The technical and sociocultural dimensions of project management

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

Front endsheets Color: 2 Pages: 2,3

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

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

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

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

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

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

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

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

Chapter 9 Reducing Project Duration 6.5.2.7 Schedule compression

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

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

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

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

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

Chapter 15 International Projects G.7 Culture awareness

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

Chapter 17 Agile PM 6.1.2.2 Rolling wave

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

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Project Management

The Managerial Process

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The McGraw-Hill/Irwin Series Operations and Decision Sciences

OPERATIONS MANAGEMENT

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

Benton, Purchasing and Supply Chain Management, Second Edition

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

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

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

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

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

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

Gehrlein, Operations Management Cases, First Edition

Harrison and Samson, Technology Management, First Edition

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

Hill, Manufacturing Strategy: Text & Cases, Third Edition

Hopp, Supply Chain Science, First Edition

Hopp and Spearman, Factory Physics, Third Edition

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

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

Jacobs and Chase Operations and Supply Management, Thirteenth Edition

Jacobs and Whybark, Why ERP? First Edition

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

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

Nahmias, Production and Operations Analysis, Sixth Edition

Olson, Introduction to Information Systems Project Management, Second Edition

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

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

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

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

Stevenson, Operations Management, 10th Edition

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

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

Ulrich and Eppinger, Product Design and Development, Fourth Edition

Zipkin, Foundations of Inventory Management, First Edition

QUANTITATIVE METHODS AND MANAGEMENT SCIENCE

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

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

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Project Management

The Managerial Process Fifth Edition

Erik W. Larson Oregon State University

Clifford F. Gray Oregon State University

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PROJECT MANAGEMENT: THE MANAGERIAL PROCESS

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

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

This book is printed on acid-free paper.

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

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

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

Library of Congress Cataloging-in-Publication Data

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

www.mhhe.com

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v

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

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

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

Oliver Wendell Holmes, Jr.

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

C.F.G.

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

T. S. Eliot

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

E.W.L

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vii

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

Audience

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

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

Content

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

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

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

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

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

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

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

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

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

Student Learning Aids

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

Acknowledgments

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

Preface ix

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

Erik W. Larson

Clifford F. Gray

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

I know.

I can do.

I can adapt to new situations.

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

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Brief Contents Preface vii

1. Modern Project Management 2

2. Organization Strategy and Project Selection 22

3. Organization: Structure and Culture 64

4. Defining the Project 100

5. Estimating Project Times and Costs 126

6. Developing a Project Plan 156

7. Managing Risk 210

8. Scheduling Resources and Costs 252

9. Reducing Project Duration 304

10. Leadership: Being an Effective Project Manager 338

11. Managing Project Teams 374

12. Outsourcing: Managing Interorganizational Relations 418

13. Progress and Performance Measurement and Evaluation 452

14. Project Closure 504

15. International Projects 532

16. Oversight 564

17. An Introduction to Agile Project Management 582

18. Project Management Career Paths 602

APPENDIX One Solutions to Selected Exercises 611

Two Computer Project Exercises 625

GLOSSARY 642 ACRONYMS 651 PROJECT MANAGEMENT EQUATIONS 652 INDEX 653

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Contents Preface vii

Chapter 1 Modern Project Management 2

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

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

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

Summary 16

Chapter 2 Organization Strategy and Project Selection 22

The Strategic Management Process: An Overview 24

Four Activities of the Strategic Management Process 26

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

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

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

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