PROJECTMANAGEMENT

A Systems Approach toPlanning, Scheduling,

and Controlling

T 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 . D

Senior Executive Director for Project ManagenmentThe International Insitute for Learning New York,

New York

WILEYJohn Wiley & Sons, Inc.

Contents

Preface xxi

OVERVIEW 1

1.0 Introduction 11.1 Understanding Project'Management 21.2 Defining Project Success 71.3 The Project Manager-Line Manager Interface 81.4 Defining the Project Manager's Role 121.5 Defining the Functional Manager's Role 141.6 Defining the Functional Employee's Role 171.7 Defining the Executive's Role 171.8 Working with Executives 181.9 The Project Manager as the Planning Agent 191.10 Project Champions 201.11 The Downside of Project Management 21 '1.12 Project-Driven versus Non-Project-Driven Organizations 221.13 Marketing in the Project-Driven Organization 241.14 Classification of Projects 261.15 Location of the Project Manager 271.16 Differing Views of Project Management 291.17 Concurrent Engineering: A Project Management Approach 301.18 Studying Tips for the PMI® Project Management Certification Exam 30

Problems 33

Case StudyWilliams Machine Tool Company 35

vii

ViN CONTENTS

PROJECT MANAGEMENT GROWTH: CONCEPTS ANDDEFINITIONS 37

2.0 Introduction 372.1 General Systems Management 382.2 Project Management: 1945-1960 382.3 Project Management: 1960-1985 392.4 Project Management: 1985-2009 452.5 Resistance to Change 502.6 Systems, Programs, and Projects: A Definition 542.7 Product versus Project Management: A Definition 572.8 Maturity and Excellence: A Definition 582.9 Informal Project Management: A Definition 592.10 The Many Faces of Success 602.11 The Many Faces of Failure 632.12 The Stage-Gate Process 662.13 Project Life Cycles 682.14 Gate Review Meetings (Project Closure) 742.15 Project Management Methodologies: A Definition 742.16 Organizational Change Management and Corporate Cultures 762.17 Project Management Intellectual Property 812.18 Systems Thinking 822.19 Studying Tips for the PMI® Project Management Certification Exam 85

Problems 88

ORGANIZATIONAL STRUCTURES 91

3.0 Introduction 913.1 Organizational Work Flow 943.2 Traditional (Classical) Organization 953.3 Developing Work Integration Positions 983.4 Line-Staff Organization (Project Coordinator) 1023.5 Pure Product (Projectized) Organization 1033.6 Matrix Organizational Form 1063.7 Modification of Matrix Structures 1133.8 The Strong, Weak, Balanced Matrix 1173.9 Center for Project Management Expertise 1173.10 Matrix Layering 1183.11 Selecting the Organizational Form 1193.12 Structuring the Small Company 1253.13 Strategic Business Unit (SBU) Project Management 1283.14 Transitional Management 1293.15 Studying Tips for the PMI® Project Management Certification Exam 131

Problems 133

Contents ix

Case StudyJones and Shephard Accountants, Inc. 138

ORGANIZING AND STAFFING THE PROJECT OFFICE ANDTEAM 141

4.0 Introduction 1414.1 The Staffing Environment 1424.2 Selecting the Project Manager: An Executive Decision 1444.3 Skill Requirements for Project and Program Managers 1484.4 Special Cases in Project Manager Selection 1544.5 Selecting the Wrong Project Manager 1544.6 Next Generation Project Managers 1584.7 Duties and Job Descriptions 1594.8 The Organizational Staffing Process 1634.9 The Project Office 1694.10 The Functional Team 1744.11 The Project Organizational Chart 1754.12 Special Problems 1784.13 Selecting the Project Management Implementation Team 1804.14 Studying Tips for the PMI® Project Management Certification Exam 183

Problems 185

MANAGEMENT FUNCTIONS 191

5.0 Introduction 1915.1 Controlling 1935.2 Directing 1935.3 Project Authority 1985.4 Interpersonal Influences 2065.5 Barriers to Project Team Development 2095.6 Suggestions for Handling the Newly Formed Team 2125.7 Team Building as an Ongoing Process 2165.8 Dysfunctions of a Team 2175.9 Leadership in a Project Environment 2205.10 Life-Cycle Leadership 2215.11 Organizational Impact 2255.12 Employee-Manager Problems 2275.13 Management Pitfalls 2305.14 Communications 2335.15 Project Review Meetings 2425.16 Project Management Bottlenecks 2435.17 Communication Traps 244

CONTENTS

5.18 Proverbs and Laws 2455.19 Human Behavior Education 2485.20 Management Policies and Procedures 2495.21 Studying Tips for the PMI® Project Management Certification Exam 249

Problems 254

Case StudiesThe Trophy Project 264Leadership Effectiveness (A) 266Leadership Effectiveness (B) 271Motivational Questionnaire 277

MANAGEMENT OF YOUR TIME AND STRESS 285

6.0 Introduction 2856.1 Understanding Time Management 2866.2 Time Robbers 2866.3 * Time Management Forms 2886.4 Effective Time Management 2896.5 Stress and Burnout 2906.6 Studying Tips for the PMI® Project Management Certification Exam 292

Problems 293

Case StudyThe Reluctant Workers 294

CONFLICTS 295

7.0 ~ Introduction 2957.1 Objectives 2967.2 The Conflict Environment 2977.3 Conflict Resolution 3007.4 Understanding Superior, Subordinate, and Functional

Conflicts 3017.5 The Management of Conflicts 3037.6 Conflict Resolution Modes 3047.7 Studying Tips for the PMI® Project Management Certification Exam 306

Problems 308

Case StudiesFacilities Scheduling at Mayer Manufacturing 311Telestar International 312Handling Conflict in Project Management 313

Contents XJ

8 SPECIAL TOPICS 319

8.0 Introduction 3198.1 Performance Measurement 320

' 8.2 Financial Compensation and Rewards 3278.3 Critical Issues with Rewarding Project Teams 3338.4 Effective Project Management in the Small Business

Organization 3368.5 Mega Projects 3388.6 Morality, Ethics, and the Corporate Culture 3398.7 Professional Responsibilities 3428.8 Internal Partnerships 3458.9 External Partnerships 3468.10 Training and Education 3488.11 Integrated Product/Project Teams 3508.12 Virtual Project Teams 3528.13 Breakthrough Projects 3548.14 Studying Tips for the PMI® Project Management Certification Exam 355

Problems 361

THE VARIABLES FOR SUCCESS 365

9.0 Introduction 3659.1 Predicting Project Success 3669.2 Project Management Effectiveness 3709.3 Expectations 3719.4 Lessons Learned 3729.5 Understanding Best Practices 3739.6 Studying Tips for the PMI® Project Management Certification Exam 380

Problems 381

10 WORKING WITH EXECUTIVES 383

10.0 Introduction 38310.1 The Project Sponsor 38410.2 Handling Disagreements with the Sponsor 39310.3 The Collective Belief 39410.4 The Exit Champion 39510.5 The In-House Representatives 39610.6 Studying Tips for the PMI® Project Management Certification Exam 397

Problems 398

XII CONTENTS

Case StudyCorwin Corporation 401

11 PLANNING 411

11.0 Introduction 41111.1 Validating the Assumptions 41411.2 General Planning 41511.3 Life-Cycle Phases 41811.4 Proposal Preparation 42111.5 Kickoff Meetings 42111.6 Understanding Participants'Roles 42411.7 Project Planning 42411.8 The Statement of Work 42611.9 Project Specifications 43111.10 Milestone Schedules 43311.11 Work Breakdown Structure 43411.12 WBS Decomposition Problems 44011.13 Role of the Executive in Project Selection 44411.14 Role of the Executive in Planning 44911.15 The Planning Cycle 44911.16 Work Planning Authorization 45011.17 Why Do Plans Fail? 451 '11.18 Stopping Projects 45211.19 Handling Project Phaseouts and Transfers 45311.20 Detailed Schedules and Charts 45411.21 Master Production Scheduling 45711.22 Project Plan ,45911.23 Total Project Planning 46411.24 The Project Charter 46811.25 Management Control 46911.26 The Project Manager-Line Manager Interface 47211.27 Fast-Tracking 47411.28 Configuration Management 47511.29 Enterprise Project Management Methodologies 47611.30 Project Audits 47911.31 Studying Tips for the PMI® Project Management Certification Exam 480

Problems 483

12 NETWORK SCHEDULING TECHNIQUES 493

12.0 Introduction 49312.1 Network Fundamentals 495

Contents Xl'ii

12.2 Graphical Evaluation and Review Technique (GERT) 50012.3 Dependencies 50112.4 Slack Time 50212.5 Network Replanning 50812.6 Estimating Activity Time 51212.7 Estimating Total Project Time 51312.8 Total PERT/CPM Planning 51412.9 Crash Times 51612.10 PERT/CPM Problem Areas 51912.11 Alternative PERT/CPM Models 52212.12 Precedence Networks 52312.13 Lag 52612.14 Scheduling Problems 52812.15 The Myths of Schedule Compression 52812.16 Understanding Project Management Software 53012.17 Software Features Offered 53012.18 Software Classification 53212.19 Implementation Problems 53312.20 Critical Chain 53412.21 Studying Tips for the PMI® Project Management Certification Exam 536

Problems 539

Case StudyCrosby Manufacturing Corporation 552

13 PROJECT GRAPHICS 555

13.0 Introduction 55513.1/ Customer Reporting 55613.2 Bar (Gantt) Chart 55713.3 Other Conventional Presentation Techniques 56413.4 Logic Diagrams/Networks 56713.5 Studying Tips for the PMI® Project Management Certification Exam 568

Problems 569

14 PRICING AND ESTIMATING 571

14.0 Introduction 57114.1 Global Pricing Strategies 57214.2 Types of Estimates 57314.3 Pricing Process 57614.4 Organizational Input Requirements 57814.5 Labor Distributions 58014.6 Overhead Rates 584

Xiv CONTENTS

14.7 Materials/Support Costs 58614.8 Pricing Out the Work 58914.9 Smoothing Out Department Man-Hours 59014.10 The Pricing Review Procedure 59214.11 Systems Pricing 59414.12 Developing the Supporting/Backup Costs 59514.13 The Low-Bidder Dilemma 59914.14 Special Problems 59914.15 Estimating Pitfalls 60014.16 Estimating High-Risk Projects 60114.17 Project Risks 60214.18 The Disaster of Applying the 10 Percent Solution to Project Estimates 60514.19 Life-Cycle Costing (LCC) 60614.20 Logistics Support 61314.21 Economic Project Selection Criteria: Capital Budgeting 61414.22 Payback Period 61414.23 The Time Value of Money 61514.24 Net Present Value (NPV) 61614.25 Internal Rate of Return (IRR) 61714.26 Comparing IRR, NPV, and Payback 61814.27 Risk Analysis 61814.28 Capital Rationing 61914.29 Project Financing 62014.30 Studying Tips for the PMI® Project Management Certification Exam 622

Problems 624

15 COST CONTROL 629

15.0 Introduction 62915.1 Understanding Control 63315.2 The Operating Cycle 63615.3 Cost Account Codes 63715.4 Budgets 64415.5 The Earned Value Measurement System (EVMS) 64515.6 Variance and Earned Value 64715.7 The Cost Baseline 66615.8 Justifying the Costs 66815.9 The Cost Overrun Dilemma 67115.10 Recording Material Costs Using Earned Value Measurement 67215.11 The Material Accounting Criterion 67515.12 Material Variances: Price and Usage 67615.13 Summary Variances 67715.14 Status Reporting 67815.15 Cost Control Problems 685

Contents XV

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15.16 Studying Tips for the PMI® Project Management Certification Exam 686

Problems 689

Case StudiesThe Bathtub Period 708Franklin Electronics 709Trouble in Paradise 711

16 TRADE-OFF ANALYSIS IN A PROJECT ENVIRONMENT 715

16.0 Introduction 71516.1 Methodology for Trade-off Analysis 71816.2 Contracts: Their Influence on Projects 73516.3 Industry Trade-off Preferences 73616.4 Conclusion 73916.5 Studying Tips for the PMI® Project Management Certification Exam 739

17 RISK MANAGEMENT 741

17.0 Introduction 74117.1 Definition of Risk 74317.2 Tolerance for Risk 74517.3 Definition of Risk Management 74617.4 Certainty, Risk, and Uncertainty 74717.5 Risk Management Process 75317.6 Plan Risk Management 75317.7 Risk Identification 755

,17.8 Risk Analysis 761'' 17.9 Qualitative Risk Analysis 766

17.10 Quantitative Risk Analysis 77117.11 Probability Distributions and the Monte Carlo Process 77217.12 Plan Risk Response 78217.13 Monitoring and Control Risks 78817.14 Some Implementation Considerations 78817.15 The Use of Lessons Learned 79017.16 Dependencies between Risks 79317.17 The Impact of Risk Handling Measures 79817.18 Risk and Concurrent Engineering 80117.19 Studying Tips for the PMI® Project Management Certification Exam 804

Problems 808

Case StudiesTeloxy Engineering (A) 815Teloxy Engineering (B) 815

XVi CONTENTS

18 LEARNING CURVES 817

18.0 Introduction 81718.1 General Theory 81818.2 The Learning Curve Concept 81818.3 Graphic Representation 82018.4 Key Words Associated with Learning Curves 82218.5 The Cumulative Average Curve 82218.6 Sources of Experience 82418.7 Developing Slope Measures 82718.8 Unit Costs and Use of Midpoints 82818.9 Selection of Learning Curves 82918.10 Follow-on Orders 83018.11 Manufacturing Breaks 83018.12 Learning Curve Limitations 83218.13 Prices and Experience 83218.14 Competitive Weapon 83518.15 Studying Tips for the PMI® Project Management Certification Exam 835

Problems 836

19 CONTRACT MANAGEMENT 839

19.0 Introduction 83919.1 Procurement 84019.2 Plan Procurement 84219.3 Conducting the Procurements 84519.4 Conduct Procurements: Request Seller Responses 84719.5 Conduct Procurements: Select Sellers 84719.6 Types of Contracts 85119.7 Incentive Contracts 85519.8 Contract Type versus Risk 85819.9 Contract Administration Cycle 85919.10 Contract Closure 86219.11 Using a Checklist 86319.12 Proposal-Contractual Interaction 86419.13 Summary 86719.14 Studying Tips for the PMI® Project Management Certification Exam 868

20 QUALITY MANAGEMENT 873

20.0 Introduction 87420.1 Definition of Quality 87520.2 The Quality Movement 87720.3 Comparison of the Quality Pioneers 88020.4 The Taguchi Approach 881

Contents XVII

20.5 The Malcolm Baldrige National Quality Award 88420.6 ISO 9000 88520.7 Quality Management Concepts 88720.8 The Cost of Quality 89020.9 The Seven Quality Control Tools 89320.10 Process Capability (CP) 91020.11 Acceptance Sampling 91220.12 Implementing Six Sigma 91220.13 Lean Six Sigma and DMAIC 91420.14 Quality Leadership 91520.15 Responsibility for Quality 91620.16 Quality Circles 91620.17 Just-in-Time Manufacturing (JIT) 91720.18 Total Quality Management (TQM) 91920.19 Studying Tips for the PMI® Project Management Certification Exam 923

21 MODERN DEVELOPMENTS PROJECT MANAGEMENT 927

21.0 Introduction 92721.1 The Project Management Maturity Model (PMMM) 92821.2 Developing Effective Procedural Documentation 93221.3 Project Management Methodologies 93621.4 Continuous Improvement 93721.5 Capacity Planning 94221.6 Competency Models 94321.7 Managing Multiple Projects 94521.8 End-of-Phase Review Meetings 947

22 THE BUSINESS OF SCOPE CHANGES 949

22.0 Introduction 94922.1 Need for Business Knowledge 95122.2 Timing of Scope Changes 95222.3 Business Need for a Scope Change 95322.4 Rationale for Not Approving a Scope Change 954

23 THE PROJECT OFFICE 955

23.0 Introduction 95523.1 Present-Day Project Office 95623.2 Implementation Risks 95723.3 Types of Project Offices 95823.4 Networking Project Management Offices 95923.5 Project Management Information Systems 95923.6 Dissemination of Information 96123.7 Mentoring 962

XViii CONTENTS

23.8 Development of Standards and Templates 96323.9 Project Management Benchmarking 96323.10 Business Case Development 96423.11 Customized Training (Related to Project Management) 96523.12 Managing Stakeholders 96623.13 Continuous Improvement 96723.14 Capacity Planning 96723.15 Risks of Using a Project Office 968

24 MANAGING CRISIS PROJECTS 971

24.0 Introduction 97124.1 Understanding Crisis Management 97124.2 Ford versus Firetone 97324.3 The Air France Concorde Crash 97424.4 Intel and the Pentium Chip 97524.5 The Russian Submarine Kursk 97524.6 The Tylenol Poisonings 97624.7 Nestle's Marketing of Infant Formula 97924.8 The Space Shuttle Challenger Disaster 98124.9 The Space Shuttle Columbia Disaster 98224.10 Victims versus Villains 98324.11 Life-Cycle Phases 98424.12 Project Management Implications 985

25 THE RISE, FALL, AND RESURRECTION OF IRIDIUM:A PROJECT MANAGEMENT PERSPECTIVE 987

25.0 Introduction 98725.1 Naming the Project "Iridium" 98925.2 Obtaining Executive Support 99025.3 Launching the Venture 99025.4 The Iridium System 99225.5 The Terrestial and Space-Based Network 99225.6 Project Initiation: Developing the Business Case 99325.7 The "Hidden" Business Case 99525.8 Risk Management 99525.9 The Collective Belief 99725.10 The Exit Champion 99725.11 Iridium's Infancy Years 99925.12 Debt Financing 100125.13 The M-Star Project 100225.14 A New CEO 100325.15 Satellite Launches 1003

Contents . XJX

25.16 An Initial Public Offering (IPO) 100425.17 Signing up Customers 100425.18 Iridium's Rapid Ascent 100525.19 Iridium's Rapid Descent 100725.20 The Iridium "Flu" 101225.21 Searching for a White Knight 101225.22 The Definition of Failure (October, 1999) 101225.23 The Satellite Deorbiting Plan 101325.24 Iridium Is Rescued for $25 Million 101425.25 Epilogue 101525.26 Shareholder Lawsuits 101525.27 The Bankruptcy Court Ruling 101625.28 Autopsy 101625.29 Financial Impact of the Bankruptcy 101825.30 What Really Went Wrong? 101825.31 Lessons Learned 102025.32 Conclusion 1023

Appendix A. Solutions to the Project Management Conflict Exercise 1025Appendix B. Solution to Leadership Exercise 1031Appendix C. Dorale Products Case Studies 1037Appendix D. Solution to the Dorale Products Case Studies Answers 1049Appendix E. Crosslisting-of PMBOK® to the Text 1055

Author Index 1061

Subject Index 1065