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PROJECT MANAGEMENT

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Dr. Kerzner’s 16 Points to Project Management Maturity

1. Adopt a project management methodology and use it consistently.

2. Implement a philosophy that drives the company toward project management maturity and communicate it to everyone.

3. Commit to developing effective plans at the beginning of each project.

4. Minimize scope changes by committing to realistic objectives.

5. Recognize that cost and schedule management are inseparable.

6. Select the right person as the project manager.

7. Provide executives with project sponsor information, not project management information.

8. Strengthen involvement and support of line management.

9. Focus on deliverables rather than resources.

10. Cultivate effective communication, cooperation, and trust to achieve rapid project management maturity.

11. Share recognition for project success with the entire project team and line management.

12. Eliminate nonproductive meetings.

13. Focus on identifying and solving problems early, quickly, and cost effectively.

14. Measure progress periodically.

15. Use project management software as a tool—not as a substitute for effective planning or interpersonal skills.

16. Institute an all-employee training program with periodic updates based upon documented lessons learned.

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PROJECT MANAGEMENT

A Systems Approach to Planning, 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 . D . Senior Executive Director for Project Management

The International Institute for Learning New York, New York

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Cover illustration: xiaoke ma/iStockphoto

This book is printed on acid-free paper.

Copyright © 2013 by John Wiley & Sons, Inc. All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or autho- rization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with the respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for damages arising herefrom.

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Library of Congress Cataloging-in-Publication Data: Kerzner, Harold.

Project management : a systems approach to planning, scheduling, and controlling / Harold Kerzner, Ph. D. Senior Executive Director for Project Management, the International Institute for Learning, New York, New York. — Eleventh edition.

pages cm Includes bibliographical references and index. ISBN 978-1-118-02227-6 (cloth); ISBN 978-1-118-41585-6 (ebk); ISBN 978-1-118-41855-0 (ebk); ISBN 978-1-118-43357-7

(ebk); ISBN 978-1-118-48322-0 (ebk); ISBN 978-1-118-48323-7 (ebk) 1. Project management. 2. Project management—Case studies. I. Title.

HD69.P75K47 2013 658.4’04 —dc23

2012026239 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1

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To

Dr. Herman Krier,

my Friend and Guru,

who taught me well the

meaning of the word “persistence”

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Contents

Preface xxiii

1 OVERVIEW 1

1.0 Introduction 1 1.1 Understanding Project Management 2 1.2 Defining Project Success 7 1.3 Success, Trade-Offs, and Competing Constraints 8 1.4 The Project Manager–Line Manager Interface 9 1.5 Defining the Project Manager’s Role 14 1.6 Defining the Functional Manager’s Role 15 1.7 Defining the Functional Employee’s Role 18 1.8 Defining the Executive’s Role 19 1.9 Working with Executives 19 1.10 Committee Sponsorship/Governance 20 1.11 The Project Manager as the Planning Agent 23 1.12 Project Champions 24 1.13 The Downside of Project Management 25 1.14 Project-Driven versus Non–Project-Driven Organizations 25 1.15 Marketing in the Project-Driven Organization 28 1.16 Classification of Projects 30 1.17 Location of the Project Manager 30 1.18 Differing Views of Project Management 32 1.19 Public-Sector Project Management 34 1.20 International Project Management 38 1.21 Concurrent Engineering: A Project Management Approach 38 1.22 Added Value 39 1.23 Studying Tips for the PMI® Project Management Certification Exam 40

Problems 42

Case Study Williams Machine Tool Company 44

vii

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2 PROJECT MANAGEMENT GROWTH: CONCEPTS AND DEFINITIONS 47

2.0 Introduction 47 2.1 General Systems Management 48 2.2 Project Management: 1945–1960 48 2.3 Project Management: 1960–1985 49 2.4 Project Management: 1985–2012 55 2.5 Resistance to Change 59 2.6 Systems, Programs, and Projects: A Definition 64 2.7 Product versus Project Management: A Definition 66 2.8 Maturity and Excellence: A Definition 68 2.9 Informal Project Management: A Definition 69 2.10 The Many Faces of Success 70 2.11 The Many Faces of Failure 73 2.12 The Stage-Gate Process 76 2.13 Project Life Cycles 78 2.14 Gate Review Meetings (Project Closure) 83 2.15 Engagement Project Management 84 2.16 Project Management Methodologies: A Definition 85 2.17 Enterprise Project Management Methodologies 87 2.18 Methodologies Can Fail 91 2.19 Organizational Change Management and Corporate Cultures 94 2.20 Project Management Intellectual Property 100 2.21 Systems Thinking 101 2.22 Studying Tips for the PMI® Project Management Certification Exam 104

Problems 107

Case Study Creating a Methodology 108

3 ORGANIZATIONAL STRUCTURES 111

3.0 Introduction 111 3.1 Organizational Work Flow 113 3.2 Traditional (Classical) Organization 114 3.3 Developing Work Integration Positions 117 3.4 Line-Staff Organization (Project Coordinator) 121 3.5 Pure Product (Projectized) Organization 122 3.6 Matrix Organizational Form 125 3.7 Modification of Matrix Structures 132 3.8 The Strong, Weak, or Balanced Matrix 136 3.9 Center for Project Management Expertise 136 3.10 Matrix Layering 137

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3.11 Selecting the Organizational Form 138 3.12 Structuring the Small Company 143 3.13 Strategic Business Unit (SBU) Project Management 146 3.14 Transitional Management 147 3.15 Barriers to Implementing Project Management in Emerging Markets 149 3.16 Seven Fallacies that Delay Project Management Maturity 156 3.17 Studying Tips for the PMI® Project Management Certification Exam 159

Problems 161

Case Studies Jones and Shephard Accountants, Inc. 166 Coronado Communications 168

4 ORGANIZING AND STAFFING THE PROJECT OFFICE AND TEAM 171

4.0 Introduction 171 4.1 The Staffing Environment 172 4.2 Selecting the Project Manager: An Executive Decision 174 4.3 Skill Requirements for Project and Program Managers 178 4.4 Special Cases in Project Manager Selection 184 4.5 Selecting the Wrong Project Manager 184 4.6 Next Generation Project Managers 188 4.7 Duties and Job Descriptions 189 4.8 The Organizational Staffing Process 193 4.9 The Project Office 199 4.10 The Functional Team 204 4.11 The Project Organizational Chart 205 4.12 Special Problems 208 4.13 Selecting the Project Management Implementation Team 210 4.14 Mistakes Made by Inexperienced Project Managers 213 4.15 Studying Tips for the PMI® Project Management Certification Exam 214

Problems 216

5 MANAGEMENT FUNCTIONS 223

5.0 Introduction 223 5.1 Controlling 225 5.2 Directing 225 5.3 Project Authority 230 5.4 Interpersonal Influences 237 5.5 Barriers to Project Team Development 240 5.6 Suggestions for Handling the Newly Formed Team 243

Contents ix

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5.7 Team Building as an Ongoing Process 246 5.8 Dysfunctions of a Team 247 5.9 Leadership in a Project Environment 250 5.10 Life-Cycle Leadership 252 5.11 Value-Based Project Leadership 255 5.12 Organizational Impact 257 5.13 Employee–Manager Problems 259 5.14 Management Pitfalls 262 5.15 Communications 265 5.16 Project Review Meetings 274 5.17 Project Management Bottlenecks 275 5.18 Cross-Cutting Skills 276 5.19 Active Listening 277 5.20 Project Problem-Solving 278 5.21 Brainstorming 288 5.22 Project Decision-Making 293 5.23 Predicting the Outcome of a Decision 301 5.24 Facilitation 303 5.25 Handling Negative Team Dynamics 306 5.26 Communication Traps 307 5.27 Proverbs and Laws 309 5.28 Human Behavior Education 311 5.29 Management Policies and Procedures 312 5.30 Studying Tips for the PMI® Project Management Certification Exam 313

Problems 318

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

6 MANAGEMENT OF YOUR TIME AND STRESS 355

6.0 Introduction 355 6.1 Understanding Time Management 356 6.2 Time Robbers 356 6.3 Time Management Forms 358

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6.4 Effective Time Management 359 6.5 Stress and Burnout 360 6.6 Studying Tips for the PMI® Project Management Certification Exam 362

Problems 363

Case Study The Reluctant Workers 364

7 CONFLICTS 365

7.0 Introduction 365 7.1 Objectives 366 7.2 The Conflict Environment 367 7.3 Types of Conflicts 368 7.4 Conflict Resolution 371 7.5 Understanding Superior, Subordinate, and Functional Conflicts 372 7.6 The Management of Conflicts 374 7.7 Conflict Resolution Modes 375 7.8 Studying Tips for the PMI® Project Management Certification Exam 377

Problems 379

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

8 SPECIAL TOPICS 391

8.0 Introduction 392 8.1 Performance Measurement 392 8.2 Financial Compensation and Rewards 399 8.3 Critical Issues with Rewarding Project Teams 405 8.4 Effective Project Management in the Small Business Organization 408 8.5 Mega Projects 410 8.6 Morality, Ethics, and the Corporate Culture 411 8.7 Professional Responsibilities 414 8.8 Internal Partnerships 417 8.9 External Partnerships 418 8.10 Training and Education 420 8.11 Integrated Product/Project Teams 422 8.12 Virtual Project Teams 424 8.13 Breakthrough Projects 427

Contents xi

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xii CONTENTS

8.14 Managing Innovation Projects 427 8.15 Agile Project Management 430 8.16 Studying Tips for the PMI® Project Management Certification Exam 431

Problems 437

Case Study Is It Fraud? 440

9 THE VARIABLES FOR SUCCESS 443

9.0 Introduction 443 9.1 Predicting Project Success 444 9.2 Project Management Effectiveness 448 9.3 Expectations 449 9.4 Lessons Learned 450 9.5 Understanding Best Practices 451 9.6 Best Practices versus Proven Practices 458 9.7 Studying Tips for the PMI® Project Management Certification Exam 459

Problems 460

Case Study Radiance International 460

10 WORKING WITH EXECUTIVES 463

10.0 Introduction 463 10.1 The Project Sponsor 464 10.2 Handling Disagreements with the Sponsor 474 10.3 The Collective Belief 475 10.4 The Exit Champion 476 10.5 The In-House Representatives 477 10.6 Stakeholder Relations Management 478 10.7 Politics 486 10.8 Studying Tips for the PMI® Project Management Certification Exam 487

Problems 488

Case Studies Corwin Corporation 491 The Prioritization of Projects 499 The Irresponsible Sponsors 500 Selling Executives on Project Management 502

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11 PLANNING 505

11.0 Introduction 505 11.1 Validating the Assumptions 508 11.2 Validating the Objectives 509 11.3 General Planning 510 11.4 Life-Cycle Phases 513 11.5 Proposal Preparation 516 11.6 Kickoff Meetings 516 11.7 Understanding Participants’ Roles 519 11.8 Project Planning 519 11.9 The Statement of Work 521 11.10 Project Specifications 526 11.11 Milestone Schedules 528 11.12 Work Breakdown Structure 529 11.13 WBS Decomposition Problems 536 11.14 Work Breakdown Structure Dictionary 540 11.15 Role of the Executive in Project Selection 541 11.16 Role of the Executive in Planning 546 11.17 The Planning Cycle 546 11.17 Work Planning Authorization 547 11.19 Why Do Plans Fail? 548 11.20 Stopping Projects 549 11.21 Handling Project Phaseouts and Transfers 550 11.22 Detailed Schedules and Charts 551 11.23 Master Production Scheduling 554 11.24 Project Plan 556 11.25 Total Project Planning 561 11.26 The Project Charter 565 11.27 Project Baselines 566 11.28 Verification and Validation 570 11.29 Requirements Traceability Matrix 571 11.30 Management Control 572 11.31 The Project Manager–Line Manager Interface 575 11.32 Fast-Tracking 577 11.33 Configuration Management 578 11.34 Enterprise Project Management Methodologies 579 11.35 Project Audits 582 11.36 Studying Tips for the PMI® Project Management Certification Exam 583

Problems 586

12 NETWORK SCHEDULING TECHNIQUES 597

12.0 Introduction 597 12.1 Network Fundamentals 600

Contents xiii

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12.2 Graphical Evaluation and Review Technique (GERT) 604 12.3 Dependencies 605 12.4 Slack Time 606 12.5 Network Replanning 612 12.6 Estimating Activity Time 616 12.7 Estimating Total Project Time 617 12.8 Total PERT/CPM Planning 618 12.9 Crash Times 620 12.10 PERT/CPM Problem Areas 623 12.11 Alternative PERT/CPM Models 626 12.12 Precedence Networks 627 12.13 Lag 630 12.14 Scheduling Problems 632 12.15 The Myths of Schedule Compression 632 12.16 Understanding Project Management Software 634 12.17 Software Features Offered 634 12.18 Software Classification 636 12.19 Implementation Problems 637 12.20 Critical Chain 638 12.21 Studying Tips for the PMI® Project Management Certification Exam 640

Problems 643

Case Studies Crosby Manufacturing Corporation 656 The Invisible Sponsor 658

13 PROJECT GRAPHICS 661

13.0 Introduction 661 13.1 Customer Reporting 662 13.2 Bar (Gantt) Chart 663 13.3 Other Conventional Presentation Techniques 670 13.4 Logic Diagrams/Networks 673 13.5 Studying Tips for the PMI® Project Management Certification Exam 674

Problems 675

14 PRICING AND ESTIMATING 677

14.0 Introduction 677 14.1 Global Pricing Strategies 678 14.2 Types of Estimates 679 14.3 Pricing Process 682 14.4 Organizational Input Requirements 684 14.5 Labor Distributions 686

xiv CONTENTS

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14.6 Overhead Rates 690 14.7 Materials/Support Costs 692 14.8 Pricing Out the Work 695 14.9 Smoothing Out Department Man-Hours 696 14.10 The Pricing Review Procedure 698 14.11 Systems Pricing 700 14.12 Developing the Supporting/Backup Costs 701 14.13 The Low-Bidder Dilemma 705 14.14 Special Problems 705 14.15 Estimating Pitfalls 706 14.16 Estimating High-Risk Projects 707 14.17 Project Risks 708 14.18 The Disaster of Applying the 10 Percent Solution to Project Estimates 712 14.19 Life-Cycle Costing (LCC) 714 14.20 Logistics Support 719 14.21 Economic Project Selection Criteria: Capital Budgeting 720 14.22 Payback Period 720 14.23 The Time Value of Money 721 14.24 Net Present Value (NPV) 722 14.25 Internal Rate of Return (IRR) 723 14.26 Comparing IRR, NPV, and Payback 724 14.27 Risk Analysis 724 14.28 Capital Rationing 725 14.29 Project Financing 726 14.30 Studying Tips for the PMI® Project Management Certification Exam 728

Problems 730

Case Study The Estimating Problem 734

15 COST CONTROL 737

15.0 Introduction 737 15.1 Understanding Control 741 15.2 The Operating Cycle 744 15.3 Cost Account Codes 745 15.4 Budgets 750 15.5 The Earned Value Measurement System (EVMS) 752 15.6 Variance and Earned Value 754 15.7 The Cost Baseline 773 15.8 Justifying the Costs 775 15.9 The Cost Overrun Dilemma 778 15.10 Recording Material Costs Using Earned Value Measurement 779 15.11 The Material Accounting Criterion 782

Contents xv

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15.12 Material Variances: Price and Usage 783 15.13 Summary Variances 784 15.14 Status Reporting 785 15.15 Cost Control Problems 792 15.16 Project Management Information Systems 793 15.17 Enterprise Resource Planning 793 15.18 Project Metrics 794 15.19 Key Performance Indicators 800 15.20 Value-Based Metrics 806 15.21 Dashboards and Scorecards 812 15.22 Business Intelligence 815 15.23 Infographics 816 15.24 Studying Tips for the PMI® Project Management Certification Exam 816

Problems 820

Case Studies The Bathtub Period 838 Franklin Electronics 839 Trouble in Paradise 841

16 TRADE-OFF ANALYSIS IN A PROJECT ENVIRONMENT 845

16.0 Introduction 845 16.1 Methodology for Trade-Off Analysis 848 16.2 Contracts: Their Influence on Projects 865 16.3 Industry Trade-Off Preferences 866 16.4 Conclusion 869 16.5 Studying Tips for the PMI® Project Management

Certification Exam 869

17 RISK MANAGEMENT 871

17.0 Introduction 872 17.1 Definition of Risk 873 17.2 Tolerance for Risk 875 17.3 Definition of Risk Management 876 17.4 Certainty, Risk, and Uncertainty 877 17.5 Risk Management Process 883 17.6 Plan Risk Management (11.1) 884 17.7 Risk Identification (11.2) 885 17.8 Risk Analysis (11.3, 11.4) 892 17.9 Qualitative Risk Analysis (11.3) 897 17.10 Quantitative Risk Analysis (11.4) 903 17.11 Probability Distributions and the Monte Carlo Process 904 17.12 Plan Risk Response (11.5) 913

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17.13 Monitor and Control Risks (11.6) 919 17.14 Some Implementation Considerations 920 17.15 The Use of Lessons Learned 921 17.16 Dependencies Between Risks 925 17.17 The Impact of Risk Handling Measures 930 17.18 Risk and Concurrent Engineering 933 17.19 Studying Tips for the PMI® Project Management Certification Exam 936

Problems 940

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

18 LEARNING CURVES 953

18.0 Introduction 953 18.1 General Theory 954 18.2 The Learning Curve Concept 954 18.3 Graphic Representation 956 18.4 Key Words Associated with Learning Curves 958 18.5 The Cumulative Average Curve 958 18.6 Sources of Experience 960 18.7 Developing Slope Measures 963 18.8 Unit Costs and Use of Midpoints 964 18.9 Selection of Learning Curves 965 18.10 Follow-On Orders 966 18.11 Manufacturing Breaks 966 18.12 Learning Curve Limitations 968 18.13 Prices and Experience 968 18.14 Competitive Weapon 970 18.15 Studying Tips for the PMI® Project Management Certification Exam 971

Problems 972

19 CONTRACT MANAGEMENT 975

19.0 Introduction 975 19.1 Procurement 976 19.2 Plan Procurements 978 19.3 Conducting the Procurements 981 19.4 Conduct Procurements: Request Seller Responses 983 19.5 Conduct Procurements: Select Sellers 983 19.6 Types of Contracts 987 19.7 Incentive Contracts 991 19.8 Contract Type versus Risk 994

Contents xvii

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19.9 Contract Administration 995 19.10 Contract Closure 998 19.11 Using a Checklist 999 19.12 Proposal-Contractual Interaction 1000 19.13 Summary 1003 19.14 Studying Tips for the PMI® Project Management Certification Exam 1004

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

20 QUALITY MANAGEMENT 1015

20.0 Introduction 1016 20.1 Definition of Quality 1017 20.2 The Quality Movement 1019 20.3 Comparison of the Quality Pioneers 1022 20.4 The Taguchi Approach 1023 20.5 The Malcolm Baldrige National Quality Award 1026 20.6 ISO 9000 1027 20.7 Quality Management Concepts 1029 20.8 The Cost of Quality 1032 20.9 The Seven Quality Control Tools 1035 20.10 Process Capability (CP) 1052 20.11 Acceptance Sampling 1054 20.12 Implementing Six Sigma 1054 20.13 Lean Six Sigma and DMAIC 1056 20.14 Quality Leadership 1057 20.15 Responsibility for Quality 1058 20.16 Quality Circles 1058 20.17 Just-In-Time Manufacturing (JIT) 1059 20.18 Total Quality Management (TQM) 1061 20.19 Studying Tips for the PMI® Project Management Certification Exam 1065

21 MODERN DEVELOPMENTS IN PROJECT MANAGEMENT 1069

21.0 Introduction 1069 21.1 The Project Management Maturity Model (PMMM) 1070 21.2 Developing Effective Procedural Documentation 1074 21.3 Project Management Methodologies 1078 21.4 Continuous Improvement 1079 21.5 Capacity Planning 1080 21.6 Competency Models 1082 21.7 Managing Multiple Projects 1084 21.8 End-of-Phase Review Meetings 1085

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Case Study Honicker 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 1092 22.3 Business Need for a Scope Change 1093 22.4 Rationale for Not Approving a Scope Change 1094

Case Study Kemko Manufacturing 1094

23 THE PROJECT OFFICE 1097

23.0 Introduction 1097 23.1 Present-Day Project Office 1098 23.2 Implementation Risks 1099 23.3 Types of Project Offices 1100 23.4 Networking Project Management Offices 1101 23.5 Project Management Information Systems 1101 23.6 Dissemination of Information 1103 23.7 Mentoring 1104 23.8 Development of Standards and Templates 1105 23.9 Project Management Benchmarking 1105 23.10 Business Case Development 1106 23.11 Customized Training (Related to Project Management) 1107 23.12 Managing Stakeholder Relations 1108 23.13 Continuous Improvement 1109 23.14 Capacity Planning 1109 23.15 Risks of Using a Project Office 1110 23.16 Project Portfolio Management 1111

Case Study The Project Management Lawsuit 1116

24 MANAGING CRISIS PROJECTS 1119

24.0 Introduction 1119 24.1 Understanding Crisis Management 1119 24.2 Ford versus Firestone 1121 24.3 The Air France Concorde Crash 1122 24.4 Intel and the Pentium Chip 1123 24.5 The Russian Submarine Kursk 1123 24.6 The Tylenol Poisonings 1124

Contents xix

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24.7 Nestlé’s Marketing of Infant Formula 1127 24.8 The Space Shuttle Challenger Disaster 1129 24.9 The Space Shuttle Columbia Disaster 1130 24.10 Victims Versus Villains 1131 24.11 Life-Cycle Phases 1132 24.12 Project Management Implications 1133

25 FUTURE OF PROJECT MANAGEMENT 1135

25.0 Changing Times 1135 25.1 Complex Projects 1139 25.2 Complexity Theory 1144 25.3 Scope Creep 1145 25.4 Project Health Checks 1151 25.5 Managing Troubled Projects 1155

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

26.0 Introduction 1167 26.1 Naming the Project “Iridium” 1169 26.2 Obtaining Executive Support 1170 26.3 Launching the Venture 1170 26.4 The Iridium System 1172 26.5 The Terrestrial and Space-Based Network 1172 26.6 Project Initiation: Developing the Business Case 1173 26.7 The “Hidden” Business Case 1175 26.8 Risk Management 1175 26.9 The Collective Belief 1177 26.10 The Exit Champion 1177 26.11 Iridium’s Infancy Years 1178 26.12 Debt Financing 1181 26.13 The M-Star Project 1182 26.14 A New CEO 1183 26.15 Satellite Launches 1183 26.16 An Initial Public Offering (IPO) 1184 26.17 Signing Up Customers 1184 26.18 Iridium’s Rapid Ascent 1185 26.19 Iridium’s Rapid Descent 1187 26.20 The Iridium “Flu” 1191 26.21 Searching for a White Knight 1192 26.22 The Definition of Failure (October, 1999) 1192 26.23 The Satellite Deorbiting Plan 1193 26.24 Iridium is Rescued for $25 Million 1194 26.25 Iridium Begins to Grow 1194

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26.26 Shareholder Lawsuits 1195 26.27 The Bankruptcy Court Ruling 1195 26.28 Autopsy 1196 26.29 Financial Impact of the Bankruptcy 1197 26.30 What Really Went Wrong? 1198 26.31 Lessons Learned 1200 26.32 Conclusion 1202

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

Author Index 1241

Subject Index 1243

Contents xxi

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Preface

Project management has evolved from a management philosophy restricted to a few functional areas and regarded as something nice to have to an enterprise pro- ject management system affecting every functional unit of the company. Simply stated, project management has evolved into a business process rather than merely a project management process. More and more companies are now regarding project management as being mandatory for the survival of the firm. Organizations that were opponents of project management are now advocates. Management educators of the past, who preached that project management could not work and would be just another fad, are now staunch supporters. Project man- agement is here to stay. Colleges and universities are now offering graduate degrees in project management.

The text discusses the principles of project management. Students who are interested in advanced topics, such as some of the material in Chapters 21 to 25 of this text, may wish to read one of my other texts, Advanced Project Management: Best Practices in Implementation (New York: Wiley, 2004) and Project Management Best Practices: Achieving Global Excellence, 2nd edition (Hoboken, NJ: Wiley and IIL Publishers, 2010). John Wiley & Sons and the International Institute for Learning also introduced a four-book series on project management best practices, authored by Frank Saladis, Carl Belack, and Harold Kerzner.

This book is addressed not only to those undergraduate and graduate students who wish to improve upon their project management skills but also to those func- tional managers and upper-level executives who serve as project sponsors and must provide continuous support for projects. During the past several years,

xxiii

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xxiv PREFACE

management’s knowledge and understanding of project management has matured to the point where almost every company is using project management in one form or another. These companies have come to the realization that project man- agement and productivity are related and that we are now managing our business as though it is a series of projects. Project management coursework is now con- suming more of training budgets than ever before.

General reference is provided in the text to engineers. However, the reader should not consider project management as strictly engineering-related. The engi- neering examples are the result of the fact that project management first appeared in the engineering disciplines, and we should be willing to learn from their mis- takes. Project management now resides in every profession, including information systems, health care, consulting, pharmaceutical, banks, and government agencies.

The text can be used for both undergraduate and graduate courses in business, information systems, and engineering. The structure of the text is based upon my belief that project management is much more behavioral than quantitative since projects are managed by people rather than tools. The first five chapters are part of the basic core of knowledge necessary to understand project management. Chapters 6 through 8 deal with the support functions of managing your time effec- tively, conflicts, and other special topics. Chapters 9 and 10 describe factors for predicting success and management support. It may seem strange that ten chapters on organizational behavior and structuring are needed prior to the “hard-core” chapters of planning, scheduling, and controlling. These first ten chapters are needed to understand the cultural environment for all projects and systems. These chapters are necessary for the reader to understand the difficulties in achieving cross-functional cooperation on projects where team members are working on multiple projects concurrently and why the people involved, all of whom may have different backgrounds, cannot simply be forged into a cohesive work unit without friction. Chapters 11 through 20 are more of the quantitative chapters on planning, scheduling, cost control, estimating, contracting (and procurement), and quality. The next five chapters are advanced topics and future trends. Chapter 26 is a cap- stone case study that can be related to almost all of the chapters in the text.

The changes that were made in the eleventh edition include:

● A new section on success, trade-offs, and competing constraints ● A new section on added value ● A new section on business intelligence ● A new section on project governance ● An updated section on processes supporting project management ● An updated section on the types of project closure ● A new section on engagement project management ● A new section on barriers to implementing project management in

emerging markets ● A new section on fallacies in implementing project management ● A new section on enterprise project management systems ● A new section on How Project Management Methodologies Can Fail

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● A new section on the future of project management ● A new section on managing complex projects ● A new section on managing scope creep ● A new section on project health checks ● A new section on how to recover a troubled project ● A new section on managing public projects ● A new section on managing international projects ● A new section on project politics ● A new section on twenty common mistakes in project management ● A new section on managing innovation projects ● A new section on the differences between best practices and proven

practices ● An updated section on project sponsorship ● An updated section on culture, teamwork, and trust ● A New Section on stakeholder relations management ● A new section on value-based leadership ● An updated section on validating project assumptions ● A new section on validating project objectives ● A new section on the WBS dictionary ● A new section on validation and verification ● A new section on project management baselines ● A new section on the traceability matrix ● An expansion on WBS core attributes ● An expansion on using the WBS and WBS dictionary for verification ● A new section on project management metrics ● A new section on key performance indicators ● A new section on value metrics ● A new section on project management dashboards ● A new section on portfolio management ● A new section on complexity theory ● A new section on project management information systems ● A new section on enterprise resource planning ● A new section on project problem solving ● A new section on brainstorming ● A new section on project decision-making ● A new section on determining the impact of a decision ● A new section on active listening ● A new section on agile project management ● A capstone case study which can be used as a review of the entire

PMBOK® Guide, 5th edition, domain areas

The text contains more than 25 case studies, more than 125 multiple-choice questions, and nearly 400 discussion questions. There is also a separate book of cases (Project Management Case Studies, fourth edition) that provides additional real-world examples.

Preface xxv

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This text, the PMBOK® Guide, and the book of cases are ideal as self-study tools for the Project Management Institute’s PMP® Certification exam. Because of this, there are tables of cross references on each chapter’s opening page in the textbook detailing the sections from the book of cases and the Guide to the Project Management Body of Knowledge (PMBOK® Guide) that apply to that chapter’s content. The left-hand margin of the pages in the text has side bars that identify the cross-listing of the material on that page to the appropriate section(s) of the PMBOK® Guide. At the end of most of the chapters is a section on study tips for the PMP® exam, including more than 125 multiple-choice questions.

This textbook is currently used in the college market, in the reference mar- ket, and for studying for the PMP® Certification exam. Therefore, to satisfy the needs of all markets, a compromise had to be reached on how much of the text would be aligned to the PMBOK® Guide and how much new material would be included without doubling the size of the text. Some colleges and universities use the textbook to teach project management fundamentals without reference to the PMBOK® Guide. The text does not contain all of the material necessary to sup- port each section of the PMBOK® Guide. Therefore, to study for the PMP®

Certification exam, the PMBOK® Guide must also be used together with this text. The text covers material for almost all of the PMBOK® Guide knowledge areas but not necessarily in the depth that appears in the PMBOK® Guide.

An instructor’s manual is available only to college and university faculty members by contacting your local Wiley sales representative or by visiting the Wiley website at www.wiley.com/kerzner. This website includes not only the instructor’s manual but also 500 PowerPoint slides that follow the content of the book and help organize and execute classroom instruction and group learning. Access to the instructor’s material can be provided only through John Wiley & Sons, not the author.

One-, two-, and three-day seminars on project management and the PMP®

Certification Training using the text are offered by contacting Lori MIlhaven, Executive Vice President, the International Institute for Learning, at 800-325- 1533, extension 5121 (email address: lori.milhaven@iil.com).

The problems and case studies at the ends of the chapters cover a variety of industries. Almost all of the case studies are real-world situations taken from my consulting practice. Feedback from my colleagues who are using the text has pro- vided me with fruitful criticism, most of which has been incorporated into the tenth edition.

The majority of the articles on project management that have become clas- sics have been referenced in the textbook throughout the first eleven chapters. These articles were the basis for many of the modern developments in project management and are therefore identified throughout the text.

Many colleagues provided valuable criticism. In particular, I am indebted to those industrial/government training managers whose dedication and commit- ment to quality project management education and training have led to valuable changes in this and previous editions. In particular, I wish to thank Frank Saladis, PMP®, Senior Consultant and Trainer with the International Institute for

xxvi PREFACE

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Learning, for his constructive comments, recommendations, and assistance with the mapping of the text to the PMBOK® Guide as well as recommended changes to many of the chapters. I am indebted to Dr. Edmund Conrow, PMP®, for a decade of assistance with the preparation of the risk management chapters in all of my texts. I am also indebted to Dr. Rene Rendon for his review and recom- mendations for changes to the chapter on contract management.

To the management team and employees of the International Institute for Learning, thank you all for 20 years of never-ending encouragement, support, and assistance with all of my project management research and writings.

Harold Kerzner The International Institute for Learning

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PROJECT MANAGEMENT

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Overview

1

Related Case Studies Related Workbook Exercises (from PMBOK® Guide, 5th (from Kerzner/Project Kerzner/Project Management Edition, Reference Management Case Studies, Workbook and PMP®/CAPM® Exam Section for the PMP®

4th Edition) Study Guide, 11th Edition) Certification Exam • Kombs Engineering • Multiple Choice Exam • Integration • Williams Machine Management

Tool Company* • Scope • Hyten Corporation Management • Macon, Inc. • Human Resource • Continental Computer Management

Corporation • Jackson Industries

1.0 INTRODUCTION

Executives will be facing increasingly complex challenges during the next decade. These challenges will be the result of high escalation factors for salaries and raw materials, increased union demands, pressure from stockholders, and the possibility of long-term high inflation accompanied by a mild recession and a lack of borrowing power with financial institutions. These environmental conditions have existed before, but not to the degree that they do today.

*Case Study also appears at end of chapter.

1

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In the past, executives have attempted to ease the impact of these environmental conditions by embark- ing on massive cost-reduction programs. The usual results of these programs have been early retirement, layoffs, and a reduction in manpower through attrition. As jobs become vacant, executives pressure line managers to accomplish the same amount of work with fewer resources, either by improving efficiency or by upgrading performance requirements to a higher position on the learning curve. Because people costs are more inflationary than the cost of equipment or facilities, executives are funding more and more capi- tal equipment projects in an attempt to increase or improve productivity without increasing labor.

Unfortunately, executives are somewhat limited in how far they can go to reduce manpower without running a high risk to corporate profitability. Capital equipment projects are not always the answer. Thus, executives have been forced to look elsewhere for the solutions to their problems.

Almost all of today’s executives are in agreement that the solution to the majority of corporate problems involves obtaining better control and use of existing corporate resources, looking internally rather than exter- nally for the solution. As part of the attempt to achieve an internal solution, executives are taking a hard look at the ways corporate activities are managed. Project management is one of the techniques under consideration.

The project management approach is relatively modern. It is characterized by methods of restructuring management and adapting special management techniques, with the purpose of obtaining better control and use of existing resources. Forty years ago project management was confined to U.S. Department of Defense contractors and construction companies. Today, the concept behind project management is being applied in such diverse industries and organizations as defense, construction, pharmaceuticals, chemicals, banking, hospitals, accounting, advertising, law, state and local governments, and the United Nations.

The rapid rate of change in both technology and the marketplace has created enormous strains on exist- ing organizational forms. The traditional structure is highly bureaucratic, and experience has shown that it cannot respond rapidly enough to a changing environment. Thus, the traditional structure must be replaced by project management, or other temporary management structures that are highly organic and can respond very rapidly as situations develop inside and outside the company.

Project management has long been discussed by corporate executives and academics as one of several workable possibilities for organizational forms of the future that could integrate complex efforts and reduce bureaucracy. The acceptance of project management has not been easy, however. Many executives are not willing to accept change and are inflexible when it comes to adapting to a different environment. The proj- ect management approach requires a departure from the traditional business organizational form, which is basically vertical and which emphasizes a strong superior–subordinate relationship.

1.1 UNDERSTANDING PROJECT MANAGEMENT

In order to understand project management, one must begin with the definition of a project. A project can be considered to be any series of activities and tasks that:

● Have a specific objective to be completed within certain specifications ● Have defined start and end dates ● Have funding limits (if applicable) ● Consume human and nonhuman resources (i.e., money, people, equipment) ● Are multifunctional (i.e., cut across several functional lines)

2 OVERVIEW

PMBOK® Guide, 5th Edition 1.2 What Is a Project? 1.3 What Is Project Management?

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Project management, on the other hand, involves five process groups as identified in the PMBOK® Guide, namely:

● Project initiation ● Selection of the best project given resource limits ● Recognizing the benefits of the project ● Preparation of the documents to sanction the project ● Assigning of the project manager

● Project planning ● Definition of the work requirements ● Definition of the quality and quantity of work ● Definition of the resources needed ● Scheduling the activities ● Evaluation of the various risks

● Project execution ● Negotiating for the project team members ● Directing and managing the work ● Working with the team members to help them improve

● Project monitoring and control ● Tracking progress ● Comparing actual outcome to predicted outcome ● Analyzing variances and impacts ● Making adjustments

● Project closure ● Verifying that all of the work has been accomplished ● Contractual closure of the contract ● Financial closure of the charge numbers ● Administrative closure of the papework

Successful project management can then be defined as having achieved the project objectives:

● Within time ● Within cost ● At the desired performance/technology level ● While utilizing the assigned resources effectively and efficiently ● Accepted by the customer

The potential benefits from project management are:

● Identification of functional responsibilities to ensure that all activities are accounted for, regardless of personnel turnover

● Minimizing the need for continuous reporting ● Identification of time limits for scheduling ● Identification of a methodology for trade-off analysis ● Measurement of accomplishment against plans

Understanding Project Management 3

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● Early identification of problems so that corrective action may follow ● Improved estimating capability for future planning ● Knowing when objectives cannot be met or will be exceeded

Unfortunately, the benefits cannot be achieved without overcoming obstacles such as:

● Project complexity ● Customer’s special requirements and scope changes ● Organizational restructuring ● Project risks ● Changes in technology ● Forward planning and pricing

Project management can mean different things to different people. Quite often, people misunderstand the concept because they have ongoing projects within their company and feel that they are using project management to control these activities. In such a case, the following might be considered an appropriate definition:

Project management is the art of creating the illusion that any outcome is the result of a series of predetermined, deliberate acts when, in fact, it was dumb luck.

Although this might be the way that some companies are running their projects, this is not project management. Project management is designed to make better use of existing resources by getting work to flow horizontally as well as vertically within the company. This approach does not really destroy the vertical, bureaucratic flow of work but simply requires that line organizations talk to one another horizontally so work will be accomplished more smoothly throughout the organization. The vertical flow of work is still the responsibility of the line managers. The horizontal flow of work is the responsibility of the project managers, and their primary effort is to communicate and coordinate activities horizontally between the line organizations.

Figure 1–1 shows how many companies are structured. There are always “class or prestige” gaps between various levels of management. There are also functional gaps between working units of the organization.

If we superimpose the management gaps on top of the functional gaps, we find that com- panies are made up of small operational islands that refuse to communicate with one another for fear that giving up information may strengthen their opponents. The project manager’s responsibility is to get these islands to communicate cross-functionally toward common goals and objectives.

The following would be an overview definition of project management:

Project management is the planning, organizing, directing, and controlling of company resources for a relatively short-term objective that has been established to complete specific goals and objectives. Furthermore, project management uti- lizes the systems approach to management by having functional personnel (the vertical hierarchy) assigned to a specific project (the horizontal hierarchy).

4 OVERVIEW

PMBOK® Guide, 5th Edition 1.7.2 Project Management Skills

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The above definition requires further comment. Classical management is usually con- sidered to have five functions or principles:

● Planning ● Organizing ● Staffing ● Controlling ● Directing

You will notice that, in the above definition, the staffing function has been omitted. This was intentional because the project manager does not staff the project. Staffing is a line responsibility. The project manager has the right to request specific resources, but the final decision of what resources will be committed rests with the line managers.

We should also comment on what is meant by a “relatively” short-term project. Not all industries have the same definition for a short-term project. In engineering, the project might be for six months or two years; in construction, three to five years; in nuclear components, ten years; and in insurance, two weeks. Long-term projects, which consume resources full-time, are usually set up as a separate division (if large enough) or simply as a line organization.

Figure 1–2 is a pictorial representation of project management. The objective of the figure is to show that project management is designed to manage or control company resources on a given activity, within time, within cost, and within performance. Time, cost, and performance are the constraints on the project. If the project is to be accomplished for an outside customer, then the project has a fourth constraint: good customer relations. The reader should immediately realize that it is possible to manage a project internally within time, cost, and performance and then alienate the customer to such a degree that no further business will be forthcoming. Executives often select project managers based on who the customer is and what kind of customer relations will be necessary.

Projects exist to produce deliverables. The person ultimately assigned as the project manager may very well be assigned based upon the size, nature, and scope of the deliver- ables. Deliverables are outputs, or the end result of either the completion of the project or the end of a life-cycle phase of the project. Deliverables are measurable, tangible outputs and can take such form as:

● Hardware Deliverables: These are hardware items, such as a table, a prototype, or a piece of equipment.

Understanding Project Management 5

TOP MANAGEMENT:

POLICY

MIDDLE MANAGEMENT:

PLANNING

SUPERVISORS: SCHEDULING

LABORERS: OPERATIONS

MANAGEMENT GAPS FUNCTIONAL GAPS: DEPARTMENTIZATION

OPERATIONAL ISLANDS

+ =

FIGURE 1–1. Why are systems necessary?

PMBOK® Guide, 5th Edition 2.1.3 Organizational Structures

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6 OVERVIEW

● Software Deliverables: These items are similar to hardware deliverables but are usually paper products, such as reports, studies, handouts, or documentation. Some companies do not differentiate between hardware and software deliverables.

● Interim Deliverables: These items can be either hardware or software deliver- ables and progressively evolve as the project proceeds. An example might be a series of interim reports leading up to the final report.

Another factor influencing the selection of the project manager would be the stakehold- ers. Stakeholders are individuals or organizations that can be favorably or unfavorably impacted by the project. As such, project managers must interface with these stakeholders, and many of the stakeholders can exert their influence or pressure over the direction of the project.

Some stakeholders are referred to as “active” or “key” stakeholders that can possess decision-making authority during the execution of the project. Each stakeholder can have his or her own set of objectives, and this could place the project manager in a position of having to balance a variety of stakeholder interests without creating a conflict-of-interest situation for the project manager.

Each company has its own categorization system for identifying stakeholders. A typ- ical system might be:

● Organizational stakeholders ● Executive officers ● Line managers ● Employees ● Unions

W

ITH IN

GO OD C

USTOMER RELATIONS

TI M

E CO ST

RESOURCES

PERFORMANCE/TECHNOLOGY

FIGURE 1–2. Overview of project management.

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● Product/market stakeholders ● Customers ● Suppliers ● Local committees ● Governments (local, state, and federal) ● General public

● Capital market stakeholders ● Shareholders ● Creditors ● Banks

1.2 DEFINING PROJECT SUCCESS

In the previous section, we defined project success as the completion of an activity within the constraints of time, cost, and performance. This was the definition used for the past twenty years or so. Today, the definition of pro-

ject success has been modified to include completion:

● Within the allocated time period ● Within the budgeted cost ● At the proper performance or specification level ● With acceptance by the customer/user ● With minimum or mutually agreed upon scope changes ● Without disturbing the main work flow of the organization ● Without changing the corporate culture

The last three elements require further explanation. Very few projects are completed within the original scope of the project. Scope changes are inevitable and have the poten- tial to destroy not only the morale on a project, but the entire project. Scope changes must be held to a minimum and those that are required must be approved by both the project manager and the customer/user.

Project managers must be willing to manage (and make concessions/trade-offs, if nec- essary) such that the company’s main work flow is not altered. Most project managers view themselves as self-employed entrepreneurs after project go-ahead, and would like to divorce their project from the operations of the parent organization. This is not always pos- sible. The project manager must be willing to manage within the guidelines, policies, pro- cedures, rules, and directives of the parent organization.

All corporations have corporate cultures, and even though each project may be inher- ently different, the project manager should not expect his assigned personnel to deviate from cultural norms. If the company has a cultural standard of openness and honesty when deal- ing with customers, then this cultural value should remain in place for all projects, regardless of who the customer/user is or how strong the project manager’s desire for success is.

As a final note, it should be understood that simply because a project is a success does not mean that the company as a whole is successful in its project management endeavors. Excellence in project management is defined as a continuous stream of successfully

Defining Project Success 7

PMBOK® Guide, 5th Edition 2.2.3 Project Success

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managed projects. Any project can be driven to success through formal authority and strong executive meddling. But in order for a continuous stream of successful projects to occur, there must exist a strong corporate commitment to project management, and this commitment must be visible.

1.3 SUCCESS, TRADE-OFFS, AND COMPETING CONSTRAINTS

Although many projects are completed successfully, at least in the eyes of the stakehold- ers, the final criteria from which success is measured may be different than the initial cri- teria because of trade-offs. As an example, the triangle shown in Figure 1–2 is referred to as the triple constraints on a project, namely time, cost, and performance, where perfor- mance can be scope, quality, or technology. These are considered to be the primary con- straints and are often considered to be the criteria for a project against which success is measured.

Today, we realize that there can be multiple constraints on a project and, rather than use the terminology of the triple constraints, we focus our attention on competing con- straints. Sometimes the constraints are referred to as primary and secondary constraints. There may be secondary factors such as risk, customer relations, image, and reputation that may cause us to deviate from our original success criteria of time, cost, and performance. This will be covered later in Section 2.10. These changes can occur any time during the life of a project and can then cause trade-offs in the triple constraints, thus requiring that changes be made to the success criteria. In an ideal situation, we would perform trade-offs on any or all of the competing constraints such that acceptable success criteria would still be met.

As an example, let’s assume that a project was initiated using the success criteria of the triple constraints as shown in Figure 1–3. Part way through the project, the environ- ment changes, a new senior management team is brought in with their own agenda, or a corporate crisis occurs such that the credibility of the corporation is at stake. In such a case, the competing constraints shown in Figure 1–3 can be more important than the original triple constraints. For simplicity’s sake, a triangle was used for the competing constraints in Figure 1–3. However, there can be significantly more than three competing constraints in which some geometric shape other than a triangle might work best.

Secondary factors are also considered to be constraints and may be more important than the primary constraints. For example, years ago, in Disneyland and Disneyworld, the project managers designing and building the attractions at the theme parks had six constraints:

● Time ● Cost ● Scope ● Safety ● Aesthetic value ● Quality

8 OVERVIEW

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At Disney, the last three constraints of safety, aesthetic value, and quality were con- sidered locked-in constraints that could not be altered during trade-offs. All trade-offs were made on time, cost, and scope. Some constraints simply cannot change while others may have flexibility.

Not all constraints are equal in importance. For example, in the initiation phase of a pro- ject, scope may be the critical factor and all trade-offs are made on time and cost. During the execution phase of the project, time and cost may become more important and then trade-offs will be made on scope. A more detailed discussion of trade-offs can be found in Chapter 16.

1.4 THE PROJECT MANAGER–LINE MANAGER INTERFACE

We have stated that the project manager must control company resources within time, cost, and performance. Most companies have six resources:

● Money ● Manpower ● Equipment ● Facilities ● Materials ● Information/technology

Actually, the project manager does not control any of these resources directly, except perhaps money (i.e., the project budget).1 Resources are controlled by the line managers, functional managers, or, as they are often called, resources managers. Project managers

The Project Manager–Line Manager Interface 9

Traditional Projects

(The Triple Constraints)

Complex Projects

(Competing Constraints)

Va lu

e

Q uality

Image/Reputation

Scope

Risk

Cost Time

Ti m

e Cost

Image/ Reputation

Risk

Quality Value

Scope

FIGURE 1–3. Competing constraints.

PMBOK® Guide, 5th Edition 1.7.2 Project Management Skills

1. Here we are assuming that the line manager and project manager are not the same individual. However, the terms line manager and functional manager are used interchangeably throughout the text.

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must, therefore, negotiate with line managers for all project resources. When we say that project managers control project resources, we really mean that they control those resources (which are temporarily loaned to them) through line managers.

Today, we have a new breed of project manager. Years ago, virtually all project man- agers were engineers with advanced degrees. These people had a command of technology rather than merely an understanding of technology. If the line manager believed that the project manager did in fact possess a command of technology, then the line manager would allow the assigned functional employees to take direction from the project manager. The result was that project managers were expected to manage people.

Most project managers today have an understanding of technology rather than a com- mand of technology. As a result, the accountability for the success of the project is now viewed as shared accountability between the project manager and all affected line man- agers. With shared accountability, the line managers must now have a good understanding of project management, which is why more line managers are now becoming PMP®S. Project managers are now expected to focus more so on managing the project’s deliver- ables rather than providing technical direction to the project team. Management of the assigned resources is more often than not a line function.

Another important fact is that project managers are treated as though they are manag- ing part of a business rather than simply a project, and as such are expected to make sound business decisions as well as project decisions. Project managers must understand business principles. In the future, project managers may be expected to become externally certified by PMI® and internally certified by their company on the organization’s business processes.

In recent years, the rapid acceleration of technology has forced the project manager to become more business oriented. According to Hans Thamhain,

The new breed of business leaders must deal effectively with a broad spectrum of con- temporary challenges that focus on time-to-market pressures, accelerating technologies, innovation, resource limitations, technical complexities, social and ethical issues, opera- tional dynamics, cost, risks, and technology itself as summarized below:

● High task complexities, risks and uncertainties ● Fast-changing markets, technology, regulations ● Intense competition, open global markets ● Resource constraint, tough performance requirements ● Tight, end-date-driven schedules ● Total project life-cycle considerations ● Complex organizations and cross-functional linkages ● Joint ventures, alliances and partnerships, need for dealing with different organiza-

tional cultures and values ● Complex business processes and stakeholder communities ● Need for continuous improvements, upgrades and enhancements ● Need for sophisticated people skills, ability to deal with organizational conflict, power,

and politics ● Increasing impact of IT and e-business2

10 OVERVIEW

2. H. J. Thamhain, Management of Technology (Hoboken, NJ: Wiley, 2005), pp. 3–4.

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Dr. Thamhain further believes that there are paradigm shifts in technology-oriented business environments that will affect the business leaders of the future, including project managers. According to Dr. Thamhain, we are shifting from…

● … mostly linear work processes to highly dynamic, organic and integrated manage- ment systems

● …efficiency toward effectiveness ● …executing projects to enterprise-wide project management ● …managing information to fully utilizing information technology ● …managerial control to self-direction and accountability ● …managing technology as part of a functional speciality to management of technol-

ogy as a distinct skill set and professional status3

Another example of the need for the project manager to become more actively involved in business aspects has been identified by Gary Heerkens. Heerkens provides sev- eral revelations of why business knowledge has become important, a few of which are4:

● It really doesn’t matter how well you execute a project, if you’re working on the wrong project!

● There are times when spending more money on a project could be smart business— even if you exceed the original budget!

● There are times when spending more money on a project could be smart business— even if the project is delivered after the original deadline!

● Forcing the project team to agree to an unrealistic deadline may not be very smart, from a business standpoint.

● A portfolio of projects that all generate a positive cash flow may not represent an orga- nization’s best opportunity for investment.

It should become obvious at this point that successful project management is strongly dependent on:

● A good daily working relationship between the project manager and those line managers who directly assign resources to projects

● The ability of functional employees to report vertically to line managers at the same time that they report horizontally to one or more project managers

These two items become critical. In the first item, functional employees who are assigned to a project manager still take technical direction from their line managers. Second, employees who report to multiple managers will always favor the manager who controls their purse strings. Thus, most project managers appear always to be at the mercy of the line managers.

The Project Manager–Line Manager Interface 11

3. See note 2; Thamhain; p. 28. 4. G. Heerkens, The Business-Savvy Project Manager (New York: McGraw-Hill, 2006), pp. 4–8.

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Classical management has often been defined as a process in which the manager does not necessarily perform things for himself, but accomplishes objectives through others in a group situation. This basic definition also applies to the project manager. In addition, a project manager must help himself. There is nobody else to help him.

If we take a close look at project management, we will see that the project manager actu- ally works for the line managers, not vice versa. Many executives do not realize this. They have a tendency to put a halo around the head of the project manager and give him a bonus at project completion when, in fact, the credit should be shared with the line managers, who are continually pressured to make better use of their resources. The project manager is sim- ply the agent through whom this is accomplished. So why do some companies glorify the project management position?

To illustrate the role of the project manager, consider the time, cost, and performance constraints shown in Figure 1–2. Many functional managers, if left alone, would recognize only the performance constraint: “Just give me another $50,000 and two more months, and I’ll give you the ideal technology.”

The project manager, as part of these communicating, coordinating, and integrating responsibilities, reminds the line managers that there are also time and cost constraints on the project. This is the starting point for better resource control.

Project managers depend on line managers. When the project manager gets in trouble, the only place he can go is to the line manager because additional resources are almost always required to alleviate the problems. When a line manager gets in trouble, he usually goes first to the project manager and requests either additional funding or some type of authorization for scope changes.

To illustrate this working relationship between the project and line managers, consider the following situation:

Project Manager (addressing the line manager): “I have a serious problem. I’m looking at a $150,000 cost overrun on my project and I need your help. I’d like you to do the same amount of work that you are currently scheduled for but in 3,000 fewer man-hours. Since your orga- nization is burdened at $60/hour, this would more than compensate for the cost overrun.”

Line Manager: “Even if I could, why should I? You know that good line managers can always make work expand to meet budget. I’ll look over my manpower curves and let you know tomorrow.”

The following day . . .

Line Manager: “I’ve looked over my manpower curves and I have enough work to keep my people employed. I’ll give you back the 3,000 hours you need, but remember, you owe me one!”

Several months later . . .

Line Manager: “I’ve just seen the planning for your new project that’s supposed to start two months from now. You’ll need two people from my department. There are two

12 OVERVIEW

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employees that I’d like to use on your project. Unfortunately, these two people are avail- able now. If I don’t pick these people up on your charge number right now, some other pro- ject might pick them up in the interim period, and they won’t be available when your project starts.”

Project Manager: “What you’re saying is that you want me to let you sandbag against one of my charge numbers, knowing that I really don’t need them.”

Line Manager: “That’s right. I’ll try to find other jobs (and charge numbers) for them to work on temporarily so that your project won’t be completely burdened. Remember, you owe me one.”

Project Manager: “O.K. I know that I owe you one, so I’ll do this for you. Does this make us even?”

Line Manager: “Not at all! But you’re going in the right direction.”

When the project management–line management relationship begins to deteriorate, the project almost always suffers. Executives must promote a good working relationship between line and project management. One of the most common ways of destroying this relationship is by asking, “Who contributes to profits—the line or project manager?” Project managers feel that they control all project profits because they control the budget. The line managers, on the other hand, argue that they must staff with appropriately bud- geted-for personnel, supply the resources at the desired time, and supervise performance. Actually, both the vertical and horizontal lines contribute to profits. These types of con- flicts can destroy the entire project management system.

The previous examples should indicate that project management is more behavioral than quantitative. Effective project management requires an understanding of:

● Quantitative tools and techniques ● Organizational structures ● Organizational behavior

Most people understand the quantitative tools for planning, scheduling, and control- ling work. It is imperative that project managers understand totally the operations of each line organization. In addition, project managers must understand their own job description, especially where their authority begins and ends. During an in-house seminar on engi- neering project management, the author asked one of the project engineers to provide a description of his job as a project engineer. During the discussion that followed, several project managers and line managers said that there was a great deal of overlap between their job descriptions and that of the project engineer.

Organizational behavior is important because the functional employees at the inter- face position find themselves reporting to more than one boss—a line manager and one project manager for each project they are assigned to. Executives must provide proper training so functional employees can report effectively to multiple managers.

The Project Manager–Line Manager Interface 13

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1.5 DEFINING THE PROJECT MANAGER’S ROLE

The project manager is responsible for coordinating and integrating activ- ities across multiple, functional lines. The integration activities performed by the project manager include:

● Integrating the activities necessary to develop a project plan ● Integrating the activities necessary to execute the plan ● Integrating the activities necessary to make changes to the plan

These integrative responsibilities are shown in Figure 1–4 where the project manager must convert the inputs (i.e., resources) into outputs of products, services, and ultimately profits. In order to do this, the project manager needs strong communicative and interpersonal skills, must become familiar with the operations of each line organization, and must have knowledge of the technology being used.

An executive with a computer manufacturer stated that his company was looking externally for project managers. When asked if he expected candidates to have a command of computer technology, the executive remarked: “You give me an individual who has good communicative skills and interpersonal skills, and I’ll give that individual a job. I can teach people the technology and give them technical experts to assist them in decision making. But I cannot teach somebody how to work with people.”

The project manager’s job is not an easy one. Project managers may have increasing responsibility, but very little authority. This lack of authority can force them to “negotiate” with upper-level management as well as functional management for control of company resources. They may often be treated as outsiders by the formal organization.

In the project environment, everything seems to revolve about the project manager. Although the project organization is a specialized, task-oriented entity, it cannot exist apart from the traditional structure of the organization. The project manager, therefore, must

14 OVERVIEW

S

Products

Profits

Services Outputs

Capital

Materials

Equipment

Facilities

Information

Personnel

Resources

Integration Management

Integrated Processes

Inputs

S

SS

SS

SS

SS

SS

FIGURE 1–4. Integration management.

PMBOK® Guide, 5th Edition Chapter 4 Integration

Management

PMBOK® Guide, 5th Edition 2.2.1 Stakeholders Chapter 4 Project

Integration Management

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walk the fence between the two organizations. The term interface management is often used for this role, which can be described as managing relationships:

● Within the project team ● Between the project team and the functional organizations ● Between the project team and senior management ● Between the project team and the customer’s organization, whether an internal or

external organization

To be effective as a project manager, an individual must have management as well as technical skills. Because engineers often consider their careers limited in the functional disciplines, they look toward project management and project engineering as career path opportunities. But becoming a manager entails learning about psychology, human behav- ior, organizational behavior, interpersonal relations, and communications. MBA programs have come to the rescue of individuals desiring the background to be effective project managers.

In the past, executives motivated and retained qualified personnel primarily with financial incentives. Today other ways are being used, such as a change in title or the promise of more challenging work. Perhaps the lowest turnover rates of any professions in the world are in project management and project engineering. In a project environment, the project managers and project engineers get to see their project through from “birth to death.” Being able to see the fruits of one’s efforts is highly rewarding. A senior project manager in a construction company commented on why he never accepted a vice presi- dency that had been offered to him: “I can take my children and grandchildren into ten countries in the world and show them facilities that I have built as the project manager. What do I show my kids as an executive? The size of my office? My bank account? A stockholder’s report?”

The project manager is actually a general manager and gets to know the total opera- tion of the company. In fact, project managers get to know more about the total operation of a company than most executives. That is why project management is often used as a training ground to prepare future general managers who will be capable of filling top man- agement positions.

1.6 DEFINING THE FUNCTIONAL MANAGER’S ROLE

Assuming that the project and functional managers are not the same per- son, we can identify a specific role for the functional manager. There are three elements to this role:

● The functional manager has the responsibility to define how the task will be done and where the task will be done (i.e., the tech- nical criteria).

Defining the Functional Manager’s Role 15

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Management 9.1.2 HR Planning: Tools and

Techniques

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● The functional manager has the responsibility to provide sufficient resources to accomplish the objective within the project’s constraints (i.e., who will get the job done).

● The functional manager has the responsibility for the deliverable.

In other words, once the project manager identifies the requirements for the project (i.e., what work has to be done and the constraints), it becomes the line manager’s respon- sibility to identify the technical criteria. Except perhaps in R&D efforts, the line manager should be the recognized technical expert. If the line manager believes that certain techni- cal portions of the project manager’s requirements are unsound, then the line manager has the right, by virtue of his expertise, to take exception and plead his case to a higher authority.

In Section 1.1 we stated that all resources (including personnel) are controlled by the line manager. The project manager has the right to request specific staff, but the final appointments rest with line managers. It helps if project managers understand the line manager’s problems:

● Unlimited work requests (especially during competitive bidding) ● Predetermined deadlines ● All requests having a high priority ● Limited number of resources ● Limited availability of resources ● Unscheduled changes in the project plan ● Unpredicted lack of progress ● Unplanned absence of resources ● Unplanned breakdown of resources ● Unplanned loss of resources ● Unplanned turnover of personnel

Only in a very few industries will the line manager be able to identify to the project manager in advance exactly what resources will be available when the project is scheduled to begin. It is not important for the project manager to have the best available resources. Functional managers should not commit to certain people’s availability. Rather, the func- tional manager should commit to achieving his portion of the deliverables within time, cost, and performance even if he has to use average or below-average personnel. If the pro- ject manager is unhappy with the assigned functional resources, then the project manager should closely track that portion of the project. Only if and when the project manager is convinced by the evidence that the assigned resources are unacceptable should he confront the line manager and demand better resources.

The fact that a project manager is assigned does not relieve the line manager of his functional responsibility to perform. If a functional manager assigns resources such that the constraints are not met, then both the project and functional managers will be blamed. One company is even considering evaluating line managers for merit increases and promotion based on how often they have lived up to their commitments to the project managers.

16 OVERVIEW

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Therefore, it is extremely valuable to everyone concerned to have all project commitments made visible to all.

Some companies carry the concept of commitments to extremes. An aircraft compo- nents manufacturer has a Commitment Department headed by a second-level manager. The function of the Commitment Department is to track how well the line managers keep their promises to the project managers. The department manager reports directly to the vice pres- ident of the division. In this company, line managers are extremely careful and cautious in making commitments, but do everything possible to meet deliverables. This same company has gone so far as to tell both project and line personnel that they run the risk of being dis- charged from the company for burying a problem rather than bringing the problem to the surface immediately.

In one automotive company, the tension between the project and line managers became so combative that it was having a serious impact on the performance and con- straints of the project. The project managers argued that the line managers were not ful- filling their promises whereas the line managers were arguing that the project managers’ requirements were poorly defined. To alleviate the problem, a new form was created which served as a contractual agreement between the project and the line managers who had to commit to the deliverables. This resulted in “shared accountability” for the project’s deliverables.

Project management is designed to have shared authority and responsibility between the project and line managers. Project managers plan, monitor, and control the project, whereas functional managers perform the work. Table 1–1 shows this shared responsibility. The one exception to Table 1–1 occurs when the project and line managers are the same per- son. This situation, which happens more often than not, creates a conflict of interest. If a line manager has to assign resources to six projects, one of which is under his direct control, he might save the best resources for his project. In this case, his project will be a success at the expense of all of the other projects.

The exact relationship between project and line managers is of paramount importance in project management where multiple-boss reporting prevails. Table 1–2 shows that the relationship between project and line managers is not always in balance and thus, of course, has a bearing on who exerts more influence over the assigned functional employees.

Defining the Functional Manager’s Role 17

TABLE 1–1. DUAL RESPONSIBILITY

Responsibility

Topic Project Manager Line Manager

Rewards Give recommendation: Informal Provide rewards: Formal Direction Milestone (summary) Detailed Evaluation Summary Detailed Measurement Summary Detailed Control Summary Detailed

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1.7 DEFINING THE FUNCTIONAL EMPLOYEE’S ROLE

Once the line managers commit to the deliverables, it is the responsibility of the assigned functional employees to achieve the functional deliverables. For years the functional employ- ees were called subordinates. Although this term still exists in textbooks, industry prefers to regard the assigned employees as “associates” rather than subordinates. The reason for this is that in project management the associates can be a higher pay grade than the project man- ager. The associates can even be a higher pay grade than their functional manager.

In most organizations, the assigned employees report on a “solid” line to their func- tional manager, even though they may be working on several projects simultaneously. The employees are usually a “dotted” line to the project but solid to their function. This places the employees in the often awkward position of reporting to multiple individuals. This sit- uation is further complicated when the project manager has more technical knowledge than the line manager. This occurs during R&D projects.

The functional employee is expected to accomplish the following activities when assigned to projects:

● Accept responsibility for accomplishing the assigned deliverables within the project’s constraints

● Complete the work at the earliest possible time ● Periodically inform both the project and line manager of the project’s status ● Bring problems to the surface quickly for resolution ● Share information with the rest of the project team

18 OVERVIEW

TABLE 1–2. REPORTING RELATIONSHIPS

Project Manager (PM)/Line Manager (LM)/Employee Relationship

Employee Employees Take PM Receives Performance

Type of Project Type of Matrix Technical Direction Functional Progress Evaluations Manager Structure* PM Negotiates For From From Made By

Lightweight Weak Deliverables LMs Primarily LMs LMs only with no input from PM

Heavyweight Strong People who report PM and LMs Assigned employees LMs with input informally to PM who report to LMs from PM but formally to LMs

Tiger teams Very strong People who report PM only Assigned employees PM only entirely to PM who now report full-time for directly to PM duration of project

*The types of organizational structures are discussed in Chapter 3.

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1.8 DEFINING THE EXECUTIVE’S ROLE

In a project environment there are new expectations of and for the executives, as well as a new interfacing role.5 Executives are expected to interface a project as follows:

● In project planning and objective-setting ● In conflict resolution ● In priority-setting ● As project sponsor6

Executives are expected to interface with projects very closely at project initiation and planning, but to remain at a distance during execution unless needed for priority-setting and conflict resolution. One reason why executives “meddle” during project execution is that they are not getting accurate information from the project manager as to project sta- tus. If project managers provide executives with meaningful status reports, then the so-called meddling may be reduced or even eliminated.

1.9 WORKING WITH EXECUTIVES

Success in project management is like a three-legged stool. The first leg is the project man- ager, the second leg is the line manager, and the third leg is senior management. If any of the three legs fail, then even delicate balancing may not prevent the stool from toppling.

The critical node in project management is the project manager–line manager inter- face. At this interface, the project and line managers must view each other as equals and be willing to share authority, responsibility, and accountability. In excellently managed companies, project managers do not negotiate for resources but simply ask for the line manager’s commitment to executing his portion of the work within time, cost, and perfor- mance. Therefore, in excellent companies, it should not matter who the line manager assigns as long as the line manager lives up to his commitments.

Since the project and line managers are “equals,” senior management involvement is necessary to provide advice and guidance to the project manager, as well as to provide encouragement to the line managers to keep their promises. When executives act in this capacity, they assume the role of project sponsors, as shown in Figure 1–5,7 which also shows that sponsorship need not always be at the executive levels. The exact person appointed as the project sponsor is based on the dollar value of the project, the priority of the project, and who the customer is.

The ultimate objective of the project sponsor is to provide behind-the-scenes assistance to project personnel for projects both “internal” to the company, as well as “external,” as shown in Figure 1–5. Projects can still be successful without this commitment and support, as long as all work flows smoothly. But in time of crisis, having a “big brother” available as a possible sounding board will surely help.

Working with Executives 19

5. The expectations are discussed in Section 9.3. 6. The role of the project sponsor is discussed in Section 10.1. 7. Section 10.1 describes the role of the project sponsor in more depth.

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When an executive is required to act as a project sponsor, then the executive has the responsibility to make effective and timely project decisions. To accomplish this, the execu- tive needs timely, accurate, and complete data for such decisions. Keeping management informed serves this purpose, while the all-too-common practice of “stonewalling” prevents an executive from making effective project decisions.

It is not necessary for project sponsorship to remain exclusively at the executive lev- els. As companies mature in their understanding and implementation of project manage- ment, project sponsorship may be pushed down to middle-level management. Committee sponsorship is also possible.

1.10 COMMITTEE SPONSORSHIP/GOVERNANCE

All projects have the potential of getting into trouble but, in general, project management can work well as long as the project’s requirements do not impose severe pressure upon the project manager and a project sponsor exists as an ally to assist the project manager when trouble does appear. Unfortunately, in today’s chaotic environment, this pressure appears to be increasing because:

● Companies are accepting high-risk and highly complex projects as a necessity for survival

● Customers are demanding low-volume, high-quality products with some degree of customization

20 OVERVIEW

PRIORITY PROJECTS

MAINTENANCE PROJECTS

PROJECT MANAGER

PROJECT SPONSOR

PROJECT MANAGER

PROJECT SPONSOR: SENIOR MANAGEMENT

PROJECT SPONSOR: LOWER/MIDDLE MANAGEMENT

PROJECT TEAM

RELATIONSHIP:

• OBJECTIVE SETTING • UP-FRONT PLANNING • PROJECT ORGANIZATION • KEY STAFFING • MASTER PLAN • POLICIES • MONITORING EXECUTION • PRIORITY SETTING • CONFLICT RESOLUTION • EXECUTIVE-CLIENT CONTACT

FIGURE 1–5. The project sponsor interface.

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● Project life cycles and new product development times are being compressed ● Enterprise environmental factors are having a greater impact on project execution ● Customers and stakeholders want to be more actively involved in the execution of

projects ● Companies are developing strategic partnerships with suppliers, and each supplier

can be at a different level of project management maturity ● Global competition has forced companies to accept projects from customers that

are all at a different level of project management maturity and with different reporting requirements

These pressures tend to slow down the decision-making processes at a time when stakeholders want the projects and processes to be accelerated. One person, while acting as the project sponsor, may have neither the time nor capability to address all of these addi- tional issues. The result will be a project slowdown and can occur because of:

● The project manager being expected to make decisions in areas where he or she has limited knowledge

● The project manager hesitating to accept full accountability and ownership for the projects

● Excessive layers of management being superimposed on top of the project man- agement organization

● Risk management being pushed up to higher levels in the organization hierarchy resulting in delayed decisions

● The project manager demonstrating questionable leadership ability on some of the nontraditional projects

The problems resulting from these pressures may not be able to be resolved, at least easily and in a timely manner, by a single project sponsor. These problems can be resolved using effective project governance. Project governance is actually a framework by which decisions are made. Governance relates to decisions that define expectations, accountabil- ity, responsibility, the granting of power, or verifying performance. Governance relates to consistent management, cohesive policies, and processes and decision-making rights for a given area of responsibility. Governance enables efficient and effective decision-making to take place.

Every project can have different governance even if each project uses the same enter- prise project management methodology. The governance function can operate as a sepa- rate process or as part of project management leadership. Governance is designed not to replace project decision-making but to prevent undesirable decisions from being made.

Historically, governance was provided by a single project sponsor. Today, governance is a committee and can include representatives from each stakeholder’s organization. Table 1-3 shows various governance approaches based upon the type of project team. The membership of the committee can change from project to project and industry to industry. The membership may also vary based upon the number of stakeholders and whether the project is for an internal or external client. On long-term projects, membership can change throughout the project.

Committee Sponsorship/Governance 21

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Governance on projects and programs sometimes fails because people confuse project governance with corporate governance. The result is that members of the committee are not sure what their role should be. Some of the major differences include:

● Alignment: Corporate governance focuses on how well the portfolio of projects is aligned to and satisfies overall business objectives. Project governance focuses on ways to keep a project on track.

● Direction: Corporate governance provides strategic direction with a focus on how project success will satisfy corporate objectives. Project governance is more oper- ation direction with decisions based upon the predefined parameters on project scope, time, cost, and functionality.

● Dashboards: Corporate governance dashboards are based upon financial, market- ing, and sales metrics. Project governance dashboards have operations metrics on time, cost, scope, quality, action items, risks, and deliverables.

● Membership: Corporate governance committees are composed of the seniormost levels of management. Project government membership may include some mem- bership from middle management.

Another reason why failure may occur is when members of the project or program governance group do not understand project or program management. This can lead to micromanagement by the governance committee. There is always the question of what decisions must be made by the governance committee and what decisions the project man- ager can make. In general, the project manager should have the authority for decisions related to actions necessary to maintain the baselines. Governance committees must have the authority to approve scope changes above a certain dollar value and to make decisions necessary to align the project to corporate objectives and strategy.

22 OVERVIEW

TABLE 1–3. TYPES OF PROJECT GOVERNANCE

Structure Description Governance

Dispersed locally Team members can be full- or Usually a single person is acting as the part-time. They are still attached sponsor but may be an internal administratively to their functional area. committee based upon the project’s

complexity.

Dispersed geographically This is a virtual team. The project Usually governance by committee and manager may never see some of the can include stakeholder membership. team members. Team members can be full- or part-time.

Colocated All of the team members are physically Usually a single person acting as the located in close proximity to the project sponsor. manager. The project manager does not have any responsibility for wage and salary administration.

Projectized This is similar to a colocated team but May be governance by committee the project manager generally functions based upon the size of the project and as a line manager and may have wage the number of strategic partners. and salary responsibilities.

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1.11 THE PROJECT MANAGER AS THE PLANNING AGENT

The major responsibility of the project manager is planning. If project planning is performed correctly, then it is conceivable that the project man- ager will work himself out of a job because the project can run itself. This rarely happens, however. Few projects are ever completed without some

conflict or trade-offs for the project manager to resolve. In most cases, the project manager provides overall or summary definitions of the

work to be accomplished, but the line managers (the true experts) do the detailed planning. Although project managers cannot control or assign line resources, they must make sure that the resources are adequate and scheduled to satisfy the needs of the project, not vice versa. As the architect of the project plan, the project manager must provide:

● Complete task definitions ● Resource requirement definitions (possibly skill levels) ● Major timetable milestones ● Definition of end-item quality and reliability requirements ● The basis for performance measurement ● Definition of project success

These factors, if properly established, result in:

● Assurance that functional units will understand their total responsibilities toward achieving project needs.

● Assurance that problems resulting from scheduling and allocation of critical resources are known beforehand.

● Early identification of problems that may jeopardize successful project completion so that effective corrective action and replanning can be taken to prevent or resolve the problems.

Project managers are responsible for project administration and, therefore, must have the right to establish their own policies, procedures, rules, guidelines, and directives— provided these policies, guidelines, and so on, conform to overall company policy. Companies with mature project management structures usually have rather loose company guidelines, so project managers have some degree of flexibility in how to control their projects. However, project managers cannot make any promises to a functional employee concerning:

● Promotion ● Grade ● Salary ● Bonus ● Overtime ● Responsibility ● Future work assignments

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Resources Management

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These seven items can be administered by line managers only, but the project manager can have indirect involvement by telling the line manager how well an employee is doing (and putting it in writing), requesting overtime because the project budget will permit it, and offering individuals the opportunity to perform work above their current pay grade. However, such work above pay grade can cause severe managerial headaches if not coordi- nated with the line manager, because the individual will expect immediate rewards if he per- forms well.

Establishing project administrative requirements is part of project planning. Executives must either work with the project managers at project initiation or act as resources later. Improper project administrative planning can create a situation that requires:

● A continuous revision and/or establishment of company and/or project policies, procedures, and directives

● A continuous shifting in organizational responsibility and possible unnecessary restructuring

● A need for staff to acquire new knowledge and skills

If these situations occur simultaneously on several projects, there can be confusion throughout the organization.

1.12 PROJECT CHAMPIONS

Corporations encourage employees to think up new ideas that, if approved by the corpo- ration, will generate monetary and nonmonetary rewards for the idea generator. One such reward is naming the individual the “project champion.” Unfortunately, the project cham- pion often becomes the project manager, and, although the idea was technically sound, the project fails.

Table 1–4 provides a comparison between project managers and project champions. It shows that the project champions may become so attached to the technical side of the proj- ect that they become derelict in their administrative responsibilities. Perhaps the project champion might function best as a project engineer rather than the project manager.

24 OVERVIEW

TABLE 1–4. PROJECT MANAGERS VERSUS PROJECT CHAMPIONS

Project Managers Project Champions

• Prefer to work in groups • Prefer working individually • Committed to their managerial and technical • Committed to technology

responsibilities • Committed to the corporation • Committed to the profession • Seek to achieve the objective • Seek to exceed the objective • Are willing to take risks • Are unwilling to take risks; try to test everything • Seek what is possible • Seek perfection • Think in terms of short time spans • Think in terms of long time spans • Manage people • Manage things • Are committed to and pursue material values • Are committed to and pursue intellectual values

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This comparison does not mean that technically oriented project managers-champions will fail. Rather, it implies that the selection of the “proper” project manager should be based on all facets of the project.

1.13 THE DOWNSIDE OF PROJECT MANAGEMENT

Project management is often recognized only as a high-salaried, highly challenging posi- tion whereby the project manager receives excellent training in general management.

For projects that are done for external sources, the project manager is first viewed as starting out with a pot of gold and then as having to manage the project so that sufficient profits will be made for the stockholders. If the project manager performs well, the pro- ject will be successful. But the personal cost may be high for the project manager.

There are severe risks that are not always evident. Some project management posi- tions may require a sixty-hour workweek and extensive time away from home. When a project manager begins to fall in love more with the job than with his family, the result is usually lack of friends, a poor home life, and possibly divorce. During the birth of the missile and space programs, companies estimated that the divorce rate among project managers and project engineers was probably twice the national average. Accepting a project management assignment is not always compatible with raising a young family. Characteristics of the workaholic project manager include:

● Every Friday he thinks that there are only two more working days until Monday. ● At 5:00 P.M. he considers the working day only half over. ● He has no time to rest or relax. ● He always takes work home from the office. ● He takes work with him on vacations.

1.14 PROJECT-DRIVEN VERSUS NON–PROJECT-DRIVEN ORGANIZATIONS

On the micro level, virtually all organizations are either marketing-, engi- neering-, or manufacturing-driven. But on the macro level, organizations are either project- or non–project-driven. The PMBOK® Guide uses the terms project-based and non–project-based, whereas in this text the terms project-driven and non–project-driven or operational-driven are used. In a project-driven organization, such as construction or aerospace, all work

is characterized through projects, with each proj-ect as a separate cost center having its own profit-and-loss statement. The total profit to the corporation is simply the summation of the profits on all projects. In a project-driven organization, everything centers around the projects.

In the non–project-driven organization, such as low-technology manufacturing, profit and loss are measured on vertical or functional lines. In this type of organization, projects

Project-Driven versus Non–Project-Driven Organizations 25

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Management

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exist merely to support the product lines or functional lines. Priority resources are assigned to the revenue-producing functional line activities rather than the projects.

Project management in a non–project-driven organization is generally more difficult for these reasons:

● Projects may be few and far between. ● Not all projects have the same project management requirements, and therefore

they cannot be managed identically. This difficulty results from poor understand- ing of project management and a reluctance of companies to invest in proper training.

● Executives do not have sufficient time to manage projects themselves, yet refuse to delegate authority.

● Projects tend to be delayed because approvals most often follow the vertical chain of command. As a result, project work stays too long in functional departments.

● Because project staffing is on a “local” basis, only a portion of the organization understands project management and sees the system in action.

● There is heavy dependence on subcontractors and outside agencies for project management expertise.

Non–project-driven organizations may also have a steady stream of projects, all of which are usually designed to enhance manufacturing operations. Some projects may be customer-requested, such as:

● The introduction of statistical dimensioning concepts to improve process control ● The introduction of process changes to enhance the final product ● The introduction of process change concepts to enhance product reliability

If these changes are not identified as specific projects, the result can be:

● Poorly defined responsibility areas within the organization ● Poor communications, both internal and external to the organization ● Slow implementation ● A lack of a cost-tracking system for implementation ● Poorly defined performance criteria

Figure 1–6 shows the tip-of-the-iceberg syndrome, which can occur in all types of organizations but is most common in non–project-driven organizations. On the surface, all we see is a lack of authority for the project manager. But beneath the surface we see the causes; there is excessive meddling due to lack of understanding of project management, which, in turn, resulted from an inability to recognize the need for proper training.

In the previous sections we stated that project management could be handled on either a formal or an informal basis. As can be seen from Figure 1–7, informal project manage- ment most often appears in non–project-driven organizations. It is doubtful that informal project management would work in a project-driven organization where the project man- ager has profit-and-loss responsibility.

26 OVERVIEW

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Project-Driven versus Non–Project-Driven Organizations 27

DELEGATION OF

AUTHORITY TO

PROJECT MANAGER

EXECUTIVE MEDDLING

LACK OF UNDERSTANDING OF HOW PROJECT MANAGEMENT SHOULD WORK

LACK OF TRAINING IN COMMUNICATIONS/INTERPERSONAL SKILLS

MANY OF THE PROBLEMS SURFACE MUCH LATER IN THE PROJECT AND RESULT IN A MUCH HIGHER COST TO CORRECT AS WELL AS INCREASE PROJECT RISK

FIGURE 1–6. The tip-of-the-iceberg syndrome for matrix implementation.

RELATIVE INFLUENCE

PRODUCT INFLUENCE IN DECISION-MAKING

FUNCTIONAL INFLUENCE IN DECISION-MAKING

DUAL INFLUENCE

FUNCTIONAL ORGANIZATION

MATRIX PRODUCT ORGANIZATION

NON–PROJECT-

DRIVEN

PROJECT-

DRIVEN

NON–PROJECT-

DRIVEN

INFORMAL

P.M.

INFORMAL

P.M.

FORMAL

P.M.

FIGURE 1–7. Decision-making influence.

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1.15 MARKETING IN THE PROJECT-DRIVEN ORGANIZATION

Getting new projects is the lifeblood of any project-oriented business. The practices of the project-oriented company are, however, substantially different from traditional product businesses and require highly special- ized and disciplined team efforts among marketing, technical, and operat- ing personnel, plus significant customer involvement. Projects are

different from products in many respects, especially marketing. Marketing projects requires the ability to identify, pursue, and capture one-of-a-kind business opportunities, and is characterized by:

● A systematic effort. A systematic approach is usually required to develop a new program lead into an actual contract. The project acquisition effort is often highly integrated with ongoing programs and involves key personnel from both the poten- tial customer and the performing organization.

● Custom design. While traditional businesses provide standard products and services for a variety of applications and customers, projects are custom-designed items to fit specific requirements of a single-customer community.

● Project life cycle. Project-oriented businesses have a well-defined beginning and end and are not self-perpetuating. Business must be generated on a project-by- project basis rather than by creating demand for a standard product or service.

● Marketing phase. Long lead times often exist between the product definition, start- up, and completion phases of a project.

● Risks. There are risks, especially in the research, design, and production of pro- grams. The program manager not only has to integrate the multidisciplinary tasks and project elements within budget and schedule constraints, but also has to manage inventions and technology while working with a variety of technically ori- ented prima donnas.

● The technical capability to perform. Technical ability is critical to the successful pursuit and acquisition of a new project.

In spite of the risks and problems, profits on projects are usually very low in compar- ison with commerical business practices. One may wonder why companies pursue project businesses. Clearly, there are many reasons why projects are good business:

● Although immediate profits (as a percentage of sales) are usually small, the return on capital investment is often very attractive. Progress payment practices keep inventories and receivables to a minimum and enable companies to undertake proj- ects many times larger in value than the assets of the total company.

● Once a contract has been secured and is being managed properly, the project may be of relatively low financial risk to the company. The company has little addi- tional selling expenditure and has a predictable market over the life cycle of the project.

28 OVERVIEW

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● Project business must be viewed from a broader perspective than motivation for immediate profits. Projects provide an opportunity to develop the company’s tech- nical capabilities and build an experience base for future business growth.

● Winning one large project often provides attractive growth potential, such as (1) growth with the project via additions and changes; (2) follow-on work; (3) spare parts, maintenance, and training; and (4) being able to compete effec- tively in the next project phase, such as nurturing a study program into a develop- ment contract and finally a production contract.

Customers come in various forms and sizes. For small and medium businesses partic- ularly, it is a challenge to compete for contracts from large industrial or governmental organizations. Although the contract to a firm may be relatively small, it is often subcon- tracted via a larger organization. Selling to such a diversified heterogeneous customer is a marketing challenge that requires a highly sophisticated and disciplined approach.

The first step in a new business development effort is to define the market to be pursued. The market segment for a new program opportunity is normally in an area of relevant past experience, technical capability, and customer involvement. Good marketers in the program business have to think as product line managers. They have to understand all dimensions of the business and be able to define and pursue market objectives that are consistent with the capabilities of their organizations.

Program businesses operate in an opportunity-driven market. It is a common mistake, however, to believe that these markets are unpredictable and unmanageable. Market planning and strategizing is important. New project opportunities develop over periods of time, some- times years for larger projects. These developments must be properly tracked and cultivated to form the bases for management actions such as (1) bid decisions, (2) resource commit- ment, (3) technical readiness, and (4) effective customer liaison. This strategy of winning new business is supported by systematic, disciplined approaches, which are illustrated in Figure 1–8.

Marketing in the Project-Driven Organization 29

IDENTIFY NEW

BUSINESS OPPORTUNITY

PRELIM. BID

DECISION

DEVELOP THE NEW

OPPORTUNITY

BID DECISION RFP

DEVELOP PROPOSAL & PRICING

NEGOTIATE CONTRACT

WIN

• SEARCH FOR NEW BUSINESS

• ANALYZE AND EVALUATE

• SELECT • DEDICATE RESOURCES

• SIGNIFICANT CUSTOMER CONTACT

• OBTAIN & ANALYZE REQUIREMENTS

• DEVELOP PROJECT BASELINE

• ESTABLISH R&D PROGRAMS

• BUILD FAVORABLE IMAGE

• ESTABLISH PROJECT ORGANIZATION

• PROPOSAL PLANNING

• PROPOSAL TEAM ORGANIZATION

• WIN STRATEGY • RFP ANALYSIS • CATEGORICAL OUTLINE

• TEXT & ART GENERATION

• COST ESTIMATING & PRICING

• REVIEWS • PROPOSAL PUBLICATION

• PRICING

• POST SUBMITTAL PLANNING

• ORAL REVIEWS, FACT FINDING, QUESTIONS & ANSWERS

• MARKETING • NEGOTIATIONS

FIGURE 1–8. The phases of winning new contracts in project-oriented businesses.

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1.16 CLASSIFICATION OF PROJECTS

The principles of project management can be applied to any type of project and to any industry. However, the relative degree of importance of these principles can vary from project to project and industry to industry. Table 1–5 shows a brief comparison of certain industries/projects.

For those industries that are project-driven, such as aerospace and large construction, the high dollar value of the projects mandates a much more rigorous project management approach. For non–project-driven industries, projects may be managed more informally than formally, especially if no immediate profit is involved. Informal project management is sim- ilar to formal project management but paperwork requirements are kept at a minimum.

1.17 LOCATION OF THE PROJECT MANAGER

The success of project management could easily depend on the location of the project manager within the organization. Two questions must be answered:

● What salary should the project manager earn? ● To whom should the project manager report?

Figure 1–9 shows a typical organizational hierarchy (the numbers represent pay grades). Ideally, the project manager should be at the same pay grade as the individuals with whom he must negotiate on a daily basis. Using this criterion, and assuming that the project manager interfaces at the department manager level, the project manager should earn a salary between grades 20 and 25. A project manager earning substantially more or less money than the line manager will usually create conflict. The ultimate reporting

30 OVERVIEW

TABLE 1–5. CLASSIFICATION OF PROJECTS/CHARACTERISTICS

Type of Project/Industry

In-house Small Large Aerospace/ R&D Construction Construction Defense MIS Engineering

Need for interpersonal skills Low Low High High High Low Importance of organizational Low Low Low Low High Low

structure Time management difficulties Low Low High High High Low Number of meetings Excessive Low Excessive Excessive High Medium Project manager’s supervisor Middle Top Top Top Middle Middle

management management management management management management Project sponsor present Yes No Yes Yes No No Conflict intensity Low Low High High High Low Cost control level Low Low High High Low Low Level of planning/scheduling Milestones Milestones Detailed plan Detailed plan Milestones Milestones

only only only only

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location of the project manager (and perhaps his salary) is heavily dependent on whether the organization is project- or non–project-driven, and whether the project manager is responsible for profit or loss.

Project managers can end up reporting both high and low in an organization during the life cycle of the project. During the planning phase of the project, the project manager may report high, whereas during implementation, he may report low. Likewise, the posi- tioning of the project manager may be dependent on the risk of the project, the size of the project, or the customer.

Finally, it should be noted that even if the project manager reports low, he should still have the right to interface with top executives during project planning although there may be two or more reporting levels between the project manager and executives. At the oppo- site end of the spectrum, the project manager should have the right to go directly into the depths of the organization instead of having to follow the chain of command downward,

Location of the Project Manager 31

VICE PRESIDENT

PRESIDENT

DIRECTOR

DIVISION

DEPARTMENT

SECTION

LABORER

50

60

40

30

20

10

1–9

PROJECT-DRIVEN

NON–PROJECT-DRIVEN

Typical position of a project manager

FIGURE 1–9. Organizational hierarchy.

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especially during planning. As an example, see Figure 1–10. The project manager had two weeks to plan and price out a small project. Most of the work was to be accomplished within one section. The project manager was told that all requests for work, even estimat- ing, had to follow the chain of command from the executive down through the section supervisor. By the time the request was received by the section supervisor, twelve of the fourteen days were gone, and only an order-of-magnitude estimate was possible. The les- son to be learned here is:

The chain of command should be used for approving projects, not planning them.

Forcing the project manager to use the chain of command (in either direction) for project planning can result in a great deal of unproductive time and idle time cost.

1.18 DIFFERING VIEWS OF PROJECT MANAGEMENT

Many companies, especially those with project-driven organizations, have differing views of project management. Some people view project management as an excellent means to achieving objectives, while others view it as a threat. In project-driven organizations, there are three career paths that lead to executive management:

● Through project management ● Through project engineering ● Through line management

32 OVERVIEW

PROJECT MANAGER

VICE PRESIDENT ENGINEERING

DIVISION MANAGER

DEPARTMENT MANAGER

SECTION SUPERVISOR

INF OR

MA TIO

N R EQ

UE ST

FIGURE 1–10. The organizational hierarchy: for planning and /or approval?

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In project-driven organizations, the fast-track position is in project management, whereas in a non–project-driven organization, it would be line management. Even though line managers support the project management approach, they resent the project manager because of his promotions and top-level visibility. In one construction company, a depart- ment manager was told that he had no chance for promotion above his present department manager position unless he went into project management or project engineering where he could get to know the operation of the whole company. A second construction company requires that individuals aspiring to become a department manager first spend a “tour of duty” as an assistant project manager or project engineer.

Executives may dislike project managers because more authority and control must be delegated. However, once executives realize that it is a sound business practice, it becomes important, as shown in the following letter8:

In order to sense and react quickly and to insure rapid decision-making, lines of commu- nication should be the shortest possible between all levels of the organization. People with the most knowledge must be available at the source of the problem, and they must have decision-making authority and responsibility. Meaningful data must be available on a timely basis and the organization must be structured to produce this environment.

In the aerospace industry, it is a serious weakness to be tied to fixed organization charts, plans, and procedures. With regard to organization, we successfully married the project concept of management with a central function concept. What we came up with is an organization within an organization—one to ramrod the day-to-day problems; the other to provide support for existing projects and to anticipate the requirements for future projects.

The project system is essential in getting complicated jobs done well and on time, but it solves only part of the management problem. When you have your nose to the project grindstone, you are often not in a position to see much beyond that project. This is where the central functional organization comes in. My experience has been that you need this central organization to give you depth, flexibility, and perspective. Together, the two parts permit you to see both the woods and the trees.

Initiative is essential at all levels of the organization. We try to press the level of deci- sion to the lowest possible rung of the managerial ladder. This type of decision-making provides motivation and permits recognition for the individual and the group at all levels. It stimulates action and breeds dedication.

With this kind of encouragement, the organization can become a live thing—sensitive to problems and able to move in on them with much more speed and understanding than would be normally expected in a large operation. In this way, we can regroup or reorga- nize easily as situations dictate and can quickly focus on a “crisis.” In this industry a com- pany must always be able to reorient itself to meet new objectives. In a more staid, old-line organization, frequent reorientation usually accompanied by a corresponding shift of peo- ple’s activities, could be most upsetting. However, in the aerospace industry, we must be prepared for change. The entire picture is one of change.

Differing Views of Project Management 33

8. Letter from J. Donald Rath, Vice President of Martin-Marietta Corporation, Denver Division, to J. E. Webb, of NASA, October 18, 1963.

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1.19 PUBLIC-SECTOR PROJECT MANAGEMENT

For several decades, public-sector projects were managed by contractors whose primary objective was a profit motive. Many times, contractors would make trade-offs and accom- panying decisions just to support the profit motive. At the end of the project, the contrac- tor would provide the public-sector agency with a deliverable, but the contractor would walk away with the project management best practices and lessons learned.

Today, public-sector agencies are requesting the contractor to share with them all pro- ject management intellectual property accumulated during the course of the project. Also, more agencies are becoming experienced in project management to the point where the projects are managed with internal personnel rather than contractors.

As more and more government agencies adopt the project management approach, we discover that public-sector projects can be more complex than private-sector projects and more difficult to manage. According to David Wirick9:

34 OVERVIEW

9. D. W. Wirick, Public-Sector Project Management (Wiley, Hoboken, NJ, 2009), pp.8–10, 18–19.

THE CHALLENGES OF PUBLIC-SECTOR PROJECT MANAGEMENT

Private-sector project managers like to assume that their work is more demanding than projects in the public sector. They assume that their projects are more complex, subject to tougher management oversight, and mandated to move at faster speeds. Although private-sector projects can be tough, in many cases, it is easier to accomplish results in the private sector than in the public sector.

Public-sector projects can be more difficult than many private-sector projects because they:

● Operate in an environment of often-conflicting goals and outcome ● Involve many layers of stakeholders with varied interests ● Must placate political interests and operate under media scrutiny ● Are allowed little tolerance for failure ● Operate in organizations that often have a difficult time identifying outcome

measures and missions ● Are required to be performed under constraints imposed by administrative rules

and often-cumbersome policies and processes that can delay projects and con- sume project resources

● Require the cooperation and performance of agencies outside of the project team for purchasing, hiring, and other functions

● Must make do with existing staff resources more often than private-sector pro- jects because of civil-service protections and hiring systems

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Public-sector or Project Management 35

● Are performed in organizations that may not be comfortable or used to directed action and project success

● Are performed in an environment that may include political adversaries

If these challenges were not tough enough, because of their ability to push the bur- den of paying for projects to future generations, public-sector projects have a reach deep into the future. That introduces the challenges of serving the needs of stakehold- ers who are not yet “at the table” and whose interests might be difficult to identify. Some also cite the relative lack of project management maturity in public organizations as a challenge of public-sector projects.

In addition to these complications, public projects are often more complex than those in the private sector. For some projects, the outcome can be defined at the begin- ning of the project. Construction projects are one example. For other projects, the desired outcome can only be defined as the project progresses. Examples of those are organizational change projects and complex information technology projects. Although the first type of project can be difficult and require detailed planning and implementa- tion, the second type, those whose outcomes are determined over the course of the pro- ject, are regarded as more challenging. They require more interaction with stakeholders and more openness to factors outside of the control of the project team.