Project management chapter 6 solutions

Project Management HW Chapter 6 And Appendix 6.1

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

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

Hill, Manufacturing Strategy: Text & Cases, Third Edition

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

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Jacobs and Chase Operations and Supply Management, Thirteenth Edition

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

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

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Olson, Introduction to Information Systems Project Management, Second Edition

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

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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.

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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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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

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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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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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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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Chapter 1 Modern Project Management 7

FIGURE 1.1 Project Life Cycle

L ev

el o

f ef

fo rt

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

Defining

Start Time End

Planning

Planning

Executing

Executing

Closing

Closing

example, a pharmaceutical organization could have a program for curing cancer. The cancer program includes and coordinates all cancer projects that continue over an ex- tended time horizon. 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 cornerstone 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, integration/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 deter- mine what the project will entail, when it will be scheduled, whom it will bene- fit, what quality level should be maintained, and what the budget will be.

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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 program). Time, cost, and specification measures are used for con- trol. Is the project on schedule, on budget, and meeting specifications? What are the forecasts of each of these measures? What revisions/changes are necessary?

Businesses thrive and survive based on their ability to manage projects that produce products and services that meet market needs. Below is a small sample of projects that are important to their company’s future.

COMPANY: NINTENDO Project: Next Generation Nintendo Wii Game Console According to Internet rumors, the new console will be based on entirely new hardware that will pump out HD visuals, con- tain expanded storage, and run using digitally distributed content rather than physical discs. The new console will expand the capability of Wii’s revolutionary handheld pointer device that detects movement in three dimensions. At stake is Nintendo’s position in the $10 billion plus gaming industry.

—C. Faylor, 2008

S N A P S H O T F R O M P R A C T I C E Project Management in Action: 2009

COMPANY: OAKLAND A’s BASEBALL TEAM Project: Cisco Stadium In November 2006, the future of the Oakland A’s looked bright as the team announced plans to build a new ballpark in Fremont, CA. Upon announcing plans to build a ballpark, the Oakland A’s sold the naming rights to the ballpark to Cisco Systems for $4 million/year over 30 years. The ballpark design mimicked clas- sic ballparks of the past, while combining the most advanced technology in the world. Those plans have since been derailed as opposition increased from major retailers and homeowners near the stadium site. It now appears that the A’s will have to develop a plan that may lead the team to building the ballpark in Oakland, near the coliseum, or possibly in San Jose, CA. The A’s need the new stadium to turn around lagging attendance, which has been at or near the bottom among major league baseball clubs.

—BBoA, 2009

© The McGraw-Hill Companies, Inc./Jill Braaten, photographer.

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4. Closing stage: Closing includes three activities: delivering the project product to the customer, redeploying project resources, and post-project review. Delivery of the project might include customer training and transferring documents. Rede- ployment 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 qual- ity team would expect their major effort to increase in the latter stages of the proj- ect life cycle. Because most organizations have a portfolio of projects going on

COMPANY: GENERAL MOTORS Project: Chevrolet Volt The Chevrolet Volt is a plug-in hybrid electric vehicle to go on sale in 2011. Unlike most currently available hybrids, the actual propulsion of the Volt is accomplished exclusively by the elec- tric motor, and the internal combustion engine is used as an- other charging method. What’s at stake is the future of GM. With the company’s recent emergence from bankruptcy pro- tection, the chief of GM product development, Tom Stephens, pronounced, “We cannot afford to have anything but a hit . . . every launch . . . has to be a home-run.”

—T. Krisher, 2009

COMPANY: KOREAN MIDLAND POWER CO Project: World’s Largest Tidal Turbine Farm Korean Midland Power Co. has signed an agreement with Lunar Energy, Britain’s leading tidal power company, to build a colossal 300 turbine field in the Wando Hoenggan WaterWay off the South Korean coast by 2015. The $800 million plus proj- ect is expected to provide 300MW of renewable energy, enough to power 200,000 homes. The project entails installing a series of 60 ft-high tidal turbines in deep ocean water. A 1MW pilot plant would be installed first to evaluate the environmental im- pact before the full-blown is allowed. If successful, the eco- logical impact is expected to be much less than conventional tidal barges which destroy bird habitats and hinder the pas- sage of migratory fish such as salmon and eels.

—Lunar Energy, 2008

COMPANY: MOTOROLA Project: Google Android Smart Phones Motorola is set to release multiple Google Android smart phones at several different price points. According to chief executive Sanjay Jha, Android has over 3,000 third-party

applications available and “significant developer interest” making it a “large enough eco-system” to become a success- ful platform. Motorola has seen its phone sales plummet in re- cent years. The company’s global market share has declined to 6 percent after commanding 23 percent in 2006. The new phones are seen as a key to Motorola re-establishing itself in the booming smart phone business.

—S. Segan, 2009

COMPANY: WARNER BROTHERS Project: Harry Potter and the Deathly Hallows Part I and Part II The Harry Potter film franchise is the second highest grossing film franchise of all time, with the five films released to date only slightly behind the 22 James Bond films. The adaption of the final novel in the series, Harry Potter and the Deathly Hallows, will be split into two films, with Part I scheduled to be released in 2010 and Part II in 2011. The Harry Potter franchise is seen by movie in- siders as critical to staving off the general decline in movie atten- dance due to economic woes and home entertainment systems.

—J. Kay, 2009

COMPANY: HUMAN GENOMIC SCIENCES Project: Benlysta The new drug, Benlysta, is the first treatment for lupus in de- cades to show potential far into the testing phase. Lupus is a chronic autoimmune disease in which the body attacks its own healthy tissue. Symptoms include fatigue, headaches, joint pain, light sensitivity, and rashes. Benlysta targets the specific protein that becomes overactive, causing the body to attack its own organs. At stake is relief for the millions of suf- ferers of lupus worldwide.

—C. Rothman, 2009

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concurrently, each at a different stage of each project’s life cycle, careful planning and management at the organization and project levels are imperative.

The Project Manager In a small sense 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 create 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 dissolution of their operation when the project is completed. Project managers must work with a diverse troupe of characters to complete projects. 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. Project managers are ultimately responsible for performance (frequently with too little authority). They must ensure that appropriate trade-offs are made be- tween the time, cost, and performance requirements of the project. At the same time, unlike their functional counterparts, project managers generally possess only rudimentary technical knowledge to make such decisions. Instead, they must or- chestrate 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 dif- ferent from the last. Since most projects are directed at solving some tangible problem or pursuing some useful opportunity, project managers find their work personally meaningful 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 ser- vice. Project managers are often stars in their organization and well compensated. Good project managers are always in demand. Every industry is looking for effec- tive people who can get the right things done on time. Clearly, project management 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.

The Importance of Project Management Project management is no longer a special-need management. It is rapidly becom- ing a standard way of doing business. See Snapshot from Practice: Project Man- agement in Action: 2009. 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. Sev- eral 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 manage- ment is the shortening of the product life cycle. For example, today in high-tech

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industries the product life cycle is averaging 1 to 3 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 competi- tive 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 towards sustainability can be seen in changes in the objectives and techniques used to complete projects. See Snapshot from Practice: Dell’s Children Becomes World’s First “Green” Hospital.

Corporate Downsizing The last decade has seen a dramatic restructuring of organizational life. Downsiz- ing (or rightsizing if you are still employed) and sticking to core competencies have become necessary for survival for many firms. Middle management is a mere skeleton of the past. In today’s flatter and leaner organizations, where change is a constant, project management is replacing middle management as a way of ensur- ing that things get done. Corporate downsizing has also led to a change in the way organizations approach projects. Companies outsource significant segments of project work, and project managers have to manage not only their own people but also their counterparts in different organizations.

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 and services that cater to their specific needs. This mandate requires a much closer working relationship between the provider and the receiver. Account execu- tives and sales representatives are assuming more of a project manager’s role as they work with their organization to satisfy the unique needs and requests of clients. Increased customer attention has also prompted the development of customized products and services. For example, 10 years ago buying a set of golf clubs was a rel- atively simple process: You picked out a set based on price and feel. Today, there are golf clubs for tall players and short players, clubs for players who tend to slice the ball and clubs for those who hook the ball, high-tech clubs with the latest metallurgic discovery guaranteed to add distance, and so forth. Project management is critical both to development of customized products and services and to sustaining lucrative relationships with customers.

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Small Projects Represent Big Problems The velocity of change required to remain competitive or simply keep up has cre- ated an organizational climate in which hundreds of projects are implemented concurrently. This climate has created a multiproject environment and a pleth- ora of new problems. Sharing and prioritizing resources across a portfolio of projects is a major challenge for senior management. Many firms have no idea of the problems involved with inefficient management of small projects. Small projects typically carry the same or more risk as do large projects. Small projects are perceived as having little impact on the bottom line because they do not de- mand large amounts of scarce resources and/or money. Because so many small projects are going on concurrently and because the perception of the inefficiency impact is small, measuring inefficiency is usually nonexistent. Unfortunately, many small projects soon add up to large sums of money. Many customers and millions of dollars are lost each year on small projects in product and service organizations. Small projects can represent hidden costs not measured in the accounting system.

Dateline 1/7/2009, Austin Texas: Dell Children’s Medical Center becomes the first hospital in the world to receive platinum LEED (Leader- ship in Energy & Environmental Design) certifi-

cation. Platinum certification is the highest award granted by the U.S. Green Building Council. Dell Children’s occupies nearly one-half million square feet on 32 acres that were once part of Austin’s old Mueller Airport. Its environmentally sensitive design not only conserves water and electricity, but positively impacts the hospital’s clinical environment by improving air quality, making natural sunlight readily available, and reducing a wide range of pollutants. In order to receive LEED certification, buildings are rated in five key areas: sustainable site development, water savings, energy efficiency, materials selection, and environmental quality. Listed below are some of the accomplishments in each LEED category:

Sustainable Site

• 47,000 tons of Mueller Airport runway material was reused on site.

• About 40 percent fly ash instead of Portland cement in con- crete yields a drop in carbon dioxide emissions equivalent to taking 450 cars off the road.

• 925 tons of construction waste was recycled on site.

Water Efficiency and Water Conservation

• Reclaimed water is used for irrigation; xeriscaped land- scaping uses native plants, which require less water.

• Low-flow plumbing fixtures.

S N A P S H O T F R O M P R A C T I C E Dell Children’s Becomes World’s First “Green” Hospital*

Energy Efficiency and Energy Conservation

• An on-site natural gas turbine supplies all electricity, which is 75 percent more efficient than coal-fired plants.

• Converted steam energy from a heating/cooling plant sup- plies all chilled water needs.

Indoor Environment Quality and Lighting

• Most interior spaces are within 32 feet of a window. • Motion and natural light sensors shut off unneeded lights.

Conservation of Materials and Resources

• Use of local and regional materials saves fuel for shipping.

• Special paints and flooring emit low levels of volatile or- ganic compounds (VOCs).

“Even before the first plans were drawn up, we set our sight on creating a world-class children’s hospital, and becoming the first LEED Platinum hospital in the world was definitely part of that,” said Robert Bonar, president and CEO, Dell Children’s Medical Center of Central Texas. “Our motivation to pursue LEED Platinum was not just environmental. Being a ‘green’ hospital has profound, measurable effect on healing. What’s good for the environment and good for our neighbors is also good for our patients.”

* Austin Business Journal, 1-11-2009; www.dellchildrens.net/about_us/ news/2009/01/08

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www.dellchildrens.net/about_us/news/2009/01/08
www.dellchildrens.net/about_us/news/2009/01/08
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Organizations with many small projects going on concurrently face the most difficult project management problems. A key question becomes one of how to create an organizational environment that supports multiproject management. A process is needed to prioritize and develop a portfolio of small projects that sup- ports the mission of the organization. In summary, there are a variety of environmental forces interacting in today’s business world that contribute to the increased demand for good project manage- ment across all industries and sectors. Project management appears to be ideally suited for a business environment requiring accountability, flexibility, innovation, speed, and continuous improvement.

Project Management Today—An Integrative Approach Competing in a global market influenced by rapid change, innovation, and time to market means organizations manage more and more projects. Some means for coordinating and managing projects in this changing environment is needed. Centralization of project management processes and practices has been the prac- tical outcome. For example, Dell, IBM, Hewlett-Packard, and Intel all have over 1,000 projects being implemented concurrently every day of the year across bor- ders and differing cultures. Questions: How do these organizations oversee the management of all these projects? How were these projects selected? How do they ensure performance measurement and accountability? How can project management continually improve? Centralization entails integration of all project processes and practices to improve project management. Integration is designed to improve project management in the whole organiza- tion over the long haul. The rationale for integration of project management was to provide senior management with:

• An overview of all project management activities; • A big picture of how organizational resources are being used; • An assessment of the risk their portfolio of projects represents; • A rough metric for measuring the improvement of managing projects relative

to others in the industry; • Linkages of senior management with actual project execution management.

Full insight of all components of the organization is crucial for aligning internal business resources with the requirements of the changing environment. Integration enables management to have greater flexibility and better control of all project management activities. Operationally, what does project management integration mean? It necessitates combining all of the major dimensions of project management under one umbrella. Each dimension is connected in one seamless, integrated domain. Integration means applying a set of knowledge, skills, tools, and techniques to a collection of projects in order to move the organization toward its strategic goals. This integration move- ment represents a major thrust of project driven organizations across all industries. See Figure 1.2, Integrated Management of Projects.

Integration of Projects with Organizational Strategy Today, projects are the modus operandi for implementing strategy. Yet in some orga- nizations, selection and management of projects often fail to support the strategic

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plan of the organization. Strategic plans are written by one group of managers, proj- ects selected by another group, and projects implemented by another. These indepen- dent decisions by different groups of managers create a set of conditions leading to conflict, confusion, and frequently an unsatisfied customer. Under these conditions, resources of the organization are wasted in non-value-added activities/projects. Since projects are the modus operandi, strategic alignment of projects is of major importance to conserving and effective use of organization resources. Selection criteria need to ensure each project is prioritized and contributes to strategic goals. Anything less is a waste of scarce organizational resources—people, capital, and equipment. Ensuring alignment requires a selection process that is systematic, open, consistent, and balanced. All of the projects selected become part of a proj- ect portfolio that balances the total risk for the organization. Management of the project portfolio ensures that only the most valuable projects are approved and managed across the entire organization.

Integration of Projects through Portfolio Management The portfolio management domain encompasses project management oversight at the organization level through the project level. Management has the capabil- ity to zoom to a wide-angle view or zoom in to a very specific element of a spe- cific project activity or process. Full insight of all components of the organization is crucial for aligning internal business resources with the requirements of the changing environment. Project portfolios are frequently managed by a project of- fice that serves as a bridge between senior management and project managers and teams. The major functions of portfolio management are to

• Oversee project selection. • Monitor aggregate resource levels and skills. • Encourage use of best practices. • Balance projects in the portfolio in order to represent a risk level appropriate to

the organization. • Improve communication among all stakeholders. • Create a total organization perspective that goes beyond silo thinking. • Improve the overall management of projects over time.

Organizational Culture Environment

Strategic Alignment

Portfolio Management

Project Management

FIGURE 1.2 Integrated Management of Projects

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Portfolio management manages the integration of elements of organizational strategy with projects, along with their interdependencies. At the project level, the management of the portfolio is directed toward creation and use of best practices.

Integration of the Processes of Implementing Actual Projects Senior management is often involved in selecting projects but seldom involved in implementing them. Implementing the project is the challenge. There are two dimensions within the actual execution of projects (see Figure 1.3, The Technical and Sociocultural Dimensions of the Project Management Pro- cess). The first dimension is the technical side of the management process, which consists of the formal, disciplined, purely logical parts of the process. This tech- nical dimension includes planning, scheduling, and controlling projects. Clear project scope statements are written to link the project and customer and to facil- itate planning and control. Creation of the deliverables and work breakdown structures facilitates planning and monitoring the progress of the project. The work breakdown structure serves as a database that links all levels in the organi- zation, major deliverables, and all work—right down to the tasks in a work pack- age. Effects of project changes are documented and traceable. Thus, any change in one part of the project is traceable to the source by the integrated linkages of the system. This integrated information approach can provide all project manag- ers and the customer with decision information appropriate to their level and needs. A successful project manager will be well trained in the technical side of managing projects. The second and opposing dimension is the sociocultural side of project manage- ment. In contrast to the orderly world of project planning, this dimension involves the much messier, often contradictory and paradoxical world of implementation. It centers on creating a temporary social system within a larger organizational envi- ronment that combines the talents of a divergent set of professionals working to

FIGURE 1.3 The Technical and Sociocultural Dimensions of the Project Management Process

Technical

Scope WBS Schedules Resource allocation Baseline budgets Status reports

Sociocultural

Leadership Problem solving Teamwork Negotiation Politics Customer expectations

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There are powerful environmental forces contributing to the rapid expansion of project management approaches to business problems and opportunities. A project is defined as a nonroutine, one-time effort limited by time, resources, and perfor- mance specifications designed to meet customer needs. One of the distinguishing characteristics of project management is that it has both a beginning and an end and typically consists of four phases: defining, planning, executing, and closing.

Summary

16

The phrase “works well with others” has long been a staple on grade school report cards; now, in the IT world, it’s the No. 1 criterion for manage- ment candidates. In a nationwide survey con- ducted in 1999, 27 percent of chief information officers (CIOs) cited strong interpersonal skills as

the single most important quality for reaching management levels. Advanced technical skills came in second, receiving 23 percent of the response. The project was sponsored by RHI Consulting, which pro- vides information technology professionals on a project ba- sis. An independent research firm was hired to administer the survey. Over 1,400 CIOs responded to the questionnaire. Survey respondents were also asked: In 2005, how frequently will employees in your IT depart- ment work on project-based teams with members of other departments throughout the company?

Their responses: Very frequently 57% Somewhat frequently 26% Somewhat infrequently 10% Very infrequently 6% Never 1%

Greg Scileppi, RHI Consulting’s executive director, recom- mends that IT professionals develop their interpersonal skills. “The predominance of project teams has created a corre- sponding need for strong communication and team-player abilities. Technical staff put these skills to test daily as they work with employees at all levels to create and implement IT solutions ranging from simple troubleshooting to corporate web initiatives and system wide upgrades.”

* Joanita M. Nellenbach, “People Skills Top Technical Knowledge, CIOs Insist,” PMNetwork (August 1999), pp. 7–8.

Research Highlight Works Well with Others*

complete the project. See Research Highlight: Works Well with Others. Project managers must shape a project culture that stimulates teamwork and high levels of personal motivation as well as a capacity to quickly identify and resolve prob- lems that threaten project work. This dimension also involves managing the in- terface between the project and external environment. Project managers have to assuage and shape expectations of customers, sustain the political support of top management, negotiate with their functional counterparts, monitor subcontrac- tors, and so on. Overall, the manager must build a cooperative social network among a divergent set of allies with different standards, commitments, and perspectives. Some suggest that the technical dimension represents the “science” of project management while the sociocultural dimension represents the “art” of managing a project. To be successful, a manager must be a master of both. Unfortunately, some project managers become preoccupied with the planning and technical dimension of project management. Often their first real exposure to project management is through project management software, and they become infatuated with network charts, Gantt diagrams, and performance variances; they attempt to manage a project from a distance. Conversely, there are other managers who manage projects by the “seat of their pants,” relying heavily on team dynamics and organizational politics to complete a project. Good project managers balance their attention to both the technical and sociocultural aspects of project management.

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Text Overview This text is written to provide the reader with a comprehensive, integrative under- standing of the project management process. The text focuses both on the science of project management and the art of managing projects. Following this intro- ductory chapter, Chapter 2 focuses on how organizations go about evaluating and selecting projects. Special attention is devoted to the importance of linking project selection to the mission and strategy of the firm. The organizational environment in which projects are implemented is the focus of Chapter 3. The discussion of matrix management and other organizational forms is augmented by a discussion of the role the culture of an organization plays in the implemen- tation of projects. The next six chapters focus on developing a plan for the project; after all, proj- ect success begins with a good plan. Chapter 4 deals with defining the scope of the project and developing a work breakdown structure (WBS). The challenge of formulating cost and time estimates is the subject of Chapter 5. Chapter 6 focuses on utilizing the information from the WBS to create a project plan in the form of a timed and sequenced network of activities. Risks are a potential threat to project management, and Chapter 7 examines how organizations and managers identify and manage risks associated with proj- ect work. Resource allocation is added to the plan in Chapter 8 with special atten- tion devoted to how resource limitations impact the project schedule. After a resource schedule is established, a project time-phased budget is developed. Fi- nally, Chapter 9 examines strategies for reducing (“crashing”) project time either prior to the initiation of the project or in response to problems or new demands placed on the project. Chapters 10 through 12 focus on project implementation and the sociocultural side of project management, beginning with Chapter 10, which focuses on the role of the project manager as a leader and stresses the importance of managing project stakeholders within the organization. Chapter 11 focuses on the core project team; it combines the latest information on team dynamics with leadership skills/techniques for developing a high-performance project team. Chapter 12 continues the theme of managing project stakeholders by discussing how to out- source project work and negotiate with contractors, customers, and suppliers. Chapter 13 focuses on the kinds of information managers use to monitor proj- ect progress, with special attention devoted to the key concept of earned value. The project life cycle is completed with Chapter 14, which covers closing out a project and the important assessment of performance and lessons learned. Four “supplemental” chapters are included to augment the project management core. Implementation of project management in multicultural, international environ- ments is the subject of Chapter 15. Chapter 16 focuses the need for organizational oversight and how it impacts the management of projects. The emergence of agile project management, a more flexible approach to managing complex projects, is the subject of Chapter 17. Finally, Chapter 18 concludes with coverage of career issues in the field of project management.

Effective project management begins with selecting and prioritizing projects that support the firm’s mission and strategy. Successful implementation requires both technical and social skills. Project managers have to plan and budget projects as well as orchestrate the contributions of others.

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Key Terms Program, 6 Project, 5 Project life cycle, 6

Project Management Professional (PMP), 4

Review Questions

1. Define a project. What are five characteristics that help differentiate projects from other functions carried out in the daily operations of the organization?

2. What are some of the key environmental forces that have changed the way proj- ects are managed? What has been the effect of these forces on the management of projects?

3. Why is the implementation of projects important to strategic planning and the project manager?

4. The technical and sociocultural dimensions of project management are two sides to the same coin. Explain.

5. What is meant by an integrative approach to project management? Why is this approach important in today’s environment?

Exercises 1. Review the front page of your local newspaper, and try to identify all the proj- ects contained in the articles. How many were you able to find?

2. Individually identify what you consider to be the greatest achievements accom- plished by mankind in the last five decades. Now share your list with three to five other students in the class, and come up with an expanded list. Review these accomplishments in terms of the definition of a project. What does your review suggest about the importance of project management?

3. Individually identify projects assigned in previous terms. Were both sociocul- tural and technical elements factors in the success or difficulties in the projects?

4. Check out the Project Management Institute’s home page at www.pmi.org.

a. Review general information about PMI as well as membership information.

b. See if there is a PMI chapter in your state. If not, where is the closest one? c. Use the search function at the PMI home page to find information on Proj-

ect Management Body of Knowledge (PMBOK). What are the major knowl- edge areas of PMBOK?

d. Explore other links that PMI provides. What do these links tell you about the nature and future of project management?

Throughout this text you will be exposed to the major aspects of the project management system. However, a true understanding of project management comes not from knowing what a scope statement is, or the critical path, or part- nering with contractors, but from comprehending how the different elements of the project management system interact to determine the fate of a project. If, by the end of this text, you come to appreciate and begin to master both the technical and sociocultural dimensions of project management, you should have a distinct competitive advantage over others aspiring to work in the field of project management.

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www.pmi.org
A Day in the Life Rachel, the project manager of a large information systems project, arrives at her of- fice early to get caught up with work before her co-workers and project team arrive. However, as she enters the office she meets Neil, one of her fellow project managers, who also wants to get an early start on the day. Neil has just completed a project overseas. They spend 10 minutes socializing and catching up on personal news. It takes Rachel 10 minutes to get to her office and settle in. She then checks her voice mail and turns on her computer. She was at her client’s site the day

Case

Chapter 1 Modern Project Management 19

Note: If you have any difficulty accessing any of the Web addresses listed here or elsewhere in the text, you can find up-to-date addresses on the home page of Dr. Erik Larson, coauthor of this text: http://www.bus.oregonstate.edu/faculty/bio .htm?UserName=Larson

References Ball Parks of Baseball, “Cisco Field,” http://www.ballparksofbaseball.com/future/ CiscoField.htm (accessed June 2, 2009). Benko, C., and F. W. McFarlan, Connecting the Dots (Boston: HBS Press, 2003). Cohen, D. J., and R. J. Graham, The Project Manager’s MBA (San Francisco: Jossey-Bass, 2001). Faylor, C., “Next Generation Wii Is Rumored to Hit the Market in 2011,” Shacknews.com (Oct. 1, 2008). Kay, J., “US Box Office Spellbound by Harry Potter and the Half-Blood Prince,” www.guardian.uk.co.filmblog (accessed July 15, 2009). Krisher, T., “GM Product Chief Says New Vehicles Must be Hits,” www. businessweek.com (accessed July 20, 2009). Larkowski, K., “Standish Group Report Shows Project Success Improves 50 Per- cent,” www.standishgroup.com, 2004, Third Quarter. Lunar Energy, “British Firm Announces World’s Largest Tidal Power Develop- ment,” Lunarenergy.co.uk (March 11, 2008). Peters, T., PM Network, January 2004, Vol. 18, No. 1, p. 19. Project Management Institute, Leadership in Project Management Annual (Newton Square, PA: PMI Publishing, 2006). Project Management Institute, A Guide to the Project Management Body of Knowledge (PMBOK), (Newton Square, PA: PMI Publishing 2008). Rothman, C., “Promising New Lupus Drug Stirs Hope for Millions,” The Star- Ledger (July 21, 2009), www.nj.com/news/ledger/jersey/index.ssf?/base (accessed July 25, 2009). Sagan, Sascha, “Motorola Hangs Smartphone Future on Android,” PCMag.com (April 20, 2009). The Standish Group, CHAOS Summary 2009, pp. 1–4. Stewart, T. A., “The Corporate Jungle Spawns a New Species: The Project Man- ager,” Fortune (September 1996), pp. 14–15.

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http://www.bus.oregonstate.edu/faculty/bio.htm?UserName=Larson
http://www.bus.oregonstate.edu/faculty/bio.htm?UserName=Larson
http://www.ballparksofbaseball.com/future/CiscoField.htm
http://www.ballparksofbaseball.com/future/CiscoField.htm
www.guardian.uk.co.filmblog
www.businessweek.com
www.businessweek.com
www.standishgroup.com
www.nj.com/news/ledger/jersey/index.ssf?/base
20 Chapter 1 Modern Project Management

before until 7:30 P.M. and has not checked her e-mail or voice mail since 3:30 P.M. the previous day. There are 7 phone messages, 16 e-mails, and 4 notes left on her desk. She spends 15 minutes reviewing her schedule and “to do” lists for the day before responding to messages that require immediate attention. Rachel spends the next 25 minutes going over project reports and preparing for the weekly status meeting. Her boss, who just arrived at the office, interrupts her. They spend 20 minutes discussing the project. He shares a rumor that a team member is using stimulants on the job. She tells him that she has not seen any- thing suspicious but will keep an eye on the team member. The 9:00 A.M. project status meeting starts 15 minutes late because two of the team members have to finish a job for a client. Several people go to the cafeteria to get coffee and doughnuts while others discuss last night’s baseball game. The team members arrive, and the remaining 45 minutes of the progress review meeting surface project issues that have to be addressed and assigned for action. After the meeting Rachel goes down the hallway to meet with Victoria, another IS project manager. They spend 30 minutes reviewing project assignments since the two of them share personnel. Victoria’s project is behind schedule and in need of help. They broker a deal that should get Victoria’s project back on track. She returns to her office and makes several phone calls and returns several e-mails before walking downstairs to visit with members of her project team. Her intent is to follow up on an issue that had surfaced in the status report meeting. However, her simple, “Hi guys, how are things going?” elicits a stream of disgrun- tled responses from the “troops.” After listening patiently for over 20 minutes, she realizes that among other things several of the client’s managers are beginning to request features that were not in the original project scope statement. She tells her people that she will get on this right away. Returning to her office she tries to call her counterpart John at the client firm but is told that he is not expected back from lunch for another hour. At this time, Eddie drops by and says, “How about lunch?” Eddie works in the finance office and they spend the next half hour in the company cafeteria gossiping about inter- nal politics. She is surprised to hear that Jonah Johnson, the director of systems projects, may join another firm. Jonah has always been a powerful ally. She returns to her office, answers a few more e-mails, and finally gets through to John. They spend 30 minutes going over the problem. The conversation ends with John promising to do some investigating and to get back to her as soon as possible. Rachel puts a “Do not disturb” sign on her door, and lies down in her office. She listens to the third and fourth movement of Ravel’s string quartet in F on headphones. Rachel then takes the elevator down to the third floor and talks to the purchas- ing agent assigned to her project. They spend the next 30 minutes exploring ways of getting necessary equipment to the project site earlier than planned. She finally authorizes express delivery. When she returns to her office, her calendar reminds her that she is scheduled to participate in a conference call at 2:30. It takes 15 minutes for everyone to get online. During this time, Rachel catches up on some e-mail. The next hour is spent exchanging information about the technical requirements associated with a new version of a software package they are using on systems projects like hers. Rachel decides to stretch her legs and goes on a walk down the hallway where she engages in brief conversations with various co-workers. She goes out of her

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Chapter 1 Modern Project Management 21

way to thank Chandra for his thoughtful analysis at the status report meeting. She returns to find that John has left a message for her to call him back ASAP. She contacts John, who informs her that, according to his people, her firm’s mar- keting rep had made certain promises about specific features her system would provide. He doesn’t know how this communication breakdown occurred, but his people are pretty upset over the situation. Rachel thanks John for the information and immediately takes the stairs to where the marketing group resides. She asks to see Mary, a senior marketing manager. She waits 10 minutes before being invited into her office. After a heated discussion, she leaves 40 minutes later with Mary agreeing to talk to her people about what was promised and what was not promised. She goes downstairs to her people to give them an update on what is happen- ing. They spend 30 minutes reviewing the impact the client’s requests could have on the project schedule. She also shares with them the schedule changes she and Victoria had agreed to. After she says good night to her team, she heads upstairs to her boss’s office and spends 20 minutes updating him on key events of the day. She returns to her office and spends 30 minutes reviewing e-mails and project doc- uments. She logs on to the MS project schedule of her project and spends the next 30 minutes working with “what-if” scenarios. She reviews tomorrow’s schedule and writes some personal reminders before starting off on her 30-minute com- mute home.

1. How effectively do you think Rachel spent her day? 2. What does the case tell you about what it is like to be a project manager?

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22

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 project duration

9

Define project

4

C H A P T E R T W O

Organization Strategy and Project Selection

Organization Strategy and Project Selection The Strategic Management Process: An Overview

Scenario Planning: A Supplement to Traditional Strategic Planning

The Need for an Effective Project Portfolio Management System

A Portfolio Management System

Applying a Selection Model

Managing the Portfolio System

Summary

Appendix 2.1: Request for Proposal (RFP)

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Strategy is implemented through projects. Every project should have a clear link to the organization’s strategy.

Strategy is fundamentally deciding how the organization will compete. Organiza- tions use projects to convert strategy into new products, services, and processes needed for success. For example, Intel’s major strategy is one of differentiation. Its projects target innovation and time to market. Currently, Intel is directing its strategy toward specialty chips for products other than computers, such as au- tos, security, cell phones, air controls. Another goal is to reduce project cycle times. Intel, NEC, General Electric, and AT&T have reduced their cycle times by 20–50 percent. Projects and project management play the key role in supporting strategic goals. It is vital for project managers to think and act strategically. Aligning projects with the strategic goals of the organization is crucial for project success. Today’s economic climate is unprecedented by rapid changes in technology, global competition, and financial uncertainty. These conditions make strategy/project alignment even more essential for success. Every major project needs to have a strong linkage to the strategic plan. Ensuring a strong link between the strategic plan and projects is a difficult task that demands con- stant attention from top and middle management. The larger and more diverse an organization, the more difficult it is to create and maintain this strong link. Ample evidence still suggests that many organiza- tions have not developed a process that clearly aligns project selection to the stra- tegic plan. The result is poor utilization of the organization’s resources—people, money, equipment, and core competencies. Conversely, organizations that have a coherent link of projects to strategy have more cooperation across the organiza- tion, perform better on projects, and have fewer projects. How can an organization ensure this link and alignment? The answer requires integration of projects with the strategic plan. Integration assumes the existence of a strategic 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 proj- ects 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 projects are not linked are noted. A generic methodology that ensures integration by creating very strong linkages of project selection and priority to the strategic plan is then discussed. The intended outcomes are clear organiza- tion focus, best use of scarce organization resources (people, equipment, capital), and improved communication across projects and departments.

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24 Chapter 2 Organization Strategy and Project Selection

Why Project Managers Need to Understand Strategy Project management historically has been preoccupied solely with the planning and execution of projects. Strategy was considered to be under the purview of se- nior management. 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, project managers will be focused on business as- pects, and their role will expand from getting the job done to achieving the busi- ness results and winning in the market place.” There are two main reasons why project managers need to understand their orga- nization’s mission and strategy. The first reason is so they can make appropriate deci- sions 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 de- pending upon whether his company strives to be a product leader through innovation or to achieve operational excellence through low cost solutions. Similarly, how a proj- ect manager would respond to delays may vary depending upon strategic concerns. A project manager 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. J. P. Descamps has observed that project managers who do not understand the role their project plays in accomplishing the strategy of their organization tend to make the following serious mistakes:

• Focusing on problems or solutions that have low priority strategically • Focusing on the immediate customer rather than the whole market place and

value chain • Overemphasizing technology as an end in and of itself, resulting in projects

that wander off pursuing exotic technology that does not fit the strategy or cus- tomer need

• Trying to solve every customer issue with a product or service rather than focusing on the 20 percent with 80 percent of the value (Pareto’s Law)

• Engaging in a never-ending search for perfection that no one except the project team really cares about

The second reason project managers need to understand their organization’s strategy 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 mission. Protection and continued support come from being aligned with corporate objectives. Project managers also need to be able to explain to team members and other stakeholders why certain project objectives and priorities are critical. This is essential for getting buy-in on contentious trade-off decisions. For these reasons project managers will find it valuable to have a keen under- standing of strategic management and project selection processes, which are discussed next.

The Strategic Management Process: An Overview Strategic management is the process of assessing “what we are” and deciding and imple- menting “what we intend to be and how we are going to get there.” Strategy describes how an organization intends to compete with the resources available in the existing and perceived future environment.

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Chapter 2 Organization Strategy and Project Selection 25

Two major dimensions of strategic management are responding to changes in the external environment and allocating scarce resources of the firm to improve its competitive position. Constant scanning of the external environment for changes is a major requirement for survival in a dynamic competitive environment. The second dimension is the internal responses to new action programs aimed at en- hancing the competitive position of the firm. The nature of the responses depends on the type of business, environment volatility, competition, and the organiza- tional culture. Strategic management provides the theme and focus of the future direction of the organization. It supports consistency of action at every level of the organiza- tion. It encourages integration because effort and resources are committed to com- mon goals and strategies. See Snapshot from Practice: Move Beyond Computers. It is a continuous, iterative process aimed at developing an integrated and coordi- nated long-term plan of action. Strategic management positions the organization to meet the needs and requirements of its customers for the long term. With the

INTEL CEO Craig R. Barrett is planning his last hurrah only 15 months before his retirement as chairman of the board. His vision for INTEL is to move beyond computers: think INTEL every-

where. Barrett says, “Everything in the world is going digital.” He wants INTEL chips to be the guts of every digital device on the planet—especially in the communications, consumer electronics, and entertainment industries. Think—cell phones, wireless home networks, video players, flat panel TVs—INTEL’s expertise fits right in. He is hitting the market today with a chip technology called WiMax “that can be used to deliver high speed Internet access throughout a small city (or 30 miles) for about $100,000, which is about one-tenth the cost of rolling out fiber optic lines today.” (A competitor, WiFi, has a range of about 200 feet.) Cable and phone companies are very interested because of low entry costs. Some critics believe Barrett’s shotgun approach is too risky. He doesn’t see it that way. Rather than following INTEL’s past go-it-alone approach to new products, he wants INTEL to forge closer ties with customers by designing products they need rather than designing products no one asked for. He ad- mits going into consumer markets will be a challenge and a half. He intends to provide financial support and cooperation for companies creating new products that will use INTEL chips. Barrett feels the risk of providing financial support for smaller companies creating new products is low, even if some go bust. If most of the new products take off, risk is minimized because their markets will lead to increasing demand for new, larger, and faster PCs where INTEL manufacturing dominates cost.

S N A P S H O T F R O M P R A C T I C E Move Beyond Computers*

Implementing the new vision will not keep INTEL’s man- ufacturing from remaining on the cutting edge. By 2005 five new factories will manufacture 12-inch wafers printed with 90-nanometer circuit lines, just 0.1 percent the width of a human hair. These plants are expected to slash chip costs in half. The mission has been set: Create INTEL chips to meet the need of new digital products. Right or wrong, everyone in the organization knows the game plan and can focus their efforts in this new consumer-oriented direction. Projects related to digital products will be ranked high priority.

* Adapted from Cliff Edwards, “What Is CEO Craig Barrett Up To?” Business Week, March 8, 2004, pp. 56–64.

Courtesy Intel Corporation.

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26 Chapter 2 Organization Strategy and Project Selection

long-term position identified, objectives are set, and strategies are developed to achieve objectives and then translated into actions by implementing projects. Strategy can decide the survival of an organization. Most organizations are suc- cessful in formulating strategies for what course(s) they should pursue. However, the problem in many organizations is implementing strategies—that is, making them happen. Integration of strategy formulation and implementation often does not exist. The components of strategic management are closely linked, and all are di- rected toward the future success of the organization. Strategic management re- quires strong links among mission, goals, objectives, strategy, and implementation. The mission gives the general purpose of the organization. Goals give global tar- gets within the mission. Objectives give specific targets to goals. Objectives give rise to formulation of strategies to reach objectives. Finally, strategies require ac- tions and tasks to be implemented. In most cases the actions to be taken represent projects. Figure 2.1 shows a schematic of the strategic management process and major activities required.

Four Activities of the Strategic Management Process The typical sequence of activities of the strategic management process is outlined here; a description of each activity then follows:

1. Review and define the organizational mission. 2. Set long-range goals and objectives. 3. Analyze and formulate strategies to reach objectives. 4. Implement strategies through projects.

Review and Define the Organizational Mission The mission identifies “what we want to become,” or the raison d’être. Mission statements identify the scope of the organization in terms of its product or ser- vice. A written mission statement provides focus for decision making when shared by organizational managers and employees. Everyone in the organization should be keenly aware of the organization’s mission. For example, at one large consult- ing firm, partners who fail to recite the mission statement on demand are required to buy lunch. The mission statement communicates and identifies the purpose of the organization to all stakeholders. Mission statements can be used for evaluating organization performance. Traditional components found in mission statements are major products and services, target customers and markets, and geographical domain. In addition, statements frequently include organizational philosophy, key technologies, public image, and contribution to society. Including such factors in mission statements relates directly to business success. Mission statements change infrequently. However, when the nature of the business changes or shifts, a revised mission statement may be required. For ex- ample, Steve Jobs of Apple Computer envisioned the use of computer technol- ogy beyond the PC desktop. His mission was to look at computer technology as the vehicle for work and entertainment. As a result he developed the iPod for selling music and masterminded the development of animated movies such as Finding Nemo through the Pixar organization. See the adjacent Apple Snapshot

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Chapter 2 Organization Strategy and Project Selection 27

from Practice to find out more about how Apple’s mission shapes new product development projects. More specific mission statements tend to give better results because of a tighter focus. Mission statements decrease the chance of false directions by stakeholders. For example, compare the phrasing of the following mission statements:

Provide hospital design services. Provide voice/data design services. Provide information technology services. Increase shareholder value. Provide high-value products to our customer.

Clearly, the first two statements leave less chance for misinterpretation than the others. A rule-of-thumb test for a mission statement is, if the statement can be anybody’s mission statement, it will not provide the guidance and focus intended. The mission sets the parameters for developing objectives.

Projects

1

2

3

4

W hat are w

e now ?

W hat do w

e intend to be?

H ow

are w e going

to get there?

Internal environment— strengths and weaknesses

Review/revise mission

Review/revise mission

External environment— opportunities and threats

New goals and objectives

Portfolio of strategic choices

Strategy implementation

Project selection

FIGURE 2.1 Strategic Management Process

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