In four years, we successfully turned the com- pany around to the extent that the owner was able to sell the company and comfortably retire. Successfully turning that glass company around got the attention of a much larger competitor of ours, resulting in an offer of employment. This new offer involved the start-up of a $30M high-tech glass manufacturing facility in another state. We were able to take that facility from a dirt field to the highest volume manufacturing facility of its kind in the world in just three years. After building and operating this factory at a world-class benchmark level for eight years, I came across a new and exciting opportunity to help expand a strong glass fabrication company in

Chapter 1 Modern Project Management 11

Canada. I spent four years successfully transitioning this Canadian company from a medium-size glass fabrication facility to one of the largest and most successful of its kind in North America. After tiring of the “Great White North,” I found an opportunity to tackle the largest and most impactful project of my career. I’m currently VP of Operations in a venture-funded high-tech start-up company. In this role, I’m overseeing the construction and start-up of the first full-scale, high-volume electrochromic glass fabrication factory in the world. This new project

involves building a company from the ground up and taking an exciting new technology from the lab to full- scale commercialization. Success in this role, although still far from being certain, will eventually revolutionize the glass industry through the introduction of a product that dramatically improves the energy efficiency and occupant comfort of buildings around the world. Looking back on my career, it is apparent that my degree of success has largely been the result of taking on and successfully completing successively larger and increasingly impactful projects. There’s a saying that’s always resonated with me: “If your only tool is a hammer, all your problems look like nails.” Good tools are hard to come by and heavy to carry around. I like my tool bag filled with generalist tools; things like communication skills, leadership, common sense, judgment, reasoning, logic and a strong sense of urgency. I often wonder how much more I could have accomplished had I actually studied project management and had more of that toolset in my bag. With a bag full of strong generalist tools, you can tackle any problem in any business. Project man- agement is clearly one of those skills where the better you are at it, the higher your chances of success in any business environment. Having the tools is only part of the equation though. To be successful, you must also be willing to run at problems/opportunities when every- one else is running away from them.

projects to build a successful career in the glass products industry. Clearly, project man- agement is a challenging and exciting profession. This text is intended to provide the necessary knowledge, perspective, and tools to enable students to accept the challenge.

Being Part of a Project Team Most people’s first exposure to project management occurs while working as part of a team assigned to complete a specific project. Sometimes this work is full-time, but in most cases, people work part-time on one or more projects. They must learn how to juggle their day-to- day commitments with additional project responsibilities. They may join a team with a long history of working together, in which case roles and norms are firmly established. Alternatively, their team may consist of strangers from different departments and organiza- tions. As such, they endure the growing pains of a group evolving into a team. They need to be a positive force in helping the team coalesce into an effective project team. Not only are there people issues, but project members are also expected to use proj- ect management tools and concepts. They develop or are given a project charter or scope statement that defines the objectives and parameters of the project. They work with others to create a project schedule and budget that will guide project execution. They need to understand project priorities so they can make independent decisions.

Courtesy of Ron Parker

12 Chapter 1 Modern Project Management

They must know how to monitor and report project progress. Although much of this book is written from the perspective of a project manager, the tools, concepts, and methods are critical to everyone working on a project. Project members need to know how to avoid the dangers of scope creep, manage the critical path, engage in timely risk management, negotiate, and utilize virtual tools to communicate.

1.2 Current Drivers of Project Management Project management is no longer a special-need management. It is rapidly becoming a standard way of doing business. See Snapshot from Practice 1.4: Project Management in Action: 2016. An increasing percentage of the typical firm’s effort is being devoted to projects. The future promises an increase in the importance and the role of projects in contributing to the strategic direction of organizations. Several reasons why this is the case are briefly discussed below.

Compression of the Product Life Cycle One of the most significant driving forces behind the demand for project management is the shortening of the product life cycle. For example, today in high-tech industries the product life cycle is averaging six months to three years. Only 30 years ago, life cycles of 10 to 15 years were not uncommon. Time to market for new products with short life cycles has become increasingly important. A common rule of thumb in the world of high-tech product development is that a six-month project delay can result in a 33 percent loss in product revenue share. Speed, therefore, becomes a competitive advantage; more and more organizations are relying on cross-functional project teams to get new products and services to the market as quickly as possible.

Knowledge Explosion The growth in new knowledge has increased the complexity of projects because proj- ects encompass the latest advances. For example, building a road 30 years ago was a somewhat simple process. Today, each area has increased in complexity, including materials, specifications, codes, aesthetics, equipment, and required specialists. Simi- larly, in today’s digital, electronic age it is becoming hard to find a new product that does not contain at least one microchip. Product complexity has increased the need to integrate divergent technologies. Project management has emerged as an important discipline for achieving this task.

Triple Bottom Line (Planet, People, Profit) The threat of global warming has brought sustainable business practices to the fore- front. Businesses can no longer simply focus on maximizing profit to the detriment of the environment and society. Efforts to reduce carbon imprint and utilize renewable resources are realized through effective project management. The impact of this move- ment toward sustainability can be seen in changes in the objectives and techniques used to complete projects. See Snapshot from Practice 1.5: Dell Children’s Becomes World’s First “Green” Hospital.

Increased Customer Focus Increased competition has placed a premium on customer satisfaction. Customers no longer simply settle for generic products and services. They want customized products

Understand the impor- tance of projects in im- plementing organization strategy.

1-4LO

Chapter 1 Modern Project Management 13

Businesses thrive and survive based on their ability to manage projects that produce pro-

ducts and services that meet mar- ket needs. Below is a small sample of projects that are important to their company’s future.

Panama: The Third Set of Locks Project The expansion of the Panama Canal is scheduled to be operational in 2016. The project doubles the capac- ity of the Panama Canal by creating a new lane of traffic and allowing more and larger ships, the new Panamax size, which are about one and a half times bigger than the current size and can carry over twice as much cargo. With the third sets of locks, the canal will be able to manage traffic demand beyond 2025 with a predicted inflationary adjusted revenue of over $6.2 billion per year.

Molinski, D., “Panama Canal, Consortium Reach Deal to Complete Work,” The Wall Street Journal, February 28, 2014.

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