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Project Management

The Managerial Process Eighth Edition

Erik W. Larson

Clifford F. Gray Oregon State University

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PROJECT MANAGEMENT: THE MANAGERIAL PROCESS, EIGHTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2021 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2018, 2014, and 2011. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

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Library of Congress Cataloging-in-Publication Data

Names: Gray, Clifford F., author. | Larson, Erik W., 1952- author. Title: Project management : the managerial process / Erik W. Larson, Clifford F. Gray, Oregon State University. Description: Eighth edition. | New York, NY : McGraw-Hill Education, [2021] | Clifford F. Gray appears as the first named author in earlier editions. | Includes bibliographical references and index. | Summary: “Our motivation in writing this text continues to be to provide a realistic, socio-technical view of project management. In the past, textbooks on project management focused almost exclusively on the tools and processes used to manage projects and not the human dimension”– Provided by publisher. Identifiers: LCCN 2019028390 (print) | LCCN 2019028391 (ebook) | ISBN 9781260238860 (paperback) | ISBN 1260238865 (paperback) | ISBN 9781260242379 (ebook) Subjects: LCSH: Project management. | Time management. | Risk management. Classification: LCC HD69.P75 G72 2021 (print) | LCC HD69.P75 (ebook) | DDC 658.4/04–dc23 LC record available at https://lccn.loc.gov/2019028390 LC ebook record available at https://lccn.loc.gov/2019028391

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

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vii

Erik W. Larson ERIK W. LARSON is professor emeritus of project management at the College of Business, Oregon State University. He teaches executive, graduate, and undergraduate courses on project management and leadership. His research and consulting activities focus on project management. He has published numerous articles on matrix manage- ment, product development, and project partnering. He has been honored with teach- ing awards from both the Oregon State University MBA program and the University of Oregon Executive MBA program. He has been a member 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. He was a visiting professor at Chulalongkorn University in Bangkok, Thailand, and at Baden-Wuerttemberg Cooperative State University in Bad Mergentheim, Germany. He received a B.A. in psychology from Claremont McKenna College and a Ph.D. in management from State University of New York at Buffalo. He is a certified Project Management Professional (PMP) and Scrum master.

Clifford F. Gray CLIFFORD F. GRAY is professor emeritus of management at the College of Business, Oregon State University. He has personally taught more than 100 executive develop- ment seminars and workshops. 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 Management International, Inc. (a training and consulting firm specializing in project management) 1977–2005. He received his B.A. in economics and management from Millikin University, M.B.A. from Indiana University, and doc- torate in operations management from the College of Business, University of Oregon. He is a certified Scrum master.

About the Authors

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viii

“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.

“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” Bernard Shaw, Man and Superman

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

E.W.L

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ix

Our motivation in writing this text continues to be to provide a realistic, socio-technical view of project management. In the past, textbooks on project management focused almost exclusively on the tools and processes used to manage projects and not the human dimension. This baffled us, since people, not tools, complete projects! While we firmly believe that mastering tools and processes is essential to successful project man- agement, we also believe that the effectiveness of these tools and methods is shaped and determined by the prevailing culture of the organization and interpersonal dynamics of the people involved. Thus, we try to provide a holistic view that focuses on both the technical and social dimensions and how they interact to determine the fate of 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 success- ful completions of their projects. The text should prove useful to students and prospec- tive project managers in helping them understand why organizations have developed a formal project management process to gain a competitive advantage. Readers will find the concepts and techniques discussed in enough detail to be 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 implementation as well as the operations of inher- ited 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 Profes- sional) or CAPM (Certified Associate in Project Management) certification exams. The text has in-depth coverage of the most critical topics found in PMI’s Project Management Body of Knowledge (PMBOK). People at all levels in the organization assigned to work on projects will find the text useful not only in providing them with a rationale for the use of project management processes but also because of the insights they will gain into how to enhance their contributions to project success.

Our emphasis is not only on how the management process works but also, and 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 manage a variety of projects in a variety of 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 orga- nizations that carry out many small projects while the daily effort of delivering prod- ucts or services continues.

Preface

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Content

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

∙ All material has been reviewed and revised based on the latest edition of Project Management Body of Knowledge (PMBOK), Sixth Edition, 2017.

∙ Discussion questions for most Snapshots from Practice are now at the end of each chapter.

∙ Many of the Snapshots from Practice have been expanded to more fully cover the examples.

∙ Agile Project Management is introduced in Chapter 1 and discussed when appropri- ate in subsequent chapters, with Chapter 15 providing a more complete coverage of the methodology.

∙ A new set of exercises have been developed for Chapter 5. ∙ New student exercises and cases have been added to chapters. ∙ The Snapshot from Practice boxes feature a number of new examples of project

management in action. ∙ The Instructor’s Manual contains a listing of current YouTube videos that corre-

spond to key concepts and Snapshots from Practice.

Overall the text addresses the major questions and challenges the authors have encountered over their 60 combined years of teaching project management and con- sulting with practicing project managers in domestic and foreign environments. These questions include the following: How should projects be prioritized? What factors con- tribute to project failure or success? How do project managers orchestrate the complex network of relationships involving vendors, subcontractors, project team members, senior management, functional managers, and customers that affect project success? What project management system can be set up to gain some measure of control? How are projects managed when the customers are not sure what they want? How do project managers work with people from foreign cultures?

Project managers must deal with all these concerns to be effective. All of these issues and problems represent linkages to a socio-technical project management per- spective. 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 is exciting. Careers will be built on successfully managing projects.

Student Learning Aids

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

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Acknowledgments

We would like to thank Scott Bailey for building the end-of-chapter exercises for Con- nect; Pinyarat Sirisomboonsuk for revising the PowerPoint slides; Ronny Richardson for updating the Instructor’s Manual; Angelo Serra for updating the Test Bank; and Pinyarat Sirisomboonsuk for providing new Snapshot from Practice questions.

Next, it is important to note that the text includes contributions from numerous students, colleagues, friends, and managers gleaned from professional conversations. We want them to know we sincerely appreciate their counsel and suggestions. Almost every exercise, case, and example in the text is drawn from a real-world project. Spe- cial thanks to managers who graciously shared their current project as ideas for exer- cises, subjects for cases, and examples for the text. 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 invalu- able insights on prioritizing projects. University students and managers deserve spe- cial accolades for identifying problems with earlier drafts of the text and exercises.

We are indebted to the reviewers of past editions who shared our commitment to elevating the instruction of project management. We thank you for your many thought- ful suggestions and for making our book better. Of course, we accept responsibility for the final version of the text.

Paul S. Allen, Rice University Victor Allen, Lawrence Technological University Kwasi Amoako-Gyampah, University of North Carolina–Greensboro Gregory Anderson, Weber State University Mark Angolia, East Carolina University Brian M. Ashford, North Carolina State University Dana Bachman, Colorado Christian University Robin Bagent, College of Southern Idaho Scott Bailey, Troy University Nabil Bedewi, Georgetown University Anandhi Bharadwaj, Emory University James Blair, Washington University–St. Louis Mary Jean Blink, Mount St. Joseph University S. Narayan Bodapati, Southern Illinois University at Edwardsville Warren J. Boe, University of Iowa Thomas Calderon, University of Akron Alan Cannon, University of Texas–Arlington Susan Cholette, San Francisco State Denis F. Cioffi, George Washington University Robert Cope, Southeastern Louisiana University

Kenneth DaRin, Clarkson University Ron Darnell, Amberton University Burton Dean, San Jose State University Joseph D. DeVoss, DeVry University David Duby, Liberty University Michael Ensby, Clarkson University Charles Franz, University of Missouri, Columbia Larry Frazier, City University of Seattle Raouf Ghattas, DeVry University Edward J. Glantz, Pennsylvania State University Michael Godfrey, University of Wisconsin–Oshkosh Jay Goldberg, Marquette University Robert Groff, Westwood College Raffael Guidone, New York City College of Technology Brian Gurney, Montana State University–Billings Owen P. Hall, Pepperdine University Chaodong Han, Towson University Bruce C. Hartman, University of Arizona Mark Huber, University of Georgia Richard Irving, York University Marshall Issen, Clarkson University

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In addition, we would like to thank our colleagues in the College of Business at Oregon State University for their support and help in completing this project. In par- ticular, we recognize Lacey McNeely, Prem Mathew, and Jeewon Chou for their help- ful advice and suggestions. We also wish to thank the many students who helped us at different stages of this project, most notably Neil Young, Saajan Patel, Katherine Knox, Dat Nguyen, and David Dempsey. Mary Gray deserves special credit for editing and working under tight deadlines on earlier editions. Special thanks go to Pinyarat (“Minkster”) Sirisomboonsuk for her help in preparing the last five editions.

Finally, we want to extend our thanks to all the people at McGraw-Hill Education for their efforts and support. First, we would like to thank Noelle Bathurst and Sarah Wood, for providing editorial direction, guidance, and management of the book’s development for the eighth edition. And we would also like to thank Sandy Wille, Sandy Ludovissy, Egzon Shaqiri, Beth Cray, and Angela Norris for managing the final production, design, supplement, and media phases of the eighth edition.

Erik W. Larson

Clifford F. Gray

Robert T. Jones, DePaul University Susan Kendall, Arapahoe Community College George Kenyon, Lamar University Robert Key, University of Phoenix Elias Konwufine, Keiser University Dennis Krumwiede, Idaho State University Rafael Landaeta, Old Dominion University Eldon Larsen, Marshall University Eric T. Larson, Rutgers University Philip Lee, Lone Star College–University Park Charles Lesko, East Carolina University Richard L. Luebbe, Miami University of Ohio Linh Luong, City University of Seattle Steve Machon, DeVry University–Tinley Park Andrew Manikas, University of Louisville William Matthews, William Patterson University Lacey McNeely, Oregon State University Carol Miller, Community College of Denver William Moylan, Lawrence Technological College of Business Ravi Narayanaswamy, University of South Carolina–Aiken Muhammad Obeidat, Southern Polytechnic State University Edward Pascal, University of Ottawa James H. Patterson, Indiana University Steve Peng, California State University–East Bay

Nicholas C. Petruzzi, University of Illinois–Urbana/ Champaign Abirami Radhakrishnan, Morgan State University Emad Rahim, Bellevue University Tom Robbins, East Carolina University Art Rogers, City University Linda Rose, Westwood College Pauline Schilpzand, Oregon State University Teresa Shaft, University of Oklahoma Russell T. Shaver, Kennesaw State University William R. Sherrard, San Diego State University Erin Sims, DeVry University–Pomona Donald Smith, Texas A&M University Kenneth Solheim, DeVry University–Federal Way Christy Strbiak, U.S. Air Force Academy Peter Sutanto, Prairie View A&M University Jon Tomlinson, University of Northwestern Ohio Oya Tukel, Cleveland State University David A. Vaughan, City University Mahmoud Watad, William Paterson University Fen Wang, Central Washington University Cynthia Wessel, Lindenwood University Larry R. White, Eastern Illinois University Ronald W. Witzel, Keller Graduate School of Management G. Peter Zhang, Georgia State University

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xiii

Established Learning Objectives Learning objectives are listed both at the beginning of each chapter and are called out as marginal elements throughout the narrative in each chapter.

Guided Tour First Pages

28

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Organization Strategy and Project Selection

OUTLINE

2.1 Why Project Managers Need to Understand Strategy

2.2 The Strategic Management Process: An Overview

2.3 The Need for a Project Priority System

2.4 Project Classification

2.5 Phase Gate Model

2.6 Selection Criteria

2.7 Applying a Selection Model

2.8 Managing the Portfolio System

Summary

LEARNING OBJECTIVES

After reading this chapter you should be able to:

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

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

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

2-4 Distinguish among three kinds of projects.

2-5 Describe how the phase gate model applies to project management.

2-6 Apply financial and nonfinancial criteria to assess the value of projects.

2-7 Understand how multi-criteria models can be used to select projects.

2-8 Apply an objective priority system to project selection.

2-9 Understand the need to manage the project portfolio.

C H A P T E R T W O

2

First Pages

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30 Chapter 2 Organization Strategy and Project Selection

global competition, and financial uncertainty. These conditions make strategy/project alignment even more essential for success.

The larger and more diverse an organization, the more difficult it is to create and maintain a strong link between strategy and projects. How can an organization ensure this link? 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 key factor to ensure the success of inte- grating the plan with projects is an open and transparent selection process 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 strong linkages of project selection and priority to the strategic plan is then discussed. The intended outcomes are clear organization focus, best use of scarce organization resources (people, equipment, capital), and improved communication across projects and departments.

2.1 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 senior management. This is old-school thinking. New-school thinking recognizes that proj- ect management is at the apex of strategy and operations. 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 organi- zation, project managers will be focused on business aspects, and their role will expand from getting the job done to achieving the business results and winning in the marketplace.”1

There are two main reasons project managers need to understand their organiza- tion’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 depending upon whether his company strives to be a product leader through inno- vation or to achieve operational excellence through low-cost solutions. Similarly, how a project manager would respond to delays may vary depending upon strategic concerns. A project 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.

The second reason project managers need to understand their organization’s strat- egy is so they can be effective project advocates. Project managers have to be able to demonstrate to senior management how their project contributes to their firm’s mission in order to garner their continued support. Project managers need to be able to explain to stakeholders why certain project objectives and priorities are critical in order to secure buy-in on contentious trade-off decisions. Finally, project managers need to explain why the project is important to motivate and empower the project team (Brown, Hyer, & Ettenson, 2013).

Explain why it is impor- tant for project manag- ers to understand their organization’s strategy.

2-1LO

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

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

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

Snapshots The Snapshot from Practice boxes have been updated to include a number of new exam- ples of project management in action. New discussion questions based on the Snapshots have been added to the end-of-chapter mate- rial and are assignable in Connect.

New and Updated Cases Included at the end of each chapter are between one and five cases that demonstrate key ideas from the text and help students understand how project management comes into play in the real world. Cases have been reviewed and updated across the eighth edition.

Instructor and Student Resources Instructors and students can access all of the supplementary resources for the eighth edition within Connect or directly at www.mhhe.com/larson8e.

First Pages

Chapter 3 Organization: Structure and Culture 87

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On entering the 24-hour Googleplex located in Mountain View, California, you feel that you are walking through a new-age college campus rather than the corporate office of a billion-dollar

business. The interconnected low-rise buildings with colorful, glass-encased offices feature upscale trap- pings—free gourmet meals three times a day, free use of an outdoor wave pool, indoor gym and large child care facility, private shuttle bus service to and from San Francisco and other residential areas—that are the envy of workers across the Bay area. These perks and others reflect Google’s culture of keeping people happy and thinking in unconventional ways.

The importance of corporate culture is no more evi- dent than in the fact that the head of Human Resources, Stacy Savides Sullivan, also has the title of chief culture officer. Her task is to try to preserve the innovative cul- ture of a start-up as Google quickly evolves into a mam- moth international corporation. Sullivan characterizes Google culture as “team-oriented, very collaborative and encouraging people to think nontraditionally, dif- ferent from where they ever worked before—work with integrity and for the good of the company and for the good of the world, which is tied to our overall mission of making information accessible to the world.” Google goes to great lengths to screen new employees to make sure not only that they have outstanding technical capa- bilities but also that they are going to fit Google’s cul- ture. Sullivan goes on to define a Google-y employee as somebody who is “flexible, adaptable, and not focusing on titles and hierarchy, and just gets stuff done.”

Google’s culture is rich with customs and traditions not found in corporate America. For example, project teams typically have daily “stand-up” meetings seven minutes after the hour. Why seven minutes after the hour?

Because Google co-founder Sergey Brin once estimated that it took seven minutes to walk across the Google campus. Everybody stands to make sure no one gets too comfortable and no time is wasted during the rapid-fire update. As one manager noted, “The whole concept of the stand-up is to talk through what everyone’s doing, so if someone is working on what you’re working on, you can discover and collaborate not duplicate.”

Another custom is “dogfooding.” This is when a project team releases the functional prototype of a future product to Google employees for them to test drive. There is a strong norm within Google to test new products and provide feedback to the developers. The project team receives feedback from thousands of Google-ys. The internal focus group can log bugs or simply comment on design or functionality. Fellow Google-ys do not hold back on their feedback and are quick to point out things they don’t like. This often leads to significant product improvements.

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

Jade/Blend Images

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

espoused by top management. How pervasive these subcultures and countercultures are affects the strength of the culture of the organization and the extent to which culture influences members’ actions and responses.

Identifying Cultural Characteristics Deciphering an organization’s culture is a highly interpretative, subjective process that requires assessment of both current and past history. The student of culture cannot simply rely on what people report about their culture. The physical environment in which people work, as well as how people act and respond to different events that occur, must be examined. Figure 3.6 contains a worksheet for diagnosing the culture of an organization. Although by no means exhaustive, the checklist often yields clues about the norms, customs, and values of an organization.

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xiv

You will find the content of this text highly practical, relevant, and current. The con- cepts discussed are relatively simple and intuitive. As you study each chapter we sug- gest you try to grasp not only how things work but also 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.

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. Resumes of managers will soon be primarily a description of their participation in and contributions to projects.

Good luck on your journey through the text and on your future projects.

Chapter-by-Chapter Revisions for the Eighth Edition

Chapter 1: Modern Project Management

∙ New Snapshot: Project Management in Action 2019. ∙ New Snapshot: London Calling: Seattle Seahawks versus Oakland Raiders. ∙ New case: A Day in the Life—2019. ∙ New section on Agile Project Management.

Chapter 2: Organization Strategy and Project Selection

∙ Chapter text refined and streamlined. ∙ New section describing the phase gate model for selecting projects.

Chapter 3: Organization: Structure and Culture

∙ New section on project management offices (PMOs). ∙ New Snapshot: 2018 PMO of the Year.

Chapter 4: Defining the Project

∙ Consistent with PMBOK 6th edition, the scope checklist includes product scope description, justification/business case, and acceptance criteria.

∙ Discussion of scope creep expanded. ∙ New case: Celebration of Color 5K.

Note to Student

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Chapter 5: Estimating Project Times and Costs

∙ Snapshot from Practice on reducing estimating errors incorporated in the text. ∙ Snapshot from Practice: London 2012 Olympics expanded. ∙ A new set of six exercises.

Chapter 6: Developing a Project Schedule

∙ Chapter 6 retitled Developing a Project Schedule to better reflect content. ∙ New case: Ventura Baseball Stadium.

Chapter 7: Managing Risk

∙ New Snapshot: Terminal Five—London Heathrow Airport. ∙ Consistent with PMBOK 6e, “escalate” added to risk and opportunity responses

and “budget” reserves replaced by “contingency” reserves.

Chapter 8 Scheduling Resources and Costs

∙ Two new exercises. ∙ New case: Tham Luang Cave Rescue.

Chapter 9: Reducing Project Duration

∙ Snapshot 9.1: Smartphone Wars updated. ∙ New case: Ventura Baseball Stadium (B).

Chapter 10: Being an Effective Project Manager

∙ Effective Communicator has replaced Skillful Politician as one of the 8 traits asso- ciated with being an effective project manager.

∙ Research Highlight 10.1: Give and Take expanded.

Chapter 11: Managing Project Teams

∙ A new review question and exercises added.

Chapter 12: Outsourcing: Managing Interorganizational Relations

∙ Snapshot 12.4: U.S. Department of Defense Value Engineering Awards updated. ∙ New exercise added.

Chapter 13 Progress and Performance Measurement and Evaluation

∙ Expanded discussion of the need for earned value management. ∙ New case: Ventura Stadium Status Report.

Chapter 14: Project Closure

∙ New case: Halo for Heroes II.

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Chapter 15: Agile Project Management

∙ Chapter revised to include discussions of Extreme programming, Kanban, and hybrid models.

∙ New Snapshot: League of Legends. ∙ New case: Graham Nash.

Chapter 16: International Projects

∙ Snapshots from Practice: The Filming of Apocalypse Now and River of Doubt expanded.

∙ New case: Mr. Wui Goes to America.

MCGRAW-HILL CUSTOMER CARE CONTACT INFORMATION At McGraw-Hill, we understand that getting the most from new technology can be challenging. That’s why our services don’t stop after you purchase our products. You can e-mail our Product Specialists 24 hours a day to get product-training online. Or you can search our knowledge bank of Frequently Asked Questions on our sup- port website. For Customer Support, call 800-331-5094 or visit www.mhhe.com/ support. One of our Technical Support Analysts will be able to assist you in a timely fashion.

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xvii

13. Progress and Performance Measurement and Evaluation 474

14. Project Closure 532

15. Agile Project Management 562

16. International Projects 590

APPENDIX One Solutions to Selected Exercises 626 Two Computer Project Exercises 639

GLOSSARY 656 ACRONYMS 663 PROJECT MANAGEMENT EQUATIONS 664 CROSS REFERENCE OF PROJECT MANAGEMENT 665 SOCIO-TECHNICAL APPROACH TO PROJECT MANAGEMENT 666 INDEX 667

Preface ix

1. Modern Project Management 2

2. Organization Strategy and Project Selection 28

3. Organization: Structure and Culture 68

4. Defining the Project 104

5. Estimating Project Times and Costs 134

6. Developing a Project Schedule 168

7. Managing Risk 212

8. Scheduling Resources and Costs 258

9. Reducing Project Duration 318

10. Being an Effective Project Manager 354

11. Managing Project Teams 390

12. Outsourcing: Managing Interorganizational Relations 434

Brief Contents

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xviii

2.8 Managing the Portfolio System 52 Senior Management Input 52

Governance Team Responsibilities 52

Balancing the Portfolio for Risks and Types

of Projects 52

Summary 54

Chapter 3 Organization: Structure and Culture 68 3.1 Project Management Structures 70

Organizing Projects within the Functional

Organization 70

Organizing Projects as Dedicated Teams 73

Organizing Projects within a Matrix

Arrangement 77

Different Matrix Forms 78

3.2 Project Management Office (PMO) 81 3.3 What Is the Right Project Management

Structure? 83 Organization Considerations 83

Project Considerations 83

3.4 Organizational Culture 84 What Is Organizational Culture? 85

Identifying Cultural Characteristics 87

3.5 Implications of Organizational Culture for Organizing Projects 89

Summary 92

Chapter 4 Defining the Project 104 4.1 Step 1: Defining the Project Scope 106

Employing a Project Scope Checklist 107

4.2 Step 2: Establishing Project Priorities 111 4.3 Step 3: Creating the Work Breakdown

Structure 113 Major Groupings in a WBS 113

How a WBS Helps the Project Manager 113

A Simple WBS Development 114

4.4 Step 4: Integrating the WBS with the Organization 118

4.5 Step 5: Coding the WBS for the Information System 118

4.6 Process Breakdown Structure 121

Preface ix

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

What a Project Is Not 7

Program versus Project 7

The Project Life Cycle 9

The Project Manager 10

Being Part of a Project Team 11

1.2 Agile Project Management 12 1.3 Current Drivers of Project Management 15

Compression of the Product Life Cycle 15

Knowledge Explosion 15

Triple Bottom Line (Planet, People, Profit) 15

Increased Customer Focus 15

Small Projects Represent Big Problems 16

1.4 Project Management Today: A Socio-Technical Approach 17

Summary 18

Chapter 2 Organization Strategy and Project Selection 28 2.1 Why Project Managers Need to

Understand Strategy 30 2.2 The Strategic Management Process:

An Overview 31 Four Activities of the Strategic Management

Process 31

2.3 The Need for a Project Priority System 36 Problem 1: The Implementation Gap 36

Problem 2: Organization Politics 37

Problem 3: Resource Conflicts and Multitasking 38

2.4 Project Classification 38 2.5 Phase Gate Model 39 2.6 Selection Criteria 41

Financial Criteria 41

Nonfinancial Criteria 43

Two Multi-Criteria Selection Models 43

2.7 Applying a Selection Model 46 Project Classification 46

Sources and Solicitation of Project Proposals 47

Ranking Proposals and Selection of Projects 49

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4.7 Responsibility Matrices 122 4.8 Project Communication Plan 124 Summary 126

Chapter 5 Estimating Project Times and Costs 134 5.1 Factors Influencing the Quality of

Estimates 136 Planning Horizon 136

Project Complexity 136

People 136

Project Structure and Organization 137

Padding Estimates 137

Organizational Culture 137

Other Factors 137

5.2 Estimating Guidelines for Times, Costs, and Resources 138

5.3 Top-Down versus Bottom-Up Estimating 139

5.4 Methods for Estimating Project Times and Costs 142

Top-Down Approaches for Estimating

Project Times and Costs 142

Bottom-Up Approaches for Estimating

Project Times and Costs 146

A Hybrid: Phase Estimating 147

5.5 Level of Detail 149 5.6 Types of Costs 150

Direct Costs 151

Direct Project Overhead Costs 151

General and Administrative (G&A)

Overhead Costs 151

5.7 Refining Estimates 152 5.8 Creating a Database for Estimating 154 5.9 Mega Prosjects: A Special Case 155 Summary 158 Appendix 5.1: Learning Curves for Estimating 164

Chapter 6 Developing a Project Schedule 168 6.1 Developing the Project Network 169 6.2 From Work Package to Network 170 6.3 Constructing a Project Network 172

Terminology 172

Basic Rules to Follow in Developing Project

Networks 172

6.4 Activity-on-Node (AON) Fundamentals 173

6.5 Network Computation Process 176 Forward Pass—Earliest Times 177

Backward Pass—Latest Times 179

Determining Slack (or Float) 180

6.6 Using the Forward and Backward Pass Information 183

6.7 Level of Detail for Activities 184 6.8 Practical Considerations 184

Network Logic Errors 184

Activity Numbering 184

Use of Computers to Develop Networks 185

Calendar Dates 185

Multiple Starts and Multiple Projects 185

6.9 Extended Network Techniques to Come Closer to Reality 188

Laddering 188

Use of Lags to Reduce Schedule Detail and

Project Duration 188

An Example Using Lag Relationships—the

Forward and Backward Pass 192

Hammock Activities 193

Summary 194

Chapter 7 Managing Risk 212 7.1 Risk Management Process 214 7.2 Step 1: Risk Identification 216 7.3 Step 2: Risk Assessment 219

Probability Analysis 222

7.4 Step 3: Risk Response Development 223 Mitigating Risk 223

Avoiding Risk 225

Transferring Risk 225

Escalating Risk 225

Retaining Risk 225

7.5 Contingency Planning 226 Technical Risks 227

Schedule Risks 229

Cost Risks 229

Funding Risks 229

7.6 Opportunity Management 230 7.7 Contingency Funding and Time Buffers 231

Contingency Reserves 231

Management Reserves 232

Time Buffers 232

7.8 Step 4: Risk Response Control 233 7.9 Change Control Management 234 Summary 237 Appendix 7.1: PERT and PERT Simulation 248

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Chapter 8 Scheduling Resources and Costs 258 8.1 Overview of the Resource Scheduling

Problem 260 8.2 Types of Resource Constraints 262 8.3 Classification of a Scheduling Problem 263 8.4 Resource Allocation Methods 263

Assumptions 263

Time-Constrained Projects: Smoothing

Resource Demand 264

Resource-Constrained Projects 265

8.5 Computer Demonstration of Resource- Constrained Scheduling 270

The Impacts of Resource-Constrained

Scheduling 274

8.6 Splitting Activities 277 8.7 Benefits of Scheduling Resources 278 8.8 Assigning Project Work 279 8.9 Multiproject Resource Schedules 280 8.10 Using the Resource Schedule to Develop a

Project Cost Baseline 281 Why a Time-Phased Budget Baseline Is Needed 281

Creating a Time-Phased Budget 282

Summary 287 Appendix 8.1: The Critical-Chain Approach 308

Chapter 9 Reducing Project Duration 318 9.1 Rationale for Reducing Project Duration 320 9.2 Options for Accelerating Project Completion 321

Options When Resources Are Not Constrained 322

Options When Resources Are Constrained 324

9.3 Project Cost-Duration Graph 327 Explanation of Project Costs 327

9.4 Constructing a Project Cost-Duration Graph 328 Determining the Activities to Shorten 328

A Simplified Example 330

9.5 Practical Considerations 332 Using the Project Cost-Duration Graph 332

Crash Times 333

Linearity Assumption 333

Choice of Activities to Crash Revisited 333

Time Reduction Decisions and Sensitivity 334

9.6 What If Cost, Not Time, Is the Issue? 335 Reduce Project Scope 336

Have Owner Take on More Responsibility 336

Outsource Project Activities or Even the

Entire Project 336

Brainstorm Cost Savings Options 336

Summary 337

Chapter 10 Being an Effective Project Manager 354 10.1 Managing versus Leading a Project 356 10.2 Engaging Project Stakeholders 357 10.3 Influence as Exchange 361

Task-Related Currencies 362

Position-Related Currencies 363

Inspiration-Related Currencies 363

Relationship-Related Currencies 363

Personal-Related Currencies 364

10.4 Social Network Building 364 Mapping Stakeholder Dependencies 364

Management by Wandering Around

(MBWA) 366

Managing Upward Relations 367

Leading by Example 369

10.5 Ethics and Project Management 372 10.6 Building Trust: The Key to Exercising

Influence 373 10.7 Qualities of an Effective Project Manager 375 Summary 378

Chapter 11 Managing Project Teams 390 11.1 The Five-Stage Team Development Model 393 11.2 Situational Factors Affecting Team

Development 395 11.3 Building High-Performance Project Teams 397

Recruiting Project Members 397

Conducting Project Meetings 399

Establishing Team Norms 401

Establishing a Team Identity 403

Creating a Shared Vision 404

Managing Project Reward Systems 406

Orchestrating the Decision-Making Process 408

Managing Conflict within the Project 410

Rejuvenating the Project Team 413

11.4 Managing Virtual Project Teams 415 11.5 Project Team Pitfalls 419

Groupthink 419

Bureaucratic Bypass Syndrome 419

Team Spirit Becomes Team Infatuation 419

Going Native 420

Summary 421

Chapter 12 Outsourcing: Managing Interorganizational Relations 434 12.1 Outsourcing Project Work 436

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12.2 Request for Proposal (RFP) 440 Selection of Contractor from Bid Proposals 441

12.3 Best Practices in Outsourcing Project Work 442

Well-Defined Requirements and Procedures 442

Extensive Training and Team-Building

Activities 444

Well-Established Conflict Management Processes

in Place 445

Frequent Review and Status Updates 447

Co-location When Needed 448

Fair and Incentive-Laden Contracts 449

Long-Term Outsourcing Relationships 449

12.4 The Art of Negotiating 450 1. Separate the People from the Problem 451

2. Focus on Interests, Not Positions 452

3. Invent Options for Mutual Gain 453

4. When Possible, Use Objective Criteria 454

Dealing with Unreasonable People 454

12.5 A Note on Managing Customer Relations 455 Summary 458 Appendix 12.1: Contract Management 467

Chapter 13 Progress and Performance Measurement and Evaluation 474 13.1 Structure of a Project Monitoring Information

System 476 What Data Are Collected? 476

Collecting Data and Analysis 476

Reports and Reporting 476

13.2 The Project Control Process 477 Step 1: Setting a Baseline Plan 477

Step 2: Measuring Progress and Performance 477

Step 3: Comparing Plan against Actual 477

Step 4: Taking Action 478

13.3 Monitoring Time Performance 478 Tracking Gantt Chart 478

Control Chart 479

Milestone Schedules 479

13.4 Earned Value Management (EVM) 480 The Need for Earned Value Management 480

Percent Complete Rule 484

What Costs Are Included in Baselines? 484

Methods of Variance Analysis 485

13.5 Developing a Status Report: A Hypothetical Example 487

Assumptions 487

Baseline Development 487

Development of the Status Report 488

13.6 Indexes to Monitor Progress 492 Performance Indexes 493

Project Percent Complete Indexes 494

Software for Project Cost/Schedule Systems 494

Additional Earned Value Rules 495

13.7 Forecasting Final Project Cost 496 13.8 Other Control Issues 498

Technical Performance Measurement 498

Scope Creep 500

Baseline Changes 500

The Costs and Problems of Data Acquisition 502

Summary 503 Appendix 13.1: The Application of Additional Earned Value Rules 522 Appendix 13.2: Obtaining Project Performance

Information from MS Project 2010 or 2016 528

Chapter 14 Project Closure 532 14.1 Types of Project Closure 534 14.2 Wrap-up Closure Activities 536 14.3 Project Audits 539

The Project Audit Process 540

Project Retrospectives 543

14.4 Project Audits: The Big Picture 543 Level 1: Ad Hoc Project Management 546

Level 2: Formal Application of Project

Management 546

Level 3: Institutionalization of Project

Management 547

Level 4: Management of Project Management

System 547

Level 5: Optimization of Project Management

System 548

14.5 Post-implementation Evaluation 548 Team Evaluation 548

Individual, Team Member, and Project Manager

Performance Reviews 550

Summary 552 Appendix 14.1: Project Closeout Checklist 555

Chapter 15 Agile Project Management 562 15.1 Traditional versus Agile Methods 564 15.2 Agile PM 566 15.3 Agile PM in Action: Scrum 569

Roles and Responsibilities 570

Scrum Meetings 572

Product and Sprint Backlogs 573

Sprint and Release Burndown Charts 575

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15.4 Extreme Programming and Kanban 576 Kanban 577

15.5 Applying Agile PM to Large Projects 578 15.6 Limitations and Concerns 580 15.7 Hybrid Models 580 Summary 581

Chapter 16 International Projects 590 16.1 Environmental Factors 592

Legal/Political Factors 593

Security 593

Geography 594

Economic Factors 594

Infrastructure 596

Culture 597

16.2 Project Site Selection 599 16.3 Cross-Cultural Considerations:

A Closer Look 600 Adjustments 601

Working in Mexico 602

Working in France 605

Working in Saudi Arabia 606

Working in China 608

Working in the United States 609

Summary Comments about Working in Different

Cultures 611

Culture Shock 611

16.4 Selection and Training for International Projects 614

Summary 617

Appendix One: Solutions to Selected Exercises 626

Appendix Two: Computer Project Exercises 639

Glossary 656 Acronyms 663 Project Management Equations 664 Cross Reference of Project Management 665 Socio-Technical Approach to Project Management 666 Index 667

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Project Management

The Managerial Process

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Modern Project Management

OUTLINE

1.1 What Is a Project?

1.2 Agile Project Management

1.3 Current Drivers of Project Management

1.4 Project Management Today: A Socio-Technical Approach

Summary

Text Overview

LEARNING OBJECTIVES

After reading this chapter you should be able to:

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

1-2 Distinguish a project from routine operations.

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

1-4 Describe how Agile PM is different from traditional PM.

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

C H A P T E R O N E

1

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All of mankind’s greatest accomplishments—from building the great

pyramids to discovering a cure for polio to putting a man on the moon—

began as a project.

This is a good time to be reading a book about project management. Business leaders and experts have recognized that project management is critical to sustainable economic growth. New jobs and competitive advantage are achieved by constant inno- vation, developing new products and services, and improving both productivity and quality of work. This is the world of project management. Project management pro- vides people with a powerful set of tools that improves their ability to plan, implement, and manage activities to accomplish specific objectives. But project management is more than just a set of tools; it is a results-oriented management style that places a premium on building collaborative relationships among a diverse cast of characters. Exciting opportunities await people skilled in project management.

The project approach has long been the style of doing business in the construc- tion industry, U.S. Department of Defense contracts, and Hollywood, as well as big consulting firms. Now project management has spread to all avenues of work.

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

1-1LO

Project networks

6

Managing risk 7

Monitoring progress

13

Teams 11

Outsourcing 12

Project manager

10

Strategy 2

Introduction 1

Organization 3

Schedule resources & costs

8

15 Agile

PM

16

Project closure

14

Estimate 5

Reducing duration

9

Define project

4

Internationalprojects

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Today, project teams carry out everything from port expansions to hospital restructur- ing to upgrading information systems. They are creating next-generation fuel-efficient vehicles, developing sustainable sources of energy, and exploring the farthest reaches of outer space. The impact of project management is most profound in high-tech industries, where the new folk heroes are young professionals whose Herculean efforts lead to the constant flow of new hardware and software products.

Project management is not limited to the private sector. Project management is also a vehicle for doing good deeds and solving social problems. Endeavors such as provid- ing emergency aid to areas hit by natural disasters, devising a strategy for reducing crime and drug abuse within a city, or organizing a community effort to renovate a public playground would and do benefit from the application of modern project management techniques.

Perhaps the best indicator of demand for project management can be seen in the rapid expansion of the Project Management Institute (PMI), a professional organiza- tion for project managers. PMI membership has grown from 93,000 in 2002 to more than 565,000 in 2019. See Snapshot from Practice 1.1: The Project Management Insti- tute 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) is spent on projects each year in the United States alone. Other countries are increasingly spending more on projects. Millions of people around the world consider project management the major task in their profession.

The Project Management Institute (PMI) was founded in 1969 as an inter- national society for project managers. Today PMI has members from more than 180 countries and more than

565,000 members. PMI professionals come from virtu- ally every major industry, including aerospace, automo- tive, business management, construction, engineering, financial services, information technology, pharmaceu- ticals, healthcare, and telecommunications.

PMI provides certification as a Project Manage- ment Professional (PMP)—someone who has docu- mented sufficient project experience, agreed to follow the PMI code of professional conduct, and demon- strated mastery of the field of project management by passing a comprehensive examination based on the Project Management Body of Knowledge (PMBOK), which is in its 6th edition. The number of people earning PMP status has grown dramatically in recent years. In 1996 there were fewer than 3,000 certified Project Management Professionals. By 2019 there were more than 910,000 PMPs.

Just as the CPA exam is a standard for accountants, passing the PMP exam may become the standard for

S N A P S H O T F R O M P R A C T I C E 1 . 1 The Project Management Institute*

project managers. Some companies are requiring that all their project managers be PMP certified. Moreover, many job postings are restricted to PMPs. Job seekers, in general, are finding that being PMP certified is an advantage in the marketplace.

PMI added a certification as a Certified Associate in Project Management (CAPM). CAPM is designed for project team members and entry-level project manag- ers, as well as qualified undergraduate and graduate students who want a credential to recognize their mastery of the project management body of knowl- edge. CAPM does not require the extensive project management experience associated with the PMP. In fact, students often qualify for taking the CAPM exam by taking a course on project management. For more details on PMP and CAPM, google PMI to find the current website for the Project Management Institute.

This text provides a solid foundation for passing either exam. However, we personally found it neces- sary to study a good PMP/CAPM exam “prep book” to pass the exam. This is recommended, given the format and nature of the exam.

*PMI Today, March 2019, p. 4.

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Most of the people who excel at managing projects never have the title of project manager. They include accountants, lawyers, administrators, scientists, contractors, coaches, public health officials, teachers, and community advocates whose suc- cess depends upon being able to lead and manage project work. For some, the very nature of their work is project driven. Projects may be cases for lawyers, audits for accountants, events for artists, and renovations for contractors. For others, projects may be a small but critical part of their work. For example, a high school teacher who teaches four classes a day is responsible for coaching a group of students to compete in a national debate competition. A store manager who oversees daily operations is charged with developing an employee retention program. A sales account executive is given the additional assignment of team lead to launch daily deals into a new city. A public health official who manages a clinic is also responsible for organizing a Homeless Youth Connect event. For these and others, project management is not a title but a critical job requirement. It is hard to think of a profession or a career path that would not benefit from being good at managing projects.

Not only is project management critical to most careers, but also the skill set is trans- ferable across most businesses and professions. 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 opera- tions, and so forth. In a world where it is estimated that each person is likely to experi- ence 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 manage- ment, primarily for engineers. Today most universities offer multiple sections of

senior citizens that combines principles of yoga and aerobics.

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

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

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

6. Management: Implement a new store layout design. 7. Pre-med neurology student: Join a project team