PROJECTMANAGEMENT

A Systems Approach toPlanning, Scheduling,

and Controlling

E L E V E N T H E D I T I O N

H A R O L D K E R Z N E R , P h . DSenior Executive Director for Project Management

The International Institute for LearningNew York, New York

WILEY

Contents

Preface xxiii

1 OVERVIEW 1

1.0 Introduction 11.1 Understanding Project Management 21.2 Defining Project Success 71.3 Success, Trade-Offs, and Competing Constraints 81.4 The Project Manager-Line Manager Interface 91.5 Defining the Project Manager's Role 141.6 Defining the Functional Manager's Role 151.7 Defining the Functional Employee's Role 181.8 Defining the Executive's Role 191.9 Working with Executives 191.10 Committee Sponsorship/Governance 201.11 The Project Manager as the Planning Agent 231.12 Project Champions 24 .1.13 The Downside of Proj ect Management 251.14 Project-Driven versus Non-Project-Driven Organizations 251.15 Marketing in the Project-Driven Organization 281.16 Classification of Projects 301.17 Location of the Project Manager 301.18 Differing Views of Project Management 321.19 Public-Sector Project Management 341.20 International Project Management 381.21 Concurrent Engineering: A Project Management Approach 381.22 Added Value 391.23 Studying Tips for the PMI® Project Management Certification Exam 40

Problems 42

Case StudyWilliams Machine Tool Company 44

VI I

viii CONTENTS

2 PROJECT MANAGEMENT GROWTH: CONCEPTSAND DEFINITIONS 47

2.0 Introduction 472.1 General Systems Management 482.2 Project Management: 1945-1960 48 v

2.3 Project Management: 1960-1985 492.4 Project Management: 1985-2012 552.'5 Resistance to Change 592.6 Systems, Programs, and Projects: A Definition 642.7 Product versus Project Management: A Definition 662.8 Maturity and Excellence: A Definition 682.9 Informal Project Management: A Definition 692.10 The Many Faces of Success 702.11 The Many Faces of Failure 732.12 The Stage-Gate Process 762.13 Project Life Cycles 782.14 Gate Review Meetings (Project Closure) 832.15 Engagement Project Management 842.16 Project Management Methodologies: A Definition 852.17 Enterprise Project Management Methodologies 872.18 Methodologies Can Fail 912.19 Organizational Change Management and Corporate Cultures 942.20 Project Management Intellectual Property 1002.21 Systems Thinking 1012.22 Studying Tips for the PMI® Project Management Certification Exam 104

Problems 107

Case StudyCreating a Methodology 108

ORGANIZATIONAL STRUCTURES 111

3.0 Introduction 1113.1 Organizational Work Flow 1133.2 Traditional (Classical) Organization 1143.3 Developing Work Integration Positions 1173.4 Line-Staff Organization (Project Coordinator) 1213.5 Pure Product (Projectized) Organization 1223.6 Matrix Organizational Form 1253.7 Modification of Matrix Structures 1323.8 The Strong, Weak, or Balanced Matrix 1363.9 Center for Project Management Expertise 1363.10 Matrix Layering 137

Contents JX

3.11 Selecting the Organizational Form 1383.12 Structuring the Small Company 1433.13 Strategic Business Unit (SBU) Project Management 1463.14 Transitional Management 1473.15 Barriers to Implement ing Project Management in Emerging Markets 1493.16 Seven Fallacies that Delay Project Managemen t Maturi ty 1563.17 Studying Tips for the PMI® Project Management Certification E x a m 159

Problems. 161

Case StudiesJones and Shephard Accountants, Inc. 166Coronado Communications 168

ORGANIZING AND STAFFING THE PROJECT OFFICEAND TEAM 171

4.0 Introduction 1714.1 The Staffing Environment 1724.2 Selecting the Project Manager: An Executive Decision 1744.3 Skill Requirements for Project and Program Managers 1784.4 Special Cases in Project Manager Selection 1844.5 Selecting the Wrong Project Manager 1844.6 Next Generation Project Managers 1884.7 Duties and Job Descriptions 1894.8 The Organizational Staffing Process 1934.9 The Project Office 1994.10 The Functional Team 2044.11 The Project Organizational Chart 2054.12 Special Problems 2084.13 Selecting the Project Management Implementation Team 2104.14 Mistakes Made by Inexperienced Project Managers 2134.15 Studying Tips for the PMI® Project Management Certification Exam 214

Problems 216

MANAGEMENT FUNCTIONS 223

5.0 Introduction 2235.1 Controlling 2255.2 Directing 2255.3 Project Authority 2305.4 Interpersonal Influences 2375.5 Barriers to Project Team Development 2405.6 Suggestions for Handling the Newly Formed Team 243

CONTENTS

5.7 Team Building as an Ongoing Process 2465.8 Dysfunctions of a Team 2475.9 Leadership in a Project Environment 2505.10 Life-Cycle Leadership 2525.11 Value-Based Project Leadership 255 v

5.12 Organizational Impact 2575.13 Employee-Manager Problems 2595.14 Management Pitfalls 2625.15 Communications 2655.16 Project Review Meetings 2745.17 Project Management Bottlenecks 2755.18 Cross-Cutting Skills 2765.19 Active Listening 2775.20 Project Problem-Solving 2785.21 Brainstorming 2885.22 Project Decision-Making 2935.23 Predicting the Outcome of a Decision 3015.24 Facilitation 3035.25 Handling Negative Team Dynamics 3065.26 Communication Traps 3075.27 Proverbs and Laws 3095.28 Human Behavior Education 3115.29 Management Policies and Procedures 3125.30 Studying Tips for the PMI® Project Management Certification Exam 313

Problems 318

Case StudiesThe Trophy Project 327Communication Failures 329McRoy Aerospace 332The Poor Worker 333The Prima Donna 334The Team Meeting 335Leadership Effectiveness (A) 337Leadership Effectiveness (B) 341Motivational Questionnaire 347

MANAGEMENT OF YOUR TIME AND STRESS 355

6.0 Introduction 3556.1 Understanding Time Management 3566.2 Time Robbers 3566.3 Time Management Forms 358

Contents xi

6.4 Effective Time Management 3596.5 Stress and Burnout 3606.6 Studying Tips for the PMI® Project Management Certification Exam 362

Problems 363

Case StudyThe Reluctant Workers 364

CONFLICTS 365

7.0 Introduction 3657.1 Objectives 3667.2 The Conflict Environment 3677.3 Types of Conflicts 3687.4 Conflict Resolution 3717.5 Understanding Superior, Subordinate, and Functional Conflicts 3727.6 The Management of Conflicts 3747.7 Conflict Resolution Modes 3757.8 Studying Tips for the PMI® Project Management Certification Exam 377

Problems 379

Case StudiesFacilities Scheduling at Mayer Manufacturing 382Telestar International 383Handling Conflict in Project Management 384

8 SPECIAL TOPICS 391

8.0 Introduction 3928.1 Performance Measurement 3928.2 Financial Compensation and Rewards 3998.3 Critical Issues with Rewarding Project Teams 4058.4 Effective Project Management in the Small Business Organization 4088.5 Mega Projects 4108.6 Morality, Ethics, and the Corporate Culture 4118.7 Professional Responsibilities 4148.8 Internal Partnerships 4178.9 External Partnerships 4188.10 Training and Education 4208.11 Integrated Product/Project Teams 4228.12 Virtual Project Teams 4248.13 Breakthrough Projects 427

XII CONTENTS

8.14 Managing Innovation Projects 4278.15 Agile Project Management 4308.16 Studying Tips for the PMI® Project Management Certification Exam 431

Problems 437

Case StudyIs It Fraud? 440

THE VARIABLES FOR SUCCESS 443

9.0 Introduction 4439.1 Predicting Project Success 4449.2 Project Management Effectiveness 4489.3 Expectations 4499.4 Lessons Learned 4509.5 Understanding Best Practices 4519.6 Best Practices versus Proven Practices 4589.7 Studying Tips for the PMI® Project Management Certification Exam 459

Problems 460

Case StudyRadiance International 460

10 WORKING WITH EXECUTIVES 463

10.0 Introduction 46310.1 The Project Sponsor 46410.2 Handling Disagreements with the Sponsor 47410.3 The Collective Belief 47510.4 The Exit Champion 47610.5 The In-House Representatives 47710.6 Stakeholder Relations Management 47810.7 Politics 48610.8 Studying Tips for the PMI® Project Management Certification Exam 487

Problems 488

Case Studies0 Corwin Corporation 491

The Prioritization of Projects 499The Irresponsible Sponsors 500Selling Executives on Project Management 502

Contents xiii

11 PLANNING 505

11.0 Introduction 50511.1 Validating the Assumptions 50811.2 Validating the Objectives 50911.3 General Planning 510 '11.4 Life-Cycle Phases 51311.5 Proposal Preparation 51611.6 Kickoff Meetings 51611.7 Understanding Participants'Roles 51911.8 Proj ect Planning 51911.9 The Statement of Work 52111.10 Project Specifications 52611.11 Milestone Schedules 52811.12 Work Breakdown Structure 52911.13 WBS Decomposition Problems 53611.14 Work Breakdown Structure Dictionary 54011.15 Role of the Executive in Project Selection 54111.16 Role of the Executive in Planning 54611.17 The Planning Cycle 54611.17 Work Planning Authorization 54711.19 Why Do Plans Fail? 54811.20 Stopping Projects 54911.21 Handling Project Phaseouts and Transfers 55011.22 Detailed Schedules and Charts 55111.23 Master Production Scheduling 55411.24 Project Plan 55611.25 Total Project Planning 56111.26 The Project Charter 56511.27 Project Baselines 56611.28 Verification and Validation 57011.29 Requirements Traceability Matrix 57111.30 Management Control 57211.31 The Project Manager-Line Manager Interface 57511.32 Fast-Tracking 57711.33 Configuration Management 57811.34 Enterprise Project Management Methodologies 57911.35 Project Audits 58211.36 Studying Tips for the PMI® Project Management Certification Exam 583

Problems 586

12 NETWORK SCHEDULING TECHNIQUES 597

12.0 Introduction 59712.1 Network Fundamentals 600

Xiv CONTENTS

12.2 Graphical Evaluation and Review Technique (GERT) 604,12.3 Dependencies 60512.4 Slack Time 60612.5 Network Replanning 61212.6 Estimating Activity Time 616 t

12.7 Estimating Total Project Time 61712.8 Total PERT/CPM Planning 61812:9 Crash Times 62012.10 PERT/CPM Problem Areas 62312.11 Alternative PERT/CPM Models 62612.12 Precedence Networks 62712.13 Lag 63012.14 Scheduling Problems 63212.15 The Myths of Schedule Compression 63212.16 Understanding Project Management Software 63412.17 Software Features Offered 63412.18 Software Classification 63612.19 Implementation Problems 63712.20 Critical Chain 63812.21 Studying Tips for the PMI® Project Management Certification Exam 640

Problems 643

Case StudiesCrosby Manufacturing Corporation 656The Invisible Sponsor 658

13 PROJECT GRAPHICS 661

13.0 Introduction 66113.1 Customer Reporting 66213.2 Bar (Gantt) Chart 66313.3 Other Conventional Presentation Techniques 67013.4 Logic Diagrams/Networks 67313.5 Studying Tips for the PMI® Project Management Certification Exam 674

Problems 675

14 PRICING AND ESTIMATING 677

14.0 Introduction 67714.1 Global Pricing Strategies 67814.2 Types of Estimates 67914.3 Pricing Process 68214.4 Organizational Ingut Requirements 68414.5 Labor Distributions 686

Contents XV

14.6 Overhead Rates 69014.7 Materials/Support Costs 69214.8 Pricing Out the Work 69514.9 Smoothing Out Department Man-Hours 69614.10 The Pricing Review Procedure 69814.11 Systems Pricing 70014.12 Developing the Supporting/Backup Costs 70114.13 The Low-Bidder Dilemma 70514.14 Special Problems 70514.15 Estimating Pitfalls 70614.16 Estimating High-Risk Projects 70714.17 Project Risks 70814.18 The Disaster of Applying the 10 Percent Solution to Project Estimates 71214.19 Life-Cycle Costing (LCC) 71414.20 Logistics Support 71914.21 Economic Project Selection Criteria: Capital Budgeting 72014.22 Payback Period 72014.23 The Time Value of Money 72114.24 Net Present Value (NPV) 72214.25 Internal Rate of Return (IRR) 72314.26 Comparing IRR, NPV? and Payback 72414.27 Risk Analysis 72414.28 Capital Rationing 72514.29 Project Financing 72614.30 Studying Tips for the PMI® Project Management Certification Exam 728

Problems 730

Case StudyThe Estimating Problem 734

15 COST CONTROL 737

15.0 Introduction 73715.1 Understanding Control 74115.2 The Operating Cycle 74415.3 Cost Account Codes 74515.4 Budgets 75015.5 The Earned Value Measurement System (EVMS) 752

^ 15.6 Variance and Earned Value 75415.7 The Cost Baseline 77315.8 Justifying the Costs 77515.9 The Cost Overrun Dilemma 77815.10 Recording Material Costs Using Earned Value Measurement 77915.11 The Material Accounting Criterion 782

XVh CONTENTS

15.12 Material Variances: Price and Usage 78315.13 Summary Variances 78415.14 Status Reporting 78515.15 Cost Control Problems 79215.16 Project Management Information Systems 793

S 15.17 Enterprise Resource Planning 7931 . 15.18 Project Metrics 794

; 15.19 Key Performance Indicators 800, 15.20 Value-Based Metrics 806

15.21 Dashboards and Scorecards 81215.22 Business Intelligence 81515.23 Infographics 81615.24 Studying Tips for the PMI® Project Management Certification Exam 816

Problems 820

Case StudiesThe Bathtub Period 838Franklin Electronics 839Trouble in Paradise 841

16 TRADE-OFF ANALYSIS IN A PROJECT ENVIRONMENT 845

16.0 Introduction 84516.1 Methodology for Trade-Off Analysis 84816.2 Contracts: Their Influence on Projects 86516.3 Industry Trade-Off Preferences 86616.4 Conclusion 86916.5 Studying Tips for the PMI® Project Management

Certification Exam 869

17 RISK MANAGEMENT 871

17.0 Introduction 87217.1 Definition of Risk 87317.2 Tolerancfe for Risk 875.17.3 Definition of Risk Management 87617.4 Certainty, Risk, and Uncertainty 87717.5 Risk Management Process 88317.6 Plan Risk Management (11.1) 88417.7 Risk Identification (11.2) 88517.8 Risk Analysis (11.3, 11.4) 892

. 17.9 Qualitative Risk Analysis (11.3) 89717.10 Quantitative Risk Analysis (11.4) 90317.11 Probability Distributions and the Monte Carlo Process 90417.12 Plan Risk Response (11.5) 913

Contents • XVii

17.13 Monitor and Control Risks (11.6) 91917.14 Some Implementation Considerations 92017.15 The Use of Lessons Learned 92117.16 Dependencies Between Risks 92517.17 The Impact of Risk Handling Measures 93017.18 Risk and Concurrent Engineering 933

• 17.19 Studying Tips for the PMI® Project Management Certification Exam 936

Problems 940

Case StudiesTeloxy Engineering (A) 948Teloxy Engineering (B) 948The Risk Management Department 949

18 LEARNING CURVES 953

18.0 Introduction 95318.1 General Theory 95418.2 The Learning Curve Concept 95418.3 Graphic Representation 95618.4 Key Words Associated with Learning Curves 95818.5 The Cumulative Average Curve 95818.6 Sources of Experience 96018.7 Developing Slope Measures 96318.8 Unit Costs and Use of Midpoints 96418.9 Selection of Learning Curves 96518.10 Follow-On Orders 96618.11 Manufacturing Breaks 96618.^'Learning Curve Limitations 96818.13 Prices and Experience 96818.14 Competitive Weapon 97018.15 Studying Tips for the PMI® Project Management Certification Exam 971

Problems 972

19 CONTRACT MANAGEMENT 975

19.0 Introduction 97519.1 Procurement 97619.2 Plan Procurements 97819.3 Conducting the Procurements 98119.4 Conduct Procurements: Request Seller Responses 98319.5 Conduct Procurements: Select Sellers 98319.6 Types of Contracts 98719.7 Incentive Contracts 99119.8 Contract Type versus Risk 994

xviii CONTENTS

19.9 Contract Administration 99519.10 Contract Closure 99819.11 Using a Checklist 99919.12 Proposal-Contractual Interaction 100019.13 Summary 100319.14 Studying Tips for the PMI® Project Management Certification Exam 1004

Case StudiesThe Scheduling Dilemma 1009To Bid or Not to Bid 1011The Management Reserve 1012

20 QUALITY MANAGEMENT 1015

20.0 Introduction 101620.1 Definition of Quality 101720.2 The Quality Movement 101920.3 Comparison of the Quality Pioneers 102220.4 The Taguchi Approach 102320.5 The Malcolm Baldrige National Quality Award 102620.6 ISO 9000 102720.7 Quality Management Concepts 102920.8 The Cost of Quality 103220.9 The Seven Quality Control Tools 103520.10 Process Capability (CP) 105220.11 Acceptance Sampling 105420.12 Implementing Six Sigma 105420.13 Lean Six Sigma and DMAIC 105620.14 Quality Leadership 105720.15 Responsibility for Quality 105820.16 Quality Circles 105820.17 Just-In-Time Manufacturing (JIT) 105920.18 Total Quality Management (TQM) 106120.19 Studying Tips for the PMI® Project Management Certification Exam 1065

21 MODERN DEVELOPMENTS IN PROJECT MANAGEMENT 1069

21.0 Introduction 106921.1 The Project Management Maturity Model (PMMM) 107021.2. Developing Effective Procedural Documentation 107421.3 Project Management Methodologies 1078 j21.4 Continuous Improvement 107921.5 Capacity Planning 108021.6 Competency Models 108221.7 Managing Multiple Projects 108421.8 End-of-Phase Review Meetings 1085

Contents , XIX

Case StudyHonicker Corporation 1086

22 THE BUSINESS OF SCOPE CHANGES 1089

22.0 Introduction 1089•22.1 Need for Business Knowledge 1091

22.2 Timing of Scope Changes 109222.3 Business Need for a Scope Change 109322.4 Rationale for Not Approving a Scope Change 1094

Case StudyKemko Manufacturing 1094

23 THE PROJECT OFFICE 1097

23.0 Introduction 109723.1 Present-Day Project Office 109823.2 Implementation Risks 109923.3 Types of Project Offices 110023.4 Networking Project Management Offices 110123.5 Project Management Information Systems 110123.6 Dissemination of Information- 110323.7 Mentoring 110423.8 Development of Standards and Templates 110523.9 Project Management Benchmarking 110523.10 Business Case Development 110623.11 Customized Training (Related to Project Management) 110723.12 Managing Stakeholder Relations 110823.13 Continuous Improvement 110923.14 Capacity Planning 110923.15 Risks of Using a Project Office 111023.16 Project Portfolio Management 1111

Case StudyThe Project Management Lawsuit 1116

24 MANAGING CRISIS PROJECTS 1119

24.0 Introduction 111924.1 Understanding Crisis Management 111924.2 Ford versus Firestone 112124.3 The Air France Concorde Crash 112224.4 Intel and the Pentium Chip 112324.5 The Russian Submarine Kursk 112324.6 The Tylenol Poisonings 1124

XX - CONTENTS

24.7 Nestle 's Marketing of Infant Formula 112724.8 The Space Shuttle Challenger Disaster 112924.9 The Space Shuttle Columbia Disaster 113024.10 Victims Versus Villains 113124.11 Life-Cycle Phases 113224.12 Project Management Implications 1133

25 FUTURE OF PROJECT MANAGEMENT 1135

25.0 Changing Times 113525.1 Complex Projects 113925.2 Complexity Theory 114425.3 Scope Creep 114525.4 Project Health Checks 115125.5 Managing Troubled Projects 1155

26 THE RISE, FALL, AND RESURRECTION OF IRIDIUM:A PROJECT MANAGEMENT PERSPECTIVE 1167

26.0 Introduction 116726.1 Naming the Project "Iridium" 116926.2 Obtaining Executive Support 117026.3 Launching the Venture 117026.4 The Iridium System 117226.5 The Terrestrial and Space-Based Network 117226.6 Project Initiation: Developing the Business Case 117326.7 The "Hidden" Business Case 117526.8 Risk Management 117526.9 The Collective Belief 117726.10 The Exit Champion 117726.11 Iridium's Infancy Years 117826.12 Debt Financing 118126.13 The M-Star Project 118226.14 A New CEO 118326.15 Satellite Launches 118326.16 An Initial Public Offering (IPO). 118426.17 Signing Up Customers 118426.18 Iridium's Rapid Ascent 118526.19 Iridium's Rapid Descent 118726.20 The Iridium "Flu" 119126.21 Searching for a'White Knight 119226.22 The Definition of Failure (October, 1999) 119226.23 The Satellite Deorbiting Plan 119326.24 Iridium is Rescued for $25 Million 119426.25 Iridium Begins to Grow 1194

Contents XXJ

26.26 Shareholder Lawsuits 119526.27 The Bankruptcy Court Ruling 119526.28 Autopsy 119626.29 Financial Impact of the Bankruptcy 119726.30 What Really Went Wrong? 119826.31 Lessons Learned 1200

• 26.32 Conclusion 1202

Appendix A. Solutions to the Project Management Conflict Exercise 1205Appendix B. Solution to Leadership Exercise 1211Appendix C. Dorale Products Case Studies 1217'Appendix D. Solutions to the Dorale Products Case Studies 1229Appendix E. Alignment of the PMBOK® Guide to the Text 1235

Author Index 1241

Subject Index 1243