Scope and limitation of computerized inventory system

List of Cases by Chapter

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

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

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

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

Chapter 3 Project Selection Procedures: A Cross-Industry

Sampler 77 Project Selection and Screening at GE: The Tollgate

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

Chapter 4 Leading by Example for the London Olympics—

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

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

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

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

Chapter 6 Engineers Without Borders: Project Teams Impacting

Lives 187 Tele-Immersion Technology Eases the Use of Virtual

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

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

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

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

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

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

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

to the Surface: The Caspian Kashagan Project 297

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

Chapter 11 Developing Projects Through Kickstarter—Do Delivery

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

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

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

Gas Pipeline 401 The Problems of Multitasking 427

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

Chapter 14 Duke Energy and Its Cancelled Levy County Nuclear

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

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

Warship—Until the Next Bad Idea 500

Project ManageMent achieving coMPetitive advantage

Jeffrey K. Pinto Pennsylvania State University

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

Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

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

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

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

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

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Library of Congress Cataloging-in-Publication Data

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

10 9 8 7 6 5 4 3 2 1

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

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

BrIEF COnTEnTS

Preface xiii

Chapter 1 Introduction: Why Project Management? 1

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

Chapter 3 Project Selection and Portfolio Management 76

Chapter 4 Leadership and the Project Manager 115

Chapter 5 Scope Management 144

Chapter 6 Project Team Building, Conflict, and Negotiation 186

Chapter 7 Risk Management 223

Chapter 8 Cost Estimation and Budgeting 256

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

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

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

Chapter 12 Resource Management 400

Chapter 13 Project Evaluation and Control 431

Chapter 14 Project Closeout and Termination 477

Appendix A The Cumulative Standard Normal Distribution 509

Appendix B Tutorial for MS Project 2013 510

Appendix C Project Plan Template 520

Glossary 524

Company Index 534

Name Index 535

Subject Index 538

iv

COnTEnTS

Preface xiii

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

Introduction 4

1.1 What Is a Project? 5 General Project Characteristics 6

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

Media Initiative 10

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

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

1.5 Developing Project Management Maturity 19

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

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

Project Profile: Tesla’s $5 Billion Gamble 37

Introduction 38

2.1 Projects and Organizational Strategy 39

2.2 Stakeholder Management 41 Identifying Project Stakeholders 42 Managing Stakeholders 45

2.3 Organizational Structure 47

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

◾ Box 2.1: Project Management Research in Brief 56

2.5 Project Management Offices 57

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

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

Contents v

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

Introduction 78

3.1 Project Selection 78

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

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

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

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

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

Introduction 117

4.1 Leaders Versus Managers 118

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

◾ Box 4.1: Project Management Research in Brief 124

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

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

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

Project Profile: The Challenge of Managing Internationally 133

4.6 Project Management Professionalism 134

vi Contents

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

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

Web Site 145

Introduction 146

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

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

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

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

5.5 Control Systems 167 Configuration Management 167

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

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

Introduction 188

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

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

Contents vii

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

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

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

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

of Virtual Teams 203

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

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

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

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

Introduction 225 ◾ Box 7.1: Project Managers in Practice 227

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

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

viii Contents

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

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

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

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

8.2 Cost Estimation 262 Learning Curves in Cost Estimation 266

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

◾ Box 8.2: Project Management Research in Brief 274

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

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

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

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

Introduction 298

9.1 Project Scheduling 299

9.2  Key Scheduling Terminology  300

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

9.4 Duration Estimation 307

Contents ix

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

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

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

Project Profile: Enlarging the Panama Canal 331

Introduction 333

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

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

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

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

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

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

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

Introduction 368

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

x Contents

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

◾ Box 11.1: Project Management Research in Brief 376

11.2 Extreme Programming (XP) 377

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

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

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

11.5  Critical Chain Solutions to Resource Conflicts  386

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

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

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

Gas Pipeline 401

Introduction 402

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

12.2 Resource Loading 405

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

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

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

Contents xi