Discuss how Kathy lacked sufficient emotional intelligence to be effective in her new project manager assignment.
Of the various dimensions of emotional intelligence, which dimension(s) did she appear to lack most? What evidence can you cite to support this contention?
Writing Requirements
2-3 pages in length (excluding cover page, abstract, and reference list)
APA 6th edition, Use the APA template located in the Student Resource Center to complete the assignment.
Please use the Case Study Guide as a reference point for writing your case study.
Case Study 3.1
Assignment 3.1 Case Study 6.2 The Bean Counter and the Cowboy.
Questions
Was the argument today between Neil and Susan the true conflict or a symptom? What evidence do you have to suggest it is merely a symptom of a larger problem?
Explain how differentiation plays a large role in the problems that exist between Susan and Neil.
Develop a conflict management procedure for your meeting in 30 minutes. Create a simple script to help you anticipate the comments you are likely to hear from both parties.
Which conflict resolution style is warranted in this case? Why? How might some of the other resolution approaches be inadequate in this situation?
Writing Requirements
2-3 pages in length (excluding cover page, abstract, and reference list)
APA 6th edition, Use the APA template located in the Student Resource Center to complete the assignment.
Please use the Case Study Guide as a reference point for writing your case study.
No Plagiarismon time
List of Cases by Chapter
Chapter 1
Development Projects in Lagos, Nigeria 2
“Throwing Good Money after Bad”: the BBC’s
Digital Media Initiative 10
MegaTech, Inc. 29
The IT Department at Hamelin Hospital 30
Disney’s Expedition Everest 31
Rescue of Chilean Miners 32
Chapter 2
Tesla’s $5 Billion Gamble 37
Electronic Arts and the Power of Strong Culture
in Design Teams 64
Rolls-Royce Corporation 67
Classic Case: Paradise Lost—The Xerox Alto 68
Project Task Estimation and the Culture of “Gotcha!” 69
Widgets ’R Us 70
Chapter 3
Project Selection Procedures: A Cross-Industry
Sampler 77
Project Selection and Screening at GE: The Tollgate
Process 97
Keflavik Paper Company 111
Project Selection at Nova Western, Inc. 112
Chapter 4
Leading by Example for the London Olympics—
Sir John Armitt 116
Dr. Elattuvalapil Sreedharan, India’s Project
Management Guru 126
The Challenge of Managing Internationally 133
In Search of Effective Project Managers 137
Finding the Emotional Intelligence to Be a Real Leader 137
Problems with John 138
Chapter 5
“We look like fools.”—Oregon’s Failed Rollout
of Its ObamacareWeb Site 145
Statements of Work: Then and Now 151
Defining a Project Work Package 163
Boeing’s Virtual Fence 172
California’s High-Speed Rail Project 173
Project Management at Dotcom.com 175
The Expeditionary Fighting Vehicle 176
Chapter 6
Engineers Without Borders: Project Teams Impacting
Lives 187
Tele-Immersion Technology Eases the Use of Virtual
Teams 203
Columbus Instruments 215
The Bean Counter and the Cowboy 216
Johnson & Rogers Software Engineering, Inc. 217
Chapter 7
The Building that Melted Cars 224
Bank of America Completely Misjudges Its Customers 230
Collapse of Shanghai Apartment Building 239
Classic Case: de Havilland’s Falling Comet 245
The Spanish Navy Pays Nearly $3 Billion for a Submarine
That Will Sink Like a Stone 248
Classic Case: Tacoma Narrows Suspension Bridge 249
Chapter 8
Sochi Olympics—What’s the Cost of National
Prestige? 257
The Hidden Costs of Infrastructure Projects—The Case
of Building Dams 286
Boston’s Central Artery/Tunnel Project 288
Chapter 9
After 20 Years and More Than $50 Billion, Oil is No Closer
to the Surface: The Caspian Kashagan Project 297
Chapter 10
Enlarging the Panama Canal 331
Project Scheduling at Blanque Cheque Construction (A) 360
Project Scheduling at Blanque Cheque Construction (B) 360
Chapter 11
Developing Projects Through Kickstarter—Do Delivery
Dates Mean Anything? 367
Eli Lilly Pharmaceuticals and Its Commitment to Critical
Chain Project Management 385
It’s an Agile World 396
Ramstein Products, Inc. 397
Chapter 12
Hong Kong Connects to the World’s Longest Natural
Gas Pipeline 401
The Problems of Multitasking 427
Chapter 13
New York City’s CityTime Project 432
Earned Value at Northrop Grumman 451
The IT Department at Kimble College 463
The Superconducting Supercollider 464
Boeing’s 787 Dreamliner: Failure to Launch 465
Chapter 14
Duke Energy and Its Cancelled Levy County Nuclear
Power Plant 478
Aftermath of a “Feeding Frenzy”: Dubai and Cancelled
Construction Projects 490
New Jersey Kills Hudson River Tunnel Project 497
The Project That Wouldn’t Die 499
The Navy Scraps Development of Its Showpiece
Warship—Until the Next Bad Idea 500
Project ManageMent
achieving coMPetitive advantage
Jeffrey K. Pinto
Pennsylvania State University
Boston Columbus Indianapolis New York San Francisco Hoboken Amsterdam
Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi
Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
F o u r t h E d i t i o n
iii
BrIEF COnTEnTS
Preface xiii
Chapter 1 Introduction: Why Project Management? 1
Chapter 2 The Organizational Context: Strategy, Structure, and Culture 36
Chapter 3 Project Selection and Portfolio Management 76
Chapter 4 Leadership and the Project Manager 115
Chapter 5 Scope Management 144
Chapter 6 Project Team Building, Conflict, and Negotiation 186
Chapter 7 Risk Management 223
Chapter 8 Cost Estimation and Budgeting 256
Chapter 9 Project Scheduling: Networks, Duration Estimation,
and Critical Path 296
Chapter 10 Project Scheduling: Lagging, Crashing, and Activity Networks 330
Chapter 11 Advanced Topics in Planning and Scheduling: Agile
and Critical Chain 366
Chapter 12 Resource Management 400
Chapter 13 Project Evaluation and Control 431
Chapter 14 Project Closeout and Termination 477
Appendix A The Cumulative Standard Normal Distribution 509
Appendix B Tutorial for MS Project 2013 510
Appendix C Project Plan Template 520
Glossary 524
Company Index 534
Name Index 535
Subject Index 538
iv
COnTEnTS
Preface xiii
Chapter 1 IntroduCtIon: Why ProjeCt ManageMent? 1
Project Profile: Development Projects in Lagos, Nigeria 2
Introduction 4
1.1 What Is a Project? 5
General Project Characteristics 6
1.2 Why Are Projects Important? 9
Project Profile: “Throwing Good Money after Bad”: the BBC’s Digital
Media Initiative 10
1.3 Project Life Cycles 13
◾ Box 1.1: Project Managers in Practice 15
1.4 Determinants of Project Success 16
◾ Box 1.2: Project Management Research in Brief 19
1.5 Developing Project Management Maturity 19
1.6 Project Elements and Text Organization 23
Summary 27 • Key Terms 29 • Discussion Questions 29
• Case Study 1.1 MegaTech, Inc. 29 • Case Study 1.2 The IT
Department at Hamelin Hospital 30 • Case Study 1.3 Disney’s Expedition
Everest 31 • Case Study 1.4 Rescue of Chilean Miners 32 • Internet
Exercises 33 • PMP Certification Sample Questions 34 • Notes 34
Chapter 2 the organIzatIonal Context: Strategy, StruCture,
and Culture 36
Project Profile: Tesla’s $5 Billion Gamble 37
Introduction 38
2.1 Projects and Organizational Strategy 39
2.2 Stakeholder Management 41
Identifying Project Stakeholders 42
Managing Stakeholders 45
2.3 Organizational Structure 47
2.4 Forms of Organizational Structure 48
Functional Organizations 48
Project Organizations 50
Matrix Organizations 53
Moving to Heavyweight Project Organizations 55
◾ Box 2.1: Project Management Research in Brief 56
2.5 Project Management Offices 57
2.6 Organizational Culture 59
How Do Cultures Form? 61
Organizational Culture and Project Management 63
Project Profile: Electronic Arts and the Power of Strong Culture in Design Teams 64
Summary 65 • Key Terms 67 • Discussion Questions 67 • Case
Study 2.1 Rolls-Royce Corporation 67 • Case Study 2.2 Classic Case:
Paradise Lost—The Xerox Alto 68 • Case Study 2.3 Project Task Estimation
and the Culture of “Gotcha!” 69 • Case Study 2.4 Widgets ’R Us 70
• Internet Exercises 70 • PMP Certification Sample Questions 70
• Integrated Project—Building Your Project Plan 72 • Notes 74
Contents v
Chapter 3 ProjeCt SeleCtIon and PortfolIo ManageMent 76
Project Profile: Project Selection Procedures: A Cross-Industry Sampler 77
Introduction 78
3.1 Project Selection 78
3.2 Approaches to Project Screening and Selection 80
Method One: Checklist Model 80
Method Two: Simplified Scoring Models 82
Limitations of Scoring Models 84
Method Three: The Analytical Hierarchy Process 84
Method Four: Profile Models 88
3.3 Financial Models 90
Payback Period 90
Net Present Value 92
Discounted Payback 94
Internal Rate of Return 94
Choosing a Project Selection Approach 96
Project Profile: Project Selection and Screening at GE: The Tollgate Process 97
3.4 Project Portfolio Management 98
Objectives and Initiatives 99
Developing a Proactive Portfolio 100
Keys to Successful Project Portfolio Management 103
Problems in Implementing Portfolio Management 104
Summary 105 • Key Terms 106 • Solved Problems 107
• Discussion Questions 108 • Problems 108 • Case Study 3.1
Keflavik Paper Company 111 • Case Study 3.2 Project Selection at Nova
Western, Inc. 112 • Internet Exercises 113 • Notes 113
Chapter 4 leaderShIP and the ProjeCt Manager 115
Project Profile: Leading by Example for the London Olympics—Sir John Armitt 116
Introduction 117
4.1 Leaders Versus Managers 118
4.2 How the Project Manager Leads 119
Acquiring Project Resources 119
Motivating and Building Teams 120
Having a Vision and Fighting Fires 121
Communicating 121
◾ Box 4.1: Project Management Research in Brief 124
4.3 Traits of Effective Project Leaders 125
Conclusions about Project Leaders 126
Project Profile: Dr. Elattuvalapil Sreedharan, India’s Project Management Guru 126
4.4 Project Champions 127
Champions—Who Are They? 128
What Do Champions Do? 129
How to Make a Champion 130
4.5 The New Project Leadership 131
◾ Box 4.2: Project Managers in Practice 132
Project Profile: The Challenge of Managing Internationally 133
4.6 Project Management Professionalism 134
vi Contents
Summary 135 • Key Terms 136 • Discussion Questions 136
• Case Study 4.1 In Search of Effective Project Managers 137
• Case Study 4.2 Finding the Emotional Intelligence to Be a Real Leader 137
• Case Study 4.3 Problems with John 138 • Internet Exercises 141
• PMP Certification Sample Questions 141 • Notes 142
Chapter 5 SCoPe ManageMent 144
Project Profile: “We look like fools.”—Oregon’s Failed Rollout of Its Obamacare
Web Site 145
Introduction 146
5.1 Conceptual Development 148
The Statement of Work 150
The Project Charter 151
Project Profile: Statements of Work: Then and Now 151
5.2 The Scope Statement 153
The Work Breakdown Structure 153
Purposes of the Work Breakdown Structure 154
The Organization Breakdown Structure 159
The Responsibility Assignment Matrix 160
5.3 Work Authorization 161
Project Profile: Defining a Project Work Package 163
5.4 Scope Reporting 164
◾ Box 5.1: Project Management Research in Brief 165
5.5 Control Systems 167
Configuration Management 167
5.6 Project Closeout 169
Summary 170 • Key Terms 171 • Discussion Questions 171
• Problems 172 • Case Study 5.1 Boeing’s Virtual Fence 172
• Case Study 5.2 California’s High-Speed Rail Project 173 • Case
Study 5.3 Project Management at Dotcom.com 175 • Case Study 5.4
The Expeditionary Fighting Vehicle 176 • Internet Exercises 178
• PMP Certification Sample Questions 178 • MS Project Exercises 179
• Appendix 5.1: Sample Project Charter 180 • Integrated Project—
Developing the Work Breakdown Structure 182 • Notes 184
Chapter 6 ProjeCt teaM BuIldIng, ConflICt, and negotIatIon 186
Project Profile: Engineers Without Borders: Project Teams Impacting Lives 187
Introduction 188
6.1 Building the Project Team 189
Identify Necessary Skill Sets 189
Identify People Who Match the Skills 189
Talk to Potential Team Members and Negotiate with Functional Heads 189
Build in Fallback Positions 191
Assemble the Team 191
6.2 Characteristics of Effective Project Teams 192
A Clear Sense of Mission 192
A Productive Interdependency 192
Cohesiveness 193
Trust 193
Enthusiasm 193
Results Orientation 194
Contents vii
6.3 Reasons Why Teams Fail 194
Poorly Developed or Unclear Goals 194
Poorly Defined Project Team Roles and Interdependencies 194
Lack of Project Team Motivation 195
Poor Communication 195
Poor Leadership 195
Turnover Among Project Team Members 196
Dysfunctional Behavior 196
6.4 Stages in Group Development 196
Stage One: Forming 197
Stage Two: Storming 197
Stage Three: Norming 198
Stage Four: Performing 198
Stage Five: Adjourning 198
Punctuated Equilibrium 198
6.5 Achieving Cross-Functional Cooperation 199
Superordinate Goals 199
Rules and Procedures 200
Physical Proximity 201
Accessibility 201
Outcomes of Cooperation: Task and Psychosocial Results 201
6.6 Virtual Project Teams 202
Project Profile: Tele-Immersion Technology Eases the Use
of Virtual Teams 203
6.7 Conflict Management 204
What Is Conflict? 205
Sources of Conflict 206
Methods for Resolving Conflict 208
6.8 Negotiation 209
Questions to Ask Prior to the Negotiation 209
Principled Negotiation 210
Invent Options for Mutual Gain 212
Insist on Using Objective Criteria 213
Summary 214 • Key Terms 214 • Discussion Questions 215 • Case
Study 6.1 Columbus Instruments 215 • Case Study 6.2 The Bean Counter
and the Cowboy 216 • Case Study 6.3 Johnson & Rogers Software
Engineering, Inc. 217 • Exercise in Negotiation 219 • Internet
Exercises 220 • PMP Certification Sample Questions 220 • Notes 221
Chapter 7 rISk ManageMent 223
Project Profile: The Building that Melted Cars 224
Introduction 225
◾ Box 7.1: Project Managers in Practice 227
7.1 Risk Management: A Four-Stage Process 228
Risk Identification 228
Project Profile: Bank of America Completely Misjudges Its Customers 230
Risk Breakdown Structures 231
Analysis of Probability and Consequences 231
Risk Mitigation Strategies 234
viii Contents
Use of Contingency Reserves 236
Other Mitigation Strategies 237
Control and Documentation 237
Project Profile: Collapse of Shanghai Apartment Building 239
7.2 Project Risk Management: An Integrated Approach 241
Summary 243 • Key Terms 244 • Solved Problem 244 • Discussion
Questions 244 • Problems 244 • Case Study 7.1 Classic Case: de
Havilland’s Falling Comet 245 • Case Study 7.2 The Spanish Navy Pays
Nearly $3 Billion for a Submarine That Will Sink Like a Stone 248 • Case
Study 7.3 Classic Case: Tacoma Narrows Suspension Bridge 249 • Internet
Exercises 251 • PMP Certification Sample Questions 251 • Integrated
Project—Project Risk Assessment 253 • Notes 255
Chapter 8 CoSt eStIMatIon and BudgetIng 256
Project Profile: Sochi Olympics—What’s the Cost of National Prestige? 257
8.1 Cost Management 259
Direct Versus Indirect Costs 260
Recurring Versus Nonrecurring Costs 261
Fixed Versus Variable Costs 261
Normal Versus Expedited Costs 262
8.2 Cost Estimation 262
Learning Curves in Cost Estimation 266
◾ Box 8.1: Project Management Research in Brief 270
Problems with Cost Estimation 272
◾ Box 8.2: Project Management Research in Brief 274
8.3 Creating a Project Budget 275
Top-Down Budgeting 275
Bottom-Up Budgeting 276
Activity-Based Costing 276
8.4 Developing Budget Contingencies 278
Summary 280 • Key Terms 281 • Solved Problems 282
• Discussion Questions 283 • Problems 284 • Case Study 8.1 The
Hidden Costs of Infrastructure Projects—The Case of Building Dams 286
• Case Study 8.2 Boston’s Central Artery/Tunnel Project 288 • Internet
Exercises 290 • PMP Certification Sample Questions 290 • Integrated
Project—Developing the Cost Estimates and Budget 292 • Notes 294
Chapter 9 ProjeCt SChedulIng: netWorkS, duratIon eStIMatIon,
and CrItICal Path 296
Project Profile: After 20 Years and More Than $50 Billion, Oil is No Closer to the Surface:
The Caspian Kashagan Project 297
Introduction 298
9.1 Project Scheduling 299
9.2 Key Scheduling Terminology 300
9.3 Developing a Network 302
Labeling Nodes 303
Serial Activities 303
Concurrent Activities 303
Merge Activities 304
Burst Activities 305
9.4 Duration Estimation 307
Contents ix
9.5 Constructing the Critical Path 311
Calculating the Network 311
The Forward Pass 312
The Backward Pass 314
Probability of Project Completion 316
Laddering Activities 318
Hammock Activities 319
Options for Reducing the Critical Path 320
◾ Box 9.1: Project Management Research in Brief 321
Summary 322 • Key Terms 323 • Solved Problems 323 •
Discussion Questions 325 • Problems 325 • Internet
Exercises 327 • MS Project Exercises 328 • PMP Certification
Sample Questions 328 • Notes 329
Chapter 10 ProjeCt SChedulIng: laggIng, CraShIng, and aCtIvIty
netWorkS 330
Project Profile: Enlarging the Panama Canal 331
Introduction 333
10.1 Lags in Precedence Relationships 333
Finish to Start 333
Finish to Finish 334
Start to Start 334
Start to Finish 335
10.2 Gantt Charts 335
Adding Resources to Gantt Charts 337
Incorporating Lags in Gantt Charts 338
◾ Box 10.1: Project Managers in Practice 338
10.3 Crashing Projects 340
Options for Accelerating Projects 340
Crashing the Project: Budget Effects 346
10.4 Activity-on-Arrow Networks 348
How Are They Different? 348
Dummy Activities 351
Forward and Backward Passes with AOA Networks 352
AOA Versus AON 353
10.5 Controversies in the Use of Networks 354
Conclusions 356
Summary 356 • Key Terms 357 • Solved Problems 357 • Discussion
Questions 358 • Problems 358 • Case Study 10.1 Project Scheduling
at Blanque Cheque Construction (A) 360 • Case Study 10.2 Project
Scheduling at Blanque Cheque Construction (B) 360 • MS Project
Exercises 361 • PMP Certification Sample Questions 361 • Integrated
Project—Developing the Project Schedule 363 • Notes 365
Chapter 11 advanCed toPICS In PlannIng and SChedulIng: agIle
and CrItICal ChaIn 366
Project Profile: Developing Projects Through Kickstarter—Do Delivery Dates Mean
Anything? 367
Introduction 368
11.1 Agile Project Management 369
What Is Unique About Agile PM? 370
x Contents
Tasks Versus Stories 371
Key Terms in Agile PM 372
Steps in Agile 373
Sprint Planning 374
Daily Scrums 374
The Development Work 374
Sprint Reviews 375
Sprint Retrospective 376
Problems with Agile 376
◾ Box 11.1: Project Management Research in Brief 376
11.2 Extreme Programming (XP) 377
11.3 The Theory of Constraints and Critical Chain Project Scheduling 377
Theory of Constraints 378
11.4 The Critical Chain Solution to Project Scheduling 379
Developing the Critical Chain Activity Network 381
Critical Chain Solutions Versus Critical Path Solutions 383
Project Profile: Eli Lilly Pharmaceuticals and Its Commitment to Critical Chain Project
Management 385
11.5 Critical Chain Solutions to Resource Conflicts 386
11.6 Critical Chain Project Portfolio Management 387
◾ Box 11.2: Project Management Research in Brief 390
11.7 Critiques of CCPM 391
Summary 391 • Key Terms 393 • Solved Problem 393
• Discussion Questions 394 • Problems 394 • Case Study 11.1 It’s an
Agile World 396 • Case Study 11.2 Ramstein Products, Inc. 397
• Internet Exercises 398 • Notes 398
Chapter 12 reSourCe ManageMent 400
Project Profile: Hong Kong Connects to the World’s Longest Natural
Gas Pipeline 401
Introduction 402
12.1 The Basics of Resource Constraints 402
Time and Resource Scarcity 403
12.2 Resource Loading 405
12.3 Resource Leveling 407
Step One: Develop the Resource-Loading Table 411
Step Two: Determine Activity Late Finish Dates 412
Step Three: Identify Resource Overallocation 412
Step Four: Level the Resource-Loading Table 412
12.4 Resource-Loading Charts 416
◾ Box 12.1: Project Managers in Practice 418
12.5 Managing Resources in Multiproject Environments 420
Schedule Slippage 420
Resource Utilization 420
In-Process Inventory 421
Resolving Resource Decisions in Multiproject Environments 421
Summary 423 • Key Terms 424 • Solved Problem 424 •
Discussion Questions 425 • Problems 425 • Case Study 12.1 The
Problems of Multitasking 427 • Internet Exercises 428 • MS Project
Exercises 428 • PMP Certification Sample Questions 429 • Integrated
Project—Managing Your Project’s Resources 430 • Notes 430
Contents xi
Chapter 13 ProjeCt evaluatIon and Control 431
Project Profile: New York City’s CityTime Project 432
Introduction 433
13.1 Control Cycles—A General Model 434
13.2 Monitoring Project Performance 435
The Project S-Curve: A Basic Tool 435
S-Curve Drawbacks 436
Milestone Analysis 437
Problems with Milestones 438
The Tracking Gantt Chart 439
Benefits and Drawbacks of Tracking Gantt Charts 440
13.3 Earned Value Management 440
Terminology for Earned Value 441
Creating Project Baselines 442
Why Use Earned Value? 443
Steps in Earned Value Management 444
Assessing a Project’s Earned Value 445
13.4 Using Earned Value to Manage a Portfolio of Projects 450
Project Profile: Earned Value at Northrop Grumman 451
13.5 Issues in the Effective Use of Earned Value Management 452
13.6 Human Factors in Project Evaluation and Control 454
Critical Success Factor Definitions 456
Conclusions 458
Summary 458 • Key Terms 459 • Solved Problem 459 •
Discussion Questions 460 • Problems 461 • Case Study 13.1 The
IT Department at Kimble College 463 • Case Study 13.2 The Supercon-
ducting Supercollider 464 • Case Study 13.3 Boeing’s 787 Dreamliner:
Failure to Launch 465 • Internet Exercises 468 • MS Project
Exercises 468 • PMP Certification Sample Questions 469
• Appendix 13.1: Earned Schedule* 470 • Notes 475
Chapter 14 ProjeCt CloSeout and terMInatIon 477
Project Profile: Duke Energy and Its Cancelled Levy County Nuclear
Power Plant 478
Introduction 479
14.1 Types of Project Termination 480
◾ Box 14.1: Project Managers in Practice 480
14.2 Natural Termination—The Closeout Process 482
Finishing the Work 482
Handing Over the Project 482
Gaining Acceptance for the Project 483
Harvesting the Benefits 483
Reviewing How It All Went 483
Putting It All to Bed 485
Disbanding the Team 486
What Prevents Effective Project Closeouts? 486
14.3 Early Termination for Projects 487
Making the Early Termination Decision 489
Project Profile: Aftermath of a “Feeding Frenzy”: Dubai and Cancelled
Construction Projects 490
xii Contents
Shutting Down the Project 490
◾ Box 14.2: Project Management Research in Brief 492
Allowing for Claims and Disputes 493
14.4 Preparing the Final Project Report 494
Conclusion 496
Summary 496 • Key Terms 497 • Discussion Questions 497
• Case Study 14.1 New Jersey Kills Hudson River Tunnel Project 497
• Case Study 14.2 The Project That Wouldn’t Die 499 • Case Study 14.3
The Navy Scraps Development of Its Showpiece Warship—Until the Next
Bad Idea 500 • Internet Exercises 501 • PMP Certification Sample
Questions 502 • Appendix 14.1: Sample Pages from Project Sign-off
Document 503 • Notes 507
Appendix A The Cumulative Standard Normal Distribution 509
Appendix B Tutorial for MS Project 2013 510
Appendix C Project Plan Template 520
Glossary 524
Company Index 534
Name Index 535
Subject Index 538
xiii
PrEFACE
Project management has become central to operations in industries as diverse as construction
and information technology, architecture and hospitality, and engineering and new product
development; therefore, this text simultaneously embraces the general principles of project
management while addressing specific examples across the wide assortment of its applications.
This text approaches each chapter from the perspective of both the material that is general to
all disciplines and project types and that which is more specific to alternative forms of projects.
One way this is accomplished is through the use of specific, discipline-based examples to illus-
trate general principles as well as the inclusion of cases and Project Profiles that focus on more
specific topics (e.g., Chapter 5’s treatment of IT “death march” projects).
Students in project management classes come from a wide and diverse cross section of uni-
versity majors and career tracks. Schools of health, business, architecture, engineering, information
systems, and hospitality are all adding project management courses to their catalogs in response to
the demands from organizations and professional groups that see their value for students’ future
careers. Why has project management become a discipline of such tremendous interest and applica-
tion? The simple truth is that we live in a “projectized” world. Everywhere we look we see people
engaged in project management. In fact, project management has become an integral part of practi-
cally every firm’s business model.
This text takes a holistic, integrated approach to managing projects, exploring both technical
and managerial challenges. It not only emphasizes individual project execution, but also provides a
strategic perspective, demonstrating the means with which to manage projects at both the program
and portfolio levels.
At one time, project management was almost exclusively the property of civil and con-
struction engineering programs where it was taught in a highly quantitative, technical man-
ner. “Master the science of project management,” we once argued, “and the ‘art’ of project
management will be equally clear to you.” Project management today is a complex, “manage-
ment” challenge requiring not only technical skills but a broad-based set of people skills as
well. Project management has become the management of technology, people, culture, stake-
holders, and other diverse elements necessary to successfully complete a project. It requires
knowledge of leadership, team building, conflict resolution, negotiation, and influence in equal
measure with the traditional, technical skill set. Thus, this textbook broadens our focus beyond
the traditional project management activities of planning and scheduling, project control, and
termination, to a more general, inclusive, and, hence, more valuable perspective of the project
management process.
What’s NeW iN the foUrth editioN?
New features
• Agile Project Management
• Project Charters
• MS Project 2013 Step-by-Step Tutorials
• Appendix—Project Execution Plan Template
• New Project Managers in Practice Profiles
• Risk Breakdown Structures
• Extreme Programming
• Updated Problems in Chapters
• New Project Management Research in Brief: “Does Agile Work?”
• All MS Project Examples and Screen Captures Updated to MS Project 2013
• All Project Management Body of Knowledge (PMBOK) Referencing Updated to
5th Edition
• Quarterly Updates for All Book Adopters on Latest Cases and Examples in Project
Management
Updated Project Profiles
Chapter 1 Introduction: Why Project Management?
• Development Projects in Lagos, Nigeria
• “Throwing Good Money after Bad”: The BBC’s Digital Media Initiative
Chapter 2 The Organizational Context: Strategy, Structure, and Culture
• Tesla’s $5 Billion Gamble
• Electronic Arts and the Power of Strong Culture in Design Teams
Chapter 3 Project Selection and Portfolio Management
• Project Selection Procedures: A Cross-Industry Sampler
Chapter 4 Leadership and the Project Manager
• Leading by Example for the London Olympics—Sir John Armitt
• Dr. E. Sreedharan, India’s Project Management Guru
Chapter 5 Scope Management
• “We look like fools.” Oregon’s Failed Rollout of Their Obamacare Website
• Boeing’s Virtual Fence
• California’s High-Speed Rail Project—What’s the Latest News?
• The Expeditionary Fighting Vehicle
Chapter 6 Project Team Building, Conflict, and Negotiation
• Engineers without Borders: Project Teams Impacting Lives
Chapter 7 Risk Management
• The Building That Melted Cars
• Bank of America Completely Misjudges Its Customers
• Collapse of Shanghai Apartment Building
• The Spanish Navy Pays Nearly $3 Billion for a Submarine That Will Sink Like a Stone
Chapter 8 Cost Estimation and Budgeting
• Sochi Olympics—What’s the Cost of National Prestige?
• The Hidden Costs of Infrastructure ProjectsThe Case of Building Dams
Chapter 9 Project Scheduling: Networks, Duration Estimation, and Critical Path
• After 20 Years and More than $50 Billion, Oil Is No Closer to the Surface: The Caspian
Kashagan Project
Chapter 10 Project Scheduling: Lagging, Crashing, and Activity Networks
• Enlarging the Panama Canal
Chapter 11 Critical Chain Project Scheduling
• Developing Projects through Kickstarter—Do Delivery Dates Mean Anything?
• Eli Lilly Pharmaceutical’s Commitment to Critical Chain Project Scheduling
Chapter 12 Resource Management
• Hong Kong Connects to the World’s Longest Natural Gas Pipeline
Chapter 13 Project Evaluation and Control
• New York City’s CityTime Project
• Boeing’s 787 Dreamliner: Failure to Launch (with update)
• Earned Value Management at Northrop Grumman
Chapter 14 Project Closeout and Termination
• Duke Energy and Its Cancelled Levy County Nuclear Power Plant
• Aftermath of a “Feeding Frenzy”—Dubai and Cancelled Construction Projects
• New Jersey Kills Hudson River Tunnel Project
• The Navy Scraps Development of Its Showpiece Warship—Until the Next Bad Idea
oUr focUs
This textbook employs a managerial, business-oriented approach to the management of projects.
Thus we have integrated Project Profiles into the text.
• Project Profiles—Each chapter contains one or more Project Profiles that highlight cur-
rent examples of project management in action. Some of the profiles reflect on significant
xiv Preface
Preface xv
achievements; others detail famous (and not-so-famous) examples of project failures.
Because they cover diverse ground (IT projects, construction, new product development,
and so forth), there should be at least one profile per chapter that is meaningful to the
class’s focus. There is a deliberate effort made to offer a combination of project success
stories and project failures. While successful projects can be instructive, we often learn far
more from examining the variety of reasons why projects fail. As much as possible, these
stories of success and failure are intended to match up with the chapters to which they are
attached. For example, as we study the uses of projects to implement corporate strategy, it
is useful to consider Elon Musk’s $5 billion dollar decision to develop a “gigafactory” to
produce batteries for his Tesla automobiles.
The book blends project management within the context of the operations of any successful or-
ganization, whether publicly held, private, or not-for-profit. We illustrate this through the use of
end-of-chapter cases.
• Cases—At the end of each chapter are some final cases that take specific examples of the
material covered in the chapter and apply them in the alternate format of case studies.
Some of the cases are fictitious, but the majority of them are based on real situations, even
where aliases mask the real names of organizations. These cases include discussion ques-
tions that can be used either for homework or to facilitate classroom discussions. There are
several “classic” project cases as well, highlighting some famous (and infamous) examples
of projects whose experiences have shaped our understanding of the discipline and its
best practices.
Further, we explore both the challenges in the management of individual projects as well as broad-
ening out this context to include strategic, portfolio-level concepts. To do this, we ask students to
develop a project plan using MS Project 2013.
• Integrated Project Exercises—Many of the chapters include an end-of-chapter feature that
is unique to this text: the opportunity to develop a detailed project plan. A very beneficial
exercise in project management classes is to require students, either in teams or individu-
ally, to learn the mechanics of developing a detailed and comprehensive project plan, in-
cluding scope, scheduling, risk assessment, budgeting, and cost estimation. The Integrated
Project exercises afford students the opportunity to develop such a plan by assigning these
activities and illustrating a completed project (ABCups, Inc.) in each chapter. Thus, students
are assigned their project planning activities and have a template that helps them complete
these exercises.
And finally, we have integrated the standards set forth by the world’s largest governing body for
project management. The Project Management Institute (PMI) created the Project Management
Body of Knowledge (PMBOK), which is generally regarded as one of the most comprehensive
frameworks for identifying the critical knowledge areas that project managers must understand if
they are to master their discipline. The PMBOK has become the basis for the Project Management
Professional (PMP) certification offered by PMI for professional project managers.
• Integration with the PMBOK—As a means to demonstrate the coverage of the critical
PMBOK elements, readers will find that the chapters in this text identify and cross-list
the corresponding knowledge areas from the latest, fifth edition of PMBOK. Further,
all terms (including the Glossary) are taken directly from the most recent edition of the
PMBOK.
• Inclusion of Sample PMP Certification Exam Questions—The Project Management
Professional (PMP) certification represents the highest standard of professional qualifi-
cation for a practicing project manager and is administered by the Project Management
Institute. As of 2014, there were more than 600,000 PMPs worldwide. In order to attain
PMP certification, it is necessary for candidates to undergo a comprehensive exam that
tests their knowledge of all components of the PMBOK. This text includes a set of sample
PMP certification exam questions at the end of most of the chapters, in order to give read-
ers an idea of the types of questions typically asked on the exam and how those topics are
treated in this book.
xvi Preface
other PoiNts of distiNctioN
The textbook places special emphasis on blending current theory, practice, research, and case
studies in such a manner that readers are given a multiple-perspective exposure to the project
management process. A number of in-chapter features are designed to enhance student learning,
including:
• MS Project Exercises—An additional feature of the text is the inclusion at the end of several
chapters of some sample problems or activities that require students to generate MS Project
output files. For example, in Chapter 9 on scheduling, students must create an MS Project
network diagram. Likewise, other reports can be assigned to help students become mini-
mally adept at interacting with this program. It is not the purpose of this text to fully develop
these skills but rather to plant the seeds for future application.
• Research in Brief—A unique feature of this text is to include short (usually one-page) text
boxes that highlight the results of current research on the topics of interest. Students often find
it useful to read about actual studies that highlight the text material and provide additional
information that expands their learning. Although not every chapter includes a “Research in
Brief” box, most have one and, in some cases, two examples of this feature.
• Project Managers in Practice—An addition to this text is the inclusion of several short profiles
of real, practicing project managers from a variety of corporate and project settings. These
profiles have been added to give students a sense of the types of real-world challenges project
managers routinely face, the wide range of projects they are called to manage, and the satisfac-
tions and career opportunities available to students interested in pursuing project manage-
ment as a career.
• Internet Exercises—Each chapter contains a set of Internet exercises that require students to
search the Web for key information and perform other activities that lead to student learn-
ing through outside-of-class, hands-on activities. Internet exercises are a useful supplement,
particularly in the area of project management, because so much is available on the World
Wide Web relating to projects, including cases, news releases, and Internet-based tools for
analyzing project activities.
• MS Project 2013 Tutorials—Appendix B at the end of the text features two in-depth tutorials
that instruct students in the rudiments of developing a project schedule, resource leveling,
and critical path development. A second tutorial instructs students in methods for updating
the project plan, generating output files such as earned value metrics, and tracking ongoing
project activities. These tutorials are not intended to substitute for fuller instruction in this
valuable software, but they do provide a critical means for initial familiarization with the
package.
• Project Execution Plan Template—Appendix C provides a template for developing
a fully evolved project execution plan. Instructors using previous versions of this text
noted the value in requiring that students be able to create a project plan and requested
a more comprehensive template that could be employed. This template addresses the
critical elements of project scope, as well as offers a method for putting these details in a
logical sequence.
instructor resources
At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can easily register
to gain access to a variety of instructor resources available with this text in downloadable format. If
assistance is needed, our dedicated technical support team is ready to help with the media supple-
ments that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked
questions and toll-free user support phone numbers.
The following supplements are available with this text:
• Instructor’s Solutions Manual
• Test Bank
• TestGen® Computerized Test Bank
• PowerPoint Presentation
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Preface xvii
ackNoWledgmeNts
In acknowledging the contributions of past and present colleagues to the creation of this text,
I must first convey my deepest thanks and appreciation for the 30-year association with my origi-
nal mentor, Dr. Dennis Slevin of the University of Pittsburgh’s Katz Graduate School of Business.
My collaboration with Denny on numerous projects has been fruitful and extremely gratifying,
both professionally and personally. In addition, Dr. David Cleland’s friendship and partnership in
several ventures has been a great source of satisfaction through the years. A frequent collaborator
who has had a massive influence on my thinking and approach to understanding project manage-
ment is Professor Peter W.G. Morris, lately of University College London. Working with him has
been a genuine joy and constant source of inspiration. Additional mentors and colleagues who
have strongly influenced my thinking include Samuel Mantel, Jr., Rodney Turner, Erik Larson,
David Frame, Francis Hartman, Jonas Soderlund, Young Kwak, Rolf Lundin, Lynn Crawford,
Graham Winch, Terry Williams, Francis Webster, Terry Cooke-Davies, Hans Thamhain, and Karlos
Artto. Each of these individuals has had a profound impact on the manner in which I view, study,
and write about project management. Sadly, 2014 saw the passing of three of these outstanding
project management scholars—Hans Thamhain, Sam Mantel and Francis Hartman. I hope that my
efforts help, in some small part, to keep their vision and contributions alive.
Over the years, I have also been fortunate to develop friendships with some professional project
managers whose work I admire enormously. They are genuine examples of the best type of project
manager: one who makes it all seem effortless while consistently performing minor miracles. In par-
ticular, I wish to thank Mike Brown of Rolls-Royce for his friendship and example. I would also like
to thank friends and colleagues from the Project Management Institute, including Lew Gedansky,
Harry Stephanou, and Eva Goldman, for their support for and impact on this work.
I am indebted to the reviewers of this text whose numerous suggestions and critiques have been
an invaluable aid in shaping its content. Among them, I would like to especially thank the following:
Kwasi Amoako-Gyampah— University of North Carolina, Greensboro
Ravi Behara—George Mason University
Jeffrey L. Brewer—Purdue University
Dennis Cioffi—George Washington University
David Clapp—Florida Institute of Technology
Bruce DeRuntz—Southern Illinois University at Carbondale
Ike Ehie—Kansas State University
Michael H. Ensby—Clarkson University
Lynn Fish—Canisius College
Linda Fried—University of Colorado, Denver
Mario Guimaraes—Kennesaw State University
Richard Gunther—California State University, Northridge
Brian Gurney—Montana State University, Billings
Gary Hackbarth—Iowa State University
Mamoon M. Hammad—George Washington University
Scott Robert Homan—Purdue University
John Hoxmeier—Colorado State University
Alex Hutchins—ITT Technical Institute
Richard Jensen—Hofstra University
Robert Key—University of Phoenix
Homayoun Khamooshi—George Washington University
Dennis Krumwiede—Idaho State University
George Mechling—Western Carolina University
Julia Miyaoka—San Francisco State University
xviii Preface
LaWanda Morant—ITT Technical Institute
Robert Morris—Florida State College at Jacksonville
James Muller—Cleveland State University
Kenneth E. Murphy—Willamette University
John Nazemetz—Oklahoma State University
Patrick Penfield—Syracuse University
Ronald Price—ITT Techincal Institute
Ronny Richardson—Southern Polytechnic State University
John Sherlock—Iona College
Gregory Shreve—Kent State University
Randall G. Sleeth—Virginia Commonwealth University
Kimberlee Snyder—Winona State University
Jeff Trailer—California State University, Chico
Leo Trudel—University of Maine
Oya Tukel—Cleveland State University
Darien Unger—Howard University
Amy Valente—Cayuga Community College
Stephen Whitehead—Hilbert College
I would also like to thank my colleagues in the Samuel Black School of Business at Penn State, the
Behrend College. Additionally, my thanks goes to Dana Johnson of Michigan Technological University
for preparing the PowerPoints for this edition, and Geoff Willis of University of Central Oklahoma
for preparing the Test Bank. Extra-special thanks go to Kerri Tomasso for her help in preparing
the final manuscript and for her integral role in permissions research and acquisitions. I am espe-
cially indebted to Khurrum Bhutta, who accuracy checked this edition. I am very grateful for his time
and effort, and any errors that may remain are entirely my own.
In developing the cases for this edition of the textbook, I was truly fortunate to develop
wonderful professional relationships with a number of individuals. Andrea Finger and Kathleen
Prihoda of Disney were wonderfully helpful and made time in their busy schedules to assist me in
developing the Expedition Everest case for this text. Stephanie Smith, Mohammed Al-Sadiq, Bill
Mowery, Mike Brown, Julia Sweet, and Kevin O’Donnell provided me with invaluable information
on their job responsibilities and what it takes to be a successful project manager.
Finally, I wish to extend my sincere thanks to the people at Pearson for their support for
the text during its development, including Dan Tylman, editor, and Claudia Fernandes, program
manager. I also would like to thank the Pearson editorial, production, and marketing staffs.
feedBack
The textbook team and I would appreciate hearing from you. Let us know what you think about
this textbook by writing to college.marketing@pearson.com. Please include “Feedback about
Pinto” in the subject line.
If you have questions related to this product, please contact our customer service department
online at http://247pearsoned.custhelp.com.
Finally, it is important to reflect on an additional salient issue as you begin your study of
project management: Most of you will be running a project long before you are given wider management
responsibilities in your organizations. Successful project managers are the lifeblood of organizations
and bear the imprint of the fast track. I wish you great success!
Jeffrey K. Pinto, Ph.D.
Andrew Morrow and Elizabeth Lee Black Chair
Management of Technology
Samuel Black School of Business
Penn State, the Behrend College
jkp4@psu.edu
mailto:college.marketing@pearson.com
http://247pearsoned.custhelp.com
mailto:jkp4@psu.edu
1
1
■ ■ ■
Introduction
Why Project Management?
Chapter Outline
Project Profile
Development Projects in Lagos, Nigeria
introduction
1.1 What is a Project?
General Project Characteristics
1.2 Why are Projects imPortant?
Project Profile
“Throwing Good Money after Bad”:
The BBC’s Digital Media Initiative
1.3 Project life cycles
Project managers in Practice
Stephanie Smith, Westinghouse Electric
Company
1.4 determinants of Project success
Project Management Research in Brief
Assessing Information Technology (IT) Project
Success
1.5 develoPing Project management
maturity
1.6 Project elements and text
organization
Summary
Key Terms
Discussion Questions
Case Study 1.1 MegaTech, Inc.
Case Study 1.2 The IT Department at Hamelin
Hospital
Case Study 1.3 Disney’s Expedition Everest
Case Study 1.4 Rescue of Chilean Miners
Internet Exercises
PMP Certification Sample Questions
Notes
Chapter Objectives
After completing this chapter, you should be able to:
1. Understand why project management is becoming such a powerful and popular practice in
business.
2. Recognize the basic properties of projects, including their definition.
3. Understand why effective project management is such a challenge.
4. Differentiate between project management practices and more traditional, process-oriented
business functions.
5. Recognize the key motivators that are pushing companies to adopt project management
practices.
6. Understand and explain the project life cycle, its stages, and the activities that typically occur
at each stage in the project.
7. Understand the concept of project “success,” including various definitions of success, as well
as the alternative models of success.
2 Chapter 1 • Introduction
8. Understand the purpose of project management maturity models and the process of bench-
marking in organizations.
9. Identify the relevant maturity stages that organizations go through to become proficient in
their use of project management techniques.
Project MAnAgeMent Body of Knowledge core
concePts covered in this chAPter
1. Definition of a Project (PMBoK sec. 1.2)
2. Definition of Project Management (PMBoK sec. 1.3)
3. Relationship to Other Management Disciplines (PMBoK sec. 1.4)
4. Project Phases and the Project Life Cycle (PMBoK sec. 2.1)
The world acquires value only through its extremes and endures only through moderation; extremists make
the world great, the moderates give it stability.1
Project Profile
Development Projects in lagos, Nigeria
Lagos is the capital of Nigeria and home to an estimated 15–20 million people, making its population larger than
London or Beijing. As the largest and fastest-growing city in sub-Saharan Africa (estimates are that 600,000 people
are added to Lagos’ population each year), Lagos is in desperate need of developing and maintaining infrastructure
to support its population, while supporting its claim as a high-technology hub on the African continent. Considering
that about 85% of the world’s population resides in the developing world and transitioning economies, and nearly
two-thirds of that population is below the age of 35, the need for infrastructure to support critical human needs is im-
mense. About 70% of the city’s population is believed to live in slums, while a 2006 United Nations report estimated
that only 10% of households in the Lagos Metropolitan area were directly connected to a municipal water supply. In
spite of these problems, Nigeria is Africa’s biggest economy, driven by economic growth in Lagos, home to film and
fashion industries, financial markets, and consumer goods manufacturers.
The list of critical items on the list for urban improvement is large. For example, for a city of more than 15 million,
electricity is scarcely to be found. Lagos power stations only generate a mere 2,000 megawatts of electricity—less than
half of that available for a single city block in midtown Manhattan! “We have about two hours, maybe, of public power
a day,” says Kola Karim, CEO of Nigeria’s Shoreline Energy International. “It’s unbearable.” Everywhere in the city people
are using gasoline or diesel generators to supply power when the inevitable rolling blackouts resume.
Additionally, Lagos is critically short on housing. To overcome this shortage people of Lagos resort to living in
shanty towns, one such shanty town is Makoko. Makoko is situated on the mainland’s Lagos lagoon. Home to several
hundred thousand inhabitants, Makoko lacks access to basic services, including clean drinking water, electricity, and
waste disposal, and is prone to severe environmental and health hazards. Consisting of rickety dwellings on stilts
perched over the foul-smelling lagoon, Makoko is one of the many chaotic human settlements that have sprouted in
Lagos in recent years. As these cities spread out and move too close to major bridges or electrical towers, the govern-
ment periodically sends in troops to demolish portions of the floating village.
How did the city get to this point? A big reason was a lack of forethought and development planning. In metro-
politan Lagos there are 20,000 people per square kilometer with thousands more arriving each day. Given the physical
constraints of the city, originally built on a narrow strip of land and bordering the ocean, there is just not enough space
to absorb the new inhabitants. Urban planning, as we know it today, simply did not exist and the city swelled organi-
cally, without forethought or a sense of direction. Thus, Lagos has no urban transportation system, few functioning
traffic lights, and a crumbling and outdated road system.
The problems do not stop there. Land prices in Lagos are extremely high, due to lack of space for commercial
development. However, because of the unreliable electricity supply that makes elevator use questionable, there
are few high-rise apartments or office buildings in the city. Banks have been reluctant to invest in real estate trans-
actions because of past failures and general economic instability. Faced with the need to drastically change the
direction of the city, Babatunde Fashola, Lagos’ visionary governor who took power in 2010, has launched a series
Project Profile 3
of urban development projects to address a variety of the city’s needs. Fashola has announced $50 billion in new
infrastructure projects for Lagos, to be developed over the next 10 years. These new project initiatives include the
following:
lagos Metro Blue line
The blue line is a major cosmopolitan light-rail transport project to connect districts in Nigeria’s largest city. Designed
to ease congestion and speed up journey times for the city’s inhabitants, the Blue Line will run between Marina and
Okokomaiko, stopping at 13 stations, and is part of the Lagos Rail Mass Transit program implemented by the govern-
ment. Originally proposed in 2008, funding issues have pushed the launch of the Blue Line back to at least 2015. The
Line is set to cost $1.2 billion and will be funded by the Lagos State Government.
eko Atlantic
Eko Atlantic is an ambitious land reclamation project, a pioneering residential and business development located on
Victoria Island, along its upmarket Bar Beach coastline. The project is being built on three and a half square miles of
land reclaimed from the Atlantic Ocean and is expected to provide accommodation for 250,000 people and employ-
ment opportunities for a further 150,000. The complex will function as a city-within-a-city, including recreational
facilities, business and shopping districts, and modern conveniences.
Bus rapid-transit System
To ease the crush of public transportation, the Bus Rapid Transport (BRT) system was introduced 10 years ago to
streamline and modernize the motley collection of buses that had transported residents around the city. Lagos has
long suffered from an unregulated transportation system in which a variety of different “buses,” ranging from bat-
tered minibuses to old, yellow-painted school buses, competed for customers. Fares were also unregulated, leaving
Figure 1.1 traffic congestion in lagos, Nigeria
Source: Femi Ipaye/Xinhua Press/Corbis
(continued)
4 Chapter 1 • Introduction
introduction
Projects are one of the principal means by which we change our world. Whether the goal is to
split the atom, tunnel under the English Channel, introduce Windows 9, or plan the next Summer
Olympic Games in Rio de Janeiro, the means through which to achieve these challenges remains
the same: project management. Project management has become one of the most popular tools for
organizations, both public and private, to improve internal operations, respond rapidly to exter-
nal opportunities, achieve technological breakthroughs, streamline new product development,
and more robustly manage the challenges arising from the business environment. Consider what
Tom Peters, best-selling author and management consultant, has to say about project management
and its place in business: “Projects, rather than repetitive tasks, are now the basis for most value-
added in business.”3 Project management has become a critical component of successful business
operations in worldwide organizations.
One of the key features of modern business is the nature of the opportunities and threats
posed by external events. As never before, companies face international competition and the need
to pursue commercial opportunities rapidly. They must modify and introduce products constantly,
respond to customers as fast as possible, and maintain competitive cost and operating levels. Does
performing all these tasks seem impossible? At one time, it was. Conventional wisdom held that
a company could compete using a low-cost strategy or as a product innovator or with a focus on
customer service. In short, we had to pick our competitive niches and concede others their claim
to market share. In the past 20 years, however, everything turned upside down. Companies such
as General Electric, Apple, Ericksson, Boeing, and Oracle became increasingly effective at realiz-
ing all of these goals rather than settling for just one. These companies seemed to be successful in
every aspect of the competitive model: They were fast to market and efficient, cost-conscious and
customer-focused. How were they performing the impossible?
Obviously, there is no one answer to this complex question. There is no doubt, however,
that these companies shared at least one characteristic: They had developed and committed
themselves to project management as a competitive tool. Old middle managers, reported Fortune
magazine,
are dinosaurs, [and] a new class of manager mammal is evolving to fill the niche they once
ruled: project managers. Unlike his biological counterpart, the project manager is more agile
and adaptable than the beast he’s displacing, more likely to live by his wits than throwing his
weight around.4
Effective project managers will remain an indispensable commodity for successful organiza-
tions in the coming years. More and more companies are coming to this conclusion and adopting
drivers free to charge whatever fares they chose. “They might charge $1 in the morning for one trip one way and by
afternoon they can go to $3,” says Dayo Mobereola, managing director of the Lagos Metropolitan Area Transport
Authority, noting that commuters spend on average 40% of their income on transportation. Before the project was
announced, the city had projected that it would transport 60,000 passengers daily, but now it transports over 200,000
passengers daily. The BRT system has reduced waiting times at bus stops, the travel time across the city, all at a reduced
rate when compared to the old system.
Schools, Bridges, and Power Plants
Part of the aggressive infrastructure modernization includes improving traffic by building the first suspension bridge
in West Africa, as well as adding a number of new schools around the city. Two new power plants are also slated to be
constructed, bringing a more dependable source of power to the city, including powering street lights to ease crime
and other problems. The city has even launched a fleet of brand new garbage trucks to deal with the 10,000 tons of
waste generated every day.
Lagos’ modernization efforts in recent years have come not a moment too soon in support of its citizens. As
Professor Falade observed, these efforts to modernize the city’s facilities are a breath of fresh air. “The difference is
clear, the evidence is the improved landscape of Lagos in the urban regeneration project.”2
1.1 What Is a Project? 5
project management as a way of life. Indeed, companies in such diverse industries as construction,
heavy manufacturing, insurance, health care, finance, public utilities, and software are becoming
project savvy and expecting their employees to do the same.
1.1 What is a Project?
Although there are a number of general definitions of the term project, we must recognize at the
outset that projects are distinct from other organizational processes. As a rule, a process refers to
ongoing, day-to-day activities in which an organization engages while producing goods or services.
Processes use existing systems, properties, and capabilities in a continuous, fairly repetitive manner.5
Projects, on the other hand, take place outside the normal, process-oriented world of the firm.
Certainly, in some organizations, such as construction, day-to-day processes center on the creation
and development of projects. Nevertheless, for the majority of organizations, project management
activities remain unique and separate from the manner in which more routine, process-driven work
is performed. Project work is continuously evolving, establishes its own work rules, and is the antith-
esis of repetition in the workplace. As a result, it represents an exciting alternative to business as
usual for many companies. The challenges are great, but so are the rewards of success.
First, we need a clear understanding of the properties that make projects and project manage-
ment so unique. Consider the following definitions of projects:
A project is a unique venture with a beginning and end, conducted by people to meet estab-
lished goals within parameters of cost, schedule, and quality.6
Projects [are] goal-oriented, involve the coordinated undertaking of interrelated activities,
are of finite duration, and are all, to a degree, unique.7
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)8
[A project is] [o]rganized work toward a predefined goal or objective that requires resources
and effort, a unique (and therefore risky) venture having a budget and schedule.9
Probably the simplest definition is found in the Project Management Body of Knowledge (PMBoK)
guide of the Project Management Institute (PMI). PMI is the world’s largest professional project
management association, with more than 450,000 members worldwide as of 2014. In the PMBoK
guide, a project is defined as “a temporary endeavor undertaken to create a unique product, ser-
vice, or result” (p. 553).10
Let us examine the various elements of projects, as identified by these set of definitions.
• Projects are complex, one-time processes. A project arises for a specific purpose or to meet
a stated goal. It is complex because it typically requires the coordinated inputs of numerous
members of the organization. Project members may be from different departments or other
organizational units or from one functional area. For example, a project to develop a new
software application for a retail company may require only the output of members of the
Information Systems group working with the marketing staff. On the other hand, some proj-
ects, such as new product introductions, work best with representation from many functions,
including marketing, engineering, production, and design. Because a project is intended to
fulfill a stated goal, it is temporary. It exists only until its goal has been met, and at that point,
it is dissolved.
• Projects are limited by budget, schedule, and resources. Project work requires that members
work with limited financial and human resources for a specified time period. They do not
run indefinitely. Once the assignment is completed, the project team disbands. Until that
point, all its activities are constrained by limitations on budget and personnel availability.
Projects are “resource-constrained” activities.
• Projects are developed to resolve a clear goal or set of goals. There is no such thing as
a project team with an ongoing, nonspecific purpose. The project’s goals, or deliverables,
6 Chapter 1 • Introduction
define the nature of the project and that of its team. Projects are designed to yield a tangible
result, either as a new product or service. Whether the goal is to build a bridge, implement a
new accounts receivable system, or win a presidential election, the goal must be specific and
the project organized to achieve a stated aim.
• Projects are customer-focused. Whether the project is responding to the needs of an internal
organizational unit (e.g., accounting) or intended to exploit a market opportunity external to
the organization, the underlying purpose of any project is to satisfy customer needs. In the
past, this goal was sometimes overlooked. Projects were considered successful if they attained
technical, budgetary, and scheduling goals. More and more, however, companies have real-
ized that the primary goal of a project is customer satisfaction. If that goal is neglected, a firm
runs the risk of “doing the wrong things well”—pursuing projects that may be done efficiently
but that ignore customer needs or fail commercially.
general Project characteristics
Using these definitional elements, we can create a sense of the key attributes that all projects
share. These characteristics are not only useful for better understanding projects, but also offer the
basis for seeing how project-based work differs from other activities most organizations under-
take. Projects represent a special type of undertaking by any organization. Not surprisingly, the
challenges in performing them right are sometimes daunting. Nevertheless, given the manner in
which business continues to evolve on a worldwide scale, becoming “project savvy” is no longer a
luxury: It is rapidly becoming a necessity.
Projects are characterized by the following properties:11
1. Projects are ad hoc endeavors with a clear life cycle. Projects are nontraditional; they are
activities that are initiated as needed, operate for a specified time period over a fairly well
understood development cycle, and are then disbanded. They are temporary operations.
2. Projects are building blocks in the design and execution of organizational strategies. As we
will see in later chapters, projects allow organizations to implement companywide strategies.
They are the principal means by which companies operationalize corporate-level objectives.
In effect, projects are the vehicles for realizing company goals. For example, Intel’s strat-
egy for market penetration with ever newer, smaller, and faster computer chips is realized
through its commitment to a steady stream of research and development projects that allows
the company to continually explore the technological boundaries of electrical and computer
engineering.
3. Projects are responsible for the newest and most improved products, services, and organi-
zational processes. Projects are tools for innovation. Because they complement (and often
transform) traditional process-oriented activities, many companies rely on projects as vehi-
cles for going beyond conventional activities. Projects are the stepping-stones by which we
move forward.
4. Projects provide a philosophy and strategy for the management of change. “Change” is an
abstract concept until we establish the means by which we can make real alterations in the
things we do and produce. Projects allow organizations to go beyond simple statements of
intent and to achieve actual innovation. For example, whether it is Chevrolet’s Volt electric
car or Apple’s newest iPhone upgrade, successful organizations routinely ask for customer
input and feedback to better understand their likes and dislikes. As the vehicle of change, the
manner in which a company develops its projects has much to say about its ability to inno-
vate and commitment to change.
5. Project management entails crossing functional and organizational boundaries. Projects
epitomize internal organizational collaboration by bringing together people from various
functions across the company. A project aimed at new product development may require
the combined work of engineering, finance, marketing, design, and so forth. Likewise, in the
global business environment, many companies have crossed organizational boundaries by
forming long-term partnerships with other firms in order to maximize opportunities while
emphasizing efficiency and keeping a lid on costs. Projects are among the most common
means of promoting collaboration, both across functions and across organizations.
6. The traditional management functions of planning, organizing, motivation, directing, and
control apply to project management. Project managers must be technically well versed,
1.1 What Is a Project? 7
proficient at administrative functions, willing and able to assume leadership roles, and,
above all, goal-oriented: The project manager is the person most responsible for keeping
track of the big picture. The nature of project management responsibilities should never be
underestimated because these responsibilities are both diverse and critical to project success.
7. The principal outcomes of a project are the satisfaction of customer requirements within
the constraints of technical, cost, and schedule objectives. Projects are defined by their
limitations. They have finite budgets, definite schedules, and carefully stated specifica-
tions for completion. For example, a term paper assignment in a college class might include
details regarding form, length, number of primary and secondary sources to cite, and so
forth. Likewise, in the Disney’s Expedition Everest case example at the end of the chapter,
the executive leading the change process established clear guidelines regarding performance
expectations. All these constraints both limit and narrowly define the focus of the project and
the options available to the project team. It is the very task of managing successful project
development within such specific constraints that makes the field so challenging.
8. Projects are terminated upon successful completion of performance objectives—or earlier
in their life cycle, if results no longer promise an operational or strategic advantage. As we
have seen, projects differ from conventional processes in that they are defined by limited life
cycles. They are initiated, completed, and dissolved. As important alternatives to conven-
tional organizational activities, they are sometimes called “temporary organizations.”12
Projects, then, differ from better-known organizational activities, which often involve repetitive
processes. The traditional model of most firms views organizational activities as consistently
performing a discrete set of activities. For example, a retail-clothing establishment buys, stocks,
and sells clothes in a continuous cycle. A steel plant orders raw materials, makes steel, and ships
finished products, again in a recurring cycle. The nature of these operations focuses our atten-
tion on a “process orientation,” that is, the need to perform work as efficiently as possible in an
ongoing manner. When its processes are well understood, the organization always seeks better,
more efficient ways of doing the same essential tasks. Projects, because they are discrete activities,
violate the idea of repetition. They are temporary activities that operate outside formal channels.
They may bring together a disparate collection of team members with different kinds of functional
expertise. Projects function under conditions of uncertainty, and usually have the effect of “shaking
up” normal corporate activities. Because of their unique characteristics, they do not conform to
common standards of operations; they do things differently and often reveal new and better ways
of doing things. Table 1.1 offers some other distinctions between project-based work and the more
traditional, process-based activities. Note a recurring theme: Projects operate in radical ways that
consistently violate the standard, process-based view of organizations.
Consider Apple’s development of the iPod, a portable MP3 player that can be integrated with
Apple’s popular iTunes site to record and play music downloads. Apple, headed by its former
chairman, the late Steven Jobs, recognized the potential in the MP3 market, given the enormous
popularity (and, some would say, notoriety) of file-sharing and downloading music through
table 1.1 Differences Between Process and Project Management13
Process Project
Repeat process or product New process or product
Several objectives One objective
Ongoing One shot—limited life
People are homogenous More heterogeneous
Well-established systems in place to integrate efforts Systems must be created to integrate efforts
Greater certainty of performance, cost, schedule Greater uncertainty of performance, cost, schedule
Part of line organization Outside of line organization
Bastions of established practice Violates established practice
Supports status quo Upsets status quo
Source: R. J. Graham. (1992). “A Survival Guide for the Accidental Project Manager,” Proceedings of the Annual Project
Management Institute Symposium. Drexel Hill, PA: Project Management Institute, pp. 355–61. Copyright and all rights
reserved. Material from this publication has been reproduced with the permission of PMI.
8 Chapter 1 • Introduction
the Internet. The company hoped to capitalize on the need for a customer-friendly MP3 player,
while offering a legitimate alternative to illegal music downloading. Since its introduction in
2003, consumers have bought nearly 400 million iPods and purchased more than 25 billion songs
through Apple’s iTunes online store. In fact, Apple’s iTunes division is now the largest U.S. market
for music sales, accounting for 29% of all music sold in the United States and 64% of the digital
music market.
In an interview, Jobs acknowledged that Apple’s business needed some shaking up, given
the steady but unspectacular growth in sales of its flagship Macintosh personal computer, still
holding approximately 13% of the overall PC market. The iPod, as a unique venture within Apple,
became a billion-dollar business for the company in only its second year of existence. So popular
has the iPod become for Apple that the firm created a separate business unit, moving the product
and its support staff away from the Mac group. “Needless to say, iPod has become incredibly
popular, even among people who aren’t diehard Apple fanatics,” industry analyst Paolo Pescatore
told NewsFactor, noting that Apple recently introduced a smaller version of the product with great
success. “In short, they have been very successful thus far, and I would guess they are looking at
this realignment as a way to ensure that success will continue.”14
A similar set of events are currently unfolding, centered on Apple’s introduction and succes-
sive upgrades of its iPad tablet. Among the numerous features offered by the iPad is the ability to
download books (including college textbooks) directly from publishers, effectively eliminating the
traditional middlemen—bookstores—from the process. So radical are the implications of the iPad
that competitors have introduced their own models (such as Samsung’s Galaxy tablet) to capture
a share of this market. Meanwhile, large bookstores are hoping to adapt their business models to
the new electronic reality of book purchase by offering their own readers (for example, Kindle for
Amazon). Some experts are suggesting that within a decade, tablets and other electronic readers
will make traditional books obsolete, capturing the majority of the publishing market. These are
just some examples of the way that project-driven technological change, such as that at Apple, is
reshaping the competitive landscape.
Given the enthusiasm with which project management is being embraced by so many orga-
nizations, we should note that the same factors that make project management a unique undertak-
ing are also among the main reasons why successful project management is so difficult. The track
record of project management is by no means one of uninterrupted success, in part because many
companies encounter deep-rooted resistance to the kinds of changes needed to accommodate a
“project philosophy.” Indeed, recent research into the success rates for projects offers some grim
conclusions:
• A study of more than 300 large companies conducted by the consulting firm Peat Marwick
found that software and/or hardware development projects fail at the rate of 65%. Of compa-
nies studied, 65% reported projects that went grossly over budget, fell behind schedule, did
not perform as expected, or all of the above. Half of the managers responding indicated that
these findings were considered “normal.”15
• A study by the META Group found that “more than half of all (information technology)
IT projects become runaways—overshooting their budgets and timetables while failing to
deliver fully on their goals.”16
• Joe Harley, the Chief Information Officer at the Department for Work and Pensions for the
UK government, stated that “only 30%” of technology-based projects and programs are a
success—at a time when taxes are funding an annual budget of £14bn (over $22 billion) on
public sector IT, equivalent to building 7,000 new primary schools or 75 hospitals a year.17
• The United States Nuclear Security Administration has racked up $16 billion in cost over-
runs on 10 major projects that are a combined 38 years behind schedule, the Government
Accountability Office reports. For example, at Los Alamos National Laboratory, a seven-year,
$213 million upgrade to the security system that protects the lab’s most sensitive nuclear
bomb-making facilities does not work. A party familiar with the organization cites a “perva-
sive culture of tolerating the intolerable and accepting the unacceptable.”18
• According to the 2004 PriceWaterhouseCoopers Survey of 10,640 projects valued at $7.2 billion,
across a broad range of industries, large and small, only 2.5% of global businesses achieved
100% project success, and more than 50% of global business projects failed. The Chaos Summary
2013 survey by The Standish Group reported similar findings: The majority of all projects were
1.2 Why Are Projects Important? 9
either “challenged” (due to late delivery, being over budget, or delivering less than required
features) or “failed” and were canceled prior to completion, or the product developed was
never used. Researchers have concluded that the average success rate of business-critical
application development projects is 39%. Their statistics have remained remarkably steady
since 1994.19
• The Special Inspector General for Iraq Reconstruction (SIGIR) reported that more than $8 billion
of the $53 billion the Pentagon spent on thousands of Iraqi reconstruction projects was lost due
to “fraud, waste, and abuse.” Hundreds were eventually canceled, with 42% of the terminated
projects ended because of mismanagement or shoddy construction. As part of their final 2013
report, SIGIR noted: “We found that incomplete and unstandardized databases left us unable to
identify the specific use of billions of dollars spent on projects.”20
These findings underscore an important point: Although project management is becoming
popular, it is not easy to assimilate into the conventional processes of most firms. For every firm
discovering the benefits of projects, many more underestimate the problems involved in becoming
“project savvy.”
These studies also point to a core truth about project management: We should not overesti-
mate the benefits to be gained from project management while underestimating the commitment
required to make a project work. There are no magic bullets or quick fixes in the discipline. Like
any other valuable activity, project management requires preparation, knowledge, training, and
commitment to basic principles. Organizations wanting to make use of project-based work must
recognize, as Table 1.1 demonstrates, that its very strength often causes it to operate in direct con-
tradiction to standard, process-oriented business practices.
1.2 Why are Projects imPortant?
There are a number of reasons why projects and project management can be crucial in helping an
organization achieve its strategic goals. David Cleland, a noted project management researcher,
suggests that many of these reasons arise from the very pressures that organizations find them-
selves facing.21
1. Shortened product life cycles. The days when a company could offer a new product and
depend on having years of competitive domination are gone. Increasingly, the life cycle of
new products is measured in terms of months or even weeks, rather than years. One has only
to look at new products in electronics or computer hardware and software to observe this
trend. Interestingly, we are seeing similar signs in traditional service-sector firms, which also
have recognized the need for agility in offering and upgrading new services at an increas-
ingly rapid pace.
2. Narrow product launch windows. Another time-related issue concerns the nature of oppor-
tunity. Organizations are aware of the dangers of missing the optimum point at which to
launch a new product and must take a proactive view toward the timing of product intro-
ductions. For example, while reaping the profits from the successful sale of Product A, smart
firms are already plotting the best point at which to launch Product B, either as a product
upgrade or a new offering. Because of fierce competition, these optimal launch opportunities
are measured in terms of months. Miss your launch window, even by a matter of weeks, and
you run the risk of rolling out an also-ran.
3. Increasingly complex and technical products. It has been well-documented that the average
automobile today has more computing power than the Apollo 11 space capsule that allowed
astronauts to walk on the moon. This illustrates a clear point: the world today is complex.
Products are complicated, technically sophisticated, and difficult to produce efficiently. The
public’s appetite for “the next big thing” continues unabated and substantially unsatisfied.
We want the new models of our consumer goods to be better, bigger (or smaller), faster, and
more complex than the old ones. Firms constantly upgrade product and service lines to feed
this demand. That causes multiple problems in design and production as we continually
seek to push the technical limits. Further, in anticipating future demand, many firms embark
on expensive programs of research and development while attempting to discern con-
sumer tastes. The effect can be to erroneously create expensive and technically sophisticated
10 Chapter 1 • Introduction
projects that we assume the customer will want. For example, Rauma Corporation of Finland
developed a state-of-the-art “loader” for the logging industry. Rauma’s engineers loaded the
product with the latest computerized gadgetry and technologies that gave the machine a
space-age feel. Unfortunately, the chief customer for the product worked in remote regions
of Indonesia, with logistics problems that made servicing and repairing the loaders impracti-
cal. Machines that broke down had to be airlifted more than 1,000 miles to service centers.
Since the inception of this project, sales of the logging machinery have been disappointing.
The project was an expensive failure for Rauma and serves to illustrate an important point:
Unless companies find a way to maintain control of the process, an “engineering for engi-
neering’s sake” mentality can quickly run out of control.22
4. Global markets. The early twenty-first century has seen the emergence of enormous new
markets for almost every type of product and service. Former closed or socialist societies, as
well as rapidly developing economies such as Brazil, China, Vietnam, and India, have added
huge numbers of consumers and competitors to the global business arena. The increased glo-
balization of the economy, coupled with enhanced methods for quickly interacting with cus-
tomers and suppliers, has created a new set of challenges for business. These challenges also
encompass unique opportunities for those firms that can quickly adjust to this new reality.
In the global setting, project management techniques provide companies with the ability to
link multiple business partners, and respond quickly to market demand and supplier needs,
while remaining agile enough to anticipate and respond to rapid shifts in consumer tastes.
Using project management, successful organizations of the future will recognize and learn to
rapidly exploit the prospects offered by a global business environment.
5. An economic period marked by low inflation. One of the key indicators of economic health
is the fact that inflation has been kept under control. In most of the developed Western econo-
mies, low inflation has helped to trigger a long period of economic expansion, while also
helping provide the impetus for emerging economies, such as those in India and China, to
expand rapidly. Unfortunately, low inflation also limits the ability of businesses to maintain
profitability by passing along cost increases. Companies cannot continue to increase profit
margins through simply raising prices for their products or services. Successful firms in the
future will be those that enhance profits by streamlining internal processes—those that save
money by “doing it better” than the competition. As a tool designed to realize goals like inter-
nal efficiency, project management is a means by which to bolster profits.
These are just some of the more obvious challenges facing business today. The key point is
that the forces giving rise to these challenges are not likely to abate in the near future. In order to
meet these challenges, large, successful companies such as General Electric, 3M, Apple, Samsung,
Bechtel, and Microsoft have made project management a key aspect of their operating philosophies.
Project Profile
“throwing Good Money after Bad”: the BBc’s Digital Media initiative
The British Broadcasting Corporation (BBC) recently announced the cancelation of a major Information Technology (IT)
project intended to update their vast broadcast operations. The project, called the Digital Media Initiative (DMI), was
originally budgeted at £81.7 million ($140 million) and was developed to eliminate the outdated filing systems and
use of old-fashioned, analog videotape with its expensive archival storage. The BBC is one of the world’s largest and
most widely recognized news and media organizations; it is publically funded and under British government oversight.
The DMI project was intended to save the organization millions annually by eliminating the cost of expensive and out-
dated storage facilities, while moving all media content to a modern, digital format. As an example of a large-scale IT
project, the plan for DMI involved media asset management, archive storage and retrieval systems, and media sharing
capabilities.
The DMI project was begun in 2008 when the BBC contracted with technology service provider Siemens, with
consulting expertise to be provided by Deloitte. Interestingly, the BBC never put the contract out for competitive bid-
ding, reasoning that it already had a 10-year support contract with Siemens and trusted Siemens’ judgment on project
development. As part of this “hands-off” attitude, executives at the BBC gave Siemens full control of the project, and
1.2 Why Are Projects Important? 11
apparently little communication flowed back and forth between the organizations. The BBC finally grew concerned with
the distant relationship that was developing between itself and the contractor when Siemens began missing important
delivery milestones and encountering technical difficulties. After one year, the BBC terminated its $65 million contract
with Siemens and sued the company for damages, collecting approximately $47 million in a court settlement. Still, losing
nearly $20 million in taxpayer money after only one year, with nothing to show for it, did not bode well for the future.
Having been burned by this relationship with an outside contractor, the BBC next tried to move the project “in
house,” assigning its own staff and project manager to continue developing the DMI. The project was under the overall
control of the BBC’s Chief Technology Officer, John Linwood. It was hoped that the lessons learned from the first-round
failure of the project would help improve the technology and delivery of the system throughout the organization.
Unfortunately, the project did no better under BBC control. Reports started surfacing as early as 2011 that the project
was way behind schedule, was not living up to its promises, and, in fact, had been failing most testing along the way.
However, although there are claims that the BBC was well aware of the flaws in the project as early as 2011, the picture
it presented to the outside world, including Parliamentary oversight committees, was relentlessly upbeat. The BBC’s
Director General, Mark Thompson, appeared before a committee in 2011 and told them DMI was definitely on schedule
and was actually working already: “There are many programs that are already being made with DMI and some have
gone to air and are going to air,” he told Members of Parliament.
The trouble was, the project was not working well at all. Continual failures with the technology were widely
known within the project team and company executives, but reports suggest that concerns were buried under a flood
of rosy projections. In fact, a later report on the project by an outside consulting firm suggests that throughout 2012,
the deteriorating fortunes of DMI were not accurately reported either within management or, critically, to the BBC
Trust. For example, the BBC’s own internal project management office issued a “code red” warning of imminent project
failure in February that wasn’t reported to the trust until six months later. The CTO, John Linwood, maintained that the
project did work, would lead to a streamlined and more cost-effective method for producing media, and did not waver
from that view throughout these years.
This rosy view hid a deeper problem: the technology just was not working well. Different views emerged as to
why DMI was not progressing. To the “technologists,” there was nothing wrong with the system; it did deliver work-
ing technology, but the project was undermined by would-be users who never bought into the original vision and
who continually changed their requirements. They believed that DMI was failing not because it did not work, but as a
result of internal politics. On the other side were those who questioned the development of the project because the
technology, whether it had been “delivered” or not, never really worked, certainly not at the scale required to make it
adopted across the whole organization. Further, it was becoming evident that off-the-shelf technology existed in the
marketplace which did some of what DMI promised but which, critically, already worked well. Why, then, was the BBC
spending so much time and money trying to create its own system out of thin air?
Figure 1.2 BBc Digital initiative Project
Source: Roberto Herrett/Loop Images/Corbis
(continued)
12 Chapter 1 • Introduction
Project management also serves as an excellent training ground for future senior executives in
most organizations. One unique aspect of projects is how they blend technical and behavioral chal-
lenges. The technical side of project management requires managers to become skilled in project
selection, budgeting and resource management, planning and scheduling, and tracking projects.
Each of these skills will be discussed in subsequent chapters. At the same time, however, project
managers face the equally strong challenge of managing the behavioral, or “people,” side of proj-
ects. Projects, being temporary endeavors, require project managers to bring together individuals
from across the organization, quickly mold them into an effective team, manage conflict, provide
leadership, and engage in negotiation and appropriate political behavior, all in the name of project
success. Again, we will address these behavioral challenges in this text. One thing we know is:
Project managers who emphasize one challenge and ignore the other, whether they choose to focus
on the technical or behavioral side of project management, are not nearly as successful as those
who seek to become experts in both. Why is project management such a useful training ground for
senior executives? Because it provides the first true test of an individual’s ability to master both the
technical and human challenges that characterize effective leaders in business. Project managers,
and their projects, create the kind of value that companies need to survive and prosper.
According to a news report, it was not until April 2013 that events demonstrated the ongoing problems with
DMI. During BBC coverage of the death and funeral of Margaret Thatcher, news staff worked feverishly to transfer
old archived analog videotape to digital format in order to produce footage for background on the life and career of
the former Prime Minister. So poorly did the new digital archive system work that it was reported that tapes had to be
physically transported around London by taxi and subway system to get to their locations while video transfer work was
being carried out by private production companies. All this after nearly four years working to develop DMI!
The failure of the system during Thatcher’s funeral was the final straw. In May 2013 the new Director General of
the BBC, Lord Hall, announced the cancellation of the project and that the BBC’s chief technology officer, John Linwood,
was to be suspended pending an external investigation into the management of the DMI project. It was later revealed
that a senior BBC manager had expressed grave doubts about DMI to BBC Chairman Lord Patten one year before the
project was cancelled. He had also claimed that there was a “very significant risk” that the National Audit Office had
been misled about the actual progress of DMI in 2011. Other BBC executives had also voiced similar concerns for about
two years before DMI was abandoned. The final cost of the project to the BBC and British taxpayers has been estimated
at about $160 million. BBC Trust member Anthony Fry remarked that the DMI had been a “complete catastrophe” and
said that the project was “probably the most serious, embarrassing thing I have ever seen.”
Members of Parliament, looking into the failure of DMI, also had a number of very pointed criticisms of the project,
executive oversight of DMI, and the operations of the BBC in general. Margaret Hodge MP, Chair of the Committee of
Public Accounts, summed up the project in her Parliament report:
“The BBC’s Digital Media Initiative was a complete failure. License fee payers paid nearly £100 million ($160 million)
for this supposedly essential system but got virtually nothing in return.
The main output from the DMI is an archive catalogue and ordering system that is slower and more cumbersome
than the 40-year-old system it was designed to replace. It has only 163 regular users and a running cost of
£3 million ($5.1 million) a year, compared to £780,000 ($1.3 million) a year for the old system.
When my Committee examined the DMI’s progress in February 2011, the BBC told us that the DMI was “an abso-
lutely essential have to have” and that a lot of the BBC’s future was tied up in the successful delivery of the DMI.
The BBC also told us that it was using the DMI to make many programs and was on track to complete the system
in 2011 with no further delays. This turned out not to be the case.
The BBC was far too complacent about the high risks involved in taking it in-house. No single individual had
overall responsibility or accountability for delivering the DMI and achieving the benefits, or took ownership of
problems when they arose.
Lack of clearly defined responsibility and accountability meant the Corporation failed to respond to warning sig-
nals that the program was in trouble.”
Bad planning, poor corporate governance, excessively optimistic projections, and a cloak of secrecy regarding the
real status of the Digital Media Initiative project all resulted in a very public black eye for one of the most respected
broadcasting organizations in the world. It is likely that the causes of the failure of the DMI project will be debated for
years to come, but at a minimum this story should be a cautionary tale for organizations developing sophisticated IT
projects.23
1.3 Project Life Cycles 13
1.3 Project liFe cycles
Imagine receiving a term paper assignment in a college class. Our first step would be to develop a
sense of the assignment itself—what the professor is looking for, how long the paper should be, the
number of references required, stylistic expectations, and so forth. Once we have familiarized our-
selves with the assignment, our next step would be to develop a plan for how we intend to proceed
with the project in order to complete it by the due date. We make a rough guess about how much
time will be needed for the research, writing the first draft, proofreading the paper, and completing
the final draft; we use this information to create some tentative milestones for the various compo-
nents of the assignment. Next, we begin to execute our plan, doing the library or online research,
creating an outline, writing a draft, and so forth. Our goal is to complete the assignment on time,
doing the work to our best possible ability. Finally, after turning in the paper, we file or discard our
reference materials, return any books to the library, breathe a sigh of relief, and wait for the grade.
This example represents a simplified but useful illustration of a project’s life cycle. In this
case, the project consisted of completing the term paper to the standards expected of the instructor
in the time allowed. A project life cycle refers to the stages in a project’s development. Life cycles
are important because they demonstrate the logic that governs a project. They also help us develop
our plans for carrying out the project. They help us decide, for example, when we should devote
resources to the project, how we should evaluate its progress, and so forth. Consider the simplified
model of the project life cycle shown in Figure 1.3, which divides the life cycle into four distinct
phases: conceptualization, planning, execution, and termination.
• Conceptualization refers to the development of the initial goal and technical specifications for
a project. The scope of the work is determined, necessary resources (people, money, physical
plant) identified, and important organizational contributors or stakeholders signed on.
• Planning is the stage in which all detailed specifications, schematics, schedules, and other
plans are developed. The individual pieces of the project, often called work packages, are bro-
ken down, individual assignments made, and the process for completion clearly delineated.
For example, in planning our approach to complete the term paper, we determine all the
necessary steps (research, drafts, editing, etc.) in the process.
• During execution, the actual “work” of the project is performed, the system developed, or the
product created and fabricated. It is during the execution phase that the bulk of project team
labor is performed. As Figure 1.3 shows, project costs (in man hours) ramp up rapidly during
this stage.
• Termination occurs when the completed project is transferred to the customer, its resources
reassigned, and the project formally closed out. As specific subactivities are completed, the
project shrinks in scope and costs decline rapidly.
These stages are the waypoints at which the project team can evaluate both its performance and
the project’s overall status. Remember, however, that the life cycle is relevant only after the proj-
ect has actually begun. The life cycle is signaled by the actual kickoff of project development,
Conceptualization Planning Execution Termination
Man-hours of work
Figure 1.3 Project life cycle Stages
14 Chapter 1 • Introduction
the development of plans and schedules, the performance of necessary work, and the comple-
tion of the project and reassignment of personnel. When we evaluate projects in terms of this life
cycle model, we are given some clues regarding their subsequent resource requirements; that is,
we begin to ask whether we have sufficient personnel, materials, and equipment to support the
project. For example, when beginning to work on our term paper project, we may discover that
it is necessary to purchase a PC or hire someone to help with researching the topic. Thus, as we
plan the project’s life cycle, we acquire important information regarding the resources that we will
need. The life cycle model, then, serves the twofold function of project timing (schedule) and proj-
ect requirements (resources), allowing team members to better focus on what and when resources
are needed.
The project life cycle is also a useful means of visualizing the activities required and chal-
lenges to be faced during the life of a project. Figure 1.4 indicates some of these characteristics as
they evolve during the course of completing a project.24 As you can see, five components of a proj-
ect may change over the course of its life cycle:
• Client interest: The level of enthusiasm or concern expressed by the project’s intended cus-
tomer. clients can be either internal to the organization or external.
• Project stake: The amount of corporate investment in the project. The longer the life of the
project, the greater the investment.
• Resources: The commitment of financial, human, and technical resources over the life of the
project.
• Creativity: The degree of innovation required by the project, especially during certain
development phases.
• Uncertainty: The degree of risk associated with the project. Riskiness here reflects the number
of unknowns, including technical challenges that the project is likely to face. Uncertainty is
highest at the beginning because many challenges have yet to be identified, let alone addressed.
Each of these factors has its own dynamic. Client interest, for example, follows a “U-shaped”
curve, reflecting initial enthusiasm, lower levels of interest during development phases, and
renewed interest as the project nears completion. Project stake increases dramatically as the proj-
ect moves forward because an increasing commitment of resources is needed to support ongoing
activities. Creativity, often viewed as innovative thought or applying a unique perspective, is high
at the beginning of a project, as the team and the project’s client begin developing a shared vision
of the project. As the project moves forward and uncertainty remains high, creativity also contin-
ues to be an important feature. In fact, it is not until the project is well into its execution phase,
with defined goals, that creativity becomes less important. To return to our example of the term
Execution Termination
Uncertainty
Creativity
Resources
Project Stake
Client Interest
Time
Intensity
Level
Planning
Concep-
tualization
Figure 1.4 Project life cycles and their effects
Source: Victor Sohmen. (2002, July). “Project Termination: Why the Delay?” Paper presented at
PMI Research Conference, Seattle, WA. Project Management Institute, Sohmen, Victor. “Project
termination: Why the delay?” PMI Research Conference. Proceedings, p. 467–475. Paper presented
at PMI Research Conference. Project Management Institute, Inc (2002). Copyright and all rights
reserved. Material from this publication has been reproduced with the permission of PMI.
1.3 Project Life Cycles 15
paper project, in many cases, the “creativity” needed to visualize a unique or valuable approach
to developing the project is needed early, as we identify our goals and plan the process of achiev-
ing them. Once identified, the execution phase, or writing the term paper, places less emphasis on
creativity per se and more on the concrete steps needed to complete the project assignment.
The information simplified in Figure 1.4 is useful for developing a sense of the competing
issues and challenges that a project team is likely to face over the life cycle of a project. Over time,
while certain characteristics (creativity, resources, and uncertainty) begin to decrease, other ele-
ments (client interest and project stake) gain in importance. Balancing the requirements of these
elements across the project life cycle is just one of the many demands placed on a project team.
Figure 1.5 Stephanie Smith—Westinghouse electric
Source: Jeffrey Pinto/Pearson Education, Inc.
Box 1.1
Project Managers in Practice
Stephanie Smith, Westinghouse Electric Company
Stephanie Smith is a project manager in the nuclear industry, working for Westinghouse Electric Company while
living in Phoenix, Arizona. She earned her undergraduate degree in Biological Sciences from the University of
Pittsburgh and subsequently a master’s degree in Teaching. After teaching Biology and Environmental Sciences
for four years, Stephanie decided on a career change and was hired as a Software Librarian at Westinghouse. Her
job was to manage software created by multiple teams of engineers for use in nuclear power plants while also
developing programmatic documentation such as program plans and program quality plans, document creation
plans, and a program for technical editing of engineering documentation. After about a year of program-level
support, she gained further experience working on large projects in nuclear protection and safety monitoring
where, in addition to her other duties, she interacted with the members of the Nuclear Regulatory Commission.
As a project manager in the nuclear industry, the majority of the projects Stephanie has worked on are
intended to perform first-of-a-kind engineering to develop products for use in nuclear power plants. This re-
quires a strong technical skill set. However, Stephanie is quick to note that having the technical abilities alone
does not prepare you for project management nor will it allow you to do your job to the best of your abilities.
“Aside from the technical nature of this work, the majority of my effort is spent utilizing project management
skills to develop and implement projects according to customer, internal quality, and regulatory requirements.”
Communication skills are critical, Stephanie argues, as “I regularly interact with my project team, upper man-
agement, and the customer to track project progress in terms of schedule, budget, and quality.”
Stephanie is responsible for ensuring that technical problems are resolved as efficiently as possible,
which is one of her greatest challenges, given the industry and the need to thoroughly think through problems,
(continued)
16 Chapter 1 • Introduction
1.4 determinants oF Project success
Definitions of successful projects can be surprisingly elusive.25 How do we know when a project is
successful? When it is profitable? If it comes in on budget? On time? When the developed product
works or sells? When we achieve our long-term payback goals? Generally speaking, any definition
of project success must take into consideration the elements that define the very nature of a project:
that is, time (schedule adherence), budget, functionality/quality, and customer satisfaction. At one
time, managers normally applied three criteria of project success:
• Time. Projects are constrained by a specified time frame during which they must be com-
pleted. They are not supposed to continue indefinitely. Thus the first constraint that governs
project management involves the basic requirement: the project should come in on or before
its established schedule.
• Budget. A second key constraint for all projects is a limited budget. Projects must meet bud-
geted allowances in order to use resources as efficiently as possible. Companies do not write
blank checks and hope for the best. Thus the second limit on a project raises the question:
Was the project completed within budget guidelines?
• Performance. All projects are developed in order to adhere to some initially determined
technical specifications. We know before we begin what the project is supposed to do or how
the final product is supposed to operate. Measuring performance, then, means determining
whether the finished product operates according to specifications. The project’s clients natu-
rally expect that the project being developed on their behalf will work as expected. Applying
this third criterion is often referred to as conducting a “quality” check.
This so-called triple constraint was once the standard by which project performance was
routinely assessed. Today, a fourth criterion has been added to these three (see Figure 1.6):
• Client acceptance. The principle of client acceptance argues that projects are developed
with customers, or clients, in mind, and their purpose is to satisfy customers’ needs. If cli-
ent acceptance is a key variable, then we must also ask whether the completed project is
effectively manage risks, and make prudent decisions regarding the safety of the product, all with an eye to-
ward satisfying customers and regulatory agencies. “Risks must be effectively managed, particularly in the
nuclear industry, for cost and safety reasons; therefore, I am always conscious that decisions we make have
to be within carefully laid-out standards of safety.” She is also responsible for contract management within
her projects. This entails Stephanie working with customers and upper management to further define vague
language in the contract so that work can be completed according to expectations. These meetings are also
critical for project scope definition and control, skills project managers use on a daily basis.
“Without a strong foundation in project management fundamentals, I simply could not do my job,”
Stephanie argues. “My daily work is centered on the ability to effectively implement both the hard and soft
skills of project management (i.e., the technical and people-oriented behaviors). Strong communication and
leadership skills are very important in my daily work. Not a day goes by that I am not receiving and transmitting
information among upper management, my team, and the customer. My work is dynamic, and regardless of
how much planning is done, unanticipated events come up, which is where the need for flexibility comes in.
The resolution of these problems requires significant communication skills and patience.”
The greatest opportunity Stephanie sees in her work is supporting the development of clean energy
worldwide. The nuclear industry has shed its old images and emerged in the current era as one of the
cleanest and safest forms of energy. Nuclear power and project management are fast-growing and rapid-
paced fields, and they require people interested in adapting to the unique challenges they offer. The work
is demanding but, ultimately, highly rewarding. “In supporting a global effort for clean energy, I have the
opportunity to work with very bright and energetic people, and I truly do learn something new every day.
I encourage the novice or undergraduate to identify your greatest strengths, and try to develop a vision of
how to apply those strengths to achieve the lifestyle you want. Do you see yourself in an office setting? Do
you see yourself working in the field? One of the real advantages of project management careers is that
they offer a level of flexibility and freedom that you rarely find in other office settings. Project management
is challenging but the rewards can be impressive—both in terms of money and the satisfaction of seeing the
results of your efforts.”
1.4 Determinants of Project Success 17
acceptable to the customer for whom it was intended. Companies that evaluate project suc-
cess strictly according to the original “triple constraint” may fail to apply the most important
test of all: the client’s satisfaction with the completed project.
We can also think of the criteria for project success in terms of “internal” versus “external”
conditions. When project management was practiced primarily by construction and other heavy
industries, its chief value was in maintaining internal organizational control over expenditures of
money and time. The traditional triple-constraint model made perfect sense. It focused internally
on efficiency and productivity measures. It provided a quantifiable measure of personnel evalua-
tion, and it allowed accountants to control expenses.
More recently, however, the traditional triple-constraint model has come under increasing
criticism as a measure of project success. The final product, for example, could be a failure, but
if it has been delivered in time and on budget and satisfies its original specifications (however
flawed), the project itself could still be declared a success. Adding the external criterion of client
acceptance corrects such obvious shortcomings in the assessment process. First, it refocuses cor-
porate attention outside the organization, toward the customer, who will probably be dissatisfied
with a failed or flawed final product. Likewise, it recognizes that the final arbiter of project success
is not the firm’s accountants, but rather the marketplace. A project is successful only to the extent
that it benefits the client who commissioned it. Finally, the criterion of client acceptance requires
project managers and teams to create an atmosphere of openness and communication throughout
the development of the project.
Consider one example. In his book, What Customers Really Want, author Scott McKain relates
how a coach bus company that transports music stars (i.e., clients either lease or purchase the com-
pany’s buses) was originally planning to spend a great deal on a project to improve the interior
of its vehicles because they believed that with these upgrades, customers would be willing to pay
more to lease their buses. However, prior to starting a full-blown overhaul of their fleet, execu-
tives decided to ask past customers what they thought about this plan. Surprisingly, the company
found that while its customers did want nice interiors, the single most important factor in selecting
a coach company was the bus driver (i.e., a “nice guy,” someone who could get the music stars to
their destination safely, who would also serve as a good ambassador for the band with fans). Based
on this information, the company dropped their original project and instead initiated a driver
education program to teach their drivers how to communicate more effectively with customers
and how to retain and grow customer goodwill. The company also started compensating drivers
according to how well they served the customer and how well they cultivated long-term relation-
ships with them. Once the company did that, it moved from fourth in the marketplace to first, and
grew from 28 to 56 coaches.26
An additional approach to project assessment argues that another factor must always be
taken into consideration: the promise that the delivered product can generate future opportunities,
whether commercial or technical, for the organization.27 In other words, it is not enough to assess
Success
Client
Acceptance
Budget
Time Performance
Figure 1.6 the New Quadruple constraint
18 Chapter 1 • Introduction
a project according to its immediate success. We must also evaluate it in terms of its commercial
success as well as its potential for generating new business and new opportunities. Figure 1.7
illustrates this scheme, which proposes four relevant dimensions of success:
• Project efficiency: Meeting budget and schedule expectations.
• Impact on customer: Meeting technical specifications, addressing customer needs, and cre-
ating a project that satisfies the client’s needs.
• Business success: Determining whether the project achieved significant commercial success.
• Preparing for the future: Determining whether the project opened new markets or new
product lines or helped to develop new technology.
This approach challenges the conventional triple-constraint principle for assessing project
success. Corporations expect projects not only to be run efficiently (at the least) but also to be
developed to meet customer needs, achieve commercial success, and serve as conduits to new
business opportunities. Even in the case of a purely internal project (e.g., updating the software for
a firm’s order-entry system), project teams need to focus both on customer needs and an assess-
ment of potential commercial or technical opportunities arising from their efforts.
A final model, offered recently, also argues against the triple-constraint model as a measure
of project success. According to Atkinson,29 all groups that are affected by a project (stakeholders)
should have a hand in assessing its success. The context and type of a project may also be relevant in
specifying the criteria that will most clearly define its success or failure. Table 1.2 shows the Atkinson
Importance
Project
Completion
1
Project
Efficiency
2
Impact on the
Customer
3
Business
Success
4
Preparing for
the Future
Time
Figure 1.7 four Dimensions of Project Success importance
Source: A. J. Shenhar, O. Levy, and D. Dvir. (1997). “Mapping the Dimensions of Project Success,” Project
Management Journal, 28(2): 12. Copyright and all rights reserved. Material from this publication has been
reproduced with the permission of PMI.
table 1.2 Understanding Success criteria
iron triangle information System Benefits (organization) Benefits (Stakeholders)
Cost Maintainability Improved efficiency Satisfied users
Quality Reliability Improved effectiveness Social and environmental impact
Time Validity Increased profits Personal development
Information quality Strategic goals Professional learning, contractors’
profits
Use Organization learning Capital suppliers, content
Reduced waste Project team, economic impact to
surrounding community
1.5 Developing Project Management Maturity 19
Box 1.2
Project Management research in Brief
Assessing Information Technology (IT) Project Success
As noted earlier in this chapter, IT projects have a notoriously checkered history when it comes to successful
implementation. Part of the problem has been an inability to define the characteristics of a successful IT proj-
ect in concrete terms. The criteria for IT project success are often quite vague, and without clear guidelines
for project success, it is hardly any wonder that so many of these projects do not live up to predevelopment
expectations. In 1992 and again in 2003, two researchers, W. DeLone and E. McLean, analyzed several previ-
ous studies of IT projects to identify the key indicators of success. Their findings, synthesized from previous
research, suggest that, at the very least, IT projects should be evaluated according to six criteria:
• System quality. The project team supplying the system must be able to assure the client that the
implemented system will perform as intended. All systems should satisfy certain criteria: They should,
for example, be easy to use, and they should supply quality information.
• Information quality. The information generated by the implemented IT must be the information
required by users and be of sufficient quality that it is “actionable”: In other words, generated informa-
tion should not require additional efforts to sift or sort the data. System users can perceive quality in the
information they generate.
• Use. Once installed, the IT system must be used. Obviously, the reason for any IT system is its useful-
ness as a problem-solving, decision-aiding, and networking mechanism. The criterion of “use” assesses
the actual utility of a system by determining the degree to which, once implemented, it is used by the
customer.
• User satisfaction. Once the IT system is complete, the project team must determine user satisfaction.
One of the thorniest issues in assessing IT project success has to do with making an accurate determina-
tion of user satisfaction with the system. Yet, because the user is the client and is ultimately the arbiter
of whether or not the project was effective, it is vital that we attain some measure of the client’s satis-
faction with the system and its output.
• Individual impact. All systems should be easy to use and should supply quality information. But
beyond satisfying these needs, is there a specific criterion for determining the usefulness of a system
to the client who commissioned it? Is decision making faster or more accurate? Is information more
retrievable, more affordable, or more easily assimilated? In short, does the system benefit users in the
ways that are most important to those users?
• Organizational impact. Finally, the supplier of the system must be able to determine whether it has
a positive impact throughout the client organization. Is there, for example, a collective or synergistic
effect on the client corporation? Is there a sense of good feeling, or are there financial or operational
metrics that demonstrate the effectiveness or quality of the system?
DeLone and McLean’s work provides an important framework for establishing a sense of IT project suc-
cess. Companies that are designing and implementing IT systems must pay early attention to each of these
criteria and take necessary steps to ensure that the systems that they deliver satisfy them.28
model, which views the traditional “iron triangle” of cost, quality, and time as merely one set of com-
ponents in a comprehensive set of measures. Of course, the means by which a project is to be mea-
sured should be decided before the project is undertaken. A corporate axiom, “What gets measured,
gets managed,” suggests that when teams understand the standards to which a project is being held,
they will place more appropriate emphases on the various aspects of project performance. Consider,
for example, an information system setting. If the criteria of success are improved operating effi-
ciency and satisfied users, and if quality is clearly identified as a key benefit of the finished product,
the team will focus its efforts more strongly on these particular aspects of the project.
1.5 develoPing Project management maturity
With the tremendous increase in project management practices among global organizations, a
recent phenomenon has been the rise of project maturity models for project management orga-
nizations. Project management maturity models are used to allow organizations to benchmark
the best practices of successful project management firms. Project management maturity models
recognize that different organizations are currently at different levels of sophistication in their best
20 Chapter 1 • Introduction
practices for managing projects. For example, it would be reasonable to expect an organization
such as Boeing (aircraft and defense systems) or Fluor-Daniel (industrial construction) to be much
more advanced in how they manage projects, given their lengthy histories of project initiatives,
than a company that has only recently developed an emphasis on project-based work.
The purpose of benchmarking is to systematically manage the process improvements of proj-
ect delivery by a single organization over a period of time.30 Because there are many diverse dimen-
sions of project management practice, it is common for a new organization just introducing project
management to its operations to ask, “Where do we start?” That is, which of the multiple project
management processes should we investigate, model, and apply to our organization? Maturity mod-
els provide the necessary framework to first, analyze and critically evaluate current practices as they
pertain to managing projects; second, compare those practices against those of chief competitors or
some general industry standard; and third, define a systematic route for improving these practices.
If we accept the fact that the development of better project management practices is an evo-
lutionary process, involving not a sudden leap to top performance but rather a systematic commit-
ment to continuous improvement, maturity models offer the template for defining and then achiev-
ing such progressive improvement.31 As a result, most effective project maturity models chart both
a set of standards that are currently accepted as state-of-the-art as well as a process for achieving
significant movement toward these benchmarks. Figure 1.8 illustrates one approach to defining
current project management practices a firm is using.32 It employs a “spider web” methodology in
which a set of significant project management practices have first been identified for organizations
within a specific industry. In this example, a firm may identify eight components of project man-
agement practice that are key for success, based on an analysis of the firm’s own needs as well as
through benchmarking against competing firms in the industry. Note that each of the rings in the
diagram represents a critical evaluation of the manner in which the organization matches up with
industry standards. Suppose we assigned the following meanings to the different ratings:
ring level Meaning
0 Not defined or poor
1 Defined but substandard
2 Standardized
3 Industry leader or cutting edge
1
2
3
Project Scheduling
Control Practices
Coaching, Auditing, and
Evaluating Projects
Portfolio Management
Structural Support for
Project Management
Personnel Development
for Projects
Networking
Between Projects
Project Stakeholder
Management
0
Figure 1.8 Spider Web Diagram for Measuring Project Maturity
Source: R. Gareis. (2001). “Competencies in the Project-Oriented Organization,” in D. Slevin, D. Cleland, and J. Pinto,
The Frontiers of Project Management Research. Newtown Square, PA: Project Management Institute, pp. 213–24,
figure on p. 216. Copyright and all rights reserved. Material from this publication has been reproduced with the
permission of PMI.
1.5 Developing Project Management Maturity 21
Following this example, we may decide that in terms of project team personnel develop-
ment or project control systems, our practices are poor relative to other competitors and rate
those skills as 0. On the other hand, perhaps our scheduling processes are top-notch, enabling
us to rate them as a 3. Figure 1.9 shows an example of the same spider web diagram with
our relative skill levels assigned across the eight key elements of project management we have
defined. This exercise helps us to form the basis for where we currently are in terms of project
management sophistication, a key stage in any maturity model in which we seek to move to a
higher level.
Once we have established a sense of our present project management abilities, as well as our
shortcomings, the next step in the maturity model process is to begin charting a step-by-step, incre-
mental path to our desired goal. Table 1.3 highlights some of the more common project maturity
models and the interim levels they have identified en route to the highest degree of organization-
wide project expertise. Several of these models were developed by private project management
consultancies or professional project organizations.
It is interesting to compare and contrast the four maturity models highlighted in Table 1.3.
These examples of maturity models are taken from the most well-known models in the field,
including Carnegie Mellon University’s Software Engineering Institute’s (SEI) Capability
Maturity Model, Harold Kerzner ’s Maturity Model, ESI International’s Project Framework,
and the maturity model developed by the Center for Business Practices.33 Illustrating these
dimensions in pyramid form, we can see the progression toward project management maturity
(Figure 1.10). Despite some differences in terminology, a clear sense of pattern exists among
these models. Typically they start with the assumption that project management practices within
a firm are not planned and are not collectively employed; in fact, there is likely no common lan-
guage or methods for undertaking project management. As the firm grows in project maturity,
it begins to adopt common practices, starts programs to train cadres of project management
professionals, establishes procedures and processes for initiating and controlling its projects,
and so forth. Finally, by the last stage, not only is the organization “project-savvy,” but it also
has progressed beyond simply applying project management to its processes and is now actively
exploring ways to continuously improve its project management techniques and procedures.
It is during the final stage that the organization can be truly considered “project mature”; it
has internalized all necessary project management principles and is actively seeking to move
beyond them in innovative ways.
1
2
3
Project Scheduling
Control Practices
Coaching, Auditing, and
Evaluating Projects
Portfolio Management
Structural Support for
Project Management
Personnel Development
for Projects
Networking
Between Projects
Project Stakeholder
Management
0
Figure 1.9 Spider Web Diagram with embedded organizational evaluation
Source: R. Gareis. (2001). “Competencies in the Project-Oriented Organization,” in D. Slevin, D. Cleland, and J. Pinto,
The Frontiers of Project Management Research. Newtown Square, PA: Project Management Institute, pp. 213–24,
figure on p. 216. Copyright and all rights reserved. Material from this publication has been reproduced with the
permission of PMI.
t
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22
1.6 Project Elements and Text Organization 23
Project maturity models have become very useful in recent years precisely because they
reflect the growing interest in project management while highlighting one of the recurring prob-
lems: the lack of clear direction for companies in adopting, adapting, and improving these pro-
cesses for optimal use. The key feature of these models is the important recognition that change
typically does not occur abruptly; that is, companies that desire to become skilled in their project
management approaches simply cannot progress in immediate steps from a lack of project man-
agement understanding to optimal project practices. Instead, the maturity models illustrate that
“maturity” is an ongoing process, based on continuous improvement through identifiable incre-
mental steps. Once we have an accurate picture of where we fit into the maturity process, we can
begin to determine a reasonable course of action to progress to our desired level. In this manner,
any organization, no matter how initially unskilled in project management, can begin to chart a
course toward the type of project organization it hopes to become.
1.6 Project elements and text organization
This text was written to provide a holistic, managerial-based approach to project management. The
text is holistic in that it weaves together the wide variety of duties, responsibilities, and knowledge
that successful project managers must acquire. Project management is a comprehensive and excit-
ing undertaking. It requires us to understand aspects of management science in building sched-
ules, assigning resources, monitoring and controlling our projects, and so forth. At the same time,
successful project managers also must integrate fundamental issues of behavioral science, involv-
ing knowledge of human beings, leadership practices, motivation and team development, conflict
resolution, and negotiation skills. Truly, a “science-heavy” approach to this subject will make us no
more successful in our future project management responsibilities than will a focus that retains an
exclusively “people-based” outlook. Project management is an exciting and challenging blend of
the science and art of management.
Figure 1.11 offers a model for the organization of this text. The figure is a Gantt chart, a proj-
ect scheduling and control device that we will become more familiar with in Chapter 10. For now,
however, we can apply it to the structure of this book by focusing on some of its simpler features.
First, note that all chapters in the book are listed down the left-hand column. Across the bottom
and running from left to right is a simple time line that illustrates the point at which each of the
chapters’ topics will be introduced. For simplicity’s sake, I have divided the X-axis time line into
four distinct project phases that roughly follow the project life cycle discussed earlier in this chap-
ter: (1) Foundation, (2) Planning, (3) Implementation, and (4) Termination. Notice how some of
the topics we will cover are particularly relevant only during certain phases of the project while
Low Maturity
Ad hoc process, no common language, little support
Moderate Maturity
Defined practices, training programs,
organizational support
Institutionalized,
seeks continuous
improvement
High
Maturity
Figure 1.10 Project Management Maturity—A Generic Model
24 Chapter 1 • Introduction
others, such as project leadership, are significant across much of the project’s life cycle. Among
the benefits of setting up the text to follow this sequence are that, first, it shows the importance
of blending the human-based topics (leadership and team building) directly with the more ana-
lytical or scientific elements of project management. We cannot compartmentalize our approach
to project management as either exclusively technical or behavioral; the two are opposite sides of
the same coin and must be appreciated jointly. Second, the structure provides a simple logic for
ordering the chapters and the stage of the project at which we are most likely to concern ourselves
with these topics. Some concepts, as illustrated by the figure, are more immediately concerned
with project planning while others become critical at later phases in the project. Appreciating the
elements of project management and their proper sequencing is an important learning guide. Finally,
the figure offers an intuitively appealing method for visually highlighting the structure and flow
we will follow across the topics in the text.
The foundation stage helps us with our fundamental understanding of what projects are and
how they are typically managed in modern organizations. As part of that understanding, we must
necessarily focus on the organizational setting within which projects are created, selected, and devel-
oped. Some of the critical issues that can affect the manner in which projects are successfully imple-
mented are the contextual issues of a firm’s strategy, structure, and culture. Either these elements are
set up to support project-based work or they are not. In the former case, it is far easier to run projects
and achieve positive results for the organization. As a result, it is extremely helpful for us to clearly
understand the role that organizational setting, or context, plays in project management.
In Chapter 3 we explore the process of project screening and selection. The manner in which
a firm selects the projects it chooses to undertake is often critical to its chances of successful devel-
opment and commercial profitability. Chapter 4 introduces the challenges of project management
from the perspective of the project leader. Project management is an extremely “leader-intensive”
undertaking: The project manager is the focal point of the project, often functioning as a miniature
CEO. The more project managers understand about project leadership and the skills required by
effective project managers, the better companies can begin training project managers within their
own ranks.
The second phase is related to the up-front issues of project planning. Once a decision to
proceed has been made, the organization must first select a suitable project manager to oversee the
development process. Immediately, this project manager is faced with a number of responsibilities,
including:
1. Selecting a team—Team building and conflict management are the first challenges that proj-
ect managers face.
2. Developing project objectives and a plan for execution—Identifying project requirements
and a logical plan to develop the project are crucial.
3. Performing risk management activities—Projects are not developed without a clear sense of
the risks involved in their planning and implementation.
4. Cost estimating and budgeting—Because projects are resource-constrained activities, careful
budgeting and cost estimation are critical.
Foundation Planning Implementation Termination
Figure 1.11 organization of text
1.6 Project Elements and Text Organization 25
5. Scheduling—The heart of project planning revolves around the process of creating clear,
aggressive, yet reasonable schedules that chart the most efficient course to project completion.
6. Managing resources—The final step in project planning is the careful management of project
resources, including project team personnel, to most efficiently perform tasks.
Chapter 5, which discusses project scope management, examines the key features in the over-
all plan. “Project scope management” is something of an umbrella term under which we consider
a number of elements in the overall project planning process. This chapter elaborates the variety of
planning techniques and steps for getting a project off on the right foot.
Chapter 6 addresses some of the behavioral challenges project managers face in terms of
effective team building and conflict management. This chapter looks at another key component
of effective human resource management: the need to create and maintain high-performance
teams. Effectively building and nurturing team members—often people from very different back-
grounds—is a constant challenge and one that requires serious consideration. Conflict occurs on a
number of levels, not just among team members, but between the team and project stakeholders,
including top management and customers. This chapter will identify some of the principal causes
of conflict and explain various methods for resolving it.
Chapter 7 deals with project risk management. In recent years, this area of project manage-
ment has become increasingly important to companies that want to ensure, as far as possible, that
project selection choices are appropriate, that all the risks and downside potential have been con-
sidered, and that, where appropriate, contingency plans have been developed. Chapter 8 covers
budgeting and cost estimation. Because project managers and teams are held to both standards of
performance and standards of cost control, it is important to understand the key features of cost
estimation and budgeting.
Chapters 9 and 10 focus on scheduling methodologies, which are a key feature of project
management. These chapters offer an in-depth analysis of various project-scheduling tools, dis-
cuss critical software for project scheduling, and explain some recent breakthroughs in project
scheduling. Chapter 11 covers some important recent developments in project scheduling, the
agile project planning methodology, and the development and application of critical chain proj-
ect scheduling. Chapter 12 considers the challenges of resource allocation. Once various project
activities have been identified, we must make sure they work by allocating the resources needed
to support them.
The third process in project management, implementation, is most easily understood as the
stage in which the actual “work” of the project is being performed. For example, engineers and
other technical experts determine the series of tasks necessary to complete the overall project,
including their individual task responsibilities, and each of the tasks is actively managed by the
manager and team to ensure that there are no significant delays that can cause the project to exceed
its schedule. Chapter 13 addresses the project challenges of control and evaluation. During the
implementation phase, a considerable amount of ambiguity regarding the status of the project is
possible unless specific, practical steps are taken to establish a clear method for tracking and con-
trolling the project.
Finally, the processes of project termination reflect the fact that a project is a unique organi-
zational endeavor, marked by a specified beginning and ending. The process of closing down a
project, whether due to the need to “kill” it because it is no longer viable or through the steps of
a planned termination, offers its own set of challenges. A number of procedures have been devel-
oped to make this process as smooth and logical as possible. Chapter 14 discusses the elements in
project closeout— the phase in which the project is concluded and resources (both monetary and
human) are reassigned.
This book was written to help create a new generation of effective project managers. By
exploring the various roles of project managers and addressing the challenges and opportunities
they constantly face, we will offer a comprehensive and integrative approach to better understand
the task of project management—one that explores the full range of strategic, technical, and behav-
ioral challenges and duties for project managers.
This text also includes, at the end of relevant chapters, a series of activities designed to help
students develop comprehensive project plans. It is absolutely essential that persons complet-
ing a course in project management carry away with them practical knowledge about the steps
26 Chapter 1 • Introduction
involved in creating a project, planning its development, and overseeing its work. Future manag-
ers need to develop the skills to convert the theories of project management into the successful
practice of the craft. With this goal in mind, the text contains a series of exercises designed to help
professors and students construct overall project plans. Activities involve the development, from
beginning to end, of a project plan, including narrative, risk analysis, work breakdown structure,
activity estimation and network diagramming, resource leveling and project budgeting, and so
forth. In order to add a sense of realism to the process, later chapters in the book also include a
series of hypothetical problems. By the end of the course, students should have created a compre-
hensive project document that details the necessary steps in converting project plans into practi-
cal accomplishments.
As a template for providing examples, the text employs a hypothetical company called
ABCups Inc., which is about to initiate an important project. Chapter-ending activities, including
exercises in scheduling, budgeting, risk management, and so forth, will often include examples
created from the ABCups project for students to use as a model for their own work. In this way,
students will be presented both with a challenge and with an example for generating their own
deliverables as they progressively build their project plans.
Several software packages are available for planning and tracking the current status of a
project. Some of them (e.g., products by SAP and Oracle) are large, quite complex, and capable
of linking project management functions to other critical through-put operations of a company.
Other desktop software packages are more readily accessible and easier to interpret for the aver-
age novice interested in improving his or her project management skills. This text uses examples
throughout from Microsoft’s Project 2013, including screen captures, to illustrate how MSP 2013
can be used for a variety of planning and tracking purposes. Additionally, some simple tutorials
are included in the appendices at the end of the text to give readers a feel for how the software
works and some of the features it offers. As a method for learning the capabilities of the soft-
ware, it’s a start. For those committed to fully learning one of these project management schedul-
ing packages, I encourage you to investigate alternative packages and, once you have made your
choice, invest in a comprehensive training manual.
An additional feature of this text is the linkage between concepts that are discussed through-
out and the Project Management Body of Knowledge (PMBoK), which was developed by the
Project Management Institute (PMI). As the world’s leading professional organization for project
management and with nearly half a million members, PMI has been in the forefront of efforts to
standardize project management practices and codify the necessary skills to be successful in our
field. Now in its fifth edition, the PMBoK identifies ten critical “knowledge areas” of project man-
agement skills and activities that all practitioners need to master in order to become fully trained
in their profession. These knowledge areas, which are shown in Figure 1.12, encompass a broad
overview of the component processes for project management. Although it is not my intention to
create a text to serve as a primer for taking a professional certification exam, it is important for us
to recognize that the skills we develop through reading this work are directly applicable to the
professional project management knowledge areas.
Students will find several direct links to the PMBoK in this text. First, the key terms and their
definitions are intended to follow the updated, fifth edition PMBoK glossary (included as an appen-
dix at the end of the text). Second, chapter introductions will also highlight references to the PMBoK
as we address them in turn. We can see how each chapter not only adds to our knowledge of project
management but also directly links to elements within the PMBoK. Finally, many end-of-chapter
exercises and Internet references will require direct interaction with PMI through its Web site.
As an additional link to the Project Management Institute and the PMBoK, this text will
include sample practice questions at the end of relevant chapters to allow students to test their
in-depth knowledge of aspects of the PMBoK. Nearly 20 years ago, PMI instituted its Project
Management Professional (PMP) certification as a means of awarding those with an expert knowl-
edge of project management practice. The PMP certification is the highest professional designation
for project management expertise in the world and requires in-depth knowledge in all nine areas
of the PMBoK. To date, more than 600,000 project professionals worldwide have attained the PMP
certification and the numbers are steadily growing each year. The inclusion of questions at the end
of the relevant chapters offers students a way to assess how well they have learned the impor-
tant course topics, the nature of PMP certification exam questions, and to point to areas that may
require additional study in order to master this material.
Summary 27
This text offers an opportunity for students to begin mastering a new craft—a set of skills that
is becoming increasingly valued in contemporary corporations around the world. Project manag-
ers represent the new corporate elite: a corps of skilled individuals who routinely make order out
of chaos, improving a firm’s bottom line and burnishing their own value in the process. With these
goals in mind, let us begin.34
12.1 Plan Procurement Management
12.2 Conduct Procurements
12.3 Control Procurements
12.4 Close Procurements
11.1 Plan Risk Management
11.2 Identify Risks
11.3 Perform Qualitative Risk
Analysis
11.4 Perform Quantitative Risk
Analysis
11.5 Plan Risk Responses
11.6 Control Risks
10.1 Plan Communications
Management
10.2 Manage Communications
10.3 Control Communications
8.1 Plan Quality Management
8.2 Perform Quality Assurance
8.3 Control Quality
7.1 Plan Cost Management
7.2 Estimate Costs
7.3 Determine Budget
7.4 Control Costs
6.1 Plan Schedule Management
6.2 Define Activities
6.3 Sequence Activities
6.4 Estimate Activity Resources
6.5 Estimate Activity Durations
6.6 Develop Schedule
6.7 Control Schedule
Project Management
4.1 Develop Project Charter
4.2 Develop Project Management Plan
4.3 Direct & Manage Project Work
4.4 Monitor & Control Project Work
4.5 Perform Integrated Change
Control
4.6 Close Project or Phase
4. Integration Management
5.1 Plan Scope Management
5.2 Collect Requirements
5.3 Define Scope
5.4 Create WBS
5.5 Validate Scope
5.6 Control Scope
5. Scope Management 6. Time Management
9.1 Plan HR Management
9.2 Acquire Project Team
9.3 Develop Project Team
9.4 Manage Project Team
9. Human Resource
Management
12. Procurement Management11. Risk Management
13. Stakeholder Management
8. Quality Management
10. Communications
Management
7. Cost Management
13.1 Identify Stakeholders
13.2 Plan Stakeholder Management
13.3 Manage Stakeholder
Engagement
13.4 Control Stakeholder Engagement
Figure 1.12 overview of the Project Management institute’s PMBoK Knowledge Areas
Source: Project Management Institute. (2013). A Guide to the Project Management Body of Knowledge (PMBoK
Guide), 5th ed. Project Management Institute, Inc. Copyright and all rights reserved. Material from this publication
has been reproduced with the permission of PMI.
Summary
1. Understand why project management is becoming
such a powerful and popular practice in business.
Project management offers organizations a number
of practical competitive advantages, including the
ability to be both effective in the marketplace and
efficient with the use of organizational resources,
and the ability to achieve technological break-
throughs, to streamline new-product development,
and to manage the challenges arising from the busi-
ness environment.
2. recognize the basic properties of projects, includ-
ing their definition. Projects are defined as
temporary endeavors undertaken to create a unique
product or service. Among their key properties are
that projects are complex, one-time processes; proj-
ects are limited by budget, schedule, and resources;
they are developed to resolve a clear goal or set of
goals; and they are customer-focused.
3. Understand why effective project management is
such a challenge. Projects operate outside of nor-
mal organizational processes, typified by the work
done by functional organizational units. Because
they are unique, they require a different mind-
set: one that is temporary and aimed at achieving
28 Chapter 1 • Introduction
a clear goal within a limited time frame. Projects
are ad hoc endeavors with a clear life cycle. They
are employed as the building blocks in the design
and execution of organizational strategies, and they
provide a philosophy and a strategy for the man-
agement of change. Other reasons why they are a
challenge include the fact that project management
requires the crossing of functional and organiza-
tional boundaries while trying to satisfy the mul-
tiple constraints of time, budget, functionality, and
customer satisfaction.
4. differentiate between project management prac-
tices and more traditional, process-oriented busi-
ness functions. Projects involve new process or
product ideas, typically with one objective or a lim-
ited set of objectives. They are one-shot activities
with a defined beginning and end, employing a het-
erogeneous group of organizational members as the
project team. They operate under circumstances of
change and uncertainty, outside of normal organiza-
tional channels, and are intended to upset the status
quo and violate established practice, if need be, in
order to achieve project goals. Process-oriented func-
tions adhere more closely to rigid organizational
rules, channels of communication, and procedures.
The people within the functional departments are
homogenous, engaged in ongoing activities, with
well-established systems and procedures. They rep-
resent bastions of established practice designed to
reinforce the organization’s status quo.
5. recognize the key motivators that are pushing
companies to adopt project management practices.
Among the key motivators in pushing organiza-
tions to adopt project management are (1) shortened
product life cycles, (2) narrow product launch win-
dows, (3) increasingly complex and technical prod-
ucts, (4) the emergence of global markets, and (5) an
economic period marked by low inflation.
6. Understand and explain the project life cycle, its
stages, and the activities that typically occur at
each stage in the project. The project life cycle is
a mechanism that links time to project activities and
refers to the stages in a project’s development. The
common stages used to describe the life cycle for a
project are (1) conceptualization, (2) planning, (3)
execution, and (4) termination. A wide and diverse
set of activities occurs during different life cycle
stages; for example, during the conceptualization
phase, the basic project mission and scope is devel-
oped and the key project stakeholders are signed on
to support the project’s development. During plan-
ning, myriad project plans and schedules are cre-
ated to guide the development process. Execution
requires that the principal work of the project be
performed, and finally, during the termination stage,
the project is completed, the work is finished, and
the project is transferred to the customer.
7. Understand the concept of project “success,”
including various definitions of success, as well
as the alternative models of success. Originally,
project success was predicated simply on a triple-
constraint model that rewarded projects if they
were completed with regard to schedule, budget,
and functionality. This model ignored the emphasis
that needs to be placed on project clients, however.
In more accurate terms, project success involves a
“quadruple constraint,” linking the basic project
metrics of schedule adherence, budget adherence,
project quality (functionality), and customer satis-
faction with the finished product. Other models of
project success for IT projects employ the measures
of (1) system quality, (2) information quality, (3) use,
(4) user satisfaction, (5) individual impact, and (6)
organizational impact.
8. Understand the purpose of project management
maturity models and the process of benchmarking
in organizations. Project management maturity
models are used to allow organizations to bench-
mark the best practices of successful project man-
agement firms. Project maturity models recognize
that different organizations are at different levels
of sophistication in their best practices for manag-
ing projects. The purpose of benchmarking is to
systematically manage the process improvements
of project delivery by a single organization over a
period of time. As a firm commits to implement-
ing project management practices, maturity models
offer a helpful, multistage process for moving for-
ward through increasing levels of sophistication of
project expertise.
9. identify the relevant maturity stages that organiza-
tions go through to become proficient in their use
of project management techniques. Although
there are a number of project maturity models, sev-
eral of the most common share some core features.
For example, most take as their starting point the
assumption that unsophisticated organizations initi-
ate projects in an ad hoc fashion, with little overall
shared knowledge or procedures. As the firm moves
through intermediate steps, it will begin to initiate
processes and project management procedures that
diffuse a core set of project management techniques
and cultural attitudes throughout the organization.
Finally, the last stage in maturity models typically
recognizes that by this point the firm has moved
beyond simply learning the techniques of project
management and is working at continuous improve-
ment processes to further refine, improve, and
solidify project management philosophies among
employees and departments.
Case Study 1.1 29
Key Terms
Benchmarking (p. 20)
Client acceptance (p. 16)
Clients (p. 14)
Budget (p. 16)
Deliverables (p. 5)
Performance (p. 16)
Process (p. 5)
Project (p. 5)
Project life cycle (p. 13)
Project management (p. 8)
Project management
maturity models (p. 19)
Project success (p. 16)
Stakeholders (p. 13)
Time (p. 16)
Triple constraint (p. 16)
Discussion Questions
1.1 What are some of the principal reasons why project manage-
ment has become such a popular business tool in recent years?
1.2 What do you see as being the primary challenges to
introducing a project management philosophy in most
organizations? That is, why is it difficult to shift to a
project- based approach in many companies?
1.3 What are the advantages and disadvantages of using proj-
ect management?
1.4 What key characteristics do all projects possess?
1.5 Describe the basic elements of a project life cycle. Why is
an understanding of the life cycle relevant for our under-
standing of projects?
1.6 Think of a successful project and an unsuccessful project
with which you are familiar. What distinguishes the two,
both in terms of the process used to develop them and
their outcomes?
1.7. Consider the Expedition Everest case at the end of
the chapter: What elements in Disney’s approach to
developing its theme rides do you find particularly im-
pressive? How can a firm like Disney balance the need for
efficiency and smooth development of projects with the
desire to be innovative and creative? Based on this case,
what principles appear to guide its development process?
1.8 Consider the six criteria for successful IT projects. Why is
IT project success often so difficult to assess? Make a case
for some factors being more important than others.
1.9 As organizations seek to become better at managing
projects, they often engage in benchmarking with other
companies in similar industries. Discuss the concept of
benchmarking. What are its goals? How does bench-
marking work?
1.10 Explain the concept of a project management maturity
model. What purpose does it serve?
1.11 Compare and contrast the four project management
maturity models shown in Table 1.3. What strengths and
weaknesses do you perceive in each of the models?
CaSe STuDy 1.1
MegaTech, Inc.
MegaTech, Inc., designs and manufactures automo-
tive components. For years, the company enjoyed a
stable marketplace, a small but loyal group of custom-
ers, and a relatively predictable environment. Though
slowly, annual sales continued to grow until recently
hitting $300 million. MegaTech products were popular
because they required little major updating or yearly
redesign. The stability of its market, coupled with the
consistency of its product, allowed MegaTech to fore-
cast annual demand accurately, to rely on production
runs with long lead times, and to concentrate on inter-
nal efficiency.
Then, with the advent of the North American Free
Trade Agreement (NAFTA) and other international
trade agreements, MegaTech found itself competing
with auto parts suppliers headquartered in countries
around the world. The company was thrust into an
unfamiliar position: It had to become customer-focused
and quicker to market with innovative products. Facing
these tremendous commercial challenges, top manage-
ment at MegaTech decided to recreate the company as a
project-based organization.
The transition, though not smooth, has nonethe-
less paid big dividends. Top managers determined, for
instance, that product updates had to be much more
frequent. Achieving this goal meant yearly redesigns
and new technologies, which, in turn, meant making
innovative changes in the firm’s operations. In order
to make these adjustments, special project teams
were formed around each of the company’s prod-
uct lines and given a mandate to maintain market
competitiveness.
At the same time, however, MegaTech wanted
to maintain its internal operating efficiencies. Thus
(continued)
30 Chapter 1 • Introduction
all project teams were given strict cost and schedule
guidelines for new product introductions. Finally, the
company created a sophisticated research and devel-
opment team, which is responsible for locating likely
new avenues for technological change 5 to 10 years
down the road. Today, MegaTech operates project
teams not only for managing current product lines but
also for seeking longer-term payoffs through applied
research.
MegaTech has found the move to project man-
agement challenging. For one thing, employees are
still rethinking the ways in which they allocate their
time and resources. In addition, the firm’s success
rate with new projects is still less than management
had hoped. Nevertheless, top managers feel that, on
balance, the shift to project management has given
the company the operating advantage that it needed
to maintain its lead over rivals in its globally com-
petitive industry. “Project management,” admits one
MegaTech executive, “is certainly not a magic pill for
success, but it has started us thinking about how we
operate. As a result, we are doing smarter things in a
faster way around here.”
Questions
1. What is it about project management that of-
fers MegaTech a competitive advantage in its
industry?
2. What elements of the marketplace in which
MegaTech operates led the firm to believe that proj-
ect management would improve its operations?
CaSe STuDy 1.2
The IT Department at Hamelin Hospital
Hamelin Hospital is a large (700-bed) regional hospi-
tal in the northeastern United States. The information
technology (IT) department employs 75 people and
has an operating budget of over $35 million. The de-
partment is responsible for managing 30–40 projects,
ranging from small (redesigning computer screens) to
very large, such as multimillion-dollar system develop-
ment projects that can run for over a year. Hamelin’s
IT department has been growing steadily, reflecting
the hospital’s commitment to expanding its informa-
tion storage and processing capacities. The two princi-
pal functions of the IT department are developing new
software applications and maintaining the current in-
formation system. Project management is a way of life
for the department.
The IT department jobs fall into one of five cat-
egories: (1) help-desk technician, (2) programmer, (3)
senior programmer, (4) systems analyst, and (5) proj-
ect manager. Help-desk technicians field queries from
computer system users and solve a wide range of
problems. Most new hires start at the help desk, where
they can become familiar with the system, learn about
problem areas, become sensitive to users’ frustrations
and concerns, and understand how the IT department
affects all hospital operations. As individuals move up
the ladder, they join project teams, either as program-
mers or systems analysts. Finally, five project manag-
ers oversee a constantly updated slate of projects. In
addition, the workload is always being supplemented
by new projects. Team personnel finish one assignment
and then move on to a new one. The typical IT depart-
ment employee is involved in seven projects, each at a
different stage of completion.
The project management system in place at
Hamelin is well regarded. It has spearheaded a tre-
mendous expansion of the hospital’s IT capabilities
and thus helped the hospital to gain a competitive
advantage over other regional hospitals. Recently, in
fact, Hamelin began “farming out” its IT services on
a fee-for-service basis to competing hospitals needing
help with their records, administration, order-entry
systems, and so forth. Not surprisingly, the results have
improved the hospital’s bottom line: At a time when
more and more health care organizations are feeling
the effects of spiraling health care costs, Hamelin’s IT
department has helped the hospital sustain continuous
budget increases, additional staffing, a larger slate of
projects, and a track record of success.
Questions
1. What are the benefits and drawbacks of starting
most new hires at the help-desk function?
2. What are the potential problems with requiring
project team members to be involved in multiple
projects at the same time? What are the potential
advantages?
3. What signals does the department send by mak-
ing “project manager” the highest position in the
department?
Case Study 1.3 31
CaSe STuDy 1.3
Disney’s Expedition Everest
One of the newest thrill rides to open in the Walt Disney
World Resort may just be the most impressive. As Disney
approached its 50th anniversary, the company wanted
to celebrate in a truly special way. What was its idea?
Create a park attraction that would, in many ways, serve
as the link between Disney’s amazing past and its prom-
ising future. Disney showed that it was ready to pull out
all stops in order to get everything just right.
In 2006, The Walt Disney Company introduced
Expedition Everest in Disney’s Animal Kingdom Park
at Lake Buena Vista, Florida. Expedition Everest is more
than just a roller coaster. It is the embodiment of the
Disney spirit: a ride that combines Disney’s trademark
thrills, unexpected twists and turns, incredible attention
to detail, and impressive project management skills.
First, let’s consider some of the technical details of
Expedition Everest:
• With a peak of just under 200 feet, the ride is con-
tained within the tallest of 18 mountains created by
Disney’s Imagineers at Disney parks worldwide.
• The ride contains nearly a mile of track, with
twists, tight turns, and sudden drops.
• The Disney team created a Yeti: an enormous,
fur-covered, Audio-Animatronics monster pow-
ered by a set of hydraulic cylinders whose com-
bined thrust equals that of a Boeing 747 airliner.
Through a series of sketches, computer-animated
drawings, sculptures, and tests that took more
than two years to perfect, Disney created and pro-
grammed its Abominable Snowman to stand over
10 feet tall and serve as the focal point of the ride.
• More than 900 bamboo plants, 10 species of trees,
and 110 species of shrubs were planted to re-create
the feeling of the Himalayan lowlands surrounding
Mount Everest.
• More than 1,800 tons of steel were used to construct
the mountain. The covering of the framework was
done using more than 3,000 prefabricated “chips”
created from 25,000 individual computer-molded
pieces of steel.
• To create the proper color schemes, 2,000 gallons
of stain and paint were used on rockwork and
throughout the village Disney designed to serve
as a backdrop for the ride.
• More than 2,000 handcrafted items from Asia
are used as props, cabinetry, and architectural
ornamentation.
Building an attraction does not come easily or
quickly for Disney’s Imagineers. Expedition Everest
was several years in development as Disney sent
teams, including Walt Disney Imagineering’s Creative
Executive Joe Rohde, on repeated trips to the Himalayas
in Nepal to study the lands, architecture, colors, ecol-
ogy, and culture in order to create the most authentic
setting for the new attraction. Disney’s efforts reflect a
desire to do much more than provide a world-class ride
experience; they demonstrate the Imagineers’ eagerness
to tell a story—a story that combines the mythology of
the Yeti figure with the unique history of the Nepalese
living in the shadow of the world’s tallest mountain.
Ultimately, the attraction, with all its background and
thematic elements, took nearly five years to complete.
Riders on Expedition Everest gain a real feel for
the atmosphere that Disney has worked so hard to cre-
ate. The guests’ adventure starts by entering the build-
ing of the “Himalayan Escape” tour company, complete
with Norbu and Bob’s booking office to obtain permits
for their trip. Overhead flutter authentic prayer flags
from monasteries in Nepal. Next, guests pass through
Tashi’s General Store and Bar to stock up on supplies
for their journey to the peak of the mountain. Finally,
guests pass through an old tea warehouse that contains
a remarkable museum of artifacts reflecting Nepal’s
culture, a history of the Himalayas, and tales of the Yeti,
which is said to inhabit the slopes of Mount Everest.
It is only now that guests are permitted to board the
Anandapur Rail Service for their trip to the peak. Each
train is modeled after an aging, steam-engine train,
seating 34 guests per train.
Over the next several minutes, guests are trans-
ported up the roller coaster track, through a series of
winding turns, until their encounter with the Yeti. At this
point another unique feature of the attraction emerges:
The train begins rushing backward down the track, as
though it were out of control. Through the balance of the
ride, guests experience a landscape of sights and sounds
culminating in a 50 mph final dash down the mountain
and back to the safety of the Nepalese village.
Disney’s approach to the management of projects
such as Expedition Everest is to combine careful plan-
ning, including schedule and budget preparation, with
the imagination and vision for which the company is
so well known. Creativity is a critical element in the
development of new projects at Disney. The company’s
Imagineers include some of the most skilled artists and
computer-animation experts in the world. Although it
is easy to be impressed by the technical knowledge of
Disney’s personnel, it is important to remember that
each new project is approached with an understanding
(continued)
32 Chapter 1 • Introduction
of the company’s underlying business and attention
to market projections, cost control, and careful project
management discipline. New attraction proposals are
carefully screened and researched. The result is the
creation of some of the most innovative and enjoyable
rides in the world. Disney does not add new attractions
to its theme parks frequently, but when it does so, it
does so with style!
Questions
1. Suppose you were a project manager for Disney.
Based on the information in this case, what
critical success metrics do you think the com-
pany uses when designing a new ride; that
is, how would you prioritize the needs for
addressing project cost, schedule, quality, and
client acceptance? What evidence supports your
answer?
2. Why is Disney’s attention to detail in its rides
unique? How does the company use the “atmo-
sphere” discussed in the case to maximize the
experience while minimizing complaints about
length of wait for the ride?
CaSe STuDy 1.4
Rescue of Chilean Miners
On October 13, 2010, Foreman Luiz Urzua stepped out of
the rescue capsule to thunderous applause and cries of
“Viva, Chile!”; he was the last of 33 miners rescued after
spending 70 days trapped beneath 2,000 feet of earth and
rock. Following a catastrophic collapse, the miners were
trapped in the lower shafts of the mine, initially without
contact with the surface, leaving the world in suspense
as to their fate. Their discovery and ultimate rescue are a
story of courage, resourcefulness, and ultimately, one of
the most successful projects in recent times.
The work crew of the San Jose copper and gold
mine near Copiapo, in northern Chile, were in the middle
of their shift when suddenly, on August 5, 2010, the earth
shook and large portions of the mine tunnels collapsed,
trapping 33 miners in a “workshop” in a lower gallery of
the mine. Though they were temporarily safe, they were
nearly a half mile below the surface, with no power and
food for two days. Worse, they had no means of com-
municating with the surface, so their fate remained a
mystery to the company and their families. Under these
conditions, their main goal was simple survival, con-
serving and stretching out meager food supplies for
17 days, until the first drilling probe arrived, punching a
hole in the ceiling of the shaft where they were trapped.
Once they had established contact with the surface and
provided details of their condition, a massive rescue
operation was conceived and undertaken.
The first challenge was simply keeping the min-
ers alive. The earliest supply deliveries down the nar-
row communication shaft included quantities of food
and water, oxygen, medicine, clothing, and necessities
for survival as well as materials to help the miners pass
their time. While groups worked to keep up the miners’
spirits, communicating daily and passing along mes-
sages from families, other project teams were formed to
begin developing a plan to rescue the men.
The challenges were severe. Among the signifi-
cant questions that demanded practical and immediate
answers were:
1. How do we locate the miners?
2. How quickly can we drill relief shafts to their
location?
3. How do we bring them up safely?
The mine tunnels had experienced such dam-
age in the collapse that simply digging the miners out
would have taken several months. A full-scale res-
cue operation was conceived to extract the miners as
quickly as possible. The U.S.-Chilean company Geotec
Boyles Brothers, a subsidiary of Layne Christensen
Company, assembled the critical resources from
around the world. In western Pennsylvania, two com-
panies that were experienced in mine collapses in the
South American region were brought into the project.
They had UPS ship a specialty drill, capable of creating
wide-diameter shafts, large enough to fit men without
collapsing. The drill arrived within 48 hours, free of
charge. In all, UPS shipped more than 50,000 pounds of
specialty equipment to the drilling and rescue site. The
design of the rescue pod was the work of a NASA engi-
neer, Clinton Cragg, who drew on his experience as a
former submarine captain in the Navy and directed a
team of 20 to conceive of and develop a means to carry
the miners one at a time to the surface.
Doctors from NASA and U.S. submarine experts
arrived at the mine site in mid-August, to assess the
psychological state of the miners. Using their expertise
in the physical and mental pressures of dealing with
extended isolation, they worked with local officials to
develop an exercise regimen and a set of chores for the
workers in order to give them a sense of structure and
responsibilities. The miners knew that help was being
Internet Exercises 33
assembled, but they had no notion of the technical chal-
lenges of making each element in the rescue succeed.
Nevertheless, with contact firmly established with the
surface through the original contact drill shaft, the min-
ers now began receiving news, updates from the surface,
and a variety of gifts to ease the tedium of waiting.
The United States also provided an expert driller,
Jeff Hart, who was called from Afghanistan, where he
was helping American forces find water at forward
operating bases, to man the specialty drilling machine.
The 40-year-old drilled for 33 straight days, through
tough conditions, to reach the men trapped at the mine
floor. A total of three drilling rigs were erected and
began drilling relief shafts from different directions.
By September 17, Hart’s drill (referred to as “Plan B”)
reached the miners, though the diameter of the shaft
was only 5 inches. It would take a few weeks to ream
the shaft with progressively wider drill bits to the final
25-inch diameter necessary to support the rescue cap-
sules being constructed. Nevertheless, the rescue team
was exuberant over the speed with which the shaft
reached the trapped miners. Because of the special skills
of the mining professionals, it is estimated that they cut
more than two months off the time that experts expected
this phase of the operation to take.
The first rescue capsule, named Phoenix, arrived
at the site on September 23, with two more under con-
struction and due to be shipped in two weeks. The
Phoenix capsule resembled a specially designed cylin-
drical tube. It was 13 feet long and weighed 924 pounds
with an interior width of 22 inches. It was equipped
with oxygen and a harness to keep occupants upright,
communication equipment, and retractable wheels.
The idea was for the capsule to be narrow enough to be
lowered into the rescue shaft but wide enough for one
person at a time to be fitted inside and brought back to
the surface. To ensure that all 33 miners would fit into
the Phoenix, they were put on special liquid diets and
given an exercise regimen to follow while waiting for
the final preparations to be made.
Finally, after extensive tests, the surface team
decided that the shaft was safe enough to support the
rescue efforts and lowered the first Phoenix capsule
into the hole. In two successive trips, the capsule car-
ried down a paramedic and rescue expert who vol-
unteered to descend into the mine to coordinate the
removal of the miners. The first rescued miner broke
the surface just after midnight on October 13 follow-
ing a 15-minute ride in the capsule. A little more than
22 hours later, the shift manager, Urzua, was brought
out of the mine, ending a tense and stressful rescue
project.
The rescue operation of the Chilean miners was
one of the most successful emergency projects in recent
memory. It highlighted the ability of people to work
together, marshal resources, gather support, and use
innovative technologies in a humanitarian effort that
truly captured the imagination of the world. The chal-
lenges that had to be overcome were significant: first,
the technical problems associated with simply finding
and making contact with survivors; second, devising
a means to recover the men safely; third, undertaking
special steps to ensure the miners’ mental and physi-
cal health remained strong; and finally, requiring all
parties to develop and rely on radical technologies that
had never been used before. In all these challenges,
the rescue team performed wonders, recovering and
restoring to their families all 33 trapped miners. On
November 7, just one month after the rescue, one of the
miners, Edison Pena, realized his own personal dream:
running in and completing the New York City mara-
thon. Quite an achievement for a man who had just
spent more than two months buried a half mile below
the surface of the earth!35
Questions
1. What does the story of the Chilean miners res-
cue suggest to you about the variety of ways that
project management can be used in the modern
world?
2. Successful project management requires clear
organization, careful planning, and good execu-
tion. How were each of these traits shown in this
rescue example?
Internet exercises
1.1 The largest professional project management organiza-
tion in the world is the Project Management Institute
(PMI). Go to its Web site, www.pmi.org, and examine
the links you find. Which links suggest that project man-
agement has become a sophisticated and vital element
in corporate success? Select at least three of the related
links and report briefly on the content of these links.
1.2 Go to the PMI Web site and examine the link “Membership.”
What do you discover when you begin navigating among
the various chapters and cooperative organizations
associated with PMI? How does this information cause you
to rethink project management as a career option?
1.3 Go to www.pmi.org/Business-Solutions/OPM3-Case-Study-
Library.aspx and examine some of the cases included on the
Web page. What do they suggest about the challenges of
managing projects successfully? The complexity of many of
today’s projects? The exciting breakthroughs or opportunities
that projects allow us to exploit?
1.4 Using your favorite search engine (Google, Yahoo!, etc.),
type in the keywords “project” and “project management.”
34 Chapter 1 • Introduction
Notes
Randomly select three of the links that come up on the
screen. Summarize what you find.
1.5 Go to the Web site for the Software Engineering Institute of
Carnegie Mellon University at https://resources.sei.cmu.
edu/asset_files/SpecialReport/1994_003_001_16265 and
access the software process maturity questionnaire. What are
some of the questions that IT companies need to consider
when assessing their level of project management maturity?
PMP certificAtion sAMPle QUestions
1. The majority of the project budget is expended upon:
a. Project plan development.
b. Project plan execution.
c. Project termination.
d. Project communication.
2. Which of the following is the most critical component
of the triple constraint?
a. Time, then cost, then quality.
b. Quality, then budget, then time.
c. Scope.
d. They are all of equal importance unless otherwise
stated.
3. Which of the following best describes a project
stakeholder?
a. A team member.
b. The project manager.
c. Someone who works in an area affected by the
project.
d. All of the above are stakeholders.
4. All of the following are elements in the definition of a
project, except:
a. A project is time-limited.
b. A project is unique.
c. A project is composed of unrelated activities.
d. A project is undertaken for a purpose.
5. All of the following distinguish project management
from other process activities, except:
a. There are no fundamental differences between
project and process management.
b. Project management often involves greater cer-
tainty of performance, cost, and schedule.
c. Process management operates outside of line
organizations.
d. None of the above correctly distinguish project
from process management.
Answers: 1. b—The majority of a project budget is spent
during the execution phase; 2. d—Unless otherwise stated,
all elements in the triple-constraint model are equally
critical; 3. d—All of the examples listed are types of project
stakeholders; 4. c—A project is composed of “interrelated”
activities; 5. d—None of the answers given correctly
differentiates “process” from “project” management.
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tions,” PMNetwork, 12(2): 49–53.
31. Reginato, P. E., and Ibbs, C. W. (2002). “Project manage-
ment as a core competency,” Proceedings of PMI Research
Conference 2002, Slevin, D., Pinto, J., and Cleland, D. (Eds.),
The Frontiers of Project Management Research. Newtown
Square, PA: Project Management Institute, pp. 445–50.
32. Crawford, K. (2002). Project Management Maturity Model:
Providing a Proven Path to Project Management Excellence.
New York: Marcel Dekker; Foti, R. (2002). “Implementing
maturity models,” PMNetwork, 16(9): 39–43; Gareis, R.
(2001). “Competencies in the project-oriented organiza-
tion,” in Slevin, D., Cleland, D., and Pinto, J. (Eds.), The
Frontiers of Project Management Research. Newtown Square,
PA: Project Management Institute, pp. 213–24; Gareis, R.,
and Huemann, M. (2000). “Project management compe-
tencies in the project-oriented organization,” in Turner, J.
R., and Simister, S. J. (Eds.), The Gower Handbook of Project
Management, 3rd ed. Aldershot, UK: Gower, pp. 709–22;
Ibbs, C. W., and Kwak, Y. H. (2000). “Assessing project man-
agement maturity,” Project Management Journal, 31(1): 32–43.
33. Humphrey, W. S. (1988). “Characterizing the software pro-
cess: A maturity framework,” IEEE Software, 5(3): 73–79;
Carnegie Mellon University. (1995). The Capability Maturity
Model: Guidelines for Improving the Software Process. Boston,
MA: Addison-Wesley; Kerzner, H. (2001). Strategic Planning for
Project Management Using a Project Management Maturity Model.
New York: Wiley; Crawford, J. K. (2002). Project Management
Maturity Model. New York: Marcel Dekker; Pritchard, C.
(1999). How to Build a Work Breakdown Structure: The Cornerstone
of Project Management. Arlington, VA: ESI International.
34. Jenkins, Robert N. (2005). “A new peak for Disney,” St.
Petersburg Times Online, www.sptimes.com/2005/12/11/
news_pf/travel/A_new_peak_for_Disney.
35. www.cnn.com/2010/WORLD/americas/10/15/chile.
mine.rescue.recap/index.html; www.cnn.com/2010/
OPINION/10/12/gergen.miners/index.html; www.
t h e n e w a m e r i c a n . c o m / i n d e x . p h p / o p i n i o n / s a m –
blumenfeld/5140-how-americans-engineered-the-rescue-
of-the-chilean-miners
36
2
■ ■ ■
The Organizational Context
Strategy, Structure, and Culture
Chapter Outline
Project Profile
Tesla’s $5 Billion Gamble
introduction
2.1 Projects and organizational
strategy
2.2 stakeholder ManageMent
Identifying Project Stakeholders
Managing Stakeholders
2.3 organizational structure
2.4 forMs of organizational
structure
Functional Organizations
Project Organizations
Matrix Organizations
Moving to Heavyweight Project
Organizations
Project ManageMent research
in Brief
The Impact of Organizational Structure on
Project Performance
2.5 Project ManageMent offices
2.6 organizational culture
How Do Cultures Form?
Organizational Culture and Project
Management
Project Profile
Electronic Arts and the Power of Strong
Culture in Design Teams
Summary
Key Terms
Discussion Questions
Case Study 2.1 Rolls-Royce Corporation
Case Study 2.2 Classic Case: Paradise Lost—The
Xerox Alto
Case Study 2.3 Project Task Estimation and the
Culture of “Gotcha!”
Case Study 2.4 Widgets ‘R Us
Internet Exercises
PMP Certification Sample Questions
Integrated Project—Building Your
Project Plan
Notes
Chapter Objectives
After completing this chapter, you should be able to:
1. Understand how effective project management contributes to achieving strategic objectives.
2. Recognize three components of the corporate strategy model: formulation, implementation,
and evaluation.
3. See the importance of identifying critical project stakeholders and managing them within the
context of project development.
4. Recognize the strengths and weaknesses of three basic forms of organizational structure and
their implications for managing projects.
5. Understand how companies can change their structure into a “heavyweight project
organization” structure to facilitate effective project management practices.
6. Identify the characteristics of three forms of project management office (PMO).
7. Understand key concepts of corporate culture and how cultures are formed.
8. Recognize the positive effects of a supportive organizational culture on project management
practices versus those of a culture that works against project management.
Project MAnAgeMent Body of Knowledge core
concePts covered in this chAPter
1. Project Procurement Management (PMBoK sec. 12)
2. Identify Stakeholders (PMBoK sec. 13.1)
3. Plan Stakeholder Management (PMBoK 13.2)
4. Manage Stakeholder Engagement (PMBoK 13.3)
5. Organizational Influences on Project Management (PMBoK sec. 2.1)
6. Organizational Structures (PMBoK sec. 2.1.3)
7. Organizational Cultures and Styles (PMBoK sec. 2.1.1)
8. Enterprise Environmental Factors (PMBoK sec. 2.1.5)
Project Profile
case—tesla’s $5 Billion Gamble
Tesla Motors, developer of the iconic Model S “electric sports car,” recently unveiled plans to create a “gigafactory”
in order to produce batteries to power its automobiles. The concept was introduced by Tesla’s owner, Elon Musk, who
called the proposed battery plant the world’s largest, and would lead to hiring 6,500 new workers and creating thou-
sands of ancillary jobs in the process. Musk’s plan is to develop a factory that will cover 10 million square feet of space
with a manufacturing capacity to produce 35 gigawatt hours of batteries per year. To put this in perspective, Tesla’s
closest competitor in producing car batteries would be Nissan’s battery factory in Tennessee, which employs only 300
workers and can turn out 4.8 gigawatt hours of batteries. In setting their sights on building the world’s largest battery
factory, Tesla (and Elon Musk) are gambling that demand for electric cars is rapidly growing. Musk’s plan is for the plant
to start producing batteries by 2017, which puts pressure on the company to break ground by the end of 2014.
Tesla’s first car, the Tesla Model S, is a fully-electric powered sports car that has generated huge publicity for its
performance, styling, and quality. Consumer Reports gave the car a “99” rating; its highest score ever. Selling for over
$80,000 per car, however, has limited the market for the Tesla Model S to the very affluent. As a result, Tesla has already
announced plans for a mid-priced car, the Gen III, which is expected to have a starting price of around $35,000. Tesla’s
challenge lies in reducing the cost of its batteries. For example, the 85 kilowatt-hour battery pack for the Model S can
cost over $25,000. Clearly, for a mid-priced car to be a possibility, Tesla has to find a way to lower battery costs, with an
initial target of a 30% reduction.
With the promise of such a massive factory, including the thousands of jobs the project would bring, it is no sur-
prise that a number of western states are actively competing to be the host site for the structure. Officials in Arizona,
Nevada, New Mexico, and Texas have all promised tax breaks, the opportunity for Tesla to open their own retail stores
statewide, and a list of other incentives for them to agree to build in their state.
Not everyone has greeted Tesla’s plan with enthusiasm, however. For example, Volkswagen CEO Martin
Winterkorn recently observed that the current supply of car batteries was more than enough, given the slow accep-
tance rate with which electric cars are entering the American marketplace. Sales of electric vehicles remain small—less
than 1% of the total U.S. market. The U.S. government spent more than $1 billion on new electric-vehicle battery
plants as part of the Obama administration’s economic stimulus, but many of those plants now run at just 15% to 20%
of capacity. Numerous CEOs of car companies, battery makers, and others with a stake in the automotive industry share
concerns about the advisability of devoting such huge capital investment in one factory for a market that is, at best,
slowly developing.
Tesla, with sales of just over 22,400 cars last year, is already the largest buyer of lithium-ion battery cells in the
world. Its plans to sell 500,000 vehicles means that its own demand would be greater than the demand for every laptop,
mobile phone, and tablet sold in the world. To help meet this demand, as well as offset some of the cost of the huge
factory project, Elon Musk has been negotiating with some skeptical potential partners, including Panasonic’s automo-
tive and industrial systems subsidiary, to invest in the new Gigafactory and run battery-cell production. Tesla executives
(continued)
Project Profile 37
38 Chapter 2 • The Organizational Context
argue that they need a plant to guarantee future supplies of the millions of battery cells they need at the reduced costs
that come from economies of scale and logistics savings.
The risks in taking on this huge project are not solely technical or demand-based. Given Tesla’s tight timetable for
completion of the factory, there is concern that it may not be possible to complete a structure within the window Mr.
Musk envisions. While it may be doable, there is no doubt that the vision to imagine, design, and build a Gigafactory
makes this a unique opportunity, coupled with significant risks.1
IntroductIon
For successful project management, the organizational setting matters—its culture, its structure,
and its strategy each play an integral part, and together they create the environment in which
a project will flourish or founder. For example, a project’s connection to your organization’s
overall strategy, the care with which you staff the team, and the goals you set for the proj-
ect can be critical. Similarly, your organization’s policies, structure, culture, and operating
systems can work to support and promote project management or work against the ability to
effectively run projects. Contextual issues provide the backdrop around which project activi-
ties must operate, so understanding what is beneath these issues truly contributes to under-
standing how to manage projects. Issues that affect a project can vary widely from company
to company.
Before beginning a project, the project manager and team must be certain about the struc-
ture of the organization as it pertains to their project and the tasks they seek to accomplish.
As clearly as possible, all reporting relationships must be specified, the rules and procedures
that will govern the project must be established, and any issues of staffing the project team
must be identified. General Electric’s efforts to acquire French conglomerate Alstom for $17
billion has been an enormously complicated undertaking, involving the combined efforts of
multiple business units, financial analysis, and constant interaction with Alstom’s principle
stakeholders, especially the French government. As part of their strategy, GE must identify the
business groups that can be blended in with their own organization, units that are redundant
to GE operations, and a logical organizational structure to best link the combined organization
FIgure 2.1 the tesla Model S “Skateboard” design with the flat battery pack located in the
base of the car
Source: Car Culture/Corbis
2.1 Projects and Organizational Strategy 39
together in as efficient a manner as possible. Integrating Alstom’s nearly 85,000 employees and
global business units with their own operations makes GE’s efforts a showcase in the project
management of a strategic acquisition.
For many organizations, projects and project management practices are not the operating
norm. In fact, as Chapter 1 discussed, projects typically exist outside of the formal, process-
oriented activities associated with many organizations. As a result, many companies are sim-
ply not structured to allow for the successful completion of projects in conjunction with other
ongoing corporate activities. The key challenge is discovering how project management may
best be employed, regardless of the structure the company has adopted. What are the strengths
and weaknesses of various structural forms and what are their implications for our ability
to manage projects? This chapter will examine the concept of organizational culture and its
roots and implications for effective project management. By looking closely at three of the
most important contextual issues for project management—strategy, organizational structure,
and culture—you will see how the variety of structural options can affect, either positively or
negatively, the firm’s ability to manage projects.
2.1 Projects and organIzatIonal strategy
strategic management is the science of formulating, implementing, and evaluating cross-functional
decisions that enable an organization to achieve its objectives.2 In this section we will consider the
relevant components of this definition as they apply to project management. Strategic management
consists of the following elements:
1. Developing vision statements and mission statements. Vision and mission statements
establish a sense of what the organization hopes to accomplish or what top managers
hope it will become at some point in the future. Vision statements describe the organi-
zation in terms of where it would like to be in the future. Effective vision statements
are both inspirational and aspirational. A corporate vision serves as a focal point for
members of the organization who may find themselves pulled in different directions
by competing demands. In the face of multiple expectations and even contradictory
efforts, an ultimate vision can serve as a “tie breaker,” which is highly beneficial in
establishing priorities. A sense of vision is also an extremely important source of moti-
vation and purpose. As the Book of Proverbs points out: “Where there is no vision, the
people perish” (Prov. 29:18).3 Mission statements explain the company’s reason for exis-
tence and support the vision. Many firms apply their vision and mission statements to
evaluating new project opportunities as a first screening device. For example, Bechtel
Corporation, a large construction organization, employs as its vision the goal of being
“the world’s premier engineering, construction, and project management company.”4
For Bechtel, this means (1) Customers and partners will see Bechtel as integral to their
success; (2) People will be proud to work at Bechtel; and (3) Communities will regard
Bechtel as “ responsible—and responsive.” Projects they undertake must support this
vision and those that do not are not pursued.
2. Formulating, implementing, and evaluating. Projects, as the key ingredients in strategy
implementation, play a crucial role in the basic process model of strategic management.
A firm devotes significant time and resources to evaluating its business opportunities
through developing a corporate vision or mission, assessing internal strengths and weak-
nesses as well as external opportunities and threats, establishing long-range objectives,
and generating and selecting among various strategic alternatives. All these components
relate to the formulation stage of strategy. Within this context, projects serve as the vehicles
that enable companies to seize opportunities, capitalize on their strengths, and implement
overall corporate objectives. New product development, for example, fits neatly into
this framework. New products are developed and commercially introduced as a compa-
ny’s response to business opportunities. Effective project management enables firms to
efficiently and rapidly respond.
3. Making cross-functional decisions. Business strategy is a corporate-wide venture,
requiring the commitment and shared resources of all functional areas to meet overall
40 Chapter 2 • The Organizational Context
table 2.1 Projects reflect Strategy
Strategy Project
Technical or operating initiatives (such as new distribution
strategies or decentralized plant operations)
Construction of new plants or
modernization of facilities
Development of products for greater market penetration and
acceptance
New product development projects
New business processes for greater streamlining and efficiency Reengineering projects
Changes in strategic direction or product portfolio reconfiguration New product lines
Creation of new strategic alliances Negotiation with supply chain members
(including suppliers and distributors)
Matching or improving on competitors’ products and services Reverse engineering projects
Improvement of cross-organizational communication and efficiency
in supply chain relationships
Enterprise IT efforts
Promotion of cross-functional interaction, streamlining of
new product or service introduction, and improvement of
departmental coordination
Concurrent engineering projects
objectives. Cross-functional decision making is a critical feature of project management, as
experts from various functional groups come together into a team of diverse personalities
and backgrounds. Project management work is a natural environment in which to opera-
tionalize strategic plans.
4. Achieving objectives. Whether the organization is seeking market leadership through
low-cost, innovative products, superior quality, or other means, projects are the most
effective tools to allow objectives to be met. A key feature of project management is
that it can potentially allow firms to be effective in the external market as well as inter-
nally efficient in operations; that is, it is a great vehicle for optimizing organizational
objectives, whether they incline toward efficiency of production or product or process
effectiveness.
Projects have been called the “stepping-stones” of corporate strategy.5 This idea implies that
an organization’s overall strategic vision is the driving force behind its project development. For
example, 3M’s desire to be a leading innovator in business gives rise to the creation and man-
agement of literally hundreds of new product development projects within the multinational
organization every year. Likewise, Rubbermaid Corporation is noted for its consistent pursuit of
new product development and market introduction. The manner in which organizational strategies
affect new project introductions will be addressed in greater detail in the chapter on project selection
(Chapter 3). Projects are the building blocks of strategies; they put an action-oriented face on the
strategic edifice. Some examples of how projects operate as strategic building blocks are shown in
Table 2.1. Each of the examples illustrates the underlying theme that projects are the “operational
reality” behind strategic vision. In other words, they serve as the building blocks to create the
reality a strategy can only articulate.
The tows matrix (See Figure 2.2) is a useful way to see the links between projects and an
organization’s strategic choices. TOWS comes from the acronym for “Threats–Opportunities–
Weaknesses–Strengths” and refers to the challenges companies face in both their internal envi-
ronment (within the organization) and their external environment (outside the company). In
first identifying and then formulating strategies for addressing internal strengths and weak-
nesses and external opportunities and threats, firms rely on projects as a device for pursuing
these strategic choices. As Figure 2.2 suggests, once an organization determines the appropri-
ate strategies to pursue (e.g., “maxi-maxi” strategy), it can then identify and undertake project
choices that support this TOWS matrix. Projects offer companies the ability to create concrete
means for realizing strategic goals.6
2.2 Stakeholder Management 41
An organization’s strategic management is the first important contextual element in its proj-
ect management approaches. Because projects form the building blocks that allow us to implement
strategic plans, it is vital that there exist a clear sense of harmony, or complementarity, between
strategy and projects that have been selected for development. In a later section, we will add to our
understanding of the importance of creating the right context for projects by adding an additional
variable into the mix: the organization’s structure.
2.2 stakeholder ManageMent
Organizational research and direct experience tell us that organizations and project teams cannot
operate in ways that ignore the external effects of their decisions. One way to understand the rela-
tionship of project managers and their projects to the rest of the organization is through employing
stakeholder analysis. stakeholder analysis is a useful tool for demonstrating some of the seem-
ingly irresolvable conflicts that occur through the planned creation and introduction of any new
project. Project stakeholders are defined as all individuals or groups who have an active stake in
the project and can potentially impact, either positively or negatively, its development.7 Project
stakeholder analysis, then, consists of formulating strategies to identify and, if necessary, manage
for positive results the impact of stakeholders on the project.
Stakeholders can affect and are affected by organizational actions to varying degrees.8 In
some cases, a corporation must take serious heed of the potential influence some stakeholder
groups are capable of wielding. In other situations, a stakeholder group may have relatively
little power to influence a company’s activities but its presence may still require attention.
Contrast, for example, the impact that the government has on regulating the tobacco indus-
try’s activities with the relative weakness of a small subcontractor working for Oracle on new
software development. In the first case, the federal government has, in recent years, strongly
limited the activities and sales strategies of the tobacco companies through the threat of regula-
tion and litigation. On the other hand, Oracle, a large organization, can easily replace one small
subcontractor with another.
Stakeholder analysis is helpful to the degree that it compels firms to acknowledge the poten-
tially wide-ranging effects, both intended and unintended, that their actions can have on various
stakeholder groups.9 For example, the strategic decision to close an unproductive manufacturing
facility may make good business sense in terms of costs versus benefits that the company derives
from the manufacturing site. However, the decision to close the plant has the potential to unleash
External
Opportunities (O)
Internal Strengths (S)
Internal
Weaknesses (W)
SO
“Maxi-Maxi” Strategy
ST
“Maxi-Mini” Strategy
WT
“Mini-Mini” Strategy
WO
“Mini-Maxi” Strategy
Develop projects that
use strengths to maximize
opportunities
Develop projects that
use strengths to minimize
threats
Develop projects that
minimize weaknesses and
avoid threats
Develop projects that
minimize weaknesses by
taking advantage of
opportunities
1.
2.
3.
1.
2.
3.
1.
2.
3.
1.
2.
3.
External Threats (T)
FIgure 2.2 toWS Matrix
42 Chapter 2 • The Organizational Context
a torrent of stakeholder complaints in the form of protests and challenges from local unions, work-
ers, community leaders in the town affected by the closing, political and legal groups, environmen-
tal concerns, and so forth. Sharp managers will consider the impact of stakeholder reaction as they
weigh the possible effects of their strategic decisions.
Just as stakeholder analysis is instructive for understanding the impact of major strate-
gic decisions, project stakeholder analysis is extremely important when it comes to managing
projects. The project development process itself can be directly affected by stakeholders. This
relationship is essentially reciprocal in that the project team’s activities can also affect external
stakeholder groups.10 Some common ways the client stakeholder group has an impact on proj-
ect team operations include agitating for faster development, working closely with the team to
ease project transfer problems, and influencing top management in the parent organization to
continue supporting the project. The project team can reciprocate this support through actions
that show willingness to closely cooperate with the client in development and transition to
user groups.
The nature of these various demands can place them seemingly in direct conflict. That is, in
responding to the concerns of one stakeholder, project managers often unwittingly find themselves
having offended or angered another stakeholder who has an entirely different agenda and set of
expectations. For example, a project team working to install a new software application across the
organization may go to such levels to ensure customer satisfaction that they engage in countless
revisions of the package until they have, seemingly, made their customers happy. However, in
doing so, the overall project schedule may now have slipped to the point where top management
is upset by the cost and schedule overruns. In managing projects, we are challenged to find ways
to balance a host of demands and still maintain supportive and constructive relationships with
each important stakeholder group.
Identifying Project stakeholders
Internal stakeholders are a vital component in any stakeholder analysis, and their impact
is usually felt in relatively positive ways; that is, while serving as limiting and control-
ling influences (in the case of the company accountant), for example, most internal stake-
holders want to see the project developed successfully. On the other hand, some external
stakeholder groups operate in manners that are quite challenging or even hostile to
project development. Consider the case of spikes in the price of oil. With oil prices remain-
ing unstable, ranging from $60 to above $100 per barrel through much of 2014, the impact on
the global economy, attempting to emerge from the Great Recession, has been severe. Many
groups in the United States have advocated taking steps to lessen the country’s dependence on
foreign oil, including offshore exploration and the development of a new generation of nuclear
power plants. Hydraulic fracturing (“fracking”) technology has been widely embraced as
a means for developing shale deposits across the country, resulting in projections that the
United States will go from a net importer of 1.5 trillion cubic feet of natural gas in 2012 to an
exporter by 2016. Environmental groups, however, continue to oppose these steps, vowing to
use litigation, political lobbying, and other measures to resist the development of these alter-
native energy sources. As a recent example of the danger, they cite the Deepwater Horizon
disaster that leaked thousands of barrels of oil into the Gulf of Mexico. Political efforts by
environmentalists and their supporters have effectively delayed for years the development of
the 1,700-mile-long Keystone XL oil pipeline from Canada’s oil sands region to refineries in
Texas. Cleland refers to these types of external stakeholders as intervenor groups, defined as
groups external to the project but possessing the power to effectively intervene and disrupt
the project’s development.11
Among the set of project stakeholders that project managers must consider are:
Internal
• Top management
• Accounting
• Other functional managers
• Project team members
2.2 Stakeholder Management 43
External
• Clients
• Competitors
• Suppliers
• Environmental, political, consumer, and other intervenor groups
clIents Our focus throughout this entire book will be on maintaining and enhancing client rela-
tionships. In most cases, for both external and internal clients, a project deals with an investment.
Clients are concerned with receiving the project from the team as quickly as possible because the
longer the project implementation, the longer the money invested sits without generating any re-
turns. As long as costs are not passed on to them, clients seldom are overly interested in how
much expense is involved in a project’s development. The opposite is usually the case, however.
Costs typically must be passed on, and customers are avidly interested in getting what they pay
for. Also, many projects start before client needs are fully defined. Product concept screening and
clarification are often made part of the project scope of work (see Chapter 5). These issues—costs
and client needs—are two strong reasons why many customers seek the right to make suggestions
and request alterations in the project’s features and operating characteristics well into the schedule.
Customers feel, with justification, that a project is only as good as it is acceptable and useful. This
sets a certain flexibility requirement and requires willingness from the project team to be amenable
to specification changes.
Another important fact to remember about dealing with client groups is that the term client
does not in every case refer to the entire customer organization. The reality is often far more complex.
A client firm consists of a number of internal interest groups, and in many cases they have different
agendas. For example, a company can probably readily identify a number of distinct clients within the
customer organization, including the top management team, engineering groups, sales teams, on-site
teams, manufacturing or assembly groups, and so on. Under these normal circumstances, it becomes
clear that the process of formulating a stakeholder analysis of a customer organization can be a
complex undertaking.
The challenge is further complicated by the need to communicate, perhaps using different
business language, with the various customer stakeholder groups (see Figure 2.3). Preparing a
presentation to deal with the customer ’s engineering staff requires mastery of technical infor-
mation and solid specification details. On the other hand, the finance and contractual people
are looking for tightly presented numbers. Formulating stakeholder strategies requires you
first to acknowledge the existence of these various client stakeholders, and then to formulate
a coordinated plan for uncovering and addressing each group’s specific concerns and learning
how to reach them.
Parent
Organization
External
Environment
Top
Management
Accountant Project
Team
Project
Manager
Clients
Other Functional
Managers
FIgure 2.3 Project Stakeholder relationships
44 Chapter 2 • The Organizational Context
coMPetItors Competitors can be an important stakeholder element because they are affected by
the successful implementation of a project. Likewise, should a rival company bring a new product
to market, the project team’s parent organization could be forced to alter, delay, or even abandon
its project. In assessing competitors as a project stakeholder group, project managers should try
to uncover any information available about the status of a competitor’s projects. Further, where
possible, any apparent lessons a competitor may have learned can be a source of useful informa-
tion for a project manager who is initiating a similar project. If a number of severe implementation
problems occurred within the competitor’s project, that information could offer valuable lessons
in terms of what to avoid.
suPPlIers Suppliers are any group that provides the raw materials or other resources the proj-
ect team needs in order to complete the project. When a project requires a significant supply
of externally purchased components, the project manager needs to take every step possible to
ensure steady deliveries. In most cases this is a two-way street. First, the project manager has to
ensure that each supplier receives the information necessary to implement its part of the proj-
ect in a timely way. Second, the project manager must monitor the deliveries so they are met
according to plan. In the ideal case, the supply chain becomes a well-greased machine that au-
tomatically both draws the input information from the project team and delivers the products
without excessive involvement of the project manager. For example, in large-scale construction
projects, project teams daily must face and satisfy an enormous number of supplier demands.
The entire discipline of supply chain management is predicated on the ability to streamline
logistics processes by effectively managing the project’s supply chain.12 When this process fails
or is disrupted the consequences can be severe, as in the case of the catastrophic tsunami that
struck the northeastern coast of Japan in March 2011, The supply chains and product develop-
ment capabilities of Japanese corporations were badly damaged. Economists estimate that the
natural disaster cost the country’s economy over $300 billion. Further, numerous corporations
(both Japanese companies and those that are their supply chain partners) were affected by the
disaster. Japan manufactures 20% of the world’s semiconductor products, leading to serious
shortages and delivery delays for companies such as Intel, Toshiba, and Apple.
Intervenor grouPs Environmental, political, social, community-activist, or consumer
groups that can have a positive or negative effect on the project’s development and successful
launch are referred to as intervenor groups.13 That is, they have the capacity to intervene in the
project development and force their concerns to be included in the equation for project imple-
mentation. There are some classic examples of intervenor groups curtailing major construction
projects, particularly in the nuclear power plant construction industry. As federal, state, and
even local regulators decide to involve themselves in these construction projects, intervenors
have at their disposal the legal system as a method for tying up or even curtailing projects.
For example, while wind farms supply more than half of the electricity needs for the country
of Denmark, an alternative energy “wind farm” project being proposed for sites off the coast
of Cape Cod, Massachusetts, have encountered strong resistance from local groups opposed
to the threat from these farms ruining the local seascape. Litigation has tied this wind farm
project up for years and shows no sign of being approved in the near future. Prudent project
managers need to make a realistic assessment of the nature of their projects and the likelihood
that one intervenor group or another may make an effort to impose its will on the development
process.
toP ManageMent In most organizations, top management holds a great deal of control over
project managers and is in the position to regulate their freedom of action. Top management is,
after all, the body that authorizes the development of the project through giving the initial “go” de-
cision, sanctions additional resource transfers as they are needed by the project team, and supports
and protects project managers and their teams from other organizational pressures. Top manage-
ment requires that the project be timely (they want it out the door quickly), cost-efficient (they do
not want to pay more for it than they have to), and minimally disruptive to the rest of the functional
organization.
accountIng The accountant’s raison d’être in the organization is maintaining cost efficiency of
the project teams. Accountants support and actively monitor project budgets and, as such, are
2.2 Stakeholder Management 45
sometimes perceived as the enemy by project managers. This perception is wrong minded. To
be able to manage the project, to make the necessary decisions, and to communicate with the
customer, the project manager has to stay on top of the cost of the project at all times. An efficient
cost control and reporting mechanism is vital. Accountants perform an important administrative
service for the project manager.
FunctIonal Managers Functional managers who occupy line positions within the tradition-
al chain of command are an important stakeholder group to acknowledge. Most projects are
staffed by individuals who are essentially on loan from their functional departments. In fact,
in many cases, project team members may only have part-time appointments to the team; their
functional managers may still expect a significant amount of work out of them per week in
performing their functional responsibilities. This situation can create a good deal of confusion,
conflict, and the need for negotiation between project managers and functional supervisors
and lead to seriously divided loyalties among team members, particularly when performance
evaluations are conducted by functional managers rather than the project manager. In terms of
simple self-survival, team members often maintain closer allegiance to their functional group
than to the project team.
Project managers need to appreciate the power of the organization’s functional managers as
a stakeholder group. Functional managers are not usually out to discourage project development.
Rather, they have loyalty to their functional roles, and they act and use their resources accordingly,
within the limits of the company’s structure. Nevertheless, as a formidable stakeholder group,
functional managers need to be treated with due consideration by project managers.
Project teaM MeMbers The project team obviously has a tremendous stake in the project’s out-
come. Although some may have a divided sense of loyalty between the project and their functional
group, in many companies the team members volunteer to serve on projects and, hopefully, receive
the kind of challenging work assignments and opportunities for growth that motivate them to
perform effectively. Project managers must understand that their project’s success depends on the
commitment and productivity of each member of the project team. Thus, team members’ impact on
the project is, in many ways, more profound than that of any other stakeholder group.
Managing stakeholders
Project managers and their companies need to recognize the importance of stakeholder groups
and proactively manage with their concerns in mind. Block offers a useful framework of the
political process that has application to stakeholder management.14 In his framework, Block suggests
six steps:
1. Assess the environment.
2. Identify the goals of the principal actors.
3. Assess your own capabilities.
4. Define the problem.
5. Develop solutions.
6. Test and refine the solutions.
assess the envIronMent Is the project relatively low-key or is it potentially so significant
that it will likely excite a great deal of attention? For example, when EMC Corporation, a large
computer manufacturer, began development of a new line of minicomputers and storage units
with the potential for either great profits or serious losses, it took great care to first determine the
need for such a product. Going directly to the consumer population with market research was
the key to assessing the external environment. Likewise, one of the shapers of autonomous and
near-autonomous care technology (driverless cars) has been companies such as Google working
closely with consumers to determine their expectations and comfort level with the technology.
In testing to date, autonomous vehicles have driven over 700,000 miles with only one accident
(which was human-caused). Current projections are that a safe and workable driverless car could
be ready for release as early as 2017. Ultimately, it is estimated that over 1 billion automobiles
and trucks worldwide and over 450,000 civilian and military aircraft could be affected by this
new technology.15
46 Chapter 2 • The Organizational Context
IdentIFy the goals oF the PrIncIPal actors As a first step in fashioning a strategy to defuse
negative reaction, a project manager should attempt to paint an accurate portrait of stakehold-
er concerns. Fisher and Ury16 have noted that the positions various parties adopt are almost
invariably based on need. What, then, are the needs of each significant stakeholder group
regarding the project? A recent example will illustrate this point. A small IT firm specializing
in network solutions and software development recently contracted with a larger publishing
house to develop a simulation for college classroom use. The software firm was willing to
negotiate a lower-than-normal price for the job because the publisher suggested that excellent
performance on this project would lead to future business. The software organization, inter-
ested in follow-up business, accepted the lower fee because its more immediate needs were to
gain entry into publishing and develop long-term customer contacts. The publisher needed a
low price; the software developer needed new market opportunities.
Project teams must look for hidden agendas in goal assessment. It is common for departments
and stakeholder groups to exert a set of overt goals that are relevant, but often illusionary.17 In haste
to satisfy these overt or espoused goals, a common mistake is to accept these goals on face value,
without looking into the needs that may drive them or create more compelling goals. Consider, for
example, a project in a large, project-based manufacturing company to develop a comprehensive proj-
ect management scheduling system. The project manager in charge of the installation approached
each department head and believed that he had secured their willingness to participate in creating
a scheduling system centrally located within the project management division. Problems developed
quickly, however, because IT department members, despite their public professions of support, began
using every means possible to covertly sabotage the implementation of the system, delaying comple-
tion of assignments and refusing to respond to user requests. What was their concern? They believed
that placing a computer-generated source of information anywhere but in the IT department threat-
ened their position as the sole disseminator of information. In addition to probing the overt goals and
concerns of various stakeholders, project managers must look for hidden agendas and other sources
of constraint on implementation success.
assess your own caPabIlItIes As Robert Burns said, “Oh wad some Power the giftie gie us/To
see oursels as ithers see us!”18 Organizations must consider what they do well. Likewise, what are
their weaknesses? Do the project manager and her team have the political savvy and a sufficiently
strong bargaining position to gain support from each of the stakeholder groups? If not, do they
have connections to someone who can? Each of these questions is an example of the importance of
the project team understanding its own capacities and capabilities. For example, not everyone has
the contacts to upper management that may be necessary for ensuring a steady flow of support
and resources. If you realistically determine that political acumen is not your strong suit, then the
solution may be to find someone who has these skills to help you.
deFIne the ProbleM We must seek to define problems both in terms of our own perspective and
in consideration of the valid concerns of the other party. The key to developing and maintaining
strong stakeholder relationships lies in recognizing that different parties can have very different
but equally legitimate perspectives on a problem. When we define problems not just from our
viewpoint but also by trying to understand how the same issue may be perceived by stakeholders,
we are operating in a “win-win” mode. Further, we must be as precise as possible, staying focused
on the specifics of the problem, not generalities. The more accurately and honestly we can define
the problem, the better able we will be to create meaningful solution options.
develoP solutIons There are two important points to note about this step. First, developing
solutions means precisely that: creating an action plan to address, as much as possible, the needs of
the various stakeholder groups in relation to the other stakeholder groups. This step constitutes the
stage in which the project manager, together with the team, seeks to manage the political process.
What will work in dealing with top management? In implementing that strategy, what reaction
is likely to be elicited from the accountant? The client? The project team? Asking these questions
helps the project manager develop solutions that acknowledge the interrelationships of each of the
relevant stakeholder groups. The topics of power, political behavior, influence, and negotiation will
be discussed in greater detail in Chapter 6.
As a second point, it is necessary that we do our political homework prior to developing
solutions.19 Note the late stage at which this step is introduced. Project managers can fall into a
2.3 Organizational Structure 47
trap if they attempt to manage a process with only fragmentary or inadequate information. The
philosophy of “ready, fire, aim” is sometimes common in stakeholder management. The result is a
stage of perpetual firefighting during which the project manager is a virtual pendulum, swinging
from crisis to crisis. Pendulums and these project managers share one characteristic: They never
reach a goal. The process of putting out one fire always seems to create a new blaze.
test and reFIne the solutIons Implementing the solutions implies acknowledging that the
project manager and team are operating under imperfect information. You may assume that stake-
holders will react to certain initiatives in predictable ways, but such assumptions can be errone-
ous. In testing and refining solutions, the project manager and team should realize that solution
implementation is an iterative process. You make your best guesses, test for stakeholder reactions,
and reshape your strategies accordingly. Along the way, many of your preconceived notions about
the needs and biases of various stakeholder groups must be refined as well. In some cases, you will
have made accurate assessments. At other times, your suppositions may have been dangerously
naive or disingenuous. Nevertheless, this final step in the stakeholder management process forces
the project manager to perform a critical self-assessment. It requires the flexibility to make accurate
diagnoses and appropriate midcourse corrections.
When done well, these six steps form an important method for acknowledging the role that stake-
holders play in successful project implementation. They allow project managers to approach “political
stakeholder management” much as they would any other form of problem solving, recognizing it as a
multivariate problem as various stakeholders interact with the project and with one another. Solutions
to political stakeholder management can then be richer, more comprehensive, and more accurate.
An alternative, simplified stakeholder management process consists of planning, organizing,
directing, motivating, and controlling the resources necessary to deal with the various internal and
external stakeholder groups. The various stakeholder management functions are interlocked and
repetitive; that is, this stakeholder management process is really best understood as a cycle. As you
continually assess the environment, you refine the goals of the principal stakeholders. Likewise, as
you assess your own capabilities, define the problems and possible solutions, you are constantly
observing the environment to make sure that your proposed solutions are still valid. Finally, in
testing and refining these solutions, it is critical to ensure that they will be the optimal alterna-
tives, given likely changes in the environment. In the process of developing and implementing
your plans, you are likely to uncover new stakeholders whose demands must also be considered.
Further, as the environment changes or as the project enters a new stage of its life cycle, you may be
required to cycle through the stakeholder management model again to verify that your old man-
agement strategies are still effective. If, on the other hand, you deem that new circumstances make
it necessary to alter those strategies, you must work through this stakeholder management model
anew to update the relevant information.
2.3 organIzatIonal structure
The word structure implies organization. People who work in an organization are grouped so that
their efforts can be channeled for maximum efficiency. organizational structure consists of three
key elements:20
1. Organizational structure designates formal reporting relationships, including the number of
levels in the hierarchy and the span of control of managers and supervisors. Who reports
to whom in the structural hierarchy? This is a key component of a firm’s structure. A span of
control determines the number of subordinates directly reporting to each supervisor. In some
structures, a manager may have a wide span of control, suggesting a large number of subor-
dinates, while other structures mandate narrow spans of control and few individuals report-
ing directly to any supervisor. For some companies, the reporting relationship may be rigid
and bureaucratic; other firms require flexibility and informality across hierarchical levels.
2. Organizational structure identifies the grouping together of individuals into departments and
departments into the total organization. How are individuals collected into larger groups?
Starting with the smallest, units of a structure continually recombine with other units to create larger
groups, or organizations of individuals. These groups, referred to as departments, may be grouped
along a variety of different logical patterns. For example, among the most common reasons for
48 Chapter 2 • The Organizational Context
creating departments are (1) function—grouping people performing similar activities into similar
departments, (2) product—grouping people working on similar product lines into departments, (3)
geography—grouping people within similar geographical regions or physical locations into depart-
ments, and (4) project—grouping people involved in the same project into a department. We will
discuss some of these more common departmental arrangements in detail later in this chapter.
3. Organizational structure includes the design of systems to ensure effective communication,
coordination, and integration of effort across departments. This third feature of organizational
structure refers to the supporting mechanisms the firm relies on to reinforce and promote its
structure. These supporting mechanisms may be simple or complex. In some firms, a method
for ensuring effective communication is simply to mandate, through rules and procedures, the
manner in which project team members must communicate with one another and the types
of information they must routinely share. Other companies use more sophisticated or complex
methods for promoting coordination, such as the creation of special project offices apart from the
rest of the company where project team members work for the duration of the project. The key
thrust behind this third element in organizational structure implies that simply creating a logical
ordering or hierarchy of personnel for an organization is not sufficient unless it is also supported
by systems that ensure clear communication and coordination across the departments.
It is also important to note that within the project management context two distinct structures
operate simultaneously, and both affect the manner in which the project is accomplished. The first
is the overall structure of the organization that is developing the project. This structure consists of
the arrangement of all units or interest groups participating in the development of the project; it
includes the project team, the client, top management, functional departments, and other relevant
stakeholders. The second structure at work is the internal structure of the project team; it specifies
the relationship between members of the project team, their roles and responsibilities, and their
interaction with the project manager. The majority of this chapter examines the larger structure of
the overall organization and how it pertains to project management. The implications of internal
project team structure will be discussed here but explored more thoroughly in Chapter 6.
2.4 ForMs oF organIzatIonal structure
Organizations can be structured in an infinite variety of ways, ranging from highly complex to
extremely simple. What is important to understand is that typically the structure of an organization
does not happen by chance; it is the result of a reasoned response to forces acting on the firm. A num-
ber of factors routinely affect the reasons why a company is structured the way it is. Operating envi-
ronment is among the most important determinants or factors influencing an organization’s structure.
An organization’s external environment consists of all forces or groups outside the organization that
have the potential to affect the organization. Some elements in a company’s external environment
that can play a significant role in a firm’s activities are competitors, customers in the marketplace,
the government and other legal or regulatory bodies, general economic conditions, pools of available
human or financial resources, suppliers, technological trends, and so forth. In turn, these organiza-
tional structures, often created for very sound reasons in relation to the external environment, have a
strong impact on the manner in which projects are best managed within the organization. As we will
see, each organizational type offers its own benefits and drawbacks as a context for creating projects.
Some common structural types classify the majority of firms. These structure types include
the following:
1. Functional organizations—Companies are structured by grouping people performing similar
activities into departments.
2. Project organizations—Companies are structured by grouping people into project teams on
temporary assignments.
3. Matrix organizations—Companies are structured by creating a dual hierarchy in which
functions and projects have equal prominence.
Functional organizations
The functional structure is probably the most common organizational type used in business today.
The logic of the functional structure is to group people and departments performing similar activi-
ties into units. In the functional structure, it is common to create departments such as accounting,
2.4 Forms of Organizational Structure 49
Board of Directors
Chief Executive
Vice President of
Marketing
Vice President of
Finance
Vice President of
Research
New Product
Development
Testing
Research Labs
Quality
Market Research
Sales
After-Market
Support
Advertising
Logistics
Outsourcing
Distribution
Warehousing
Manufacturing
Accounting
Services
Contracting
Investments
Employee
Benefits
Vice President of
Production
FIgure 2.4 example of a functional organizational Structure
marketing, or research and development. Division of labor in the functional structure is not based
on the type of product or project supported, but rather according to the type of work performed.
In an organization having a functional structure, members routinely work on multiple projects or
support multiple product lines simultaneously.
Figure 2.4 shows an example of a functional structure. Among the clear strengths of the
functional organization is efficiency; when every accountant is a member of the accounting
department, it is possible to more efficiently allocate the group’s services throughout the orga-
nization, account for each accountant’s work assignments, and ensure that there is no duplica-
tion of effort or unused resources. Another advantage is that it is easier to maintain valuable
intellectual capital when all expertise is consolidated under one functional department. When
you need an expert on offshore tax implications for globally outsourced projects, you do not
have to conduct a firmwide search but can go right to the accounting department to find a resi-
dent expert.
The most common weakness in a functional structure from a project management perspec-
tive relates to the tendency for employees organized this way to become fixated on their concerns
and work assignments to the exclusion of the needs of other departments. This idea has been
labeled functional siloing, named for the silos found on farms (see Figure 2.5). Siloing occurs when
similar people in a work group are unwilling or unable to consider alternative viewpoints, col-
laborate with other groups, or work in cross-functional ways. For example, within Data General
Corporation, prior to its acquisition by EMC, squabbles between engineering and sales were con-
stant. The sales department complained that its input to new product development was mini-
mized as the engineering department routinely took the lead on innovation without meaningful
consultation with other departments. Likewise, Robert Lutz, former President of Chrysler, argued
that an ongoing weakness at the automobile company was the inability of the various functional
departments to cooperate with and recognize the contributions of each other. Another weakness
of functional structures is a generally poor responsiveness to external opportunities and threats.
Communication channels tend to run up and down the hierarchy, rather than across functional
boundaries. This vertical hierarchy can overload, and decision making takes time. Functional
structures also may not be very innovative due to the problems inherent in the design. With siloed
functional groups typically having a restricted view of the overall organization and its goals, it is
difficult to achieve the cross-functional coordination necessary to innovate or respond quickly to
market opportunities.
For project management, an additional weakness of the functional structure is that it
provides no logical location for a central project management function. Top management may
assign a project and delegate various components of that project to specialists within the dif-
ferent functional groups. Overall coordination of the project, including combining the efforts
of the different functions assigned to perform project tasks, must then occur at a higher, top
management level. A serious drawback for running projects in this operating environment is
50 Chapter 2 • The Organizational Context
Vice President of
Marketing
Vice President of
Research
New Product
Development
Testing
Board of Directors
Chief Executive
Research Labs
Quality
Market Research
Sales
After-Market
Support
Advertising
Vice President of
Production
Logistics
Outsourcing
Distribution
Warehousing
Manufacturing
Vice President of
Finance
Accounting
Services
Contracting
Investments
Employee
Benefits
FIgure 2.5 the Siloing effect found in functional Structures
that they often must be layered, or applied on top of the ongoing duties of members of func-
tional groups. The practical effect is that individuals whose main duties remain within their
functional group are assigned to staff projects; when employees owe their primary allegiance
to their own department, their frame of reference can remain functional. Projects can be tem-
porary distractions in this sense, taking time away from “real work.” This can explain some of
the behavioral problems that occur in running projects, such as low team member motivation
or the need for extended negotiations between project managers and department supervisors
for personnel to staff project teams.
Another project-related problem of the functional organization is the fact that it is easy to
suboptimize the project’s development.21 When the project is developed as the brainchild of one
department, that group’s efforts may be well considered and effective. In contrast, departments
not as directly tied to or interested in the project may perform their duties to the minimum pos-
sible level. A successful project-based product or service requires the fully coordinated efforts of all
functional groups participating in and contributing to the project’s development.
Another problem is that customers are not the primary focus of everyone within the function-
ally structured organization. The customer in this environment might be seen as someone else’s
problem, particularly among personnel whose duties tend to be supportive. Customer require-
ments must be met, and projects must be created with a customer in mind. Any departmental
representatives on the project team who have not adopted a “customer-focused” mind-set add to
the possibility of the project coming up short.
Summing up the functional structure (see Table 2.2), as it relates to the external environment,
the functional structure is well suited to firms with relatively low levels of external uncertainty
because their stable environments do not require rapid adaptation or responsiveness. When the
environment is relatively predictable, the functional structure works well because it emphasizes
efficiency. Unfortunately, project management activities within the functionally organized firm can
often be problematic when they are applied in settings for which this structure’s strengths are not
well suited. As the above discussion indicates, although there are some ways in which the func-
tional structure can be advantageous to managing projects, in the main, it is perhaps the poorest
form of structure when it comes to getting the maximum performance out of project management
assignments.22
Project organizations
Project organizations are those that are set up with their exclusive focus aimed at running projects.
Construction companies, large manufacturers such as Boeing or Airbus, pharmaceutical firms, and
many software consulting and research and development organizations are organized as pure
2.4 Forms of Organizational Structure 51
table 2.2 Strengths and Weaknesses of functional Structures
Strengths for Project Management Weaknesses for Project Management
1. Projects are developed within the basic func-
tional structure of the organization, requiring
no disruption or change to the firm’s design.
1. Functional siloing makes it difficult to achieve
cross-functional cooperation.
2. Enables the development of in-depth
knowledge and intellectual capital.
2. Lack of customer focus.
3. Allows for standard career paths. Project
team members only perform their duties as
needed while maintaining maximum
connection with their functional group.
3. Projects generally take longer to complete due to
structural problems, slower communication, lack of
direct ownership of the project, and competing
priorities among the functional
departments.
4. Projects may be suboptimized due to varying interest
or commitment across functional boundaries.
project organizations. Within the project organization, each project is a self-contained business unit
with a dedicated project team. The firm assigns resources from functional pools directly to the
project for the time period they are needed. In the project organization, the project manager has
sole control over the resources the unit uses. The functional departments’ chief role is to coordinate
with project managers and ensure that there are sufficient resources available as they need them.
Figure 2.6 illustrates a simple form of the pure project structure. Projects Alpha and Beta
have been formed and are staffed by project team members from the company’s functional groups.
The project manager is the leader of the project and the staff all report to her. The staffing decisions
and duration of employees’ tenure with the project are left to the discretion of the project manager,
who is the chief point of authority for the project. As the figure suggests, there are several advan-
tages to the use of a pure project structure.
• First, the project manager does not occupy a subordinate role in this structure. All major deci-
sions and authority remain under the control of the project manager.
• Second, the functional structure and its potential for siloing or communication problems are
bypassed. As a result, communication improves across the organization and within the proj-
ect team. Because authority remains with the project manager and the project team, decision
making is speeded up. Project decisions can occur quickly, without lengthy delays, as func-
tional groups are consulted or allowed to veto project team decisions.
Vice President of
Projects
Vice President of
Production
Vice President of
Marketing
Vice President of
Finance
Vice President of
Research
Board of Directors
Chief Executive
Project
Alpha
Project
Beta
FIgure 2.6 example of a Project organizational Structure
52 Chapter 2 • The Organizational Context
table 2.3 Strengths and Weaknesses of Project Structures
Strengths for Project Management Weaknesses for Project Management
1. Assigns authority solely to the project
manager.
1. Setting up and maintaining teams can be expensive.
2. Leads to improved communication
across the organization and among
functional groups.
2. Potential for project team members to develop loyalty to the
project rather than to the overall organization.
3. Promotes effective and speedy
decision making.
3. Difficult to maintain a pooled supply of intellectual capital.
4. Promotes the creation of cadres of
project management experts.
4. Concern among project team members about their future
once the project ends.
5. Encourages rapid response to market
opportunities.
• Third, this organizational type promotes the expertise of a cadre of project management
professionals. Because the focus for operations within the organization is project-based,
everyone within the organization understands and operates with the same focus, ensuring
that the organization maintains highly competent project management resources.
• Finally, the pure project structure encourages flexibility and rapid response to environmental
opportunities. Projects are created, managed, and disbanded routinely; therefore, the abil-
ity to create new project teams as needed is common and team formation can be quickly
undertaken.
Although there are a number of advantages in creating dedicated project teams using a proj-
ect structure (see Table 2.3), this design does have some disadvantages that should be considered.
• First, the process of setting up and maintaining a number of self-contained project teams can
be expensive. The different functional groups, rather than controlling their resources, must
provide them on a full-time basis to the different projects being undertaken at any point. This
can result in forcing the project organization to hire more project specialists (e.g., engineers)
than they might need otherwise, with a resulting loss of economies of scale.
• Second, the potential for inefficient use of resources is a key disadvantage of the pure project
organization. Organizational staffing may fluctuate up and down as the number of projects
in the firm increases or decreases. Hence, it is possible to move from a state in which many
projects are running and organizational resources are fully employed to one in which only
a few projects are in the pipeline, with many resources underutilized. In short, manpower
requirements across the organization can increase or decrease rapidly, making staffing prob-
lems severe.
• Third, it is difficult to maintain a supply of technical or intellectual capital, which is one of the
advantages of the functional structure. Because resources do not typically reside within the
functional structure for long, it is common for them to shift from project to project, prevent-
ing the development of a pooled knowledge base. For example, many project organizations
hire technically proficient contract employees for various project tasks. These employees may
perform their work and, once finished and their contract is terminated, leave the organi-
zation, taking their expertise with them. Expertise resides not within the organization, but
differentially within the functional members who are assigned to the projects. Hence, some
team members may be highly knowledgeable while others are not sufficiently trained and
capable.
• A fourth problem with the pure project form has to do with the legitimate concerns of project
team members as they anticipate the completion of the project. What, they wonder, will be
in their future once their project is completed? As noted above, staffing can be inconsistent,
and often project team members finish a project only to discover that they are not needed
for new assignments. Functional specialists in project organizations do not have the kind of
permanent “home” that they would have in a functional organization, so their concerns are
2.4 Forms of Organizational Structure 53
justified. In a similar manner, it is common in pure project organizations for project team
members to identify with the project as their sole source of loyalty. Their emphasis is project-
based and their interests reside not with the larger organization, but within their own project.
When a project is completed, they may begin searching for new challenges, and may even
leave the company for appealing new assignments.
Matrix organizations
One of the more innovative organization designs to emerge in the past 30 years has been the matrix
structure. The matrix organization, which is a combination of functional and project activities,
seeks a balance between the functional organization and the pure project form. The way it achieves
this balance is to emphasize both function and project focuses at the same time. In practical terms,
the matrix structure creates a dual hierarchy in which there is a balance of authority between the
project emphasis and the firm’s functional departmentalization. Figure 2.7 illustrates how a matrix
organization is set up; note that the vice president of projects occupies a unique reporting relation-
ship in that the position is not formally part of the organization’s functional department structure.
The vice president is the head of the projects division and occupies one side of the dual hierarchy,
a position shared with the CEO and heads of functional departments.
Figure 2.7 also provides a look at how the firm staffs project teams. The vice president of
projects controls the activities of the project managers under his authority. They, however, must
work closely with functional departments to staff their project teams through loans of personnel
from each functional group. Whereas in functional organizations project team personnel are still
almost exclusively under the control of the functional departments and to some degree serve at
the pleasure of their functional boss, in the matrix organizational structure these personnel are
shared by both their departments and the project to which they are assigned. They remain under
the authority of both the project manager and their functional department supervisor. Notice,
for example, that the project manager for Project Alpha has negotiated the use of two resources
(personnel) from the vice president of marketing, 1.5 resources from production, and so forth. Each
project and project manager is responsible for working with the functional heads to determine the
optimal staffing needs, how many people are required to perform necessary project activities, and
when they will be available. Questions such as “What tasks must be accomplished on this proj-
ect?” are best answered by the project manager. However, other equally important questions, such
as “Who will perform the tasks?” and “How long should the tasks take?”, are matters that must be
jointly negotiated between the project manager and the functional department head.
Vice President of
Projects
Project
Alpha
Vice President of
Production
Vice President of
Marketing
Vice President of
Finance
Vice President of
Research
Board of Directors
Chief Executive
Project
Beta
2 resources
1 resource 2 resources 2 resources 2.5 resources
3 resources1.5 resources 1 resource
FIgure 2.7 example of a Matrix organizational Structure
54 Chapter 2 • The Organizational Context
It is useful to distinguish between three common forms of the matrix structure: the weak matrix
(sometimes called the functional matrix), the balanced matrix, and the strong matrix (sometimes
referred to as a project matrix). In a weak matrix, functional departments maintain control over their
resources and are responsible for managing their components of the project. The project manager’s
role is to coordinate the activities of the functional departments, typically as an administrator. She
is expected to prepare schedules, update project status, and serve as the link between the depart-
ments with their different project deliverables, but she does not have direct authority to control
resources or make significant decisions on her own. The goal of the balanced matrix is to equally
distribute authority and resource assignment responsibility between the project manager and the
functional department head. In a strong matrix, the balance of power has further shifted in favor
of the project manager. She now controls most of the project activities and functions, including the
assignment and control of project resources, and has key decision-making authority. Although func-
tional managers have some input into the assignment of personnel from their departments, their role
is mostly consultative. The strong matrix is probably the closest to a “project organization” mentality
that we can get while working within a matrix environment.
Creating an organizational structure with two bosses may seem awkward, but there are some
important advantages to this approach, provided certain conditions are met. Matrix structures are
useful under circumstances in which:23
1. There is pressure to share scarce resources across product or project opportunities. When
an organization has scarce human resources and a number of project opportunities, it faces
the challenge of using its people and material resources as efficiently as possible to support
the maximum number of projects. A matrix structure provides an environment in which the
company can emphasize efficient use of resources for the maximum number of projects.
2. There is a need to emphasize two or more different types of output. For example, the firm
may need to promote its technical competence (using a functional structure) while continu-
ally creating a series of new products (requiring a project structure). With this dual pressure
for performance, there is a natural balance in a matrix organization between the functional
emphasis on technical competence and efficiency and the project focus on rapid new product
development.
3. The environment of the organization is complex and dynamic. When firms face the twin
challenges of complexity and rapidly shifting environmental pressures, the matrix structure
promotes the exchange of information and coordination across functional boundaries.
In the matrix structure, the goal is to create a simultaneous focus on the need to be quickly
responsive to both external opportunities and internal operating efficiencies. In order to achieve
this dual focus, equal authority must reside within both the project and the functional groups. One
advantage of the matrix structure for managing projects is that it places project management parallel
to functional departments in authority. This advantage highlights the enhanced status of the project
manager in this structure, who is expected to hold a similar level of power and control over resources
as department managers. Another advantage is that the matrix is specifically tailored to encour-
age the close coordination between departments, with an emphasis on producing projects quickly
and efficiently while sharing resources among projects as they are needed. Unlike the functional
structure, in which projects are, in effect, layered over a structure that is not necessarily supportive
of their processes, the matrix structure balances the twin demands of external responsiveness and
internal efficiency, creating an environment in which projects can be performed expeditiously. Finally,
because resources are shared and “movable” among multiple projects, there is a greater likelihood
that expertise will not be hoarded or centered on some limited set of personnel, as in the project orga-
nization, but will be diffused more widely across the firm.
Among the disadvantages of the matrix structure’s dual hierarchy is the potentially negative
effect that creating multiple authority points has on operations. When two parts of the organiza-
tion share authority, the workers caught between them can experience great frustration when they
receive mixed or conflicting messages from the head of the project group and the head of their
functional departments. Suppose that the vice president of projects signaled the need for workers
to concentrate their efforts on a critical project with a May 1 deadline. If, at the same time, the head
of finance were to tell his staff that with tax season imminent, it was necessary for his employees
to ignore projects for the time being to finish tax-related work, what might happen? From the
team member’s perspective, this dual hierarchy can be very frustrating. Workers daily experience
2.4 Forms of Organizational Structure 55
a sense of being pulled in multiple directions as they receive conflicting instructions from their
bosses—both on projects and in their departments. Consequently, ordinary work often becomes a
balancing act based on competing demands for their time.
Another disadvantage is the amount of time and energy required by project managers in
meetings, negotiations, and other coordinative functions to get decisions made across multiple
groups, often with different agendas. Table 2.4 summarizes the strengths and weaknesses of the
matrix structure.
Although matrix structures seem to be a good solution for project management, they require a
great deal of time to be spent coordinating the use of human resources. Many project managers com-
ment that as part of the matrix, they devote a large proportion of their time to meetings, to resolving
or negotiating resource commitments, and to finding ways to share power with department heads.
The matrix structure offers some important benefits and drawbacks from the perspective of managing
projects. It places project management on an equal footing with functional efficiency and promotes
cross-functional coordination. At the same time, however, the dual hierarchy results in some signifi-
cant behavioral challenges as authority and control within the organization are constantly in a state of
flux.24 A common complaint from project managers operating in matrix organizations is that an enor-
mous amount of their time is taken up with “playing politics” and bargaining sessions with functional
managers to get the resources and help they need. In a matrix, negotiation skills, political savvy, and
networking become vital tools for project managers who want to be successful.
Moving to heavyweight Project organizations
The term heavyweight project organization refers to the belief that organizations can sometimes
gain tremendous benefits from creating a fully dedicated project organization.25 The heavyweight
project organization concept is based on the notion that successful project organizations do not
happen by chance or luck. Measured steps in design and operating philosophy are needed to
get to the top and remain there. Taking their formulation from the “Skunkworks” model, named
after the famous Lockheed Corporation programs, autonomous project teams represent the final
acknowledgment by the firm of the priority of project-based work in the company. In these orga-
nizations, the project manager is given full authority, status, and responsibility to ensure project
success. Functional departments are either fully subordinated to the projects or the project teams
are accorded an independent resource base with which to accomplish their tasks.
In order to achieve the flexibility and responsiveness that the heavyweight organization can
offer, it is important to remember some key points. First, no one goes directly to the autonomous
team stage when it comes to running projects. This project organizational form represents the last
transitional stage in a systematically planned shift in corporate thinking. Instead, managers gradu-
ally move to this step through making conscious decisions about how they are going to improve
the way they run projects. Successful project firms work to expand the authority of the project
manager, often in the face of stiff resistance from functional department heads who like the power
balance the way it currently exists. Part of the process of redirecting the power balance involves
giving project managers high status, authority to conduct performance evaluations of team mem-
bers, authority over project resources, and direct links to the customers. Project managers who are
constantly forced to rely on the good graces of functional managers for their team staffing, coor-
dination, and financial and other resources are operating with one hand tied behind their backs.
table 2.4 Strengths and Weaknesses of Matrix Structures
Strengths for Project Management Weaknesses for Project Management
1. Suited to dynamic environments. 1. Dual hierarchies mean two bosses.
2. Emphasizes the dual importance of project
management and functional efficiency.
2. Requires significant time to be spent negotiating the
sharing of critical resources between projects and
departments.
3. Promotes coordination across functional
units.
3. Can be frustrating for workers caught between com-
peting project and functional demands.
4. Maximizes scarce resources between compet-
ing project and functional responsibilities.
56 Chapter 2 • The Organizational Context
Second, heavyweight project organizations have realigned their priorities away from func-
tional maintenance to market opportunism, a realignment that can occur only when the resources
needed to respond rapidly to market opportunities rest with the project team rather than being
controlled by higher level bureaucracies within a company. Finally, as noted throughout this book,
the shift in focus for many firms toward project-based work profoundly affects the manner in
which the project organization, manager, and the team operate. The new focus on the external cus-
tomer becomes the driving force for operations, not simply one of several competing demands that
the project team must satisfy as best they can.
Ultimately, the decision of which organizational structure is appropriate to use may simply
come down to one of expediency; although it may, in fact, be desirable to conduct projects within
a structure that offers maximum flexibility and authority to the project manager (the pure project
structure), the fact remains that for many project managers it will be impossible to significantly
influence decisions to alter the overall organizational structure in support of their project. As a
result, perhaps a more appropriate question to ask is: What issues should I be aware of, given the
structure of the organization within which I will be managing projects? The previous discussion
in this chapter has developed this focus as our primary concern. Given the nature of the structure
within which we must operate and manage our projects, what are the strengths and weaknesses
of that form as it pertains to our ability to do our job as best we can? In formulating a thoughtful
answer to this question, we are perhaps best positioned to understand and adapt most effectively
to finding the link between our organization’s structure and project management success.
Box 2.1
Project Management research in Brief
The Impact of Organizational Structure on Project Performance
It is natural to suppose that projects may run more smoothly in some types of organizational structures than in oth-
ers. Increasingly, research evidence suggests that depending on the type of project being initiated, some structural
forms do, in fact, offer greater advantages in promoting successful completion of the project than others. The
work of Gobeli and Larson, for example, is important in highlighting the fact that the type of structure a firm has
when it runs projects will have either a beneficial or detrimental effect on the viability of the projects.
Very
effective
Effective
Ineffective
Very
ineffective
Functional
organization
Functional
matrix
Balanced
matrix
Project
matrix
Project
organization
New product development
Construction
FIgure 2.8 Managers’ Perceptions of effectiveness of Various Structures on Project Success
Source: D. H. Gobeli and E. W. Larson. (1987). “Relative Effectiveness of Different Project Management
Structures,” Project Management Journal, 18(2): 81–85, figure on page 83. Copyright and all rights
reserved. Material from this publication has been reproduced with the permission of PMI.
2.5 Project Management Offices 57
Larson and Gobeli compared projects that had been managed in a variety of structural types, including
functional, matrix, and pure project. They differentiated among three subsets of matrix structure, labeled func-
tional matrix, balanced matrix, and project matrix, based on their perception of whether the matrix structure of a
firm leaned more heavily toward a functional approach, an evenly balanced style, or one more favorable toward
projects. After collecting data from a sample of more than 1,600 project managers, they identified those who
were conducting projects in each of the five organizational types and asked them to assess the effectiveness of
that particular structure in promoting or inhibiting effective project management practices. Their findings are
shown in Figure 2.8, highlighting the fact that, in general, project organizations do promote an atmosphere more
supportive of successful project management.
Interestingly, when Gobeli and Larson broke their sample up into new product development projects and
those related to construction, their findings were largely similar, with the exception that construction projects
were marginally more effective in matrix organizations. This suggests that structure plays a significant role in
the creation of successful projects.26
2.5 Project ManageMent oFFIces
A project management office (PMO) is defined as a centralized unit within an organization or depart-
ment that oversees or improves the management of projects.27 It is seen as a center for excellence in
project management in many organizations, existing as a separate organizational entity or subunit
that assists the project manager in achieving project goals by providing direct expertise in vital project
management duties such as scheduling, resource allocation, monitoring, and controlling the project.
PMOs were originally developed in recognition of the poor track record that many organizations have
demonstrated in running their projects. We cited some sobering statistics on the failure rates of IT proj-
ects, for example, in Chapter 1, indicating that the majority of such projects are likely to fail.
PMOs were created in acknowledgment of the fact that a resource center for project manage-
ment within a company can offer tremendous advantages. First, as we have noted, project managers
are called upon to engage in a wide range of duties, including everything from attending to the human
side of project management to handling important technical details. In many cases, these individuals
may not have the time or ability to handle all the myriad technical details—the activity scheduling,
resource allocation, monitoring and control processes, and so forth. Using a PMO as a resource center
shifts some of the burden for these activities from the project manager to a support staff that is dedi-
cated to providing this assistance. Second, it is clear that although project management is emerging as
a profession in its own right, there is still a wide gap in knowledge and expectations placed on project
managers and their teams. Simply put, they may not have the skills or knowledge for handling a num-
ber of project support activities, such as resource leveling or variance reporting. Having trained proj-
ect management professionals available through a PMO creates a “clearinghouse” effect that allows
project teams to tap into expertise when they need it.
Another benefit of the PMO is that it can serve as a central repository of all lessons learned,
project documentation, and other pertinent record keeping for ongoing projects, as well as for past
projects. This function allows all project managers a central access to past project records and lessons
learned materials, rather than having to engage in a haphazard search for these documents through-
out the organization. A fourth benefit of the PMO is that it serves as the dedicated center for project
management excellence in the company. As such, it becomes the focus for all project management pro-
cess improvements that are then diffused to other organizational units. Thus, the PMO becomes the
place in which new project management improvements are first identified, tested, refined, and finally,
passed along to the rest of the organization. Each project manager can use the PMO as a resource,
trusting that they will make themselves responsible for all project management innovations.
A PMO can be placed in any one of several locations within a firm.28 As Figure 2.9 demon-
strates, the PMO may be situated at a corporate level (Level 3) where it serves an overall corporate
support function. It can be placed at a lower functional level (Level 2) where it serves the needs
within a specific business unit. Finally, the PMO can be decentralized down to the actual proj-
ect level (Level 1) where it offers direct support for each project. The key to understanding the
function of the PMO is to recognize that it is designed to support the activities of the project man-
ager and staff, not replace the manager or take responsibility for the project. Under these circum-
stances, we see that the PMO can take a lot of the pressure off the project manager by handling the
58 Chapter 2 • The Organizational Context
administration duties, leaving the project manager free to focus on the equally important people
issues, including leading, negotiating, customer relationship building, and so forth.
Although Figure 2.9 gives us a sense of where PMOs may be positioned in the organization
and, by extension, clues to their supporting role depending on how they are structured, it is also
helpful to consider some of the PMO models. PMOs have been described as operating under one
of three alternative forms and purposes in companies: (1) weather station, (2) control tower, and (3)
resource pool.29 Each of these models has an alternative role for the PMO.
1. Weather station—Under the weather station model, the PMO is typically used only as a
tracking and monitoring device. In this approach, the assumption is often one in which
top management, feeling nervous about committing money to a wide range of projects,
wants a weather station as a tracking device, to keep an eye on the status of the projects
without directly attempting to influence or control them. The weather station PMO is
intended to house independent observers who focus almost exclusively on some key
questions, such as:
• What’s our progress? How is the project progressing against the original plan? What key
milestones have we achieved?
• How much have we paid for the project so far? How do our earned value projections look?
Are there any budgetary warning signals?
• What is the status of major project risks? Have we updated our contingency planning as
needed?
2. Control tower—The control tower model treats project management as a business skill to
be protected and supported. It focuses on developing methods for continually improving
project management skills by identifying what is working, where the shortcomings exist,
and how to resolve ongoing problems. Most importantly, unlike the weather station model,
which monitors project management activities only to report results to top management, the
control tower is a model that is intended to directly work with and support the activities of
the project manager and team. In doing so, it performs four functions:
• Establishes standards for managing projects—The control tower model of the PMO is
designed to create a uniform methodology for all project management activities, including
duration estimation, budgets, risk management, scope development, and so forth.
PO Level 3
PO Level 2
Level 1
Project A
Project B
PO
Project C
Business Unit
Corporate
Support
Chief Operating
Officer
Sales Delivery Support
PO
PO
FIgure 2.9 Alternative levels of Project offices
Source: W. Casey and W. Peck. (2001). “Choosing the Right PMO Setup,” PMNetwork,
15(2): 40–47, figure on page 44. Copyright and all rights reserved. Material from this
publication has been reproduced with the permission of PMI.
2.6 Organizational Culture 59
• Consults on how to follow these standards—In addition to determining the appropriate
standards for running projects, the PMO is set up to help project managers meet those stan-
dards through providing internal consultants or project management experts throughout
the development cycle as their expertise is needed.
• Enforces the standards—Unless there is some process that allows the organization to
enforce the project management standards it has developed and disseminated, it will not
be taken seriously. The control tower PMO has the authority to enforce the standards it has
established, either through rewards for excellent performance or sanctions for refusal to
abide by the standard project management principles. For example, the PMO for Accident
Fund Insurance Co. of America has full authority to stop projects that it feels are violating
accepted practices or failing to bring value to the company.
• Improves the standards—The PMO is always motivated to look for ways to improve the
current state of project management procedures. Once a new level of project performance
has been created, under a policy of continuous improvement, the PMO should already be
exploring how to make good practices better.
3. Resource pool—The goal of the resource pool PMO is to maintain and provide a cadre of
trained and skilled project professionals as they are needed. In essence, it becomes a clear-
inghouse for continually upgrading the skills of the firm’s project managers. As the company
initiates new projects, the affected departments apply to the resource pool PMO for assets
to populate the project team. The resource pool PMO is responsible for supplying project
managers and other skilled professionals to the company’s projects. In order for this model to
be implemented successfully, it is important for the resource pool to be afforded sufficiently
high status within the organization that it can bargain on an equal footing with other top
managers who need project managers for their projects. Referring back to Figure 2.7, the
resource pool model seems to work best when the PMO is generally viewed as a Level 3
support structure, giving the head of the PMO the status to maintain control of the pool of
trained project managers and the authority to assign them as deemed appropriate.
The PMO concept is rapidly being assimilated in a number of companies. However, it has some
critics. For example, some critics contend that it is a mistake to “place all the eggs in one basket” with
PMOs by concentrating all project professionals in one location. This argument suggests that PMOs
actually inhibit the natural, unofficial dissemination of project skills across organizational units by
maintaining them at one central location. Another potential pitfall is that the PMO, if its philosophy
is not carefully explained, can simply become another layer of oversight and bureaucracy within the
organization; in effect, rather than freeing up the project team by performing supporting functions, it
actually handcuffs the project by requiring additional administrative control. Another potential dan-
ger associated with the use of PMOs is that they may serve as a bottleneck for communications flow
across the organization,30 particularly between the parent organization and the project’s customer.
Although some of the criticisms of PMOs contain an element of truth, they should not be
used to avoid the adoption of a project office under the right circumstances. The PMO is, at its core,
recognition that project management skill development must be encouraged and reinforced, that
many organizations have great need of standardized project practices, and that a central, support-
ing function can serve as a strong source for continuous project skill improvement. Viewed in this
light, the PMO concept is likely to gain in popularity in the years to come.
2.6 organIzatIonal culture
The third key contextual variable in how projects are managed effectively is that of organizational
culture. So far, we have examined the manner in which a firm’s strategy affects its project manage-
ment, and how projects and portfolios are inextricably tied to a company’s vision and serve to
operationalize strategic choices. Structure constitutes the second piece of the contextual puzzle,
and we have demonstrated how various organizational designs can help or hinder the project
management process. Now we turn to the third contextual variable: an organization’s culture and
its impact on managing projects.
One of the unique characteristics of organizations is the manner in which each develops
its own outlook, operating policies and procedures, patterns of thinking, attitudes, and norms
of behavior. These characteristics are often as unique as an individual’s fingerprints or DNA
60 Chapter 2 • The Organizational Context
signature; in the same way, no two organizations, no matter how similar in size, products, operat-
ing environment, or profitability, are the same. Each has developed its own unique method for
indoctrinating its employees, responding to environmental threats and opportunities, and sup-
porting or discouraging operating behaviors. In other settings, such as anthropology, a culture is
seen as the collective or shared learning of a group, and it influences how that group is likely to
respond in different situations. These ideas are embedded in the concept of organizational culture.
One of the original writers on culture defined it as “the solution to external and internal problems
that has worked consistently for a group and that is therefore taught to new members as the correct
way to perceive, think about, and feel in relation to these problems.”31
Travel around Europe and you will quickly become immersed in a variety of cultures. You
will discern the unique cultural characteristics that distinguish nationalities, such as the Finnish
and Swedish. Differences in language, social behavior, family organization, and even religious
beliefs clearly demonstrate these cultural differences. Even within a country, cultural attitudes and
values vary dramatically. The norms, attitudes, and common behaviors of northern and southern
Italians lead to differences in dress, speech patterns, and even evening dining times. One of the key
elements in courses on international business identifies cultural differences as patterns of unique
behavior, so that business travelers or those living in other countries will be able to recognize
“appropriate” standards of behavior and cultural attitudes, even though these cultural patterns
may be very different from those of the traveler’s country or origin.
For project team members who are called upon to work on projects overseas, or who are linked
via the Internet and e-mail to other project team members from different countries, developing an
appreciation for cross-border cultural differences is critical. The values and attitudes expressed by
these various cultures are strong regulators of individual behavior; they define our belief systems
and work dedication, as well as our ability to function on cross-cultural project teams.
Research has begun to actively explore the impact that workplace cultures have on the per-
formance of projects and the manner in which individual project team members decide whether
or not they will commit to its goals. Consider two contrasting examples the author has witnessed:
In one Fortune 500 company, functional department heads for years have responded to all resource
requests from project managers by assigning their worst, newest, or lowest-performing personnel
to these teams. In effect, they have treated projects as dumping grounds for malcontents or poor
performers. In this organization, project teams are commonly referred to as “leper colonies.” It is
easy to imagine the response of a member of the firm to the news that he has just been assigned to
a new project! On the other hand, I have worked with an IT organization where the unspoken rule
is that all departmental personnel are to make themselves available as expert resources when their
help is requested by a project manager. The highest priority in the company is project delivery, and
all other activities are subordinated to achieving this expectation. It is common, during particu-
larly hectic periods, for IT members to work 12-plus hours per day, assisting on 10 or more projects
at any time. As one manager put it, “When we are in crunch time, titles and job descriptions don’t
mean anything. If it has to get done, we are all responsible—jointly—to make sure it gets done.”
The differences in managing projects at the companies illustrated in these stories are striking,
as is the culture that permeates their working environment and approach to project delivery. Our
definition of culture can be directly applied in both of these cases to refer to the unwritten rules of
behavior, or norms that are used to shape and guide behavior, that are shared by some subset of
organizational members, and that are taught to all new members of the company. This definition
has some important elements that must be examined in more detail:
• Unwritten—Cultural norms guide the behavior of each member of the organization but are
often not written down. In this way, there can be a great difference between the slogans or
inspirational posters found on company walls and the real, clearly understood culture that
establishes standards of behavior and enforces them for all new company members. For
example, Erie Insurance, annually voted one of the best companies to work for, has a strong,
supportive culture that emphasizes and rewards positive collaboration between functional
groups. Although the policy is not written down, it is widely held, understood by all, and
taught to new organization members. When projects require the assistance of personnel from
multiple departments, the support is expected to be there.
• Rules of behavior—Cultural norms guide behavior by allowing us a common language for
understanding, defining, or explaining phenomena and then providing us with guidelines
2.6 Organizational Culture 61
as to how best to react to these events. These rules of behavior can be very powerful and
commonly held: They apply equally to top management and workers on the shop floor.
However, because they are unwritten, we may learn them the hard way. For example, if you
were newly hired as a project engineer and were working considerably slower or faster than
your coworkers, it is likely that one of them would quickly clue you in on an acceptable level
of speed that does not make you or anyone else look bad by comparison.
• Held by some subset of the organization—Cultural norms may or may not be companywide.
In fact, it is very common to find cultural attitudes differing widely within an organization. For
example, blue-collar workers may have a highly antagonistic attitude toward top management;
members of the finance department may view the marketing function with hostility and vice
versa; and so forth. These “subcultures” reflect the fact that an organization may contain a num-
ber of different cultures, operating in different locations or at different levels. Pitney-Bowes, for
example, is a maker of postage meters and other office equipment. Its headquarters unit reflects
an image of stability, orderliness, and prestige. However, one of its divisions, Pitney-Bowes
Credit Corporation (PBCC), headquartered in Shelton, Connecticut, has made a name for itself
by purposely adopting an attitude of informality, openness, and fun. Its décor, featuring fake gas
lamps, a French café, and Internet surfing booths, has been described as resembling an “indoor
theme park.” PBCC has deliberately created a subculture that reflects its own approach to busi-
ness, rather than adopting the general corporate vision.32 Another example is the Macintosh
project team’s approach to creating a distinct culture at Apple while they were developing this
revolutionary system, to the point of being housed in different facilities from the rest of the com-
pany and flying a pirate flag from the flagpole!
• Taught to all new members—Cultural attitudes, because they are often unwritten, may not be
taught to newcomers in formal ways. New members of an organization pick up the behaviors
as they observe others engaging in them. In some organizations, however, all new hires are
immersed in a formal indoctrination program to ensure that they understand and appreciate the
organization’s culture. The U.S. Marines, for example, take pride in the process of indoctrination
and training for all recruits, which develops a collective, committed attitude toward the Marine
Corps. Google takes its new indoctrination procedures (“onboarding”) seriously. The company,
which onboarded over 7,000 new hires in 2013, has experimented with its orientation procedures
to help new employees, called “Nooglers,” make more social connections and get up to speed
more quickly. General Electric also sends new employees away for orientation, to be “tattooed
with the meatball,” as members of the company refer to the GE logo.
On the other hand, when allowed to get out of control, a culture can quickly become toxic and
work against the goals of the organization. For example, the Australian Olympic swim team has
historically been one of the strongest competitors at the summer competition and yet, in London
in 2012, the team managed to win just one gold medal, a stunningly poor result. An independent
review, commissioned in the aftermath of their performance, focused the blame on a failure of
leadership and culture on the team. The report cited a “toxic” culture involving “bullying, the mis-
use of prescription drugs, and a lack of discipline.” The worst performance in 20 years was directly
attributable to a lack of moral authority and discipline among team members.33
how do cultures Form?
When it is possible to view two organizations producing similar products within the context of
very individualistic and different cultures, the question of how cultures form gets particularly
interesting. General Electric’s Jet Engine Division and Rolls-Royce share many features, includ-
ing product lines. Both produce jet engines for the commercial and defense aircraft industries.
However, GE prides itself on its competitive, high-pressure culture that rewards aggressiveness
and high commitment, but also has a high “burnout” rate among engineers and mid-level manag-
ers. Rolls-Royce, on the other hand, represents an example of a much more paternalistic culture
that rewards loyalty and long job tenure.
Researchers have examined some of the powerful forces that can influence how a company’s
culture emerges. Among the key factors that affect the development of a culture are technology,
environment, geographical location, reward systems, rules and procedures, key organizational
members, and critical incidents.34
62 Chapter 2 • The Organizational Context
technology The technology of an organization refers to its conversion process whereby it trans-
forms inputs into outputs. For example, the technology of many project organizations is the project
development process in which projects are developed to fill a current need or anticipate a future
opportunity. The technical means for creating projects can be highly complex and automated or
relatively simple and straightforward. Further, the projects may be in the form of products or ser-
vices. Research suggests that the type of technology used within a project organization can influ-
ence the culture that it promotes. “High-technology” organizations represent an example of how a
fast-paced, technologically based culture can permeate through an organization.
envIronMent Organizations operate under distinct environmental pressures. A firm’s environ-
ment may be complex and rapidly changing, or it may remain relatively simple and stable. Some
firms are global, because their competition is literally worldwide, while other companies focus on
regional competition. Regardless of the specific circumstances, a company’s environment affects
the culture of the firm. For example, companies with simple and slow-changing environments may
develop cultures that reinforce low risk taking, stability, and efficiency. Firms in highly complex
environments often develop cultures aimed at promoting rapid response, external scanning for
opportunities and threats, and risk taking. In this way, the firm’s operating environment affects the
formation of the culture and the behaviors that are considered acceptable within it. For example,
a small, regional construction firm specializing in commercial real estate development is likely to
have more stable environmental concerns than a Fluor-Daniel or Bechtel, competing for a variety
of construction projects on a worldwide basis.
geograPhIcal locatIon Different geographical regions develop their own cultural mores and
attitudes. The farther south in Europe one travels, for example, the later the evening meal is typi-
cally eaten; in Spain, dinner may commence after 9 pm. Likewise, in the business world, culturally
based attitudes often coordinate with the geographical locations of firms or subsidiaries. It can
even happen within countries: Xerox Corporation, for example, had tremendous difficulty in try-
ing to marry the cultures of its corporate headquarters in Connecticut with the more informal and
down-to-earth mentalities of its Palo Alto Research Center (PARC) personnel. Projects at one site
were done much differently than those undertaken at another location. It is important not to over-
state the effect that geography can play, but it certainly can result in cultural disconnects, particu-
larly in cases where organizations have developed a number of dispersed locations, both within
and outside of their country of origin.
reward systeMs The types of rewards that a firm offers to employees go a long way toward
demonstrating the beliefs and actions its top management truly values, regardless of what official
company policies might be. Reward systems support the view that, in effect, a company gets what
it pays for. An organization that publicly espouses environmental awareness and customer service
but routinely promotes project managers who violate these principles sends a loud message about
its real interests. As a result, the culture quickly forms around acts that lead to pollution, dishon-
esty, or obfuscation. One has only to look at past business headlines regarding corporate malfea-
sance at Enron, WorldCom, Goldman Sachs, or Adelphia Cable Company to see how the culture of
those organizations rewarded the type of behavior that ultimately led to accounting fraud, public
exposure, and millions of dollars in fines.
rules and Procedures One method for influencing a project management culture is to create
a rulebook or system of procedures for employees to clarify acceptable behavior. The idea behind
rules and procedures is to signal companywide standards of behavior to new employees. The
obvious problem arises when public or formal rules conflict with informal rules of behavior. At
Texas Instruments headquarters in Dallas, Texas, a formal rule is that all management staff works
a standard 40-hour workweek. However, the informal rule is that each member of the company
is really expected to work a 45-hour week, at a minimum, or as one senior manager explained
to a newly hired employee, “Here, you work nine hours each day: eight for you and one for TI.”
In spite of the potential for disagreements between formal and informal rules, most programs
in creating supportive project-based organizations argue that the first step toward improving
patterns of behavior is to formally codify expectations in order to alter dysfunctional project
cultures. Rules and procedures, thus, represent a good starting point for developing a strong
project culture.
2.6 Organizational Culture 63
key organIzatIonal MeMbers Key organizational members, including the founder of the or-
ganization, have a tremendous impact on the culture that emerges within the company. When the
founder is a traditional entrepreneur who encourages free expression or flexibility, this attitude
becomes ingrained in the organization’s culture in a powerful way. The founders of Ben and Jerry’s
Ice Cream, two proud ex-hippies, created a corporate culture that was unique and expressed their
desire to develop a “fun” alternative to basic capitalism. A corporate culture in which senior execu-
tives routinely flaunt the rules or act contrary to stated policies demonstrates a culture in which
there is one rule for the people at the top and another for everyone else.
crItIcal IncIdents Critical incidents express culture because they demonstrate for all workers
exactly what it takes to succeed in an organization. In other words, critical incidents are a public
expression of what rules really operate, regardless of what the company formally espouses. Critical
incidents usually take the form of stories that are related to others, including new employees, illus-
trating the types of actions that are valued. They become part of the company’s lore, either for good
or ill. In a recent year, General Electric’s Transportation Systems Division built up a large backlog
of orders for locomotives. The company galvanized its production facilities to work overtime to
complete this backlog of work. As one member of the union related, “When you see a unit vice
president show up on Saturday, put on an environmental suit, and work on the line spray painting
locomotives with the rest of the workers, you realize how committed the company was to getting
this order completed on time.”
organizational culture and Project Management
What are the implications of an organizational culture on the project management process? Culture
can affect project management in at least four ways. First, it affects how departments are expected
to interact and support each other in pursuit of project goals. Second, the culture influences the
level of employee commitment to the goals of the project on balance with other, potentially com-
peting goals. Third, the organizational culture influences project planning processes such as the
way work is estimated or how resources are assigned to projects. Finally, the culture affects how
managers evaluate the performance of project teams and how they view the outcomes of projects.
• Departmental interaction—Several of the examples cited in this chapter have focused on the
importance of developing and maintaining a solid, supportive relationship between functional
departments and project teams. In functional and matrix organizations, power either resides
directly with department heads or is shared with project managers. In either case, the manner
in which these department heads approach their willingness to support projects plays a hugely
important role in the success or failure of new project initiatives. Not surprisingly, cultures that
favor active cooperation between functional groups and new projects are much more success-
ful than those that adopt a disinterested or even adversarial relationship.
• Employee commitment to goals—Projects depend on the commitment and motivation of the
personnel assigned to their activities. A culture that promotes employee commitment and,
when necessary, self-sacrifice through working extra hours or on multiple tasks is much
more successful than a culture in which the unwritten rules seem to imply that, provided
you don’t get caught, there is nothing wrong with simply going through the motions. AMEC
Corporation, for example, takes its training of employees seriously when it comes to instill-
ing a commitment to safety. AMEC is a multinational construction company, headquartered
in Canada. With annual revenues of nearly $7 billion and 29,000 employees, AMEC is one of
the largest construction firms in the world. It takes its commitment to core values extremely
seriously, impressing upon all employees their responsibilities to customers, business part-
ners, each other, the company, and the wider social environment. From the moment new
people enter the organization, they are made aware of the need to commit to the guiding
principles of ethical behavior, fairness, commitment to quality, and safety.35
• Project planning—We will explore the process of activity duration estimation in a later chapter;
however, for now it is important just to note that the way in which employees decide to support the
project planning processes is critical. Because activity estimation is often an imprecise process, it
is common for some project team members to “pad” their estimates to give themselves as much
time as possible. These people are often responding to a culture that reinforces the idea that it is
better to engage in poor estimation and project planning than to be late with deliverables.
64 Chapter 2 • The Organizational Context
Conversely, when there is a culture of trust among project team members, they are more
inclined to give honest assessments, without fearing that, should they be wrong, they will be
punished for our mistakes.
• Performance evaluation—Supportive cultures encourage project team members taking the
initiative, even if it means taking risks to boost performance. When a culture sends the signal
that the goal of the firm is to create innovative products, it reinforces a project management
culture that is aggressive and offers potentially high payoffs (and the occasional significant
loss!). As noted earlier, organizations get what they pay for. If the reward systems are posi-
tive and reinforce a strong project mentality, they will reap a whirlwind of opportunities. On
the other hand, if they tacitly support caution and playing it safe, the project management
approaches will equally reflect this principle.
A culture can powerfully affect the manner in which departments within an organization view
the process of project management. The culture also influences the manner in which employees
commit themselves to the goals of their projects as opposed to other, potentially competing goals.
Through symbols, stories, and other signs, companies signal their commitment to project manage-
ment. This message is not lost on members of project teams, who take their cues regarding expected
performance from supervisors and other cultural artifacts. Visible symbols of a culture that advo-
cates cross-functional cooperation will create employees who are prepared and motivated to work in
harmony with other groups on project goals. Likewise, when an IT department elevates some of its
members to hero status because they routinely went the extra mile to handle system user complaints
or problems, the company has sent the message that they are all working toward the same goals and
all provide value to the organization’s operations, regardless of their functional background.
To envision how culture can influence the planning and project monitoring processes, suppose
that, in your organization, it was clear that those involved in late projects would be severely punished
for the schedule slippage. You and your fellow project team members would quickly learn that it is
critical to avoid going out on a limb to promise early task completion dates. It is much safer to grossly
overestimate the amount of time necessary to complete a task in order to protect yourself. The orga-
nizational culture in this case breeds deceit. Likewise, it may be safer in some organizations to delib-
erately hide information in cases where a project is running off track, or mislead top management
with optimistic and false estimates of project progress. Essentially, the issue is this: Does the corporate
culture encourage authentic information and truthful interactions, or is it clear that the safer route is to
first protect yourself, regardless of the effect this behavior may have on the success of a project?
Project Profile
electronic Arts and the Power of Strong culture in Design teams
Electronic Arts is one of the top computer gaming companies in the world, known for perennial console and PC best-
sellers like Madden NFL, FIFA, Battlefield, Need for Speed, the Sims, and more. In the computer gaming industry, speed
to market for new games is critical. Making award-winning games requires a combination of talented designers, graphic
artists, programmers, and testers, all working to constantly update best-selling games and introduce new choices for
the gaming community. It is a fast-paced environment that thrives on a sense of chaos and disruptive new technologies
and ideas. In this setting, the former head of the EA Labels group, Frank Gibeau, has developed a winning formula for
game design. He doesn’t believe in large teams for developing games; instead his goal is to preserve each studio’s cul-
ture by supporting its existing talent.
Gibeau’s belief is that the best games come from small teams with strong cultures. One of his principles is to limit
the size of project teams to promote their commitment to each other and to the quality of the games they design.
Gibeau notes that when too many people get involved, there is a law of diminishing returns that sets in, because every-
thing becomes too hard to manage – too many people, too many problems. In addition, it’s easier to maintain a unique
culture when teams are kept small and allowed to stay in place for an extended time. As a result, EA supports the use of
smaller teams over a longer period of time to get the game right. As a result, he is careful to ensure that the different
studios don’t over-expand and get too big. Gibeau remains a firm believer in the “small is better” philosophy because
it supports dynamic cultures and action-oriented attitudes.
Electronic Arts’ approach to game design is centered on small teams, given the opportunity to work as freely
as possible, maintain their distinctive group identities, and thereby promote a strong internal culture. EA executives
have recognized that these unique team cultures are critical for encouraging the kind of creativity and commitment to
the work that make for technologically advanced games, so necessary for maintaining a competitive edge in a rapidly
evolving industry.36
Summary 65
What are some examples of an organization’s culture influencing how project teams actually
perform and how outcomes are perceived? One common situation is the phenomenon known as
escalation of commitment. It is not uncommon to see this process at work in project organizations.
escalation of commitment occurs when, in spite of evidence identifying a project as failing, no
longer necessary, or beset by huge technical or other difficulties, organizations continue to support
it past the point an objective assessment would suggest that it should be terminated.37 Although
there are a number of reasons for escalation of commitment to a failed decision, one important rea-
son is the unwillingness of the organization to acknowledge failure or its culture’s working toward
blinding key decision makers to the need to take corrective action.
The reverse is also true: In many organizations, projects are managed in an environment in
which the culture strongly supports cross-functional cooperation, assigns sufficient resources to
enable project managers to schedule aggressively, and creates an atmosphere that makes it pos-
sible to develop projects optimally. It is important to recognize that an organization’s culture can
be a strong supporter of (as well as an inhibitor to) the firm’s ability to manage effective projects.
Because of this impact, organizational culture must be managed, constantly assessed, and, when
necessary, changed in ways that promote project management rather than discouraging its effi-
cient practice.
The context within which we manage our projects is a key determinant in the likelihood of
their success or failure. Three critical contextual factors are the organization’s strategy, structure,
and culture. Strategy drives projects; projects operationalize strategy. The two must work together
in harmony. The key is maintaining a clear linkage between overall strategy and the firm’s portfo-
lio of projects, ensuring that some form of alignment exists among all key elements: vision, objec-
tives, strategies, goals, and programs. Further, companies are recognizing that when they adopt
a structure that supports projects, they get better results. Likewise, when the cultural ambience
of the organization favors project management approaches, they are much more likely to be suc-
cessful. Some of these project management approaches are the willingness to take risks, to think
creatively, to work closely with other functional departments, and so forth. More and more we
are seeing successful project-based organizations recognizing the simple truth that the context in
which they are trying to create projects is a critical element in seeing their projects through to com-
mercial and technical success.
Summary
1. Understand how effective project management
contributes to achieving strategic objectives. This
chapter linked projects with corporate strategy.
Projects are the “building blocks” of strategy because
they serve as the most basic tools by which firms can
implement previously formulated objectives and
strategies.
2. recognize three components of the corporate
strategy model: formulation, implementation,
and evaluation. The chapter explored a generic
model of corporate strategic management,
distinguishing between the three components of
strategy formulation, strategy implementation,
and strategy evaluation. Each of these compo-
nents incorporates a number of subdimensions.
For example, strategy formulation includes the
stages of:
• Developing a vision and mission.
• Performing an internal audit (assessing
strengths and weaknesses).
• Performing an external audit (assessing
opportunities and threats).
• Establishing long-term objectives.
• Generating, evaluating, and selecting strategies.
Strategy implementation requires the coordi-
nation of managerial, technological, financial, and
functional assets to reinforce and support strategies.
Projects often serve as the means by which strategy
implementation is actually realized. Finally, strategy
evaluation requires an ability to measure results and
provide feedback to all concerned parties.
3. see the importance of identifying critical proj-
ect stakeholders and managing them within the
context of project development. The chapter
addresses a final strategic question: the relation-
ship between the firm and its stakeholder groups.
Project stakeholders are either internal to the
firm (top management, other functional depart-
ments, support personnel, internal customers) or
external (suppliers, distributors, intervenors,
governmental agencies and regulators, and
customers). Each of these stakeholder groups must
be managed in a systematic manner; the process
66 Chapter 2 • The Organizational Context
moves from identification to needs assessment,
choice of strategy, and routine evaluation and
adjustment. Stakeholder management, in con-
junction with strategic management, forms the
context by which projects are first evaluated and
then managed.
4. recognize the strengths and weaknesses of three
basic forms of organizational structure and their
implications for managing projects. We exam-
ined the strengths and weaknesses of three major
organizational structure types, including func-
tional, project, and matrix structures. The nature
of each of the three structural types and their
relationship to project management were addressed.
The functional structure, while the most common
type of organizational form, was shown to be per-
haps the least effective type for managing projects
due to a variety of limitations. The project structure,
in which the organization uses its projects as the
primary form of grouping, has several advantages
for managing projects, although it has some general
disadvantages as well. Finally, the matrix structure,
which seeks to balance the authority and activities
between projects and functions using a dual hier-
archy system, demonstrates its own unique set of
strengths and weaknesses for project management
practice.
5. Understand how companies can change their
structure into a “heavyweight project organiza-
tion” structure to facilitate effective project man-
agement practices. The movements within many
organizations to a stronger customer focus in their
project management operations has led to the
creation of a heavyweight project organization, in
which the project manager is given high levels of
authority in order to further the goals of the project.
Because customer satisfaction is the goal of these
organizations, they rely on their project managers
to work toward project success within the frame-
work of greater control of project resources and
direct contact with clients.
6. identify the characteristics of three forms of proj-
ect management office (PMo). Project manage-
ment offices (PMOs) are centralized units within an
organization or department that oversee or improve
the management of projects. There are three
predominant types of PMO in organizations. The
weather station is typically used only as a tracking
and monitoring device. In this approach, the role
of the PMO is to keep an eye on the status of the
projects without directly attempting to influence or
control them. The second form of PMO is the con-
trol tower, which treats project management as
a business skill to be protected and supported.
It focuses on developing methods for continu-
ally improving project management skills by
identifying what is working, where the shortcom-
ings exist, and methods for resolving ongoing prob-
lems. Most importantly, unlike the weather station
model, which only monitors project management
activities to report results to top management, the
control tower is a model that is intended to directly
work with and support the activities of the project
manager and team. Finally, the resource pool is a
PMO intended to maintain and provide a cadre of
trained and skilled project professionals as they are
needed. It serves as a clearinghouse for continually
upgrading the skills of the firm’s project managers.
As the company initiates new projects, the affected
departments apply to the resource pool PMO for
assets to populate the project team.
7. Understand key concepts of corporate culture and
how cultures are formed. Another contextual
factor, organizational culture, plays an important
role in influencing the attitudes and values shared
by members of the organization, which, in turn,
affects their commitment to project management
and its practices. Culture is defined as the unwrit-
ten rules of behavior, or the norms that are used to
shape and guide behavior, that are shared by some
subset of organizational members and are taught
to all new members of the company. When the firm
has a strong culture that is supportive of project
goals, members of the organization are more likely
to work collaboratively, minimize departmental
loyalties that could take precedence over proj-
ect goals, and commit the necessary resources to
achieve the objectives of the project.
Organizational cultures are formed as the result
of a variety of factors, including technology, environ-
ment, geographical location, reward systems, rules
and procedures, key organizational members, and
critical incidents. Each of these factors can play a role
in determining whether the organization’s culture
is strong, collaborative, customer-focused, project-
oriented, fast-paced, and so forth.
8. recognize the positive effects of a supportive
organizational culture on project management
practices versus those of a culture that works
against project management. Finally, this chapter
examined the manner in which supportive cultures
can work in favor of project management and ways
in which the culture can inhibit project success. One
common facet of a “sick” culture is the escalation of
a commitment problem, in which key members of
the organization continue to increase their support
for clearly failing courses of action or problematic
projects. The reasons for escalation are numerous,
including our prestige is on the line, the conviction
that we are close to succeeding, fear of ridicule if we
admit to failure, and the culture of the organization
in which we operate.
Key Terms
Balanced matrix (p. 54)
Culture (p. 60)
Escalation of
commitment (p. 65)
External environment (p. 48)
Functional structure (p. 48)
Heavyweight project
organization (p. 55)
Intervenor groups (p. 42)
Matrix organization (p. 53)
Matrix structure (p. 53)
Objectives (p. 39)
Organizational
culture (p. 60)
Organizational
structure (p. 47)
Project management
office (p. 57)
Project organizations
(p. 50 )
Project stakeholders
(p. 41)
Project structure (p. 51)
Resources (p. 53)
Stakeholder
analysis (p. 41)
Strategic management
(p. 39)
Strong matrix (p. 54)
Technology (p. 62)
TOWS matrix (p. 40)
Weak matrix (p. 54)
Discussion Questions
2.1 The chapter suggests that a definition of strategic man-
agement includes four components:
a. Developing a strategic vision and sense of mission
b. Formulating, implementing, and evaluating
c. Making cross-functional decisions
d. Achieving objectives
Discuss how each of these four elements is important in un-
derstanding the challenge of strategic project management.
How do projects serve to allow an organization to realize
each of these four components of strategic management?
2.2 Discuss the difference between organizational objectives
and strategies.
2.3 Your company is planning to construct a nuclear power
plant in Oregon. Why is stakeholder analysis important
as a precondition of the decision whether or not to follow
through with such a plan? Conduct a stakeholder analysis
for a planned upgrade to a successful software product.
Who are the key stakeholders?
2.4 Consider a medium-sized company that has decided to
begin using project management in a wide variety of its
operations. As part of its operational shift, it is going to
adopt a project management office somewhere within the
organization. Make an argument for the type of PMO it
should adopt (weather station, control tower, or resource
pool). What are some key decision criteria that will help it
determine which model makes the most sense?
2.5 What are some of the key organizational elements that
can affect the development and maintenance of a sup-
portive organizational culture? As a consultant, what
advice would you give to a functional organization that
was seeking to move from an old, adversarial culture,
where the various departments actively resisted helping
one another, to one that encourages “project thinking”
and cross-functional cooperation?
2.6 You are a member of the senior management staff at XYZ
Corporation. You have historically been using a functional
structure setup with five departments: finance, human re-
sources, marketing, production, and engineering.
a. Create a drawing of your simplified functional struc-
ture, identifying the five departments.
b. Assume you have decided to move to a project struc-
ture. What might be some of the environmental
pressures that would contribute to your belief that it is
necessary to alter the structure?
c. With the project structure, you have four ongoing proj-
ects: stereo equipment, instrumentation and testing
equipment, optical scanners, and defense communica-
tions. Draw the new structure that creates these four proj-
ects as part of the organizational chart.
2.7 Suppose you now want to convert the structure from that
in Question 6 to a matrix structure, emphasizing dual
commitments to function and project.
a. Re-create the structural design to show how the matrix
would look.
b. What behavioral problems could you begin to anticipate
through this design? That is, do you see any potential
points of friction in the dual hierarchy setup?
CaSe STuDy 2.1
Rolls-Royce Corporation
(continued)
Although the name Rolls-Royce is inextricably linked
with its ultra-luxurious automobiles, the modern Rolls-
Royce operates in an entirely different competitive en-
vironment. A leading manufacturer of power systems
for aerospace, marine, and power companies, Rolls’s
market is focused on developing jet engines for a
variety of uses, both commercial and defense-related.
In this market, the company has two principal competi-
tors, General Electric and Pratt & Whitney (owned by
United Technologies). There are a limited number of
smaller, niche players in the jet engine market, but their
impact from a technical and commercial perspective is
minor. Rolls, GE, and Pratt & Whitney routinely engage
in fierce competition for sales to defense contractors
Case Study 2.1 67
68 Chapter 2 • The Organizational Context
and the commercial aviation industry. The two main
airframe manufacturers, Boeing and Airbus, make
continual multimillion-dollar purchase decisions that
are vital for the ongoing success of the engine makers.
Airbus, a private consortium of several European part-
ner companies, has drawn level with Boeing in sales in
recent years. Because the cost of a single jet engine, in-
cluding spare parts, can run to several million dollars,
winning large orders from either defense or commer-
cial aircraft builders represents an ongoing challenge
for each of the “big three” jet engine manufacturers.
Airlines in developing countries can often be a lucra-
tive but risky market for these firms. Because the countries
do not maintain high levels of foreign exchange, it is not
unknown, for example, for Rolls (or its competitors) to
take partial payment in cash with assorted commodities to
pay the balance. Hence, a contract with Turkey’s national
airline may lead to some monetary payment for Rolls,
along with several tons of pistachios or other trade goods!
To maintain their sales and service targets, these jet engine
makers routinely resort to creative financing, long-term
contracts, or asset-based trading deals. Overall, however,
the market for jet engines is projected to continue to expand
at huge rates. Rolls-Royce projects a 20-year window with
a potential market demand of 70,000 engines, valued at
over $400 billion in civil aerospace alone. When defense
contracts are factored in as well, the revenue projections
for jet engine sales are likely to be enormous. As Rolls sees
the future, the single biggest market growth opportunity
is in the larger, greater thrust engines, designed to be
paired with larger jet aircraft.
Rolls-Royce is currently engaged in a strategic
decision that offers the potential for huge payoffs or sig-
nificant losses as it couples its latest engine technology,
the “Trent series,” with Airbus’s decision to develop an
ultra-large commercial aircraft for long-distance travel.
The new Airbus design, the 380 model, seats more than
550 people, flying long-distance routes (up to 8,000
miles). The Trent 900, with an engine rating of 70,000
pounds thrust per engine, has been created at great
expense to see service in the large jet market. The proj-
ect reflects a strategic vision shared by both Airbus and
Rolls-Royce that the commercial passenger market will
triple in the next 20 years. As a result, future opportu-
nities will involve larger, more economically viable air-
craft. Since 2007, Airbus has delivered a total of 40 A380s
to its customers, with 17 in 2010. Their total order book
currently sits at 234 aircraft ordered. Collectively, Airbus
and Rolls-Royce have taken a large financial gamble that
their strategic vision of the future is the correct one.
Questions
1. Who are Rolls’s principal project management
stakeholders? How would you design stakeholder
management strategies to address their concerns?
2. Given the financial risks inherent in developing a
jet engine, make an argument, either pro or con,
for Rolls to develop strategic partnerships with
other jet engine manufacturers in a manner similar
to Airbus’s consortium arrangement. What are the
benefits and drawbacks in such an arrangement?
CaSe STuDy 2.2
Classic Case: Paradise Lost—The Xerox Alto38
Imagine the value of cornering the technological market
in personal computing. How much would a five-year
window of competitive advantage be worth to a company
today? It could easily mean billions in revenue, a stellar
industry reputation, future earnings ensured—and the
list goes on. For Xerox Corporation, however, something
strange happened on the way to industry leadership. In
1970, Xerox was uniquely positioned to take advantage
of the enormous leaps forward it had made in office au-
tomation technology. Yet the company stumbled badly
through its own strategic myopia, lack of nerve, structural
inadequacies, and poor choices. This is the story of the
Xerox Alto, the world’s first personal computer and one
of the great “what if?” stories in business history.
The Alto was not so much a step forward as it was
a quantum leap. Being in place and operating at the end
of 1973, it was the first stand-alone personal computer to
combine bit-mapped graphics, a mouse, menu screens,
icons, an Ethernet connection, a laser printer, and word
processing software. As a result of the combined efforts
of an impressive collection of computer science geniuses
headquartered at Xerox’s Palo Alto Research Center
(PARC), the Alto was breathtaking in its innovative
appeal. It was PARC’s answer to Xerox’s top management
command to “hit a home run.” Xerox had profited earlier
from just such a home run in the form of the Model 914
photocopier, a technological innovation that provided the
impetus to turn Xerox into a billion-dollar company in the
1960s. The Alto represented a similar achievement.
What went wrong? What forces combined to
ensure that no more than 2,000 Altos were produced
and that none was ever brought to market? (They were
used only inside the company and at some university
sites.) The answer could lie in the muddled strategic
thinking that took place at Xerox while the Alto was in
development.
I recently worked with an organization that adopted
a mind-set in which it was assumed that the best way
to keep project team members working hard was to
unilaterally trim their task duration estimates by 20%.
Suppose that you were asked to estimate the length of time
necessary to write computer code for a particular software
product and you determined that it should take about 80
hours. Knowing you were about to present this informa-
tion to your supervisor and that she was going to immedi-
ately cut the estimate by 20%, what would be your course
of action? You would probably first add a “fudge factor” to
the estimate in order to protect yourself. The conversation
with the boss might go something like this:
Boss “Have you had a chance to estimate that
coding sequence yet?”
You Yes, it should take me 100 hours.”
Boss “That’s too long. I can only give you 80
hours, tops.”
You (Theatrical sigh) “Well, if you say so, but
I really don’t know how
I can pull this off.”
Once you leave the office and shut the door, you
turn with a smile and whisper, “Gotcha!”
Questions
1. How does the organization’s culture support this
sort of behavior? What pressures does the manager
face? What pressures does the subordinate face?
2. Discuss the statement, “If you don’t take my esti-
mates seriously, I’m not going to give you serious
estimates!” How does this statement apply to this
example?
CaSe STuDy 2.3
Project Task Estimation and the Culture of “Gotcha!”
The history of Xerox during this period shows a
company that stepped back from technological leader-
ship into a form of incrementalism, making it content to
follow IBM’s lead in office automation. Incrementalism
refers to adopting a gradualist approach that plays it
safe, avoiding technological leaps, large risks, and con-
sequently the possibility of large returns. In 1974, Xerox
decided to launch the Model 800 magnetic tape word
processor rather than the Alto because the Model 800
was perceived as the safer bet. During the next five years,
a series of ill-timed acquisitions, lawsuits, and reorgani-
zations rendered the Alto a casualty of inattention. What
division would oversee its development and launch?
Whose budget would support it, and PARC in general?
By leaving such tough decisions unmade, Xerox wasted
valuable time and squandered its technological window
of opportunity. Even when clear indications showed that
competitor Wang was in line to introduce its own line
of office systems, Xerox could not take the step to bring
the Alto to market. By 1979, Xerox’s unique opportunity
was lost. No longer was the Alto a one-of-a-kind tech-
nology, and the company quietly shelved any plans for
its commercial introduction.
Perhaps the ultimate irony is this: Here was a
company that had made its name through the phenom-
enal success of a highly innovative product, the Model
914 photocopier, but it did not know how to handle
the opportunities presented by the next phenomenon.
The Alto was so advanced that the company seemed
unable to comprehend its possibilities. Executives did
not have a strategic focus that emphasized a continual
progression of innovation. Instead, they were directed
toward remaining neck-and-neck with the competition in
an incremental approach. When competitor IBM released
a new electric typewriter, Xerox responded in the same
incremental way. The organizational structure at Xerox
did not allow any one division or key manager to become
the champion for new technologies like the Alto.
In 1979 Steven Jobs, president of Apple Computer,
was given a tour of the PARC complex and saw an Alto
in use. He was so impressed with the machine’s features
and operating capabilities that he asked when it was due
to be commercially launched. When told that much of
this technology had been developed in 1973, Jobs became
“physically sick,” he later recounted, at the thought of the
opportunity Xerox had forgone.
Questions
1. Do you see a logical contradiction in Xerox’s will-
ingness to devote millions of dollars to support
pure research sites like PARC and its refusal to
commercially introduce the products developed?
2. How did Xerox’s strategic vision work in favor of
or against the development of radical new tech-
nologies such as the Alto?
3. What other unforeseeable events contributed to
making Xerox’s executives unwilling to take any
new risks precisely at the time the Alto was ready
to be released?
4. “Radical innovation cannot be too radical if we
want it to be commercially successful.” Argue ei-
ther in favor of or against this statement.
Case Study 2.3 69
70 Chapter 2 • The Organizational Context
Widgets ’R Us (WRU) is a medium-sized firm specializ-
ing in the design and manufacturing of quality widgets.
The market for widgets has been stable. Historically,
WRU has had a functional organization design with
four departments: accounting, sales, production, and
engineering. This design has served the company well,
and it has been able to compete by being the low-priced
company in the industry.
In the past three years, the demand for widgets
has exploded. New widgets are constantly being
developed to feed the public’s seemingly insatiable
demand. The average life cycle of a newly released
widget is 12–15 months. Unfortunately, WRU is find-
ing itself unable to compete successfully in this new,
dynamic market. The CEO has noted a number of
problems. Products are slow to market. Many new
innovations have passed right by WRU because the
company was slow to pick up signs from the mar-
ketplace that they were coming. Internal communi-
cation is very poor. Lots of information gets kicked
“upstairs,” and no one seems to know what hap-
pens to it. Department heads constantly blame other
department heads for the problems.
Questions
1. You have been called in as a consultant to analyze
the operations at WRU. What would you advise?
2. What structural design changes might be under-
taken to improve the operations at the company?
3. What are the strengths and weaknesses of the
alternative solutions the company could employ?
CaSe STuDy 2.4
Widgets ’R Us
2.1 Wegmans has been consistently voted one of the 100 best com-
panies to work for in the United States by Fortune magazine. In
fact, in 2005 it was ranked number 1, and in 2012 it was ranked
number 4. Go to its Web site, www.wegmans.com, and click on
“About Us.” What messages, formal and informal, are being
conveyed about Wegmans through its Web site? What does the
Web site imply about the culture of the organization?
2.2 Go to the Web site www.projectstakeholder.com and ana-
lyze some of the case studies found on the Web site. What
do these cases suggest about the importance of assessing
stakeholder expectations for a project before it has begun
its development process? In other words, what are the
risks of waiting to address stakeholder concerns until after
a project has begun?
2.3 Go to a corporate Web site of your choice and access the
organizational chart. What form of organization does this
chart represent: functional, project, matrix, or some other
form? Based on our discussion in this chapter, what would
be the likely strengths and weaknesses of this organiza-
tion’s project management activities?
2.4 Access the corporate Web site for Fluor-Daniel Corporation
and examine its “Compliance and Ethics” section at www.
fluor.com/sustainability/ethics_compliance/Pages/
default.aspx. What does the “Fluor Code of Business
Conduct and Ethics” suggest about the way the company
does business? What are the strategic goals and directions
that naturally flow from the ethical code? In your opinion,
how would the ethics statement influence the manner in
which the company manages its projects?
PMP certificAtion sAMPle QUestions
1. What is the main role of the functional manager?
a. To control resources
b. To manage the project when the project manager
isn’t available
c. To define business processes
d. To manage the project manager
2. What is the typical role of senior management on a project?
a. Support the project
b. Pay for it
c. Support the project and resolve resource and other
conflicts
d. Resolve resource and other conflicts
3. What is an organization that controls project managers,
documentation, and policies called?
a. Project management office
b. Strong matrix
c. Functional
d. Pure project
4. A business analyst has a career path that has been very
important to her throughout the 10 years of her career.
She is put on a project with a strong matrix organiza-
tional structure. Which of the following is likely viewed
as a negative of being on the project?
a. Being away from the group and on a project that
might make it more difficult to get promoted
b. Working with people who have similar skills
Internet exercises
c. Working long hours because the project is a high
priority
d. Not being able to take her own certification tests
because she is so busy
5. The functional manager is planning the billing system
replacement project with the newest project manager at
the company. In discussing this project, the functional
manager focuses on the cost associated with running
the system after it is created and the number of years the
system will last before it must be replaced. What best
describes what the functional manager is focusing on?
a. Project life cycle
b. Product life cycle
c. Project management life cycle
d. Program management life cycle
Internet Exercises 71
Answers: 1. a—The functional manager runs the day-to-day
operations of his department and controls the resources;
2. c—Because senior managers usually outrank the project
manager, they can help with resolving any resource or other
conflicts as they arise; 3. a—The project management office
(PMO) typically has all of these responsibilities; 4. a—Being
away from her functional group may cause her to feel that
her efforts on behalf of the project are not being recognized
by her functional manager, since the project employs a strong
matrix structure; 5. b—The functional manager is focusing on
the product life cycle, which is developed based on an example
of a successful project and encompasses the range of use for the
product.
72 Chapter 2 • The Organizational Context
inteGrAteD Project
Building Your Project Plan
exercIse 1—develoPIng the Project narratIve and goals
You have been assigned to a project team to develop a new product or service for your organiza-
tion. Your challenge is to first decide on the type of product or service you wish to develop. The
project choices can be flexible, consisting of options as diverse as construction, new product devel-
opment, IT implementation, and so forth.
Develop a project scope write-up on the project you have selected. Your team is expected to cre-
ate a project history, complete with an overview of the project, an identifiable goal or goals (including
project targets), the general project management approach to be undertaken, and significant proj-
ect constraints or potential limiting effects. Additionally, if appropriate, identify any basic resource
requirements (i.e., personnel or specialized equipment) needed to complete the project. What is most
important at this stage is creating a history or narrative of the project you have come up with, includ-
ing a specific statement of purpose or intent (i.e., why the project is being developed, what it is, what
niche or opportunity it is aimed to address).
The write-up should fully explain your project concept, constraints, and expectations. It is
not necessary to go into minute detail regarding the various subactivities or subcomponents of the
project; it is more important to concentrate on the bigger picture for now.
saMPle background analysIs and Project
narratIve For abcuPs, Inc.
Founded in 1990, ABCups, Inc., owns and operates 10 injection-molding machines that produce
plastic drinkware. ABCups’s product line consists of travel mugs, thermal mugs, steins, and sports
tumblers. The travel mugs, thermal mugs, and steins come in two sizes: 14 and 22 ounces. The sports
tumblers are offered only in the 32-ounce size. All products except the steins have lids. The travel and
thermal mugs consist of a liner, body, and lid. The steins and sports tumblers have no lining. There
are 15 colors offered, and any combination of colors can be used. The travel and thermal mugs have
a liner that needs to be welded to the outer body; subcontractors and screen printers weld the parts
together. ABCups does no welding, but it attaches the lid to the mug. ABCups’s customer base
consists primarily of distributors and promotional organizations. Annual sales growth has remained
steady, averaging 2%–3% each year. Last year’s revenues from sales were $70 million.
current Process
ABCups’s current method for producing its product is as follows:
1. Quote job.
2. Receive/process order.
3. Schedule order into production.
4. Mold parts.
5. Issue purchase order to screen printer with product specifications.
6. Ship parts to screen printer for welding and artwork.
7. Receive returned product from screen printer for final assembly and quality control.
8. Ship product to customer.
At current processing levels, the entire process can take from two to four weeks, depending
on order size, complexity, and the nature of current production activity.
overvIew oF the Project
Because of numerous complaints and quality rejects from customers, ABCups has determined to
proactively resolve outstanding quality issues. The firm has determined that by bringing welding
and screen printing functions “in-house,” it will be able to address the current quality problems,
234 Chapter 7 • Risk Management
product—is the design relatively simple or is it highly complex in structure? and (3) dependency—
can the product be developed independently of any system currently in place in the company or
is it tied to current operating systems or practices? A number of factors can have an impact on the
probability of a new project’s successful completion. Although our example identifies three (matu-
rity, complexity, and dependency), depending upon the project, a team may identify many unique
issues or factors that will increase the probability of failure.
Under the dimension of consequences of failure, we are concerned with the issues that will
highlight the effects of project failure. The consequences of failure require us to critically evaluate
the results of a project’s success or failure along a number of key dimensions. For this example,
the organization has identified four elements that must be considered as critical effects of project
failure: (1) cost—budget adherence versus overruns, (2) schedule—on time versus severe delays,
(3) reliability—the usefulness and quality of the finished product, and (4) performance—how well
the new software performs its designed functions. As with items shown under probability of fail-
ure, the set of issues related to the consequences of failure that should be clearly identified will be
unique to each project.
Table 7.2 demonstrates the process of creating a project risk score. The scores for each indi-
vidual dimension of probability and consequence are added and the sum is divided by the num-
ber of factors used to assess them. For example, under probability of failure, the scores of the three
assessed elements (maturity, complexity, and dependency) are totaled to derive an overall score,
and that number is divided by 3 to arrive at the probability score. This table shows the overall risk
factor formula for the sample project, based on the quantitative assessment. A common rule of
thumb assigns any project scoring below .30 as “low risk,” projects scoring between .30 and .70 as
“medium risk,” and projects scoring over .70 as “high risk.”
risk Mitigation strategies
The next stage in risk management is the development of effective risk mitigation strategies. In a
general sense, there are four possible alternatives a project organization can adopt in deciding how
to address risks: (1) accept risk, (2) minimize risk, (3) share risk, or (4) transfer risk.
accePt risk One option that a project team must always consider is whether the risk is suffi-
ciently strong that any action is warranted. Any number of risks of a relatively minor nature may
be present in a project as a matter of course. However, because the likelihood of their occurrence
is so small or the consequences of their impact are so minor, they may be judged acceptable and
ignored. In this case, the decision to “do nothing” is a reasoned calculation, not the result of inat-
tention or incompetence. Likewise, for many types of projects, certain risks are simply part of
the equation and must be factored in. For example, it has been estimated that the U.S. recording
taBle 7.2 calculating a Project risk factor
1. Use the project team’s consensus to determine the scores for each Probability of Failure category:
Maturity (Pm), Complexity (Pc), Dependency (Pd).
2. Calculate Pf by adding the three categories and dividing by 3:
Pf = (Pm + Pc + Pd)>3
3. Use the project team’s consensus to determine the scores for each Consequence of Failure category:
Cost (Cc), Schedule (Cs), Reliability (Cr), Performance (Cp).
4. Calculate Cf by adding the four categories and dividing by 4:
Cf = (Cc + Cs + Cr + Cp)>4
5. Calculate Overall Risk Factor for the project by using the formula:
RF = Pf + Cf – (Pf)(Cf)
rule of thumb:
Low risk RF 6 .30
Medium risk RF = .30 to .70
High risk RF 7 .70
7.1 Risk Management: A Four-Stage Process 235
industry spends millions every year in developing, producing, and promoting new recording art-
ists, knowing full well that of the thousands of albums produced every year, less than 5% are
profitable.10 Likewise, Chapter 3 detailed the extraordinary lengths that pharmaceutical manu-
facturers must go to and the high percentage of failures they accept in order to get a small per-
centage of commercially successful drugs to the marketplace. Hence, a high degree of commercial
risk is embedded in the systems themselves and must be accepted in order to operate in certain
industries.
MiniMize risk Strategies to minimize risk are the next option. Consider the challenges that
Boeing Corporation faces in developing new airframes, such as the newly introduced 787 model.
Each aircraft contains millions of individual parts, most of which must be acquired from ven-
dors. Further, Boeing has been experimenting with the use of composite materials, instead of
aluminum, throughout the airframe. The risks to Boeing in the event of faulty parts leading to
a catastrophic failure are huge. For example, several early flights were plagued by meltdowns
in the aircraft’s lithium ion batteries, manufactured in Japan by GS Yuasa. Consequently, the
process of selecting and ensuring quality performance from vendors is a challenge that Boeing
takes extremely seriously. One method Boeing employs for minimizing risk in vendor quality
is to insist that all significant vendors maintain continuous direct contact with Boeing quality
assessment teams. Also, in considering a new potential vendor, Boeing insists upon the right to
intervene in the vendor ’s production process in order to ensure that the resulting quality of all
supplier parts meets its exacting standards. Because Boeing cannot produce all the myriad parts
needed to fabricate an aircraft, it seeks to minimize the resultant risk by adopting strategies that
allow it to directly affect the production processes of its suppliers.
share risk Risk may be allocated proportionately among multiple members of the project. Two
examples of risk sharing include the research and development done through the European Space
Agency (ESA) and the Airbus consortium. Due to tremendous barriers to entry, no one country in
the European Union has the capital resources and technical skills to undertake the development of
the Ariane rocket for satellite delivery or the creation of a new airframe to compete with Boeing in
the commercial aircraft industry. ESA and Airbus partners from a number of countries have jointly
pooled their resources and, at the same time, agreed to jointly share the risk inherent in these
ventures.
In addition to partnerships that pool project risk, ameliorating risk through sharing can be
achieved contractually. Many project organizations create relationships with suppliers and cus-
tomers that include legal requirements for risk to be shared among those involved in the project.
Host countries of large industrial construction projects, such as petrochemical or power generation
facilities, have begun insisting on contracts that enforce a “Build-Own-Operate-Transfer” provision
for all project firms. The lead project organization is expected to build the plant and take initial
ownership of it until its operating capacity has been proven and all debugging occurs before
finally transferring ownership to the client. In this way, the project firm and the host country agree
to jointly accept financial (risk) ownership of the project until such time as the project has been
completed and its capabilities proven.
transFer risk In some circumstances, when it is impossible to change the nature of the risk,
either through elimination or minimization, it may be possible to shift the risks bound up in a
project to another party. This option, transferring risk to other parties when feasible, acknowledges
that even in the cases where a risk cannot be reduced, it may not have to be accepted by the project
organization, provided that there is a reasonable means for passing the risk along. Companies use
several methods to transfer risks, depending upon their power relative to the client organizations
and the types of risks they face. For example, if our goal is to prevent excessive budget overruns,
a good method for directly transferring risk lies in developing fixed-price contracts. fixed-price
contracts establish a firm, fixed price for the project upfront; should the project’s budget begin to
slip, the project organization must bear the full cost of these overruns. Alternatively, if our goal is to
ensure project functionality (quality and performance), the concept of liquidated damages offers a
way to transfer risk through contracts. liquidated damages represent project penalty clauses that
kick in at mutually agreed-on points in the project’s development and implementation. A project
organization installing a new information system in a large utility may, for example, agree to a
236 Chapter 7 • Risk Management
liquidated damages clause should the system be inoperable after a certain date. Finally, insurance
is a common option for some organizations, particularly in the construction industry. Used as a
risk mitigation tool, insurance transfers the financial obligation to an insuring agency.
use of contingency reserves
contingency reserves in several forms, including financial and managerial, are among the most
common methods to mitigate project risks. They are defined as the specific provision for unfore-
seen elements of cost within the defined project scope. Contingency reserves are viewed differ-
ently, however, depending upon the type of project undertaken and the organization that initiates
it. In construction projects, it is common to set aside anywhere between 10% and 15% of the con-
struction price in a contingency fund. A contract to construct a $5 million building will actually be
built to the cost of approximately $4.5 million, with the balance retained for contingency. In other
fields, however, project teams are much more reluctant to admit to the up-front need for establish-
ing contingency reserves, fearing that customers or other project stakeholders will view this as a
sign of poor planning or inadequate scope definition (see Chapter 5).
The best way to offset concerns about the use of contingency reserves is to offer documenta-
tion of past risk events—unforeseen or uncontrollable circumstances that required the need for
such contingency planning. Some of the concerns that might be generated may also be offset if
the project team has done its homework and demonstrated in a detailed plan how contingency
funds will be released as they are needed. Since the goal of creating contingency funds is to ensure
against unforeseen risks, the key to their effective use lies in proactive planning to establish reason-
able triggers for their release.11
task contingency Perhaps the most common form of contingency reserve is task contingency,
which is used to offset budget cutbacks, schedule overruns, or other unforeseen circumstances
accruing to individual tasks or project work packages. These budget reserves can be a valuable
form of risk management because they provide the project team with a buttress in the face of task
completion difficulties. It may be found, for example, that some components or work packages
of the project are highly unique or innovative, suggesting that development estimates and their
related costs cannot be estimated with anything less than a bound of {20% or even greater. Hence,
task contingency becomes extremely important as a method for offsetting the project team’s inabil-
ity to make an accurate budget estimate.
exaMPle 7.1 Calculating Contingency Expected Cost
Suppose a project task is estimated to cost $10,000 to complete, but it is viewed as a high-risk
operation. A task contingency multiplier would require our budget to reflect the following:
(Task estimated cost)(Task contingency multiplier) = Expected cost
1+10,0002 11.22 = +12,000
Naturally, as the project moves forward, it may be possible to reduce budget reserve requirements
for task contingency because the project’s scope will have been made clearer and its development
will have progressed; that is, many of the tasks for which the contingency fund was established
will have been completed. As a result, it is quite common for project organizations to assign a bud-
get reserve to a project that is diminished across the project’s development cycle.
Managerial contingency While task contingency may involve the risk associated with the
development of individual work packages or even tasks, managerial contingency is an additional
safety buffer applied at the project level. Managerial contingency is budget safety measures that
address higher-level risks. For example, suppose a project team has begun development of a new
wireless communication device set to operate within guidelines established for technical perfor-
mance. At some point in the midst of the development process, the primary client requests major
7.1 Risk Management: A Four-Stage Process 237
scope changes that will dramatically alter the nature of the technology to be employed. Managerial
contingency typically is used as a reserve against just such a problem. Another way managerial
contingency may be used is to offset potentially disastrous “acts of God,” which are natural disas-
ters that, by definition, are unforeseeable and highly disruptive.
One final point about budget reserves at either the task or managerial level: It is extremely
important that open channels of communication be maintained between top management and
the project manager regarding the availability and use of contingency reserve funds. Project
managers must be fully aware of the guidelines for requesting additional funding and how extra
project budget is to be disbursed. If either the project manager or top management group uses
contingency reserves as a political tool or method for maintaining control, the other party will
quickly develop an attitude of gamesmanship toward acquiring those reserves. In this case, the
atmosphere and communications between these key stakeholders will become characterized by
distrust and secrecy—two factors guaranteed to ensure that a project is likely to fail.
insurance insurance can be a useful means for risk mitigation, particularly in certain types
of projects, such as construction. Risks in construction go beyond technical risks or monetary/
commercial risks to include health and safety concerns. Not all organizations or countries
enforce the same rules regarding occupational health and safety standards. For example, there
are countries in the developing world that do not require (or enforce) the use of safety har-
nesses for workers on skyscrapers, even though a fall would be fatal. Contractors acquire insur-
ance as a means to offset the risks from the project that are often covered under contractual
terms. For example, a construction contractor will routinely acquire insurance against loss or
theft of building materials, workers’ compensation, and professional or general liability. One of
the duties of project managers in these settings is to ensure that all certificates of compliance
are up to date; that is, all necessary insurance has been acquired and is valid for the life of the
project to mitigate against potential risks.
other Mitigation strategies
In addition to the set of mitigation strategies already discussed, many organizations adopt practi-
cal approaches to minimizing risk through creating systems for effectively training all members of
their project teams. One successful method for dealing with project risks involves mentoring new
project managers and team members. In a mentoring program, junior or inexperienced project
personnel are paired with senior managers in order to help them learn best practices. The goal
of mentoring is to help ease new project personnel into their duties by giving them a formal con-
tact who can help clarify problems, suggest solutions, and monitor them as they develop project
skills. Another method for mitigating risks involves cross-training project team personnel so that
they are capable of filling in for each other in the case of unforeseen circumstances. Cross-training
requires that members of the project team learn not only their own duties but also the roles that
other team members are expected to perform. Thus, in the case where a team member may be
pulled from the project team for an extended period, other team members can take up the slack,
thereby minimizing the time lost to the project’s schedule.
control and documentation
Once project risk analysis has been completed, it is important to begin developing a report-
ing and documentation system for cataloging and future reference. Control and documentation
methods help managers classify and codify the various risks the firm faces, its responses to
these risks, and the outcome of its response strategies. Table 7.3 gives an example of a simpli-
fied version of the risk management report form that is used in several organizations. Managers
may keep a hard-copy file of all these analyses or convert the analyses to databases for better
accessibility.
Having a repository of past risk analysis transactions is invaluable, particularly to novice
project managers who may recognize the need to perform risk management duties but are not
sure of the best way to do them or where to begin. The U.S. Army, for example, has invested sig-
nificant budget and time in creating a comprehensive database of project risk factors and their
mitigation strategies as part of project management training for their officers. Newly appointed
238 Chapter 7 • Risk Management
officers to Army procurement and project management offices are required to access this informa-
tion in order to begin establishing preliminary risk management strategies prior to initiating new
programs. Figure 7.7 illustrates a contingency document for adjustments to the project plan.
Establishing change management as part of risk mitigation strategies also requires a useful
documentation system that all partners in the project can access. Any strategy aimed at minimizing
taBle 7.3 Sample risk Management report form
Customer: __________________________________________ Project Name: _______________________________
Budget Number: _____________________________________ Project Team: _______________________________
Date of Most Recent Evaluation: _____________________________________________________________________
Risk Description: _____________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
Risk Assessment: _____________________________________ Risk Factor: __________________________________
Discussion: _______________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
Risk Reduction Plan: _________________________________ Owner: _______________________________________
__________________________________________________________________________________________________
Time Frame to Next Assessment: ___________________________________________________________________
Expected Outcome: _______________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
Probable
Event
Adjustment to Plans
Absenteeism
Resignation
Pull-aways
Unavailable
staff/skills
Spec change
Added work
Need more
training
Vendors late
Figure 7.7 contingency Document for Adjustments to Project Plan
7.1 Risk Management: A Four-Stage Process 239
a project risk factor, along with the member of the project team responsible for any action, must
be clearly identified. The sample risk management report form shown in Table 7.3 includes the
important elements in such change management. In order to be effective, the report must offer
a comprehensive analysis of the problem, the plan for its minimization, a target date, and the
expected outcome once the mitigation strategy has been implemented. In short, as a useful control
document, a report form has to coherently identify the key information: what, who, when, why,
and how.
• What—Identify clearly the source of risk that has been uncovered.
• Who—Assign a project team member direct responsibility for following this issue and main-
taining ownership regarding its resolution.
• When—Establish a clear time frame, including milestones if necessary, that will determine
when the expected mitigation is to occur. If it is impossible to identify a completion date in
advance, then identify reasonable process goals en route to the final risk reduction point.
• Why—Pinpoint the most likely reasons for the risk; that is, identify its cause to ensure that
efforts toward its minimization will correspond appropriately with the reason the risk
emerged.
• How—Create a detailed plan for how the risk is to be abated. What steps has the project
team member charted as a method for closing this particular project “risk window”? Do they
seem reasonable or far-fetched? Too expensive in terms of money or time? The particular
strategy for risk abatement should, preferably, be developed as a collaborative effort among
team members, including those with technical and administrative expertise to ensure that the
steps taken to solve the problem are technically logical and managerially possible.
Documentation of risk analysis such as is shown in Table 7.3 and Figure 7.7 represents a key final
component in the overall risk management process.
Project Profile
collapse of Shanghai Apartment Building
The science and engineering principles surrounding the construction of simple apartment blocks are well known and
have been practiced for centuries. And yet, even in the most basic of construction projects, events can sometimes tran-
spire to produce shocking results. Just such a story occurred in late June of 2009 in China, when a Shanghai high-rise,
13-story apartment building literally toppled onto its side. The nearly completed structure was part of an 11-building
apartment complex in a new development known as “Lotus Riverside.” Because the 629-unit apartment building was
not yet completed, it was virtually empty. Although one worker was killed in the accident, the tragedy could have been
far worse had the building been fully occupied.
Figure 7.8 Shanghai Apartment Building collapse
Source: Imago stock&people/Newscom
(continued)
240 Chapter 7 • Risk Management
Foundation
Removed
dirt
Underground garage
Concrete pilings
5 m
10 m
Figure 7.9 Schematic of causes of collapse
The demand for affordable housing in Chinese cities has never been greater. With the economy humming
along and a high demand for workers in economic regions such as Shanghai, there is a critical shortage of available
housing. Private and governmental organizations are working to rapidly install new apartment blocks to keep up
with this huge demand. Unfortunately, one of the risks with rapid building is the temptation to cut corners or use
slipshod methods. When speed is paramount, the obvious concern is whether acceptable standards of building are
being maintained.
In the Lotus Riverside building project, unfortunately, the construction firm opted for a procedure that is gener-
ally frowned upon (indeed, the method is outlawed in Hong Kong due to its inherent riskiness). Under this system,
rather than pour a deep concrete base on which to rest the structure, a series of prestressed, precast concrete pilings
were used as a set of anchors to “pin” the building into the ground. Although this system can work effectively with
shorter buildings, it has long been considered unsafe for larger, higher structures.
The problem was made critical when the construction crews began digging an underground garage on the south
side of the building to a depth of nearly 5 meters. The excavated dirt was piled on the north side of the building to a
height of 10 meters. The underground pilings began receiving severe lateral pressure from the excavation, which was
further compromised by heavy rainstorms. The storms undermined the apartment building on the south side, causing
more soil erosion and putting even greater lateral pressure (estimated at 3,000 tons) on the anchor piling system (see
Figure 7.9). Suddenly, the pilings began snapping and the building toppled over on its side. Local officials noted that
the only lucky result of the collapse was that the building fell into an empty space. Considering that all the buildings in
the complex had been constructed in a similar manner, there was a very real possibility of creating a chain reaction of
toppling buildings, much like a set of dominos falling over.
The Chinese government immediately began to aggressively trace the cause of the collapse, question-
ing the private contractor’s use of unskilled workers, questionable construction practices, and overall quality
control. China’s official news agency, Xinhua, said officials were taking “appropriate control measures” against
nine people, including the developer, construction contractor, and supervisor of the project, after it was reported
that the company’s construction license had expired in 2004. Although it is certain that penalties will be imposed
for the building failure, a less certain future awaits the tenants of the other buildings in the complex. After all,
what more visible evidence could there be of the unsoundness of the construction in the complex than seeing a
“sister building” lying on its side not far from the other structures? Hundreds of prospective tenants have besieged
government offices, demanding refunds for apartments in the same complex that they purchased for upward of
$60,000 but are now too frightened to live in.
Meanwhile, China Daily, the state-run newspaper, published an angry editorial blaming the collapse on the
often corrupt relationship between Chinese property developers and local government officials who depend on
property taxes and land sales for a significant proportion of their income. The paper raised fears—expressed by
some construction industry insiders in China—that many buildings designed to have a 70-year life span “would not
stand firm beyond 30 to 40 years” because of corner-cutting during China’s rampant construction boom. “It is ironic
that such an accident happened in Shanghai—one of the most advanced and international Chinese cities,” the
paper concluded. “The sheer fact that such a collapse occurred in the country’s biggest metropolis should serve as
warning to all developers and the authorities to ensure that construction projects do not cut corners and endanger
people’s lives.”12
7.2 Project Risk Management: An Integrated Approach 241
7.2 Project risk ManageMent: an integrated aPProach
The European Association for Project Management has developed an integrated program of
risk management, based on efforts to extend risk management to cover a project’s entire life
cycle. This program, known as Project risk Analysis and Management (PrAM), presents a
generic methodology that can be applied to multiple project environments and encompasses
the key components of project risk management.13 The ultimate benefit of models such as
PRAM is that they present a systematic alternative to ad hoc approaches to risk assessment,
and hence can help organizations that may not have a clearly developed, comprehen-
sive process for risk management and are instead locked into one or two aspects (e.g., risk
identification or analysis of probability and consequences). The PRAM model offers a step-
by-step approach to creating a comprehensive and logically sequenced method for analyzing
and addressing project risk.
Among the key features of the PRAM methodology are the following:
• The recognition that risk management follows its own life cycle, much as a project follows a
life cycle. Risk management is integrated throughout the project’s entire life cycle.
• The application of different risk management strategies at various points in the project life
cycle. The PRAM approach tailors different strategies for different project life cycle stages.
• The integration of multiple approaches to risk management into a coherent, synthesized
approach. PRAM recommends that all relevant risk management tools be applied as they are
needed, rather than in a “pick-and-choose” approach.
Each of the nine phases in the PRAM approach is based on a specific purpose and requires the
completion of a comprehensive set of targets (deliverables). Completing PRAM gives the project
team a template for getting the most out of risk management and helps them sharpen their efforts
in the most productive manner. It also creates a document for merging risk management with
overall project planning, linking them in a collaborative sense.
The nine phases of a comprehensive project risk assessment include the following steps:
1. Define—Make sure the project is well defined, including all deliverables, statement of work,
and project scope.
2. Focus—Begin to plan the risk management process as a project in its own right, as well as
determining the best methods for addressing project risk, given the unique nature of the proj-
ect being undertaken.
3. Identify—Assess the specific sources of risk at the outset of the project, including the need
to fashion appropriate responses. This step requires that we first search for all sources of
risk and their responses and then classify these risks in some manner to prioritize or orga-
nize them.
4. Structure—Review and refine the manner in which we have classified risks for the project,
determine if there are commonalities across the various risks we have uncovered (suggesting
common causes of the risks that can be addressed at a higher level), and create a prioritiza-
tion scheme for addressing these risks.
5. Clarify ownership of risks—Distinguish between risks that the project organization is willing
to handle and those that the clients are expected to accept as well as allocate responsibility for
managing risks and responses.
6. Estimate—Develop a reasonable estimate of the impacts on the project of both the identified
risks and the proposed solutions. What are the likely scenarios and their relative potential
costs?
7. Evaluate—Critically evaluate the results of the estimate phase to determine the most
likely plan for mitigating potential risks. Begin to prioritize risks and the project team’s
responses.
8. Plan—Produce a project risk management plan that proactively offers risk mitigation strate-
gies for the project as needed.
9. Manage—Monitor actual progress with the project and associated risk management plans,
responding to any variances in these plans, with an eye toward developing these plans for
the future.
242 Chapter 7 • Risk Management
Table 7.4 shows a generic risk management process following the PRAM methodology. At
each of the risk management phases, specific project deliverables can be identified, allowing the
project team to create comprehensive project risk management documentation while addressing
specific steps along the way. These deliverables are important because they indicate to project
managers exactly the types of information they should be collecting at different phases of the
project and the materials they should make available to relevant stakeholders.
The PRAM model for risk management is extremely helpful because it offers project manag-
ers a systematic process for best employing risk assessment and mitigation strategies. Composed
of nine interconnected steps that form a logical sequence, PRAM creates a unifying structure under
which effective risk management can be conducted. Because it follows the logic of the project life
cycle, PRAM should be conducted not as a “one-shot” activity but as an ongoing, progressive
scheme that links project development directly to accurate risk assessment and management.
taBle 7.4 A Generic risk Management Process (rMP) following the PrAM Methodology
Phases Purposes Deliverables
Define Consolidate relevant existing information
about the project.
A clear, unambiguous, shared understanding of all key
aspects of the project documented, verified, and
reported.
Focus 1. Identify scope and provide a strategic plan
for the RMP.
2. Plan the RMP at an operational level.
A clear, unambiguous, shared understanding of all
relevant key aspects of the RMP, documented,
verified, and reported.
Identify 1. Identify where risk might arise.
2. Identify what we might do about this risk
in proactive and reactive response terms.
3. Identify what might go wrong with our
responses.
All key risks and responses identified; both threats and
opportunities classified, characterized, documented,
verified, and reported.
Structure 1. Test simplifying assumptions.
2. Provide more complex structure when
appropriate.
A clear understanding of the implications of
any important simplifying assumptions about
relationships among risks, responses, and base plan
activities.
Ownership 1. Client contractor allocation of ownership
and management of risks and responses.
2. Allocation of client risks to named individuals.
3. Approval of contractor allocations.
Clear ownership and management allocations
effectively and efficiently defined, legally enforceable
in practice where appropriate.
Estimate 1. Identify areas of clear significant uncertainty.
2. Identify areas of possible significant
uncertainty.
1. A basis for understanding which risks and responses
are important.
2. Estimates of likelihood and impact on scenario or in
numeric terms.
Evaluate Synthesis and evaluation of the results of the
estimate phase.
Diagnosis of all important difficulties and comparative
analysis of the implications of responses to these
difficulties, with specific deliverables like a prioritized
list of risks.
Plan Project plan ready for implementation and
associated risk management plan.
1. Base plans in activity terms at the detailed level of
implementation.
2. Risk assessment in terms of threats and opportunities
prioritized, assessed in terms of impact.
3. Recommended proactive and reactive contingency
plans in activity terms.
Manage 1. Monitoring.
2. Controlling.
3. Developing plans for immediate
implementation.
1. Diagnosis of a need to revisit earlier plans and
initiation of replanning as appropriate.
2. Exception reporting after significant events and
associated replanning.
Summary 243
Finally, in identifying the key deliverables at each step in the process, the PRAM model ensures a
similarity of form that allows top management to make reasonable comparisons across all projects
in an organization’s portfolio.
Project risk management demonstrates the value of proactive planning for projects as a
way to anticipate and, hopefully, mitigate serious problems that could adversely affect the proj-
ect at some point in the future.14 The value of this troubleshooting process is that it requires us
to think critically, to be devil’s advocates when examining how we are planning to develop a
project. Research and common sense suggest, in the words of the adage, “An ounce of preven-
tion is worth a pound of cure.” The more sophisticated and systematic we are about conducting
project risk management, the more confident we can be, as the project moves through planning
and into its execution phase, that we have done everything possible to prepare the way for proj-
ect success.
Summary
1. define project risk. Project risk is defined as
any possible event that can negatively affect the
viability of a project. We frequently use the equation:
Risk event = (Probability of event)(Consequences
of event). Effective risk management goes a long
way toward influencing project development. To
be effective, however, project risk management
needs to be done early in the project’s life. To quote
Shakespeare’s Macbeth: “If it were done, when ’tis
done; then ’twere well it were done quickly.”15 As an
important element in overall project planning, risk
management identifies specific risks that can have a
detrimental effect on project performance and quan-
tifies the impact each risk may have. The impact of
any one risk factor is defined as the product of the
likelihood of the event’s occurrence and the adverse
consequences that would result. The tremendous
number of unknowns in the early phases of a project
makes this the time when risk is highest. As the proj-
ect moves forward, the team continues to address
risk with technical, administrative, and budgetary
strategies.
2. recognize four key stages in project risk man-
agement and the steps necessary to manage
risk. There are four distinct phases of project risk
management: (1) risk identification, (2) analysis of
probability and consequences, (3) risk mitigation
strategies, and (4) control and documentation. Risk
identification focuses on determining a realistic
set of risk factors that a project faces. In analysis
of probability and consequences, the project team
prioritizes its responses to these various risk fac-
tors by assessing the “impact factor” of each one.
Impact factors are determined either in a qualita-
tive manner, using a matrix approach and consen-
sus decision making, or in more quantitative ways,
in which all relevant probability and consequence
parameters are laid out and used to assess overall
project risk. The project team begins the process of
developing risk mitigation strategies once a clear
vision of risk factors is determined. The last step
in the risk management process, control and doc-
umentation, is based on the knowledge that risk
management strategies are most effective when
they have been codified and introduced as part of
standard operating procedures. The goal is to cre-
ate systematic and repeatable strategies for project
risk management.
3. Understand five primary causes of project risk and
four major approaches to risk identification. The
five primary causes of project risk are (1) financial
risk, (2) technical risk, (3) commercial risk, (4) execu-
tion risk, and (5) contractual or legal risk. Among
the most common methods for risk identification
are (1) brainstorming meetings, (2) expert opin-
ion, (3) past history, and (4) multiple or team-based
assessments.
4. recognize four primary risk mitigation
strategies. Risks can be mitigated through four
primary approaches. First, we can simply accept
the risk. We may choose to do this in a situation in
which we either have no alternative or we consider
the risk small enough to be acceptable. Second, we
can seek to minimize risk, perhaps through entering
partnerships or joint ventures in order to lower our
company’s exposure to the risk. Third, we can share
risk with other organizations or project stakeholders.
Finally, when appropriate, we may seek to transfer
risk to other project stakeholders.
5. explain the Project risk Analysis and Management
(PrAM) process. PRAM is a generic project risk
management approach that offers a model for
the life cycle steps a project team might adopt in
developing a risk management methodology. Nine
distinct steps in the PRAM model present each
phase of the process and its associated deliverables.
244 Chapter 7 • Risk Management
Key Terms
Analysis of probability
and consequences
(p. 228)
Change management
(p. 238)
Commercial risk (p. 229)
Contingency reserves
(p. 236)
Contractual or legal risk
(p. 229)
Control and
documentation (p. 228)
Cross-training (p. 237)
Execution risk (p. 229)
Financial risk (p. 228)
Fixed-price contact
(p. 235)
Insurance (p. 237)
Liquidated damages
(p. 235)
Managerial contingency
(p. 236)
Mentoring (p. 237)
Project risk (p. 225)
Project Risk Analysis and
Management (PRAM)
(p. 241)
Risk Breakdown Structure
(p. 231)
Risk identification (p. 228)
Risk management
(p. 225)
Risk mitigation strategies
(p. 228)
Task contingency (p. 236)
Technical risk (p. 228)
7.1 QuANtitAtiVe riSk ASSeSSMeNt
Refer to the risk factors shown in Table 7.1. Assume your project
team has decided upon the following risk values:
Pm = .1 Cc = .7
Pc = .5 Cs = .5
Pd = .9 Cr = .3
Cp = .1
You wish to determine the overall project risk using a quanti-
tative method. Following the formulas shown in Table 7.2, we
can calculate both the probability of project risk score and the
consequences of project risk score, as follows:
Pf = (.1 + .5 + .9)/3 = .5
Cf = (.7 + .5 + .3 + .1)/4 = .4
RF = .5 + .4 – (.5)(.4) = .70
conclusion: Medium risk to overall project.
Solved Problem
7.1 Assessing risk factors. Consider the planned construc-
tion of a new office building in downtown Houston at a
time when office space is in surplus demand (more office
space than users). Construct a risk analysis that examines
the various forms of risk (technical, commercial, financial,
etc.) related to the creation of this office building. How
would your analysis change if office space were in high
demand?
7.2 Qualitative risk Assessment. Imagine that you are a
member of a project team that has been charged to de-
velop a new product for the residential building indus-
try. Using a qualitative risk analysis matrix, develop
Problems
Discussion Questions
7.1 Do you agree with the following statement: “With proper
planning it is possible to eliminate most/all risks from a
project”? Why or why not?
7.2 In evaluating projects across industries, it is sometimes
possible to detect patterns in terms of the more common
types of risks they routinely face. Consider the develop-
ment of a new software product and compare it to coordi-
nating an event, such as a school dance. What likely forms
of risk would your project team face in either of these
circumstances?
7.3 Analyze Figure 7.2 (degree of risk over the project life
cycle). What is the practical significance of this model?
What implications does it suggest for managing risk?
7.4 What are the benefits and drawbacks of using the various
forms of risk identification mentioned in the chapter (e.g.,
brainstorming meetings, expert opinion, etc.)?
7.5 What are the benefits and drawbacks of using a qualitative
risk impact matrix for classifying the types of project risk?
7.6 What are the benefits and drawbacks of using a quanti-
tative risk assessment tool such as the one shown in the
chapter?
7.7 Give some examples of projects using each of the risk
mitigation strategies (accept, minimize, share, or transfer).
How successful were these strategies? In hindsight, would
another approach have been better?
7.8 Explain the difference between managerial contingency
and task contingency.
7.9 What are the advantages of developing and using a sys-
tematic risk management approach such as the PRAM
methodology? Do you perceive any disadvantages of the
approach?
7.10 Consider the following observation: “The problem with
risk analysis is that it is possible to imagine virtually any-
thing going wrong on a project. Where do you draw the
line? In other words, how far do you take risk analysis be-
fore it becomes overkill?” How would you respond?
Case Study 7.1 245
a risk assessment for a project based on the following
information:
identified risk factors likelihood
1. Key team members pulled off project 1. High
2. Chance of economic downturn 2. Low
3. Project funding cut 3. Medium
4. Project scope changes 4. High
5. Poor spec. performance 5. Low
Based on this information, how would you rate the conse-
quences of each of the identified risk factors? Why? Con-
struct the risk matrix and classify each of the risk factors
in the matrix.
7.3 developing risk Mitigation strategies. Develop a pre-
liminary risk mitigation strategy for each of the risk fac-
tors identified in Problem 2. If you were to prioritize your
efforts, which risk factors would you address first? Why?
7.4 Quantitative risk Assessment. Assume the following
information:
Probability of failure consequences of failure
Maturity = .3 Cost = .1
Complexity = .3 Schedule = .7
Dependency = .5 Performance = .5
Calculate the overall risk factor for this project. Would you
assess this level of risk as low, moderate, or high? Why?
7.5 Quantitative risk Assessment. Assume the following
information for an IT project.
Probability of failure consequences of failure
Maturity = .7 Cost = .9
Complexity = .7 Schedule = .7
Dependency = .5
Client Concerns = .5
Programmer Skill = .3
Performance = .3
Future Business = .5
Calculate the overall risk factor for this project. Would you
assess this level of risk as low, moderate, or high? Why?
7.6 developing risk Mitigation strategies. Assume that you
are a project team member for a highly complex project
based on a new technology that has never been directly
proven in the marketplace. Further, you require the ser-
vices of a number of subcontractors to complete the design
and development of this project. Because you are facing se-
vere penalties in the event the project is late to market, your
boss has asked you and your project team to develop risk
mitigation strategies to minimize your company’s expo-
sure. Discuss the types of risk that you are likely to encoun-
ter. How should your company deal with them (accept
them, share them, transfer them, or minimize them)?
Justify your answers.
7.7 Assessing risk and Benefits. Suppose you are a mem-
ber of a project team that is evaluating the bids of poten-
tial contractors for developing some subassemblies for
your project. Your boss makes it clear that any successful
bid must demonstrate a balance between risk and price.
Explain how this is so; specifically, why are price and risk
seen as equally important but opposite issues in determin-
ing the winner of the contract? Is a low-price/high-risk
bid acceptable? Is a high-price/low-risk bid acceptable?
Why or why not?
CaSE STuDy 7.1
Classic Case: de Havilland’s Falling Comet
(continued)
The Development of the Comet
The de Havilland Aircraft Company of Great Britain
had long been respected in the aircraft manufactur-
ing industry for its innovative and high-performance
designs. Coming off its excellent work during World
War II, the company believed that it stood poised on
the brink of success in the commercial airframe indus-
try. The de Havilland designers and executives accu-
rately perceived that the next generation of airplane
would be jet-powered. Consequently, they decreed that
their newest commercial airframe, tentatively called
the Comet, would employ jet power and other leading-
edge technology.
Jets offered a number of advantages over
propeller-driven airplanes, the most obvious of which
was speed. Jets could cruise at nearly 450 miles per
hour compared with the 300 miles per hour a pro-
peller could generate. For overseas flight, in particu-
lar, this advantage was important. It could reduce
the length of long flights from a mind-numbing two
to three days to mere hours, encouraging more and
more businesspeople and tourists to use airplanes as
their primary method for travel. Further, jets tended
to be quieter than propeller-driven aircraft, giving
a more comfortable interior sound level and ride to
passengers.
De Havilland engineers sought to create a stream-
lined airplane that could simultaneously carry up to
50 passengers in comfort, while maintaining aerody-
namics and high speed. After working with a number
of design alternatives, the Comet began to take shape.
Its design was, indeed, distinctive: The four jet engines
246 Chapter 7 • Risk Management
were embedded in pairs in the wing roots, at the point
where they joined the fuselage. From the front, the
aircraft looked as though its wings were literally held
in place by the engines. The result of these innovative
engineering designs was an aircraft that had remark-
able stability in flight, was sleek in appearance, and
was very fast.
Another distinctive feature of the aircraft was
the pressurized cabin, intended to maintain passenger
comfort at cruising altitudes of up to 30,000 feet. In its
original testing for safety, de Havilland engineers had
pressurized the airframe to more than five times the
recommended air density to ensure that there was a
clean seal. Consequently, they were confident that the
pressurization system would perform well at its lower,
standardized settings. Finally, in an effort to add some
flair to the design, each window in the passenger
cabin was square, rather than the small, round or oval
shapes so commonly used.
Knowing that it was facing competition from
Boeing Corporation to be first to market with a com-
mercial jet, de Havilland’s goal was to introduce its
new aircraft as quickly as possible, in order to establish
the standard for the commercial airline industry. At
first, it appeared the company had succeeded: BOAC
(British Overseas Airways Corporation) ordered sev-
eral Comets, as did Air France and the British mili-
tary. De Havilland also received some queries from
interested American airline companies, notably Pan
American Airlines. It looked as though de Havilland’s
strategy was working; the company was first to
market with a radical new design, using a number of
state-of-the-art technologies. BOAC’s first nine Comet
1 s entered service with the airline on May 2, 1952. The
future looked bright.
Troubles
In early May of 1953, a brand new Comet operated by
BOAC left Calcutta, India, and flew off into the after-
noon sky. Six minutes later and only 22 miles from
Calcutta’s Dum Dum Airport, the aircraft exploded
and plunged to earth, killing all 43 passengers and
crew on board. There had been no indication of prob-
lems and no warning from the pilots of technical dif-
ficulties. Investigators from Great Britain and India
tended to believe the crash came about due to pilot
error coupled with weather conditions. Evidence from
the wreckage, including the tail section, seemed to
indicate that the aircraft had been struck by something
heavy, but without any additional information forth-
coming, both the authorities and de Havilland engi-
neers laid the blame on external causes.
January 10, 1954, was a mild, clear day in Rome
as passengers boarded their BOAC aircraft for the final
leg of their flight from Singapore to London. When the
airplane reached its cruising altitude and speed, it dis-
integrated over the Mediterranean Sea, near the island
of Elba. Most of the airplane was lost at the bottom
of the sea, but amid the flotsam 15 bodies of passen-
gers and crew were recovered. A local physician who
examined the remains noted: “They showed no look
of terror. Death must have come without warning.”
Figure 7.10 the de Havilland comet
Source: Heanly Mirrorpix/Newscom
Case Study 7.1 247
As a safety precaution, BOAC instituted a ban on the
use of Comets until the airplanes had been thoroughly
checked over. Technicians could find nothing wrong
with the new aircraft and, following recertification, the
airplanes were again brought back into service.
Alas, it was too soon. On April 8, only 16 days
after the Comet was reintroduced into service, a third
aircraft, operated by South African Airways, departed
from Rome’s Ciampino airport for Cairo, one of the
legs of its regular flight from London to Johannesburg.
Under perfect flying weather, the airplane rapidly
gained its cruising altitude of 26,000 feet and its air-
speed of almost 500 miles an hour. Suddenly, the flight
radio went silent and failed to answer repeated calls.
A search of the ocean off the island of Stromboli, Italy,
turned up an oil slick and some debris. Because of the
depth of the water and the time necessary to arrive at
the crash site, there was little to be found by search
crews. Five bodies were all that were recovered this
time, though with an eerie similarity to the victims of
the second disaster: Facial expressions showed no fear,
as though death had come upon them suddenly.
What Went Wrong?
Investigators swarmed over the recovered wreckage of
the aircraft and reexamined the pieces from the first
Calcutta accident while also conducting underwater
searches at the sight of the second crash near the island
of Elba. Guided by underwater cameras, investigators
were able to collect sufficient aircraft fragments (in fact,
they finally recovered nearly 70% of the airframe) to
make some startling discoveries. The foremost finding,
from the recovery of the entire, intact tail section, was
that the fuselage of the aircraft had exploded. Second,
it appeared that engine failure was not the cause of
the accidents. Another finding was equally important:
The wings and fuselage showed unmistakable signs
of metal fatigue, later shown to be the cause of failure
in all three aircraft. This point was important because
it advanced the theory that the problem was one of
structural design rather than simple part failure.
Britain’s Civil Aviation Board immediately
grounded the entire Comet fleet pending extensive
reviews and airworthiness certification. For the next
five months, the CAB set out on an extensive series
of tests to isolate the exact causes of the mysterious
crashes. Before testing was complete, one Comet had
been tested literally to destruction, another had its fuel
tanks ruptured, more than 70 complete test flights were
made in a third, and between 50 and 100 test models
were broken up. The results of the extensive tests indi-
cated a number of structural and design flaws.
Although the aircraft’s designers were convinced
that the structure would remain sound for 10,000 flight
hours before requiring major structural overhaul-
ing, simulations showed unmistakable signs of metal
fatigue after the equivalent of only 3,000 flight hours.
Experts argued that even when fatigue levels were
revised downward to less than 3,000 hours, Comets
would not be safe beyond 1,000 flying hours, a ludi-
crously low figure in terms of the amount of use a
commercial airliner is expected to receive. In addition,
testing of the fuselage offered disturbing indications of
the cause of failure. Specifically, cracks began devel-
oping in the corners of the cabin windows, and these
cracks were exacerbated by repeated pressurization
and depressurization of the cabin. The investigators
noted that this result was most pronounced along the
rivet lines near the fuselage windows.
Testing also demonstrated that the wings had a
low resistance to fatigue. At a number of stages in the
tests, serious cracks appeared, starting at the rivet holes
near the wheel wells and finally resulting in rivet heads
in the top wing surface actually shearing off. Engineers
and investigators were finding incontrovertible evi-
dence in the pieces of recovered wreckage that the cause
of the sudden disintegration of the aircraft could only
have been due to cabin pressure blowout. Engineers
suspected that the critical failure of the aircraft occurred
following sudden depressurization, when one or more
windows were literally blown out of the aircraft. This
led to a sudden “gyroscopic moment” as the aircraft
nosed down and began its plunge to earth.
Although at the time no one would admit it,
the handwriting was on the wall. After two years, in
which Comets carried more than 55,000 passengers
over 7 million air miles, the Comet 1 was never to fly
again. De Havilland had indeed won the race to be
first to market with a commercial jet—a race that it
would have been better to have never run at all.16
Questions
1. How could risk management have aided in the
development of the Comet?
2. Discuss the various types of risk (technical, finan-
cial, commercial, etc.) in relation to the Comet.
Develop a qualitative risk matrix for these risk
factors and assess them in terms of probability
and consequences.
3. Given that a modified version of the Comet (the
Comet IV) was used until recently by the British
government as an antisubmarine warfare air-
craft, it is clear that the design flaws could have
been corrected given enough time. What, then,
do you see as de Havilland’s critical error in the
development of the Comet?
4. Comment on this statement: “Failure is the price
we pay for technological advancement.”
248 Chapter 7 • Risk Management
CaSE STuDy 7.2
The Spanish Navy Pays Nearly $3 Billion for a Submarine That Will Sink Like a Stone
In 2003, shipbuilders at Navantia, Spain’s state-
owner shipyard, welcomed a contract from their
navy to construct four state-of-the-art submarines.
The S-80 class was going to be an engineering mar-
vel, filled with the latest and most cutting-edge
technology, including a diesel-electric propulsion
system that would be 20% lighter than other ships,
while delivering 50% more power. As the list of up-
grades and new technical gadgetry grew, the deliv-
ery date for the Isaac Peral—the lead ship in the S-80
class—continued to ship further behind schedule.
Nevertheless, it wasn’t the continuous upgrading
and addition of new equipment that finally slammed
the brakes on the project; it was the startling warning
from Navantia’s engineers that the Isaac Peral was
not seaworthy. The submarine, named in honor of the
Spanish man credited by some as the inventor of the
underwater vessel, was 75–100 tons overweight, an
excess that could make it difficult or impossible for
the submarine to surface after submerging. As a re-
sult, the Spanish navy was faced with the challenge
of fixing a submarine that ran the risk of disaster
whenever it decided to submerge!
Navantia admitted the existence of “devia-
tions related to the balance of weight” in the vessel
and estimated it would take up to two years more
to correct the problem, pushing the new delivery
date to late 2018. The firm’s engineers are trying to
determine their best options at this point. It appears
that two choices are most likely: Find a way to trim
the design of the overall ship, which would be very
difficult at this stage in construction, or lengthen
the hull of the already 233-foot submarine to com-
pensate for the extra weight. The problem with this
option is that designers have estimated that for every
meter the hull is lengthened, it will end up costing
nearly 10 million additional euros (about $14 million
dollars). Unfortunately for the Spaniards, indepen-
dent agencies report that they have already sunk the
equivalent of $680 million into the Isaac Peral, and a
total of $3 billion into the entire quartet of S-80 class
submarines.
The buoyancy problem is not the only difficulty
facing the program; an analyst said that that sub-
marine’s air-independent propulsion (AIP) system
reactor is also underperforming. A Strategic Studies
Group spokesperson said that the AIP system has
been designed to enable the submarine to operate
underway for 28 days but is currently able to man-
age only one week. The Group’s memo suggests,
“The buoyancy problem alone could cost up to half
a billion euros to cover redesign and extra construc-
tion, without considering the propulsion problem.”
The submarine setback couldn’t have come
at a worse time for Prime Minister Mariano Rajoy,
who was already caught up in a corruption scan-
dal and saw his approval rating hit a record low in
2013. Because of the poor shape of Spain’s economy,
Rajoy’s austerity cuts trimmed the Spanish military
budget by 30 percent in 2012, leaving much less
room for added ballast. With reports that the S-80
program will be delayed an estimated two years
and another general election looming in 2015, Rajoy
likely will not see the submarines through to suc-
cessful launch.
How did such an expensive project get funded at
a time when the Spanish military’s entire special weap-
ons program received a 98% cut? Sheer pride seems to
have been a factor: Spain hoped the S-80 class would
be a new homegrown breakthrough achieved with-
out foreign help. Now that Navantia has entered into
a $15 million contract with the Electric Boat Division
of America’s General Dynamics to help with the rede-
sign, that dream seems dead in the water.17
Questions
1. Google “Spain’s S-80 class submarine” and read
some of the articles posted. In your opinion, how
does technical risk cause problems with major
defense projects?
2. Why do you think it is common for defense con-
tractors to add new features and modifications
to current programs? In other words, why do
defense agencies contract for one project, only
to see it often evolve into something new by the
time it is launched?
3. If you were an advisor brought in by the Spanish
government, what advice would you offer them
in managing their defense projects?
Case Study 7.3 249
The dramatic collapse of the Tacoma Narrows suspen-
sion bridge in 1940, barely four months after comple-
tion, was a severe blow to the design and construction
of large span bridges. It serves as a landmark failure in
engineering history and is, indeed, a featured lesson in
most civil engineering programs. The story of the col-
lapse serves as a fascinating account of one important
aspect of project failure: engineering’s misunderstand-
ing of the effect that a variety of natural forces can have
on projects, particularly in the construction industry.
Opening in July 1941, the Tacoma Narrows
Bridge was built at a cost of $6.4 million and was
largely funded by the federal government’s Public
Works Administration. The purpose of the bridge was
essentially viewed as a defense measure to connect
Seattle and Tacoma with the Puget Sound Navy Yard
at Bremerton.18 As the third-largest single suspension
bridge in the world, it had a center span of 2,800 feet
and 1,000-foot approaches at each end.
Even before its inauguration and opening, the
bridge began exhibiting strange characteristics that
were immediately noticeable. For example, the slightest
wind could cause the bridge to develop a pronounced
longitudinal roll. The bridge would quite literally begin
to lift at one end and, in a wave action, the lift would
“roll” the length of the bridge. Depending upon the
severity of the wind, cameras were able to detect any-
where up to eight separate vertical nodes in its rolling
action. Many motorists crossing the bridge complained
of acute seasickness brought on by the bridge’s rising
and falling. So well-known to the locals did the strange
weaving motion of the bridge become that they nick-
named the bridge “Galloping Gertie.”
That the bridge was experiencing increasing and
unexpected difficulties was clear to all involved in the
project. In fact, the weaving motion of Galloping Gertie
became so bad as the summer moved into fall that
heavy steel cables were installed externally to the span
in an attempt to reduce the wind-induced motion. The
first attempt resulted in cables that snapped as they
were being put into place. The second attempt, later
in the fall, seemed to calm the swaying and oscillating
motion of the bridge initially. Unfortunately, the cables
would prove to be incapable of forestalling the effects
of the dynamic forces (wind) playing on the bridge;
they snapped just before the final critical torsional
oscillations that led to the bridge’s collapse.
On November 7, 1940, a bare four months after
opening of the bridge, with winds of 42 miles per
hour blowing steadily, the 280-foot main span that
had already begun exhibiting a marked flex went into
a series of violent vertical and torsional oscillations.
Alarmingly, the amplitudes steadily increased, suspen-
sions came loose, the support structures buckled, and
the span began to break up. In effect, the bridge seemed
to have come alive, struggling like a bound animal,
and was literally shaking itself apart. Motorists caught
on the bridge had to abandon their cars and crawl off
the bridge, as the side-to-side roll had become so pro-
nounced (by now, the roll had reached 45 degrees in
either direction, causing the sides of the bridge to rise
and fall more than 30 feet) that it was impossible to tra-
verse the bridge on foot.
After a fairly short period of time in which the
wave oscillations became incredibly violent, the sus-
pension bridge simply could not resist the pounding
and broke apart. Observers stood in shock on either
side of the bridge and watched as first large pieces of
the roadway and then entire lengths of the span rained
down into the Tacoma Narrows below. Fortunately, no
human lives were lost, since traffic had been closed in
the nick of time.
The slender 12-meter-wide main deck had been
supported by massive 130-meter-high steel towers
comprised of 335-foot-long spans. These spans man-
aged to remain intact despite the collapse of the main
span. The second bridge (TNB II) would end up mak-
ing use of these spans when it was rebuilt shortly there-
after, by a new span stiffened with a web truss.
Following the catastrophic failure, a three-
person committee was immediately convened to
determine the causes of the Tacoma Narrows Bridge
collapse. The board consisted of some of the top
scientists and engineers in the world at that time:
Othmar Ammann, Theodore von Karman, and Glenn
Woodruff. While satisfied that the basic design was
sound and the suspension bridge had been con-
structed competently, these experts nevertheless were
able to quickly uncover the underlying contributing
causes to the bridge collapse:
• design features—The physical construction
of the bridge contributed directly to its failure
and was a source of continual concern from the
time of its completion. Unlike other suspension
bridges, one distinguishing feature of the Tacoma
Narrows Bridge was its small width-to-length
ratio—smaller than any other suspension bridge
of its type in the world (although almost one
mile in length, the bridge was only constructed
to carry a single traffic lane in each direction).
That ratio means quite simply that the bridge was
CaSE STuDy 7.3
Classic Case: Tacoma Narrows Suspension Bridge
(continued)
250 Chapter 7 • Risk Management
incredibly narrow for its long length, a fact that
was to contribute hugely to its distinctive oscil-
lating behavior.
• Building materials—Another feature of the con-
struction that was to play an important role in its
collapse was the substitution of key structural
components. The original plans called for the use
of open girders in the construction of the bridge’s
sides. Unfortunately, at some point, a local con-
struction engineer substituted flat, solid girders
that deflected the wind rather than allowing for
its passage. The result was to cause the bridge to
catch the wind “like a kite” and adopt a perma-
nent sway. In engineering terms, the flat sides
simply would not allow wind to pass through
the sides of the bridge, reducing its wind drag.
Instead, the solid, flat sides caught the wind that
pushed the bridge sideways until it had swayed
enough to “spill” the wind from the vertical
plane, much as a sailboat catches and spills wind
in its sails.
• Bridge location—A final problem with the ini-
tial plan lay in the actual location selected for the
bridge’s construction. Although the investigat-
ing committee did not view the physical location
of the bridge as contributing to its collapse, the
location did play an important secondary role
through its effect on wind currents. The topog-
raphy of the Tacoma Narrows over which the
bridge was constructed was particularly prone
to high winds due to the narrowing down of the
land on either side of the river. The unique char-
acteristics of the land on which the bridge was
built virtually doubled the wind velocity and
acted as a sort of wind tunnel.
Before this collapse, not much was known about
the effects of dynamic loads on structures. Until then,
it had always been taken for granted in bridge build-
ing that static load (downward forces) and the sheer
bulk and mass of large trussed steel structures were
enough to protect them against possible wind effects.
It took this disaster to firmly establish in the minds
of design engineers that dynamic, and not static,
loads are really the critical factor in designing such
structures.
The engineering profession took these lessons
to heart and set about a radical rethinking of their
conventional design practices. The stunning part of
this failure was not so much the oscillations, but the
spectacular way in which the wave motions along the
main span turned into a destructive tossing and turn-
ing and led finally to the climax in which the deck was
wrenched out of position. The support cables snapped
one at a time, and the bridge began to shed its pieces in
larger and larger chunks until the integrity was com-
pletely compromised.
Tacoma Narrows Bridge: The Postmortem
Immediately following the bridge’s collapse, the inves-
tigating board’s final report laid the blame squarely
on the inadequacy of a design that did not anticipate
the dynamic properties of the wind on what had been
thought a purely static design problem. Although lon-
gitudinal oscillations were well understood and had
been experienced early in the bridge’s construction, it
was not until the bridge experienced added torsional
rolling movements that the bridge’s failure became
inevitable.
One member of the board investigating the acci-
dent, Dr. Theodore von Karman, faced the disbelief
of the engineering profession as he pushed for the
application of aerodynamics to the science of bridge
building. It is in this context that he later wrote his
memoirs in which he proclaimed his dilemma in this
regard: “Bridge engineers, excellent though they were,
couldn’t see how a science applied to a small unstable
thing like an airplane wing could also be applied to a
huge, solid, nonflying structure like a bridge.”
The lessons from the Tacoma Narrows Bridge
collapse are primarily those of ensuring a general
awareness of technical limitations in project design.
Advances in technology often lead to a willingness
to continually push out the edges of design enve-
lopes, to try and achieve maximum efficiency in
terms of design. The problem with radical designs
or even with well-known designs used in unfa-
miliar ways is that their effect cannot be predicted
using familiar formulae. In essence, a willingness to
experiment requires that designers and engineers
begin to work to simultaneously develop a new cal-
culus for testing these designs. It is dangerous to
assume that a technology, having worked well in
one setting, will work equally well in another, par-
ticularly when other variables in the equation are
subject to change.
The Tacoma Narrows Bridge collapse began
in high drama and ended in farce. Following the
bridge’s destruction, the state of Washington discov-
ered, when it attempted to collect the $6 million insur-
ance refund on the bridge, that the insurance agent had
simply pocketed the state’s premium and never both-
ered obtaining a policy. After all, who ever heard of a
bridge the size of the Tacoma Narrows span collaps-
ing? As von Karman wryly noted, “He [the insurance
agent] ended up in jail, one of the unluckiest men in
the world.”19
Internet Exercises 251
Questions
1. In what ways were the project’s planning and
scope management appropriate? When did the
planners begin taking unknowing or unneces-
sary risks? Discuss the issue of project constraints
and other unique aspects of the bridge in the risk
management process. Were these issues taken
into consideration? Why or why not?
Internet Exercises
7.1 Go to www.informationweek.com/whitepaper/
Management/ROI-TCO/managing-risk-an-integrated-
approac-wp1229549889607?articleID=54000027 and access
the article on “Managing Risk: An Integrated Approach.”
Consider the importance of proactive risk management in
light of one of the cases at the end of this chapter. How were
these guidelines violated by de Havilland or the Tacoma
Narrows construction project organization? Support your
arguments with information either from the case or from
other Web sites.
7.2 FEMA, the Federal Emergency Management Agency, is re-
sponsible for mitigating or responding to natural disasters
within the United States. Go to www.fema.gov/about/di-
visions/mitigation.shtm. Look around the site and scroll
down to see examples of projects in which the agency is
involved. How does FEMA apply the various mitigation
strategies (e.g., accept, minimize, share, and transfer) in its
approach to risk management?
7.3 Go to www.mindtools.com/pages/article/newTMC_07.
htm and read the article on managing risks. What does
the article say about creating a systematic methodology
for managing project risks? How does this methodology
compare with the qualitative risk assessment approach
taken in this chapter? How does it diverge from our
approach?
7.4 Using the keyword phrase “cases on project risk man-
agement,” search the Internet to identify and report on a
recent example of a project facing significant risks. What
steps did the project organization take to first identify and
then mitigate the risk factors in this case?
7.5 Go to www.project-management-podcast.com/index.php/
podcast-episodes/episode-details/109-episode-063-how-
do-risk-attitudes-affect-your-project to access the pod-
cast on risk attitudes on projects. What does the speaker,
Cornelius Fichtner, PMP, suggest about the causes of project
failures as they relate to issues of risk management?
PMP certificAtion sAMPle QUestions
1. The project manager has just met with her team to
brainstorm some of the problems that could occur on
the upcoming project. Today’s session was intended
to generate possible issues that could arise and get
everyone to start thinking in terms of what they should
be looking for once the project kicks off. This meeting
would be an example of what element in the risk man-
agement process?
a. Risk mitigation
b. Control and documentation
c. Risk identification
d. Analysis of probability and consequences
2. Todd is working on resource scheduling in preparation
for the start of a project. There is a potential problem
in the works, however, as the new collective bargain-
ing agreement with the company’s union has not been
concluded. Todd decides to continue working on the
resource schedule in anticipation of a satisfactory settle-
ment. Todd’s approach would be an example of which
method for dealing with risk?
a. Accept it
b. Minimize it
c. Transfer it
d. Share it
3. A small manufacturer has won a major contract with
the U.S. Army to develop a new generation of satellite
phone for battlefield applications. Because of the sig-
nificant technological challenges involved in this proj-
ect and the company’s own size limitations and lack
of experience in dealing with the Army on these kinds
of contracts, the company has decided to partner with
another firm in order to collaborate on developing the
technology. This decision would be an example of what
kind of response to the risk?
a. Accept it
b. Minimize it
c. Transfer it
d. Share it
4. All of the following would be considered examples of
significant project risks except:
a. Financial risks
b. Technical risks
c. Commercial risks
d. Legal risks
e. All are examples of significant potential project risks
5. Suppose your organization used a qualitative risk
assessment matrix with three levels each of prob-
ability and consequences (high, medium, and low).
2. Conduct either a qualitative or quantitative risk
assessment on this project. Identify the risk fac-
tors that you consider most important for the
suspension bridge construction. How would
you assess the riskiness of this project? Why?
3. What forms of risk mitigation would you con-
sider appropriate for this project?
252 Chapter 7 • Risk Management
In evaluating a project’s risks, you determine that com-
mercial risks pose a low probability of occurrence but
high consequences. On the other hand, legal risks are
evaluated as having a high probability of occurrence
and medium consequences. If you are interested in pri-
oritizing your risks, which of these should be consid-
ered first?
a. Commercial risk
b. Legal risk
c. Both should be considered equally significant
d. Neither is really much of a threat to this project, so
it doesn’t matter what order you assign them
Answers: 1. c—Brainstorming meetings are usually cre-
ated as an effective means to get project team members to
begin identifying potential risks; 2. a—Todd is choosing to
accept the risk of potential future problems by continuing
to work on his resource schedule in anticipation of positive
contract talks; 3. d—The firm has decided to share the risk
of the new project by partnering with another company;
4. e—All are examples of significant potential project risks;
5. b—Legal risks would be of higher overall significance
(high probability, medium consequence) and so should
probably be considered first in a prioritization scheme.
Integrated Project 253
iNteGrAteD Project
Project risk Assessment
Conduct a preliminary risk analysis of your project. Use two techniques, one qualitative and one quantita-
tive, in supporting your evaluation of project risk. In order to do this, you will need to:
• Generate a set of likely risk factors.
• Discuss them in terms of probability and consequences.
• Develop preliminary strategies for risk mitigation.
An effective risk analysis will demonstrate clear understanding of relevant project risks, their potential impact
(probability and consequences), and preliminary plans for minimizing the negative effects.
saMPle risk analysis—aBc u p s, inc.
Among the potential threats or uncertainties contained in this project, the following have been identified:
1. Plant reorganization could take longer than anticipated. Process engineering may be more complicated
or unexpected difficulties could arise while the process alterations are underway.
2. A key project team member could be reassigned or no longer able to work on the project. Due to other
requirements or top management reshuffling of resources, the project could lose one of its key core team
members.
3. The project budget could be cut because of budget cutbacks in other parts of the company. The project
budget could be trimmed in the middle of the development cycle.
4. Suppliers might be unable to fulfill contracts. After qualifying vendors and entering into contracts with
them, it might be discovered that they cannot fulfill their contractual obligations, requiring the project
team and organization to rebid contracts or accept lower-quality supplies.
5. New process designs could be found not to be technically feasible. The process engineers might deter-
mine midproject that the project’s technical objectives cannot be achieved in the manner planned.
6. New products might not pass QA assessment testing. The project team might discover that the equip-
ment purchased and/or the training that plant personnel received are insufficient to allow for proper
quality levels of the output.
7. Vendors could discover our intentions and cut deliveries. Current vendors might determine our intent
of eliminating their work and slow down or stop deliveries in anticipation of our company canceling
contracts.
8. Marketing might not approve the prototype cups produced. The sales and marketing department might
determine that the quality or “presence” of the products we produce are inferior and unlikely to sell in
the market.
9. The new factory design might not be approved during government safety inspections. The factory
might not meet OSHA requirements.
Qualitative risk assessMent
Probability
C
o
n
se
q
u
en
ce
s
low Med High
H
ig
h
5 8
M
e
d
3, 9 2 1
lo
w 4 6, 7
254 Chapter 7 • Risk Management
Risk Mitigation Strategies
High risk Mitigation Strategy
1. Plant reorganization takes longer than anticipated. 1. Develop a comprehensive project tracking program
to maintain schedule.
2. Marketing does not approve the prototype cups
produced.
2. Maintain close ties to sales department—keep
them in the loop throughout project development
and quality control cycles.
Moderate risk
3. New process designs are found to not be techni-
cally feasible.
3. Assign sufficient time for quality assessment during
prototype stage.
4. A key project team member could be reassigned
or no longer able to work on the project.
4. Develop a strategy for cross-training personnel on
elements of one another’s job or identify suitable
replacement resources within the organization.
low risk
5. The project budget could be cut. 5. Maintain close contact with top management re-
garding project status, including earned value and
other control documentation.
6. Factory does not pass OSHA inspections. 6. Schedule preliminary inspection midway through
project to defuse any concerns.
7. Suppliers are unable to fulfill contracts. 7. Qualify multiple suppliers at prototyping stage.
8. New products do not pass QA assessment
testing.
8. Assign team member to work with QA department
on interim inspection schedule.
9. Vendors discover our intentions and cut
deliveries.
9. Maintain secrecy surrounding project development!
Quantitative risk assessMent
Probability of failure
• Maturity (Moderate) = .50
• Complexity (Minor) = .30
• Dependency (Moderate) = .50
consequences of failure
• Cost (Significant) = .70
• Schedule (Moderate) = .50
• Reliability (Minor) = .30
• Performance (Moderate) = .50
Pm Pc Pd Pf
.50 .30 .50 .43
Cc Cs Cr Cp Cf
.70 .50 .30 .50 .50
Risk Factor = (.43) + (.50) – (.43)(.50) = .715 (High Risk)
256
8
■ ■ ■
Cost Estimation and Budgeting
Chapter Outline
Project Profile
Sochi Olympics—What’s the Cost of National
Prestige?
8.1 cost ManageMent
Direct Versus Indirect Costs
Recurring Versus Nonrecurring Costs
Fixed Versus Variable Costs
Normal Versus Expedited Costs
8.2 cost estiMation
Learning Curves in Cost Estimation
Software Project Estimation—Function Points
Problems with Cost Estimation
Project ManageMent research in Brief
Software Cost Estimation
Project ManageMent research in Brief
“Delusion and Deception” Taking Place in Large
Infrastructure Projects
8.3 creating a Project Budget
Top-Down Budgeting
Bottom-Up Budgeting
Activity-Based Costing
8.4 develoPing Budget contingencies
Summary
Key Terms
Solved Problems
Discussion Questions
Problems
Case Study 8.1 The Hidden Costs of Infrastructure
Projects—The Case of Building Dams
Case Study 8.2 Boston’s Central Artery/Tunnel Project
Internet Exercises
PMP Certification Sample Questions
Integrated Project—Developing the Cost Estimates
and Budget
Notes
Chapter Objectives
After completing this chapter, you should be able to:
1. Understand the various types of common project costs.
2. Recognize the difference between various forms of project costs.
3. Apply common forms of cost estimation for project work, including ballpark estimates and
definitive estimates.
4. Understand the advantages of parametric cost estimation and the application of learning curve
models in cost estimation.
5. Discern the various reasons why project cost estimation is often done poorly.
6. Apply both top-down and bottom-up budgeting procedures for cost management.
7. Understand the uses of activity-based budgeting and time-phased budgets for cost estimation
and control.
8. Recognize the appropriateness of applying contingency funds for cost estimation.
Project Profile 257
Project MAnAgeMent Body of Knowledge core
concePts covered in this chAPter
1. Plan Cost Management (PMBoK sec. 7.1)
2. Estimate Costs (PMBoK sec. 7.2)
3. Determine Budget (PMBoK sec. 7.3)
4. Control Costs (PMBoK sec. 7.4)
Project Profile
Sochi olympics—What’s the cost of National Prestige?
The Olympics happen every two years and the focus is usually centered mostly on the athletes, but 2012 proved to be
different. Instead, topics of overspending, terroristic threats, graft and corruption in high places, and criminal activities
took center stage during these winter games. With an initial budget set at $12 billion, the final price tag on the Sochi
Olympics is estimated to have surpassed $51 billion, leaving many people scratching their heads. How could the Winter
Games become so expensive and where did all the money go?
Previously, the most expensive games were the 2008 Beijing Summer Olympics. However, at an estimated price tag of
$40 billion, that total was still far less than the Sochi Olympics. Summer Olympics are also generally more expensive than
the Winter Games due to more events being conducted, the need for venue construction, and the higher housing costs
for larger teams. When it comes to hosting the Olympics, it seems that preliminary budgets are quickly abandoned, with
higher and higher price tags accruing. Countries view hosting the Olympics as an opportunity to showcase their national
achievements, so little effort is made to spare expenses. Even by these standards, the Sochi Olympics set a new standard for
profligate spending. Historically, the average budget overspending for Olympics between 1960 and 2012 is 179% in real
terms and 324% in nominal terms. The final bill for the Sochi games is far worse than these historical averages.
In 2007, when Russia won the bid to host the Winter Olympics against fellow finalists from South Korea and Austria, it
promised to spend $12 billion. Although this figure was reasonable (and perhaps even excessive) at the time, it was quickly
overtaken by events involved in developing the Sochi site. The key question: How did the original budget of $12 billion
become a final price tag of $51 billion? There are several reasons for the escalating cost of the Sochi Games, including:
1. Although host to the Winter Games, Sochi is actually a subtropical climate. Temperatures average 52 degrees in
the winter and 75 degrees in the summer. There are even palm trees in this location. So the majority of the skiing
events had to be held in the mountains of Krasnaya Polyana, a distance of about 25 miles from Sochi. The cost of
constructing the roadway and infrastructure used to transport athletes and spectators back and forth came to a
mind-boggling $9.4 billion. At a price of $220 million per kilometer, the roadway was more expensive than the entire
budget of the 2010 Vancouver Winter Olympics.
2. Vladimir Putin, President of Russia, had the goal of developing Sochi as a world-class ski resort in an effort to attract
winter tourism to the country. As a result, he was a highly visible spectator throughout the project’s development,
offering suggestions and criticisms of the work being done. Rework on several of the venues and facilities added to
the final bill.
3. Fears of terrorism and other disruptions led to an unprecedented level of security around the Sochi site. For example,
troops from Russia’s Interior Ministry cordoned off the Olympic area to a depth of nearly 20 kilometers to enforce a
safe-zone around the Games. The costs of heightened security added significantly to Sochi’s costs.
4. Projects needed to be rebuilt several times due to difficulties with terrain or resource management. For example,
state planners did not account for streams that ran beneath the location of the venues. This oversight caused an
embankment near Olympic Park to collapse repeatedly due to constant flooding, each time having to be rebuilt.
Likewise, construction of the ski jump was budgeted for $40 million. However, because of the complex terrain, the
placement had to be adjusted many times. It was also alleged that the necessary geological tests were not conducted
before construction started. Trees were removed as needed, leaving several structures constructed on fragile soil that
was prone to reoccurring landslides, which caused more rebuilding. In the end, the ski jump was completed, but for
$265 million, rather than the initial $40 million estimate.
5. Kickbacks and graft were rumored to be rampant during the years of development, with insiders getting “sweet-
heart” deals from the government, and cronyism running rampant.
How bad was the corruption? As journalist Brett Forrest noted: “The Sochi Internal Affairs department has
conducted numerous investigations into Olympstroy [the Russian Olympic organizing commission] and filed criminal
complaints, alleging that the Olympic agency and its contractors operated a kickback scheme related to the construc-
tion of the Olympic stadium, the main hockey rink, and various other properties. The total in stolen funds, according to
prosecutors, approaches $800 million.”
(continued)
258 Chapter 8 • Cost Estimation and Budgeting
This may have been only the tip of the iceberg. Besides the speculated kickbacks, a green light was given to all de-
velopment schemes around Sochi. Contractors sought to have their projects labeled “Olympic,” knowing that way they
would receive generous funding, including easements in zoning and building code regulations. There were also wide-
spread allegations of cronyism, as friends and business associates of high-ranking Kremlin officials, including Vladimir
Putin, received the choicest contracts. One opposition politician, Boris Nemtsov, criticized the substantial overspending,
stating that the total amount embezzled or acquired by Putin’s friends was in the range of $25–$30 billion, or more
than half of the total budget for the Olympic Games. Construction companies that won contracts would have to inflate
their projected costs in order to make the kickback payments to Russian State managers who had originally awarded
the contracts. According to Nemtsov, it did not matter if the construction company had sufficient resources and skills for
the project. What mattered was the company’s willingness to return a percentage to the corrupt officials.
Many issues contribute to the reasons why these Olympics became so expensive. Russia had a concept that was
budgeted at $12 billion when it started its preparations. History shows most nations exceed their budgets, though not
to the excessive degree experienced by Russia in 2014. Ultimately, though, time is a relentless enemy of Olympic venue
preparation; there is no possibility of extensions to the schedule. As a result, with the time moving closer to the open-
ing of the Games, no expense could be (or was) spared in getting Sochi ready. Without question, enormous (and prob-
ably unknowable) sums disappeared to corruption and mismanagement. Nevertheless, the Sochi Games came on time
and delivered a smoothly running experience to all who participated or came to watch. And yet, at a final price tag of
$51 billion, one can still wonder about the costs of maintaining and enhancing national prestige.1
The price of modern Olympic games
Price per event
Beijing 2008 Sochi 2014
If indirect costs of Beijing Olympics are included,
the event cost the Chinese $43 billion. However,
Beijing hosted 302 events, whereas Sochi will host 98.
Analysis of sports-related costs for games between 1960 and 2014
Initial budget Budget overrun
Sochi1 2014
London 2012
Vancouver 2010
Beijing 2008
Torino 2006
Athens 2004
Salt Lake City 2002
Sydney 2000
$142
million
$520
million
Nagano 1998
Atlanta 1996
Lillehammer 1994
Barcelona 1992
Albertville 1992
Calgary 1988
Lake Placid 1980
Montreal 1976
Grenoble 1968
0 10
Billions ($)2 1Estimate includes indirect costs.
2Cost adjusted to USD2009, except for Sochi.
20
Data: International Olympic Committee, Time Inc.
Bent Flyvbjerg & Allison Stewart, University of OxfordAkshat Rathi | theconversation.com
30 40 50
Summer
Winter
Figure 8.1 Sochi Winter olympics costs
Source: B. Flyvbjerg and A Stewart. (2012). “Olympic proportions: Cost and cost overrun at the
Olympics 1960–2012.” Said Business School Working Papers, Oxford: University of Oxford.
8.1 Cost Management 259
8.1 Cost ManageMent
Cost management is extremely important for running successful projects. The management of
costs, in many ways, reflects the project organization’s strategic goals, mission statement, and
business plan. Cost management has been defined to encompass data collection, cost accounting,
and cost control,2 and it involves taking financial-report information and applying it to projects
at finite levels of accountability in order to maintain a clear sense of money management for the
project.3 Cost accounting and cost control serve as the chief mechanisms for identifying and main-
taining control over project costs.
Cost estimation is a natural first step in determining whether or not a project is viable; that is,
can the project be done profitably? cost estimation processes create a reasonable budget baseline
for the project and identify project resources (human and material) as well, creating a time-phased
budget for their involvement in the project. In this way, cost estimation and project budgeting are
linked hand in hand: The estimates of costs for various components of the project are developed
into a comprehensive project budgeting document that allows for ongoing project tracking and
cost control.
During the development stage of the proposal, the project contractor begins cost estimation
by identifying all possible costs associated with the project and building them into the initial pro-
posal. While a simplified model of cost estimation might only require a bottom-line final figure,
most customers will wish to see a higher level of detail in how the project has been priced out, that
is, an itemization of all relevant costs. For example, a builder could simply submit to a potential
home buyer a price sheet that lists only the total cost of building the house, but it is likely that
the buyer will ask for some breakdown of the price to identify what costs will be incurred where.
Some of the more common sources of project costs include:
1. Labor—Labor costs are those associated with hiring and paying the various personnel
involved in developing the project. These costs can become complex, as a project requires
the services of various classifications of workers (skilled, semiskilled, laborers) over time.
At a minimum, a project cost estimation must consider the personnel to be employed, salary
and hourly rates, and any overhead issues such as pension or health benefits. A preliminary
estimate of workers’ exposure to the project in terms of hours committed is also needed for a
reasonable initial estimate of personnel costs.
2. Materials—Materials costs apply to the specific equipment and supplies the project team
will require in order to complete project tasks. For building projects, materials costs are quite
large and run the gamut from wood, siding, insulation, and paint to shrubbery and paving.
For many other projects, the actual materials costs may be relatively small, for example, the
purchase of a software package that allows rapid compiling of computer code. Likewise,
many projects in the service industries may involve little or no materials costs whatsoever.
Some materials costs can be charged against general company overhead; for example, the use
of the firm’s mainframe computer may be charged to the project on an “as used” basis.
3. Subcontractors—When subcontractors provide resources (and in the case of consultants,
expertise) for the project, their costs must be factored into the preliminary cost estimate for the
project and be reflected in its budget. One subcontractor cost, for example, could be a charge
to hire a marketing communications professional to design the project’s promotional mate-
rial; another might be costs for an industrial designer to create attractive product packaging.
4. Equipment and facilities—Projects may be developed away from the firm’s home office,
requiring members of the project team to work “off site.” Firms commonly include rental of
equipment or office facilities as a charge against the cost of the project. For example, oil com-
panies routinely send four- or five-person site teams to work at the headquarters of major
subcontractors for extended periods. The rental of any equipment or facility space becomes a
cost against the project.
5. Travel—If necessary, expenses that are related to business travel (car rentals, airfare, hotels,
and meals) can be applied to the project as an up-front charge.
Another way to examine project costs is to investigate the nature of the costs themselves.
Among the various forms of project costs are those related to type (direct or indirect), frequency of
occurrence (recurring or nonrecurring), opportunity to be adjusted (fixed or variable), and schedule
(normal or expedited). We will examine each of these types of project costs in turn in this chapter.
260 Chapter 8 • Cost Estimation and Budgeting
Direct Versus indirect Costs
direct costs are those clearly assigned to the aspect of the project that generated the cost. Labor
and materials may be the best examples. All labor costs associated with the workers who actually
build a house are considered direct costs. Some labor costs, however, might not be viewed as direct
costs for the project. For example, the costs of support personnel, such as the project’s cost accoun-
tant or other project management resources, may not be allocated directly, particularly when their
duties consist of servicing or overseeing multiple, simultaneous projects. In a nonproject setting
such as manufacturing, it is common for workers to be assigned to specific machinery that oper-
ates on certain aspects of the fabrication or production process. In this case, labor costs are directly
charged against work orders for specific parts or activities.
The formula for determining total direct labor costs for a project is straightforward:
Total direct labor costs = (Direct labor rate) (Total labor hours)
The direct costs of materials are likewise relatively easy to calculate, as long as there is a clear
understanding of what materials are necessary to complete the project. For example, the direct
costs of building a bridge or hosting a conference dinner for 300 guests can be estimated with
fair accuracy. These costs can be applied directly to the project in a systematic way; for example,
all project purchase orders (POs) can be recorded upon receipt of bills of materials or sales and
applied to the project as a direct cost.
indirect costs, on the other hand, generally are linked to two features: overhead, and sell-
ing and general administration. Overhead costs are perhaps the most common form of indirect
costs and can be one of the more complex forms in estimating. Overhead costs include all sources
of indirect materials, utilities, taxes, insurance, property and repairs, depreciation on equipment,
and health and retirement benefits for the labor force. Common costs that fall into the selling and
general administration category include advertising, shipping, salaries, sales and secretarial sup-
port, sales commissions, and similar costs. Tracing and linking these costs to projects is not nearly
as straightforward as applying direct costs, and the procedures used vary by organization. Some
organizations charge a flat rate for all overhead costs, relative to the direct costs of the project.
For example, some universities that conduct research projects for the federal government use a
percentage multiplier to add administrative and overhead indirect costs to the proposal. The most
common range for such indirect multiplier rates is from 20% to over 50% on top of direct costs.
Other firms allocate indirect costs project by project, based on individual analysis. Whichever
approach is preferred, it is important to emphasize that all project cost estimates include both
direct and indirect cost allocations.
exaMple 8.1 Developing Fully Loaded Labor Costs
Suppose that we are attempting to develop reasonable cost estimation for the use of a senior pro-
grammer for a software project. The programmer is paid an annual salary of $75,000, which trans-
lates to an hourly rate of approximately $37.50/hour. The programmer’s involvement in the new
project is expected to be 80 hours over the project’s life. Remember, however, that we also need to
consider overhead charges. For example, the company pays comprehensive health benefits and
retirement, charges the use of plant and equipment against the project, and so forth. In order to
cover these indirect costs, the firm uses an overhead multiplier of 65%. Employing an overhead
multiplier is sometimes referred to as the fully loaded rate for direct labor costs. Thus, the most ac-
curate calculation of the programmer’s charge against the project would look like this:
Hourly rate Hours needed Overhead charge Fully loaded labor cost
($37.50)
*
(80)
*
(1.65) = $4,950
Some have argued that a more realistic estimate of fully loaded labor costs for each person
assigned to the project would reflect the fact that no one truly works a full 8-hour day as part of the
job. An allowance for a reasonable degree of personal time during the workday is simply recogni-
tion of the need to make personal calls, have coffee breaks, walk the hallways to the restroom, and
so forth. Meredith and Mantel (2003) have argued that if such personal time is not included in the
8.1 Cost Management 261
original total labor cost estimate, a multiplier of 1.12 should be used to reflect this charge, increas-
ing the fully loaded labor cost of our senior programmer to:4
Hours Overhead Personal
Hourly rate * needed * charge * Time =
($37.50) (80) (1.65) (1.12)
Fully loaded
labor cost
$5,544
One other point to consider regarding the use of overhead (indirect costs) involves the manner in
which overhead may be differentially applied across job categories. In some firms, for example,
a distinction is made between salaried and nonsalaried employees. Thus, two or more levels of
overhead percentage may be used, depending upon the category of personnel to which they are
applied. Suppose that a company applied a lower overhead rate (35%) to hourly workers, reflect-
ing the lesser need for contributions to retirement or health insurance. The calculated fully loaded
labor cost for these personnel (even assuming a charge for personal time) would resemble the
following:
Hours Overhead Personal
Hourly rate * needed * charge * Times =
($12.00) (80) (1.35) (1.12)
Fully loaded
labor cost
$1,451.52
The decision to include personal time requires input from the project’s client. Whichever
approach is taken, a preliminary total labor cost budget table can be constructed when the process
is completed, as shown in Table 8.1. This table assumes a small project with only five project team
personnel, whose direct labor costs are to be charged against the project without a personal time
charge included.
recurring Versus nonrecurring Costs
Costs can also be examined in terms of the frequency with which they occur; they can be recurring
or nonrecurring. nonrecurring costs might be those associated with charges applied once at the
beginning or end of the project, such as preliminary marketing analysis, personnel training, or out-
placement services. recurring costs are those that typically continue to operate over the project’s
life cycle. Most labor, material, logistics, and sales costs are considered recurring because some
budgetary charge is applied against them throughout significant portions of the project devel-
opment cycle. In budget management and cost estimation, it is necessary to highlight recurring
versus nonrecurring charges. As we will see, this becomes particularly important as we begin to
develop time-phased budgets—those budgets that apply the project’s baseline schedule to pro-
jected project expenditures.
Fixed Versus Variable Costs
An alternative designation for applying project costs is to identify fixed and variable costs in the
project budget. fixed costs, as their title suggests, do not vary with respect to their usage.5 For
example, when leasing capital equipment or other project hardware, the leasing price is likely not
table 8.1 Preliminary cost estimation for fully loaded labor
Personnel title Salary (Hourly) Hours Needed
overhead rate
Applied
fully loaded
labor cost
Linda Lead Architect $35/hr 250 1.60 $14,000.00
Alex Drafter—Junior $20/hr 100 1.60 3,200.00
Jessica Designer—Intern $8.50/hr 80 1.30 884.00
Todd Engineer—Senior $27.50/hr 160 1.60 7,040.00
Thomas Foreman $18.50/hr 150 1.30 3,607.50
Total $28,731.50
262 Chapter 8 • Cost Estimation and Budgeting
to go up or down with the amount of usage the equipment receives. Whether a machine is used
for 5 hours or 50, the cost of its rental is the same. When entering fixed-rate contracts for equip-
ment, a common decision point for managers is whether the equipment will be used sufficiently to
justify its cost. variable costs are those that accelerate or increase through usage; that is, the cost is
in direct proportion to the usage level. Suppose, for example, we used an expensive piece of drill-
ing equipment for a mining operation. The equipment degrades significantly as a result of use in
a particularly difficult geographical location. In this case, the variable costs of the machinery are in
direct proportion to its use. It is common, in many cases, for projects to have a number of costs that
are based on fixed rates and others that are variable and subject to significant fluctuations either
upward or downward.
normal Versus expedited Costs
normal costs refer to those incurred in the routine process of working to complete the project
according to the original, planned schedule agreed to by all project stakeholders at the beginning
of the project. Certainly, this planned schedule may be very aggressive, involving extensive over-
time charges in order to meet the accelerated schedule; nevertheless, these costs are based on the
baseline project plan. expedited costs are unplanned costs incurred when steps are taken to speed
up the project’s completion. For example, suppose the project has fallen behind schedule and the
decision is made to “crash” certain project activities in the hopes of regaining lost time. Among the
crashing costs could be expanded use of overtime, hiring additional temporary workers, contract-
ing with external resources or organizations for support, and incurring higher costs for transporta-
tion or logistics in speeding up materials deliveries.
All of the above methods for classifying costs are linked together in Table 8.2.6 Across
the top rows are the various classification schemes, based on cost type, frequency, adjustment,
and schedule. The left-side column indicates some examples of costs incurred in develop-
ing a project. Here we see how costs typically relate to multiple classification schemes; for
example, direct labor is seen as a direct cost, which is also recurring, fixed, and normal.
A building lease, on the other hand, may be classified as an indirect (or overhead) cost, which
is recurring, fixed, and normal. In this way, it is possible to apply most project costs to multiple
classifications.
8.2 Cost estiMation
Estimating project costs is a challenging process that can resemble an art form as much as a science.
Two important project principles that can almost be called laws are at work in cost estimation.
First, the more clearly you define the project’s various costs in the beginning, the less chance there
is of making estimating errors. Second, the more accurate your initial cost estimations, the greater
the likelihood of preparing a project budget that accurately reflects reality for the project and the
greater your chances of completing the project within budget estimates.
One key for developing project cost estimates is to first recognize the need to cost out the
project on a disaggregated basis; that is, to break the project down by deliverable and work pack-
age as a method for estimating task-level costs. For example, rather than attempt to create a cost
estimate for completing a deliverable of four work packages, it is typically more accurate to first
identify the costs for completing each work package individually and then create a deliverable cost
estimate, as Table 8.3 illustrates.
table 8.2 cost classifications
type frequency Adjustment Schedule
costs Direct indirect recurring Nonrecurring fixed Variable Normal expedited
Direct Labor X X X X
Building Lease X X X X
Expediting Costs X X X X
Material X X X X
8.2 Cost Estimation 263
Companies use a number of methods to estimate project costs, ranging from the highly tech-
nical and quantitative to the more qualitative approaches. Among the more common cost estima-
tion methods are the following:7
1. Ballpark estimates—Sometimes referred to as order of magnitude estimates, ballpark esti-
mates are typically used when either information or time is scarce. Companies often use
them as preliminary estimates for resource requirements or to determine if a competitive
bid can be attempted for a project contract. For example, a client may file an RFQ (request
for quote) for competitive bids on a project, stating a very short deadline. Managers would
have little time to make a completely accurate assessment of the firm’s qualifications or
requirements, but they could still request ballpark estimates from their personnel to deter-
mine if they should even attempt to bid the proposal through a more detailed analysis. The
unofficial rule of thumb for ballpark estimates is to aim for an accuracy of ±30%. With such
a wide variance plus or minus, it should be clear that ballpark estimates are not intended to
substitute for more informed and detailed cost estimation.
2. comparative estimates—Comparative estimates are based on the assumption that histori-
cal data can be used as a frame of reference for current estimates on similar projects. For
example, Boeing Corporation routinely employs a process known as parametric estimation,
in which managers develop detailed estimates of current projects by taking older work and
inserting a multiplier to account for the impact of inflation, labor and materials increases,
and other reasonable direct costs. This parametric estimate, when carefully performed,
allows Boeing to create highly accurate estimates when costing out the work and preparing
detailed budgets for new aircraft development projects. Even in cases where the technology
is new or represents a significant upgrade over old technologies, it is often possible to gain
valuable insight into the probable costs of development, based on historical examples.
Boeing is not the only firm that has successfully employed parametric cost estimation.
Figure 8.2 shows a data graph of the parametric estimation relating to development of the
Concorde aircraft in the 1960s. The Concorde represented such a unique and innovative air-
frame design that it was difficult to estimate the amount of design time required to complete
the schematics for the airplane. However, using parametric estimation and based on experi-
ences with other recently developed aircraft, a linear relationship was discovered between
the number of fully staffed weeks (Concorde referred to this time as “manweeks”) needed to
design the aircraft and its projected cruising speed. That is, the figure demonstrated a direct
relationship between the cruising speed of the aircraft and the amount of design time neces-
sary to complete the schematics. Using these values, it was possible to make a reasonably
accurate cost projection of the expected budget for design, demonstrating that in spite of sig-
nificant changes in airplane design over the past decades, the relationship between cruising
speed and design effort had held remarkably steady.
Effective comparative estimates depend upon some important supplementary
sources including a history of similar projects and a detailed archive of project data that
includes the technical, budgetary, and other cost information. Adjusting costs to account
for inflation simply becomes a necessary step in the process. The key to making com-
parative estimates meaningful lies in the comparability to previous project work. It makes
little sense to compare direct labor costs for two projects when the original was done in a
foreign country with different wage rates, overhead requirements, and so forth. Although
some argue that comparative cost estimation cannot achieve a degree of accuracy closer
table 8.3 Disaggregating Project Activities to create reasonable cost estimates
Project Activities estimated cost
Deliverable 1040—Site Preparation
Work Package 1041—Surveying $ 3,000
Work Package 1042—Utility line installation 15,000
Work Package 1043—Site clearing 8,000
Work Package 1044—Debris removal 3,500
Total cost for Deliverable 1040 $29,500
264 Chapter 8 • Cost Estimation and Budgeting
than ;15%, in some circumstances the estimate may be much more accurate and useful
than that figure indicates.
3. feasibility estimates—These estimates are based as a guideline on real numbers, or figures
derived after the completion of the preliminary project design work. Following initial scope
development, it is possible to request quotes from suppliers and other subcontractors with a
greater degree of confidence, particularly as it is common to engage in some general sched-
uling processes to begin to determine the working project baseline. Feasibility estimates are
routinely used for construction projects, where there are published materials cost tables that
can give reasonably accurate cost estimates for a wide range of project activities based on an
estimate of the quantities involved. Because they are developed farther down the life cycle,
feasibility estimates are often expressed in terms of a degree of accuracy of ;10%.
4. definitive estimates—These estimates can be given only upon the completion of most
design work, at a point when the scope and capabilities of the project are quite well
understood. At this point all major purchase orders have been submitted based on known
prices and availabilities, there is little or no wiggle room in the project’s specifications,
and the steps to project completion have been identified and a comprehensive project
plan is in place. Because it is understood that cost estimation should naturally improve
with time, as more information becomes available and fewer project unknowns remain
unresolved, definitive estimates should accurately reflect the expected cost of the proj-
ect, barring unforeseen circumstances, at completion. Hence, definitive estimates can be
expected to have an accuracy of ;5%. We saw in previous chapters that some projects
may offer very thin profit margins; for example, in the case of fixed-cost contracts, the
project organization assumes almost all risk for completing the project according to origi-
nally agreed-on contract terms. As a result, the better the job we do in estimating costs,
the more likely we will be to maintain the profit margin contracted.
Design manweeks to first service (thousands) per passenger
20
10
8
6
4
2
1
0.8
0.6
0.4
0.2
0.1
0.08
0.06
0.04
0.02
0.01
10 20
Cruising speed (kts)
40 60 80 100 200 400
de Havilland DH 4
Junkers Ju 52/3m
Douglas DC-3
Douglas DC-6
Boeing 707
Boeing 747
BAC-SNIAS Concorde
Fokker VII
600 1000 2000
Figure 8.2 Parametric estimate for Design costs for concorde
Note: Plot of design effort versus cruising speed for significant commercial aircraft types.
8.2 Cost Estimation 265
Which cost estimation approach should a project organization employ? The answer to this
question presupposes knowledge of the firm’s industry (e.g., software development vs. construc-
tion), ability to account for and manage most project cost variables, the firm’s history of success-
ful project management, the number of similar projects the firm has completed in the past, the
knowledge and resourcefulness of project managers, and the company’s budgeting requirements.
In some instances (e.g., extremely innovative research and development projects), it may be impos-
sible to create cost estimates with more than a ±20% degree of accuracy. On the other hand, in
some projects such as events management (e.g., managing a conference and banquet), it may be
reasonable to prepare definitive budgets quite early in the project. For example, while cost estima-
tion can involve significant calculations and some amount of guesswork for certain types of proj-
ects, in other cases, project managers and cost estimators are able to calculate project costs with a
much greater degree of accuracy. Many construction projects, particularly in standard residential
and commercial building, employ estimates based on relatively stable historical data that makes it
much easier to determine costs with good accuracy. To illustrate, Internet sites such as RSMeans.
com, developed by Reed Construction Data, or CostDataOnLine.com include building cost cal-
culators that are able to predict construction costs (including assumptions about labor rates, cost
of living adjustments for location, square footage, type of building) with a reasonable degree of
accuracy (see Figure 8.3).
RSMeans QuickCost Estimator
Project Title:
Model:
Construction:
Location:
Stories:
Story Height (I.f.):
Floor Area (s.f.):
Data Release:
Wage Rate:
Basement:
Do You Need a More Comprehensive Estimate With Current Cost Data
and Your Own Detailed Project Specifications?
[click here to view a sample report]
Access the Custom Cost Estimator, a paid subscription service,
to reference a comprehensive library of square foot models updated
and localized for the United States to create a customized online estimate
specific to your individual project! – All from RSMeans,
These costs are not exact and are intended only as a
preliminary guide to possible project cost. Actual project cost may vary greatly
depending on many factors. RSMeans uses diligence in preparing the information
contained here. RSMeans does not make any warranty or guarantee as to the
accuracy, correctness, value, sufficiency or completeness of the data or resulting
project cost estimates. RSMeans shall have no liability for any loss, expense or
damage arising out of or in connection with the information contained herein.
Costs are derived from a building model
with basic components. Scope differences
and market conditions can cause costs to
vary significantly.
Sample Project
Apartment, 1-3 Story
Face Brick with Concrete Block Back-up/Wood Joists
VANCOUVER, BC
3
10
2,500
Year 2012 Quarter 3
Union
Not included
Cost Ranges
Total:
Contractor’s Overhead & Profit:
Architectural Fees:
Total Building Cost:
$826,650
$206,550
$82,800
$1,116,000
$918,500
$229,500
$92,000
$1,240,000
$1,148,125
$286,875
$115,000
$1,550,000
Low Med High
Figure 8.3 Sample cost estimator Using
rSMeans.com Web Site
Source: Copyright RSMeans 2014- RSMeans
Square Foot Models www.rsmeans.com/
estimator/qce/qce_result.asp
www.rsmeans.com/estimator/qce/qce_result.asp
www.rsmeans.com/estimator/qce/qce_result.asp
266 Chapter 8 • Cost Estimation and Budgeting
The key to cost estimation lies in a realistic appraisal of the type of project one is undertaking,
the speed with which various cost estimates must be created, and the comfort level top manage-
ment has with cost estimation error. If the information is available, it is reasonable to expect the
project team to provide as accurate a cost estimate as possible, as early in the project as possible.
Figure 8.4 shows a sample project cost estimation form.
learning Curves in Cost estimation
Cost estimation, particularly for labor hours, often takes as its assumption a steady or uniform
rate at which work is done. In the case of having to perform multiple activities, the amount of
time necessary to complete the first activity is not significantly different from the time necessary
ESTIMATE AND QUOTATION SHEET
Project No. Description: Type No.
Work Package No. Task No. Estimate No.
Work Package
Description:
Task
Description:
Internal Labor
Skill Category Rate Hours Cost
Senior Test Engineer TE4 18.50 40 $ 740.00
Test Engineer TE3 14.00 80 1,120.00
Fitter PF4 13.30 30 399.00
Drafter DR2 15.00 15 225.00
Drawing Checker DR3 16.50 3 49.50
Subtotal, Hours and Costs 168 $2,533.50
Labor Contingency (10%) 17 254.00
Total Labor, Hours and Costs 185 $2,787.50
Overhead (80%) 2,230.00
Gross Labor Cost $5,017.50
Bought-Out Costs
Materials (Specify): Bolts plus cleating material $ 20.00
Finished Goods (Specify): N/A
Services and Facilities: Hire test house;
instrumentation plus report
12,300.00
Subcontract Manufacture (Specify): Fixture and bolt modification 250.00
Subtotal $12,570.00
Contingency (15%) 1,885.50
Total Bought-Out Costs $14,455.50
Expenses
Specify: On-site accommodation plus traveling $ 340.00
Total Bought-Out Costs and Expenses $14,795.50
Profit %: N/A
Total Quoted Sum: Gross Labor plus Bought-Out Costs and Expenses $19,813.00
Compiled by:
Approved: Date
Figure 8.4 Sample Project Activity cost estimating Sheet
8.2 Cost Estimation 267
to complete the nth activity. For example, in software development, it may be considered standard
practice to estimate each activity cost independently of other, related activities with which the
programmer is involved. Therefore, in the case of a programmer required to complete four work
assignments, each involving similar but different coding activities, many cost estimators will sim-
ply apply a direct, multiplicative rule-of-thumb estimate:
Number of times
Cost of activity * activity is repeated =
($8,000) (4)
Total cost estimate
$32,000
When we calculate that each actual coding sequence is likely to take approximately 40 hours of
work, we can create the more formal direct cost budget line for this resource. Assuming an over-
head rate of .60 and a cost per hour for the programmer’s services of $35/hour, we can come up
with a direct billing charge of:
Wage Unit Overhead Rate Hours/Unit
($35/hr)
*
(4 iterations)
*
(1.60)
*
(40 hours) =
$8,960
Although this rule of thumb is simple, it may also be simplistic. For example, is it reasonable to
suppose that in performing similar activities, the time necessary to do a coding routine the fourth
time will take as long as it took to do it the first time? Or is it more reasonable to suppose that
the time needed (and hence, cost) of the fourth iteration should be somewhat shorter than the
earlier times?
These questions go to the heart of a discussion of how learning curves affect project cost
estimation.8 In short, experience and common sense teach us that repetition of activities often
leads to reduction in the time necessary to complete the activity over time. Some research,
in fact, supports the idea that performance improves by a fixed percentage each time produc-
tion doubles.9
Let us assume, for example, that the time necessary to code a particular software routine is
estimated at 20 hours of work for the first iteration. Doing the coding work a second time requires
only 15 hours. The difference between the first and second iteration suggests a learning rate of .75
(15/20). We can now apply that figure to estimates of cost for additional coding iterations. When
output is doubled from the first two routines to the required four, the time needed to complete the
fourth unit is now estimated to take:
15 hrs. (.75) = 11.25 hours
These time and cost estimates follow a well-defined formula,10 which is the time required to
produce the steady state unit of output, and is represented as:
Yx = aX
b
where
Yx = the time required for the steady state, x, unit of output
a = the time required for the initial unit of output
X = the number of units to be produced to reach the steady state
b = the slope of the learning curve, represented as: log decimal learning rate/log 2
Assume the need to conduct a project cost estimation in the case of construction, where
one resource will be tasked to perform multiple iterations of a similar nature (e.g., fitting,
riveting, and squaring). The worker must do a total of 15 of these activities to reach the steady
state. Also assume that the time estimated to perform the last iteration (the steady state) is
1 hour, and we know from past experience the learning rate for this highly repetitive activ-
ity is .60. In calculating the time necessary to complete the first activity, we would apply
268 Chapter 8 • Cost Estimation and Budgeting
these values to the formula to determine the value of a, the time needed to complete the task
the first time:
b = log 0.60/log 2
= – 0.2219/0.31
= – 0.737
1 hr. = a(15)-0.737
a = 7.358 hours
Note that the difference between the first and fifteenth iteration of this activity represents a change
in duration estimation (and therefore, cost) from over 7 hours for the first time the task is per-
formed to 1 hour for the steady state. The difference this learning curve factor makes in project
cost estimates can be significant, particularly when a project involves many instances of repetitive
work or large “production runs” of similar activities.
exaMple 8.2 Learning Curve Estimates
Let’s return to the earlier example where we are trying to determine the true cost for the senior
programmer’s time. Recall that the first, linear estimate, in which no allowance was made for the
learning curve effect, was found to be:
($35/hr) (4 iterations) (1.60) (40 hours) = $8,960
Now we can apply some additional information to this cost estimate in the form of better knowl-
edge of learning-rate effects. Suppose, for example, that the programmer’s learning rate for coding
is found to be .90. The steady state time to code the sequence is 40 hours. Our estimate of the time
needed for the first coding iteration is:
b = log 0.90/log 2
= – 0.0458/0.301
= – 0.1521
40 hrs. = a(4)-0.1521
a = 49.39 hours
Thus, the first unit would take 9.39 hours longer than the steady state 40 hours. For this programming
example, we can determine the appropriate unit and total time multipliers for the calculated initial
unit time by consulting tables of learning curve coefficients (multipliers) derived from the formula
with a = 1. We can also calculate unit and total time multipliers by identifying the unit time multipli-
ers from 1 to 3 units of production (coding sequences) with a learning rate of .90. We use the units 1
to 3 because we assume that by the fourth iteration, the programmer has reached the steady state time
of 40 hours. Based on a = 1, the unit time learning curve coefficients are 1-0.5121 = 1, 2-0.1521 = 0.90, and
3-0.1521 = .846, for a total time multiplier of 2.746. Therefore, the time needed to code the first three
sequences is:
Total time Time required Total time to program
multiplier * for initial unit = first three sequences
(2.746) (49.39) 135.62 hours
270 Chapter 8 • Cost Estimation and Budgeting
software project estimation—Function points
Evidence from Chapter 1 and Box 8.1 (Software Cost Estimation) highlights the difficulties in
developing realistic estimates for large-scale software projects. The track record is not encourag-
ing: More and more software projects are overshooting their schedule and cost estimates, often
by significant amounts. One of the reasons is simply due to the nature of uncertainty in these
projects. We can make estimates of cost, but without a clear sense of the nature of the software,
Box 8.1
Project Management research in Brief
Software Cost Estimation
The software project industry has developed a notorious reputation when it comes to project performance.
Past research by the Standish Group14 found that for large companies, less than 9% of IT projects are com-
pleted on schedule and at budget. Over 50% of these projects will cost 189% of their original budget,
while the average schedule overrun is 202%. A recent study of 5,400 IT projects conducted by McKinsey
and Company and Oxford University found that on average, large IT projects run 45% over budget and 7%
over time while delivering 56% less value than predicted. In fact, 17% of IT projects are such a disaster that
they can threaten the very existence of the company.15 Clearly, from both cost and schedule estimation per-
spectives, the industry is frustrated by unrealistic expectations. In spite of recent improvements in software
development cost, schedule, and effort estimation, using Constructive Cost Estimating models (COCOMO II),
required by several branches of the federal government when bidding software contracts, our lack of ability to
accurately predict software project costs remains a serious concern.16
A book by Steven McConnell, president of Construx Software,17 sheds light on some of the key reasons
why software projects suffer from such a poor track record. Among his findings is the common failure to bud-
get adequate time and funding for project activities that are likely to vary dramatically, depending upon the
size of the project. He distinguished among six software project activities: (1) architecture, (2) detailed design,
(3) coding and debugging, (4) developer testing, (5) integration, and (6) system testing. McConnell deter-
mined that for small IT projects of 2,000 lines of code or less, 80% of the project work consisted of just three
activities: detailed design, coding and debugging, and unit testing (see Figure 8.6). However, as the complexity
of the software projects increased, the proportion of these activities to the overall project cost dropped dra-
matically. Projects of over 128,000 lines of code required significantly more attention to be paid to the other
three activities: architecture, integration, and system testing (about 60% of total effort).
The implications of this research suggest that IT project budgets must consider the size of the project
as they calculate the costs of each component (work package). Larger projects resulting in hundreds of thou-
sands of lines of code require that a higher proportion of the budget be allocated to software architecture and
testing, relative to the actual cost of construction (design, coding, and unit testing).
System testing
Unit testing
Coding and debugging
Detailed design
100%
0%
2K 8K 32K 128K 512K
Integration
Construction
Project Size in Lines of Code
Percentage of
Development
Time
Architecture
Figure 8.6 Software Project Development Activities as a function of Size
Source: From Code Complete, 2d ed. (Microsoft Press, 2004), by Steve McConnell.
Used with permission of the author.
8.2 Cost Estimation 271
the size of the program, and its functionality, these are often just best guesses and are quickly
found to be inadequate.
function point analysis is a system for estimating the size of software projects based on
what the software does. To build any system, you need time to create files that hold informa-
tion and interfaces to other screens (files and interfaces). You also need to create input screens
(inputs), enquiry screens (queries), and reports (outputs). If you count all the files, interfaces,
inputs, queries, and outputs, you can begin estimating the amount of work to be undertaken.
The measure then relates directly to the business requirements that the software is intended to
address. It can therefore be readily applied across a wide range of development environments
and throughout the life of a development project, from early requirements definition to full
operational use.
Simply stated, function points are a standard unit of measure that represents the functional
size of a software application. In the same way that a house is measured by the square feet it pro-
vides, the size of an application can be measured by the number of function points it delivers to the
users of the application. As part of that explanation, it is critically important to recognize that the
size of the application being measured is based on the user’s view of the system. It is based on what
the user asked for, not what is delivered. Further, it is based on the way the user interacts with the
system, including the screens that the user accesses to enter input, and the reports the user receives
as output.
We know that it takes different amounts of time to build different functions; for example,
it may take twice as long to build an interface table as an input table. Once we have a general
sense of the relative times for each of the functions of the system, we have to consider additional
factors to weight these estimates. These factor weightings are based on “technical complexity” and
“environmental complexity.” Technical complexity assesses the sophistication of the application
to be built. Are we developing a complex model to determine the multiple paths of geosynchro-
nous orbiting satellites or are we simply creating a database of customer names and addresses?
Environmental complexity considers the nature of the setting in which the system is designed to
work. Will it support a single user on one PC or a wide-area network? What computer language
will the application be written in? A relatively streamlined and commonplace language such
as Visual Basic requires less work than a more complex language and, consequently, we would
assume that programmers could be more productive (generate more function points). These func-
tion points are adjusted for such complexity factors and then summed to determine a reasonable
cost estimate for developing the software system.
Let’s take a simple example: Suppose a local restaurant commissioned our firm to develop
a replenishment and ordering system to ensure that minimum levels of foods and beverages
are maintained at all times. The restaurant wants the application to have a reasonable number
of input screens, output screens, a small number of query options and interfaces, but large and
detailed report generation capabilities. Further, we know from past experience that one program-
mer working for one month (a “person-month”) at our firm can generate an average of 10 function
points. Finally, based on our company’s past history, we have a set of average system technical
and environmental complexity weightings that we can apply across all functions (see Table 8.4).
For example, we know that in building an input function for the application, a system with high
complexity is approximately three times more complicated (and requires more effort) than one
with low complexity.
table 8.4 complexity Weighting table for function Point Analysis
complexity Weighting
function low Medium High total
Number of Inputs 2 : ____ = 4 : ____ = 6 : ____ =
Number of Outputs 4 : ____ = 6 : ____ = 10 : ____ =
Number of Interfaces 3 : ____ = 7 : ____ = 12 : ____ =
Number of Queries 5 : ____ = 10 : ____ = 15 : ____ =
Number of Files 2 : ____ = 4 : ____ = 8 : ____ =
272 Chapter 8 • Cost Estimation and Budgeting
With this information, we can apply the specific system requirements from the client to
construct a function point estimate for the project. Suppose we determined (from our interviews
with the restaurant owners) that the estimate for relative complexity was inputs (medium), out-
puts (high), interfaces (low), queries (medium), and files (low). Further, we know that the clients
require the following number of each function: input screens (15), output screens (20), interfaces
(3), queries (6), and report files (40). We can combine this information with our historic weightings
for complexity to create Table 8.5.
Table 8.5 shows the results of combining our estimates for complexity of various programming
functions with the requirements of the client for system features, including numbers of screens and
other elements for each function. The result is our estimate that the project will require approximately
409 function points. We know that our organization estimates that each resource can perform 10 func-
tion points each “person-month.” Therefore, we calculate the expected number of person-months to
complete this job as 409/10 = 40.1. If we assigned only four programmers to this job, it would take
approximately 10 months to complete. On the other hand, by assigning our entire staff of 10 program-
mers, we would expect to complete the job in just over four months. Cost estimation using this infor-
mation is straightforward: If our average resource cost per programmer is $5,000/month, we multiply
this figure by 40.1 to determine that our estimated cost for completing the job is $200,500.
Function point analysis is not an exact science. Complexity determinations are based on his-
torical estimates that can change over time and so must be continuously updated. Further, they
may not be comparable across organizations with differing estimation procedures and standards
for technical complexity. Nevertheless, function point analysis does give organizations a useful
system for developing cost estimates for software projects, a historically difficult class of projects
to estimate with any accuracy.18
problems with Cost estimation
In spite of project management’s best efforts, a variety of issues affect the ability to conduct reason-
able and accurate project cost estimates. Highly innovative projects can be notoriously difficult
to estimate in terms of costs. Surprisingly, however, even projects that are traditionally viewed
as highly structured, such as construction projects, can be susceptible to ruinously expensive cost
overruns. Among the more common reasons for cost overruns are:19
1. Low initial estimates—Caused by misperception of the scope of the project to be under-
taken, low initial estimates are a double-edged sword. In proposing the low estimates at the
start of a project, management is often setting themselves up to fail to live up to the budget
constraints they have imposed. Hence, low estimates, which may be created either willingly
(in the belief that top management will not fund a project that is too expensive) or unwill-
ingly (through simple error or neglect), almost always guarantee the result of cost overrun.
Part of the reason why initial estimates may be low can be the failure to consider the project
in relation to other organizational activities. If we simply cost-out various project activities
without considering the other surrounding organizational activities, we can be led to assume
the project team member is capable of performing the activity in an unrealistic amount of
time. (See Chapter 11 on critical chain project scheduling.)
table 8.5 function Point calculations for restaurant reorder System
complexity Weighting
function low Medium High total
Number of Inputs 4 : 15 = 60
Number of Outputs 10 : 20 = 200
Number of Interfaces 3 : 3 = 9
Number of Queries 10 : 6 = 60
Number of Files 2 : 40 = 80
Total 409
8.2 Cost Estimation 273
Low estimates may also be the result of a corporate culture that rewards underestima-
tion. For example, in some organizations, it is widely understood that cost overruns will
not derail a project manager’s career nearly as quickly as technical flaws. Therefore, it is
common for project managers to drastically underestimate project costs in order to get their
project funded, continually apply for supplemental funding as the project continues, and
eventually turn in a product with huge cost overruns. Political considerations also can cause
project teams or top management to view a project through rose-colored glasses, minimiz-
ing initial cost estimates, particularly if they run contrary to hoped-for results. The Denver
International Airport represents a good example of a community ignoring warning signs of
overly optimistic cost estimates in the interest of completing the project. The resulting cost
overruns have been enormous.
2. Unexpected technical difficulties—A common problem with estimating the costs associated
with many project activities is to assume that technical problems will be minimal; that is, the
cost estimate is often the case of seeming to suggest that “All other things being equal, this
task should cost $XX.” Of course, all other things are rarely equal. An estimate, in order to
be meaningful, must take a hard look at the potential for technical problems, start-up delays,
and other technical risks. It is a fact that new technologies, innovative procedures, and engi-
neering advances are routinely accompanied by failures of design, testing, and application.
Sometimes the impact of these difficulties is the loss of significant money; other times the
losses are more tragic, resulting in the loss of life. The Boeing V-22 Osprey transport aircraft,
for example, employs a radical “tilt-rotor” technology that was developed for use by the U.S.
Marines and Navy. Prototype testing identified design flaws, contributing to the deaths of
test pilots in early models of these aircraft.
3. Lack of definition—The result of poor initial scope development is often the creation of proj-
ects with poorly defined features, goals, or even purpose (see Chapter 5 on scope manage-
ment). This lack of a clear view of the project can quickly spill over into poorly realized cost
estimates and inevitable cost overruns. It is important to recognize that the process of cost
estimation and project budgeting must follow a comprehensive scope statement and work
breakdown structure. When the first steps are done poorly, they effectively render futile any
attempt at reasonable estimation of project costs.
4. Specification changes—One of the banes of project management cost estimation and control
is the midcourse specifications changes (sometimes referred to as “scope creep”) that many
projects are so prone to. Information technology projects, for example, are often riddled
with requests for additional features, serious modifications, and updated processes—all
while the project’s activities are still in development. In the face of serious changes to project
scope or specification, it is no wonder that many projects routinely overrun their initial cost
estimates. In fact, with many firms, initial cost estimates may be essentially meaningless,
particularly when the company has a well-earned reputation for making midcourse adjust-
ments to scope.
5. External factors—Inflation and other economic impacts can cause a project to overrun
its estimates, many times seriously. For example, in the face of a financial crisis or an
unexpected worldwide shortage of a raw material, cost estimates that were made with-
out taking such concerns into account are quickly moot. To cite one example, in the early
part of this decade, China and India’s aggressive modernization and industrialization
efforts, coupled with a weak American dollar, had been driving the price of crude oil
to near-record highs. Because crude oil is benchmarked against the U.S. dollar, which is
currently being kept weak by the Federal Reserve, it was taking more dollars to purchase
oil. Further, Chinese and Indian demand for oil had led to higher international prices.
A project that requires significant supplies of crude oil would have had to be recalculated
upward due to the significant increase in the cost of this critical resource. Other common
external effects can occur in the case of political considerations shaping the course that
a project is expected to follow. This phenomenon is often found in government projects,
particularly military acquisition contracts, which have a history of cost overruns, gov-
ernmental intervention in the form of oversight committees, multiple constituents, and
numerous midcourse change requests.
274 Chapter 8 • Cost Estimation and Budgeting
Box 8.2
Project Management research in Brief
“Delusion and Deception” Taking Place in Large Infrastructure Projects
This should be the golden age of infrastructure projects. A recent issue of The Economist reported that an
estimated $22 trillion is to be invested in these projects over the next 10 years, making spending on infrastruc-
ture “the biggest investment boom in history.” Because of this long-term commitment to large infrastructure
improvements, coupled with the enormous costs of successfully completing these projects, it is critical that the
governments and their agents responsible for designing and managing them get things right. In other words,
too much is at stake to mismanage these projects.
Unfortunately, as previous examples in this chapter make clear, private organizations as well as the
public sector have terrible performance records when it comes to successfully managing and delivering on
their large infrastructure cost and performance targets. Examples such as the Sydney Opera House (original
projected cost of 7 million Australian dollars; final cost of 102 million), the Eurotunnel (final costs more than
double the original projections), and the Boston “Big Dig” (original estimated cost of $2.5 billion; final cost of
nearly $15 billion) continue to be the rule rather than the exception when it comes to infrastructure project
performance. The long list of incredibly overrun projects begs some simple questions: What is going on here?
Why are we routinely so bad at cost estimation? What factors are causing us to continually miss our targets
when it comes to estimating project costs?
Professor Bent Flyvbjerg, a project management researcher at Oxford University, and several colleagues
have studied the track records of large infrastructure projects over the years and have arrived at some star-
tling conclusions about the causes of their runaway costs: In most cases, the causes come from one of three
sources—over-optimism bias, deliberate deception, or simple bad luck.
1. Optimism bias—Flyvbjerg’s work showed that executives commonly fall victim to delusions when it comes
to projects, something he refers to as the “planning fallacy.” Under the planning fallacy, managers routinely
minimize problems and make their decisions on the basis of delusional optimism—underestimating costs
and obstacles, involuntarily spinning scenarios for success, and assuming best-case options and outcomes.
Optimism bias leads project managers and top executives to err on the side of underestimation of costs
and time for project activities even in the face of previous evidence or past experiences. In short, we tend
to develop overly positive scenarios of schedule and cost for projects and make forecasts that reflect these
delusions.
2. Deliberate deception—Large capital investment projects often require complex layers of decision making
in order to get them approved. For example, governments have to work with private contractors and other
agents who are responsible for making initial cost projections. Flyvbjerg found that some opportunities to
inappropriately bias the project (deception) occur when a project’s stakeholders all hold different incen-
tives for the project. For example, the construction consortium wants the project, the government wants
to provide for taxpayers and voters, bankers want to secure long-term investments, and so on. Under this
situation, contractors may feel an incentive to provide estimates that are deliberately undervalued in order
to secure the contract. They know that “true” cost estimates could scare off the public partners so they
adopt a policy of deliberate deception to first win the contract, knowing that once the government is com-
mitted, it is extremely difficult for them to change their minds, even in the face of a series of expanding cost
estimates. In short, the goal here is to get the project contracts signed; once the project is “on the books,”
it tends to stay there.
Government representatives themselves can play a role in deception when it comes to “green-
lighting” expensive projects. They may do this from a variety of motives, including altruism, reasoning that
full disclosure of a project’s costs will alienate the public, regardless of how much societal good may come
from it, or their motives may be more self-serving. For example, the Willy Brandt International Airport in
Berlin was scheduled to open in 2010. With a cost that has ballooned to over $7 billion and no fixed open-
ing date in sight, critics have argued that the airport was a politicians’ vanity project from the beginning. As
one writer noted: “Many politicians want prestigious large-scale projects to be inseparably connected with
their names. To get these expensive projects started, they artificially calculate down the real costs to get
permission from parliament or other committees in charge.”20
3. Bad luck—A final reason for escalating project costs is simple bad luck. Bad luck implies that in spite of
sound estimates, due diligence from all parties involved in the project, and the best intentions of both the
contractors and project clients, there are always going to be cases where circumstances, environmental
impacts, and sheer misfortune can conspire to derail a project or severely cripple its delivery. Though there is
no doubt that bad luck does sometimes occur, Flyvbjerg warns that it is usually a handy excuse to attribute
project problems to “bad luck,” when the reality is that overruns and schedule slippage are typically caused
by much more foreseeable reasons, as suggested above.
8.3 Creating a Project Budget 275
8.3 Creating a projeCt buDget
The process of developing a project budget is an interesting mix of estimation, analysis, intuition,
and repetitive work. The central goal of a budget is the need to support rather than conflict with
the project’s and the organization’s goals. The project budget is a plan that identifies the allocated
resources, the project’s goals, and the schedule that allows an organization to achieve those goals.
Effective budgeting always seeks to integrate corporate-level goals with department-specific objec-
tives; short-term requirements with long-term plans; and broader, strategic missions with concise,
needs-based issues. Useful budgets evolve through intensive communication with all concerned
parties and are compiled from multiple data sources. Perhaps most importantly, the project budget
and project schedule must be created in tandem; the budget effectively determines whether or not
project milestones can be achieved.
As one of the cornerstones of project planning, the project budget must be coordinated with
project activities defined in the Work Breakdown Structure (see Chapter 5). As Figure 8.7 suggests,
the WBS sets the stage for creating the project schedule; the project budget subsequently assigns
the necessary resources to support that schedule.
A number of important issues go into the creation of the project budget, including the process by
which the project team and the organization gather data for cost estimates, budget projections, cash
flow income and expenses, and expected revenue streams. The methods for data gathering and alloca-
tion can vary widely across organizations; some project firms rely on the straight, linear allocation of
income and expenses, without allowing for time, while others use more sophisticated systems. The
ways in which cost data are collected and interpreted mainly depend upon whether the firm employs
a top-down or a bottom-up budgeting procedure. These approaches involve radically different meth-
ods for collecting relevant project budget information and can potentially lead to very different results.
top-Down budgeting
top-down budgeting requires the direct input from the organization’s top management; in
essence, this approach seeks to first ascertain the opinions and experiences of top management
regarding estimated project costs. The assumption is that senior management is experienced with
past projects and is in a position to provide accurate feedback and estimates of costs for future
project ventures. They take the first stab at estimating both the overall costs of a project and its
major work packages. These projections are then passed down the hierarchy to the next functional
department levels where additional, more specific information is collected. At each step down the
hierarchy, the project is broken into more detailed pieces, until project personnel who actually will
be performing the work ultimately provide input on specific costs on a task-by-task basis.
This approach can create a certain amount of friction within the organization, both between
top and lower levels and also between lower-level managers competing for budget money. When
The research on serious project overruns and their causes offers some important insight into reasons why we
keep missing our targets for critical projects. It also suggests additional effects that are equally important:
Underestimating costs and overestimating benefits from any project leads to two problems. First, we opt to
begin many projects that are not (and never were) economically viable. Second, starting these projects means
we are effectively ignoring alternatives that actually could have yielded higher returns had we made a better
initial analysis. Ultimately, the common complaint about large infrastructure projects (“Over budget, over time,
over and over again”) is one for which most organizations have no one to blame but themselves.21
WBS
Project
Plan
Scheduling Budgeting
Figure 8.7 the relationship Among WBS, Scheduling, and Budgeting
276 Chapter 8 • Cost Estimation and Budgeting
top management establishes an overall budget at the start, they are, in essence, driving a stake into
the ground and saying, “This is all we are willing to spend.” As a result, all successive levels of
the budgeting process must make their estimates fit within the context of the overall budget that
was established at the outset. This process naturally leads to jockeying among different functions
as they seek to divide up the budget pie in what has become a zero-sum game—the more budget
money engineering receives, the less there is for procurement to use.
On the positive side, research suggests that top management estimates of project costs are
often quite accurate, at least in the aggregate.22 Using this figure as a basis for drilling down to
assign costs to work packages and individual tasks brings an important sense of budgetary disci-
pline and cost control. For example, a building contractor about to enter into a contract to develop
a convention center is often knowledgeable enough to judge the construction costs with reasonable
accuracy, given sufficient information about the building’s features, its location, and any known
building impediments or worksite constraints. All subcontractors and project team members must
then develop their own budgets based on the overall, top-down contract.
bottom-up budgeting
Bottom-up budgeting takes a completely different approach than that pursued by top-down meth-
ods. The bottom-up budgeting approach begins inductively from the work breakdown structure
to apply direct and indirect costs to project activities. The sum of the total costs associated with
each activity are then aggregated, first to the work package level, then at the deliverable level, at
which point all task budgets are combined, and then higher up the chain where the sum of the
work package budgets are aggregated to create the overall project budget.
In this budgeting approach, each project manager is required to prepare a project budget
that identifies project activities and specifies funds requested to support these tasks. Using these
first-level budget requests, functional managers develop their own carefully documented budgets,
taking into consideration both the requirements of the firms’ projects and their own departmental
needs. This information is finally passed along to top managers, who merge and streamline to
eliminate overlap or double counting. They are then responsible for creating the final master bud-
get for the organization.
Bottom-up budgeting emphasizes the need to create detailed project plans, particularly Work
Breakdown Structures, as a first step for budget allocations. It also facilitates coordination between
the project managers and functional department heads and, because it emphasizes the unique cre-
ation of budgets for each project, it allows top managers a clear view for prioritization among
projects competing for resources. On the other hand, a disadvantage of bottom-up budgeting is
that it reduces top management’s control of the budget process to one of oversight, rather than
direct initiation, which may lead to significant differences between their strategic concerns and
the operational-level activities in the organization. Also, the fine-tuning that often accompanies
bottom-up budgeting can be time-consuming as top managers make adjustments and lower-level
managers resubmit their numbers until an acceptable budget is achieved.
activity-based Costing
Most project budgets use some form of activity-based costing. Activity-based costing (ABc) is a
budgeting method that assigns costs first to activities and then to the projects based on each proj-
ect’s use of resources. Remember that project activities are any discrete task that the project team
undertakes to make or deliver the project. Activity-based costing, therefore, is based on the notion
that projects consume activities and activities consume resources.23
Activity-based costing consists of four steps:
1. Identify the activities that consume resources and assign costs to them, as is done in a bottom-
up budgeting process.
2. Identify the cost drivers associated with the activity. Resources, in the form of project person-
nel, and materials are key cost drivers.
3. Compute a cost rate per cost driver unit or transaction. Labor, for example, is commonly simply
the cost of labor per hour, given as:
Cost rate/unit 333333T $Cost/hour
8.3 Creating a Project Budget 277
4. Assign costs to projects by multiplying the cost driver rate times the volume of cost driver
units consumed by the project. For example, assume the cost of a senior software program-
mer is $40/hour and that she is to work on the project for a total of 80 hours. The cost to the
project would be:
($40/hr) (80 hours) = $3,200.00
As we discussed earlier in this chapter, numerous sources of project costs (cost drivers) apply to
both the direct and the indirect costs of a project. Activity-based costing, a technique employed
within most project budgets, requires the early identification of these variables in order to create a
meaningful control document.
Table 8.6 demonstrates part of a project budget. The purpose of the preliminary budget is to
identify the direct costs and those that apply to overhead expenses. It is sometimes necessary to fur-
ther break down overhead costs to account for separate budget lines. The overhead figure of $500
for Survey, for example, may include expenses covering health insurance, retirement contributions,
and other forms of overhead, which would be broken out in a more detailed project budget.
Table 8.7 shows a budget in which the total planned expenses given in Table 8.6 are com-
pared against actual accrued project expenses. With periodic updating, this budget can be used for
variance reporting to show differences, both positive and negative, between the baseline budget
assigned to each activity and the actual cost of completing those tasks. This method offers a central
location for the tabulation of all relevant project cost data and allows for the preliminary develop-
ment of variance reports. On the other hand, this type of budget is a static budget document that
does not reflect the project schedule and the fact that activities are phased in following the net-
work’s sequencing.
Table 8.8 shows a sample from a time-phased budget, in which the total budget for each
project activity is disaggregated across the schedule when its work is planned. The time-phased
budget allocates costs across both project activities and the anticipated time in which the budget
is to be expended. It allows the project team to match its schedule baseline with a budget base-
line, identifying milestones for both schedule performance and project expense. As we will see in
Chapter 13, the creation of a time-phased budget works in tandem with more sophisticated project
control techniques, such as earned value management.
table 8.6 Sample Project Budget
Activity Direct costs Budget overhead total cost
Survey 3,500 500 4,000
Design 7,000 1,000 8,000
Clear Site 3,500 500 4,000
Foundation 6,750 750 7,500
Framing 8,000 2,000 10,000
Plumb and Wire 3,750 1,250 5,000
table 8.7 Sample Budget tracking Planned and Actual Activity costs
Activity Planned Budget Actual Variance
Survey 4,000 4,250 250
Design 8,000 8,000 – 0 –
Clear Site 4,000 3,500 (500)
Foundation 7,500 8,500 1,000
Framing 10,000 11,250 1,250
Plumb and Wire 5,000 5,150 150
Total 38,500 40,650 2,150
278 Chapter 8 • Cost Estimation and Budgeting
We can produce a tracking chart that illustrates the expected budget expenditures for this
project by plotting the cumulative budgeted cost of the project against the baseline schedule.
Figure 8.8 is a simple graphic of the plot and is another method for identifying the project baseline
for schedule and budget over the anticipated life of the project.
8.4 DeVeloping buDget ContingenCies
Budget contingencies symbolize the recognition that project cost estimates are just that: estimates.
Unforeseen events often conspire to render initial project budgets inaccurate, or even useless.
(Suppose a construction project that had budgeted a fixed amount for digging a building’s founda-
tion accidentally discovered serious subsidence problems or groundwater.) Even in circumstances
in which project unknowns are kept to a minimum, there is simply no such thing as a project
developed with the luxury of full knowledge of events. A budget contingency is the allocation of
extra funds to cover these uncertainties and improve the chances that the project can be completed
within the time frame originally specified. Contingency money is typically added to the project’s
budget following the identification of all project costs; that is, the project budget does not include
contingency as part of the activity-based costing process. Rather, the contingency is calculated as
an extra cushion on top of the calculated cost of the project.
Cumulative Budgeted Cost
(in thousands)
40
35
30
25
20
15
10
5
Jan. Feb. Mar. Apr. May
Figure 8.8 cumulative Budgeted cost of the Project
table 8.8 example of a time-Phased Budget
Months
Activity january february March April May
total by
Activity
Survey 4,000 4,000
Design 5,000 3,000 8,000
Clear Site 4,000 4,000
Foundation 7,500 7,500
Framing 8,000 2,000 10,000
Plumb and Wire 1,000 4,000 5,000
Monthly Planned 4,000 9,000 10,500 9,000 6,000
Cumulative 4,000 13,000 23,500 32,500 38,500 38,500
8.4 Developing Budget Contingencies 279
There are several reasons why it may make good sense to include contingency funding in
project cost estimates. Many of these reasons point to the underlying uncertainty that accompanies
most project cost estimation:24
1. Project scope is subject to change. Many projects aim at moving targets; that is, the project
scope may seem well articulated and locked in. However, as the project moves through its devel-
opment cycle, external events or environmental changes can often force us to modify or upgrade
a project’s goals. For example, suppose that our organization set out to develop an electronics
product for the commercial music market only to discover, halfway through the development,
that technological advances had rendered our original product obsolete. One option, other than
abandoning the project, might be to engineer a product design upgrade midstream in the proj-
ect’s development. Those scope changes will cause potentially expensive cost readjustments.
2. Murphy’s Law is always present. Murphy’s Law suggests that if something can go wrong,
it often will. Budget contingency represents one important method for anticipating the like-
lihood of problems occurring during the project life cycle. Thus, contingency planning just
makes prudent sense.
3. Cost estimation must anticipate interaction costs. It is common to budget project activi-
ties as independent operations. Thus, in a product development project, we develop a dis-
crete budget for each work package under product design, engineering, machining, and so
forth. However, this approach fails to recognize the often “interactive” nature of these activi-
ties. For example, suppose that the engineering phase requires a series of iterative cycles to
occur between the designers and the engineers. As a series of designs are created, they are
forwarded to the engineering section for proofing and quality assessment. When problems
are encountered, they must be shipped back to design to be corrected. Coordinating the sev-
eral cycles of design and rework as a product moves through these two phases is often not
accounted for in a standard project budget. Hence, contingency budgets allow for the likely
rework cycles that link project activities interactively.
4. Normal conditions are rarely encountered. Project cost estimates usually anticipate “nor-
mal conditions.” However, many projects are conducted under anything but normal work-
ing conditions. Some of the ways in which the normal conditions assumption is routinely
violated include the availability of resources and the nature of environmental effects. Cost
estimators assume that resources required for the project will be available when needed;
however, personnel may be missing, raw materials may be of poor quality, promised funding
may not materialize, and so forth. When resources are missing or limited, the activities that
depend upon their availability are often delayed, leading to extra costs. Likewise, the geog-
raphy and environmental effects on some projects demonstrate the difficulty in creating a
“normal” project situation. For example, a project manager was assigned to develop a power
plant in the West Bengal province of India only to discover, upon arrival, that the project was
set to begin at the same time that the annual torrential monsoon rains were due to arrive!
His first project activity, after reaching the construction site, was to spend three weeks erect-
ing a five-foot retaining wall and coffer dam around the site to ensure it would not flood. Of
course, the cost of this necessary construction had not been factored into his initial budget.
While project teams naturally favor contingencies as a buffer for project cost control, their
acceptance by project stakeholders, particularly clients, is less assured. Some clients may feel that
they are being asked to cover poor budget control on the part of the project firm. Other clients
object to what seems an arbitrary process for calculating contingency. For example, it is common
in the building industry to apply a contingency rate of 10%–15% to any structure prior to architec-
tural design. As a result, a building budgeted for $10 million would be designed to cost $9 million.
The additional million dollars is held in escrow as contingency against unforeseen difficulties dur-
ing the construction and is not applied to the operating budget. Finally, does the contingency fund
apply equally across all project work packages or should it be held in reserve to support critical
activities as needed? Where or across what project activities contingency funds should be applied
is the final point of contention. Despite these drawbacks, there are several benefits to the use of
contingency funding for projects, including:
1. It recognizes that the future contains unknowns, and the problems that do arise are likely to
have a direct effect on the project budget. In providing contingency, the project allows for the
negative effects of both time and money variance.
280 Chapter 8 • Cost Estimation and Budgeting
2. Provision is made in the company plans for an increase in project cost. Contingency has some-
times been called the first project fire alarm. Allowing contingency funds to be applied to a proj-
ect is a preliminary step in gaining approval for budget increases, should they become necessary.
3. Application to the contingency fund gives an early warning signal of a potential overdrawn
budget. In the event of such signals, the organization’s top management needs to take a seri-
ous look at the project and the reasons for its budget variance, and begin formulating fall-
back plans should the contingency prove to be insufficient to cover the project overspend. In
large defense-industry contracts, for example, project organizations facing budget overruns
often first apply any contingency money they possess to the project before approaching the
governmental agency for additional funding. An Army project contract manager will under-
standably demand full accounting of project expenditures, including contingency funds,
before considering additional funding.
Project cost estimation and budgeting are two important components of project control. Because
a significant constraint on any project is its budget, the manner in which we estimate project costs
and create realistic budgets is critical to effective project planning. Further, the best defense against
overrunning our budgets is to prepare project cost estimates as carefully as possible. Although we
cannot possibly anticipate every eventuality, the more care that is used in initial estimation, the
greater the likelihood that we can create a budget that is a reasonably accurate reflection of the
true project cost. Cost estimation challenges us to develop reasonable assumptions and expecta-
tions for project costs through clearly articulating the manner in which we arrive at our estimates.
Budgeting is the best method for applying project expenditures systematically, with an eye toward
keeping project costs in line with initial estimates. Taken together, cost estimation and budgeting
require every project manager to become comfortable with not only the technical challenges of the
project, but its monetary constraints as well.
Summary
1. Understand the various types of common project
costs. Project budgeting comprises two distinct
elements: cost estimation and the budgeting pro-
cess itself. Among the well-known expenses in most
projects are:
a. Cost of labor—the charge against the human re-
sources needed to complete the project.
b. Cost of materials—costs relating to any specific
equipment or supplies needed for project de-
velopment.
c. Subcontractors—charges against the project
budget for the use of consultants or other sub-
contracted work.
d. Cost of equipment and facilities—the costs of
any plant and equipment, either at the project’s
location or off-site.
e. Travel—a sometimes necessary charge for the
expense of having project team members in the
field or at other sites.
2. recognize the difference between various forms
of project costs. The types of costs that a project
can incur can be identified in a number of ways.
Among the more common types of costs are:
• Direct versus indirect—Direct costs are those that
can be directly assigned to specific project activi-
ties performed to create the project. Indirect costs
relate to general company overhead expenses or
administration. For example, overhead expenses
charged to a project may include health benefits
or retirement contributions. General administra-
tion includes shipping costs, secretarial or com-
puter support, sales commissions, and so on.
• Recurring versus nonrecurring—Recurring costs
are ongoing expenses, such as labor or mate-
rial costs. They appear across the project’s life
cycle. Nonrecurring costs are typically one-time
expenses related to some special expense or pur-
chase, such as training or purchase of a building.
• Fixed versus variable—Fixed costs do not vary
with respect to their usage. Variable costs generally
increase in proportion to the degree they are used.
• Normal versus expedited—Normal costs are the
normally scheduled costs of the project, set in re-
lation to the schedule baseline. Expedited costs
are sometimes referred to as “crashing costs” and
increase due to the extra resources assigned to
speed the completion of a specific project activity.
3. Apply common forms of cost estimation for proj-
ect work, including ballpark estimates and defini-
tive estimates. Cost estimating may follow one
of several approaches, usually increasing in accu-
racy as estimates coincide more closely with the
completion of project design work. Preliminary
estimates for task completion, sometimes called
“ballpark estimates,” may be accurate only to ;30%.
On the other hand, as the project gets closer to the
Key Terms 281
completion of the design phase, it is more realistic
to expect more accurate, definitive estimates (± 5%).
One method for cost estimation is through the use
of parametric techniques, which compare current
project activities to the cost of past, similar activities
and then assign a multiplier that considers inflation
or other additional cost increases.
4. Understand the advantages of parametric cost esti-
mation and the application of learning curve mod-
els in cost estimation. Parametric cost estimation
allows project managers to develop detailed esti-
mates of current project costs by taking older work
and inserting a multiplier to account for the impact
of inflation, labor and materials increases, and other
reasonable direct costs. Parametric estimation allows
project managers to begin formulating cost estimates
from a position of past historical record, which can
be very helpful in complex projects for which it is
difficult to formulate reasonable estimates.
One element in project cost estimation that can-
not be ignored is the effect of learning rates on an
individual’s ability to perform a project task. Learn-
ing curve effects typically are relevant only in cases
where a project team member is required to perform
multiple iterations of a task. When these situations
occur, it is usually easier and faster to complete the
nth iteration than it was to complete the first, due to
the effect of learning on repetitive activities. Using
available formulas, we can readjust cost estimates
for some project activities to reflect the effect of the
learning curve on the cost of an activity.
5. discern the various reasons why project cost esti-
mation is often done poorly. Cost estimation may
be poorly done for several reasons, including:
a. Low initial estimates—These are caused by poor
knowledge of the project’s scope or due to an or-
ganizational atmosphere that rewards low initial
estimates and does not sanction subsequent cost
or schedule overruns.
b. Unexpected technical difficulties—This is a com-
mon problem for many projects when techni-
cal performance is cutting-edge and unexpected
problems emerge.
c. Lack of definition—Poorly specified projects
usually lead to poorly budgeted and controlled
projects.
d. Specification changes—The continuing distrac-
tion of specification change requests can quickly
lead to cost overruns.
e. External factors—The uncontrollable effects of
inflation or economic or political interference
in a project can render initial cost estimates
invalid.
6. Apply both top-down and bottom-up budgeting
procedures for cost management. Project bud-
geting involves the process of taking the individ-
ual activity cost estimates and creating a working
document for planned project expenditures. Two
approaches to budgeting involve the use of top-
down and bottom-up efforts to better identify costs
and allocate project budget money. Using activity-
based budgeting techniques, project teams typically
identify the activities that consume resources and
assign costs to them. Second, they determine the
cost drivers associated with the activities (usually
human resources and materials costs), and third, a
cost rate per cost driver is then computed. Activity-
based budgeting allows for the creation of project
budgets with specific budget lines for each task nec-
essary to complete the project.
7. Understand the uses of activity-based budgeting
and time-phased budgets for cost estimation and
control. Taking activity-based budgeting one step
further, we can create time-phased budgets when
the specific activity costs are then allocated across
the project schedule baseline to reflect the points
on the project time line when the budget will be
consumed. Using a time-phased budget approach
allows the project team to link time and cost into
a unified baseline that can be set to serve as the
project plan. Project cost control, as the project
moves forward, is predicated on creating the time-
phased budget.
8. recognize the appropriateness of applying con-
tingency funds for cost estimation. In some
projects, it is necessary, for a variety of reasons,
to set aside a certain amount of the project bud-
get into an account to handle any uncertainties or
unexpected events that could not have been antici-
pated in the initial cost estimation and budgeting
sequence. This account is referred to as a project
contingency fund. In many types of projects, par-
ticularly construction projects, a contingency fund
is a normal part of the project budget. Contingency
is not assigned to any specific project activities;
rather, it is used as a general project-level emer-
gency fund to handle the costs associated with
problems, should any arise.
Key Terms
Activity-based costing
(ABC) (p. 276)
Ballpark estimates
(p. 263)
Bottom-up budgeting
(p. 276)
Budget contingency
(p. 278)
Comparative estimates
(p. 263)
Cost estimation (p. 259)
Crashing (p. 262)
Definitive estimates
(p. 264)
Direct costs (p. 260)
Expedited costs (p. 262)
282 Chapter 8 • Cost Estimation and Budgeting
Feasibility estimates
(p. 264)
Fixed costs (p. 261)
Function point analysis
(p. 271)
Function points (p. 271)
Indirect costs (p. 260)
Learning curves (p. 267)
Nonrecurring costs
(p. 261)
Normal costs (p. 262)
Parametric estimation
(p. 263)
Project budget (p. 275)
Recurring costs (p. 261)
Time-phased budget
(p. 277)
Top-down budgeting
(p. 275)
Variable costs (p. 262)
Solved Problems
8.1 cAlcUlAtiNg fUlly loADeD lABor
coStS
Calculate the fully loaded cost of labor for the project team
using the following data. What are the costs for the individ-
ual project team members? What is the fully loaded cost of
labor?
Name
Hours
Needed
overhead
charge
Personal
time
rate
Hourly
rate
fully
loaded
labor
cost
John 40 1.80 1.12 $21/hr
Bill 40 1.80 1.12 $40/hr
J.P. 60 1.35 1.05 $10/hr
Sonny 25 1.80 1.12 $32/hr
Total Fully Loaded Labor Cost =
SoLuTion
We use the formula for calculating fully loaded costs, given as:
Hourly rate * Hours needed * Overhead charge *
Personal time = Total fully loaded labor cost
Applying each rate given above in turn, we fill in the fully loaded
cost table as follows:
Name
Hours
Needed
overhead
charge
Personal
time
rate
Hourly
rate
fully
loaded
labor
cost
John 40 1.80 1.12 $21/hr $1,693.44
Bill 40 1.80 1.12 $40/hr 3,225.60
J.P. 60 1.35 1.05 $10/hr 850.50
Sonny 25 1.80 1.12 $32/hr 1,612.80
Total Fully Loaded Labor Cost = $7,382.34
8.2 eStiMAtiNg SoftWAre coStS WitH
fUNctioN PoiNtS
Suppose you were required to create a reasonably detailed esti-
mate for developing a new student information and admissions
system at a local college. Your firm’s programmers average 6 func-
tion points on a person-month basis. After speaking with repre-
sentatives from the college, you know that their request is based
on the following screen requirements: inputs (4), outputs (7), inter-
faces (12), queries (20), and files (16). Further, we have determined
that the relative complexity of each of these functions is as follows:
inputs (low), outputs (medium), interfaces (high), queries (medi-
um), and files (medium). Using this information and the following
table, calculate the number of function points for this project.
complexity Weighting
function low Medium High total
Number of Inputs 3 * ____ = 6 * ____ = 9 * ____ =
Number of Outputs 2 * ____ = 6 * ____ = 10 * ____ =
Number of Interfaces 1 * ____ = 3 * ____ = 5 * ____ =
Number of Queries 4 * ____ = 8 * ____ = 12 * ____ =
Number of Files 4 * ____ = 6 * ____ = 8 * ____ =
SoLuTion
Once we know the number of requirements for each of the five
programmer functions and the complexity weighting for the
activities, the calculation of total function points requires that
we create a table as shown below, in which the relative com-
plexity of the five programming functions is multiplied by the
number of screen requirements. The table shows that the total
number of function points for this project is 370.
Discussion Questions 283
complexity Weighting
function low Medium High total
Number of Inputs 3 × 4 = 12
Number of Outputs 6 × 7 = 42
Number of Interfaces 5 × 12 = 60
Number of Queries 8 × 20 = 160
Number of Files 6 × 16 = 96
8.3 cAlcUlAtiNg BUDget eStiMAteS USiNg
tHe leArNiNg cUrVe
Assume you have a software project that will require the coding
services of a senior programmer to complete 14 coding sequenc-
es that are relatively similar. We know that the programmer’s
learning rate is .90 and that the first coding sequence is likely to
take her 15 hours to complete. Using the learning curve formula,
calculate the steady state time to code these sequences.
SoLuTion
Recall that the learning curve formula for calculating the time
required to produce the steady state unit of output is repre-
sented as:
Yx = aX
b
where
Yx = the time required for the steady state, x, unit
of output
a = the time required for the initial unit of output
X = the number of units to be produced to reach
the steady state
b = the slope of the learning curve, represented as:
log decimal learning rate/log 2
b = log 0.90/log 2
= – 0.4576/0.301
= – 0.1521
Yx = 15(14)
-0.1521
Yx = 10.04 hours
Discussion Questions
8.1 Describe an environment in which it would be common to
bid for contracts with low profit margins. What does this
environment suggest about the competition levels?
8.2 How has the global economy affected the importance
of cost estimation and cost control for many project
organizations?
8.3 Why is cost estimation such an important component of
project planning? Discuss how it links together with the
Work Breakdown Structure and the project schedule.
8.4 Imagine you are developing a software package for
your company’s intranet. Give examples of the various
types of costs (labor, materials, equipment and facili-
ties, subcontractors, etc.) and how they would apply to
your project.
8.5 Give reasons both in favor of and against the use of a per-
sonal time charge as a cost estimate for a project activity.
8.6 Think of an example of parametric estimating in your per-
sonal experience, such as the use of a cost multiplier based
on a similar, past cost. Did parametric estimating work or
not? Discuss the reasons why.
8.7 Suppose your organization used function point analy-
sis to estimate costs for software projects. How would
the expertise level of a recently hired programmer affect
your calculation of their function points on a monthly
basis when compared to an older, more experienced
programmer?
8.8 Put yourself in the position of a project customer. Would
you insist on the cost adjustments associated with learn-
ing curve effects or not? Under what circumstances
would learning curve costs be appropriately budgeted
into a project?
8.9 Consider the common problems with project cost estima-
tion and recall a project with which you have been involved.
Which of these common problems did you encounter most
often? Why?
8.10 Would you prefer the use of bottom-up or top-down bud-
geting for project cost control? What are the advantages
and disadvantages associated with each approach?
8.11 Why do project teams create time-phased budgets? What
are their principal strengths?
8.12 Project contingency can be applied to projects for a vari-
ety of reasons. List three of the key reasons why a project
organization should consider the application of budget
contingency.
284 Chapter 8 • Cost Estimation and Budgeting
Problems
8.1 Calculate the fully loaded cost of labor for a project team
member using the following data:
Hourly rate: $35/hr
Hours needed: 150
Overhead rate: 55%
8.2 Calculate the fully loaded cost of labor for your Project
Engineer using the following data:
Hourly rate: $40/hr
Estimated hours of work: 120
Overhead rate: 65%
Personal time: 15%
8.3 Calculate the fully loaded cost of labor for the project team
using the following data. What are the costs for the indi-
vidual project team members? What is the fully loaded
cost of labor?
Name
Hours
Needed
overhead
charge
Personal
time rate
Hourly
rate
fully
loaded
labor
cost
Sandy 60 1.35 1.12 $18/hr
Chuck 80 1.75 1.12 $31/hr
Bob 80 1.35 – 0 – $9/hr
Penny 40 1.75 1.12 $30/hr
Total Fully Loaded Labor Cost =
8.4 Assume that overhead is charged on a flat-rate basis. Each
member of the project is assigned an overhead charge of
$150/week. What would the fully loaded cost of labor be
for an employee, given that she is assigned to the project
for 200 hours at $10.50/hour?
8.5 Calculate the fully loaded labor costs for members of your
project team using the following data. Who is the most
expensive member of your team? What proportion of
the overall fully loaded cost of labor is taken up by this
individual?
Name
Hours
Needed
overhead
charge
Personal
time rate
Hourly
rate
fully
loaded
labor
cost
Todd 150 1.45 1.15 $36/hr
Stan 150 1.70 – 0 – $12/hr
Mary 120 1.45 – 0 – $21.5/hr
Alice 100 1.70 1.15 $24/hr
Total Fully Loaded Labor Cost =
8.6 Using the following information about work package bud-
gets, complete the overall time-phased budget for your
project. (All cost figures are in $000s). Which are the weeks
with the greatest budget expense?
Table for Problem 8.6
task Budget Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
A 5 3 2
B 8 1 4 3 1
C 12 2 7 3
D 7 3 3 1
E 14 5 5 2 2
F 6 1 2 3
Plan 52 4 8
Cumulative 4 12
8.7 Given the following information, complete a time-phased
budget for your project. (All cost figures are in $000s).
What are weekly planned and cumulative costs for the
project?
Table for Problem 8.7
Work Package cost per Week
Work Package Budget Week 1 Week 2 Week 3 Week 4 Week 5
Staffing 5 4 1
Blueprinting 8 1 6 1
Prototyping 12 2 8 2
Full Design 24 4 10 10
Plan
Cumulative
Problems 285
for Problems 8 through 10, refer to the chart of learning curve
coefficients (unit and total time multipliers) shown at the
bottom of this page.
The simplified formula for calculating learning rate time using
the table coefficients is given as:
TN = T 1C
where
TN = Time needed to produce the nth unit
T1 = Time needed to produce the first unit
C = Learning curve coefficient
8.8 It took MegaTech, Inc., 100,000 labor-hours to produce
the first of several oil-drilling rigs for Antarctic explora-
tion. Your company, Natural Resources, Inc., has agreed
to purchase the fifth (steady state) oil-drilling rig from
MegaTech’s manufacturing yard. Assume that MegaTech
experiences a learning rate of 80%. At a labor rate of $35
per hour, what should you, as the purchasing agent, ex-
pect to pay for the fifth unit?
8.9 Problem 8 identified how long it should take to complete
the fifth oil-drilling platform that Natural Resources plans
to purchase. How long should all five oil-drilling rigs take
to complete?
8.10 Suppose that you are assigning costs to a major proj-
ect to be undertaken this year by your firm, DynoSoft
Applications. One particular coding process involves
many labor-hours, but highly redundant work. You antici-
pate a total of 200,000 labor-hours to complete the first it-
eration of the coding and a learning curve rate of 70%. You
are attempting to estimate the cost of the twentieth (steady
state) iteration of this coding sequence. Based on this in-
formation and a $60 per hour labor rate, what would you
expect to budget as the cost of the twentieth iteration? The
fortieth iteration?
learning curve coefficients (Unit time and total time Multipliers)
70% 75% 80% 85%
Steady
State Unit Unit time total time Unit time total time Unit time total time Unit time total time
5 .437 3.195 .513 3.459 .596 3.738 .686 4.031
10 .306 4.932 .385 5.589 .477 6.315 .583 7.116
15 .248 6.274 .325 7.319 .418 8.511 .530 9.861
20 .214 7.407 .288 8.828 .381 10.485 .495 12.402
25 .191 8.404 .263 10.191 .355 12.309 .470 14.801
30 .174 9.305 .244 11.446 .335 14.020 .450 17.091
35 .160 10.133 .229 12.618 .318 15.643 .434 19.294
40 .150 10.902 .216 13.723 .305 17.193 .421 21.425
Based on a = 1.
8.11 Assume you are a project cost engineer calculating the cost
of a repetitive activity for your project. There are a total of
20 iterations of this activity required for the project. The
project activity takes 2.5 hours at its steady state rate and
the learning rate is 75%. Calculate the initial output time for
the first unit produced, using the learning curve formula:
Yx = aX
b
where
Yx = the time required for the steady state, x, unit of
output
a = the time required for the initial unit of output
X = the number of units to be produced to reach the
steady state
b = the slope of the learning curve, represented as: log
decimal learning rate/log 2
8.12 As the manager of the IT group at your insurance firm,
you have been asked to develop a cost estimate for
upgrades to the computerized accident-reporting and
claims adjustment system you have in place. Your system
is basic, without many features, but it needs some gen-
eral modifications, based on complaints from customers
and claims adjusters at your firm. You know that your
programmer is capable of handling 3 function points in a
person-month and your programmer makes $60,000, so
her cost is $5,000 per month. The costs for the project are
based on the following requirements:
function Number of Screens complexity
Input 8 Low
Output 3 Low
Interfaces 8 Medium
Queries 6 Medium
Files 10 Low
286 Chapter 8 • Cost Estimation and Budgeting
The complexity weighting for these functions follows a standard formula:
8.13 You work at a regional health care center and have been
asked to calculate the expected cost for a software project
in your organization. You know that historically your pro-
grammers can handle 5 function points each person-month
and that the cost per programmer in your company is
$4,000 per month. The project whose costs you are estimat-
ing is based on the following requirements:
complexity Weighting
function low Medium High total
Number of Inputs 2 * ____ = 4 * ____ = 6 * ____ =
Number of Outputs 3 * ____ = 6 * ____ = 12 * ____ =
Number of Interfaces 6 * ____ = 12 * ____ = 18 * ____ =
Number of Queries 4 * ____ = 6 * ____ = 8 * ____ =
Number of Files 2 * ____ = 4 * ____ = 8 * ____ =
a. Calculate the total estimated number of function points
for this project.
b. What is the total expected cost of the project?
complexity Weighting
function low Medium High total
Number of Inputs 1 * ____ = 2 * ____ = 3 * ____ =
Number of Outputs 2 * ____ = 6 * ____ = 10 * ____ =
Number of Interfaces 10 * ____ = 15 * ____ = 20 * ____ =
Number of Queries 3 * ____ = 6 * ____ = 9 * ____ =
Number of Files 1 * ____ = 3 * ____ = 5 * ____ =
CaSE STuDy 8.1
The Hidden Costs of Infrastructure Projects—The Case of Building Dams
In recent years, there has been an upsurge in the
development of large dams in both developing and
developed countries, including Brazil, Ethiopia,
Pakistan, and China. There are a number of reasons
for this increased interest in dam building. Demand
for electricity is expected to double worldwide be-
tween 2010 and 2035. As a result hydroelectric power
is seen as a cheap, available option for countries with
river systems that allow for dams, particularly as it
is a preferred option to dirtier coal-burning plants.
Other arguments in favor of building these dams in-
clude its use for flood control, crop irrigation, inland
transportation, urban water supplies, and as a job cre-
ator. These are all powerful and tempting arguments
in favor of building large dams; however, there is
one important counter-argument to the push toward
these hydropower megaprojects. They fail to offer the
advantages they are assumed to provide.
There are a number of criticisms of large dam proj-
ects. First, megadams take, on average, nearly nine years
to complete. As a result, arguments that they will ease the
burden of energy demands must be taken on faith; given
their long lead times, they certainly are not an option
for energy crisis situations. They also assume that all
function Number of Screens complexity
Input 8 Low
Output 6 Low
Interfaces 15 High
Queries 5 High
Files 25 Medium
Further, you know that the complexity weighting for these functions follows a standard internal formula, shown as:
a. Calculate the total estimated number of function points for this project.
b. Calculate the total expected cost of the project.
Case Study 8.1 287
Figure 8.9 Nigeria’s Kainji Dam Under construction
Source: AP Images
current circumstances (energy demand, population
growth patterns, water availability, and energy prices)
are likely to remain steady, or at least predictable, over
the time period in which the dam is developed, which
can lead to dangerous assumptions of future benefits.
Nigeria’s Kainji Dam, for example, has fallen short of
generating its expected hydroelectricity levels by as
much as 70%. Second, cost and schedule projections to
complete these dams are almost always grossly under-
estimated. In fact, research suggests that cost overruns
for large dam projects average 96% higher than esti-
mated costs; that is, actual project costs were nearly
double the original estimates. Schedules for these
dams averaged overruns of 44%, or 2.3 years. Third,
the cost in absolute terms for these large dam projects
can nearly bankrupt the countries investing in them.
For example, Ethiopia’s Grand Ethiopian Renaissance
dam on the Nile River was projected to cost $4.8 billion
when it was started in 2011. By the time it is completed
(projected for 2017), it will end up costing more than
$10 billion, or one-quarter of Ethiopia’s GDP. Instead
of helping the economy and fostering growth, Ethiopia
could be facing enormous problems paying off long-
term debt from financing the dam. Nor is this a new
phenomenon. Brazil’s Itaipu Dam was built in the 1970s
at a cost of almost $20 billion, or 240% more than pro-
jected. Since opening, it has been a drain on the country’s
finances. Despite producing electricity that is needed to
support development in Brazil, it is unlikely that the
costs of the Itaipu Dam will ever allow it to break even.
What is the solution? Countries such as
Norway, which produces some 99% of its energy from
hydropower, have adopted a smaller, more flexible solu-
tion to the use of dams. The government encourages
the development not of large megadams, but of smaller,
more flexible plants designed to produce smaller vol-
umes of electricity but located at more locations within
the country. Thus Norway currently supports some
1,000 smaller energy-producing dams that do not dis-
rupt the natural flow of rivers, cause no environmental
impact, and produce cleaner energy.
Large megadams of the type that are being devel-
oped around the planet are a tempting and expensive
pursuit for the majority of countries undertaking them.
With poor project development records historically,
including huge cost and schedule overruns, these proj-
ects are typically undertaken as much for the national
prestige they offer. At the same time, countries that have
invested precious budget money in creating the dams
are frequently disappointed with the results, including
underutilization, decades of financial squeeze and debt
obligation, and a failure to realize the expected benefits.
When it comes to large megadams, the energy they
produce is usually neither abundant nor cheap.25
Questions
1. Given the history of large cost overruns associ-
ated with megadam construction, why do you
believe they are so popular, especially in the
developing world?
2. Develop an argument in support of megadam
construction. Develop an argument against these
development projects.
288 Chapter 8 • Cost Estimation and Budgeting
CaSE STuDy 8.2
Boston’s Central Artery/Tunnel Project
Since the “Big Dig” project was first introduced in the
previous edition of this textbook, a number of addi-
tional events have occurred that make it important
for us to revisit the original story and update the cur-
rent status of this monumental project. When it was
opened in 1959, Boston’s Central Artery highway
was hailed as a marvel of engineering and forward-
thinking urban planning. Designed as an elevated
six-lane highway through the middle of the city,
the highway was intended to carry a traffic volume
of 75,000 vehicles a day. Unfortunately, by the early
1980s, the Central Artery was burdened by a daily
volume of more than 200,000 vehicles, a nearly three-
fold increase over the anticipated maximum traf-
fic levels. The result was some of the worst urban
congestion in the country, with traffic locked bum-
per to bumper for more than 10 hours each day. At
over four times the national average, the accident rate
for the Central Artery added to commuters’ misery.
Clearly, the Central Artery—a crumbling, overused,
and increasingly dangerous stretch of highway—had
outlived its usefulness.
M
ic
h
a
e
l
D
w
ye
r/
A
la
m
y
Figure 8.10 Boston’s Big Dig
The solution to the problem was the advent of
the Central Artery/Tunnel (CA/T) project, commonly
known to people from the Boston area as the “Big
Dig.” Under the supervision of the Massachusetts
Turnpike Authority and using federal and state fund-
ing, the CA/T project comprises two main elements:
(1) replacing the aging elevated roadway with an 8-
to 10-lane underground expressway directly beneath
the existing road, with a 14-lane, two-bridge crossing
of the Charles River, and (2) extending Interstate 90
through a tunnel beneath South Boston and the har-
bor to Logan Airport. Originally conceived and initi-
ated in the early 1980s, the project was a continuous
activity (some would say “headache”) in the city for
more than 20 years.
The technical challenges in the Big Dig were
enormous. Employing at its peak about 5,000 work-
ers, the project included the construction of eight
miles of highway, 161 lane miles in all, almost half
below ground. It required the excavation of 16
million cubic yards of soil, enough to fill the New
England Patriots’ football stadium 16 times, and
used 3.8 million cubic yards of concrete. The second
major challenge was to perform these activities with-
out disrupting existing traffic patterns or having a
deleterious effect on the current highway system and
its traffic flows. Thus, while miles of tunnels were
being excavated underneath the old Central Artery,
traffic volume could not be slowed on the elevated
highway.
Case Study 8.2 289
The project had been a source of controversy for
several years, most notably due to its soaring costs and
constantly revised budget. At the time of the project’s
kickoff in 1983, the original projections for the project’s
scope assumed a completion date of 1998 and one-
time funding from the federal government to cover
60% of the project’s original $2.5 billion budget. In fact,
the budget and schedule have been revised upward
nearly constantly since the project kicked off. Consider
the following budget levels:
year Budget (in billions)
1983 2.56
1989 4.44
1992 6.44
1996 10.84
2000 14.08
2003 14.63
Final cost projections soared to over $14.5 billion
and the project officially wrapped up in late 2004, or
seven years late. Cost estimates and subsequent expen-
ditures were so bad that by 2000, a federal audit of the
project concluded that the Big Dig was officially bank-
rupt. One component of the federal audit concluded
that a major cause for runaway project costs was due
to poor project management oversight. Specifically, it
was found that project management routinely failed
to hold contractors to their bids or to penalize them
for mistakes, resulting in huge cost increases for the
Big Dig. Because of the intense public scrutiny and
sensitive nature of the project, managers also stopped
tracking or publicly acknowledging escalating costs,
fearing that the political backlash could cripple the
project. In fact, Taxpayers for Common Sense, a non-
partisan watchdog group, charged that the project’s
economics became so bad that managers delayed bud-
geting for contracts worth $260 million to a consulting
firm because they could not offset such a large cost in
the short term. In response to public outcry over the
delays and rising costs, the project manager submitted
his resignation.
Not surprisingly, the citizens of Boston have
viewed the opening of the Big Dig with a genuine sense
of ambivalence. Though a technological marvel that
will undoubtedly improve the lives of its users, while
reducing carbon monoxide emissions and improving
the “green” reputation of the city, the project proved
to be such a financial morass that public officials qui-
etly canceled a planned celebration of a major section’s
opening. Finger pointing and a search for the causes
of the Big Dig’s poor cost estimation and control were
vigorous. For its part, the Massachusetts Turnpike
Authority planned a $150 million lawsuit against the
firms that managed the project, arguing that many of
the cost overruns could be attributed to poor project
management and oversight.
Increasingly, the question being asked was: Were
original cost estimates for the CA/T given in good
faith or were they “tuned” to meet political realities?
That is, did officials deliberately underestimate true
project costs, fearing that the project would not have
been approved in the beginning if the public was
aware of its likely cost and scope? If so, the result has
been to leave a sour taste in the mouths of the taxpay-
ing public, convinced that the CA/T project repre-
sents a combination of brilliant technical achievement
coupled with poor estimation and lax control. Former
Massachusetts House Speaker Thomas Finnerman
put the matter directly: “You’d be much, much better
off saying upfront, factually, ‘Hey, it’s going to take
umpteen years likely and umpteen billions dollars,’
rather than selling it as a kind of smoke and mirrors
thing about, ‘Oh, it’s two billion and a couple of years’
work.’”
aftermath: Reconsidering the Big Dig
Since the completion of the Big Dig, you would expect
the commotion to have died down, the complaints to
have been resolved, and the people of Boston to have
become used to the advantages of this enormous proj-
ect. Unfortunately, that has not been the case. Since its
“completion” in early 2004, bad press, disasters, and
accountability continue to dog the Central Tunnel/
Artery system.
In 2001, prior to the completion of the project,
thousands of leaks began appearing in the ceiling of
sections of the tunnel system. The cause? Records sug-
gest that the primary contractor for the concrete pour-
ing, Modern Continental, failed to remove debris prior
to pouring concrete, resulting in flaws, cavities, and
pockets of weakness in the ceiling and walls of the tun-
nels. In May 2006, six employees of the main supplier
of concrete were arrested for falsifying records.
In fact, 2006 was a very bad year for the Big Dig
for a variety of reasons. On July 10, 2006, the bolt and
epoxy system holding four sections (12 tons) of con-
crete ceiling panels failed, causing a section to collapse
onto the tunnel roadway and kill a passenger in a car
passing beneath the section at the time. That month,
a detailed inspection of the ceiling panels throughout
the tunnel system identified an additional 242 bolts
that were already showing signs of stress! The tun-
nel system was shut down for the month of August
for inspection and repairs. Also in August, the state
assumed control of the Central Tunnel/Artery from
(continued)
290 Chapter 8 • Cost Estimation and Budgeting
the Turnpike Authority, citing the TA’s poor record of
supervision and effective project control.
The tragedy became something close a to farce
when the Turnpike Authority and Federal Highway
Administration refused to release critical documents
to the state, including:
• Deficiency reports flagging initial substandard
work
• Construction change orders and contract
revisions
• Inspection reports on workmanship and build-
ing material quality
Until the court system orders the release of all
project documents, we may never know the extent
of mismanagement and poor decision making that
dogged the development of the CT/A. From a public
relations perspective, however, the fighting between
state and federal authorities over oversight and con-
trol of the troubled project is a continuing black eye for
all parties involved.
In early 2008, the contractors for the Big Dig,
including primary contractors Bechtel and Parson
Brinckerhoff, were ordered to pay $450 million to
settle the state’s lawsuit over the 2006 tunnel collapse.
Though this settlement does not absolve the contrac-
tors from future lawsuits, it does settle some of the
more egregious failures that occurred while they led
the project. Michael Sullivan, the U.S. Attorney who
led the lawsuit, noted that the contractors originally
made a profit of about $150 million from the Big Dig;
however, “They lost money as a result of the failures
that occurred under their watch.”26
Questions
1. Consider the following statement: “Government-
funded projects intended to serve as ‘prestige
projects,’ such as the ‘Big Dig,’ should not be
judged on the basis of cost.” Do you agree or dis-
agree with this statement? Why?
2. Project success is defined as adherence to budget,
schedule, functionality (performance), and client
satisfaction. Under these criteria, cite evidence
that suggests the “Big Dig” project was a success
and/or failure.
3. What are the lessons to be learned from the “Big
Dig” project? Was this a failure of project esti-
mation or project control by the contractors and
local government?
internet Exercises
8.1 Go to the Internet and search using the phrase “cost analy-
sis tools.” What are some of the links and examples of cost
analysis as it applies to projects?
8.2 Go to http://pmworldlibrary.net/ and type “case studies”
in the search window. Select a project and report on it from
the perspective of its cost estimation, budgeting, and (if
applicable) expediting perspectives. Was the project a suc-
cess or failure? Why?
8.3 Go to www.cityofflint.com/DCED/CDBG2013_14/Budget
Detail_sample and reproduce the summary project
budget worksheet. After examining the various elements in
the budget, what are the main cost drivers for projects of
this sort?
8.4 Go to www.stickyminds.com/articles.asp and click on
“Stickyminds.com Original Articles.” Search for and click
on the article by Karl Wiegers, “Estimation Safety Tips.”
In the article (found as a pdf link to the site), the author
offers tips on making estimates that are accurate and de-
fensible by avoiding common mistakes. Which of these
points makes the most sense to you personally? Why does
it seem a plausible suggestion?
PMP certificAtion sAMPle QUestions
1. The project administrator is preparing a preliminary
budget for a project and adds in the cost of a new com-
puter for the project team to use. What type of cost
would this computer purchase represent?
a. Variable
b. Direct
c. Indirect
d. Variable direct
2. The project manager for a large project being devel-
oped in northern Ontario recognizes that it will be
necessary for her to maintain a close presence at the
construction site during its development and has
negotiated the use of a building for her team near
the construction project. The cost of the building must
be factored into the project cost and will increase with
use; that is, the cost of heating and other utilities is
subject to change depending upon weather and team
use. What type of cost would this building represent?
a. Variable direct
b. Indirect
c. Nonrecurring
d. None of the above
3. A project budget identifies $5,000 budgeted for program-
ming costs. The actual amount for programming costs is
$5,450. Which of the following statements is correct?
a. The $450 represents a negative variance to the budget
b. There is no variance to the budget
c. The $450 represents a positive variance to the
budget
d. The entire $5,450 represents a positive variance to
the budget
Internet Exercises 291
4. The project planning phase is moving forward. The
project team has solicited the opinions of some senior
project managers with experience in similar types of
projects to try and develop a cost estimate for the proj-
ect. This process is an example of:
a. Activity-based budgeting
b. Contingency planning
c. Top-down budgeting
d. Cost estimation
5. John is putting together his budget for the project and
as part of this process, he is actively discussing and so-
liciting estimates from each member of the project team
for the overall budget. He presents his budget to senior
management and Susan rejects it, stating, “Team mem-
bers are always going to pad their estimates. I will give
you the figure I want you to shoot for.” Susan is em-
ploying what method for project cost budgeting?
a. Bottom-up
b. Top-down
c. Parametric
d. Comparative
Answers: 1. b—A computer purchase would be an example
of a direct cost for the project; 2. a—The cost of using a site
building varies to the degree it is used and is charged as a
direct cost to the project; 3. c—The overrun of $450 would
be referred to as a positive variance to the budget; 4. d—The
process of asking senior project managers for their best esti-
mates of project costs is part of the cost estimation process;
5. b—Susan is using a top-down method in which she, as the
senior manager, is providing the project budget estimate.
292 Chapter 8 • Cost Estimation and Budgeting
iNtegrAteD Project
Developing the cost estimates and Budget
Develop an in-depth cost estimate to support your initial project proposal narrative and scope
statement, including the Work Breakdown Structure. Create a detailed justification of personnel
costs, materials costs, overhead, and other forms of costs that are likely to accrue to your project. Be
specific, particularly as regards personnel costs and commitment of time. For example, your cost
table could look something like the following:
Personnel level rate
loaded
rate
labor-Weeks
Needed* total cost
Programmer Senior $35 $49/hr 20 $39,200
Sys. Analyst Junior $22 $31/hr 10 $12,400
*40-hour work week
Remember that the “loaded rate” assumes that you include the organization’s overhead expenses for each
employee. A typical multiplier for this figure could run anywhere up to and over 100% of the employee’s
wage rate. Make sure the course instructor indicates the overhead rate you should apply for your project. So,
using the senior programmer example above with a fully loaded rate and assuming an overhead multiplier
of 1.40, we get:
($49) (40 hrs) (20 weeks) (1.40) = $54,880
Sample Project Plan: ABcups, inc.
Name
resource
type title
Salary
(incl.
Benefits)
($)
Hour
rate ($)
fully
loaded
rate
(overhead = .40)
time Needed
(Hours/
week)
Duration
(in weeks) total
Carol
Johnson
Safety Safety
Engineer
64,600 32.30 45.22 10 hrs/wk 15 $ 6,783
Bob Hoskins Engineering Industrial
Engineer
35,000 17.50 24.50 20 hrs/wk 35 17,150
Sheila Thomas Management Project
Manager
55,000 27.50 38.50 40 hrs/wk 50 77,000
Randy Egan Management Plant
Manager
74,000 37.00 51.80 10 hrs/wk 6 3,108
Stu Hall Industrial Maintenance
Supervisor
32,000 16.00 22.40 15 hrs/wk 8 2,688
Susan Berg Accounting Cost
Accountant
45,000 22.50 31.50 10 hrs/wk 12 3,780
Marty Green Industrial Shop
Supervisor
24,000 12.00 16.80 10 hrs/wk 3 504
John Pittman Quality Quality
Engineer
33,000 16.50 23.10 20 hrs/wk 25 11,550
Sally Reid Quality Jr. Quality
Engineer
27,000 13.50 18.90 20 hrs/wk 18 6,804
Lanny Adams Sales Marketing
Manager
70,000 35.00 49.00 10 hrs/wk 16 7,840
Kristin Abele Purchasing Purchasing
Agent
47,000 23.50 32.90 15 hrs/wk 20 9,870
Total $147,077
293
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294 Chapter 8 • Cost Estimation and Budgeting
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Harvard Business Review, 89(9): 23–25.
16. For a discussion of COCOMO II standards, see http://
csse.usc.edu/csse/research/COCOMOII/cocomo2000.0/
CII_modelman2000.0
17. McConnell, S. (2004). Code Complete, 2nd ed. Redmond,
WA: Microsoft Press; McConnell, S. (2006). Software
Estimation: Demystifying the Black Art. Redmond, WA:
Microsoft Press.
18. Turbit, N. “Function points overview.” www.projectper-
fect.com.au/downloads/Info/info_fp_overview ;
International Functional Points Users Group, www.ifpug.
org; Dillibabu, R., and Krishnaiah, K. (2005). “Cost esti-
mation of a software product using COCOMO II.2000
model—a case study,” International Journal of Project
Management, 23(4): 297–307; Jeffery, R., Low, G. C., and
Barnes, M. (1993). “A comparison of function point count-
ing techniques,” IEEE Transactions on Software Engineering,
19(5): 529–32.
19. Hamburger, D. (1986). “Three perceptions of project
cost—Cost is more than a four-letter word,” Project
Management Journal, 17(3): 51–58; Sigurdsen, A. (1996).
“Principal errors in capital cost estimating work, part 1:
Appreciate the relevance of the quantity-dependent esti-
mating norms,” Project Management Journal, 27(3): 27–34;
Toney, F. (2001). “Accounting and financial manage-
ment: Finding the project’s bottom line,” in J. Knutson
(Ed.), Project Management for Business Professionals. New
York: John Wiley, pp. 101–27; Shtub, A., Bard, J. F., and
Globerson, S. (1994). Project Management: Engineering,
Technology, and Implementation. Englewood Cliffs, NJ:
Prentice-Hall; Smith, N. J. (Ed.). (1995). Project Cost
Estimating. London: Thomas Telford; Sweeting, J. (1997).
Project Cost Estimating: Principles and Practices. Rugby, UK:
Institution of Chemical Engineers; Goyal, S. K. (1975).
“A note of a simple CPM time-cost tradeoff algorithm,”
notes
Notes 295
Management Science, 21(6): 718–22; Venkataraman, R., and
Pinto, J. K. (2008). Cost and Value Management in Projects.
New York: Wiley.
20. Panknin, S., quoted in Grieshaber, K. (2013, April 8).
“Berlin’s airport delays shame Germans.” http://news.
yahoo.com/berlins-airport-project-delays-shame-ger-
mans-093036692–finance.html
21. Flyvbjerg, B., Garbuio, M., and Lavallo, D. (2009).
“Delusion and deception in large infrastructure projects:
Two models for explaining and preventing executive
disaster,” California Management Review, 51(2): 170–93;
“Building BRICs of growth.” (2008, June 7). The Economist.
www.economist.com/node/11488749; Lovallo, D., and
Kahneman, D. (2003). “Delusions of success: How opti-
mism undermines executives’ decisions,” Harvard Business
Review, 81(7): 56–63; Flyvbjerg, B., Holm, M. S., and Buhl,
S. (2002). “Underestimating costs in public works projects:
Error or lie?” Journal of the American Planning Association,
68(3): 279–95.
22. Meredith, J. R., and Mantel, Jr., S. J. (2003). Project Management,
5th ed. New York: Wiley; see also Christensen, D. S.,
and Gordon, J. A. (1998). “Does a rubber baseline guaran-
tee cost overruns on defense acquisition contracts?” Project
Management Journal, 29(3): 43–51.
23. Maher, M. (1997). Cost Accounting: Creating Value for
Management, 5th ed. Chicago: Irwin.
24. Gray, C. F., and Larson, E. W. (2003). Project Management,
2nd ed. Burr Ridge, IL: McGraw-Hill.
25. Flyvbjerg, B., and Ansar, A. (2014, March 19). “Ending the
flood of megadams,” Wall Street Journal, p. A15; Ansar, A.,
Flyvbjerg, B., Budzier, A., and Lunn, D. (2014). “Should
we build more large dams? The actual costs of hydro-
power megaproject development.” Energy Policy. http://
dx.doi.org/10.1016/j.enpol.2013.10.069
26. “Boston’s Big Dig opens to public.” (2003, December 20).
www.msnbc.com/id/3769829; “Big Dig billions over
budget.” (2000, April 11). www.taxpayer.net/library/
weekly-wastebasket/article/big-dig-billions-over-bud-
get; “Massachusetts to sue Big Dig companies.” (2006,
November 27). www.msnbc.msn.com/id/15917776; “Big
Dig contractors to pay $450 million.” (2008, January 23).
www.msnbc.msn.com/id/22809747
http://news
http://www.economist.com/node/11488749
http://dx.doi.org/10.1016/j.enpol.2013.10.069
http://dx.doi.org/10.1016/j.enpol.2013.10.069
http://www.msnbc.com/id/3769829
http://www.taxpayer.net/library/
http://www.msnbc.msn.com/id/15917776
http://www.msnbc.msn.com/id/22809747
296
9
■ ■ ■
Project Scheduling
Networks, Duration Estimation, and Critical Path
Chapter Outline
Project Profile
After 20 Years and More than $50 Billion, Oil
Is No Closer to the Surface: The Caspian
Kashagan Project
introduction
9.1 Project Scheduling
9.2 Key Scheduling terminology
9.3 develoPing A networK
Labeling Nodes
Serial Activities
Concurrent Activities
Merge Activities
Burst Activities
9.4 durAtion eStimAtion
9.5 conStructing the criticAl PAth
Calculating the Network
The Forward Pass
The Backward Pass
Probability of Project Completion
Laddering Activities
Hammock Activities
Options for Reducing the Critical Path
Project mAnAgement reSeArch in Brief
Software Development Delays and Solutions
Summary
Key Terms
Solved Problems
Discussion Questions
Problems
Internet Exercises
MS Project Exercises
PMP Certification Sample Questions
Notes
Chapter Objectives
After completing this chapter, you should be able to:
1. Understand and apply key scheduling terminology.
2. Apply the logic used to create activity networks, including predecessor and successor tasks.
3. Develop an activity network using Activity-on-Node (AON) technique.
4. Perform activity duration estimation based on the use of probabilistic estimating techniques.
5. Construct the critical path for a project schedule network using forward and backward passes.
6. Identify activity float and the manner in which it is determined.
7. Calculate the probability of a project finishing on time under PERT estimates.
8. Understand the steps that can be employed to reduce the critical path.
Project MAnAgeMent Body of Knowledge core
concePts covered in this chAPter
1. Plan Schedule Management (PMBoK sec. 6.1)
2. Define Activities (PMBoK sec. 6.2)
3. Sequence Activities (PMBoK sec. 6.3)
4. Estimate Activity Resources (PMBoK sec. 6.4)
5. Estimate Activity Durations (PMBoK sec. 6.5)
6. Develop Schedule (PMBoK sec. 6.6)
7. Control Schedule (PMBoK sec. 6.7)
Project Profile
After 20 Years and More than $50 Billion, oil is No closer to the Surface: the caspian Kashagan Project
Two decades ago, the world was in desperate need of new sources of oil, just as emerging economies were anxious
to exploit their natural resources in exchange for improvements in the standard of living. It was against this backdrop
that the Kashagan oil project was launched. A partnership between Kazakhstan and a consortium of oil exploration
companies (including Shell, Exxon Mobil, Total, ConocoPhillips, and Eni, among others), the Kashagan project involved
offshore drilling in the Caspian Sea. The oil field was discovered in 2000, and with oil reserve estimates that are said to
be the largest in the world outside of the Middle East, the plan was for oil to begin flowing in 2005, with a projected
daily output of 1.5 million barrels. One Shell driller labeled the field “an Elephant.”
Now, years behind schedule and with a budget that has grown from its original total estimate of $57 billion to
$187 billion, the project is still far from completed. Phase 1 of the project was expected to cost $24 billion and the bill
has already grown to $46 billion with little to show for it. In addition to its massive budget overruns, the project has
been continuously plagued by a series of engineering missteps, management disputes, miles of leaky and corroded
pipelines, and technical problems. So bad has the situation become that the project has now been halted indefinitely
while all parties try to understand what went wrong and how to get things back on track.
The Kashagan project’s problems come at a time when relationships between Western oil companies and
resource-owning governments are more important than ever. To replace what they pump, oil companies need to col-
laborate with state-owned companies that control 90% of the globe’s remaining oil reserves, by a World Bank estimate.
Figure 9.1 Kashagan oil field
Source: Shamil Zhumatov/Reuters/Corbis
Project Profile 297
298 Chapter 9 • Project Scheduling
introduction
Project scheduling is a complex undertaking that involves a number of related steps. When we
think about scheduling, it helps if we picture a giant jigsaw puzzle. At first, we lay out the border
and start creating a mental picture in our heads of how the pieces are designed to fit together. As
the border starts to take shape, we can add more and more pieces, gradually giving the puzzle
shape and image. Each step in building the puzzle depends on having done the previous work
correctly. In a similar way, the methodologies in project scheduling build upon each other. Project
scheduling requires us to follow some carefully laid-out steps, in order, for the schedule to take shape. Just as
a jigsaw puzzle will eventually yield a finished picture if we have followed the process correctly,
the shape of the project’s schedule will also come into direct focus when we learn the steps needed
to bring it about.
But governments often give foreign oil companies access only to the hardest-to-develop acreage. Kashagan’s disastrous
overruns show how these “public/private” collaborations in difficult oil fields can quickly go bad for both sides.
Kashagan is a complicated project under the best of circumstances. The oil derricks sited offshore had to be
redesigned atop “islands” that were built for them when it was discovered that the Caspian is shallow enough at this
location that it freezes all the way to the bottom during the winter, making drilling with conventional rigs impossible.
The companies had to build artificial islands of rock and rubble and drill through these. Further, the oil is under high
pressure from corrosive natural gas high in toxic chemicals. That meant building a sulfur-removal system onshore,
reached by a pipeline, for the portion of the gas to be recovered. It took operators nearly two years to factor this level
of sour gas into infrastructure design. And heavy pipe-laying machines sometimes broke down in the cold.
A number of circumstances have contributed to the schedule delays and budget overruns, including:
• Administrative confusion as the major contractors could not decide who would be in charge of the development.
When Exxon Mobil originally attempted to take charge, Shell executives threatened to pull out of the partnership.
Ultimately, the much smaller Eni SpA was named lead contractor, although each company had veto power over all
major planning decisions.
• Relationships with the Kazakhstan government have deteriorated as the project has experienced delay after delay.
By 2008, the government began levying penalties for the extended delays, making the oil companies’ investment
in the project all the more expensive. Eni Chief Executive Paolo Scaroni said his company’s relationship with the
government “has been excellent” considering the years of trouble. A senior official of Kazakhstan’s state-owned oil
company, KMG, disagreed. “It’s a marriage that is made in hell,” he said.
• Problems with human resources assigned to the project. As part of the agreement with the local government, oil
companies had to employ large numbers of local workers, with a portion of them mandated to perform office func-
tions. One former official recalled hiring hundreds of enthusiastic locals who had “never sat in front of a computer.”
• Leaking pipes. In 2013, the companies prepared for a milestone: starting commercial oil production and transfer-
ring the role of operator to a Shell-led group. On September 11, the companies announced that oil was flowing.
About two weeks after that, parts of the underground gas pipeline began leaking into the Caspian Sea. Oil pumping
stopped while workers inspected and found a leak. Crews patched it, and oil pumping resumed. Two weeks later, the
pipeline sprang new leaks. This time, the companies shut down the whole Kashagan operation. Workers spent the
fall excavating parts of the 55-mile pipeline and sending section for tests at a UK lab.
• Technical errors. The oil companies used outdated Russian cruise line ships as floating barracks for oil workers. How-
ever, besides these construction-worker barracks, offshore accommodations for the permanent staff were needed.
Around 2005, Eni’s partners realized that plans for these put them too near a production site. Eni redesigned the
accommodations, delaying construction by another year.
The series of missteps and technical challenges has left everyone feeling dissatisfied. Oil company and Kazakh
officials sniped at one another. “Nobody’s happy with the governance, and I don’t think anybody’s happy with the
operatorship,” Shell Chief Financial Officer Simon Henry said. Cracks were found in several places along the pipeline,
according to people familiar with the inspection, who said it appeared the metal had lost some of its factory character-
istics, possibly through a combination of poor welding practices and the natural gas’s hydrogen-sulfide content.
Finally, the combination of technical challenges, unexpected (and unresolved) pipeline leaks, finger-pointing by
executives from Kazakhstan and the oil companies, and stiff financial penalties for delays became too much for some
of the consortium. In 2013, longtime partner ConocoPhillips sold its stake in the project to KMG, which later resold it
to China National Petroleum Corp. “We got our $5.5 billion in the bank and got out of Kashagan,” said Al Hirshberg, a
Conoco executive, at a conference last fall. He added: “It feels good to be out of it.”1
9.1 Project Scheduling 299
9.1 Project Scheduling
Project scheduling techniques lie at the heart of project planning and subsequent monitoring and
control. Previous chapters have examined the development of vision and goals for the project,
project screening activities, risk management practices, and project scope (including the Work
Breakdown Structure). Project scheduling represents the conversion of project goals into an achiev-
able methodology for their completion; it creates a timetable and reveals the network logic that
relates project activities to each other in a coherent fashion. Because project management is predi-
cated on completing a finite set of goals under a specified time frame, exactly how we develop the
project’s schedule is vitally important to success.
This chapter will examine a number of elements in project scheduling and demonstrate
how to build the project plan from a simple set of identified project activities into a graphical
set of sequential relationships between those tasks which, when performed, result in the comple-
tion of the project goals. Project scheduling has been defined by the Project Management Body of
Knowledge as “an output of a schedule model that presents linked activities with planned dates,
durations, milestones, and resources.”2 The term linked activities is important because it illus-
trates the scheduling goal. Project scheduling defines network logic for all activities; that is, tasks
must either precede or follow other tasks from the beginning of the project to its completion.
Suppose you and your classroom team were given an assignment on leadership and were
expected to turn in a paper and give a presentation at the end of the semester. It would first be nec-
essary to break up the assignment into the discrete set of individual activities (Work Breakdown
Structure) that would allow your team to finish the project. Perhaps you identified the following
tasks needed to complete the assignment:
1. Identify topic
2. Research topic
3. Write first draft of paper
4. Edit and rewrite paper
5. Prepare class presentation
6. Complete final draft
7. Complete presentation
8. Hand in paper and present topic in class
Carefully defining all the steps necessary to complete the assignment is an important first step in
project scheduling as it adds a sequential logic to the tasks and goes further in that it allows you to
create a coherent project plan from start to finish. Suppose, to ensure the best use of your time and
availability, you were to create a network of the activities listed above, that is, the most likely order
in which they must occur to be done correctly. First, it would be necessary to determine a reason-
able sequence. Preceding activities are those that must occur before others can be done. For example,
it would be necessary to first identify the term paper topic before beginning to conduct research on
it. Therefore, activity 1, Identify topic, is a preceding activity; and activity 2, Research topic, is referred
to as a subsequent, or successor, activity.
Once you have identified a reasonable sequential logic for the network, you can construct a
network diagram, which is a schematic display of the project’s sequential activities and the logical
relationships between them. Figure 9.2 shows two examples of a network diagram for your proj-
ect. Note that in Option A, the easiest method for constructing a network diagram is to simply lay
out all activities in serial order, starting with the first task and concluding with the final activity.
This option, however, is usually not the most efficient one. It could be argued, for example, that it
is not necessary that the whole project team be involved in each of the activities, requiring you to
delay the start of activity 6, Complete final draft (F in Figure 9.2), until after activity 5, Prepare class
presentation. Another choice might be to use the time better by having some members of the team
begin work on the presentation while others are still completing the paper. Any of these options
mean that you are now constructing a project network with two paths, or parallel streams of activi-
ties, some of which are going on simultaneously. This alternative network can be seen in Option B
of Figure 9.2.
This simplified example illustrates the process of applying sequential logic to project tasks
in order to construct an activity network. In creating a sense of timing for activities in addi-
tion to their functions, the activity network allows project teams to use a method for planning
300 Chapter 9 • Project Scheduling
and scheduling. There are several reasons why it is so important that project networks and sched-
uling be done well. Among the reasons are the following:3
• A network clearly illustrates the interdependence of all tasks and work packages. Doing
something wrong earlier in the project has severe implications for downstream activities.
• Because a network illustrates this interrelationship among activities and project personnel,
it facilitates communication flows. People are much more attuned to the work that went on
before their involvement, and they develop a keener appreciation of the concerns of those
who will take over at later points.
• A network helps with master scheduling of organizational resources because it shows times
when various personnel must be fully committed to project activities. Without some sense of
where the project fits into the overall organizational scheme, personnel may be assigned to
multiple activities at a time when they are most needed on the project.
• A network identifies the critical activities and distinguishes them from the less critical. The
network reveals the activities that absolutely must be completed on time to ensure that the
overall project is delivered on time; in the process, activities that have some “wiggle room”
are identified as well.
• Networks determine when you can expect projects to be completed.
• Dates on which various project activities must start and end in order to keep to the overall
schedule are identified in a network.
• A network demonstrates which activities are dependent on which other activities. You then
know the activities that need to be highly coordinated in order to ensure the smooth develop-
ment of the project.
These are just some of the advantages of using activity networks for project scheduling.
9.2 Key Scheduling terminology
Every profession has its unique jargon and terminology. In project scheduling, a number of specific
terms are commonly employed and so need specific definitions. In many cases, their definitions
are taken from the Project Management Institute’s Body of Knowledge. Some concepts that you
Option B: Nonserial Sequential Logic
A
Identify topic
B
Research
C
Paper draft
H
Finish
D
Edit paper
E
Prepare
presentation
F
Final draft
G
Finish
presentation
Figure 9.2 Alternative Activity Networks for term Paper Assignment
Option A: Serial Sequential Logic
A
Identify topic
B
Research
C
Paper draft
D
Edit paper
E
Prepare
presentation
F
Final draft
G
Finish
presentation
H
Finish
9.2 Key Scheduling Terminology 301
will see again and again throughout this chapter (and subsequent chapters) are listed here. You
have already run across some of these terms in previous chapters.
scope—The work content and products of a project or component of a project. Scope is fully
described by naming all activities performed, the resources consumed, and the end products
that result, including quality standards.
work Breakdown structure (wBs)—A task-oriented “family tree” of activities that orga-
nizes, defines, and graphically displays the total work to be accomplished in order to achieve
the final objectives of a project. Each descending level represents an increasingly detailed
definition of the project objective.
work package—A deliverable at the lowest level of the Work Breakdown Structure; it is an ele-
ment of work performed during the course of a project. A work package normally has an expected
duration plus an expected cost. Other generic terms for project work include task or activity.
Project network diagram (Pnd)—Any schematic display of the logical relationships of
project activities.
Path—A sequence of activities defined by the project network logic.
event—A point when an activity is either started or completed. Often used in conjunction
with AOA networks, events consume no resources and have no time to completion associ-
ated with them.
node—One of the defining points of a network; a junction point joined to some or all of the
others by dependency lines (paths).
Predecessors—Those activities that must be completed prior to initiation of a later activity in
the network.
successors—Activities that cannot be started until previous activities have been completed.
These activities follow predecessor tasks.
early start (es) date—The earliest possible date on which the uncompleted portions of an
activity (or the project) can start, based on the network logic and any schedule constraints.
Early start dates can change as the project progresses and changes are made to the project plan.
late start (ls) date—The latest possible date that an activity may begin without delaying a
specified milestone (usually the project finish date).
forward pass—Network calculations that determine the earliest start/earliest finish time
(date) for each activity. The earliest start and finish dates are determined by working forward
through each activity in the network.
Backward pass—Calculation of late finish times (dates) for all uncompleted network activi-
ties. The latest finish dates are determined by working backward through each activity.
Merge activity—An activity with two or more immediate predecessors (tasks flowing into
it). Merge activities can be located by doing a forward pass through the network. The PMBoK
refers to merge activities as “path convergence.”
Burst activity—An activity with two or more immediate successor activities (tasks flowing
out from it). Burst activities can be located by doing a backward pass through the network.
The PMBoK refers to burst activities as “path divergence.”
float—The amount of time an activity may be delayed from its early start without delaying
the finish of the project. Float is a mathematical calculation and can change as the project pro-
gresses and changes are made in the project plan. Also called slack, total float, and path float. In
general, float is the difference between the late start date and the early start date (LS − ES) or
between the late finish date and early finish date (LF − EF).
critical path—The path through the project network with the longest duration. The critical
path may change from time to time as activities are completed ahead of or behind schedule.
Critical path activities are identified as having zero float in the project.
critical Path Method (cPM)—A network analysis technique used to determine the amount of
scheduling flexibility (the amount of float) on various logical network paths in the project sched-
ule network, and to determine the minimum total project duration. It involves the calculation
of early (forward scheduling) and late (backward scheduling) start and finish dates for each
302 Chapter 9 • Project Scheduling
activity. Implicit in this technique is the assumption that whatever resources are required in any
given time period will be available. Activities times are assumed to be known, or deterministic.
resource-limited schedule—A project schedule whose start and finish dates reflect expected
resource availability. The final project schedule should always be resource-limited.
Program evaluation and review technique (Pert)—An event- and probability-based net-
work analysis system generally used in projects where activities and their durations are dif-
ficult to define. PERT is often used in large programs where the projects involve numerous
organizations at widely different locations.
The two most common methods for constructing activity networks involve Activity-on-Arrow
(AoA) and Activity-on-node (Aon) logic. In the AOA method, the arrow represents the task,
or activity, and the node signifies an event marker that suggests the completion of one activity
and the potential to start the next. In AON methodology, the node represents an activity and the
path arrows demonstrate the logical sequencing from node to node through the network. AOA
approaches were most popular several decades ago and are still used to some extent in the con-
struction industry, but with the rapid rise in computer-based scheduling programs, there is now
a strong emphasis on AON methodology. Hence, in this chapter, we use AON examples and dia-
grams exclusively. Chapter 10 will discuss the rudiments of AOA network modeling.
9.3 develoPing a networK
Network diagramming is a logical, sequential process that requires you to consider the order in which
activities should occur to schedule projects as efficiently as possible. There are two primary methods
for developing activity networks, PERT and CPM. PERT, which stands for Program Evaluation and
Review Technique, was developed in the late 1950s in collaboration between the U.S. Navy, Booz-
Allen Hamilton, and Lockheed Corporation for the creation of the Polaris missile program. PERT
originally was used in research and development (R&D), a field in which activity duration estimates
can be difficult to make, and resulted from probability analysis. CPM, or Critical Path Method, was
developed independently at the same time as PERT by DuPont, Inc. CPM, used commonly in the con-
struction industry, differs from PERT primarily in the assumptions it makes about estimating activity
durations. CPM assumes that durations are more deterministic; that is, they are easier to ascertain
and can be assigned to activities with greater confidence. Further, CPM was designed to better link
(and therefore control) project activity time and costs, particularly the time/cost trade-offs that lead to
crashing decisions (speeding up the project). Crashing the project will be explained in more detail in
Chapter 10. In practice, however, over the years the differences between PERT and CPM have blurred
to the point where it is now common to simply refer to these networking techniques as PERT/CPM.4
Prior to constructing an activity network, there are some simple rules of thumb you need to
become familiar with as you develop the network diagram. These rules are helpful in understand-
ing the logic of activity networks.5
1. Some determination of activity precedence ordering must be done prior to creating the net-
work. That is, all activities must be logically linked to each other—those that precede others,
as well as successor activities (those that must follow others).
2. Network diagrams usually flow from left to right.
3. An activity cannot begin until all preceding connected activities have been completed.
4. Arrows on networks indicate precedence and logical flow. Arrows can cross over each other,
although it is helpful for clarity’s sake to limit this effect when possible.
5. Each activity should have a unique identifier associated with it (number, letter, code, etc.).
For simplicity, these identifiers should occur in ascending order; each one should be larger
than the identifiers of preceding activities.
6. Looping, or recycling through activities, is not permitted.
7. Although not required, it is common to start a project from a single beginning node, even in
the case when multiple start points are possible. A single node point also is typically used as
a project end indicator.
With these simple rules of thumb firmly in mind, you can begin to uncover some of the basic prin-
ciples of establishing a network diagram. Remember that AON methodology represents all activi-
ties within the network as nodes. Arrows are used only to indicate the sequential flow of activities
from the start of the project to its conclusion.
9.3 Developing a Network 303
labeling nodes
Nodes representing project activities should be clearly labeled with a number of different pieces of
information. It is helpful if the nodes at least contain the following data: (1) identifier, (2) descrip-
tive label, (3) activity duration, (4) early start time, (5) early finish time, (6) late start time, (7) late
finish time, and (8) activity float. Figure 9.3 shows the labeling for a node with each piece of infor-
mation assigned to a location within the activity box. The arrangement selected for this node was
arbitrary; there is no accepted standard for labeling activity nodes. For example, the node shown
in Figure 9.4 was derived from a standard Microsoft Project 2013 output file. Note that in this
example, the activity start and finish dates are shown, as well as the resource person responsible
for the activity’s completion.
Complete labels on activity nodes make it easier to use the network to perform additional
calculations such as identifying critical path, activity float (or slack), total project duration,
and so on. When constructing network diagrams during the early development of the project,
all necessary information about the activity can be retrieved quickly as long as nodes are fully
labeled.
Serial activities
serial activities are those that flow from one to the next, in sequence. Following the logic of
Figure 9.5, we cannot begin work on activity B until activity A has been completed. Activity C
cannot begin until both activities A and B are finished. Serial activity networks are the simplest
in that they create only linkages of activity sequencing. In many cases, serial networks are appro-
priate representations of the project activities. Figure 9.5 demonstrates how, in the earlier exam-
ple of preparing for a term paper and presentation, several activities must necessarily be linked
serially. Identifying the topic, conducting research, and writing the first draft are activities that
must link in series, because subsequent activities cannot begin until the previous (predecessor)
ones have been completed.
network logic suggests that:
Activity A can begin immediately.
Activity B cannot begin until activity A is completed.
Activity C cannot begin until both activities A and B are completed.
concurrent activities
In many circumstances, it is possible to begin work on more than one activity simultaneously,
assuming that we have the resources available for both. Figure 9.6 provides an example of how
Early
start
Identifier number Early
finish
Activity
float
Activity descriptor
Late
start
Activity
duration
Late
finish
Figure 9.3 labels for Activity Node
2. Research Topic
Start: 6/13/14 ID: 2
Finish: 7/3/14 Dur:15 days
Res: John Smith
Figure 9.4 Activity Node labels
Using MS Project 2013
Source: MS Project 2013, Microsoft
Corporation.
A
Identify topic
B
Research
C
Paper draftFigure 9.5 Project Activities linked
in Series
304 Chapter 9 • Project Scheduling
concurrent or parallel project paths are represented in an activity network. When the nature
of the work allows for more than one activity to be accomplished at the same time, these
activities are called concurrent, and parallel project activity paths are constructed through
the network. In order to successfully operate concurrent activities, the project must be staffed
with sufficient human resources to support all simultaneous activities. This is a critical issue,
because a network cannot be created without giving thought to the resource requirements
needed to support it.
network logic suggests that:
Activities D and E can begin following the completion of activity C.
Activity F can begin following the completion of activity D and is independent of activity E.
Activity G can begin following the completion of activity E and is independent of activity D.
Activity H can begin following the completion of both activities F and G.
merge activities
Merge activities are those with two or more immediate predecessors. Figure 9.7 is a partial net-
work diagram that shows how merge activities are expressed graphically. Merge activities often
are critical junction points, places where two or more parallel project paths converge within the
overall network. Figure 9.7 demonstrates the logic of a merge activity: You cannot begin activity
D until all predecessor activities, A, B, and C, have been completed. The start of the merge activity
is subject to the completion of the longest prior activity. For example, suppose that activities A, B,
and C all start on the same day. Activity A has a duration of 3 days, activity B’s duration is 5 days,
and activity C has a duration of 7 days. The earliest activity D, the merge point, can start is on day
7, following completion of all three predecessor activities.
network logic suggests that:
Activity D can only begin following the completion of activities A, B, and C.
C
Paper draft
D
Edit paper
E
Prepare
presentation
F
Final draft
G
Finish
presentation
H
Finish
Figure 9.6 Activities linked in Parallel (concurrent)
Activity A
Activity B
Activity C
Activity D
Figure 9.7 Merge Activity
9.3 Developing a Network 305
Burst activities
Burst activities are those with two or more immediate successor activities. Figure 9.8 graphi-
cally depicts a burst task, with activities B, C, and D scheduled to follow the completion of
activity A. All three successors can only be undertaken upon the completion of activity A.
Unlike merge activities, in which the successor is dependent upon completion of the longest
predecessor activity before it can begin, all immediate successors can begin simultaneously
upon completion of the burst activity.
network logic suggests that:
Activities B, C, and D can only begin following the completion of activity A.
examPle 9.1
Let’s begin constructing a basic activity network. Table 9.1 identifies eight activities and their pre-
decessors in a simple example project. Once we have determined the tasks necessary to accomplish
the project, it is important to begin linking those tasks to each other. In effect, we are taking the
project tasks in the Work Breakdown Structure and adding a project chronology.
Once the network activity table has been developed and the predecessors identified, we can
begin the process of network construction. The first activity (A) shows no predecessors; it is the
starting point in the network and placed to the far left of our diagram. Next, activities B and C both
identify activity A as their predecessor. We can place them on the network as well. Activity D lists
both activities B and C as predecessors. Figure 9.9 gives a partial network diagram based on the in-
formation we have compiled to this point. Note that, based on our definitions, activity A is a burst
activity and activity D is a merge activity.
We can continue to create the network iteratively as we add additional activity nodes to
the diagram. Figure 9.10 shows the final activity network. Referring back to an earlier point,
taBle 9.1 information for Network construction
Name: Project Delta
Activity Description Predecessors
A Contract signing None
B Questionnaire design A
C Target market ID A
D Survey sample B, C
E Develop presentation B
F Analyze results D
G Demographic analysis C
H Presentation to client E, F, G
Activity A Activity C
Activity B
Activity D
Figure 9.8 Burst Activity
306 Chapter 9 • Project Scheduling
A
Contract
D
Survey
F
Analysis
H
Presentation
G
Demographics
E
Develop
presentation
C
Market ID
B
Design
Figure 9.10 complete Activity Network for Project Delta
B
C
A D
Figure 9.9 Partial Activity Network
Based on Project Delta
note that this network begins with a single node point (activity A) and concludes with a
single point (activity H). The merge activities associated with this network include activities
D (with activities B and C merging at this node) and H (with activities E, F, and G merging at
this node). Activities A, B, and C are burst activities. Recall that burst activities are defined
as those with two or more immediate successors in the network. Activity A has the successor
tasks B and C, activity B has tasks D and E following it, and activity C has two successors
(D and G).
If we employed Microsoft Project 2013 to create the network diagram, we would first enter
each of the activities into the template shown in Figure 9.11. Note that for this example, we are not
assigning any durations to the activities, so the default is set at 1 day for each activity.
The next step in using MS Project to create a network is to identify the predecessor activities
at each step in the project. In Figure 9.12, we begin to build the network by specifying each prede-
cessor and successor in the network. Double-clicking the mouse on an activity will bring up a Task
Information window (shown in Figure 9.12). In that window, we can specify the task or tasks that
are predecessors of our current activity. For activity B (questionnaire design), we have specified a
single predecessor (contract signing).
Once we have added each task in turn, the project network is completed. MS Project can be
used to generate the final network, as shown in Figure 9.13. Note that each activity is still labeled
as needing only 1 day for completion. In the next section of this chapter, we begin to consider the
manner in which individual activity durations can be determined.
9.4 Duration Estimation 307
Figure 9.12 task information Window Used to Specify Predecessors for Activity Networks
Source: MS Project 2013, Microsoft Corporation.
Figure 9.11 Developing the Activity Network Using MS Project 2013
Source: MS Project 2013, Microsoft Corporation.
9.4 duration eStimation
The next step in building the network is to estimate activity durations for each step in the project.
The first point to remember is that these estimates are based on what is assumed to be normal
working methods during normal business or working hours. Second, although factors such as
Figure 9.13 the completed MS Project 2010 Network Diagram
Source: MS Project 2013, Microsoft Corporation.
308 Chapter 9 • Project Scheduling
past experience or familiarity with the work will influence the accuracy of these estimates, activ-
ity durations are always somewhat uncertain. Third, time frames for task estimates can vary from
several hours for short projects to days and weeks for longer projects.
Activity durations can be estimated in a number of different ways, including:6
• Experience. In cases where the organization has previously done similar work, we can use
history as a guide. This approach is relatively easy; we simply call upon past examples of
similar projects and use them as a baseline. The main drawback to this approach is that it
assumes what worked in the past will continue to work today. Projects are affected by exter-
nal events that are unique to their own time. Therefore, in using experience, we must be
aware of the potential for using distorted or outdated information.
• Expert opinion. At times we may be told to contact a past project manager or expert in a
particular area to get accurate information on activity estimates. Intuitively this approach
would seem to be useful—if you want to know something, go to an expert. Yet “experts” are
considered experts precisely because they know the easiest avenues, best contacts, and fast-
est processes to complete tasks. Would an expert’s estimate of completion time be valid for
nonexperts doing the same activity? The answer is not absolute, but the question suggests
that we use caution in our application of expert opinion.
• Mathematical derivation. Another approach offers a more objective alternative to activity
duration estimation and sidesteps many of the problems that can be found in more subjec-
tive methods. This method consists of developing duration probability based on a reasoned
analysis of best-case, most likely case, and worst-case scenarios.
There are two primary means for developing duration estimates. We discussed earlier in this chapter
(Section 9.3) the idea that the simplest approach is to assume a deterministic model for activity durations.
Deterministic estimation means that activity durations are fairly predictable; that is, they do not consider
variation in the activity completion time. So, for example, when developing a construction project, we can
call upon years of experience to know that the time it takes to dig the foundation and pour concrete “foot-
ers” for a 2,500-square-foot residential construction will be 10 hours. This is an example of a predictable,
or deterministic, time estimate. On the other hand, for many project activities, we can only make educated
estimates of their likely duration, based partially on past experience, but also requiring us to take into
consideration the likelihood of variation in how long the activity may take to complete. Developing a
new software procedure using the latest generation of programming code (one which our company’s
programmers are still learning) can be a difficult project with which to make activity duration estimates. It
is for this reason that mathematical procedures have been created to help determine activity times.
In order to understand how to use mathematical derivation to determine expected activity times,
we need to consider the basics of probability distributions. Probability suggests that the amount of
time an activity is likely to take can rarely be positively determined; rather, it is found as the result of
sampling a range of likelihoods, or probabilities, of the event occurring. These likelihoods range from 0
(no probability) to 1 (complete probability). In order to derive a reasonable probabilistic estimate for an
activity’s duration, we need to identify three values: (1) the activity’s most likely duration, (2) the activ-
ity’s most pessimistic duration, and (3) the activity’s most optimistic duration. The most likely duration
is determined to be the length of time expected to complete an activity assuming the development of
that activity proceeds normally. Pessimistic duration is the expected length of time needed to develop
the activity under the assumption that everything will go badly (Murphy’s Law). Finally, optimistic
duration is estimated under the assumption that the development process will proceed extremely well.
For these time estimates, we can use probability distributions that are either symmetrical (the
normal distribution) or asymmetrical (the beta distribution). A normal distribution implies that
the probability of an event taking the most likely time is one that is centered on the mean of the
distribution (see Figure 9.14). Because pessimistic and optimistic values are estimated at the 95%
confidence level from either end of the distribution, they will cancel each other out, leaving the
mean value as the expected duration time for the activity.
In real life it is extremely rare to find examples in which optimistic and pessimistic dura-
tions are symmetrical to each other about the mean. In project management, it is more common to
see probability distributions that are asymmetrical; these are referred to as beta distributions. The
asymmetry of the probability distribution suggests we recognize that certain events are less likely
to occur than others. An activity’s optimistic time may lie within one standard deviation from the
mean while its pessimistic time may be as much as three or four standard deviations away. To illus-
trate, suppose that we began construction on a highway bridge and wished to estimate the length
9.4 Duration Estimation 309
of time (duration) it would take to place the steel girders needed to frame the bridge. We expect
that the duration for the framing task will take six days; however, a number of factors could change
that duration estimate. We could, for example, experience uncommonly good weather and have no
technical delays, allowing us to finish the framing work in only four days. On the other hand, we
could have terrible weather, experience delivery delays for needed materials, and lose time in labor
disputes, all leading to a pessimistic estimate of 14 days. This example demonstrates the asymmetri-
cal nature of duration estimates; while our most likely duration is 6 days, the range can vary from
4 to 14 days to complete the task.
The optimistic and pessimistic duration values essentially serve as upper and lower bounds
for the distribution range. Figure 9.15 illustrates a beta distribution with the values m (most likely
duration), a (most optimistic duration), and b (most pessimistic duration) identified.
Two assumptions are used to convert the values of m, a, and b into estimates of the expected time
(TE) and variance (s2) of the duration for the activity. One important assumption is that s, the standard
deviation of the duration required to complete the task, equals one-sixth of the range for reasonably
possible time requirements. The variance for an activity duration estimate is given by the formula:
s2 = [(b – a)>6]2
The logic for this assumption is based on the understanding that to achieve a probability distribution
with a 99% confidence interval, observations should lie within three standard deviations of the mean
in either direction. A spread of six standard deviations from tail to tail in the probability distribution,
then, accounts for 99.7% of the possible activity duration alternatives.
Because optimistic and pessimistic times are not symmetrical about the mean, the second
assumption refers to the shape of the probability distribution. Again, the beta, or asymmetrical, dis-
tribution better represents the distribution of possible alternative expected duration times (TE) for
estimating activities. The beta distribution suggests that the calculation for deriving TE is shown as:
TE = (a + 4m + b)>6
where
TE = estimated time for activity
a = most optimistic time to complete the activity
m = most likely time to complete the activity, (the mode of the distribution)
b = most pessimistic time to complete the activity
Beta distribution
Elapsed time
0 ma b
Figure 9.15 Asymmetrical (Beta) Distribution for Activity Duration estimation
f (x)
x
Shaded area = 1– α
–Z1– α /2 Z1– α /2
Figure 9.14 Symmetrical (Normal) Distribution for Activity Duration estimation
310 Chapter 9 • Project Scheduling
In this calculation, the midpoint between the pessimistic and optimistic values is the weighted
arithmetic mean of the mode and midrange, representing two-thirds of the overall weighting for
the calculated expected time. The additional weighting is intended to highlight the clustering of
expected values around the distribution mean, regardless of the length of both pessimistic and
optimistic tails (total distribution standard deviation).
How do we put together all of these assumptions to perform an accurate activity duration
estimation? The next step is to construct an activity duration estimate table (see Table 9.2). For sim-
plicity, all numbers shown are in weeks.
Table 9.2 demonstrates the most likely times for each activity based on a reasonably accu-
rate assessment of how long a task should take, could take if everything went well, and would take
if everything went poorly. If we assign the value a to the most optimistic duration estimate, the
project manager must assign a value to this activity such that the actual amount of time needed to
complete the activity will be a or greater 99% of the time. Conversely, in assigning a value for the
most pessimistic duration, b, the project manager should estimate the duration of the activity to
have a 99% likelihood that it will take b or less amount of time.
The standard formula for estimating expected activity duration times is based on the
weighting ratio of 1 * optimistic, 4 * likely, and 1 * pessimistic. Researchers and practitioners
alike, however, have found that this ratio is best viewed as a heuristic whose basic assump-
tions are affected by a project’s unique circumstances. One argument holds that the above ratio
is far too optimistic and does not take into consideration the negative impact created when the
worst-case or pessimistic estimate proves accurate. Further, given the inherent uncertainty in
many projects, significant levels of risk must be accounted for in all probabilistic estimates of
duration.
Extensive research into the topic of improving the accuracy of activity duration estima-
tion has not led to definitive results. Modeling techniques such as Monte Carlo simulation and
linear and nonlinear programming algorithms generally have demonstrated that the degree of
uncertainty in task durations can have a significant impact on the optimum method for dura-
tion estimation. Because uncertainty is so common in activity estimation, more than one activity
estimate may be reasonably held. The goal is to achieve a confidence interval that provides the
highest reasonable probability of being accurate. Probability estimation using 99% confidence
intervals represents a degree of confidence few project managers would be willing to demon-
strate, according to Meredith and Mantel.7 Consequently, when the confidence interval level
assumption is relaxed to, for example, 90%, the variance calculations and estimates of duration
must be modified accordingly. Although the debate is likely to continue, an estimation formula
of 1:4:1 (optimistic:likely:pessimistic)/6 is commonly accepted.
Using this ratio as a tool, it is now possible to calculate expected activity duration times for
each of the tasks identified in Table 9.2. Table 9.3 shows the calculated times for each activity, based
on the assumption of a beta distribution.
taBle 9.2 Activity Duration estimates for Project Delta
Name: Project Delta
Durations are listed in weeks
Activity Description optimistic likely Pessimistic
A Contract signing 3 4 11
B Questionnaire design 2 5 8
C Target market ID 3 6 9
D Survey sample 8 12 20
E Develop presentation 3 5 12
F Analyze results 2 4 7
G Demographic analysis 6 9 14
H Presentation to client 1 2 4
9.5 Constructing the Critical Path 311
Creating the project network and calculating activity durations are the first two key steps in
developing the project schedule. The next stage is to combine these two pieces of information in
order to create the project’s critical path diagram.
9.5 conStructing the critical Path
The next step is to link activity duration estimates and begin construction of the critical path.
Critical path calculations link activity durations to the preconstructed project activity network.
This point is important: The project network is first developed using activity precedence logic,
then, following task duration estimates, these values are applied in a structured process to each
activity to determine overall project length. In addition to allowing us to determine how long
the project is going to take, applying time estimates to the network lets us discover activity float
(which activities can be delayed and which cannot), the latest and earliest times each activ-
ity can be started or must be completed, and the latest and earliest times each activity can be
completed.
calculating the network
The process for developing the network with time estimates is fairly straightforward. Once the
activity network and duration estimates are in place, the actual network calculation computa-
tions can proceed. Look again at the network in Figure 9.10 and the duration estimates given in
Table 9.3 that assume a beta distribution. In this example, the time estimates are rounded to the
nearest whole integer. The activity information is summarized in Table 9.4.
taBle 9.4 Project information
Project Delta
Activity Description Predecessors estimated Duration
A Contract signing None 5
B Questionnaire design A 5
C Target market ID A 6
D Survey sample B, C 13
E Develop presentation B 6
F Analyze results D 4
G Demographic analysis C 9
H Presentation to client E, F, G 2
taBle 9.3 estimated Project Activity times Using Beta Distribution
Name: Project Delta
Durations are listed in weeks
Activity Description Beta (1:4:1 ratio)/6
A Contract signing 5
B Questionnaire design 5
C Target market ID 6
D Survey sample 12.7
E Develop presentation 5.8
F Analyze results 4.2
G Demographic analysis 9.3
H Presentation to client 2.2
312 Chapter 9 • Project Scheduling
The methodology for using this information to create a critical path requires two steps: a
forward pass through the network from the first activity to the last and a backward pass through the
network from the final activity to the beginning. The forward pass is an additive process that cal-
culates the earliest times an activity can begin and end. Once we have completed the forward pass,
we will know how long the overall project is expected to take. The backward pass is a subtractive
process that gives us information on when the latest activities can begin and end. Once both the
forward and backward passes have been completed, we will also be able to determine individual
activity float and, finally, the project’s critical path.
After labeling the network with the activity durations, we begin to determine the various
paths through the network. Figure 9.16 shows a partial activity network with durations labeled for
each of the eight project activities. Each path is discovered by assessing all possible sequences of
precedence activities from the beginning node to the end. Here, we can identify four separate paths,
labeled:
Path One: A – B – E – H
Path Two: A – B – D – F – H
Path Three: A – C – D – F – H
Path Four: A – C – G – H
Since we now know the activity times for each task, we can also identify the critical path. The critical
path is defined as the “series of interdependent activities of a project, connected end-to-end, which
determines the shortest total length of the project.”8 The shortest total length of time needed to com-
plete a project is determined by the longest path through the network. The length of the four paths
listed above can be derived simply by adding their individual activity durations together. Hence,
Path One: A – B – E – H = 18 weeks
Path Two: A – B – D – F – H = 29 weeks
Path Three: A – C – D – F – H = 30 weeks
Path Four: A – C – G – H = 22 weeks
Path Three, which links the activities A – C – D – F – H, is scheduled for duration of 30 weeks and
is the critical path for this activity. In practical terms, this path has no float, or slack time, associated
with it.
the Forward Pass
We can now begin adding more information to the network by conducting the forward pass to
determine the earliest times each activity can begin and the earliest it can be completed. The pro-
cess is iterative; each step builds on the information contained in the node immediately preceding
B
Design
5
C
Market ID
6
G
Demographics
9
E
Develop
presentation
6
A
Contract
5
D
Survey
13
F
Analysis
4
H
Presentation
2
Figure 9.16 Partial Project Activity Network with task Durations
9.5 Constructing the Critical Path 313
it in the network. The beginning activity, contract signing, can be started at time 0 (immediately).
Therefore, the earliest that activity A can be completed is on day 5. Early finish for any activity
(EF) is found by taking its early start (ES) time and adding its activity duration (ES + Dur = EF).
Therefore, activity B (questionnaire design) has an activity early start time of 5. This value corre-
sponds to the early finish of the activity immediately preceding it in the network. Likewise, activ-
ity C, which is also dependent upon the completion of activity A to start, has an early start of 5. The
early finish for activity B, calculated by (ES + Dur = EF), is 5 + 5, or 10. The early finish for activity
C is found by 5 + 6 = 11. Figure 9.17 shows the process for developing the forward pass through
the activity network.
The first challenge occurs at activity D, the merge point for activities B and C. Activity B has
an early finish (EF) time of 10 weeks; however, activity C has an EF of 11 weeks. What should be
the activity early start (ES) for activity D?
In order to answer this question, it is helpful to review the rules that govern the use of for-
ward pass methodology. Principally, there are three steps for applying the forward pass:
1. Add all activity times along each path as we move through the network (ES + Dur = EF).
2. Carry the EF time to the activity nodes immediately succeeding the recently completed
node. That EF becomes the ES of the next node, unless the succeeding node is a merge
point.
3. At a merge point, the largest preceding EF becomes the ES for that node.
Applying these rules, at activity D, a merge point, we have the option of applying either an EF
of 10 (activity B) or of 11 (activity C) as our new ES. Because activity C’s early finish is larger, we
would select the ES value of 11 for this node. The logic for this rule regarding merge points is
important: Remember that early start is defined as the earliest an activity can begin. When two
or more immediate predecessors have varying EF times, the earliest the successor can begin is when
all preceding activities have been completed. Thus, we can determine that it would be impossible for
activity D to begin at week 10 because one of its predecessors (activity C) would not have been
finished by that point.
If we continue applying the forward pass to the network, we can work in a straightforward
manner until we reach the final node, activity H, which is also a merge point. Activity H has three
immediate predecessors, activities E, F, and G. The EF for activity E is 16, the EF for activity F is 28,
and the EF for activity G is 20. Therefore, the ES for activity H must be the largest EF, or 28. The
final length of the project is 30 weeks. Figure 9.18 illustrates the overall network with all early start
and early finish dates indicated.
5 B 10
Design
5
5 C 11
Market ID
6
0 A 5
Contract
5
D
Survey
13
Figure 9.17 Partial Activity Network with
Merge Point at Activity D
314 Chapter 9 • Project Scheduling
the Backward Pass
We now are able to determine the overall length of the project, as well as each activity’s early start
and early finish times. When we take the next step of performing the backward pass through the
network, we will be able to ascertain the project’s critical path and the total float time of each proj-
ect activity. The backward pass is an iterative process, just as the forward pass is. The difference
here is that we begin at the end of the network, with the final node. The goal of the backward pass
is to determine each activity’s late start (LS) and late finish (LF) times. LS and LF are determined
through a subtractive methodology.
In Figure 9.19, we begin the backward pass with the node representing activity H
(presentation). The first value we can fill out in the node is the late finish (LF) value for the project.
This value is the same as the early finish (30 weeks). For the final node in a project network, the
EF = LF. Once we have identified the LF of 30 weeks, the LS for activity H is the difference
between the LF and the activity’s duration; in this case, 30 – 2 = 28. The formula for determining
LS is LF – Dur = LS. Thus, the LS for activity H is 28 and the LF is 30. These values are shown
in the bottom of the node, with the LS in the bottom left corner and the LF in the bottom right
corner. In order to determine the LF for the next three activities that are linked to activity H
(activities E, F, and G), we carry the LS value of activity H backward to these nodes. Therefore,
activities E, F, and G will each have 28 as their LF value.
0 A 5
Contract
0 5 5
5 B 10
Design
6 5 11
5 C 11
Market ID
5 6 11
11 D 24
Survey
11 13 24
11 G 20
Demographics
19 9 28
24 F 28
Analysis
24 4 28
10 E 16
Develop
presentation
22 6 28
28 H 30
Presentation
28 2 30
Figure 9.19 Activity Network with Backward Pass
5 B 10
Design
5
5 C 11
Market ID
6
11 G 20
Demographics
9
10 E 16
Develop
presentation
6
0 A 5
Contract
5
11 D 24
Survey
13
24 F 28
Analysis
4
28 H 30
Presentation
2
Figure 9.18 Activity Network with forward Pass
9.5 Constructing the Critical Path 315
Again, we subtract the durations from the LF values of each of the activities. The process
continues to proceed backward, from right to left, through the network. However, just as in the
forward pass we came upon a problem at merge points (activities D and H), we find ourselves in
similar difficulty at the burst points—activities A, B, and C. At these three nodes, more than one
preceding activity arrow converges, suggesting that there are multiple options for choosing the cor-
rect LF value. Burst activities, as we defined them, are those with two or more immediate successor
activities. With activity B, both activities D and E are successors. For activity D, the LS = 11, and for
activity E, the LS = 22. Which LS value should be selected as the LF for these burst activities?
To answer this question, we need to review the rules for the backward pass.
1. Subtract activity times along each path as you move through the network (LF – Dur = LS).
2. Carry back the LS time to the activity nodes immediately preceding the successor node. That
LS becomes the LF of the next node, unless the preceding node is a burst point.
3. In the case of a burst point, the smallest succeeding LS becomes the LF for that node.
The correct choice for LF for activity B is 11 weeks, based on activity D. The correct choice for activ-
ity C, either 11 or 19 weeks from the network diagram, is 11 weeks. Finally, the LS for activity B is
6 weeks and it is 5 weeks for activity C; therefore, the LF for activity A is 5 weeks. Once we have
labeled each node with its LS and LF values, the backward pass through the network is completed.
We can now determine the float, or slack, for each activity as well as the overall critical
path. Again, float informs us of the amount of time an activity can be delayed and still not delay
the overall project. Activity float is found through using one of two equations: LF – EF = Float or
LS – ES = Float. Consider activity E with 12 weeks of float. Assume the worst-case scenario, in which
the activity is unexpectedly delayed 10 weeks, starting on week 20 instead of the planned week 10.
What are the implications of this delay on the overall project? None. With 12 weeks of float for activ-
ity E, a delay of 10 weeks will not affect the overall length of the project or delay its completion. What
would happen if the activity were delayed by 14 weeks? The ES, instead of 10, is now 24. Adding
activity duration (6 weeks), the new EF is 30. Take a look at the network shown in Figure 9.20 to see
the impact of this delay. Because activity H is a merge point for activities E, F, and G, the largest EF
value is the ES for the final node. The new largest EF is 30 in activity E. Therefore, the new node EF =
ES + Dur, or 30 + 2 = 32. The effect of overusing available slack delays the project by 2 weeks.
One other important point to remember about activity float is that it is determined as a result
of performing the forward and backward passes through the network. Until we have done the calcu-
lations for ES, EF, LS, and LF, we cannot be certain which activities have float associated with
them and which do not. Using this information to determine the project critical path suggests
that the critical path is the network path with no activity slack associated with it. In our project, we can
0 A 5
0 Contract
0 5 5
5 B 10
1 Design
6 5 11
5 C 11
0 Market ID
5 6 11
11 D 24
0 Survey
11 13 24
11 G 20
8 Demographics
19 9 28
ES ID EF
Slack Task Name
LS Duration LF
24 F 28
0 Analysis
24 4 28
10 E 16
12 Develop presentation
22 6 28
28 H 30
0 Presentation
28 2 30
Figure 9.20 Project Network with Activity Slack and critical Path
Note: Critical path is indicated with bold arrows.
316 Chapter 9 • Project Scheduling
determine the critical path by linking the nodes with no float: A – C – D – F – H. The only time
this rule is violated is when an arbitrary value has been used for the project LF; for example,
suppose that a critical deadline date is inserted at the end of the network as the LF. Regardless
of how many days the project is calculated to take based on the forward pass calculation, if a
deadline is substituted for the latest possible date to complete the project (LF), there is going
to be some negative float associated with the project. Negative float refers to delays in which we
have used up all available safety, or float, and are now facing project delays. For example, if top
management unilaterally sets a date that allows the project only 28 weeks to the LF, the project
critical path will start with 2 weeks of negative slack. It is often better to resolve problems of
imposed completion dates by paring down activity estimates rather than beginning the project
with some stored negative float.
We can also determine path float; that is, the linkage of each node within a noncritical path. The
path A – B – E – H has a total of 13 weeks of float; however, it may be impossible to “borrow” against
the float of later activities if the result is to conflict with the critical path. Although there are 13 weeks
of float for the path, activity B cannot consume more than one week of the total float before becoming
part of the critical path. This is because B is a predecessor activity to activity D, which is on the critical
path. Using more than one week of extra float time to complete activity B will result in delaying the
ES for critical activity D and thereby lengthening the project’s critical path.
Probability of Project completion
Calculating the critical path in our example shows us that the expected completion of Project
Delta was 30 weeks, but remember that our original time estimates for each activity were prob-
abilistic, based on the beta distribution. This implies that there is the potential for variance (per-
haps serious variance) in the overall estimate for project duration. Variations in activities on the
critical path can affect the overall project completion time and possibly delay it significantly. As
a result, it is important to consider the manner in which we calculate and make use of activity
duration variances. Recall that the formula for variance in activity durations is:
s2 = [(b – a)/6]2, where b is the most pessimistic time and a is the most optimistic
Determining the individual activity variances is straightforward. As an example, let’s refer back to
Table 9.3 to find the variance for activity A (contract signing). Since we know the most optimistic
and pessimistic times for this task (3 and 11 days, respectively), we calculate its variance as:
Activity A : [(11 – 3)/6]2 = (8/6)2 = 64/36, or 1.78 weeks
This information is important for project managers because we want to know not just likely times
for activities but also how much confidence we can place in these estimates; thus, for our project’s
activity A, we can see that although it is most likely that it will finish in 5 weeks, there is a consider-
able amount of variance in that estimate (nearly 2 weeks). It is also possible to use this information
to calculate the expected variance and standard deviation for all activities in our Project Delta, as
Table 9.5 demonstrates.
taBle 9.5 expected Activity Durations and Variances for Project Delta
Activity optimistic (a) Most likely (m) Pessimistic (b) expected time Variance [(b – a)/6]2
A 3 4 11 5 [(11 – 3)/6]2 = 64/36 = 1.78
B 2 5 8 5 [(8 – 2)/6]2 = 36/36 = 1.00
C 3 6 9 6 [(9 – 3)/6]2 = 36/36 = 1.00
D 8 12 20 12.7 [(20 – 8)/6]2 = 144/36 = 4.00
E 3 5 12 5.8 [(12 – 3)/6]2 = 81/36 = 2.25
F 2 4 7 4.2 [(7 – 2)/6]2 = 25/36 = 0.69
G 6 9 14 9.3 [(14 – 6)/6]2 = 64/36 = 1.78
H 1 2 4 2.2 [(4 – 1)/6]2 = 9/36 = 0.25
9.5 Constructing the Critical Path 317
We can use the information in Table 9.5 to calculate the overall project variance as well.
Project variance is found by summing the variances of all critical activities and can be represented
as the following equation:
sp
2 = Project variance = a (variances of activities on critical path)
Thus, using our example, we can calculate the overall project variance and standard deviation for
Project Delta. Recall that the critical activities for this project were A – C – D – F – H. For the overall
project variance, the calculation is:
Project variance (sp
2) = 1.78 + 1.00 + 4.00 + .69 + .25 = 7.72
The project standard deviation (sp) is found as: 1Project variance = 17.72 = 2.78 weeks.
This project variance information is useful for assessing the probability of on-time project com-
pletion because PERT estimates make two more helpful assumptions: (1) Total project completion
times use a normal probability distribution, and (2) the activity times are statistically independent.
As a result, the normal bell curve shown in Figure 9.21 can be used to represent project completion
dates. Normal distribution here implies that there is 50% likelihood that Project Delta’s completion
time will be less than 30 weeks and a 50% chance that it will be greater than 30 weeks. With this
information we are able to determine the probability that our project will be finished on or before a
particular time.
Suppose, for example, that it is critical to our company that Project Delta finishes before 32
weeks. Although the schedule calls for a 30-week completion date, remember that our estimates are
based on probabilities. Therefore, if we wanted to determine the probability that the project would
finish no later than 32 weeks, we would need to determine the appropriate area under the normal
curve from Figure 9.22 that corresponds to a completion date on or before week 32. We can use a stan-
dard normal equation to determine this probability. The standard normal equation is represented as:
Z = (Due date – Expected date of complection)/sp
= (32 – 30)/2.78, or 0.72
where Z is the number of standard deviations the target date (32 weeks) lies from the mean or
expected date to completion (30 weeks). We can now use a normal distribution table (see Appendix
A) to determine that a Z value of 0.72 indicates a probability of 0.7642. Thus, there is a 76.42%
chance that Project Delta will finish on or before the critical date of 32 weeks. Visually, this calcula-
tion would resemble the picture in Figure 9.22, showing the additional two weeks represented as
part of the shaded normal curve to the left of the mean.
Remember from this example that the 32-week deadline is critical for the company to meet.
How confident would we be in working on this project if the likelihood of meeting that deadline
was only 76.42%? Odds are that the project team (and the organization) might find a 76% chance
30 Weeks
Project Standard Deviation = 2.78
Figure 9.21 Probability Distribution for Project Delta completion times
318 Chapter 9 • Project Scheduling
of success in meeting the deadline unacceptable, which naturally leads to the question: How much
time will the project team need in order to guarantee delivery with a high degree of confidence?
The first question that needs to be answered is: What is the minimal acceptable likelihood
percentage that an organization needs when making this decision? For example, there is a big dif-
ference is requiring a 99% confidence of completion versus a 90% likelihood. Let’s suppose that the
organization developing Project Delta requires a 95% likelihood of on-time delivery. Under this
circumstance, how much additional time should the project require to ensure a 95% likelihood of
on-time completion?
We are able to determine this value, again, with the aid of Z-score normal distribution tables.
The tables indicate that for 95% probability, a Z-score of 1.65 most closely represents this likeli-
hood. We can rewrite the previous standard normal equation and solve for the due date as follows:
Due Date = Expected date of completion + (Z * sp)
= 30 weeks + (1.65) (2.78)
= 34.59 weeks
If the project team can negotiate for an additional 4.59 weeks, they have a very strong (95%)
likelihood of ensuring that Project Delta will be completed on time.
It is important to consider one final point regarding estimating probabilities of project
completion. So far, we have only addressed activities on the critical path because, logically,
they define the overall length of a project. However, there are some circumstances where it
may also be necessary to consider noncritical activities and their effect on overall project dura-
tion, especially if those activities have little individual slack time and a high variance. For
example, in our Project Delta example, activity B has only 1 week of slack and there is suffi-
cient variance of 1.00. In fact, the pessimistic time for activity B is 8 weeks, which would cause
the project to miss its target deadline of 30 weeks, even though activity B is not on the critical
path. For this reason, it may be necessary to calculate the individual task variances not only
for critical activities, but for all project activities, especially those with higher variances. We
can then calculate the likelihood of meeting our projected completion dates for all paths, both
critical and noncritical.
laddering activities
The typical PERT/CPM network operates on the assumption that a preceding activity must be
completely finished before the start of the successor task. In many circumstances, however, it may
be possible to begin a portion of one activity while work continues on other elements of the task,
particularly in lengthy or complex projects. Consider a software development project for a new
order-entry system. One task in the overall project network could be to create the Visual Basic
code composed of several subroutines to cover the systems of multiple departments. A standard
PERT chart would diagram the network logic from coding through debugging as a straight-
forward logical sequence in which system design precedes coding, which precedes debugging
0.72 Standard Deviations
Time
Probability
(T ≤ 32 weeks is 76.42%)
30
Weeks
32
Weeks
Figure 9.22 Probability of completing Project Delta by Week 32
9.5 Constructing the Critical Path 319
(see Figure 9.23). Under severe time pressure to use our resources efficiently, however, we might
want to find a method for streamlining, or making the development sequence more efficient.
laddering is a technique that allows us to redraw the activity network to more closely
sequence project subtasks to make the overall network sequence more efficient. Figure 9.24 shows
our software development path with laddering. Note that for simplicity’s sake, we have divided
the steps of design, coding, and debugging into three subtasks. The number of ladders constructed
is typically a function of the number of identified break points of logical substeps available. If
we assume that the software design and coding project has three significant subroutines, we can
create a laddering effect that allows the project team to first complete design phase 1, then move to
design phase 2 while coding of design phase 1 has already started. As we move through the lad-
dering process, by the time our designers are ready to initiate design phase 3 in the project, the cod-
ers have started on the second subroutine and the debugging staff are ready to begin debugging
subroutine 1. The overall effect of laddering activities is to streamline the linkage and sequencing
between activities and keep our project resources fully employed.
hammock activities
hammock activities can be used as summaries for some subsets of the activities identified
in the overall project network. If the firm needed an outside consultant to handle the cod-
ing activities for a software upgrade to its inventory system, a hammock activity within the
network can be used to summarize the tasks, duration, and cost. The hammock is so named
because it hangs below the network path for consultant tasks and serves as an aggregation of
task durations for the activities it “rolls up.” Duration for a hammock is found by first identify-
ing all tasks to be included and then subtracting the ES of the first task from the EF of the latest
successor. In Figure 9.25, we can see that the hammock’s total duration is 26 days, representing
a combination of activities D, E, and F with their individual activity durations of 6, 14, and 6
days respectively.
Hammocks allow the project team to better disaggregate the overall project network into
logical summaries. This process is particularly helpful when the project network is extremely
complex or consists of a large number of individual activities. It is also useful when the project
budget is actually shared among a number of cost centers or departments. Hammocking the
activities that are assignable to each cost center makes the job of cost accounting for the project
much easier.
A1
Design
A3
Design
B1
Coding
A2
Design
B2
Coding
C1
Debugging
B3
Coding
C2
Debugging
C3
Debugging
Figure 9.24 AoN Network with laddering effect
B
Coding
A
System Design
C
Debugging
Figure 9.23 AoN Network for Programming Sequence Without laddering
320 Chapter 9 • Project Scheduling
options for reducing the critical Path
It is common, when constructing an activity network and discovering the expected duration
of the project, to look for ways in which the project can be shortened. To do this, start with
an open mind to critically evaluate how activity durations were estimated, how the network
was originally constructed, and to recognize any assumptions that guided the creation of the
network. Reducing the critical path may require several initiatives or steps, but they need to
be internally consistent (e.g., their combined effects do not cancel each other out) and logically
prioritized.
Table 9.6 shows some of the more common methods for reducing the critical path for a proj-
ect. The options include not only those aimed at adjusting the overall project network, but also
options that address the individual tasks in the network themselves. Among the alternatives for
shrinking the critical path are:9
1. Eliminate tasks on the critical path. It may be the case that some of the tasks that are found
on the critical path can be eliminated if they are not necessary or can be moved to noncritical
paths with extra slack that will accommodate them.
2. Replan serial paths to be in parallel. In some circumstances, a project may be exces-
sively loaded with serial activities that could just as easily be moved to parallel or concur-
rent paths in the network. Group brainstorming can help determine alternative methods
for pulling serial activities off the critical path and moving them to concurrent, noncriti-
cal paths.
3. Overlap sequential tasks. Laddering is a good method for overlapping sequential activities.
Rather than developing a long string of serial tasks, laddering identifies subpoints within the
activities where project team members can begin to perform concurrent operations.
0 A 5
0
0 5 5
5 B 9
13
18 4 22
5 C 12
9
14 7 21
5 D 11
0 User needs
5 6 11
25 F 31
0 Debugging
25 6 31
11 E 25
0 Coding
11 14 25
12 G 21
10
22 9 31
5 A 31
Hammock
26
12 H 22
9
21 10 31
31 I 35
0
31 4 35
Figure 9.25 example of a Hammock Activity
taBle 9.6 Steps to reduce the critical Path
1. Eliminate tasks on the critical path.
2. Replan serial paths to be in parallel.
3. Overlap sequential tasks.
4. Shorten the duration of critical path tasks.
5. Shorten early tasks.
6. Shorten longest tasks.
7. Shorten easiest tasks.
8. Shorten tasks that cost the least to speed up.
9.5 Constructing the Critical Path 321
4. Shorten the duration of critical path tasks. This option must be explored carefully. The underly-
ing issue here must be to first examine the assumptions that guided the original activity duration
estimates for the project. Was beta distribution used reasonably? Were the duration estimates for
tasks excessively padded by the project manager or team? Depending upon the answers to these
questions, it may indeed be possible to shorten the duration of critical path activities. Sometimes,
however, the options of simply shrinking duration estimates by some set amount (e.g., 10% off all
duration estimates) all but guarantees that the project will come in behind schedule.
5. Shorten early tasks. Early tasks in a project are sometimes shortened before later tasks
because usually they are more precise than later ones. There is greater uncertainty in a schedule
for activities set to occur at some point in the future. Many project managers see that there is
likely to be little risk in shortening early tasks, because any lags in the schedule can be made up
downstream. Again, however, any time we purposely shorten project activities, we need to be
aware of possible ripple effects through the network as these adjustments are felt later.
6. Shorten longest tasks. The argument for shortening long tasks has to do with relative
shrinkage; it is less likely that shortening longer activities will lead to any schedule problems
for the overall project network because longer duration tasks can more easily absorb cuts
without having an impact on the overall project. For example, shortening a task with 5 days’
duration by 1 day represents a 20% cut in the duration estimate. On the other hand, shorten-
ing a task of 20 days’ duration by 1 day results in only a 5% impact on that activity.
7. Shorten easiest tasks. The logic here is that the learning curve for a project activity can
make it easier to adjust an activity’s duration downward. From a cost and budgeting per-
spective, we saw in Chapter 8 that learning curve methodology does result in lower costs for
project activities. Duration estimates for easiest tasks can be overly inflated and can reason-
ably be lowered without having an adverse impact on the project team’s ability to accomplish
the task in the shortened time span.
8. Shorten tasks that cost the least to speed up. “Speeding up” tasks in a project is another
way of saying the activities are being crashed. We will cover the process of crashing project
activities in more detail in Chapter 10. The option of crashing project activities is one that
must be carefully considered against the time/cost trade-off so that the least expensive
activities are speeded up.
This chapter has introduced the essential elements in beginning a project schedule, including the
logic behind constructing a project network, calculating activity duration estimates, and convert-
ing this information into a critical path diagram. These three activities form the core of project
scheduling and give us the impetus to begin to consider some of the additional, advanced topics
that are important if we are to become expert in the process of project scheduling. These topics will
be covered in subsequent chapters.
Box 9.1
Project Management research in Brief
Software Development Delays and Solutions
One of the most common problems in IT project management involves the schedule delays found in software
development projects. Time and cost overruns in excess of 100% on initial schedules are the industry aver-
age. A study by Callahan and Moretton sought to examine how these delays could be reduced. Analyzing the
results of 44 companies involved in software development projects, they found that the level of experience
firms had with IT project management had a significant impact on the speed with which they brought new
products to market. When companies had little experience, the most important action they could take to
speed up development times was to interact with customer groups and their own sales organizations early
and often throughout the development cycle. The more information they were able to collect on the needs
of the customers, the faster they could develop their software products. Also, frequent testing and multiple
design iterations were found to speed up the delivery time.
For firms with strong experience in developing software projects, the most important determinants of
shorter development cycles were found to be developing relationships with external suppliers, particularly
during the product requirements, system design, and beta testing phases of the project. Supplier involvement
in all phases of the development cycle proved to be key to maintaining aggressive development schedules.10
322 Chapter 9 • Project Scheduling
Summary
1. Understand and apply key scheduling terminology.
Key processes in project scheduling include how
activity networks are constructed, task durations are
estimated, the critical path and activity float are cal-
culated, and lag relationships are built into activities.
2. Apply the logic used to create activity networks,
including predecessor and successor tasks. The
chapter discussed the manner in which network
logic is employed. Following the creation of project
tasks, through use of Work Breakdown Structures,
it is necessary to apply logic to these tasks in order
to identify those activities that are considered pre-
decessors (coming earlier in the network) and those
that are successors (coming later, or after the prede-
cessor activities have been completed).
3. develop an activity network using Activity-on-
node (Aon) techniques. The chapter examined
the process for creating an AON network through
identification of predecessor relationships among
project activities. Once these relationships are known,
it is possible to begin linking the activities together to
create the project network. Activity-on-Node (AON)
applies the logic of assigning all tasks as specific
“nodes” in the network and linking them with arrows
to identify the predecessor-successor relationships.
4. Perform activity duration estimation based on
the use of probabilistic estimating techniques.
Activity duration estimation is accomplished through
first identifying the various tasks in a project and then
applying a method for estimating the duration of each
of these activities. Among the methods that can aid
us in estimating activity durations are (1) noncom-
putational techniques, for example, examining past
records for similar tasks that were performed at other
times in the organization and obtaining expert opin-
ion; (2) deriving duration estimates through compu-
tational, or mathematical, analysis; and (3) using the
Program Evaluation and Review Technique (PERT),
which uses probabilities to estimate a task’s duration.
In applying PERT, the formula for employing a beta
probability distribution is to first determine optimis-
tic, most likely, and pessimistic estimates for the dura-
tion of each activity and then assign them in a ratio of:
[(1 * optimistic) + (4 * most likely)
+ (1 * pessimistic)]/6
5. construct the critical path for a project sched-
ule network using forward and backward
passes. Conducting the forward pass allows us
to determine the overall expected duration for the
project by using the decision rules, adding early
start plus activity duration to determine early fin-
ish, and then applying this early finish value to the
next node in the network, where it becomes that
activity’s early start. We then use our decision rules
for the backward pass to identify all activities and
paths with float and the project’s critical path (the
project path with no float time).
6. identify activity float and the manner in which it is
determined. Once the network linking all project
activities has been constructed, it is possible to begin
determining the estimated duration of each activity.
Duration estimation is most often performed using
probabilistic estimates based on Program Evaluation
and Review Technique (PERT) processes, in which
optimistic, most likely, and pessimistic duration esti-
mates for each activity are collected. Using a standard
formula based on the statistically derived beta dis-
tribution, project activity durations for each task are
determined and used to label the activity nodes in the
network.
Using activity durations and the network, we can
identify the individual paths through the network,
their lengths, and the critical path. The project’s criti-
cal path is defined as the activities of a project which,
when linked, define its shortest total length. The criti-
cal path identifies how quickly we can complete the
project. All other paths contain activities that have,
to some degree, float or slack time associated with
them. The identification of the critical path and activ-
ity float times is done through using a forward and
backward pass process in which each activity’s early
start (ES), early finish (EF), late start (LS), and late
finish (LF) times are calculated.
7. calculate the probability of a project finishing on
time under Pert estimates. Because PERT estimates
are based on a range of estimated times (optimistic,
most likely, pessimistic), there will be some variance
associated with these values and expected task dura-
tion. Determining the variance of all activities on the
critical (and noncritical) paths allows us to more accu-
rately forecast the probability of completing the project
on or before the expected finish date. We can also use
the standard normal equation (and associated Z score)
to forecast the additional time needed to complete a
project under different levels of overall confidence.
8. Understand the steps that can be employed to reduce
the critical path. Project duration can be reduced
through a number of different means. Among the
options project managers have to shorten the project
critical path are the following: (1) Eliminate tasks on
the critical path, (2) replan serial paths to be in paral-
lel, (3) overlap sequential tasks, (4) shorten the dura-
tion of critical path tasks, (5) shorten early tasks, (6)
shorten longest tasks, (7) shorten easiest tasks, and
(8) shorten tasks that cost the least to speed up. The
efficacy of applying one of these approaches over
another will vary depending on a number of issues
related both to the project constraints, client expecta-
tions, and the project manager’s own organization.
Key Terms
Activity (also called task)
(p. 299)
Activity-on-Arrow (AOA)
(p. 302)
Activity-on-Node (AON)
(p. 302)
Arrow (p. 302)
Backward pass (p. 301)
Beta distribution (p. 308)
Burst activity (p. 301)
Concurrent activities (p. 304)
Confidence interval (p. 310)
Crashing (p. 302)
Critical path (p. 301)
Critical Path Method
(CPM) (p. 301)
Duration estimation
(p. 307)
Early start (ES) date
(p. 301)
Event (p. 301)
Float (also called slack)
(p. 301)
Forward pass (p. 301)
Hammock activities
(p. 319)
Laddering activities
(p. 319)
Late start (LS) date (p. 301)
Linked activity (p. 299)
Merge activity (p. 301)
Network diagram
(p. 299)
Node (p. 301)
Path (p. 301)
Predecessors (p. 301)
Program Evaluation and
Review Technique
(PERT) (p. 302)
Project network diagram
(PND) (p. 301)
Project scheduling (p. 299)
Resource-limited
schedule (p. 302)
Scope (p. 301)
Serial activities (p. 303)
Slack (also called float)
(p. 315)
Successors (p. 301)
Task (see activity)
(p. 299)
Variance (activity
and project) (p. 309)
Work Breakdown
Structure (WBS) (p. 301)
Work package (p. 301)
Solved Problems
9.1 creAtiNg AN ActiVitY NetWorK
Assume the following information:
Activity Predecessors
A —
B A
C B
D B
E C, D
F C
G E, F
H D, G
Create an activity network that shows the sequential logic be-
tween the project tasks. Can you identify merge activities? Burst
activities?
SoluTion
This activity network can be solved as shown in Figure 9.26. The
merge points in the network are activities E, G, and H. The burst
activities are activities B, C, and D.
9.2 cAlcUlAtiNg ActiVitY DUrAtioNS
AND VAriANceS
Assume that you have the following pessimistic, likely, and op-
timistic estimates for how long activities are estimated to take.
Using the beta distribution, estimate the activity durations and
variances for each task.
Duration estimates
Activity Pessimistic likely optimistic
A 7 5 2
B 5 3 2
C 14 8 6
D 20 10 6
E 8 3 3
F 10 5 3
G 12 6 4
H 16 6 5
SoluTion
Remember that the beta distribution calculates expected activity
duration (TE) as:
TE = (a + 4m + b)/6
Where
TE = estimated time for activity
a = most optimistic time to complete the activity
m = most likely time to complete the activity,
the mode of the distribution
b = most pessimistic time to complete the activity
The formula for activity variance is:
s2 = [(b – a)/6]2
A B
C
D
E
F
G
H
Figure 9.26 Solution to Solved Problem
Solved Problems 323
324 Chapter 9 • Project Scheduling
Therefore, in calculating expected activity duration (TE) and variance for each task we find the value as shown in the table below.
Duration estimates
Activity Pessimistic likely optimistic te (Beta) Variance
A 7 5 2 4.8 [(7 – 2)/6]2 = 25/36 = 0.69
B 5 3 2 3.2 [(5 – 2)/6]2 = 9/36 = 0.25
C 14 8 6 8.7 [(14 – 6)/6]2 = 64/36 = 1.78
D 20 10 6 11.0 [(20 – 6)/6]2 = 196/36 = 5.44
E 8 3 3 3.8 [(8 – 3)/6]2 = 25/36 = 0.69
F 10 5 3 5.5 [(10 – 3)/6]2 = 49/36 = 1.36
G 12 6 4 6.7 [(12 – 4)/6]2 = 64/36 = 1.78
H 16 6 5 7.5 [(16 – 5)/6]2 = 121/36 = 3.36
9.3 DeterMiNiNg criticAl PAtH
AND ActiVitY SlAcK
Assume we have a set of activities, their expected durations,
and immediate predecessors. Construct an activity network;
identify the critical path and all activity slack times.
Activity Predecessors expected Duration
A — 6
B A 7
C A 5
D B 3
E C 4
F C 5
G D, E 8
H F, G 3
SoluTion
We follow an iterative process of creating the network and
labeling the nodes as completely as possible. Then, following
Figure 9.27, we first conduct a forward pass through the net-
work to determine that the expected duration of the project is
27 days. Using a backward pass, we can determine the individ-
ual activity slack times as well as the critical path. The critical
path for this example is as follows: A – B – D – G – H. Activity
slack times are:
C = 1 day
E = 1 day
F = 8 days
16 G 24
16 8 24
6 B 13
6 7 13
13 D 16
13 3 16
0 A 6
60 6
11 E 15
12 4 16
24 H 27
24 3 27
11 F 16
19 5 24
6 C 11
7 5 12
Figure 9.27 Solution to Solved Problem 9.3
Discussion Questions
9.1 Define the following terms:
a. Path
b. Activity
c. Early start
d. Early finish
e. Late start
f. Late finish
g. Forward pass
h. Backward pass
i. Node
j. AON
k. Float or Slack
l. Critical path
m. PERT
9.2 Distinguish between serial activities and concurrent activ-
ities. Why do we seek to use concurrent activities as a way
to shorten the project’s length?
9.3 List three methods for deriving duration estimates for
project activities. What are the strengths and weaknesses
associated with each method?
9.4 In your opinion, what are the chief benefits and draw-
backs of using beta distribution calculations (based on
PERT techniques) to derive activity duration estimates?
9.5 “The shortest total length of a project is determined by the
longest path through the network.” Explain the concept
behind this statement. Why does the longest path deter-
mine the shortest project length?
9.6 The float associated with each project task can only be de-
rived following the completion of the forward and back-
ward passes. Explain why this is true.
Problems
9.1 Consider a project, such as moving to a new neighborhood,
completing a long-term school assignment, or even clean-
ing your bedroom. Develop a set of activities necessary to
accomplish that project and then order them in a precedence
manner to create sequential logic. Explain and defend the
number of steps you identified and the order in which you
placed those steps for best completion of the project.
9.2 What is the time estimate of an activity in which the opti-
mistic estimate is 2 days, pessimistic is 12 days, and most
likely is 4 days? Show your work.
9.3 What is the time estimate of an activity in which the op-
timistic time is 5 days, the likely time is 8 days, and the
pessimistic time is 14 days? Show your work.
9.4 Using the following information, develop an activity net-
work for Project Alpha.
Activity Preceding Activities
A —
B A
C A
D B, C
E B
F D
G C
H E, F, G
9.5 Construct a network activity diagram based on the follow-
ing information:
Activity Preceding Activities
A —
B —
C A
D B, C
E B
F C, D
G E
H F
I G, H
Problems 325
326 Chapter 9 • Project Scheduling
9.6 Your university is holding a fund-raiser and will be hir-
ing a band to entertain spectators. You have been selected
to serve as the event project manager and have created
a Work Breakdown Structure and duration estimates for
the activities involved in site preparation for the event.
Construct a network activity diagram based on the follow-
ing information:
Activity Description Predecessors
Duration
(Days)
A Site selection None 4
B Buy concessions A 4
C Rent facilities A 2
D Build stands A 5
E Generator & wiring
installation C 2
F Security B 4
G Lighting installation E 2
H Sound system
installation E, F 2
I Stage construction D 3
J Tear down G, H, I 4
a. Conduct both a forward and backward pass using
AON notation. What is the estimated total duration for
the project?
b. Identify all paths through the network. Which is the
critical path?
c. Which activities have slack time?
d. Identify all burst activities and merge activities.
9.7 Consider the following project tasks and their identi-
fied best, likely, and worst-case estimates of task duration.
Assume the organization you work for computes TE based
on the standard beta distribution formula. Calculate the TE
for each of the following tasks (round to the nearest integer):
Activity Best likely Worst te
A 5 5 20
B 3 5 9
C 7 21 26
D 4 4 4
E 10 20 44
F 3 15 15
G 6 9 11
H 32 44 75
I 12 17 31
J 2 8 10
9.8 Consider the following project tasks and their identi-
fied best, likely, and worst-case estimates of task duration.
Assume the organization you work for computes TE based
on the standard beta distribution formula. Calculate the TE
for each of the following tasks (round to the nearest integer):
Activity Best likely Worst te
A 4 5 10
B 4 6 9
C 2 5 8
D 5 8 10
E 12 16 20
F 6 10 12
G 5 9 14
H 14 16 22
I 10 14 20
J 1 2 5
9.9 Using the information from the following table, create an
AON network activity diagram.
a. Calculate each activity TE (rounding to the nearest
integer); the total duration of the project; its early
start, early finish, late start, and late finish times; and
the slack for each activity. Finally, show the project’s
critical path.
b. Now, assume that activity E has taken 10 days past its
anticipated duration to complete. What happens to
the project’s schedule? Has the duration changed? Is
there a new critical path? Show your conclusions.
Activity
Preceding
Activities Best likely Worst
A — 12 15 25
B A 4 6 11
C — 12 12 30
D B, C 8 15 20
E A 7 12 15
F E 9 9 42
G D, E 13 17 19
H F 5 10 15
I G 11 13 20
J G, H 2 3 6
K J, I 8 12 22
9.10 An advertising project manager has developed a program
for a new advertising campaign. In addition, the manager
has gathered the time information for each activity, as
shown in the following table.
time estimates (week)
Activity optimistic
Most
likely Pessimistic
immediate
Predecessor(s)
A 1 4 7 —
B 2 6 10 —
C 3 3 9 B
D 6 13 14 A
E 4 6 14 A, C
F 6 8 16 B
G 2 5 8 D, E, F
a. Calculate the expected activity times (round to nearest
integer).
b. Calculate the activity slacks. What is the total proj-
ect length? Make sure you fully label all nodes in the
network.
c. Identify the critical path. What are the alternative paths
and how much slack time is associated with each non-
critical path?
d. Identify the burst activities and the merge activities.
e. Given the activity variances, what is the likelihood of
the project finishing on week 24?
f. Suppose you wanted to have a 99% confidence in the
project finishing on time. How many additional weeks
would your project team need to negotiate for in order
to gain this 99% likelihood?
9.11 Consider a project with the following information:
Activity Duration Predecessors
A 3 —
B 5 A
C 7 A
D 3 B, C
E 5 B
F 4 D
G 2 C
H 5 E, F, G
Activity Duration eS ef lS lf Slack
A 3 0 3 0 3 —
B 5 3 8 8 13 5
C 7 3 10 3 10 —
D 3 10 13 10 13 —
E 5 8 12 13 17 5
F 4 13 17 13 17 —
G 2 10 12 15 17 5
H 5 17 22 17 22 —
a. Construct the project activity network using AON
methodology and label each node.
b. Identify the critical path and other paths through the
network.
9.12 Use the following information to determine the probabil-
ity of this project finishing within 34 weeks of its sched-
uled completion date. Assume activities A – B – D – F – G
are the project’s critical path.
Activity optimistic likely Pessimistic
expected
time Variance
A 1 4 8
B 3 5 9
C 4 6 10
D 3 7 15
E 5 10 16
F 3 6 15
G 4 7 12
a. Calculate the expected durations for each activity.
b. Calculate individual task variances and overall project
variance.
c. The company must file a permit request with the local
government within a narrow time frame after the proj-
ect is expected to be completed. What is the likelihood
that the project will be finished by week 34?
d. If we wanted to be 99% confident of on-time delivery
of the project, how much additional time would we
need to add to the project’s expected delivery time?
internet Exercises
9.1 Go to www.gamedev.net/page/resources/_/business/
business-and-law/critical-path-analysis-and-scheduling-
for-game-r1440 and click around the site. There are several
articles on how to run your own computer game company.
Click on articles related to project management and critical
path scheduling for game design. Why is project schedul-
ing so important for developing computer games?
9.2 Go to http://management.about.com/lr/project_time_man-
agement/174690/1/ and consider several of the articles on
time management in projects. What sense do you get that
project scheduling is as much about personal time manage-
ment as it is about effective scheduling? Cite some articles or
information to support or disagree with this position.
9.3 Go to www.infogoal.com/pmc/pmcart.htm and examine
some of the archived articles and white papers on project
planning and scheduling. Select one article and synthesize
the main points. What are the messages the article is in-
tending to convey?
9.4 Key in “project scheduling” for a search of the Web.
Hundreds of thousands of hits are generated from such a
search. Examine a cross section of the hits. What are some
of the common themes found on these Web sites?
9.5 Key in a search with the prompt “projects in_____” in
which you select a country of interest (e.g., “projects
in Finland”). Many of the projects generated by such
a search are government-sponsored initiatives. Discuss
the role of proper scheduling and planning for one such
project you find on the Internet. Share your findings
and the reasons you believe planning was so critical to
the project.
Internet Exercises 327
328 Chapter 9 • Project Scheduling
MS Project Exercises
Please note that a step-by-step primer on using MS Project 2013
to create project schedules is available in Appendix B. For those
considering the following exercises, it would first be helpful to
refer to Appendix B for tips on getting started.
Exercise 9.1
Consider the following information that you have compiled re-
garding the steps needed to complete a project. You have identi-
fied all relevant steps and have made some determinations re-
garding predecessor/successor relationships. Using MS Project,
develop a simple network diagram for this project, showing the
links among the project activities.
Activity Predecessors
A – Survey site —
B – Install sewer and storm drainage A
C – Install gas and electric power lines A
D – Excavate site for spec house B, C
E – Pour foundation D
Exercise 9.2
Suppose we have a complete activity predecessor table (shown
here) and we wish to create a network diagram highlighting the
activity sequence for this project. Using MS Project, enter the
activities and their predecessors and create a complete activity
network diagram for this project.
Project—remodeling an aPPliance
Activity Predecessors
A Conduct competitive analysis —
B Review field sales reports —
C Conduct tech capabilities
assessment
—
D Develop focus group data A, B, C
E Conduct telephone surveys D
F Identify relevant specification
improvements E
G Interface with marketing staff F
H Develop engineering
specifications G
I Check and debug designs H
J Develop testing protocol G
K Identify critical performance
levels J
L Assess and modify product
components I, K
M Conduct capabilities
assessment L
N Identify selection criteria M
Activity Predecessors
O Develop RFQ M
P Develop production master
schedule N, O
Q Liaise with sales staff P
R Prepare product launch Q
Exercise 9.3
Suppose that we add some duration estimates to each of the ac-
tivities from exercise 9.1. A portion of the revised table is shown
here. Recreate the network diagram for this project and note
how MS Project uses nodes to identify activity durations, start
and finish dates, and predecessors. What is the critical path for
this network diagram? How do we know?
Activity Duration Predecessors
A – Survey site 5 days —
B – Install sewer and storm
drainage 9 days A
C – Install gas and electric
power lines 4 days A
D – Excavate site for spec
house 2 days B, C
E – Pour foundation 2 days D
PMP certificAtion sAMPle QUestions
1. A building contractor is working on a vacation home
and is looking over his schedule. He notices that the
schedule calls for the foundation footers to be poured
and then the rough floor decking to be installed. In this
plan, the decking would be an example of what type of
activity?
a. Successor task
b. Predecessor task
c. Lag activity
d. Crashed activity
2. Your project team is working on a brand-new project
with leading-edge technology. As a result, it is very
difficult for your team to give reasonable accurate es-
timates for how long their activities are going to take
in order to be completed. Because of this uncertainty, it
would be appropriate for you to require team members
to use what kind of logic when estimating durations?
a. Normal distribution
b. Beta distribution
c. Deterministic estimates
d. Experience
3. Suppose a project plan had three distinct paths through
the network. The first path consisted of activities A
(3 days), B (4 days), and C (2 days). The second path
consisted of activities D (4 days), E (5 days), and F
(5 days). The third path consisted of activities G (2 days),
H (3 days), and I (10 days). Which is the critical path?
a. ABC
b. DEF
c. GHI
d. ADG
4. Activity slack (also known as float) can be calculated
through which of the following means?
a. Early finish (EF) – late finish (LF)
b. Early finish (EF) – early start (ES)
c. Late finish (LF) – late start (LS)
d. Late start (LS) – early start (ES)
5. Your project team is working from a network diagram.
This type of tool will show the team:
a. Activity precedence
b. Duration estimates for the activities and overall
schedule
c. The dates activities are expected to begin
d. The network diagram will show none of the above
Answers:
1. a—The decking is a successor task, as it is scheduled to occur
after completion of the footers; 2. b—The beta distribution would
work best because it takes into consideration best-case, most like-
ly, and worst-case estimates; 3. c—GHI has a path duration of 15
days; 4. d—One way to calculate float is LS – ES, and the other
way is LF – EF; 5. a—The primary advantage of activity networks
is precedence ordering of all project activities.
notes
1. Williams, S., Amiel, G., and Scheck, J. (2014, March 31).
“After $50 billion and 20 years, energy giants can’t get oil
flowing,” Wall Street Journal, pp. A1, A10; “Kashagan off-
shore oil field project, Kazakhstan,” Offshore Technology.
Com. www.offshore-technology.com/projects/kashagan/
2. Project Management Institute. (2013). Project Management
Body of Knowledge, 4th ed. Newtown Square, PA: PMI.
3. There are a number of citations for the development of proj-
ect networks. Among the more important are Callahan, J.,
and Moretton, B. (2001). “Reducing software product devel-
opment time,” International Journal of Project Management,
19: 59–70; Elmaghraby, S. E., and Kamburowski, J. (1992).
“The analysis of activity networks under generalized
precedence relations,” Management Science, 38: 1245–63;
Kidd, J. B. (1991). “Do today’s projects need powerful net-
work planning tools?” International Journal of Production
Research, 29: 1969–78; Malcolm, D. G., Roseboom, J. H.,
Clark, C. E., and Fazar, W. (1959). “Application of a tech-
nique for research and development program evaluation,”
Operations Research, 7: 646–70; Smith-Daniels, D. E., and
Smith-Daniels, V. (1984). “Constrained resource project
scheduling,” Journal of Operations Management, 4: 369–87;
Badiru, A. B. (1993). “Activity-resource assignments using
critical resource diagramming,” Project Management Journal,
24(3): 15–22; Gong, D., and Hugsted, R. (1993). “Time-
uncertainty analysis in project networks with a new merge
event time-estimation technique,” International Journal of
Project Management, 11: 165–74.
4. The literature on PERT/CPM is voluminous. Among
the citations readers may find helpful are the follow-
ing: Gallagher, C. (1987). “A note on PERT assumptions,”
Management Science, 33: 1350; Gong, D., and Rowlings, J.
E. (1995). “Calculation of safe float use in risk-analysis-
oriented network scheduling,” International Journal of
Project Management, 13: 187–94; Hulett, D. (2000). “Project
schedule risk analysis: Monte Carlo simulation or PERT?”
PMNetwork, 14(2): 43–47; Kamburowski, J. (1997). “New
validations of PERT times,” Omega: International Journal of
Management Science, 25(3): 189–96; Keefer, D. L., and Verdini,
W. A. (1993). “Better estimation of PERT activity time param-
eters,” Management Science, 39: 1086–91; Mummolo, G.
(1994). “PERT-path network technique: A new approach to
project planning,” International Journal of Project Management,
12: 89–99; Mummolo, G. (1997). “Measuring uncertainty and
criticality in network planning by PERT-path technique,”
International Journal of Project Management, 15: 377–87; Moder,
J. J., and Phillips, C. R. (1970). Project Management with CPM
and PERT. New York: Van Nostrand Reinhold; Mongalo,
M. A., and Lee, J. (1990). “A comparative study of methods
for probabilistic project scheduling,” Computers in Industrial
Engineering, 19: 505–9; Wiest, J. D., and Levy, F. K. (1977).
A Management Guide to PERT/CPM, 2nd ed. Englewood
Cliffs, NJ: Prentice-Hall; Sasieni, M. W. (1986). “A note on
PERT times,” Management Science, 32: 942–44; Williams, T. M.
(1995). “What are PERT estimates?” Journal of the Operational
Research Society, 46(12): 1498–1504; Chae, K. C., and Kim, S.
(1990). “Estimating the mean and variance of PERT activity
time using likelihood-ratio of the mode and the mid-point,”
IIE Transactions, 3: 198–203.
5. Gray, C. F., and Larson, E. W. (2003). Project Management,
2nd ed. Burr Ridge, IL: McGraw-Hill.
6. Hill, J., Thomas, L. C., and Allen, D. C. (2000). “Experts’
estimates of task durations in software development proj-
ects,” International Journal of Project Management, 18: 13–21;
Campanis, N. A. (1997). “Delphi: Not a Greek oracle, but
close,” PMNetwork, 11(2): 33–36; DeYoung-Currey, J. (1998).
“Want better estimates? Let’s get to work,” PMNetwork,
12(12): 12–15; Lederer, A. L., and Prasad, J. (1995). “Causes
of inaccurate software-development cost estimates,”
Journal of Systems and Software, 31: 125–34; Libertore, M. J.
(2002). “Project schedule uncertainty analysis using fuzzy
logic,” Project Management Journal, 33(4): 15–22.
7. Meredith, J. R., and Mantel, Jr., S. J. (2003). Project
Management, 5th ed. New York: Wiley.
8. Project Management Institute. (2000). Project Management
Body of Knowledge. Newtown Square, PA: PMI.
9. DeMarco, T. (1982). Controlling Software Projects:
Management, Measurement and Estimate. New York:
Yourdon; Horner, R. M. W., and Talhouni, B. T. (n.d.).
Effects of Accelerated Working, Delays and Disruptions
on Labour Productivity. London: Chartered Institute
of Building; Emsley, M. (2000). Planning and Resource
Management—Module 3. Manchester, UK: UMIST.
10. Callahan, J., and Moretton, B. (2001). “Reducing software
product development time,” International Journal of Project
Management, 19: 59–70.
Notes 329
330
1 0
■ ■ ■
Project Scheduling
Lagging, Crashing, and Activity Networks
Chapter Outline
Project Profile
Enlarging the Panama Canal
introduction
10.1 lags in Precedence relationshiPs
Finish to Start
Finish to Finish
Start to Start
Start to Finish
10.2 gantt charts
Adding Resources to Gantt Charts
Incorporating Lags in Gantt Charts
Project Managers in Practice
Christopher Fultz, Rolls-Royce Plc.
10.3 crashing Projects
Options for Accelerating Projects
Crashing the Project: Budget Effects
10.4 activity-on-arrow networks
How Are They Different?
Dummy Activities
Forward and Backward Passes with AOA
Networks
AOA Versus AON
10.5 controversies in the use
of networks
Conclusions
Summary
Key Terms
Solved Problems
Discussion Questions
Problems
Case Study 10.1 Project Scheduling at Blanque
Cheque Construction (A)
Case Study 10.2 Project Scheduling at Blanque
Cheque Construction (B)
MS Project Exercises
PMP Certification Sample Questions
Integrated Project—Developing the Project Schedule
Notes
Chapter Objectives
After completing this chapter, you should be able to:
1. Apply lag relationships to project activities.
2. Construct and comprehend Gantt charts.
3. Recognize alternative means to accelerate projects, including their benefits and drawbacks.
4. Understand the trade-offs required in the decision to crash project activities.
5. Develop activity networks using Activity-on-Arrow techniques.
6. Understand the differences in AON and AOA and recognize the advantages and disadvantages
of each technique.
Project Profile 331
Project MAnAgeMent Body of Knowledge core
concePts covered in this chAPter
1. Plan Schedule Management (PMBoK sec. 6.1)
2. Define Activities (PMBoK sec. 6.2)
3. Sequence Activities (PMBoK sec. 6.3)
4. Precedence Diagramming Method (PMBoK sec. 6.3.2.1)
5. Leads and Lags (PMBoK sec. 6.3.2.3)
6. Estimate Activity Resources (PMBoK sec. 6.4)
7. Estimate Activity Durations (PMBoK sec. 6.5)
8. Develop Schedule (PMBoK sec. 6.6)
9. Schedule Compression (PMBoK sec. 6.6.2.7)
10. Control Schedule (PMBoK sec. 6.7)
Project Profile
enlarging the Panama canal
The Panama Canal has long been a marvel of civil engineering, opening originally in 1914 and now in continuous opera-
tion for 100 years. Some 40 ships a day make the 50-mile journey between the Atlantic and Pacific oceans, taking up
to 10 hours and costing each ship roughly between $200,000 and $400,000. It is estimated that more than 13,000 ships
annually transit oceans through the canals, providing the country of Panama with critical revenue that has been used to
modernize the country and improve the standard of living for its citizens. At the same time, it has become clear, since
the start of the new millennium, that the canal is in need of modernization for several reasons:
1. The construction of newer and larger cargo and container ships (so-called “post-Panamax” vessels) has put a strain
on the number of ships that the canal can accommodate on any given day, lengthening the transit times, while ships
can wait up to one week during heavy traffic periods for their turn through the locks.
2. Shipping firms, such as Maersk, have contracted with Asian firms to produce a new generation of massive container
ships that are cost effective to operate, but too large to use the current canal locks, which are 110 feet wide. These
shipping firms want to capitalize on the increased trade between China and the United States with these new, larger
container ships.
3. The increasing competition from the Suez Canal and the U.S. Intermodal system. As noted above, based on current
volume of trade, it has been estimated that as of 2011, approximately 37 percent of the capacity of the world’s
container ship fleet consists of vessels that do not fit through the current canal, and a great part of this fleet could
be used on routes that compete with Panama. In fact, Maersk recently announced that it would no longer use the
Panama Canal and shift its business to the Suez, due to its larger size.
4. The canal itself is old and in need of refurbishment and reconditioning. The wear and tear on the canal over the years
has led to the need for extended downtime to fix problems.
5. From an environmental perspective, the canal needs upgrading. Every time the current lock system opens and closes
its gates, more than 50,000 gallons of fresh water from Gatun Lake (the country’s primary source of drinking water)
are lost into the oceans. Further, the canal poses environmental and biohazards for indigenous Indian communities
living along the canal and Gatun Lake.
In a speech announcing the need to revitalize the canal, former Panamanian president Martin Torrijos said that the
canal, “is like our ‘petroleum.’ Just like the petroleum that has not been extracted is worthless and that in order to ex-
tract it you have to invest in infrastructure, the canal requires to expand its capacity to absorb the growing demand of
cargo and generate more wealth for Panamanians.”
In order to meet these needs, Panama created the Canal Expansion Project in early 2007. With a budget of $5.3
billion (including $2.3 billion in external funding), the canal expansion plan will:
• Build two new locks, one each on the Atlantic and Pacific sides. Each will have three chambers
with water-saving basins.
• Excavate new channels to the new locks.
• Widen and deepen existing channels.
• Raise the maximum operating level of Lake Gatun.
(continued)
332 Chapter 10 • Project Scheduling
Some of the important features of the project include work on:
locks—The canal today has two lanes, each with its own set of locks. The expansion project will add a third lane
through the construction of lock complexes at each end of the canal. The new lock chambers will be 1,400 feet long,
180 feet wide, and 60 feet deep, easily accommodating the larger-sized “post-Panamax” vessels in operation. One
lock complex will be located on the Pacific side, southwest of the existing Miraflores Locks. The other will be located
east of the existing Gatun Locks. Each of these new lock complexes will have three consecutive chambers designed to
move vessels from sea level to the level of Gatun Lake and back down again.
Water-saving Basins—The new locks have water-saving basins to reduce the volume of water that is needed in lock
operations. The operation of both the old and new locks uses gravity and valves with no pumping involved. The locks,
old and new, will use water from Gatun Lake. Even in the current situation with two lock lanes, water supply can
be limited at the end of Panama’s dry season, when the lake’s water level is low. The addition of a third set of locks
means that this water supply issue must be addressed by environmentally sanctioned water systems that are expected
to save thousands of gallons of water with each ship passing through the Canal.
Because of the size and scope of the project, it represents significant challenges for both Panama and the inter-
national companies hired to complete it. The project is being run by a Spanish-led consortium of European construc-
tion firms, in partnership with the Panama Canal Authority. While the actual construction work has been proceeding
steadily, it has not gone smoothly. In fact, the project has realized significant cost overruns. As of 2014, the project was
running about $1.6 billion over budget, raising the project’s initial budget from $5.3 billion to nearly $7 billion. The
construction consortium filed claim to recover the extra costs, arguing the overruns were the result of poor project
controls within the country, while the Panamanian officials countered that the higher costs amounted to blackmail.
Ultimately, the series of claims and disputes between the Canal Authority and the construction firms resulted in U.S.
courtroom arbitration hearings to determine the party responsible for several overruns. For example, in 2014, a $180
million claim by the consortium working on the expansion project became the first of several disputed construction
costs that could end up in the hands of Miami arbitrators. Additional claims totalling nearly $1.4 billion are pending, as
a combination of work stoppages and poor quality construction have led to significant concrete rework and serious cost
overruns. At one point in early 2014, the disputes became so severe that work was temporarily halted on the project for
nearly one month, endangering nearly 10,000 jobs.
All this has complicated the development of the project and has begun to make some other parties, with a strong
interest in the project, nervous. Many U.S. ports have gambled on the Panama venture by investing billions in their own
expansions in order to profit from the increased Post-Panamax traffic. Miami’s expanded port, for example, just opened
a new, billion-dollar tunnel—part of a $2 billion makeover that includes a major dredging project and skyscraper-
size loading cranes for sending more auto parts to Brazil and getting more commercial goods from China. In Boston,
the canal expansion, combined with a plan to dredge Boston Harbor to accommodate larger ships, could generate
Figure 10.1 Scene from the Panama canal expansion Project
Rafael Ibarra/Reuters/Corbis
10.1 Lags in Precedence Relationships 333
introduction
The previous chapter introduced the challenge of project scheduling, its important terminology,
network logic, activity duration estimation, and constructing the critical path. In this chapter, we
apply these concepts in order to explore other scheduling techniques, including the use of lag
relationships among project activities, Gantt charts, crashing project activities, and comparing the
use of Activity-on-Arrow (AOA) versus Activity-on-Node (AON) processes to construct networks.
In the previous chapter, we used the analogy of a jigsaw puzzle, in which the act of constructing
a schedule required a series of steps all building toward the conclusion. With the basics covered,
we are now ready to consider some of the additional important elements in project scheduling, all
aimed at the construction of a meaningful project plan.
10.1 Lags in Precedence reLationshiPs
The term lag refers to the logical relationship between the start and finish of one activity and the
start and finish of another. In practice, lags are sometimes incorporated into networks to allow for
greater flexibility in network construction. Suppose we wished to expedite a schedule and deter-
mined that it was not necessary for a preceding task to be completely finished before starting its
successor. We determine that once the first activity has been initiated, a two-day lag is all that is
necessary before starting the next activity. Lags demonstrate this relationship between the tasks in
question. They commonly occur under four logical relationships between tasks:
1. Finish to Start
2. Finish to Finish
3. Start to Start
4. Start to Finish
Finish to start
The most common type of logical sequencing between tasks is referred to as the Finish to Start
relationship. Suppose three tasks are linked in a serial path, similar to that shown in Figure 10.2.
Activity C cannot begin until the project receives a delivery from an external supplier that is sched-
uled to occur four days after the completion of activity B. Figure 10.2 visually represents this Finish
to Start lag of 4 days between the completion of activity B and the start of activity C.
Note in Figure 10.2 that the early start (ES) date for activity C has now been delayed for the 4
days of the lag. A Finish to Start lag delay is usually shown on the line joining the nodes; it should
thousands of new jobs and more than $4 billion in new business at Conley Terminal, according to the Massachusetts
Port Authority. Carlos Urriola, executive vice president of the Manzanillo International Terminal, a major port at the
Panama Canal’s Caribbean entrance, notes: “We’re all too aware that ports like Miami are definitely waiting to see
when we’re going to be ready with our canal.”
It is expected that arbitration rulings will cut through the tangle of disputes among the various parties and the
canal expansion will be ready by early 2016. Nevertheless, the construction firms are currently investigating ways to
accelerate the completion of the process, so the country can gain maximum benefit from the expansion. Given the
higher costs associated with accelerating the final activities, it is uncertain if this step will be taken, but it illustrates just
how important the timely completion of the project is for both Panama and its construction contractors. Improving the
economy, increasing traffic, and supporting a greener environment are all related and mutually reinforcing goals of the
Panama Canal Expansion Project.1
Lag 4
0 A 6
Spec design
6
6 B 11
Design check
5
15 C 22
Blueprinting
7
Figure 10.2 Network incorporating finish to Start lag of 4 Days
334 Chapter 10 • Project Scheduling
be added in forward pass calculations and subtracted in backward pass calculations. Finish to Start
lags are not the same as additional activity slack and should not be handled in the same way.
Finish to Finish
Finish to Finish relationships require that two linked activities share a similar completion point.
The link between activities R and T in Figure 10.3 shows this relationship. Although activity R
begins before activity T, they share the same completion date.
In some situations, it may be appropriate for two or more activities to conclude at the same
time. If, for example, a contractor building an office complex cannot begin interior wall construc-
tion until all wiring, plumbing, and heating, ventilation, and air conditioning (HVAC) have been
installed, she may include a lag to ensure that the completion of the preceding activities all occur at
the same time. Figure 10.4 demonstrates an example of a Finish to Finish lag, in which the preced-
ing activities R, S, and T are completed to enable activity U to commence immediately afterward.
The lag of 3 days between activities R and T enables the tasks to complete at the same point.
start to start
Often two or more activities can start simultaneously or a lag takes place between the start of one
activity after an earlier activity has commenced. A company may wish to begin materials pro-
curement while drawings are still being finalized. It has been argued that the Start to Start lag
relationship is redundant to a normal activity network in which parallel or concurrent activities
are specified as business as usual. In Figure 9.20, we saw that Activity C is a burst point in a net-
work and its successor activities (tasks D and G) are, in effect, operating with Start to Start logic.
The subtle difference between this example and a Start to Start specification is that in Figure 9.20 it
is not necessary for both activities to begin simultaneously; in a Start to Start relationship the logic
must be maintained by both the forward and backward pass through the network and can, there-
fore, alter the amount of float available to activity G.
Start to Start lags are becoming increasingly used as a means to accelerate projects (we will
discuss this in greater detail later in the chapter) through a process known as fast-tracking. Instead
of relying on the more common Finish to Start relationships between activities, organizations are
attempting to compress their schedules through adopting parallel task scheduling of the sort that
is typified by Start to Start. For example, it may be possible to overlap activities in a variety of
36 U 42
Interior construction
6
31 S 33
Plumbing
2
33 T 36
HVAC
3
30 R 36
Wiring
6
Figure 10.3 finish to finish Network relationship
39 U 45
Interior construction
6
34 S 36
Plumbing
2
Lag 3
36 T 39
HVAC
3
30 R 36
Wiring
6
Figure 10.4 finish to finish relationship with lag incorporated
10.2 Gantt Charts 335
different settings. Proofreading a book manuscript need not wait until the entire document is com-
pleted; a copy editor can begin working on chapter one while the author is still writing the drafts.
Further, in software development projects, it is common to begin coding various sequences while
the overall design of the software’s functions is still being laid out. It is not always possible to
reconfigure predecessor/successor relationships into a Start to Start schedule, but where it is pos-
sible to do so, the result is to create a more fast-paced and compressed schedule.
Figure 10.5 demonstrates an example of a Start to Start network, in which the lag of 3 days
has been incorporated into the network logic for the relationship between activities R, S, and T.
start to Finish
Perhaps the least common type of lag relationship occurs when a successor’s finish is dependent
upon a predecessor’s start (Start to Finish). An example of such a situation is construction in an
area with poor groundwater drainage. Figure 10.6 shows this relationship. The completion of the
concrete pouring activity, Y, is dependent upon the start of site water drainage, W. Although an
uncommon occurrence, the Start to Finish option cannot be automatically rejected. As with the
other types of predecessor/successor relationships, we must examine our network logic to ascer-
tain the most appropriate manner for linking networked activities with each other.
10.2 gantt charts
Developed by Harvey Gantt in 1917, Gantt charts are another extremely useful tool for creating a
project network. gantt charts establish a time-phased network, which links project activities to a
project schedule baseline. They can also be used as a project tracking tool to assess the difference
23 Z 29
6
20 Y 23
3
3 days
2
18 X 20
20 W 26
6
Figure 10.6 Start to finish Network relationship
2
36 U 42
Interior construction
6
33 T 36
HVAC
3
3 days
31 S 33
Plumbing
30 R 36
Wiring
6
Figure 10.5 Start to Start Network relationship
336 Chapter 10 • Project Scheduling
between planned and actual performance. A sample of a basic Gantt chart is shown in Figure 10.7.
Activities are ordered from first to last along a column on the left side of the chart with their ES and
EF durations drawn horizontally. The ES and EF dates correspond to the baseline calendar drawn
at the top of the figure. Gantt charts represent one of the first attempts to develop a network dia-
gram that specifically orders project activities by baseline calendar dates, allowing the project team
to be able to focus on project status at any date during the project’s development.
Some benefits of Gantt charts are (1) they are very easy to read and comprehend, (2) they
identify the project network coupled with its schedule baseline, (3) they allow for updating and
project control, (4) they are useful for identifying resource needs and assigning resources to tasks,
and (5) they are easy to create.
1. Comprehension—Gantt charts work as a precedence diagram for the overall project by linking
together all activities. The Gantt chart is laid out along a horizontal time line so that viewers can
quickly identify the current date and see what activities should have been completed, which
should be in progress, and which are scheduled for the future. Further, because these activities
are linking in the network, it is possible to identify predecessor and successor activities.
2. Schedule baseline network—The Gantt chart is linked to real-time information, so that all
project activities have more than just ES, EF, LS, LF, and float attached to them. They also
have the dates when they are expected to be started and completed, just as they can be laid
out in conjunction with the overall project schedule.
3. Updating and control—Gantt charts allow project teams to readily access project information
activity by activity. Suppose, for example, that a project activity is late by 4 days. It is possible on
a Gantt chart to update the overall network by factoring in the new time and seeing a revised
project status. Many firms use Gantt charts to continually update the status of ongoing activities.
Gantt charts allow managers to assess current activity status, making it possible to begin plan-
ning for remedial steps in cases where an activity’s completion is lagging behind expectations.
4. Identifying resource needs—Laying the whole project out on a schedule baseline permits the
project team to begin scheduling resources well before they are needed, and resource plan-
ning becomes easier.
5. Easy to create—Gantt charts, because they are intuitive, are among the easiest scheduling
devices for project teams to develop. The key is having a clear understanding of the length of
activities (their duration), the overall precedence network, the date the project is expected to
begin, and any other information needed to construct the schedule baseline, such as whether
overtime will be needed.
Figure 10.8 uses the information contained in the Project Delta example from the previous chapter
to construct a Gantt chart using MS Project 2013 (see Figure 9.11). The start and finish dates and
length are ascribed to each activity and represented by the horizontal bar drawn from left to right
through the network. The chart lists the early activities in order from top to bottom. The overall
“flow” of the chart moves from the top left corner down to the bottom right. The baseline schedule
Figure 10.7 Sample Gantt chart using Microsoft Project 2013
Note: Weekend days are not counted for activity duration times.
Source: MS Project 2013, Microsoft Corporation.
10.2 Gantt Charts 337
is shown horizontally across the top of the page. Each activity is linked to indicate precedence logic
through the network. All activities are entered based on their early start (ES) times. We can adjust
the network to change the logic underlying the sequencing of the tasks. For example, the activities
can be adjusted based on the late start (LS) date or some other convention.
As we continue to fill out the Gantt chart with the complete Project Delta (see Figure 10.8),
it is possible to determine additional information from the network. First, activity slack is repre-
sented by the long arrows that link activities to their successors. For example, activity E, with its
60 days (12 weeks) of slack or float, is represented by the solid bar showing the activity’s duration
and the lengthy arrow that connects the activity to the next task in the network sequence (activity
H). Finally, a number of software-generated Gantt charts will also automatically calculate the criti-
cal path, identifying the critical activities as the chart is constructed. Figure 10.9 shows the critical
path as it is highlighted on the schedule baseline.
adding resources to gantt charts
Adding resources to the Gantt chart is very straightforward, consisting of supplying the name or
names of the resources that are assigned to perform the various activities. Figure 10.10 gives an
MS Project output showing the inclusion of a set of project team resources assigned to the various
tasks. It is also possible to assign the percentage of time each resource is assigned to each activity.
This feature is important because, as we will see in later chapters, it forms the basis for tracking
and control of the project, particularly in terms of cost control.
Figure 10.10 shows six project team members assigned across the six tasks of another project
example. Remember that the Gantt chart is based on activity durations calculated with full com-
mitment of resources. Suppose, however, that we were only able to assign resources to the tasks
at a lesser figure (say 50%) because we do not have sufficient resources available when they are
needed. The result will be to increase the length of time necessary to complete the project activities.
The challenge of resource management as it applies to network scheduling is important and will
be covered in detail in Chapter 12.
Figure 10.8 completed Gantt chart for Project Delta
Source: MS Project 2013, Microsoft Corporation.
Figure 10.9 Gantt chart for Project Delta with critical Path Highlighted
Source: MS Project 2013, Microsoft Corporation.
338 Chapter 10 • Project Scheduling
incorporating Lags in gantt charts
Gantt charts can be adjusted when it is necessary to show lags, creating a visual image of the proj-
ect schedule. Figure 10.11 is a Gantt chart with some alternative lag relationships specified. In this
network, activities C (specification check) and D (parts order) are linked with a Finish to Finish
relationship that has both ending on the same date. Activity E is a successor to activity D, and the
final two activities, E and F, are linked with a Start to Start relationship. Similar to lag relationships
in network construction, the key lies in developing a reasonable logic for the relationship between
tasks. Once the various types of lags are included, the actual process of identifying the network’s
critical path and other pertinent information should be straightforward.
Figure 10.10 Gantt chart with resources Specified
Source: MS Project 2013, Microsoft Corporation.
Figure 10.11 Gantt chart with lag relationships
Source: MS Project 2013, Microsoft Corporation.
Box 10.1
Project Managers in Practice
Christopher Fultz, Rolls-Royce Plc.
“A project manager is like the conductor of the orchestra. The conductor doesn’t play an instrument,
but understands how to balance the output of everyone to deliver the finished product. The conductor
has to pay attention to all of the musicians and cannot focus too long on just one section. The PM is the
same way, balancing the needs of multiple stakeholders and the team members to deliver the desired
outcome. The project manager may not do the actual work, but makes sure all work is being completed
to the schedule and is meeting the project requirements. The PM cannot focus on one specific area for
long, or the rest of the project can quickly become out of control.”
Christopher Fultz holds a Master’s Degree in Program Management from Penn State, an MBA from Indiana
University, and an undergraduate degree from the School of Technology at Purdue University. He lives and
works in Indianapolis, Indiana, at Rolls-Royce and is part of the Defense Business. His first formal project man-
agement role was leading a small engine modification program to support a new engine application for Bell
Helicopter. Since that first assignment, he has led several engine development and certification teams, putting
10.2 Gantt Charts 339
(continued )
into practice the art and science of project management to balance cost, schedule, technical compliance, and
stakeholder expectations.
“One of the most important lessons learned is that there are always competing requirements within the
project and with other projects around the company. There is never enough time, resource, money or schedule
to do everything that may be wanted, so it is critical to determine what the true requirements are and then
work to deliver to those.” Recently, Chris led the RR300 engine project, which is a derivative of the Rolls-Royce
M250 engine. The RR300 was developed for Robinson Helicopter for its new R66 helicopter. Since being certi-
fied in 2008, Rolls-Royce has produced several hundred RR300 engines to support the R66 fleet. “This was the
first turbine engine installation for Robinson Helicopter, so early in the project we worked closely with them
to understand their needs and requirements to be sure we would deliver an engine that would meet their
customer demands. It was very important to document and clarify requirements and expectations, because
their previous experience was all with piston engines, and there were differences of perspective and assump-
tions based on these different experiences. Discussing, understanding, and documenting the requirements and
then creating a plan to deliver to them led to a very successful engine certification, integration, and flight test
program. The RR300 project had challenges of a tight schedule and specific engine performance requirements,
coupled with a product cost challenge and the need to develop a new supply chain to support the production
program.”
From previous projects, Chris had learned the value of creating strong, focused project teams and main-
taining communications within the team. “For the RR300, the team had a single, shared vision and deliverable.
We continually reviewed our progress against that single deliverable and agreed that the team would either
win or lose as a team. We had to work closely together to meet all of the competing requirements, and active
communication was key to this. The team was co-located, so a combination of scheduled, formal communica-
tion meetings was well balanced with the ability to easily walk to someone’s desk to discuss the project and
actions.”
Chris now leads the Program Management Office (PMO) for Rolls-Royce Defense in Indianapolis, a role
that has evolved over the past 3–4 years. In this role, he is responsible for the EVMS (Earned Value Management
System) Center of Excellence, resource balancing, rules and tools, and professional skill development of the
program and project management team. He works closely with his counterpart at Rolls-Royce in the UK to
be sure needs across the global Defense business are met and the approach is consistent across the different
business locations.
“Talented people are the key to successful projects and programs. We are currently working to un-
derstand the most important aspects and skills required of project managers to support our current business
activity. We are putting together a matrix of these needs and comparing them to our current knowledge,
experience, and skill level to identify the specific areas to focus improvement activity. This may include pro-
fessional certification, targeted course work, degree programs such as the Penn State Master’s in Program
Management, or short and longer term development assignments for people to gain specific experiences. In
2013, we began a Program Management Professional Excellence program in Defense in the United States. We
hold specific recruiting events for this program, and bring in two new college grads each year. The employees
in this program will have four 6-month assignments in different business units and locations, giving them a
Figure 10.12 christopher fultz, rolls-royce Plc.
Source: Jeffrey Pinto/ Pearson Education, Inc
340 Chapter 10 • Project Scheduling
10.3 crashing Projects
At times it is necessary to expedite the project, accelerating development to reach an earlier com-
pletion date. The process of accelerating a project is referred to as crashing. Crashing a project
directly relates to resource commitment. The more resources we are willing to expend, the faster
we can push the project to its finish. There can be good reasons to crash a project, including:2
1. The initial schedule may be too aggressive. Under this circumstance, we may schedule the project
with a series of activity durations so condensed they make the crashing process inevitable.
2. Market needs change and the project is in demand earlier than anticipated. Suppose, for
example, your company discovered that the secret project you were working on was also
being developed by a rival firm. Because market share and strategic benefits will come to the
first firm to introduce the product, you have a huge incentive to do whatever is necessary to
ensure that you are first to market.
3. The project has slipped considerably behind schedule. You may determine that the only way
to regain the original milestones is to crash all remaining activities.
4. The contractual situation provides even more incentive to avoid schedule slippage. The com-
pany may realize that it will be responsible for paying more in late delivery penalties than the
cost of crashing the activities.
options for accelerating Projects
A number of methods are available for accelerating or crashing projects. One key determinant of
which method to use is how “resource-constrained” the project is; that is, whether there is additional
budget or extra resources available to devote to the project. The issue of whether the project manager
(and organization) is willing to devote additional resources to the project is a primary concern that
will weigh in their choices. Depending on the level of resource constraint, certain options will be
more attractive than others. Among the primary methods for accelerating a project are the following:
1. Improve the productivity of existing project resources—Improving the productivity of
existing project resources means finding efficient ways to do more work with the currently
available pool of personnel and other material resources. Some ways to achieve these goals
include improving the planning and organization of the project, eliminating any barriers
broad exposure to the business and to project management. During the two-year program, they will work
in different business units and locations on projects and programs in all phases of the product life cycle. At
the end of their rotation, they will move into their first significant project management role with a solid back-
ground and good experience in project management.“
Chris has accountability for developing and maintaining the Portfolio Management Process for Defense
and works as part of a larger team to define and implement this process. “The focus of the process is to bal-
ance discretionary investment in projects to support program growth, customer satisfaction, and cost man-
agement. This portfolio balancing is an ongoing, continuous process as projects open and close and business
and customer needs change.”
Outside of work, Chris is a mentor in the FIRST Robotics program, a high school program that is fo-
cused on getting students interested in careers in science and engineering. One of the key elements of the
program is to design and build a robot to play a specific new game challenge each year. These are big, remote-
controlled machines, 24” * 36” * 60” tall, weighing 120 pounds. The program is “hands-on” and mentor
based, where students and professionals work side by side. Chris believes it is a great project management
experience for the students as well as an excellent development activity for mentors. “While there is much
more to the program than just the robot, the project of building the robot provides all elements of the product
life-cycle in a compressed, 6-week period. The game challenge provides several requirements and options of
what to build and how to play. Teams must find the right balance of what they will design and build based on
their skills, resources, budget, and schedule. The schedule is tight and there is no option to negotiate more
time. Teams then move on to competition, where they see their robot in action and can evaluate their design,
strategy, and final product against the ‘competition.’ Teams go from requirements to concepts to finished
product to in-service in a span of a few months, providing immediate, and sometimes harsh, feedback on
their work. Even though these are high school students, this is a great training ground for project managers.”
10.3 Crashing Projects 341
to productivity such as excessive bureaucratic interference or physical constraints, and
improving the motivation and productivity of project team members. Efforts should always
be made to find ways to improve the productivity of project resources; however, these efforts
are almost always better achieved during the down time between projects rather than in the
midst of one.
2. Change the working method employed for the activity, usually by altering the technol-
ogy and types of resources employed—Another option for accelerating project activities
is to promote methods intended to change the working method employed for the activ-
ity, usually by altering the technology and types of resources employed. For example,
many firms have switched to computer-based project scheduling techniques and saved
considerable time in the process. Changing working methods can also include assignment
of senior personnel, or hiring contract personnel or subcontractors to perform specific
project functions.
3. Compromise quality and/or reduce project scope—These two options refer to conscious deci-
sions made within the organization to sacrifice some of the original project specifications due
to schedule pressure or a need to speed a project to completion. Compromising quality may
involve a relatively simple decision to accept the use of cheaper materials or fewer oversight
steps as the project moves forward. Rarely are decisions to lower quality beneficial for the
project; in fact, the decision usually involves a sense of trying to limit or control the dam-
age that could potentially occur. In some cases, it is impossible to even consider this as an
option; construction firms hold safety (and hence, quality) as one of their highest concerns
and would not consider deliberate steps to reduce quality.
Reducing project scope, on the other hand, is a much more common response to criti-
cal pressure on the organization to deliver a project, particularly if it has been experienc-
ing delays or if the benefits of being first to market seriously overshadow concerns about
reduced scope. For example, suppose a television manufacturer in South Korea (Samsung)
is working to devise a new product that offers 3D viewing, state-of-the-art sound quality,
Internet connectivity, and a host of other features. While in the midst of development, the
company becomes aware that a direct competitor is due to release its new television with a
more modest set of features in time for the Christmas shopping season. Samsung might be
tempted to limit work on their model to the advances that currently have been completed,
scale back on other upgrades for a later model, and deliver their television with this reduced
scope in order to maintain their market share.
The decision to limit project scope is not one to be taken lightly, but in many cases, it
may be possible to do so with limited negative impact on the company, provided the firm
can prioritize and distinguish between the “must-have” features of the project and other
add-on functions that may not be critical to the project’s mission. Numerous projects have
been successfully introduced with reduced scope because the organization approached
these reductions in a systematic way, revisiting the work breakdown structure and project
schedule and making necessary modifications. Approaching scope reduction in a proactive
manner can have the effect of reducing scope while minimizing the negative effects on the
final delivered project.
4. Fast-track the project—Fast-tracking a project refers to looking for ways to rearrange the
project schedule in order to move more of the critical path activities from sequential to par-
allel (concurrent) relationships. In some cases, the opportunities to fast-track a project only
require creativity from the project team. For example, in a simple construction project, it may
be possible to begin pouring the concrete foundation while the final interior design work or
more detailed drawings are still being completed. That is, the design of cabinetry or the place-
ment or doors and windows in the house will not be affected by the decision to start work on
the foundation, and the net effect will be to shorten the project’s duration. In Chapter 9, we
discussed options to reduce the critical path. Fast-tracking can employ some of those meth-
ods as well as other approaches, including:
a. Shorten the longest critical activities—Identify those critical activities with the longest
durations and reduce them by some percentage. Shortening longer activities typically
offers the most opportunity to affect the length of the overall project without incurring
severe additional risks.
342 Chapter 10 • Project Scheduling
b. Partially overlap activities—Start the successor task before its predecessor is fully com-
pleted. We can use “negative lags” between activities to reschedule our critical activities
and allow for one task to overlap another. For example, suppose we had two activities in
sequence: (1) program function code, and (2) debug code. In many cases, it is possible to
begin debugging code before the programmer has fully completed the assignment. We
might indicate, for example, that the debugging activity has a negative lag of two weeks
to allow the debugger to begin her task two weeks before the programming activity is
scheduled to finish.
c. Employ Start to Start lag relationships—Standard predecessor/successor task relation-
ships are characterized by Finish to Start relationships, suggesting that the successor
cannot begin until its predecessor is fully completed. In Start to Start relationships, the as-
sumption is that both activities can be undertaken at the same time; for example, instead of
waiting for a city to issue a building permit approval, a local contractor may begin clearing
the site for new construction or contacting other city departments to begin road and sewer
applications. Not every set of activities can be redefined from a Finish to Start to a Start
to Start lag relationship, but often there are places within the project schedule where it is
possible to employ this fast-tracking technique.
5. Use overtime—A common response to the decision to accelerate a project is to make team
members work longer hours through scheduling overtime. On one level, the decision is an
attractive one: If our workers are currently devoting 40 hours a week to the project, by adding
another 10 hours of overtime, we have increased productivity by 20%. Further, for salaried
employees, we can institute overtime regulations without the additional costs that would
accrue from using hourly workers. Thus, the use of overtime appears on the surface to be an
option with much to recommend it.
The decision to use overtime, however, comes with some important drawbacks that
should be considered. The first is cost: For hourly workers, overtime rates can quickly
become prohibitively expensive. The result is to seriously affect the project budget in order
to gain time (part of what are referred to as “dollar-day” trade-offs). Another problem with
overtime is possible effects on project team member productivity. Work by Ken Cooper offers
some important points for project managers to consider when tempted to accelerate their
projects through the use of overtime. Figure 10.13 shows the results of his research examin-
ing the effects of sustained overtime on project team members for two classes of employee:
engineers and production staff. When real productivity and rework penalties (having to
fix work incorrectly done the first time) are taken into account, the impact of overtime is
worrisome: For only four hours of overtime worked each week, the project can expect to
receive less than two hours of actual productivity from both engineers and production staff.
3
2
1
0
4
Overtime Hours
8 12
R
e
a
l
E
x
tr
a
O
u
tp
u
t
H
o
u
rs
G
a
in
e
d
−1
Engineering
Production
Figure 10.13 real output Gained from Different levels of Sustained overtime
10.3 Crashing Projects 343
The more overtime is used, the more this problem is exacerbated. Indeed, at 12 hours of
sustained weekly overtime, the net output effect is negligible for engineering personnel and
actually becomes negative for production resources! In effect, requiring additional overtime
work in the hopes of accelerating the project’s schedule often has the actual effect of increas-
ing overtime-induced fatigue, adding to our budget while providing almost no real addi-
tional productivity.
6. Add resources to the project team—Expected activity durations are based on using a set
number of individuals to accomplish the task; however, when additional resources become
available, they have the net effect of reducing the amount of time to complete the task. For
example, suppose we originally assigned one programmer to complete a specific coding
operation and determined that the task would take 40 hours. Now, we decide to shorten that
task by adding two additional programmers. What is the new expected time to complete
the activity? Certainly, we would anticipate it to be less than the original 40 hours, but
how much less is not always clear, since the result may not be a simple linear function
(e.g., 40/3 = 13.33 hours). Other variables can affect the completion time (e.g., communica-
tion delays or difficulty in coordinating the three programmers). In general, however, add-
ing resources to activities can lead to a significant reduction in the expected duration of the
programming activity.
As with overtime, we need to carefully consider the impact of adding resources to a
project, especially when some activities are already underway. In adding people to activi-
ties, for example, we need to consider “learning curve” effects. Suppose that our program-
mer has already begun working on the task when we decide to add two additional resources
to help him. The effect of adding two programmers to this ongoing activity may actually
backfire on the project manager, as was originally suggested by a former IBM executive
named Fred Brooks. He suggested, in his famous Brooks’s law, that adding resources to
ongoing activities only delays them further. His point was that the additional time and
training needed to bring these extra resources up to speed on the task negates the positive
impact of actually adding staff. It is much better, he suggested, to add extra resources to
activities that have not yet started, where they can truly shorten the overall task durations.
Although research has tended to confirm Brooks’s Law in most situations, it is possible to
realize schedule shrinkage provided sufficient time and current resources are available to
train additional staff or they are added early enough into the activity to minimize the nega-
tive effects of Brooks’s Law.3
Although the above discussion demonstrates that there are some important issues to consider
when adding resources to a project, this alternative remains by far the most common method for
shortening activity durations, and it is often useful as long as the link between cost and schedule
is respected.
To determine the usefulness of crashing project activities, we must first be able to determine
the actual cost associated with each activity in the project, both in terms of project fixed costs and
variable costs. These concepts are discussed in greater detail in Chapter 8 on project budgeting. Let
us assume that we have a reasonable method for estimating the total cost of project activities, both
in terms of their normal development time and under a crashed alternative. Figure 10.14 illustrates
the relationship between activity costs and duration. Note that the normal length of the duration
for an activity reflects a calculated resource cost in order to accomplish that task. As we seek to
crash activities, the costs associated with these activities increase sharply. The crash point on the
diagram represents the fully expedited project activity, in which no expense is spared to complete
the task. Because the line shows the slope between the normal and crash points, it is also under-
stood that a project activity can be speeded up to some degree less than the complete crash point,
relative to the slope of the crash line.
In analyzing crash options for project activities, the goal is to find the point at which
time and cost trade-offs are optimized. We can calculate various combinations of time/cost
trade-offs for a project’s crash options by determining the slope for each activity using the
following formula:
Slope =
crash cost – normal cost
normal time – crash time
344 Chapter 10 • Project Scheduling
examPLe 10.2 Crashing a Project
Suppose we have a project with only eight activities, as illustrated in Table 10.1. The table also
shows our calculated normal activity durations and costs and crashed durations and their costs.
We wish to determine which activities are the optimal candidates for crashing. Assume that the
project costs listed include both fixed and variable costs for each activity. Use the formula provided
earlier to calculate the per-unit costs (in this case, costs per day) for each activity. These costs are
shown in Table 10.2.
The calculations suggest that the least expensive activities to crash would be first, activity A
($250/day), followed by activities B and G ($300/day). On the other hand, the project would incur
the greatest cost increases through crashing activities H, E, and C ($2,000/day, $1,750/day, and
examPLe 10.1 Calculating the Cost of Crashing
To calculate the cost of crashing project activities, suppose that for activity X, the normal activity
duration is 5 weeks and the budgeted cost is $12,000. The crash time for this activity is 3 weeks
and the expected cost is $32,000. Using the above formula, we can calculate the cost slope for
activity X as:
32,000 – 12,000
5 – 3
or
$20,000
2
= $10,000 per week
In this example, activity X is calculated to cost $10,000 for each week’s acceleration to its original
schedule. Is this a reasonable price? In order to answer that question, we need to consider:
a. What costs are associated with accelerating other project activities? It may be that activity
X’s unit cost of $10,000 per week is a genuine bargain. Suppose, for example, that an alterna-
tive activity would cost the project $25,000 for each week’s acceleration.
b. What are the gains versus the losses in accelerating this activity? For example, does the proj-
ect have excessive late penalties that would make crashing cheaper relative to late delivery?
Alternatively, is there a huge potential payoff in being first to market with the project?
Cost
Activity Duration
Normal
Crashed
Crashed Normal
Crash
Point
Normal
Point
Figure 10.14 time/cost trade-offs for crashing Activities
10.3 Crashing Projects 345
$1,500/day, respectively). Note that in this example, we are assuming that activity D cannot be
shortened, so no crashing cost can be calculated for it.
Now let’s transfer these crashing costs to a network that shows the precedence logic of each
activity. We can form a trade-off between shortening the project and increasing its total costs by
analyzing each alternative. Figure 10.15 shows the project network as a simplified AON example
with only activity identification and crashed duration values included. The network also shows the
critical path as A – D – E – H or 27 days. We determined that the initial project cost, using normal
activity durations, is $22,450. Crashing activity A (lowest at $250) by 1 day will increase the project
budget from $22,450 to $22,700. Fully crashing activity A will shorten the project duration to 25
days while increasing the cost to $22,950. Activities B and G are the next candidates for crashing at
$300 per day each. Neither activity is on the project’s critical path, however, so the overall benefit
to the project from shortening these activities may be minimal. Activity D cannot be shortened. The
per unit cost to crash E is $1,750, and the cost to crash H is higher ($2,000). Thus, crashing activity
E by 1 day will increase the project budget from $22,950 to $24,700. The total costs for each day the
project is crashed are shown in Table 10.3.
Note that in the fully crashed project network shown in Figure 10.15, the critical path is un-
changed when all activities are fully crashed. The association of costs to project duration is graphed
in Figure 10.16. As each project activity has been crashed in order, the overall project budget in-
creases. Figure 10.16 demonstrates, however, that beyond crashing activities A, E, and H, there is
little incentive to crash any of the other project tasks. The overall length of the project cannot shrink
below 19 days, and additional crashing merely adds costs to the budget. Therefore, the optimal
crash strategy for this project is to crash only activities A, E, and H for a total cost of $11,750 and a
revised project cost of $34,200.
tabLe 10.1 Project Activities and costs (Normal vs. crashed)
Normal crashed
Activity Predecessors Duration cost Duration cost
A — 5 days $ 1,000 3 days $ 1,500
B A 7 days 700 6 days 1,000
C A 3 days 2,500 2 days 4,000
D A 5 days 1,500 5 days 1,500
E C, D 9 days 3,750 6 days 9,000
F B 4 days 1,600 3 days 2,500
G D 6 days 2,400 4 days 3,000
H E, F, G 8 days 9,000 5 days 15,000
Total costs = $22,450 $37,500
tabLe 10.2 costs of crashing each Activity
Activity
crashing costs
(per day)
on critical
Path?
A $ 250 Yes
B 300 No
C 1,500 No
D — Yes
E 1,750 Yes
F 900 No
G 300 No
H 2,000 Yes
tabLe 10.3 Project costs by Duration
Duration total costs
27 days $22,450
26 days 22,700
25 days 22,950
24 days 24,700
23 days 26,450
22 days 28,200
21 days 30,200
20 days 32,200
19 days 34,200
346 Chapter 10 • Project Scheduling
The decision to crash a project should be carefully considered for its benefits and draw-
backs. Considering the relationship between activity duration and increased project costs is never
a “painless” operation; there is always a significant cost associated with activity acceleration.
However, if the reasons for crashing are sufficiently compelling, the overall project duration can
often be shortened significantly.
crashing the Project: budget effects
As we have seen, crashing is the decision to shorten activity duration times through adding
resources and paying additional direct costs. There is a clear relationship between the decision
to crash project activities and the effect of the crashing on the budget. As Figure 10.16 showed,
the cost of crashing is always to be weighed against the time saved in expediting the activity’s
schedule.
A
3
B
7
C
3
D
5
E
6
F
4
G
6
H
5
Activity
Duration
Legend-
Figure 10.15 fully crashed Project Activity Network
Duration (Days)
Cost
18 20 22 24 26 28 3016
20,000
24,000
28,000
32,000
36,000
40,000
44,000
All normal
Crash A
Crash A + E
Crash A + E + H
Crash All
Figure 10.16 relationship Between cost and Days Saved in a crashed Project
10.3 Crashing Projects 347
To highlight this problem, consider the crashing table shown in Table 10.4. Let us assume
that activities A, C, D, and H are on the critical path; therefore, the first decision relates to which of
the critical activities we should crash. A simple side-by-side comparison of the activities and their
crash costs reveals the following:
Activity crash cost
A $2,000
C $1,500
D $3,000
H $3,000
Using Table 10.4, we find that in crashing activity C, the least expensive to crash, we save 3 days
at a cost of $1,500 in extra expenses. The other candidates for crashing (A, D, and H) can also be
evaluated individually in terms of schedule time gained versus cost to the project budget (assume
all other paths are ≤ 48 days). Crashing Activity A saves the project 3 days at an additional cost of
$2,000, raising the total cost of A to $4,000. Crashing Activities D and H represents a time savings
of 5 and 3 days respectively at additional costs of $3,000 for each.
Indirect costs are affected by crashing as well. Table 10.5 illustrates the choices the project
team is faced with as they continually adjust the cost of crashing the schedule against other project
costs. Suppose the project is being charged overhead at a fixed rate, say, $200 per day. Also assume
that a series of late penalties is due to kick in if the project is not completed within 50 days. The
original 57-day schedule clearly leaves us at risk for penalties, and although we have improved
the delivery date, we are still 4 days past the deadline. Now we discover that iterating the crashed
schedule three times will take us from our original 57-day schedule to a new schedule of 48 days
(crashing first activity C, then A, and then H). The schedule has shortened 9 days against a budget
increase of $6,500.
We could make Table 10.5 more complete by following the costs for each successive
crashed activity and linking them to total project costs. Intuitively, however, we can see that
tabLe 10.4 Project Activities, Durations, and Direct costs
Normal crashed
Activity cost Duration extra cost Duration crash cost
A $2,000 10 days $2,000 7 days $ 667/day
B 1,500 5 days 3,000 3 days 1,500/day
C 3,000 12 days 1,500 9 days 500/day
D 5,000 20 days 3,000 15 days 600/day
E 2,500 8 days 2,500 6 days 1,250/day
F 3,000 14 days 2,500 10 days 625/day
G 6,000 12 days 5,000 10 days 2,500/day
H 9,000 15 days 3,000 12 days 1,000/day
tabLe 10.5 Project costs over Duration
Project Duration
(in days) Direct costs
liquidated Damages
Penalty
overhead
costs total costs
57 $32,000 $5,000 $11,400 $48,400
54 33,500 3,000 10,800 47,300
51 35,500 1,000 10,200 46,700
48 38,500 -0- 9,600 48,100
10.4 Activity-on-Arrow Networks 349
should be sufficiently clear to convey understanding to the users. The convention in Figure 10.18
offers the major placement of network information for each activity arrow and node:
Arrow includes a short task description and the expected duration for the activity.
node includes an event label, such as a number, letter, or code, and earliest and latest event
times. These values correspond to early start and late finish times for the activity.
examPLe 10.3 Activity-on-Arrow Network Development
The development of an AOA network follows a similar process to the one we apply to AON meth-
odology, with some important distinctions. In order to make clear the differences, let us return
to the sample network problem from earlier in this chapter: Project Delta. Table 10.6 gives us the
relevant precedence information that we need to construct the AOA network.
We begin building a network in the same manner as with AON developed in Chapter 9. First,
we can start with activity A and its immediate successors, activities B and C. Because the conven-
tion now is to indicate the activity on the arrow, it is common for AOA networks to have an initial
“Start” event node that precedes the insertion of the activities. Figure 10.19 shows the process of be-
ginning to add the project information to the network diagram. Note that activities B and C directly
succeed activity A. The convention would be to draw two arrows, representing these activities,
directly off event node 2.
The first problem with AOA networking becomes apparent once we have to enter activity D
into the network. Note that both activities B and C are immediate predecessors for activity D. Rep-
resenting this relationship with an AON network is easy; we simply draw two arrows connecting
Events shown in node Activity shown on arrow
Event
label
Earliest
event time
Latest
event time
Description
Duration
Figure 10.18 Notation for Activity-on-Arrow (AoA) Networks
tabLe 10.6 Project information
Project Delta
Activity Description Predecessors estimated Duration
A Contract signing None 5
B Questionnaire design A 5
C Target market ID A 6
D Survey sample B, C 13
E Develop presentation B 6
F Analyze results D 4
G Demographic analysis C 9
H Presentation to client E, F, G 2
350 Chapter 10 • Project Scheduling
nodes B and C to the node for activity D (see Figure 9.10). However, with AOA networks we cannot
employ the same process. Why not? Because each arrow is used not just to connect the nodes, but
also to represent a separate task in the activity network. How can we show this precedence relation-
ship in the network? Figure 10.20 offers several options, two of which are incorrect. The first option
(Figure 10.20a) is to assign two arrows representing activity D and link activities B and C through
their respective nodes (3 and 4) with node 5. This would be wrong because the AOA convention is
to assign only one activity to each arrow. Alternatively, we could try to represent this precedence
relationship by using the second option (Figure 10.20b), in which a double set of activity arrows for
activities B and C jointly link node 2 to node 3. Again, this approach is incorrect because it violates
the rule that each node represents a unique event, such as the completion of an individual activity. It
can also become confusing when the convention is to employ multiple arrows between event nodes.
It was in order to resolve just such a circumstance that the use of dummy activities was created.
A
B
C
1 2
3
4
Figure 10.19 Sample Network Diagram Using AoA Approach
3
5
4
B
C
D
D
2
Figure 10.20a representing Activities with two or More immediate Successors (Wrong)
3
B
D
C
2 4
Figure 10.20b Alternative Way to represent Activities with two or More
immediate Successors (Wrong)
10.4 Activity-on-Arrow Networks 351
dummy activities
dummy activities are used in AOA networks to indicate the existence of precedent relationships
between activities and their event nodes. They do not have any work or time values assigned to
them. They are employed when we wish to indicate a logical dependency such that one activ-
ity cannot start before another has been completed, but the activities do not lie on the same path
through the network. Dummy activities are usually represented as dashed or dotted lines and may
or may not be assigned their own identifiers.
Figure 10.20c shows the proper method for linking activities B and C with their successor,
activity D, through the use of dummy activities. In this case, the dummy activities merely demon-
strate that both activities B and C must be completed prior to the start of activity D. When using
dummy activities in network diagramming, one good rule for their use is to try to apply them
sparingly. The excessive use of dummy activities can add confusion to the network, particularly
when it is often possible to represent precedence logic without employing the maximum pos-
sible number of dummy activities. To illustrate this point, consider Figure 10.21, in which we
have reconfigured the partial activity network for Project Delta slightly. Note that this diagram
has simply eliminated one of the dummy activities about to enter node 5 without changing the
network logic.
Now that we have a sense of the use of dummy activities, we can construct the full AOA
network for Project Delta. Activity E succeeds B and is entered on the network with its endpoint
at node 6. Likewise, activity F, following D, is entered into the network with endpoint at node
6. Activity G can also be entered following the completion of C, and its endpoint node is also 6.
Finally, activity H, which has activities E, F, and G as predecessors, is entered and completes the
basic AOA network (see Figure 10.22).
3
5
4
B
C
2
D
6
Figure 10.20c representing Activities with two or More immediate Successors Using
Dummy Activities (Better)
3
B
C
2
4
A
1
Figure 10.21 Partial Project Delta Network Using AoA Notation
352 Chapter 10 • Project Scheduling
Forward and backward Passes with aoa networks
The actual information we seek to collect for these processes that determines early and late start
dates is slightly different from that used in AON, as we are concerned with the early start (ES)
values for each activity node in the forward pass. The decision rules still apply: Where we have
nodes that serve as merge points for multiple predecessor activities, we select the largest ES. The
only other point to remember is that dummy activities do not have any duration value attached
to them.
Figure 10.23 shows the forward pass results for Project Delta. The nodes display the informa-
tion concerning ES in the upper right quadrant. As with the AON forward pass, the process con-
sists simply of adding duration estimates for each activity moving from left to right through the
network. The only places in the network that require some deliberation regarding the ES value to
apply are at the merge points represented by nodes 4 and 6. Node 4 is the merge point for activity
C and the dummy activity represented by the dotted line. Because dummy activities do not have
any value themselves, the ES for node 4 is the largest of the additive paths for activities A – C = 11
versus activities A – B = 10. Therefore, we find that the ES at node 4 should be 11. The other merge
point, node 6, uses the same selection process. Because the path A – C – D – F = 28, which is the
largest of the paths entering the node, we use 28 as the ES for node 6. Finally, after adding the dura-
tion for activity H, the overall length of the network is 30 weeks, just as it was in the AON network
shown in the previous chapter (see Figure 9.18).
The backward pass is also similar in procedure to the earlier AON process. The backward
pass starts at the far right or completion of the network at node 7 and, using the 30-week duration
as its starting point, subtracts activity times along each path (LF – Duration = LS). When we reach
a burst event, such as node 2 or 4, we select the smallest LS from the choice of activities. Thus,
using Figure 10.24 as our reference, we can begin subtracting duration values as we move from
right to left in the network. The LS values are included in the node in the bottom right-hand quad-
rant, right underneath the ES values.
The forward pass allowed us to determine that the expected duration for the project is
30 weeks. Using the backward pass, we can determine the individual activity slacks as well as the
3
B
C
2
4
6 7
5
1
A
H
E
F
G
D
Figure 10.22 completed Project Delta AoA Network
3
B
C
2
4
6 7
5
1
0 A
5
5
5
10
116
6
9
2
30
13 24
28
4
H
E
F
G
D
Figure 10.23 Project Delta forward Pass Using AoA Network
10.4 Activity-on-Arrow Networks 353
critical path, similar to the AON process. The difference is that the labeling of ES and LS values
lies within the event nodes; therefore, it is necessary to examine each activity path to determine
the slack associated with it. We know, for example, that the ES for activity E is 10 weeks and the
duration of the activity is 6 weeks. Therefore, when comparing the EF for activity E of 16 weeks
with the ES value in node 6 of 28 weeks, we can see that the difference, 12 weeks, is the amount
of slack for the activity. Likewise, activity G’s ES is 11 weeks and its duration is 9. This EF value
of 20 weeks is 8 weeks less than the ES for node 6, indicating that activity G’s slack is 8. The same
logic can be applied to each activity in the network to determine the critical path and the activities
with slack time.
aoa versus aon
Activity-on-Arrow and Activity-on-Node network diagramming are intended to do the same thing:
create a sequential logic for all activities with a project and, once they are linked, determine the proj-
ect’s duration, critical path, and slack activities. One common question has to do with the efficacy
of one network approach over the other; that is, what are the benefits and drawbacks of selecting
either the AON format or the AOA approach? Consequently, in choosing to use either AOA or AON
network methods, it is important to consider some of the strengths and weaknesses of each of these
techniques.4
aon strengths and weaknesses The benefits of AON are centered primarily in the fact that it
has become the most popular format for computer software packages, such as MS Project. Hence,
as more and more companies use software-based project scheduling software, they are increas-
ingly using the AON method for network diagrams. Another benefit of AON is that we place
the activity within a node and use arrows merely as connection devices, thereby simplifying the
network labeling. This convention makes AON networks very easy to read and comprehend, even
for novice project managers. The primary drawback with AON networks occurs when the project
is very complex with numerous paths through the model. The sheer number of arrows and node
connections when multiple project activities are merging or bursting can make AON networks dif-
ficult to read.
aoa strengths and weaknesses The greatest benefit of AOA modeling lies in its accepted use
in certain business fields, such as construction, where AON networks may be less widely used.
Also, in the case of large, complex projects, it is often easier to employ the path process used in
AOA. Finally, because the activity and node system is used for projects that have many significant
milestones, such as supplier deliveries, AOA event nodes are very easy to identify and flag. On the
other hand, there is no question that some conventions in AOA diagramming are awkward, par-
ticularly the use of dummy activities. The concept of dummy activities is not simple to master, and
thus more training is required on the part of novice project managers to be able to use the concept
easily. In addition, AOA networks can be “information-intensive” in that both arrows and nodes
contain some important project information. Rather than centralizing all data into a node, as in the
AON convention, AOA networks use both arrows and nodes to label the network.
3
B
C
2
4
6 7
5
1
0
0
A
5 5
5
5
10
22
11
11
6
6
9
2
30
30
13 24
24
28
28
4
H
E
F
G
D
Figure 10.24 Project Delta Backward Pass Using AoA Network
354 Chapter 10 • Project Scheduling
Ultimately, the choice to employ AON or AOA network methodology comes down to
individual preferences and the external pressures faced in work situations. For example, if the
organization I work for has decided to adopt AON modeling because of the commonly used
scheduling software, in all likelihood I will concentrate exclusively on AON network diagram-
ming approaches. Regardless of the decision each of us makes regarding the use of AOA or AON
methodology, it is extremely important that we all become comfortable with the basic theory and
operation of both types of network models.
10.5 controversies in the use oF networks
The Program evaluation and review technique/Critical Path Method (PERT/CPM) is a well
understood and much employed system for project planning and scheduling. Nevertheless, net-
works are abstract representations of events in which time is reduced to a numerical value. They may
or may not be drawn to a scale that has a relationship to the ongoing pattern of events. Sometimes
this abstraction can be misleading. In fact, there are several criticisms and caveats we need to bear in
mind as we develop project activity networks, including:5
1. Networks can become too large and complex to be meaningful. Many projects are large
and hugely complex. For example, the creation of an operating system for personal com-
puters, construction of a sports arena, or development of a drug are all projects that can
easily contain thousands of steps or individual activities. Many projects extend over years,
and estimation of activity duration can become general guesses at best. As a result, when
working with networks for large-scale or long-term projects, it is necessary to find ways to
simplify the activity network calculations. One rule of thumb for large projects is to try to
simplify network logic and reduce it to the most obvious or meaningful relationships. Rather
than showing every possible path through the network and every activity sequence, a “meta-
network” that shows only the key subroutines or network paths can be created. These sub-
routines can be further broken down by the project manager or administrator responsible
for their completion, but the overall project network is streamlined to include only the most
general or relevant project activities.
A variably scaled time frame is another option for long-term projects. For example,
activities scheduled to occur within the first nine months may be listed with durations scaled
to the number of days necessary to complete them. Activities scheduled between the first
and second year may be listed on the network with a scaling of weeks or even months, and
activities included in the network beyond the second year may only be listed with durations
indicated by months.
2. Faulty reasoning in network construction can sometimes lead to oversimplification or incor-
rect representations. Problems frequently occur when organizations attempt to manage their
projects on the basis of these multiple layers of activity networks. Information going to dif-
ferent levels in the organization is often not easily understood or translatable between levels
because they do not share a common project schedule. Hence, it is important that when sim-
plifying a project network, steps must be taken to ensure that information is not lost through
oversimplification or the creation of multiple networks with no integration processes.
Complex schedules often require a combination “top-down, bottom-up” approach to
controlling project activities. Top-down control means that there is a tiered system for project
schedules. At the top is the most basic summary information, as in the case of simply list-
ing work packages or summary “roll-ups” of numerous individual tasks. Top management
then deals with top-tier summary information that aggregates and simplifies the schedule.
Although it is much easier to understand, this top-tier summary network does not give top
management a basis for understanding the actual development of the project because they
are not privy to the status of individual tasks. On the other hand, those responsible for por-
tions of the project, as well as project managers, need more “bottom-up” information to allow
them to maintain hands-on control of the portion of the project network for which they are
responsible. Project personnel need specific, lower-tier activity network information to allow
for optimal scheduling and control.
Figure 10.25 provides an example of a simplified tiered system for schedules. Top man-
agement would receive aggregated information from the top tier, middle-level management
10.5 Controversies in the Use of Networks 355
(e.g., department heads) would get slightly more detailed information based on activities
relevant to their departments or functions, and both the project manager and the project team
would employ the full, detailed, and specific project schedule in the bottom tier.
3. Networks are sometimes used for tasks for which they are not well suited. Companies
sometimes try to adopt project network scheduling to other scheduling activities in their
organizations, but network activities are not useful for all scheduling challenges. Suppose,
for example, that a manufacturing organization was having problems with its production
scheduling. Under the mistaken notion that PERT can work just as well for manufacturing
operations as it does for project planning, managers might mistakenly decide to employ
PERT in situations for which it is not suited. In fact, although project network scheduling
methodologies are an important technique in project management, they do not represent a
panacea for all scheduling problems that organizations face.
4. Networks used to control the behavior of subcontractors have special dangers. Many
projects involve the use of subcontractors. When the “prime contracting” organiza-
tion employs multiple subcontractors, a common mistake is requiring them to develop
independent activity plans without reference to or understanding the planning of other
subcontractors with whom they may need to interface. If a firm is using multiple subcon-
tractors, two important principles are needed to guide their use of networks: (1) All sub-
contractors must be privy to the prime contractor ’s overall network, which includes the
schedules for each “sub,” so that subcontractors can make scheduling decisions based not
on assumptions, but rather on clear knowledge of the plans of other subcontractors; and
(2) the networks of all subcontractors need to be merged—using a common set of network
techniques, time-frame scaling, and so forth—and the network document must be mutu-
ally accessible, which is most likely to occur if all subcontractors are equally aware of the
rules governing network creation.
5. There is a strong potential for positive bias in PERT estimations used in network construc-
tion. Research has demonstrated that most activity estimations using PERT methods lead
to overly optimistic activity duration estimates. PERT analysis is based on probabilistic time
estimates that, if unreasonably determined, can lead to inaccurate and misleading project
schedules. The logic that drives duration estimates and the development of the PERT net-
work must be demonstrated as reasonable for PERT scheduling to be meaningful.
Tier Three—
Bottom
Tier Two—Middle
Tier One—Top
Figure 10.25 tiered System of Project Schedules
356 Chapter 10 • Project Scheduling
conclusions
Activity network development is the heart of the project management planning process. It requires
us to make reasonable estimates of activity durations, and it expects us to develop the logic for
activity sequencing and use this information to create meaningful project schedules. Only through
the careful analysis of the steps in project scheduling can we turn project concepts into working
realities. Scheduling allows us to determine the answers to the truly significant questions of project
management: What needs to be accomplished? When does it need to be accomplished? How can
it be accomplished? The scheduling techniques you select are not nearly as important to the final
success of your projects as is your commitment to performing these operations carefully, methodi-
cally, and honestly. The schedule is our road map showing the route we must take to complete the
project successfully. The care with which we create that map and the manner in which we follow it
will go far to determining whether or not we will be successful in running our projects.
Summary
1. Apply lag relationships to project activities.
Examples of developing network logic include
determining how precedence relationships apply
to each project activity; that is, do activities follow
one another in a common manner in which the pre-
decessor’s early finish becomes the successor activ-
ity’s early start, or are other relationships specified?
Among these alternative relationships, referred to
as lag relationships, are Finish to Start, Finish to
Finish, Start to Start, and Start to Finish.
2. construct and comprehend gantt charts. An alter-
native method for developing the project network
other than the use of PERT diagrams is Gantt charts.
Gantt charts offer an important advantage over the
early PERT diagrams in that they link the activities to
a project schedule baseline based on actual calendar
dates. Thus, we can see not only which activities have
to occur in what order, but also when they are sched-
uled to begin and end. In recent years, Gantt charts
have been used in conjunction with PERT charts,
particularly with most project scheduling software.
3. recognize alternative means to accelerate projects,
including their benefits and drawbacks. The
project schedule can be accelerated by a number
of alternative means, including adding resources
to the project team, fast-tracking, compromising
quality, reducing the project’s scope, and using
overtime. Each of these options offers the means to
accelerate a project, but not all are appropriate in
every circumstance; for example, it may not be use-
ful or helpful to deliberately compromise a project’s
quality. Some of these options can improve produc-
tivity in theory, but may not work as well in reality;
for example, research suggests that use of sustained
overtime for extended periods can actually have
a detrimental effect on a project due to the effects
of employee fatigue and rework costs. Finally, the
choice of alternatives requires us to understand the
resource constraints of the organization.
4. Understand the trade-offs required in the decision
to crash project activities. When it has been deter-
mined that the project must be accelerated, due to
either changes in the external environment or pres-
sures from top management or customers, a method
known as project crashing is employed. Crashing
directly links all activities to their respective costs
and allows us to calculate the cost for each day we
choose to accelerate the project. The decision of
whether or not to crash can therefore be directly
linked to the cost implications for crashing, allow-
ing project managers to make an informed decision
on time/cost trade-offs.
5. develop activity networks using Activity-on-
Arrow techniques. Although AON network dia-
gramming has become the more popular method,
for many years AOA network diagramming was
the technique of choice, and it is still widely applied
in several project settings, such as construction. This
chapter discusses in detail AOA networks and their
unique properties, including the creation and use
of dummy variables, and examines the steps nec-
essary to construct an AOA network, as well as its
advantages and disadvantages compared to AON
notation.
6. Understand the differences in Aon and AoA
and recognize the advantages and disadvantages
of each technique. The chapter concludes with
a critical review of some of the controversies
found in the development and use of network dia-
grams for project scheduling. Several drawbacks
or concerns in diagramming are listed, including
(1) networks can become too large and complex
to be meaningful, (2) faulty reasoning can lead to
oversimplification or incorrect representations, (3)
networks can be used for tasks for which they are
not well suited, and (4) network diagramming has
special dangers when used to control subcontrac-
tor behavior.
Solved Problems 357
Key Terms
Activity-on-Arrow (AOA)
(p. 348)
Activity-on-Node (AON)
(p. 348)
Arrow (p. 349)
Brooks’s Law (p. 343)
Crashing (p. 340)
Dummy activities (p. 351)
Event (p. 348)
Fast-tracking (p. 334)
Gantt chart (p. 335)
Lag (p. 333)
Merge (p. 352)
Node (p. 349)
Overtime (p. 336)
Program Evaluation and
Review Technique
(PERT) (p. 354)
Serial activities (p. 333)
10.1 crASHiNG Project ActivitieS
Suppose you are considering whether or not to crash project ac-
tivities in order to expedite your project. You have calculated
the total costs per activity for both normal and crashed options.
These are shown in the table below:
Normal crashed
Activity Duration cost Duration cost
A 6 days $ 2,400 4 days $ 3,600
B 7 days 3,500 5 days 5,000
C 5 days 3,000 4 days 3,800
D 3 days 2,700 2 days 4,500
E 4 days 800 3 days 1,500
F 5 days 1,200 3 days 2,100
G 8 days 2,400 5 days 4,200
H 3 days 4,500 2 days 7,000
Total costs = $20,500 $31,700
a. Which activities are the most likely candidates for crashing
(i.e., which are the most cost-effective to crash)?
b. Refer back to Figure 10.24. Using the critical path from
this activity network, consider A – C – D – F – H as the
critical path and assume all other paths are less than a fully
crashed A – C – D – F – H. Prioritize the candidates for
crashing. How does the activity network change the deci-
sion rule?
SoluTioN
Remember that the formula to calculate crashing costs is
based on the slope between the normal and crashed costs of
each activity:
Slope =
crash cost – normal cost
normal time – crash time
Using this equation, we can create a table showing the crashing
costs per day:
Activity crashing costs (per day)
A $ 600
B 750
C 800
D 1,800
E 700
F 450
G 600
H 2,500
a. Prioritizing crashing choices, the most cost-effective activities to
crash are (1) activity F, (2) activities A and G, and (3) activity E.
b. The choices for crashing should be prioritized first by those
that are on the critical path. In this example, the critical path
is made up of activities A – C – D – F – H. Therefore, the first
activity to be crashed would be activity F, followed by activ-
ity A. Because neither activity G nor E is on the critical path,
crashing them will not reduce the project length but will add
to the overall costs.
10.2 coSt of crASHiNG A Project
Consider the following project activity table, identifying each
activity, its normal duration and cost, and expedited durations
and costs:
Normal crashed
Activity Duration cost Duration cost
A 3 days $1,500 2 days $2,000
B 5 days 3,500 4 days 5,000
C 4 days 6,800 3 days 7,500
D 5 days 2,500 3 days 6,000
E 7 days 4,200 6 days 5,400
F 4 days 2,000 3 days 2,700
a. What is the cost per day to crash each of the activities?
b. Assuming that only activities A, C, and E are part of the
critical path, which activities should be crashed first?
Solved Problems
358 Chapter 10 • Project Scheduling
SoluTioN
a. The formula for calculating crash costs is:
Slope =
crash cost – normal cost
normal time – crash time
The crashed costs for each activity are:
Activity A = $500
Activity B = $1,500
Activity C = $700
Activity D = $1,750
Activity E = $1,200
Activity F = $700
b. Assuming that activities A, C, and E are part of the critical
path, we would crash in order from the least expensive ac-
tivity to the most expensive. In this case, the first choice for
crashing is activity A ($500), followed by activity C ($700),
and activity E ($1,200). The total time we can save in crash-
ing all critical path activities is 3 days at a total additional
cost of $2,400.
Discussion Questions
Problems
10.1 Give examples of circumstances in which a project would
employ lag relationships between activities using:
a. Finish to start
b. Finish to finish
c. Start to start
d. Start to Finish
10.2 The advantage of Gantt charts lies in their linkage to the
project schedule baseline. Explain this concept.
10.3 What are the advantages in the use of Gantt charts over
PERT diagrams? In what ways might PERT diagrams be
advantageous?
10.4 How do concepts such as Brooks’s Law and the effects
of sustained overtime cause us to rethink the best ways
to accelerate a project? Is it particularly ironic that these
“acceleration” efforts can actually lead to serious delays?
10.5 Under what circumstances might you wish to crash a
project?
10.6 In crashing a project, we routinely focus on those activities
that lie on the critical path, not activities with slack time.
Explain why this is the case.
10.7 What are some of the advantages in the use of AOA nota-
tion as opposed to AON? Under what circumstances does
it seem better to apply AON methodology in network
development?
10.8 Explain the concept of a dummy variable. Why is this con-
cept employed in AOA notation? Why is there no need to
use dummy variables in an AON network?
10.9 Identify and discuss some of the problems or dangers in
using project networks. Under what circumstances can
they be beneficial, and when can they be dangerous?
10.1 Develop the network activity chart and identify the criti-
cal path for a project based on the following information.
Draw the activity network as a Gantt chart. What is the
expected duration of the project?
Activity expected Duration Predecessors
A 5 days —
B 6 days A
C 2 days A
D 4 days A
E 6 days B, C
F 6 days D, E
G 12 days F
H 4 days G
I 6 days F
J 7 days H, I
10.2 Develop a Gantt chart for the following activities. Identify
all paths through the network. What is the critical path?
Optional: Solve this problem with Microsoft Project. How
does clicking on “Tracking Gantt” view demonstrate the
critical path?
Activity expected Duration Predecessors
A 2 days —
B 3 days A
C 4 days A
D 4 days B, C
E 5 days B
F 6 days D
G 4 days C, E, F
10.3 Reconfigure the Gantt chart in problem 2 to include some
different predecessor relationships. Optional: Solve this
problem with Microsoft Project.
a. Assume that activities B and C are linked with a “finish
to finish” relationship. Does that change the expected
completion date for the project?
b. For activity F, add a lag of 3 days to its predecessor
relationship with activity D. By adding the 3-day
lag to F, what is the new expected duration for the
project?
c. Suppose you now added a start-to-start relationship
between activities F and G to the new Gantt chart. How
does this additional relationship change the expected
completion date for the project?
Problems 359
10.4 Consider a project with the following information.
Construct the project activity network using AOA meth-
odology and label each node and arrow appropriately.
Identify all dummy activities required to complete the
network.
Activity Duration Predecessors
A 3 —
B 5 A
C 7 A
D 3 B, C
E 5 B
F 4 D
G 2 C
H 5 E, F, G
Activity Duration eS ef lS lf Slack
A 3 0 3 0 3 —
B 5 3 8 5 10 2
C 7 3 10 3 10 —
D 3 10 13 10 13 —
E 5 8 13 12 17 4
F 4 13 17 13 17 —
G 2 10 12 15 17 5
H 5 17 22 17 22 —
10.5 You are considering the decision of whether or not to crash
your project. After asking your operations manager to con-
duct an analysis, you have determined the “precrash” and
“postcrash” activity durations and costs, shown in the fol-
lowing table (assume all activities are on the critical path):
Normal crashed
Activity Duration cost Duration cost
A 4 days $1,000 3 days $2,000
B 5 days 2,500 3 days 5,000
C 3 days 750 2 days 1,200
D 7 days 3,500 5 days 5,000
E 2 days 500 1 day 2,000
F 5 days 2,000 4 days 3,000
G 9 days 4,500 7 days 6,300
a. Calculate the per day costs for crashing each activity.
b. Which are the most attractive candidates for crashing?
Why?
10.6 Suppose you are trying to decide whether or not it makes
sense to crash your project. You know that normal project
duration and direct costs are 60 days and $125,000. You
are worried, though, because you have a very tight deliv-
ery schedule and the customer has placed a severe pen-
alty into the contract in the form of $5,000 in liquidated
damages for every day the project is late after 50 days.
After working with the cost accountant, you have gener-
ated the following table of project costs at different com-
pletion durations:
Project
Duration
(in days) Direct costs
overhead
costs
Penalty
charges
total
costs
60 $125,000 $15,500 $50,000
57 140,000 13,000 35,000
54 175,000 10,500 20,000
51 210,000 8,000 5,000
a. Complete the table. How many days would you advise
the project should be crashed? Why?
b. Suppose direct costs of crashing the project only
increased $5,000 per day crashed at a steady rate (start-
ing with $125,000 on day 60). How many days would
you advise that the project be crashed? Show your work.
10.7 When deciding on whether or not to crash project activi-
ties, a project manager was faced with the following infor-
mation. Activities on the critical path are highlighted with
an asterisk:
Normal crashed
Activity cost Duration extra cost Duration
A $ 5,000 4 weeks $4,000 3 weeks
B* 10,000 5 weeks 3,000 4 weeks
C 3,500 2 weeks 3,500 1 week
D* 4,500 6 weeks 4,000 4 weeks
E* 1,500 3 weeks 2,500 2 weeks
F 7,500 8 weeks 5,000 7 weeks
G* 3,000 7 weeks 2,500 6 weeks
H 2,500 6 weeks 3,000 5 weeks
a. Identify the sequencing of the activities to be crashed
in the first four steps. Which of the critical activities
should be crashed first? Why?
b. What is the project’s critical path? After four itera-
tions involving crashing project activities, what has the
critical path shrunk to? (Assume all noncritical paths
are … a fully crashed critical path.)
c. Suppose project overhead costs accrued at a fixed rate
of $500 per week. Chart the decline in direct costs over
the project life relative to the increase in overhead ex-
penses.
d. Assume that a project penalty clause kicks in after 19
weeks. The penalty charged is $5,000 per week. When
the penalty charges are added, what does the total proj-
ect cost curve look like? Develop a table listing the costs
accruing on a per-week basis.
e. If there were no penalty payments accruing to the proj-
ect, would it make sense to crash any project activities?
Show your work.
360 Chapter 10 • Project Scheduling
CASe STuDy 10.1
Project Scheduling at Blanque Cheque Construction (A)
Joe has worked for Blanque Cheque Construction
(BCC) for five years, mainly in administrative posi-
tions. Three months ago, he was informed that he was
being transferred to the firm’s project management
group. Joe was excited because he realized that project
management was typically the career path to the top
in BCC, and everyone had to demonstrate the ability
to “get their feet wet” by successfully running projects.
Joe has just left a meeting with his superior, Jill,
who has assigned him project management responsi-
bilities for a new construction project the company has
successfully bid. The project consists of developing a
small commercial property that the owners hope to
turn into a strip mall, directly across the street from a
suburban college campus. The size of the property and
building costs make it prudent to develop the prop-
erty for four stores of roughly equal size. Beyond that
desire, the owners have made it clear to BCC that all
project management associated with developing the
site is BCC’s responsibility.
Joe is sitting in his office at BCC trying to develop
a reasonable project plan, including laying out some
of the important project activities. At this point, he is
content to stick with general levels of activities; that is,
he does not want to get too specific yet regarding the
various construction steps for developing the site.
Questions
1. Develop a project network consisting of at least
20 steps that should be done to complete the proj-
ect. As the case suggests, keep the level of detail
for these activities general, rather than specific.
Be sure to indicate some degree of precedence re-
lationship among the activities.
2. Suppose you now wanted to calculate duration
estimates for these activities. How would you
make use of the following approaches? Are some
more useful than others?
a. Expert opinion
b. Past history
c. Mathematical derivation
3. Joe is trying to decide which scheduling format
to employ for his planning: AON or AOA. What
are some of the issues that Joe should first con-
sider prior to choosing between these methods?
CASe STuDy 10.2
Project Scheduling at Blanque Cheque Construction (B)
Joe has been managing his project now for more than
12 months and is becoming concerned with how far
behind the schedule it is slipping. Through a series
of mishaps, late supplier deliveries, bad weather, and
other unforeseen circumstances, the project has expe-
rienced one delay after another. Although the original
plan called for the project to be completed within the
next four months, Joe’s site supervisor is confident
that BCC cannot possibly make that completion date.
Late completion of the project has some severe conse-
quences, both for BCC and for Joe. For the company,
a series of penalty clauses kicks in for every week the
project is late past the contracted completion date. For
Joe personally, a late completion to his first project as-
signment can be very damaging to his career.
Joe has just finished a meeting with his direct
supervisor to determine what options he has at this
point. The good news is that the BCC bid for the con-
struction project came with some additional profit
margin above what is common in the industry, so Joe’s
boss has given him some “wiggle room” in the form
of $30,000 in discretionary budget money if needed.
The bad news is that the delivery date for the project is
fixed and cannot be altered without incurring substan-
tial penalties, something BCC is not prepared to accept.
The message to Joe is clear: You can spend some addi-
tional money but you cannot have any extra time.
Joe has just called a meeting with the site super-
visor and other key project team members to discuss
the possibility of crashing the remaining project activi-
ties. He calculates that crashing most of the final activi-
ties will bring them in close to the original contracted
completion date but at a substantial cost. He needs to
weigh these options carefully with his team members
to determine if crashing makes sense.
Questions
1. What are some of the issues that weigh in favor
of and against crashing the project?
2. Suppose you were the site supervisor for this
project. How would you advise Joe to proceed?
Before deciding whether or not to crash the proj-
ect, what questions should you consider and
how should you evaluate your options?
MS Project Exercises 361
MS Project exercises
exercise 10.1
Suppose we have a complete activity predecessor table
below and we wish to create a network diagram highlighting
Project: Remodeling an Appliance
Activity Duration Predecessors
A Conduct competitive analysis 3 —
B Review field sales reports 2 —
C Conduct tech capabilities assessment 5 —
D Develop focus group data 2 A, B, C
E Conduct telephone surveys 3 D
F Identify relevant specification improvements 3 E
G Interface with marketing staff 1 F
H Develop engineering specifications 5 G
I Check and debug designs 4 H
J Develop testing protocol 3 G
K Identify critical performance levels 2 J
L Assess and modify product components 6 I, K
M Conduct capabilities assessment 12 L
N Identify selection criteria 3 M
O Develop RFQ 4 M
P Develop production master schedule 5 N, O
Q Liaise with sales staff 1 P
R Prepare product launch 3 Q
exercise 10.2
Now, continue developing your Gantt chart with the rest of the
information contained in the table in Exercise 10.1, and create a
complete activity network diagram for this project.
exercise 10.3
Identify the critical path for the project shown in Exercise 10.1.
How can you identify the critical path? (Hint: Click on the
“Tracking Gantt” option.)
exercise 10.4
Suppose that we wish to incorporate lag relationships into our
Remodeling an Appliance activity network. Consider the table
shown below and the lag relationships noted. Develop an MS
Project Gantt chart that demonstrates these lags.
Activity Duration lag relationship
A Wiring 6 None
B Plumbing 2 None
C HVAC 3 Wiring (Finish to Start),
Plumbing (Finish to Finish)
D Interior construction 6 HVAC (Start to Start)
the activity sequence for this project. Using MS Project, enter
activities A through E, their durations, and their predeces-
sors. Note that all duration times are in days.
PMP certificAtion sAMPle QUestions
1. The IT implementation project is bogging down and
falling behind schedule. The department heads are
complaining that the project cannot help them if it is
not implemented in a reasonable time frame. Your proj-
ect manager is considering putting extra resources to
work on activities along the critical path to accelerate
the schedule. This is an example of what?
a. Rebaselining
b. Crashing
c. Fast-tracking the project
d. Identifying critical dependencies
2. Dummy variables are used in what kind of network
diagramming method?
a. AON
b. Gantt charts
c. AOA
d. OBS
3. Suppose you evaluated the best-case, most likely, and
worst-case duration estimates for an activity and de-
termined that they were 3 days, 4 days, and 8 days,
362 Chapter 10 • Project Scheduling
respectively. Using PERT estimation techniques, what
would be the expected duration for the activity?
a. 4 days
b. 8 days
c. 5 days
d. 4.5 days
4. Suppose you created your activity network and
discovered that you had two critical paths in your
project. You share this information with another proj-
ect manager, who strongly argues that a project can
have only one critical path; therefore, your calcula-
tions are incorrect. What is the correct response to his
assertion?
a. A project can have more than one critical path,
although having multiple critical paths is also
likely to increase the risk of the project falling
behind.
b. Your coworker is correct: A project can have only
one critical path. You need to return to the network
and determine where you erred in developing the
network logic and diagram.
c. The critical path is the shortest path through the
network, so having more than one is not a signifi-
cant problem.
d. A project can have more than one critical path, al-
though having multiple critical paths is actually
likely to decrease the overall risk of the project.
5. Which of the following circumstances would re-
quire the creation of a lag relationship in a network
diagram?
a. The critical path
b. The insertion of a dummy variable into a network
diagram
c. A delay after painting a room to allow for the paint
to dry before beginning to carpet the room’s floor
d. An early finish relationship between two activities
Answers: 1. b—Accelerating the project through adding
resources to critical activities is referred to as “crashing”
the project; 2. c—Dummy variables are employed in Activ-
ity-on-Arrow (AOA) network diagrams; 3. d—PERT esti-
mation would lead to the calculation (3 + (4 * 4) + 8)/6 =
27/6 or 4.5 days; 4. a—Having more than one critical path
is possible; however, the more activities that exist on the
critical path(s), the greater the risk to the project’s sched-
ule because delays in any critical activities will delay the
completion of the project; 5. c—Allowing for paint to dry
before beginning the next activity is an example of a lag
relationship occurring between activities.
Integrated Project 363
iNteGrAteD Project
Developing the Project Schedule
Develop an in-depth schedule for your initial project based on the Work Breakdown Structure you
have completed. You will need to complete several activities at this stage: (1) create an activity
precedence diagram showing the network logic for each project activity you have identified; (2)
prepare an activity duration table showing optimistic, likely, and pessimistic activity times for each
task; and (3) create both the network diagram and Gantt charts for your project, indicating the criti-
cal path and all critical activities, total project duration, and all activities with float.
As you prepare the activity precedence diagram, consider:
1. Have we identified opportunities to create parallel paths or are we placing too many activi-
ties directly in a serial path?
2. Is our logic correct for identifying preceding and subsequent activities?
3. Are there some clear milestones we can identify along the precedence diagram?
As you prepare the activity duration table, you might wish to set it up along the following lines:
Duration
Activity optimistic likely Pessimistic est. Duration
A 6 9 18 10
B 3 8 13 8
Finally, in creating the network diagram and Gantt charts, use MS Project or a comparable
scheduling software package (see examples in Figures 10.26, 10.27, and 10.28a, b, and c).
Sample Project Schedule, ABCups, inc.
tasks Duration (in days)
Plant manager feasibility request 1
Get technical approval 5
Determine if additional labor needed 4
Research equipment 26
Determine best suppliers 21
Meet with vendors 21
Obtain quotations from vendors 21
Pick equipment vendor 14
Negotiate price and terms 7
Obtain financing for equipment 3
Calculate ROI 3
Obtain required signatures 3
Capital approved 10
Issue purchase order 1
Equipment being built 40
Marketing new process 21
Create mailer 15
Design new brochure 9
Update Web site 9
Lay out plant for new equipment 15
Note: This is a partial activity network and schedule.
364 Chapter 10 • Project Scheduling
Figure 10.27 Partial Gantt chart for ABcups, inc. Project (right Side)
Source: MS Project 2013, Microsoft Corporation.
Figure 10.26 Partial Gantt chart for ABcups, inc. Project (left Side)
Source: MS Project 2013, Microsoft Corporation.
Notes 365
Figure 10.28b Network Diagram for ABcups, inc. Project (Middle)
Source: MS Project 2013, Microsoft Corporation.
Figure 10.28a Network Diagram for ABcups, inc. Project (left Side)
Source: MS Project 2013, Microsoft Corporation.
Figure 10.28c Network Diagram for ABcups, inc. Project (right Side)
Source: MS Project 2013, Microsoft Corporation.
Notes
1. Padgett, T. (2013, May 31). “Expanding the Panama Canal:
The Problem Is Money, Not Mosquitoes,” NPR. www.
npr.org/blogs/parallels/2014/05/30/317360379/
expanding-the-panama-canal-the-problem-is-money-
not-mosquitoes; Faganson, Z., and Adams, D. (2014,
July 14). “Panama Canal cost overrun claim headed
to Miami arbitration court,” Reuters. www.reuters.
com/article/2014/07/14/us-usa-panamacanal-arbi-
tration-idUSKBN0FJ1PA20140714; Johnston, K. (2014,
March 16). “Panama Canal expansion to have major
impact on Boston,” Boston Globe. www .bostonglobe.
com/business/2014/03/15/panama-canal-expansion-
have-major-impact-boston-worldwide-shipping/lqz3i-
ihcfpHWdTMS9ePDKO/story.html; U.S. Department
of Transportation Maritime Administration. (2013).
Panama Canal Expansion Study. www.marad.dot.
gov/documents/Panama_Canal_Phase_I_Report_-
_20Nov2013 ; Panama Canal Authority (2006).
Proposal for the Expansion of the Panama Canal. www.
acp.gob.pa/eng/plan/documentos/propuesta/ acp-
expansion-proposal .
2. Nicholas, J. M. (1990). Managing Business & Engineering
Projects. Englewood Cliffs, NJ: Prentice-Hall; Hulett,
D. (1995). “Project schedule risk assessment,” Project
Management Journal, 26(1): 23–44; Lock, D. (2000). Project
Management, 7th ed. Aldershot: Gower; Oglesby, P., Parker,
H., and Howell, G. (1989). Productivity Improvement in
Construction. New York: McGraw-Hill.
3. Brooks, F. P., Jr. (1994). The Mythical Man-Month: Essays
on Software Engineering, Anniversary Edition. Reading,
MA: Addison-Wesley; Cooper, K. G. (1998). “Four failures
in project management,” in Pinto, J. K. (Ed.), The Project
Management Institute Project Management Handbook. San
Francisco, CA: Jossey-Bass, pp. 396–424; Ibbs, C. W., Lee,
S. A., and Li, M. I. (1998). “Fast-tracking’s impact on proj-
ect change,” Project Management Journal, 29(4): 35–42.
4. Gray, C. F., and Larson, E. W. (2003). Project Management.
Burr Ridge, IL: McGraw-Hill.
5. Shtub, A., Bard, J. F., and Globerson, S. (1994). Project
Management: Engineering, Technology, and Implementation.
Englewood Cliffs, NJ: Prentice-Hall; Navarre, C., and
Schaan, J. (1990). “Design of project management systems
from top management’s perspective,” Project Management
Journal, 21(2), pp. 19–27.
366
1 1
■ ■ ■
Advanced Topics in Planning
and Scheduling
Agile and Critical Chain
Chapter Outline
Project Profile
Developing Projects Through Kickstarter—
Do Delivery Dates Mean Anything?
introduction
11.1 Agile Project MAnAgeMent
What Is Unique About Agile PM?
Tasks Versus Stories
Key Terms in Agile PM
Steps in Agile
Problems with Agile
Project MAnAgeMent reseArch in Brief
Does Agile Work?
11.2 extreMe ProgrAMMing (xP)
11.3 the theory of constrAints
And criticAl chAin Project
scheduling
Theory of Constraints
11.4 the criticAl chAin solution
to Project scheduling
Developing the Critical Chain Activity
Network
Critical Chain Solutions Versus Critical Path
Solutions
Project Profile
Eli Lilly Pharmaceuticals and Its Commitment
to Critical Chain Project Management
11.5 criticAl chAin solutions
to resource conflicts
11.6 criticAl chAin Project Portfolio
MAnAgeMent
Project MAnAgeMent reseArch in Brief
Advantages of Critical Chain Scheduling
11.7 critiques of ccPM
Summary
Key Terms
Solved Problem
Discussion Questions
Problems
Case Study 11.1 Judy’s Hunt for Authenticity
Case Study 11.2 Ramstein Products, Inc.
Internet Exercises
Notes
Chapter Objectives
After completing this chapter, you should be able to:
1. Understand why Agile Project Management was developed and its advantages in planning for
certain types of projects.
2. Recognize the critical steps in the Agile process as well as its drawbacks.
3. Understand the key features of the Extreme Programming (XP) planning process for software
projects.
4. Distinguish between critical path and critical chain project scheduling techniques.
5. Understand how critical chain methodology resolves project resource conflicts.
6. Apply critical chain project management to project portfolios.
Project MAnAgeMent Body of Knowledge core concePts
covered in this chAPter
1. Rolling Wave Planning Method Sequence Activities (PMBoK sec. 6.2.2.2)
2. Sequence Activities (PMBoK 6.3)
3. Estimate Activity Resources (PMBoK sec. 6.4)
4. Estimate Activity Durations (PMBoK sec. 6.5)
5. Develop Schedule (PMBoK sec. 6.6)
6. Develop Schedule (tools and techniques) (PMBoK sec. 6.6.2)
7. Critical Chain Method (PMBoK sec. 6.6.2.3)
8. Resource Optimization Techniques (PMBoK sec. 6.6.2.4)
Project Profile
Developing Projects through Kickstarter—Do Delivery Dates Mean Anything?
It is no longer the case that creative projects and their developers must convince corporate executives or venture
capitalists to invest in their ideas. With the advent of the Kickstarter online platform, entrepreneurs can tap into
a new source of funding through a concept known as crowdsourcing. The idea is simple: Set up a website, dem-
onstrate the idea, and enlist thousands of enthusiastic supporters to donate money to your vision. To give an idea
of just how successful the Kickstarter model has become, since its launch in April 2009, the site has already raised
over $1 billion from hundreds of thousands of supporters to successfully fund some 57,000 projects. These projects
have ranged from new electronic gadgets, to smartphone apps, to film projects, music recordings, video games, and
other creative endeavors. Kickstarter is an all-or-nothing approach: If a project doesn’t reach its funding goal, no
one’s credit card is charged. It seems that the Kickstarter model could be the future for successful “guerilla” project
development, right?
Unfortunately, the track record of these projects is not so clear-cut. For example, in spite of the 57,000 suc-
cessfully funded projects to date, estimates suggest that another 75,000 projects were unsuccessful. Of the “success
stories,” a closer examination raises some uncomfortable questions about them. For example, studies have sug-
gested that for video games funded through Kickstarter between 2009 and 2012, just 37% were fully launched.
Projects in the tech and design categories have seen similar levels of poor results: 75% of these projects experience
significant delays in their launch. In fact, investors who pledge cash for a crowdfunded project had better be very
patient: A CNNMoney examination of the top 50 most-funded projects on Kickstarter found that 84% missed their
target delivery dates.
In examining the causes of these delays, a consistent pattern emerges. A team of ambitious but inexperienced cre-
ators will launch a project that they expect to attract a few hundred backers. Instead, the idea takes off, raising more—
often a lot more—money than anticipated, and at the same time destroying the original production plans and timeline.
For example, consider Oculus Rift, a virtual reality headset designed by 20-year-old Palmer Luckey. He planned to
make a few hundred headsets by hand. Then Kickstarter backers pre-ordered 7,500 units.
“In the first 24 hours, everyone is happy and slapping your hand,” says Oculus CEO Brendan Iribe. “And 48 hours
later, the reality sets in. There’s a bit of fear: We’re going to have to make all of these.”
This unexpected success comes with serious strings attached; these developers have not thought their projects
through to the delivery stage and certainly not for the volume of interest they attract. When plans get pushed, not
all financial supporters are understanding. Oculus Rift was supposed to launch in November 2012—just two months
after its Kickstarter campaign ended—but the shipping dates have been steadily eroding, as technical and production
problems have slowed down delivery. Current plans are to have a consumer version of its virtual reality headset in
stores by 2016.
“Kickstarter should alter their rules to include a section that limits postponing the delivery date,” backer Martin F
wrote on Oculus Rift’s Kickstarter page. “If you postpone by 100% of the original delivery date, you are a scam.”
The most common reasons that new projects did not meet their delivery dates include:
1. Manufacturing obstacles—creative originators of project ideas rarely give serious thought to the challenges of devel-
oping and delivering those projects, including the steps needed for production scheduling and quality management.
2. Shipping—although shipping sounds like a simple process, for large batches of promised deliveries worldwide, it can
quickly become a nightmare. There are examples of companies that stopped all work and brought their entire staff,
including programmers, to the loading dock just to pack their products for shipping.
Project Profile 367
(continued)
368 Chapter 11 • Advanced Topics in Planning and Scheduling
IntroductIon
Scheduling approaches that rely on CPM/PERT are generally accepted as standard operating
procedure by most project‐based organizations. Complications often occur, however, when
we begin linking resource requirements or revised and changing customer needs to our devel-
oped schedules. As we will see in Chapter 12, the problem of constrained resources often
reduces the flexibility we may have to create an optimal project schedule. Likewise, we noted
earlier in the text that a critical goal of all projects is customer satisfaction with the finished
project. Unfortunately, rigid project plans and schedules often do not allow the project team
to maximize client satisfaction or make best use of limited resources. In recent years, however,
two developments in project planning and scheduling have led to some important improve-
ments in how we deliver projects: Agile Project Management and critical chain Project
Management (ccPM). Agile has become widely employed, particularly in the software and
new product development industries, as a means for better linking project development with
critical stakeholders, including customers and top management. Critical Chain, developed
in the mid‐1990s by Dr. Eli Goldratt, offers some important differences and advantages over
more commonly used critical path methodologies. Lucent Technologies, Texas Instruments,
Honeywell, and the Israeli aircraft industry are among a diverse group of major organiza-
tions that have found the underlying premises of CCPM intriguing enough to begin dissemi-
nating the process throughout their project operations.2
This chapter will explore in detail some of the important components of Agile project
management and Critical Chain. We will see how, as supporters contend, these alternative
scheduling mechanisms improve stakeholder satisfaction, promise to speed up project delivery,
make better use of project resources, and more efficiently allocate and discipline the pro-
cess of implementing projects. The Agile methodology represents a unique and very promis-
ing means to improve the way projects are planned and developed, using an iterative cycle
with intriguing ideas like “Sprints” and “Scrums.” We will also discuss a variant of the Agile
3. Volume—successful project developers are nearly always unprepared for the level of interest in their products and
grossly underestimate the numbers they will have to create. As a result, their supply chain sourcing is not well
planned, resulting is serious delays.
4. Apple’s “curve ball”—Apple Corporation nearly single-handedly destroyed the production schedules of hundreds of
new projects when they redesigned their “Lightning connector” for powering their products. These smaller entre-
preneurs were so dependent on working off Apple’s technology that any major shifts for the tech giant had serious
repercussions for their delivery plans.
5. Changing scope—raising more money than expected sounds like a blessing but some firms used this extra funding
as an excuse to drastically change the scope of the original project, opting for more expensive or expansive designs,
technology, or materials. All these changes lead to serious delivery delays.
6. Certifications—any new device, such as a smartphone app, linked to the Apple iPhone has to receive the company’s
permission. Sometimes technologies must be approved for use by governmental agencies. These certifications all
take time and delay the project.
7. Kickstarter’s infrastructure—Kickstarter does not require that financial backers submit their addresses when they
make pledges; all contact information has to be sought by the companies themselves at a later date. It is time-
consuming and difficult to track down every investor and some have complained that the Kickstarter site functions
more like a social network than an e-commerce Web site like eBay or Amazon.
8. Overseas logistics—a significant portion of Kickstarter’s project investors are from other countries, making the deliv-
ery process (and costs associated with it) complicated. For example, once a Kickstarter campaign has closed, creators
can’t use Kickstarter’s payment system to collect extra payments from their backers. That requires project developers
to go back and solicit additional money to pay for the higher cost of overseas shipping.
Although Kickstarter offers fledgling entrepreneurs an opportunity to develop their projects without the oversight
and financial commitment that comes from working for larger corporations, it also takes these creative people
outside of their comfort zone when they are required to actually complete and deliver their project ideas within
the promised timeframe. For many project developers, this has not been a problem; Kickstarter has proven to be an
excellent source of funding and creative support. Kickstarter takes a 5% cut of each funded project, but it makes
clear in its service terms that it isn’t responsible for anything that happens after the cash changes hands. It won’t
get involved in disputes between users. As a result, for investors in these projects, the message can be summed up:
Buyer beware.1
11.1 Agile Project Management 369
model used in software development, referred to as Extreme Programming (XP). A key fea-
ture of Agile and CCPM is that they represent both a cultural shift and a change in planning
and scheduling processes. In practice, if either the Agile or CCPM methods are to be correctly
applied, important technical and behavioral elements must be understood in relation to each
other. The chapter will focus on these aspects of the process.
11.1 AgIle Project MAnAgeMent
In recent years, a new project planning methodology has become increasingly important as organi-
zations recognize that the traditional, highly structured approach to planning and managing proj-
ects may not be as effective for all types of projects. This realization is particularly true in the fields
of information technology (IT) and new product development, where the end result may be impos-
sible to fully visualize because of changing customer needs or consumer tastes. As a result, many
organizations value flexibility in their project development practices, the ability to react quickly to
opportunities or the need for changes mid-stream. Agile Project Management (Agile PM) reflects
a new era in project planning that places a premium on flexibility and evolving customer require-
ments throughout the development process. Agile PM differs from traditional project management
in a number of ways, but most particularly through recognizing that the old approach of carefully
“planning the work and then working the plan” does not take into account the reality of many
modern projects; that is, customer needs may evolve and change over the course of the project.
Following the original plan that made sense when the project started would make no sense as
the project progresses through the execution stage. Agile PM recognizes the importance of these
evolving customer needs and allows for an incremental, iterative planning process—one that stays
connected to clients across the project life cycle.
Agile PM offers an alternative to the traditional, waterfall planning process, which uses a
linear, sequential life cycle model (see Figure 11.1). In the waterfall process, the assumptions that
Gather requirements
Design system
Implement system
Test system
Full deployment
Maintenance
Project
Termination
Project
Start
FIgure 11.1 Waterfall Model for Project Development
370 Chapter 11 • Advanced Topics in Planning and Scheduling
guide project planning and development follow a logical series of steps. So, for example, in our
waterfall model, each stage in this software development process occurs sequentially, following
completion of the previous stage; first requirements are fully gathered, then the system is designed,
implemented, and tested. Finally, it is fully deployed and subject to maintenance. In a waterfall
model, each phase must be completed fully before the next phase can begin. At the end of each
phase, a review takes place to determine if the project is on the right path and whether or not to
continue or discard the project. In the waterfall model phases do not overlap. The waterfall project
development process works well when:
• Requirements are very well understood and fixed at the outset of the project.
• Product definition is stable and not subject to changes.
• Technology is understood.
• Ample resources with required expertise are available freely.
• The project is of relatively short duration.
But what happens if requirements change in the middle of the project’s development? Or
the customer delivers a new set of “critical” features that have to be part of the final product? Or
when a new technological innovation allows our team to streamline the software we are working
on to make it more user-friendly? What if the initial assumptions or project scope were poorly
communicated or a competitor beats us to the market with the identical product? Under these
circumstances, the decision to agree to a fully articulated project scope, set in stone at the outset
of the project, can lead to critical problems. With more and more projects supporting new product
development initiatives that need the flexibility to change course midstream, the waterfall model
can lead to a rigid process that will not deliver value to the customer, either because their needs are
constantly changing or because they did a poor job of initially articulating exactly what the project
was supposed to do. It is to address these critical issues that Agile PM was created.
What Is unique About Agile PM?
Traditional project management establishes a fairly rigid methodology. As we remember from
Chapter 1, the project life cycle suggests that conceptualization and planning occur at the start of
the project. Conceptualization includes building a business case for the project (Why are we doing
this? What do we wish to create? Can we make a profit or create value?) as well as identifying
key project stakeholders. Planning focuses on creating the actual schedules and specifications for
the project. In this traditional project management model, these critical activities are expected to
happen early and be addressed comprehensively, but once completed they are considered done;
in other words, it’s now time to move onto the project execution. Underlying this traditional
approach is the assumption that project members can identify risks (assume minimal uncertainty)
and work their previously developed plans (assume maximum stability).
For many types of projects—short term, small scope, construction, event planning, and process
improvement—these traditional project assumptions are not wrong. Projects with limited or narrow
goals or those that will complete quickly generally do not suffer from significant problems of uncer-
tainty. Their short timeframe minimizes environmental disruptions. Likewise, construction, current
product upgrades, event planning, and other types of projects with clear goals and standard pro-
cesses for completion can be carefully planned, have their costs accurately estimated, and schedules
reasonably developed. Traditional project planning techniques do work well with certain classes of
project or in certain situations. However, the more unpredictable the environment, including having
to take into account changing customer tastes, the challenge of disruptive technologies, complex
development processes, and long time frames, the greater the likelihood that the traditional project
planning approach, which assumes stability and predictable development, will not succeed.
It is to address the problems with traditional project planning that innovative new techniques
like Agile were first developed. Agile PM, usually referred to as scrum, recognizes the mistake of
assuming that once initial project conceptualization and planning are completed, the project can
simply be executed to original specifications, and thus ensure the completed project will be a “suc-
cess.” For example, software projects are prone to constant change. Yet, when clients are expected
to finalize all requirements and wait for an extended period before even viewing prototypes, the
likelihood is extremely high of creating projects greeted by, “That’s not what I wanted!” Creating
a plan and then disengaging from the customer during its development may be a traditional
11.1 Agile Project Management 371
approach to project management but it is dangerous with technologically complex or uncertain
projects. Agile PM is a flexible, iterative system designed for the challenge of managing projects in
the midst of constant change and uncertainty, so it moves the planning function from its traditional
up-front location in the project life cycle to occur throughout project development. In effect, Agile
PM makes development a “rolling wave” process of continuous plan–execute–evaluate cycles
across project development (see Figure 11.2). The goal of each wave in Scrum is to create incremen-
tal value, through steadily developing subfeatures or elements in the overall project. The length
of these development iterations is kept deliberately short (from one to four weeks)—long enough
to create some valuable addition to the project that customers can evaluate but short enough to
remain in constant communication and respond to immediate requests or requirements modifica-
tions. Following each development cycle, a review meeting occurs in which project features are
evaluated, changes agreed to, specifications modified, and next deliverables identified.
To illustrate with a software project example, Agile PM reduces the complexity and uncer-
tainty of an inefficient and costly traditional approach by avoiding the common mistake of a
months-long process of building requirements for the overall project, finishing the product and
then testing it to find hundreds of bugs and unneeded or nonworking features. Instead, smaller
but still usable subfeatures or portions of the software project would be completed one at a time,
tested and verified, all in shorter time periods. In this case, any changes to the software are not
hugely expensive in terms of either time or money.
Scrum originated in the quality work of Takeuchi and Nonaka,3 who promoted a holistic
method for new product development. In their model, they argued that development teams must
work as an integrated unit to reach their goals. The traditional, sequential approach is sometimes
referred to as “over the fence” because it illustrates a model where each functional group adds
something to the product and then, when finished with their efforts, tosses the project “over the
fence” to the next functional group that is expected to continue the development process. This
method slows down new product development, leads to the failure to capture critical product
features, encourages miscommunication and functional rivalries, and hugely increases the costs of
fixing products late in their development cycle, when technical errors and feature misunderstand-
ings can lead to failed projects and wasted money.
Instead of running a “relay race,” Takeuchi and Nonaka encouraged project organiza-
tions to look to a different sport—rugby—in order to develop the right mindset for creating
new products. The old approach, they argued, consisted of passing off the project develop-
ment “baton” to the next group in the relay and moving toward the finish line with minimal
interplay between development partners or the chance to work together in a coordinated, interdis-
ciplinary way. Rugby, on the other hand, emphasizes adaptation, flexibility, and the coordinated
efforts of multiple players, all working to the same purpose, but adjusting and modifying their
efforts as the project proceeds. The whole process is performed by one cross-functional team across
multiple overlapping phases, where the team “tries to go the distance as a unit, passing the ball
back and forth.”4
tasks Versus Stories
One of the critical differences between Agile and traditional project planning relates to the nature
of the roles that key members assume. In a traditional project planning process, the project devel-
oper’s viewpoint is considered most important. Developers are looking at the project from the
Iteration 1 Iteration 2
Project
Start
Iteration 3 Iteration 4 Iteration 5 Iteration 6
Project
Termination
The “Sprint”
Time Box
1−4 weeks
FIgure 11.2 Scrum Process for Product Development
372 Chapter 11 • Advanced Topics in Planning and Scheduling
inside perspective; that is, how long will development take? How many work packages and tasks
are necessary to complete the project? Project developers are interested in tasks because they allow
them to accurately and efficiently plan the work and build their cost estimates. The more detailed
and specific the project is made, the easier it is to create these plans and estimates.
User stories are different and very important for understanding the real needs of the client
(the “voice of the customer”). They are written by or for customers as a means for influencing
the development of the functionality of the product. The more the customer can explain what
they do, what they need, and how they can make use of the product to do their job better, the
clearer the user story becomes and the better able the Scrum team will be to achieve these goals.
Stories have value because they identify the actual work that needs to be done with the com-
pleted product or system. Once stories have been validated, they can then be decomposed into
tasks. The key lies in recognizing the need to first listen to user stories to identify the specific
value-added the project will provide. For example, a project that ignores the voice of the cus-
tomer can be well-managed, brought in on time and under budget, but provide no real value to
the customer because it was done without regard to first identifying critical user stories (what
they need to do their job better).
Another Agile characteristic that demonstrates the importance of the voice of the customer
is the emphasis on product features, as opposed to creating a detailed product WBS. We assume
in an Agile environment that project scope characteristics are inevitably going to change over the
course of the project’s development. As a result, it makes little sense to invest heavily in time and
effort to develop a sophisticated statement of scope for the overall product. Instead, Agile focuses
on getting the product features right: the pieces of the product that deliver functional value to the
customer. Listening for customers’ stories and defining the project’s critical deliverables in terms
of features reinforces the critical nature of the ongoing, closely linked relationship the Scrum team
must maintain with clients.
Key terms in Agile PM5
sprint—A Sprint is one iteration of the Agile planning and executing cycle. So, the Sprint
represents the actual “work” being done on some component of the project and must be com-
pleted before the next Scrum meeting.
scrum—In the sport of rugby, a “scrum” is the restarting of the game following a minor
infraction. In Agile PM, Scrum refers to the development strategy agreed to by all key mem-
bers of the project. Scrum meetings involve assessing the current status of the project, eval-
uating the results of the previous Sprint, and setting the goals and time-box for the next
iteration.
time-box—A time-box is the length of any particular sprint and is fixed in advance, during
the Scrum meeting. As we mentioned, time-boxes typically vary between one and four weeks
in length.
User stories—A short explanation, in the everyday language of the end user that captures
what they do or what they need from the project under development. The goal of the user
story is to gain their perspective on what a correctly developed product will do for them.
scrum Master—The Scrum Master is the person on the project team responsible for moving
the project forward between iterations, removing impediments, or resolving differences of
opinion between the major stakeholders. The Scrum Master does not have to be the project
manager but does have a formal role in enforcing the rules of the Scrum process, including
chairing important meetings. Scrum Masters are focused solely on the Agile project develop-
ment process and do not play a role in people management.
sprint Backlog—A Sprint Backlog is the set of Product Backlog items selected for the Sprint,
plus a plan for delivering the Sprint Goal. The Sprint Backlog is a forecast by the develop-
ment team about what functionality will be in the next time-box increment and the work
needed to complete that functionality. The team controls the Sprint Backlog.
Burndown chart—The Sprint Burndown Chart shows remaining work in the Sprint back-
log. Updated every day and displayed for all Scrum members to see, it provides a quick refer-
ence of the Sprint progress.
11.1 Agile Project Management 373
Product owner—The person representing the stakeholders and serving as the “voice of the
customer.” The product owner may be a member of the project organization but must take
the “outside,” user’s viewpoint in representing customer needs. The product owner creates
user stories that identify their specific needs for the product.
development team—The organizational unit responsible for delivering the product at the
end of each iteration (Sprint). Typically, the development team is cross-functional and self-
organizing; that is, they collectively determine the best way to achieve their goals.
Product Backlog—The Product Backlog is a prioritized list of everything that might be
needed in the completed product and is the source of requirements for any changes to
be made to the product. The Product Backlog is never “final”; it evolves as the product
and the business setting in which it will be used evolve. It constantly changes to identify
what the product needs to be appropriate, competitive, and useful. The product owner
controls the Product Backlog.
work backlog—The evolving, prioritized queue of business and technical functionality that
needs to be developed into a system.
Steps in Agile6
The Agile process follows a series of steps that allow the methodology to combine the flexibil-
ity needed to respond to customer needs with a formal process that creates a logical sequence in
employing Agile planning. The Scrum process involves a set of meetings that manage the project
development process through (1) Sprint Planning, (2) Daily Scrums, (3) the Development Work, (4)
Sprint Review, and (5) Sprint Retrospective (see Figure 11.4). During the Sprint, three guidelines
shape the process:
1. No changes are made that would endanger or modify the Sprint goal. Once goals for the
Sprint are agreed to, they are not to be altered in the middle of the Sprint.
2. Quality goals do not decrease. During the Sprint, the team cannot modify the goals or sacri-
fice quality standards that were first agreed to.
3. Scope may be clarified and renegotiated between the product owner and the development
team as more is learned. As the team discovers technical problems or opportunities during
the Sprint, they are passed to the product owner for consideration on whether or not to mod-
ify the project scope.
Scrum
Owner
Scrum Team
Development
Team
Product
Owner
FIgure 11.3 Members of the Scrum team
374 Chapter 11 • Advanced Topics in Planning and Scheduling
Sprint Planning
The work to be performed in the Sprint is identified during the Sprint Planning session. This
plan is created by the collaborative work of the entire Scrum team. Sprint Planning is time-
boxed to a maximum of one full day (eight hours) for a one-month Sprint. For shorter Sprints,
less time is required for Sprint Planning. The Scrum Master ensures that the event takes place
and that all members of the Scrum team understand its purpose. The Sprint Planning session
introduces the Sprint Backlog to the development team and coordinates their efforts to achieve
the Backlog items.
Sprint Planning answers the following questions:
• What can be delivered in the increment (time-box) resulting from the upcoming Sprint?
• How will the work needed to deliver the increment be achieved?
daily Scrums
The Daily Scrum is a short (15 minutes) event that allows the development team an opportunity
to synchronize their activities and create a plan for the next 24-hour time window. During the
meeting, members of the development team explain what they accomplished in the past 24 hours
to meet the Sprint goal, what they intend to work on during the current day, and identify any
problems that might prevent the development team from completing the next Sprint goal. Daily
Scrum sessions are for information purposes; they are only intended to keep team members in
the communications loop and identify any positive or negative trends affecting the project. Daily
Scrums also include reference to the Burndown Chart, detailing the latest information on the status
of Backlog items completed (“burned down”) since the last Scrum meeting.
the development Work
The Development Work is the time when the actual work of the project is being done during the
Sprint. These are the set of goals that must be achieved during the Sprint and are represented on
the Burndown Chart as either in progress or completed. Development Work must be heavily coor-
dinated between Scrum team members to ensure that no efforts are being wasted or work is being
done on non-Sprint items. Figure 11.5 shows an example of a Burndown Chart for a Sprint that
assumes the following details:
• Sprint duration – 15 days
• Team size – 5 members
• Hours/day – 8
• Total capacity – 600 hours
3. Development Work
4. Sprint Review
1. Sprint Planning
2. Daily Scrums
5. Sprint Retrospective
Sprint Time Box
(1−4 weeks)
FIgure 11.4 Stages in a Sprint
11.1 Agile Project Management 375
Sprint reviews
A Sprint Review is held at the end of the Sprint to inspect the completed increment (the Sprint
Backlog) and make changes to the Product Backlog if needed. During the Sprint Review, the Scrum
team and other key stakeholders work closely to verify what was done on the Sprint. Based on
these results and any subsequent changes to the Product Backlog, the Scrum team now plans the
next things to be done in order to add value, including product features that need completing or
modifying. Sprint Reviews are informal meetings; they are not status meetings, and the presenta-
tion of the completed Sprint Backlog is only to encourage team feedback and encourage collabo-
ration. The result of the Sprint Review meeting is a modified Product Backlog and an idea of the
Sprint Backlog items that will be addressed in the next Sprint. During the Sprint Review, the activi-
ties to be addressed include the following:7
• The product owner explains what Product Backlog items have been completed and what has
not yet been completed.
• The development team discusses what went well during the Sprint, what problems it ran
into, and how those problems were solved.
• The development team demonstrates the work that it has finished and answers questions
about the latest Sprint.
• The product owner discusses the Product Backlog as it stands. He projects likely completion
dates based on progress to date (if needed).
• The entire group collaborates on what to do next, so that the Sprint Review provides useful
input to subsequent Sprint Planning.
• Review how the marketplace or potential use of the product might have changed the next
most valuable thing to complete.
• Review the timeline, budget, potential capabilities, and marketplace for the next anticipated
release of the product.
600
500
400
300
T
o
ta
l
H
o
u
rs
o
f
W
o
rk
t
o
b
e
P
e
rf
o
rm
e
d
200
100
3 6 9
Days in Sprint
Actual Burndown
Progress−Day 9
Ideal Progress Line
12 15 18
FIgure 11.5 Sample Burndown chart for Day 9 of a Sprint
376 Chapter 11 • Advanced Topics in Planning and Scheduling
Sprint retrospective
The Sprint Retrospective is a meeting that is held to evaluate how the previous Sprint went; what
worked, what didn’t work, and where potential improvements can be made to the Sprint process.
A valuable Sprint Retrospective should also include an action plan for identifying and implementing
improvements to the process. The Scrum Master works with the Scrum team to constantly improve
communications and identify improvements that will be introduced during the next Sprint. In this
way, each Sprint is not only about getting the work (the Product Backlog) done, it is also used to
generate enthusiasm for the next Sprint while creating a more efficient and productive team.
Problems with Agile
Agile offers many advantages to project planners and developers, particularly within classes of
project for which the goals of Agile are most relevant, such as IT project management or new prod-
uct development. However, some disadvantages to the Agile methodology have to be considered
as well. These disadvantages include:8
1. Active user involvement and close collaboration of the Scrum team are critical throughout
the development cycle. This requirement is very time-demanding of all parties involved and
requires users to commitment to the process from start to finish.
2. Evolving requirements can lead to the potential for scope creep throughout the development,
as new options or changes during Sprints can result in a never-ending series of requested
changes by the user.
3. Because of emerging requirements and the flexibility to make changes midstream, it is harder
to predict at the beginning of the project what the end product will actually resemble. This
can make it hard to make the business case for the project during the conceptualization phase
or negotiate fixed-price contracts with customers or vendors.
4. Agile requirements are kept to a minimum, which can lead to confusion about the final out-
comes. With the flexibility to clarify or change requirements throughout the project develop-
ment, there is less information available for team members and users about project features
and how they should work.
5. Testing is integrated throughout the lifecycle, which adds to the cost of the project because
the services of technical personnel such as testers are needed during the entire project, not
just at the end.
6. Frequent delivery of project features (the Sprint Backlog) throughout the project’s incremen-
tal delivery schedule means that testing and signing-off on project features is nearly continu-
ous. This puts a burden on product owners to be ready and active when a new set of features
emerges from the latest Sprint cycle.
7. If it is misapplied to projects that operate under high predictability or a structured develop-
ment process, the requirements of Agile for frequent rescoping or user input can be an expen-
sive approach without delivering benefits.
Box 11.1
Project Management research in Brief
Does Agile Work?
The principles of Agile have been in existence for over 20 years, have been introduced and used in numerous
organizations to streamline project development, and have been generally applauded as a sound planning
and executing philosophy. Nevertheless, while anecdotal evidence suggests that Agile does lead to shorter
development times and better, more customer-friendly outcomes, there is little empirical research that sup-
ports the claims that Agile PM does, in fact, work better than traditional project planning methods for some
classes of project. A recent study of over 1,000 projects from a variety of settings—information technology
(IT), software, construction, manufacturing, health care, and financial services—found that the “degree of
Agile” in the company’s project planning significantly affected project success. Projects that used higher levels
of planning across the entire life cycle (the Scrum/Sprint iteration process) developed projects that performed
better on meeting budget and schedule targets, as well as experienced higher levels of customer satisfaction.9
11.3 The Theory of Constraints and Critical Chain Project Scheduling 377
11.2 extreMe ProgrAMMIng (xP)
extreme Programming (XP) is a more aggressive form of Scrum and is a software development
methodology intended to improve software quality and responsiveness to changing customer
requirements.10 Originally developed by programmer Kent Beck for Chrysler Corporation, XP is
deceptively simple in its core principles, which include an emphasis on keeping the programming
code simple, reviewing it frequently, testing early and often, and working normal business hours.
XP also adopts Agile’s emphasis on the importance of user stories as a means for understanding
their real needs, not a programmer’s interpretation of a rigid scope statement. XP takes its name
from the idea that innovative and beneficial elements of software engineering practices are taken
to “extreme” levels with this approach.
Two of the guiding features of XP are the process of refactoring and pair programming. In
order to speed software development, functional testing of all requirements is done before cod-
ing begins and automated testing of the code is performed continuously throughout the project.
Refactoring is the continuous process of streamlining the design and improving code; not wait-
ing until final testing to edit and fix code. Another controversial feature of XP is the philosophy
of pair programming. In XP, all code is written in collaboration between pairs of programmers,
who work side-by-side on the same machine during coding. Pair programming can help pro-
grammers resolve issues and clarify interpretation of user stories that drive the requirements.
XP also requires constant communication between customers and the developer team. In fact, it
has been suggested that project teams should never number more than 12 developers working in
pairs. Other elements of Extreme Programming include avoiding programming of features until
they are actually needed, a flat management structure, simplicity and clarity in code, expecting
changes in the customer ’s requirements as time passes and the problem is better understood,
and frequent communication with the customer and among programmers. As originator Kent
Beck notes:11
“The basic advantage of XP is that the whole process is visible and accountable. The
developers will make concrete commitments about what they will accomplish, show con-
crete progress in the form of deployable software, and when a milestone is reached they
will describe exactly what they did and how and why that differed from the plan. This
allows business-oriented people to make their own business commitments with confi-
dence, to take advantage of opportunities as they arise, and eliminate dead-ends quickly
and cheaply.”
Agile PM (and XP) have grown out of the need to combine the discipline of a project man-
agement methodology with the needs of modern enterprises to respond quickly to opportuni-
ties, promote an internal operating environment of communication and collaboration, and remain
connected and committed to customers. For many types of projects, Agile PM offers a means to
streamline project development processes while improving bottom line results. By decreasing the
costs of rework from misunderstood or changing customer requirements, Agile PM has been dem-
onstrated to save project organizations money while improving customer relations and encourag-
ing functional groups within the organization to work together in a cooperative manner. All in
all, the Agile planning philosophy offers numerous advantages for organizations developing new
products rapidly and cost-effectively.
11.3 the theory oF conStrAIntS And crItIcAl chAIn Project
SchedulIng
In practice, the network schedules we constructed in the previous two chapters, using PERT and
probabilistic time estimates, are extremely resource dependent. That is, the accuracy of these esti-
mates and our project schedules are sensitive to resource availability—critical project resources
must be available to the degree they are needed at precisely the right time in order for the schedule
to work as it is intended. One result of using “early-start” schedules is to make project managers
very aware of the importance of protecting their schedule slack throughout the project. The more
we can conserve this slack, the better “buffer” we maintain against any unforeseen problems or
resource insufficiency later in the project. Thus, project managers are often locked into a defensive
378 Chapter 11 • Advanced Topics in Planning and Scheduling
mode, preparing for problems, while they carefully monitor resource availability and guard their
project slack time. The concept of theory of constraints as it is applied to Critical Chain Project
Management represents an alternative method for managing slack time and more efficiently
employing project resources.
theory of constraints
Goldratt originally developed the theory of constraints (TOC), first described in his book The
Goal (1984), for applications within the production environment.12 Among the more important
points this author raised was the idea that, typically, the majority of poor effects within busi-
ness operations stem from a very small number of causes; that is, when traced back to their
origins, many of the problems we deal with are the result of a few core problems. The main idea
behind TOC is the notion that any “system must have a constraint. Otherwise, its output would
increase without bound, or go to zero.”13 The key lies in identifying the most central constraint
within the system. Five distinct steps make up the primary message behind TOC methodology
(see Figure 11.6):
1. Identify the system constraint. First, an intensive search must be made to uncover the prin-
cipal constraint, the root cause, that limits the output of any system. It is important to not get
bogged down in identifying numerous secondary causes or “little problems.”
2. Exploit the system constraint. Once the constraint is identified, a strategy for focusing and
viewing all activities in terms of this constraint is necessary. For example, if the constraint
within a software development firm is having only one advanced application programmer,
the sequence of all project work to be done by the programmer has to be first scheduled
across the organization’s entire portfolio of active projects.
3. Subordinate everything else to the system constraint. Make resource commitment or sched-
uling decisions after handling the needs of the root constraint. Using the above example,
once the “critical resource constraint” of one programmer has been identified and the pro-
grammer’s time has been scheduled across multiple projects, the rest of the project activities
can be scheduled.
4. Elevate the system constraint. The first three steps acknowledge that the system constraint
limits an organization’s operations. According to Goldratt, the fourth step addresses improve-
ment of the system by elevating the constraint, or seeking to solve the constraint problem by
eliminating the bottleneck effect. In our software-programming example, this may mean
hiring an additional advanced applications programmer. For many project-based examples,
“elevating the system constraint” may be as simple as acquiring additional resources at
opportune times.
1. Identify the
system constraint
2. Exploit the
system constraint
5. Reevaluate
the system
3. Subordinate
everything else to
the system constraint
4. Elevate the
system constraint
FIgure 11.6 five Key Steps in theory of constraints Methodology
11.4 The Critical Chain Solution to Project Scheduling 379
5. Determine if a new constraint has been uncovered, and then repeat the process. Clearly, the
removal of the key system constraint will lead to positive advantages for a time. Since there is
always a system constraint, however, removing one constraint is only likely to identify a new
source of constraint for the operation. TOC argues for the need to always prepare for the next
potential problem before it becomes too serious, so this final step is really only one step in a
continuous improvement cycle.
When examining a project schedule from the perspective of TOC methodology, we focus on
the key system constraint, that is, the one root cause from which all other scheduling problems
evolve. The system constraint for projects is initially thought to be the critical path. Remember,
the critical path is defined as the earliest possible time on the activity network it can take to
complete a project. If activities on the critical path are delayed, the effect is to cause delays in the
overall project. Critical path is determined by the series of activities whose durations define the
longest path through the network and therefore identify the project’s earliest possible completion.
Goldratt notes that all scheduling and resource problems associated with projects typically occur
due to problems with trying to maintain the critical path, and hence its oft-made identification as
the chief system constraint.14
11.4 the crItIcAl chAIn SolutIon to Project SchedulIng
Goldratt’s solution to the variables involved in project scheduling involves the aggregation, or col-
lectivizing, of all project risk in the form of uncertain duration estimates and completion times. The
aggregation of risk is a well-known phenomenon in the insurance business.15 The central limit
theorem states that if a number of probability distributions are summed, the variance of the sum
equals the sum of the variances of individual distributions. This formula is given, where there are
n independent distributions of equal variance V, as:
VΣ = n * V
where V∑ is the variance of the sum.
The standard deviation s can be used as a surrogate for risk, and since s2 = V, we find:
sΣ = (n)
1/2 * s
where sΣ is the standard deviation of the sum. Therefore:
sΣ 6 n * s
Mathematically, the above formula illustrates the point that aggregating risks leads to a reduction
in overall risks.
This same principle of aggregation of risks can be applied in a slightly different manner to the
critical chain methodology. We have used the term safety or project buffer to refer to the contingency
reserve for individual activities that project managers like to maintain. When we aggregate risk,
this reserve is dramatically reduced so that all activity durations are realistic but challenging. That
is, rather than establish duration estimates based on a 90% likelihood of successful completion,
all activity durations are estimated at the 50% level. The provision for contingency, in the form of
project safety, is removed from the individual activities and applied at the project level. Because of
the aggregation concept, this total buffer is smaller than the sum of the individual project activity
buffers. Thus project duration is reduced.
Apple Computer Corporation’s recent success story with its iPad tablet illustrates some
of the advantages to be found in aggregating risks. Apple made a conscious decision with
the iPad to subcontract most of the components of the product to a variety of suppliers. The
company determined that to engineer the entire product would have been a complex and risky
alternative. Instead, it contracted with a number of suppliers who had produced proven tech-
nology. The decision to combine these product components from other sources, rather than
manufacture them in-house, led to a much faster development cycle and greatly increased
profitability.16
11.4 The Critical Chain Solution to Project Scheduling 381
schedule that is still significantly shorter than the original. This modified, shortened sched-
ule includes some minor slack for each activity. As a result, CCPM leads to shortened project
schedules.
Suppose that a project activity network diagram yielded the initial values given in Table 11.1.
Note that the modified network shortens the overall project duration by 22 days, from the original
40 to 18. Because all risk is now aggregated at the project level, there are a total of 22 days of poten-
tial slack in the schedule resulting from shrinking activity estimates at each project step. A CCPM-
modified project schedule would reapply 11 days of the acquired schedule shrinkage to serve as
overall project buffer. Therefore, the new project schedule will anticipate a duration estimated to
require 29 days to completion.
What are the implications of this reapplication of project slack to the aggregated level? First,
all due dates for individual activities and subactivities have been eliminated. Milestones are not
used in the CCPM activity network. The only firm commitment remains to the project delivery
date, not to the completion of individual tasks. Project team members are encouraged to make
realistic estimates and continually communicate their expectations. Clearly, in order for CCPM to
work, a corporate culture that supports a policy of “no blame” is vital. Remember, the nature of
requiring 50% likelihood estimates for individual activity durations implies that workers are just
as likely to miss a commitment date as to achieve it. Under a culture that routinely punishes late
performance, workers will quickly reacquire the habits that had once protected them—inflated
estimates, wasting safety, and so forth.
A second implication may be more significant, particularly when dealing with external sub-
contractors. Because individual activity dates have been eliminated and milestones are scrapped,
it becomes problematic to effectively schedule subcontractor deliveries. When subcontractors
agree to furnish materials for the project, they routinely operate according to milestone (calendar)
delivery dates. CCPM, with its philosophy that deemphasizes target dates for individual tasks,
creates a complicated environment for scheduling necessary supplier or subcontractor deliveries.
Writers on CCPM suggest that one method for alleviating this concern is to work with contractors
to negotiate the early completion and delivery of components needed for critical activities.18
developing the critical chain Activity network
Recall from earlier chapters that with traditional CPM/PERT networks, individual activity slack
is an artifact of the overall network. Activity start time is usually dictated by resource availability.
For example, although an activity could start as early as May 15, we may put it off for three days
because the individual responsible for its completion is not available until that date. In this way,
float is used as a resource-leveling device.
With CCPM, resource leveling is not required because resources are leveled within the proj-
ect in the process of identifying the critical chain. For scheduling, therefore, CCPM advocates put-
ting off all noncritical activities as late as possible, while providing each noncritical path in the
network with its own buffer (see Figure 11.8). These noncritical buffers are referred to as feeder
buffers because they are placed where noncritical paths feed into the critical path. As Figure 11.8
demonstrates, a portion of the critical path and one of the noncritical feeder paths join just past the
point of activity C. Feeding buffer duration is calculated similarly to the process used to create the
overall project buffer, attached to the end of the critical chain.
tAble 11.1 critical chain Activities time reductions
Activity
original estimated
Duration
Duration Based
on 50% Probability
A 10 days 5 days
B 6 days 2 days
C 14 days 7 days
D 2 days 1 day
E 8 days 3 days
Total 40 days 18 days
382 Chapter 11 • Advanced Topics in Planning and Scheduling
Noncritical
Activity X
Noncritical
Activity Y
Critical
Activity D
Critical
Activity C
Critical
Activity B
Critical
Activity A
Feeder
Buffer
Project
Buffer
FIgure 11.8 ccPM employing feeder Buffers
Note: Feeder buffers are intended to prevent delays on critical activities.
To understand how the logic of the critical chain is constructed, note that the first steps lie in
making some important adjustments to traditional scheduling approaches, such as:
1. Adjusting expected activity durations to reflect a 50% probability of completion on time
(shrinking the schedule)
2. Changing from an early-start process to a late-finish approach
3. Factoring in the effects of resource contention if necessary
Figures 11.9a, b, and c present a simplified series of examples that follow these steps. Figure 11.9a
shows a standard activity network based on a PERT approach. A total of five activities are identified
(A, B, C, D, and E) along two separate paths feeding into activity E at the project’s conclusion. All activi-
ties are scheduled to begin as early as possible (early start) and are based on a standard method for
estimating durations. Table 11.2 lists these expected durations.
Figure 11.9a demonstrates an expected overall project duration of 90 days, based on the
longest set of linked activities (path A – B – E). The second path, C – D – E, has an overall dura-
tion of 60 days and hence, has 30 days of slack built into it. In order to adjust this network,
the first step involves changing to a late-start schedule. Second, CCPM challenges the original
activity duration estimates and substitutes ones based on the mean point of the distribution.
The modified activity network makes the assumption of shrinking these estimates by 50%.
Therefore, the new network has an overall duration of 45 days, rather than the original 90-day
estimate (Figure 11.9b).
The next step in the conversion to a critical chain schedule involves the inclusion of project
and feeder buffers for all network paths. Recall that these buffers are calculated based on apply-
ing 50% of the overall schedule savings. The feeder buffer for the path C − D is calculated as (.50)
(10 + 5), or 7.5 days. The project buffer, found from the values for path A − B − E, is calculated as
(.50)(5 + 25 + 15), or 22.5 days. Hence, once buffers are added to the modified activity network,
the original PERT chart showing duration of 90 days with 30 days of slack, the new critical chain
network has an overall duration of 67.5 days, or a savings of 22.5 days (Figure 11.9c). Through
three steps, therefore, we move from an early-start to a late-start schedule, identify the critical
path (sequence of longest linked activities), and then apply feeder and project buffers. The result
is a modified project schedule, which, even with buffers inserted, significantly reduces sched-
uled completion time for the project.19
tAble 11.2 Activity Durations
Activity Duration
A 10 days
B 50 days
C 20 days
D 10 days
E 30 days
11.4 The Critical Chain Solution to Project Scheduling 383
A (10) B (50)
C (20) D (10)
E (30)
Slack
90 Days
FIgure 11.9a Project Schedule Using early Start
45 Days
A (5) B (25)
E (15)
D (5)C (10)
FIgure 11.9b reduced Schedule Using late Start
A (5) B (25)
E (15)
D (5)C (10)
Feeder
Buffer (7.5)
67.5 Days
Project Buffer (22.5)
FIgure 11.9c critical chain Schedule with Buffers Added
critical chain Solutions Versus critical Path Solutions
So what is the real difference between the critical path method and Critical Chain Project
Management? Critical chain is usually not the same path as the critical path within an activity
network. The critical path depends only on task dependency, that is, the linkage of tasks with their
predecessors. In this process, activity slack is discovered after the fact; once the network is laid out
and the critical path identified, all other paths and activities may contain some level of slack. On
the other hand, the critical chain usually jumps task dependency links. Again, this effect occurs
because critical chain requires that all resource leveling be done before the critical chain can be
identified, not afterward as in the case of PERT and CPM networks.
To illustrate this distinction, consider the differences when the activity network in Figure 11.10a
is compared with the modified solution in Figure 11.10b. Figure 11.10a shows a simplified PERT net-
work that identifies three paths. The central path is the critical path. The difficulty occurs when we
require the same resource (Bob) to complete activities that are scheduled simultaneously. Clearly, Bob
cannot perform the three tasks at the same time without significantly lengthening the overall critical
path. The alternative, shown in Figure 11.10b, is to first resource-level the activities that Bob must
perform. The project’s schedule must take into account the resource conflict and demonstrate a new
network logic that allows the project to proceed.
384 Chapter 11 • Advanced Topics in Planning and Scheduling
Bob, our resource constraint (Figure 11.10b), forces the schedule to be redrawn in order
to reflect his work assignments. Note that with the critical chain schedule (shown with the
dashed line), Bob first completes his task on the central path. The other two paths require
Bob as well, and so he is first assigned to the task on the lower path and he then accounts
for his final assignment, along the top path. Also note how the various feeder buffers must
be redrawn in the new critical chain schedule. Because Bob’s work on the first task is the
predecessor for his subsequent activities, the feeder buffers on the top and bottom schedules
are moved forward, or earlier, in the network to account for his resource availability (if he is
delayed). Hence, because Bob is the critical resource in the network, it is imperative to first
level him across the tasks he is responsible for and then redraw the network to create a new
critical chain, which is distinct from the original critical path. Once the critical chain is iden-
tified, feeder buffers are added to support the critical activities while providing a margin of
safety for the noncritical paths.
Feeder
Buffer
Feeder
Buffer
Bob
Bob
Bob
Critical Path
FIgure 11.10a critical Path Network with resource conflicts
Bob
Bob
Feeder
Buffer
Feeder
Buffer
Project
Buffer
Feeder
Buffer
Bob
FIgure 11.10b the critical chain Solution
Note: The critical chain is shown as a dashed line.
11.4 The Critical Chain Solution to Project Scheduling 385
Project Profile
eli lilly Pharmaceuticals and its commitment to critical chain Project Management
Eli Lilly Corporation is one of the giants in the pharmaceutical industry, but in the drug-manufacturing industry, size
is no guarantee of future success. All pharmaceutical firms in the United States are facing increasing pressure from a
variety of sources: (1) the federal government, which has just enacted elements of “Obamacare” with strict guidelines
for drug cost control; (2) the loss of patents as key drugs become generic; and (3) the need to maintain leadership in
a highly competitive industry. Lilly is beginning to feel this sting personally; starting in 2011, several of its top-selling
drugs went off patent, leaving the company scrambling to bring new drugs into the marketplace quickly. Unfortunately,
their “late-stage” pipeline is thin; there are few drugs waiting in the wings to be commercialized.
In its efforts to stay out in front, Lilly has announced a series of strategic moves. First, the firm has instituted a
cost-cutting initiative across the organization in hopes of trimming more than $1 billion from operations. Second, Lilly
has reorganized into four divisions in order to streamline and consolidate operations to become more market-driven
and responsive. Finally, the firm has announced the formation of a Development Center of Excellence in R&D, to be
sited at corporate headquarters in Indianapolis, Indiana. The Center will be responsible for accelerating the completion
of late-stage trials and release of new drugs. What does Lilly see as being key to the success of its Center of Excellence?
One important element is the widespread use of Critical Chain Project Management (CCPM).
Lilly has been championing CCPM in its R&D units since 2007 and is committed to instituting the process throughout
its entire R&D organization. The company’s support for CCPM is based on the results of hard evidence: “It has now been
implemented on 40 of our new product pipeline and our projects are 100 percent on time delivery compared to about 60
percent for the other 60 percent of the [drugs] in the more traditional development programs,”20 according to Steven Paul,
President of Lilly Research Labs.
Lilly has found that CCPM gives the company multiple advantages, starting with re-creating a cooperative internal
environment based on shared commitment of various departments to the drug development process. Further, CCPM
offers a method for maximizing the efficiency of the firm’s resources, avoiding common bottlenecks in the development
cycle, and moving drugs through the trial stages much more rapidly. Finally, it encourages an internal atmosphere of
authenticity in estimating, scheduling, and controlling projects.
The move to CCPM did not come easily. Some managers have noted that it requires a different mind-set on the
part of employees, who have to see their projects from an “organizational” point of view rather than from a strictly
departmental perspective. Nevertheless, Lilly’s public commitment to CCPM has paid off and continues to serve as a
catalyst for the company’s competitive success.21
FIgure 11.11 Drug Discovery research lab
N
o
e
l
H
e
n
d
ri
ck
so
n
/B
le
n
d
I
m
a
g
e
s/
A
la
m
y
386 Chapter 11 • Advanced Topics in Planning and Scheduling
11.5 crItIcAl chAIn SolutIonS to reSource conFlIctS
Suppose that after laying out the revised schedule (refer back to Figure 11.9c), we discover a
resource contention point. Let us assume that activities B and D require the same person, result-
ing in an overloaded resource. How would we resolve the difficulty? Because the start dates of all
activities are pushed off as late as possible, the steps to take are as follows:
1. The preceding task for activity D is activity C. Therefore, the first step lies in assigning a start-
as-late-as-possible constraint to activity C.
2. To remove the resource conflict, work backward from the end of the project, eliminating the
sources of conflict.
Figure 11.12 presents an MS Project file that illustrates the steps in adjusting the critical chain
schedule to remove resource conflicts. Note that the original figure (Figure 11.9c) highlights a standard
problem when developing a typical early-start schedule, namely, the need to evaluate the schedule
against possible resource overload. Suppose, for example, that the Gantt chart (Figure 11.12) indi-
cates a resource conflict in the form of Joe, who is assigned both activities B and D during the week
of March 6. Since this person cannot perform both activities simultaneously, we must reconfigure the
schedule to allow for this constraint.
Figure 11.13 shows the next step in the process of resolving the resource conflict. While main-
taining a late-start format, activity D is pushed back to occur after activity B, thereby allowing
FIgure 11.12 Scheduling Using late Start for Project Activities
Source: MS Project 2013, Microsoft Corporation.
FIgure 11.13 reconfiguring the Schedule to resolve resource conflicts
Source: MS Project 2013, Microsoft Corporation.
11.6 Critical Chain Project Portfolio Management 387
Joe to first perform B before moving to his next assignment. The total schedule delay amounts to
approximately one week with the reconfigured schedule.
Alternatively, this resource conflict problem can be rescheduled according to Figure 11.14,
in which activities C and D are moved forward in the network. This alternative solution does add
additional time to the network path, moving the projected completion date to the second week
in April. When choosing the most viable solution to resource conflict issues, you want the option
that minimizes total network schedule disruption. In the examples shown, it might be preferable
to adopt the schedule shown in Figure 11.13 because it addresses the resource conflict and offers a
reconfigured schedule that loses only one week overall.
11.6 crItIcAl chAIn Project PortFolIo MAnAgeMent
Critical Chain Project Management can also be applied to managing a firm’s portfolio of proj-
ects. Basic TOC logic can be applied to the portfolio of company projects to identify the key
systemwide constraint. Recall that in the single-project example, the key constraint is found
to be the critical chain. At the organizationwide level, the chief constraint is commonly seen as
the company’s resource capacity. In balancing the portfolio of projects in process, we must first
evaluate the company’s chief resource constraints to determine available capacity. The resource
constraint may be a person or department; it may be a companywide operating policy, or even
a physical resource. In a production capacity, Goldratt has used the term drum in reference to
a systemwide constraint, because this limiting resource becomes the drum that sets the beat for
the rest of the firm’s throughput.22
In order to apply CCPM to a multiproject environment, we must first identify the current
portfolio of projects. Next, the chief resource constraint, or drum, is identified and, following
TOC methodology, that system constraint is exploited. With project portfolio scheduling, this
step usually consists of pulling projects forward in time because the drum schedule deter-
mines the subsequent sequencing of the firm’s project portfolio. If the drum resource is early,
some projects can be pulled forward to take advantage of the early start. If the drum is late,
projects may need to be pushed off into the future. We also need to employ buffers in portfolio
scheduling, much as we did for feeder paths and overall project buffering in individual project
cases. The term capacity constraint buffer (ccB) refers to a safety margin separating differ-
ent projects scheduled to use the same resource. Applying a CCB prior to sequencing to the
next project ensures that the critical resource is protected. For example, if Julia is the quality
assessment expert and must inspect all beta software projects prior to their release for full
development, we need to apply a CCB between her transition from one project to the next.
Finally, we can also use drum buffers in portfolio scheduling. Drum buffers are extra safety
applied to a project immediately before the use of the constrained resource to ensure that the
FIgure 11.14 Alternative Solution to resource conflict Problem
Source: MS Project 2013, Microsoft Corporation.
388 Chapter 11 • Advanced Topics in Planning and Scheduling
resource will not be starved for work. In effect, they ensure that the drum resource (our con-
straint) has input to work on when it is needed in the project.23
The formal steps necessary to apply CCPM to multiple project portfolios include:24
1. Identify the company resource constraint or the drum, the driving force behind mul-
tiple project schedules. Determine which resource constraint most directly affects the
performance of the overall system or which is typically in short supply and most often
requires overtime. Such physical evidence is the best indicator of the company’s central
constraint.
2. Exploit the resource constraint by—
a. Preparing a critical chain schedule for each project independently.
b. Determining the priority among the projects for access to the drum, or constraining
resource.
c. Creating the multiproject resource constraint, or drum, schedule. The resource demands
for each project are collected and conflicts are resolved based on priority and the desire to
maximize project development performance.
3. Subordinate the individual project schedules by—
a. Scheduling each project to start based on the drum schedule.
b. Designating the critical chain as the chain from the first use of the constraining resource to
the end of the project.
c. Inserting capacity constraint buffers (CCBs) between the individual project schedules,
ahead of the scheduled use of the constraint resource. This action protects the drum sched-
ule by ensuring the input is ready for it.
d. Resolving any conflicts if the creation of CCBs adversely affects the drum schedule.
e. Inserting drum buffers in each project to ensure that the constraint resource will not be
starved for work. The buffers should be sited immediately before the use of the constraint
resource in the project.
4. Elevate the capacity of the constraint resource; that is, increase the drum capacity for future
iterations of the cycle.
5. Go back to step 2 and reiterate the sequence, improving operating flow and resource con-
straint levels each time.
As an example, consider Figure 11.15. We have identified a drum resource constraint,
suggesting that the resource supply is not sufficient to accommodate all three projects (A, B,
and C) that are queued to be completed. This point is illustrated by the dashed line running
horizontally across the figure. One option, of course, is to drop the project with the lowest
priority, in essence allowing the drum resource to dictate the number of projects that can be
accomplished. Alternatively, we can consider methods for exploiting the system constraint
through the use of capacity constraint buffers to accomplish all three projects, on their pri-
ority basis. Figure 11.15 shows the nature of the problem, with project A having the highest
priority, B the next highest, and C the lowest priority. Resources exist to handle only two
projects simultaneously, but the resources are not needed continuously, as the figure shows.
As a result, the resource constraint problem really becomes one of scheduling, similar to the
single-project case.
Once we have identified the resource constraint and prioritized the projects for access to the
drum resource, we can reschedule the projects in a manner similar to that shown in Figure 11.16.25
The problem is one of constrained capacity, so the task consists of pushing the additional project C
off until such time as it can be included in the drum schedule. A capacity constraint buffer (CCB)
is placed in front of the start date to begin work on project C. This buffer ensures that the critical
resource is available when needed by the next project in the pipeline and defines the start date for
the new project.
This same procedure can be used as we add a fourth, fifth, or sixth project to the portfolio.
Each project is constrained by access to the drum resource and must, therefore, be scheduled
to take into consideration the system constraint. By so doing, we are able to create a master
project schedule that employs Goldratt’s theory of constraints philosophy within a multiproject
environment.
11.6 Critical Chain Project Portfolio Management 389
Time
R
e
s
o
u
rc
e
S
u
p
p
ly
A & B start
immediately
A A A
B B BC
C
Project C
start date
CCB
FIgure 11.16 Applying ccBs to Drum Schedules
Time
R
e
s
o
u
rc
e
S
u
p
p
ly
Priority: 1. Project A
2. Project B
3. Project C
A A A
B B B
C C
FIgure 11.15 three Projects Stacked for Access to a Drum resource
390 Chapter 11 • Advanced Topics in Planning and Scheduling
Box 11.2
Project Management research in Brief
Advantages of Critical Chain Scheduling
Does CCPM really work? Although a number of recent books and articles have appeared championing the
methodology, little empirical evidence exists to date to either confirm or disconfirm the viability of the critical
chain approach to scheduling. Evidence tends to be primarily anecdotal in nature, as CCPM advocates point to
a number of firms that have realized significant savings in time and positive attitudinal changes on the part of
project team members following the adoption of critical chain scheduling.
A recent study by Budd and Cooper26 sought to test the efficacy of CCPM against traditional critical
path scheduling in a simulation environment. Using three long projects and more than 1,000 iterations
with both a critical chain and a critical path schedule, the authors projected completion times for the proj-
ects under study and determined that total activity durations for the critical chain schedules were shorter
than durations using the critical path method. For their simulation models, the long projects under a CPM
schedule were projected to take from 291 to 312 days to completion, with a mean finish time of 293 days.
Critical chain projects were projected to take from 164 to 181 days, with a mean value of 170 days to com-
pletion. In fact, in multiple iterations involving different length projects, critical chain scheduling reduced
the mean duration time to complete projects anywhere from 18% to 42%. The only caveat the authors
noted was their inability to reflect the negative effects of multitasking on either schedule. Nevertheless,
their findings offer some evidence in support of critical chain project management as a viable alternative
to critical path scheduling.
Additional research evidence is also suggesting that CCPM does have a positive impact on project out-
comes. In IT project management, reported results suggest that successfully adopting CCPM shows reductions
in project durations of about 25%, increased throughput (the number of projects finished per unit of time) of
25%, and the number of projects completed on time rose to 90%. Finally, a compilation of recent results from
different project settings offers some encouraging evidence (see Table 11.3).27
tAble 11.3 company Project Performance improvements Using critical chain Project Management
ccPM implementation Before After
New Product Development for
Home Appliances (Hamilton
Beach/Proctor-Silex)
34 new products per year.
74% of projects on time.
Increased to 52 new products in
first year and to 70 + in second year.
88% of projects on time.
Telecommunications Network
Design and Installation (eircom,
Ireland)
On-time delivery less than
75%. Average cycle time
of 70 days.
Increased on-time delivery to 98 + %.
Average cycle time dropped to
30 days.
Helicopter Manufacturing and
Maintenance (Erickson Air-Crane)
Only 33% of projects
completed on time.
Projects completed on time
increased to 83%.
Oil & Gas Platform Design &
Manufacturing (LeTourneau
Technologies, Inc.)
Design engineering took
15 months. Production
engineering took 9 months.
Fabrication and assembly
took 8 months.
Design engineering takes 9 months.
Production engineering takes
5 months. Fabrication and
assembly takes 5 months with 22%
improvement in labor productivity.
High Tech Medical Development
(Medtronic Europe)
Device projects took 18 months
on average and were
unpredictable.
Development cycle time reduced
to 9 months. On-time delivery
increased to 90%.
Transformer Repair and Overhaul
(ABB, Halle)
42 projects completed
January–December 2007.
On-time delivery of 68%.
54 projects completed January–
December 2008. On-time delivery
of 83%.
Summary 391
11.7 crItIqueS oF ccPM
Critical Chain Project Management is not without its critics. Several arguments against the process
include the following charges and perceived weaknesses in the methodology:
1. Lack of project milestones make coordinated scheduling, particularly with external suppliers,
highly problematic. Critics contend that the lack of in-process project milestones adversely
affects the ability to coordinate schedule dates with suppliers that provide the external deliv-
ery of critical components.28
2. The “newness” of CCPM is a point refuted by some who see the technique as either ill-suited
to many types of projects or simply a reconceptualization of well-understood scheduling meth-
odologies (such as PERT), provided special care has been taken to resource-level the network.29
3. Although it may be true that CCPM brings increased discipline to project scheduling, efficient
methods for the application of this technique to a firm’s portfolio of projects are unclear. The
method seems to offer benefits on a project-by-project basis, but its usefulness at the program
level has not been proven.30 Also, because CCPM argues for dedicated resources, in a multi-
project environment where resources are shared, it is impossible to avoid multitasking, which
diminishes the power of CCPM.
4. Evidence of success with CCPM is still almost exclusively anecdotal and based on single-case stud-
ies. Debating the merits and pitfalls of CCPM has remained largely an intellectual exercise among
academics and writers of project management theory. With the exception of Budd and Cooper’s
modeling work, no large-scale empirical research exists to either confirm or disconfirm its efficacy.
5. A recent review of CCPM contended that although it does offer a number of valuable con-
cepts, it is not a complete solution to current project management scheduling needs. The
authors contended that organizations should be extremely careful in excluding conventional
project management scheduling processes to adopt CCPM as a sole method for planning and
scheduling activities.31
6. Critics also charge that Goldratt’s evaluation of duration estimation is overly negative and
critical, suggesting that his contention that project personnel routinely add huge levels of
activity duration estimation “padding” is exaggerated.
7. Finally, there is a concern that Goldratt seriously underestimates the difficulties associated
with achieving the type of corporatewide cultural changes necessary to successfully imple-
ment CCPM. In particular, while activity estimate padding may be problematic, it is not clear
that team members will be willing to abandon safety at the request of the project manager as
long as they perceive the possibility of sanctions for missing deadlines.32
Successful implementation and use of CCPM is predicated first on making a commitment to criti-
cally examining and changing the culture of project organizations in which many of the prob-
lems identified in this chapter are apparent. Truth-in-scheduling, avoiding the student syndrome,
transferring project safety to the control of the project manager—these are all examples of the
types of actions that bespeak a healthy, authentic culture. Gaining “buy-in” from organizational
members for this type of scheduling process is vital to the success of such new and innovative
techniques that can dramatically improve time to market and customer satisfaction.33
Summary
1. Understand why Agile Project Management was
developed and its advantages in planning for
certain types of projects. Agile project planning
offers some distinct advantages over the traditional,
waterfall planning model. For example, water-
fall models offer a rigid, set project plan, in which
development occurs in a logical, sequential manner,
following predetermined steps. For projects with a
fixed set of goals and well-understood processes,
waterfall planning works well. However, Agile
is useful because for many projects, it recognizes
the likelihood of scope and specification changes
392 Chapter 11 • Advanced Topics in Planning and Scheduling
occurring in the middle of the development cycle.
Because it is an incremental, iterative planning
methodology, Agile allows project teams to plan
and execute elements of the project in shorter
(1–4 week) segments, called Sprints. Finally, Agile
recognizes that project success must be viewed
through the eyes of the user, so it emphasizes the
“voice of the customer” and the development of
product features they value, rather than focusing
solely on specifications. The flexibility of the meth-
odology and its commitment to creating value for
the customer make Agile a good alternative project
planning approach.
2. recognize the critical steps in the Agile process
as well as its drawbacks. There are five steps in
the Agile/Sprint process: (1) Sprint Planning—the
work of the upcoming Sprint is identified and a
Sprint Backlog is created; (2) Daily Scrums—meet-
ings of the development team to synchronize
their activities and plan for the next 24-hour win-
dow; (3) Development Work—the actual work in
the Sprint is done during this stage and is often
represented with a Burndown Chart; 4) Sprint
Reviews—held at the end of the Sprint to inspect
the work that was performed and make changes
to the Product Backlog as needed; and 5) Sprint
Retrospective—the meeting held to evaluate
how the previous Sprint went, including correc-
tive action for improving the process prior to the
next Sprint.
3. Understand the key features of the extreme
Programming (XP) planning process for software
projects. Extreme Programming (XP) is a software
development technique that takes the customer
responsiveness of Agile to extreme levels. Core prin-
ciples of XP include an emphasis on keeping the
programming code simple, reviewing it frequently,
testing early and often, and working normal busi-
ness hours. Two distinct elements in XP include the
use of refactoring, which is the continuous process
of streamlining the software design and improving
code throughout development, rather than waiting
for final product testing. The second feature of XP is
the use of pair programming, in which sets of pro-
grammers work side-by-side to support each other’s
efforts. Pair programming promotes a collaborative
process in creating software and helps maintain a
constant emphasis on quality during development.
4. distinguish between critical path and criti-
cal chain project scheduling techniques. As
a result of systematic problems with project
scheduling, Eli Goldratt developed the Critical
Chain Project Management (CCPM) process.
With CCPM, several alterations are made to the
traditional PERT scheduling process. First, all
individual activity slack, or “buffer,” becomes
project buffer. Each team member, responsible for
her component of the activity network, creates
a duration estimate free from any padding, that
is, one that is based on a 50% probability of suc-
cess. All activities on the critical chain and feeder
chains (noncritical chains in the network) are then
linked with minimal time padding. The project
buffer is now aggregated and some proportion
of that saved time (Goldratt uses a 50% rule of
thumb) is added to the project. Even adding 50%
of the saved time significantly reduces the overall
project schedule while requiring team members
to be less concerned with activity padding and
more with task completion.
Second, CCPM applies the same approach for
those tasks not on the critical chain. All feeder path
activities are reduced by the same order of magni-
tude and a feeder buffer is constructed for the over-
all noncritical chain of activities.
Finally, CCPM distinguishes between its use of
buffer and the traditional PERT use of project slack.
With the PERT approach, project slack is a function
of the overall completed activity network. In other
words, slack is an outcome of the task dependen-
cies, whereas CCPM’s buffer is used as an a priori
input to the schedule planning, based on a reasoned
cut in each activity and the application of aggregat-
ed project buffer at the end.
5. Understand how critical chain methodology
resolves project resource conflicts. Critical
Chain Project Management assumes that the
critical chain for a project requires first identifying
resource conflicts and then sequencing tasks so as
to eliminate these conflicts. Instead of employ-
ing early-start methods for networks, the CCPM
approach emphasizes using late-start times, adding
feeder buffers at the junction of feeder paths to the
critical path, and applying an overall project buffer
at the project level to be used as needed. All activi-
ties are sequenced so as to exploit resource conflicts,
ensuring minimal delays between tasks and speed-
ing up the overall project.
6. Apply critical chain project management to proj-
ect portfolios. CCPM can also be applied at the
project portfolio level, in which multiple projects are
competing for limited project resources. Portfolio
management first consists of identifying the maxi-
mum resource availability across all projects in a
portfolio, prioritizing the projects for access to the
constrained resource, and then sequencing other,
noncritical project activities around the resources
as they are available. The “drum resource” is the
critical resource that constrains the whole portfolio.
To buffer the projects that are sequenced to use the
drum resources, CCPM advises creating capacity
constraint buffers (CCBs) to better control the tran-
sition between projects as they queue to employ the
critical resource.
Solved Problem 393
Solution
Key terms
Agile Project Management
(Agile PM) (p. 369)
Burndown Chart (p. 372)
Capacity constraint buffer
(CCB) (p. 387)
Central limit theorem
(p. 379)
Critical chain (p. 379)
Critical Chain Project
Management
(CCPM) (p. 368)
Development team (p. 373)
Drum (p. 387)
Drum buffers (p. 387)
Extreme Programming
(XP) (p. 377)
Feature (p. 372
Pair programming
(p. 377)
Product Backlog
(p. 373)
Refactoring (p. 377)
Scrum (p. 370)
Scrum Master (p. 372)
Sprint (p. 372)
Sprint Backlog (p. 372)
Theory of constraints
(TOC) (p. 378)
Time-box (p. 372)
User stories 372)
Waterfall
model (p. 370)
Solved Problem
Assume you have the PERT chart shown in Figure 11.17 and
you have identified a resource conflict in which Cheryl is
scheduled to work on two tasks at the same time. In this case,
Cheryl has become the constrained resource for your project.
How would you reconfigure this portion of the project’s net-
work diagram to better manage your critical resource? What
would be the new “critical chain”?
Cheryl
Cheryl
Critical Path
FIgure 11.17 current Network
Cheryl
Cheryl
Feeder
Buffer
Feeder
Buffer
Project
Buffer
FIgure 11.18 Solution to Solved Problem critical chain Network
394 Chapter 11 • Advanced Topics in Planning and Scheduling
Problems
11.1 Assume the network diagram shown in Figure 11.19.
Megan is responsible for activities A and C. Use the critical
chain methodology to resource-level the network. What
are two options for redrawing the network? Which is the
most efficient in terms of time to completion for the proj-
ect? Show your work.
11.2 Consider the following activities and their durations.
The original project schedule, using early activity starts,
is shown in Figure 11.20. Reconfigure the network using
critical chain project scheduling.
What is the critical path? How much slack is avail-
able in the noncritical path? Reconfigure the network
in Figure 11.20 as a critical chain network. What is the
new duration of the project? How long are the project
and feeder buffers?
Activity Duration
A 5 days
B 30 days
C 10 days
D 10 days
E 15 days
FIgure 11.19
Source: MS Project 2013, Microsoft Corporation.
Discussion Questions
11.1 What are the practical implications internally (in terms
of team motivation) and externally (for the customer) of
making overly optimistic project delivery promises?
11.2 In considering how to make a big change in organiza-
tional operations (as in the case of switching to CCPM),
why might it be necessary to focus on changing the or-
ganization’s current culture? That is, why does a shift in
project scheduling require so many other linked changes
to occur?
11.3 Why are traditional project planning methods insuffi-
cient when project deliverables are subject to changing
requirements or continuous input from the project client?
11.4 What are the advantages and disadvantages of the water-
fall planning model for project development?
11.5 What are the advantages and disadvantages of Agile PM?
11.6 How are the duties of the Scrum Master similar to a project
manager? How do they differ?
11.7 Why is a focus on project features and user stories impor-
tant when developing requirements?
11.8 What would be the difficulties in using Extreme
Programming (XP) to develop projects? What types of
projects would be best suited to employing XP?
11.9 How does aggregation of project safety allow the project
team to reduce overall safety to a value that is less than
the sum of individual task safeties? How does the insur-
ance industry employ this same phenomenon?
11.10 Distinguish between project buffers and feeder buffers.
What is each buffer type used to accomplish?
11.11 It has been said that a key difference between CCPM
safety and ordinary PERT chart activity slack is that ac-
tivity slack is determined after the network has been
created, whereas critical chain path safety is deter-
mined in advance. Explain this distinction: How does
the project team “find” slack in a PERT chart versus
how does the team use the activity buffer in Critical
Chain Project Management?
11.12 What are the steps that CCPM employs to resolve re-
source conflicts on a project? How does the concept of
activity late starts aid this approach?
11.13 What key steps are necessary to employ CCPM as a
method for controlling a firm’s portfolio of projects?
11.14 What is a drum resource? Why is the concept important
to understand in order to better control resource require-
ments for project portfolios?
Problems 395
A (5) B (30)
C (10) D (10)
E (15)
Slack
50 Days
FIgure 11.20
11.3 Reconfigure the network in Figure 11.21 using the criti-
cal chain approach. Remember to reconfigure the activi-
ties to late start where appropriate. What is the original
critical path? What is the original project duration? How
much feeder buffer should be applied to the noncritical
paths? What is the length of the project buffer? Assume
the 50% likelihood is exactly half the duration of current
project activities.
E (10) H (15)
B (10)
G (15)
D (8)
A (12) C (15)
F (18)
FIgure 11.21
Joe
Feeder
Buffer
Feeder
Buffer
Joe
Joe
CRITICAL PATH
FIgure 11.22
11.4 Assume the network in Figure 11.22 with resource conflicts.
How would you redraw the network using a critical chain
in order to eliminate the resource conflicts? Where should
feeder buffers be applied? Why?
396 Chapter 11 • Advanced Topics in Planning and Scheduling
11.5 Consider the project portfolio problem shown in
Figure 11.23. You are required to manage resources to
accommodate the company’s current project portfolio.
One resource area, comprising Carol, Kathy, and Tom,
is responsible for all program debugging as new proj-
ects are completed. Four projects have activities that
need to be completed. How would you schedule Carol,
Kathy, and Tom’s time most efficiently? Using buffer
drum scheduling, reconfigure the following schedule
to allow for optimal use of the resource time:
Priority: 1. Project X
2. Project Y
3. Project Z
4. Project Q
Where would you place capacity constraint buffers? Why?
Time
R
e
s
o
u
rc
e
S
u
p
p
ly
X X X
Y Y Y
Z Z
Q Q
FIgure 11.23
CaSe StuDy 11.1
It’s an Agile World
“This isn’t what I need!,” objected the admissions of-
ficer at Northwest Regional Hospital.
Judy sighed, “But this is the software you asked
us to create for you.”
“I don’t care what I said at the time; this system
won’t work for us the way you have it set up. You’ll
have to fix it.”
“But any fixes are going to set this project back
at least four months,” Judy warned. “Why don’t you
work with it for a while and get used to the features?
I’m sure you’ll find that it works fine.”
Judy’s attempt at reassurance just set off an even
more negative response from the admissions officer;
“Look, we needed the registration screens in a differ-
ent format. I can’t read this one. And on top of that, it’s
missing the insurance check function.”
“But you didn’t ask for any of those features last
April when we developed the specifications for the
system.”
“At the time, I didn’t know they were available.
Since then, we got new information and some new federal
regulations. You’ll have to make big changes before I can
authorize our staff to switch over to this system.”
As Judy reflected on this conversation later, she
realized that this had become a recurring problem at
the hospital. As head of the IT department, Judy was
Case Study 11.2 397
responsible for upgrading and adding multiple new
reporting and information system functions to the hos-
pital’s software on an ongoing basis. It seemed as if
the plan for every new effort was met by clients with
initial enthusiasm and high expectations. After the
preliminary scope meetings, the members of the IT
group would head back to the department and work
over several months to create a prototype so their cli-
ents could see the system in use, play around with it,
and realize its value. Unfortunately, more often than
not, that sequence just didn’t happen. By the time the
programmers and system developers had finished the
project and presented it to the customer, these hospi-
tal staff members had forgotten what they asked for,
didn’t like what they received, or had a new list of
“critical features” the IT representative had to imme-
diately include.
Later, at the lunch table, Judy related the latest
demonstration and rejection meeting to some of her
colleagues from the IT group. To a person, they were
not surprised.
Tom, her second-in-command, shrugged, “It hap-
pens all the time. When was the last time you had a
department act happy with what we created for them?
Look at it on the bright side—its steady work!”
Judy shook her head, “No, there’s got to be some-
thing wrong with our processes. This shouldn’t keep
happening like this. Think about it. What’s the average
length of one of our software upgrade projects? Five or
six months?”
Tom thought a moment, “Yes, something like that.”
“OK,” Judy continued, “during your typical
development cycle, how often do we interact with the
client?”
“As little as possible! You know that the more we
talk to them, the more changes they ask for. It’s bet-
ter to just lock the specs in up-front and get working.
Anything else leads to delays.”
Judy objected, “Does it really delay things that
much; especially when the alternative is to keep devel-
oping systems that no one wants to use because it’s
‘not what they asked for’?”
Tom thought about this and then looked at Judy,
“Maybe this is a no-win situation. If we ask them for
input, we’ll never hear the end of it. If we create a sys-
tem for them, they don’t like it. What’s the alternative?”
Questions
1. Why does the classic waterfall project planning
model fail in this situation? What is it about the
IT department’s processes that leads to their fin-
ished systems being rejected constantly?
2. How would an Agile methodology correct some
of these problems? What new development cycle
would you propose?
3. Why are “user stories” and system “features”
critical components of an effective IT software
development process?
4. Using the terms “Scrum,” “Sprint,” and
“Development team,” create an alternative devel-
opment cycle for a hypothetical software develop-
ment process at Northwest Regional Hospital.
CaSe StuDy 11.2
Ramstein Products, Inc.
Jack Palmer, head of the Special Projects Division for
Ramstein Products, had been in his new position for
only three months when he ordered an evaluation of
project management practices within his division.
Ramstein Products is a leading developer of integrated
testing equipment for the energy industry, marketing
more than 45 product lines to a variety of organizations
involved in natural gas and oil exploration, power gen-
eration, and utilities. As head of special products, Jack
was responsible for an ongoing project portfolio of 50
to 60 new product development projects. Top manage-
ment at Ramstein estimated that 60% of company rev-
enue came from new products and took a keen interest
in the operations of the Special Projects Division.
As part of the evaluation, Jack became aware of the
troubling fact that projects were routinely overrunning
their budget and schedule targets, often by a significant
margin. This fact was particularly troubling because
Jack, who had once worked as a project manager within
the division, was well aware that project schedules
were not terribly aggressive. In fact, he believed that a
great deal of padding went into the project schedules as
they were initially developed. Why, then, were projects
chronically late and over budget?
Although important to Ramstein’s future success,
the Special Projects Division had long been operating
on a tight resource level. There were seven system inte-
gration engineers supporting a portfolio of 55 projects.
(continued)
398 Chapter 11 • Advanced Topics in Planning and Scheduling
These engineers were very important to Ramstein’s
new product development efforts, and their services
were often stretched to the breaking point. One of the
senior engineers, Mary, recently informed Jack that she
was supporting 14 projects, all being developed at the
same time!
Jack reflected on some of the information he
had received during his evaluation. Clearly, the easi-
est option would be to approach top management and
request more systems integration engineers for his
division. He had a hunch, however, that with the cur-
rent economic conditions, any such request from him
would probably be turned down. He needed to get a
handle on the problems and apply some solutions now
with the resources he had available.
Questions
1. Applying Goldratt’s ideas of critical resources,
what is the system constraint within the Special
Projects Division that is causing bottlenecks and
delaying the projects?
2. How is multitasking contributing to systemic de-
lays in project development at Ramstein?
3. How could the drum buffer concepts from
Critical Chain Portfolio Management be applied
to this problem?
internet exercises
11.1 Go to www.youtube.com/watch?v=BRMDCRPGYBE for
a brief overview of Critical Chain Project Management.
What does the presenter suggest are the benefits and big-
gest challenges of implementing CCPM?
11.2 Go to www.youtube.com/watch?v=XU0llRltyFM to view
a brief introduction to the techniques of Scrum for new
development projects. What are time estimates for com-
pleting the different user stories so critical to developing
Sprints? How many Sprints do they recommend in each
product release cycle?
11.3 Visit www.pqa.net/ccpm/W05001001.html and consider
some of the key links, including “What’s New & Different
about Critical Chain (CCPM)?” and “Diagnose Your
Project Management Problems.” What are the benefits that
CCPM offers project organizations?
11.4 Go to www.focusedperformance.com/articles/multi02.
html. In an article entitled “The Sooner You Start, the Later
You Finish,” a number of points are made about the logic
of scheduling and the value of a critical chain solution.
What, in your opinion, are the core arguments the author
makes in this article?
11.5 Go to www.goldratt.co.uk/Successes/pm2.html and
examine several case stories of firms that implement-
ed CCPM in their project management operations.
What underlying characteristics do these firms share
that helped enable them to develop CCPM methods
for their projects?
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32. Pinto, J. K. (1999). “Some constraints on the theory of
constraints: Taking a critical look at the critical chain,”
PMNetwork, 13(8): 49–51.
33. Piney, C. (2000, December). “Critical path or critical chain.
Combining the best of both,” PMNetwork, 14(12): 51–54;
Steyn, H. (2002). “Project management applications of the
theory of constraints beyond critical chain scheduling,”
International Journal of Project Management, 20: 75–80.
http://www.designchain
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http://www.realization.com/customers.html
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■ ■ ■
Resource Management
Chapter Outline
Project Profile
Hong Kong Connects to the World’s Longest
Natural Gas Pipeline
introduction
12.1 the Basics of resource constraints
Time and Resource Scarcity
12.2 resource loading
12.3 resource leveling
Step One: Develop the Resource-Loading Table
Step Two: Determine Activity Late Finish Dates
Step Three: Identify Resource Overallocation
Step Four: Level the Resource-Loading Table
12.4 resource-loading charts
Project Managers in Practice
Captain Kevin O’Donnell, U.S. Marine Corps
12.5 Managing resources in
MultiProject environMents
Schedule Slippage
Resource Utilization
In-Process Inventory
Resolving Resource Decisions in Multiproject
Environments
Summary
Key Terms
Solved Problem
Discussion Questions
Problems
Case Study 12.1 The Problems of Multitasking
Internet Exercises
MS Project Exercises
PMP Certification Sample Questions
Integrated Project—Managing Your Project’s
Resources
Notes
Chapter Objectives
After completing this chapter, you should be able to:
1. Recognize the variety of constraints that can affect a project, making scheduling and planning
difficult.
2. Understand how to apply resource-loading techniques to project schedules to identify potential
resource overallocation situations.
3. Apply resource-leveling procedures to project activities over the baseline schedule using
appropriate prioritization heuristics.
4. Follow the steps necessary to effectively smooth resource requirements across the project life
cycle.
5. Apply resource management within a multiproject environment.
Project MAnAgeMent Body of Knowledge core
concePts covered in this chAPter
1. Estimate Activity Resources (PMBoK sec. 6.4)
2. Plan Human Resource Management (PMBoK sec. 9.1)
Project Profile
Hong Kong connects to the World’s longest Natural Gas Pipeline
As one of the world’s most populous cities, Hong Kong needs a consistent stream of clean energy resources to supply its
7.1 million residents with power. The city relies on a mix of fuels, but most recently, has been able to make use of an en-
vironmentally friendly supply of energy to keep the city’s power needs satisfied. That energy source is natural gas. Since
1996, Hong Kong’s Black Point Power Station had drawn natural gas from the reserves of the Yacheng 13-1 gas field in
Hainan, a nearby Chinese province. But as those reserves began to deplete, it became clear by the end of the last decade
that the energy companies managing Hong Kong’s resource needs required new options. The company, CLP/CAPCO
(a joint venture of ExxonMobil Energy and CLP Power Hong Kong), began looking into alternative arrangements—not
only to maintain a consistent supply of natural gas, but also to comply with the tightened emission standards that will
be required by the Hong Kong Special Administrative Region (HKSAR) Government in 2015.
In 2008, Hong Kong officials and the Central Government of the People’s Republic of China signed a memoran-
dum of understanding on energy cooperation, which identified three new gas sources from which mainland China
could supply gas to Hong Kong. One of the sources is the Second West-East Gas Pipeline. The Second West-East Gas
Pipeline is the single biggest energy investment project in the history of the country, stretching nearly 9,000 kilometers.
Begun in 2008, it is already powering cities across the mainland. It starts in Xinjiang, where it connects to Turkmenistan’s
Central Asia-China Gas Pipeline, and crosses 15 provinces, autonomous regions, and municipalities. It can carry 30 billion
cubic meters of gas a year and was already supplying energy for some 500 million Chinese citizens across the country.
Built by a workforce of 50,000 people, the pipeline passes through mountains, deserts, and swamps, and crosses 60 hills
and mountains and approximately 190 rivers.
Just connecting the pipeline network from mainland China to Hong Kong presented numerous complex chal-
lenges to all involved.
• Regulations: Because it crossed the border between mainland China and Hong Kong, the project team had to acquire
permits from both jurisdictions. The project had to fulfill differing practices and statutory approval processes between
the jurisdictions.
Figure 12.1 Workers inside the Natural Gas Pipeline
Source: Yan Ping/Xinhua Press/Corbis
Project Profile 401
(continued)
402 Chapter 12 • Resource Management
introduction
As noted in Chapter 1, one of the defining characteristics of projects is the constraints, or limita-
tions, under which they are expected to operate. The number one constraint is the availability of
resources, both money and people, at the critical times when they are needed. Initial project cost
estimation and budgeting—those activities that nail down resources—are extremely important
elements in project management. When these two are performed well, they ensure appropriate
resources for the project as it progresses downstream.
In Chapters 9 and 10 on project scheduling, we saw that network diagrams, activity duration
estimates, and comprehensive schedules can all be developed without serious discussion of the
availability of the resources. It was not until Chapter 11, on Agile and Critical Chain Scheduling,
that resource availability came up as a prerequisite for accurate scheduling. Organizational real-
ity, of course, is very different. If projects are indeed defined by their resource constraints, any
attempt to create a reasonable project schedule must pass the test of resource availability. So, effec-
tive project scheduling is really a multistep process. After the actual network has been constructed,
the second stage must always be to check it against the resources that drive each activity. The avail-
ability of appropriate resources always has a direct bearing on the duration of project activities.
In this chapter, we are going to explore the concept of resource planning and management.
Gaining a better understanding of how resource management fits into the overall scheme of proj-
ect planning and scheduling gives us a prominent advantage when the time comes to take all those
carefully laid plans and actually make them work. The chapter will be divided into two principal
sections: resource constraints and resource management.
12.1 the Basics oF resource constraints
Probably the most common type of project constraint revolves around the availability of human
resources to perform the project. As we have noted, one of the key methods for shortening proj-
ect durations is to move as many activities as possible out of serial paths and into parallel ones.
• Communications: The various working teams used several different languages, and all of the parties involved had
different requirements for documentation and reporting. The teams predominantly used English, Putonghua, and
Cantonese. However, they used English and Chinese for documents and PowerPoint presentations. The project team
also had to manage a multitude of stakeholders, including over 30 authorities in both jurisdictions.
• Resource management: Acquiring and scheduling thousands of skilled workers and engineers throughout the pipe-
line extension project required a massively complex project plan and a clear method for scheduling resources, espe-
cially during critical parts of the project, including laying underwater piping.
• Environmental requirements: The project needed to fulfill stringent environmental requirements for the two jurisdic-
tions. The project managers instituted a robust monitoring and audit program during the project execution phase, with
intensive water quality monitoring, marine mammal monitoring, and site inspections. Mitigation measures also includ-
ed the deployment of silt curtains and limitations on working speed during marine dredging and jetting operations.
• Quality control: Every section of the pipeline was meticulously checked. Each weld joint had to pass an automatic ul-
trasonic testing. The entire pipeline, including its coating and corrosion protection system, was thoroughly inspected
before being laid into the seabed.
Laying of the undersea pipeline was a difficult undertaking due to a number of physical constraints. The project
required a 20-kilometer section pass beneath three major shipping channels—Dachan Fairway, Tonggu Channel, and
Urmston Road—the last of which is one of the world’s busiest marine channels used by more than 400 vessels a day,
including ocean-going vessels. Getting a permit to put the pipeline beneath the Urmston Road took three months of
planning and discussions with Hong Kong and Shenzhen officials. Once approved, the actual laying of the pipeline took
just three days. The operation involved hundreds of engineers, pipefitters, and welders working from a sophisticated
water-pipe laying and lifting barge working in shallow and deep waters. For example, the branch line links Dachan
Island, off Shenzhen, with Hong Kong’s Black Point power station. It took 1,600 carbon steel pipes, each nearly 40 feet
long and weighing approximately 13 tons.
The project cost the equivalent of $23 billion dollars and is operated by the China National Petroleum Corporation.
It will continue to provide a new source of gas to Hong Kong, replacing the nearly exhausted alternatives, while im-
proving Hong Kong’s consumption of carbon fuels and ensuring a “greener” supply of energy well into the future.1
12.1 The Basics of Resource Constraints 403
This approach assumes, of course, that staff is free to support the performance of multiple activities
at the same time (the idea behind parallel work). In cases in which we do not have sufficient people
or other critical resources, we simply cannot work in a parallel mode. When projects are created
without allowing for sufficient human resources, project teams are immediately placed in a difficult,
reactive position. Personnel are multitasked with their other assignments, are expected to work long
hours, and may not receive adequate training. Trade-offs between the duration of project activities
(and usually the project’s overall schedule) and resource availability are the natural result.
In some situations, the physical constraints surrounding a project may be a source of serious
concern for the company attempting to create the deliverable. Environmental or contractual issues
can create some truly memorable problems; for example, the Philippine government contracted to
develop a nuclear power plant for the city of Manila. Bizarrely, the site selected for its construction
was against the backdrop of Mount Natib, a volcano on the outskirts of the city. As construction
proceeded, environmentalists rightly condemned the choice, arguing that seismic activity could
displace the operating systems of the reactors and lead to catastrophic results. Eventually, a com-
promise solution was reached, in which the energy source for the power plant was to be converted
from nuclear to coal. With the myriad problems the project faced, it became known as the “$2.2
Billion Nuclear Fiasco.”2 This case is an extreme example, but as we will continue to see, many real
problems can accrue from taking a difficult project and attempting to develop it in hazardous or
difficult physical conditions.
Materials are a common project resource that must be considered in scheduling. This is most
obvious in a situation where a physical asset is to be created, such as a bridge, building, or other
infrastructure project. Clearly, having a stockpile of a sufficient quantity of the various resources
needed to complete the project steps is a key consideration in estimating task duration times.
Most projects are subject to highly constrained (fixed) budgets. Is there sufficient working
capital to ensure that the project can be completed in the time frame allowed? It is a safe bet to
assume that any project without an adequate budget is doomed.
Many projects require technical or specific types of equipment to make them successful. In
developing a new magazine concept, for example, a project team may need leading-edge comput-
ers with great graphics software to create glitz and glamour. Equipment scheduling is equally
important. When equipment is shared across departments, it should be available at the precise
time points in the project when it is needed. In house construction, for example, the cement mixer
must be on site within a few days after the ground has been excavated and footers dug.
time and resource scarcity
In the time-constrained project, the work must be finished by a certain time or date, as efficiently
as possible. If necessary, additional resources will be added to the project to hit the critical “launch
window.” Obviously, the project should be completed without excessive resource usage, but this
concern is clearly secondary to the ultimate objective of completing the project on time. For exam-
ple, projects aimed at specific commercial launch or those in which late delivery will incur high
penalties are often time constrained.
In the resource-constrained project, the work must not exceed some predetermined level of
resource use within the organization. While the project is to be completed as rapidly as possible,
speed is not the ultimate goal. The chief factor driving the project is to minimize resource usage. In
this example, project completion delays may be acceptable when balanced against overapplication
of resources.
The mixed-constraint project is primarily resource constrained but may contain some activi-
ties or work package elements that are time constrained to a greater degree. For example, if critical
delivery dates must be met for some project subcomponents, they may be viewed as time con-
strained within the overall, resource-constrained project. In these circumstances, the project team
must develop a schedule and resource management plan that works to ensure the minimization
of resources overall while allocating levels necessary to achieve deadlines within some project
components.
There is, for almost all projects, usually a dominant constraint that serves as the final arbiter
of project decisions. Focusing on the critical constraint, whether it is resource-based or time-based,
serves as a key starting point to putting together a resource-loaded schedule that is reasonable,
mirrors corporate goals and objectives, and is attainable.3
404 Chapter 12 • Resource Management
The challenge of optimally scheduling resources across the project’s network activity dia-
gram quickly becomes highly complex. On the one hand, we are attempting to create an efficient
activity network that schedules activities in parallel and ensures the shortest development cycle
possible. At the same time, however, we inevitably face the problem of finding and providing the
resources necessary to achieve these optimistic and aggressive schedules. We are constantly aware
of the need to juggle schedule with resource availability, trying to identify the optimal solution to
this combinatorial problem. There are two equally critical challenges to be faced: (1) the identifica-
tion and acquisition of necessary project resources, and (2) their proper scheduling or sequencing
across the project baseline.4
example 12.1 Working with Project Constraints
Here is an example that shows what project teams face when they attempt to manage project re-
sources. Suppose we created a simple project activity network based on the information given in
Table 12.1. Figure 12.2 demonstrates a partial network diagram, created with Microsoft Project
2013. Note that the first three activities have each been assigned a duration of five days, so activi-
ties B and C* are set to begin on the same date, following completion of activity A. Strictly from
a schedule-development point of view, there may be nothing wrong with this sequence; unfortu-
nately, the project manager set up the network in such a way that both these activities require the
special skills of only one member of the project team. For that person to accomplish both tasks
simultaneously, huge amounts of overtime are required or adjustments will need to be made to
the estimated time to completion for both tasks. In short, we have a case of misallocated resources
within the schedule baseline. The result is to force the project team to make a trade-off decision:
either increase budgeted costs for performing these activities or extend the schedule to allow for
the extra time needed to do both jobs at the same time. Either option costs the project two things it
can least afford: time and money.
taBle 12.1 Activity Precedence table
Activity Description Duration Predecessors Member Assigned
A Assign Bids 5 days None Tom
B Document Awards 5 days A Jeff
C Calculate Costs 5 days A Jeff
D Select Winning Bid 1 day B, C Sue
E Develop PR Campaign 4 days D Carol
* Microsoft Project 2013 identifies activities B and C as tasks 2 and 3, respectively.
Start: Mon 6/9/14 ID: 4
Finish: Fri 6/13/14 Dur: 5 days
Res: Jeff
Calculate Costs
Start: Mon 6/9/14 ID: 3Start: Mon 6/9/14 ID: 2
Finish: Fri 6/13/14 Dur: 5 days
Res: Jeff
Finish: Fri 6/13/14 Dur: 5 days
Res: Tom
Document AwardsAssign Bids
Figure 12.2 Sample Activity Network with conflicts
12.2 Resource Loading 405
The best method for establishing the existence of resource conflicts across project activities
uses resource-loading charts (described more fully in the next section) to analyze project resources
against scheduled activities over the project’s baseline schedule. Resource-loading charts enable
the project team, scheduling the work, to check their logic in setting resource requirements for proj-
ect activities. A simplified MS Project 2013 resource usage table highlighting the resource conflict
found in Figure 12.2 is shown in Figure 12.3.
Note what has happened to Jeff’s resource availability. The MS Project 2013 output file high-
lights the fact that for a five-day period, Jeff is expected to work 16 hours each day to accomplish
activities B and C simultaneously. Because the schedule in Figure 12.2 did not pay sufficient atten-
tion to competing demands for his labor when the activity chart was created, the project team is
now faced with the problem of having assigned his time on a grossly overallocated basis. Although
simplified, this example is just one illustration of the complexity we add to project planning when
we begin to couple activity network scheduling with resource allocation.
Figure 12.3 resource Usage table Demonstrating overallocation
Source: MS Project 2013, Microsoft Corporation
12.2 resource loading
The concept of resource loading refers to the amount of individual resources that a schedule
requires during specific time periods.5 We can load, or place on a detailed schedule, resources with
regard to specific tasks or the overall project. As a rule of thumb, however, it is generally beneficial
to do both: to create an overall project resource-loading table as well as identify the resource needs
for each individual task. In practical terms, resource loading attempts to assign the appropriate
resource, to the appropriate degree or amount, to each project activity.
If we correlate the simple example, shown in somewhat greater detail in Figure 12.4, with
the original project Gantt chart, we can see that these important first steps are incomplete until the
subsequent resource assignments are made for each project activity. In Figure 12.4, we have tempo-
rarily fixed the problem of Jeff’s overallocation by adding another resource, Bob, who has become
responsible for activity C, (Calculate Costs).
Once we have developed the Work Breakdown Structure and activity networks, the actual
mechanics of creating a resource-loading form (sometimes referred to as a resource usage calendar) is
relatively simple. All personnel are identified and their responsibility for each task is assigned.
Further, we know how many hours on a per-week basis each person is available. Again, using
Microsoft Project’s 2013 template, we can create the resource usage table to reflect each of these
pieces of information (see Figure 12.5).
Information in the resource usage table shown in Figure 12.5 includes the project team mem-
bers, the tasks to which they have been assigned, and the time each activity is expected to take
406 Chapter 12 • Resource Management
across the schedule baseline. In this example, we have now reallocated the personnel to cover each
task, thereby eliminating the overallocation problem originally uncovered in Figure 12.3. Team
members are assigned to the project on a full-time (40 hours/week) basis, and the loading of their
time commitments across these project activities corresponds to the project activity network, pro-
viding, in essence, a time-phased view of the resource-loading table.
The resource usage table also can provide warning signs of overallocation of project resources.
For example, suppose that Jeff was again allocated to both activities B and C, as in the example
from earlier in this chapter. Simply viewing the original project schedule gives no indication of
this resource overallocation. When we generate the resource usage table, however, we discover
the truth (see Figure 12.6). In this example, Jeff is currently scheduled to work 80 hours over a one-
week period (the week of June 8)—clearly a much-too-optimistic scenario regarding his capacity
for work!
The benefit of the resource-loading process is clear; it serves as a “reality check” on the proj-
ect team’s original schedule. When the schedule is subjected to resource loading, the team quickly
becomes aware of misallocation of personnel, overallocation of team members, and, in some cases,
lack of needed resources. Hence, the resource-loading process may point to obvious flaws in the
original project WBS and schedule. How best to respond to resource-loading problems and other
project constraints is the next question the project manager and team need to consider.
Figure 12.4 Sample Project Activity Network and Gantt charts
Source: MS Project 2013, Microsoft Corporation
Figure 12.5 resource Usage table
Source: MS Project 2013, Microsoft Corporation
12.3 Resource Leveling 407
12.3 resource leveling
resource leveling is the process that addresses the complex challenges of project constraints.
With resource leveling we are required to develop procedures that minimize the effects of resource
demands across the project’s life cycle. Resource leveling, sometimes referred to as resource
smoothing, has two objectives:
1. To determine the resource requirements so that they will be available at the right time
2. To allow each activity to be scheduled with the smoothest possible transition across resource
usage levels
Resource leveling is useful because it allows us to create a profile of the resource requirements for project
activities across the life cycle. Further, we seek to minimize fluctuations from period to period across the
project. The farther in advance that we are able to anticipate and plan for resource needs, the easier it
becomes to manage the natural flow from activity to activity in the project, with no downtime, while we
begin searching for the resources to continue with project tasks. The key challenge consists of making
prioritization decisions that assign the right amount of resources to the right activities at the right time.
Because resource management is typically a multivariate, combinatorial problem (i.e., one
that is characterized by multiple solutions often involving literally dozens, hundreds, or even
thousands of activity variables), the mathematically optimal solution may be difficult or infeasible
to find due to the time required to solve all possible equation options. Hence, a more common
approach to analyzing resource-leveling problems is to apply some leveling heuristics, or simpli-
fied rules of thumb, when making decisions among resource-leveling alternatives.6
Some simple heuristics for prioritizing resource allocation include applying resources to:
1. Activities with the smallest amount of slack. The decision rule is to select for resource priority those
activities with the smallest amount of slack time. Some have argued that this decision rule is the best
for making priority decisions, resulting in the smallest schedule slippage to the overall project.7
2. Activities with the smallest duration. Tasks are ordered from smallest duration to largest,
and resources are prioritized accordingly.
3. Activities with the lowest activity identification number. (e.g., those that start earliest in the WBS).
This heuristic suggests that, when in doubt, it is better to apply resources to earlier tasks first.
4. Activities with the most successor tasks. We select for resource priority those tasks that have
the most tasks following behind them.
5. Activities requiring the most resources. It is common to first apply resources to those activities
requiring the most support, and then analyze the remaining tasks based on the availability of
additional resources.
Figure 12.6 example of resource Usage table with overallocation
Source: MS Project 2013, Microsoft Corporation
408 Chapter 12 • Resource Management
Using these heuristics, let us consider a simple example and the method we would use to select
the activities that get first “rights” to the resource pool. Suppose that a project has two activities
(see Figure 12.7) scheduled that require the same resource at the same time. In deciding which activ-
ity should receive first priority for available resources, we can follow the heuristic logic used in the
first decision rule and examine tasks B and C first in terms of their respective amount of slack time.
In this case, activity C, with three days of slack, would be the best choice for prioritizing the resource.
However, suppose that activities B and C both had three days of slack. Then, according to the heuristic
model, we could move to the second decision rule and award the first priority to activity B. Why?
Because activity B has a scheduled duration of five days as opposed to activity C’s duration of six
days. In the unlikely event that we discovered that a tie remained between activities B and C follow-
ing the first two heuristics, we could apply the third heuristic and simply assign the resource to the
task with the lowest identification number (in this case, activity B). As we will see, the implication of
how resources are prioritized is significant, as it has a “ripple effect” on subsequent resource leveling
throughout the remainder of the activity network.
example 12.2 An In-Depth Look at Resource Leveling
A more in-depth resource-leveling example illustrates the challenge project teams face when
applying resource leveling to a constructed activity network. Suppose we constructed a proj-
ect network diagram based on the information in Table 12.2. Using the process suggested in
Chapter 9 we can also derive the early start (ES), late start (LS), early finish (EF), late finish
(LF), and subsequent activity slack for each task in the network. Table 12.3 presents a complete
set of data.
taBle 12.2 Activities, Durations, and Predecessors
for Sample Project
Activity Duration Predecessors
A 5 —
B 4 A
C 5 A
D 6 A
E 6 B
F 6 C
G 4 D
H 7 E, F
I 5 G
J 3 G
K 5 H, I, J
A
4
4
B
5
3
C
6
Figure 12.7 Sample Network Applying
resource Heuristics
12.3 Resource Leveling 409
taBle 12.3 fully Developed task table for Sample Project
Activity Duration eS ef lS lf Slack
A 5 0 5 0 5 —
B 4 5 9 6 10 1
C 5 5 10 5 10 —
D 6 5 11 8 14 3
E 6 9 15 10 16 1
F 6 10 16 10 16 —
G 4 11 15 14 18 3
H 7 16 23 16 23 —
I 5 15 20 18 23 3
J 3 15 18 20 23 5
K 5 23 28 23 28 —
Figure 12.8 Gantt chart for Sample Project
Source: MS Project 2013, Microsoft Corporation
B
4
A
5
D
6
C
5
E
6
F
6
G
4
J
3
I
5
H
7
K
5
Figure 12.9 Sample Project Network
Table 12.3 identifies the network critical path as A – C – F – H – K. Figure 12.8 presents a simpli-
fied project Gantt chart that corresponds to the activities listed in the table, their durations, and their
predecessors. This chart is based on the activity network shown in Figure 12.9. A more completely
represented activity network is given in Figure 12.10, listing the ES, LS, EF, and LF for each activity. It is
410 Chapter 12 • Resource Management
now possible to create a resource-loading table by combining the information we have in Figures 12.8
and 12.10 with one additional factor: the resources required to complete each project activity.
Naturally, there is a direct relationship between the resources we can apply to a task and its ex-
pected time to completion. For example, suppose that a task requiring one person working 40 hours per
week is estimated to take two weeks (or 80 hours) to complete. Generally, we can modify the duration
estimate, given adjustments to the projected resources available to work on the task. For example, if we
can now assign two people to work full-time (40 hours) on the task, the new duration for the activity
will be one week. Although the task will still require 80 hours of work to complete, with two full-time
resources assigned, that 80 hours can actually be finished in one week of the project’s scheduled baseline.
Table 12.4 identifies the activities, their durations, total activity float (or slack), and most
importantly, the number of hours per week that we can assign resources to the tasks. The time value
is less than full-time to illustrate a typical problem: Because of other commitments, project team
0 A 5
0 5 5
5 B 9
6 4 10
5 C 10
5 5 10
5 D 11
8 6 14
9 E 15
10 6 16
10 F 16
10 6 16
11 G 15
14 4 18
16 H 23
16 7 23
15 I 20
18 5 23
15 J 18
20 3 23
23 K 28
23 5 28
Legend –
ES ID LS
LS Dur. LF
Figure 12.10 Sample Project Network with early and late Start indicated
taBle 12.4 Activity float and resource Needs for the Sample Network
Activity Duration total float
resource Hours
Needed per Week
total resource
Hours required
A 5 0 6 30
B 4 1 2 8
C 5 0 4 20
D 6 3 3 18
E 6 1 3 18
F 6 0 2 12
G 4 3 4 16
H 7 0 3 21
I 5 3 4 20
J 3 5 2 6
K 5 0 5 25
Total 194
12.3 Resource Leveling 411
members may be assigned to the project on a basis that is less than full-time. So, for example, activity
A is projected to take five days, given resources assigned to it at six hours per day (or a total estimated
task duration of 30 hours). Activity F is projected to take six days to complete with two hours per day
assigned to it. The total resources required to complete this project within the projected time frame
are 194 hours. Once this information is inserted into the project, it is now possible to follow a series of
steps aimed at resource-leveling the activity network. These steps will be considered in turn.
step one: develop the resource-loading table
The resource-loading table is created through identifying the project activities and their resources
required to completion and applying this information to the project schedule baseline. In its sim-
plest form, the resource-loading table can be profiled to resemble a histogram, identifying hours of
resource requirements across the project’s life (see Figure 12.11). However, a more comprehensive
resource-loading table is developed in Figure 12.12. It assumes the project begins on January 1 and
the activities follow in the order identified through the project Gantt chart. Note that the resources
required per day for each activity are listed against the days of the project baseline schedule when
they will be needed. These total resource hours are then summed along the bottom of the table to
identify the overall resource profile for the project. Note further that resource requirements tend to
move up and down across the baseline, peaking at a total of 10 hours of resources required on day
10 (January 12).
0
2
4
6
8
10
12
1 3 5 7 9 11 13 15 17 19 21 23 25 27
Project Days
R
e
s
o
u
rc
e
R
e
q
u
ir
e
m
e
n
ts
Figure 12.11 resource Profile for Sample Project Network
Januar Fy ebruary
Activity 1 2 3 4 5 8 9 10 11 12 15 16 17 18 19 22 23 24 25 26 29 30 31 1 2 5 6 7
A 6 6 6 6 6
B 2 2 2 2
C 4 4 4 4 4
D 3 3 3 3 3 3
3E 3 3 3 3 3
2F 2 2 2 2 2
4G 4 4 4
3H 3 3 3 3 3 3
4I 4 4 4 4
2J 2 2
K 5 5 5 5 5
Total 6 6 6 6 6 9 9 9 9 10 8 9 9 9 9 8 9 9 7 7 3 3 3 5 5 5 5 5
Figure 12.12 resource-loading table for Sample Network
412 Chapter 12 • Resource Management
The advantage of developing a detailed resource profile is that it provides a useful visual
demonstration of the projected resource requirements needed across the entire project baseline.
It is possible to use this resource profile in conjunction with the resource-loading table to develop
a strategy for optimal resource leveling.
step two: determine activity late Finish dates
The next step in the resource-leveling process consists of applying the additional information regard-
ing activity slack and late finish dates to the resource-loading table (see Table 12.3). This modified table
is shown in Figure 12.13. Note that in this figure, we can identify the activities with slack time and
those that are critical (no slack time). The late finish dates for those activities with slack are included
and are represented as brackets. Hence, activities B, D, E, G, I, and J are shown with late finish dates
corresponding to the slack time associated with each task, while the late finish for the activities along
the critical path (A – C – F – H – K) is identical to the activities’ early finish dates.
step three: identify resource overallocation
After the resource-loading table is completed and all activity late finish dates are embedded, the
process of actual resource leveling can begin with an examination of the resource profile for the proj-
ect. What we are looking for here are any points across the project baseline at which resources have
been allocated beyond the maximum resource level available. For example, in Figure 12.13, note that
the total resources needed (the summation along the bottom row) reveals the maximum needed for
any day of the project falls on January 12, when tasks requiring 10 resource units are scheduled. The
question project managers need to consider is whether this resource profile is acceptable or if it indi-
cates trouble, due to an allocation of resources that will not be available. If, for example, the project
is budgeted for up to 10 resource units per day, then this resource profile is acceptable. On the other
hand, if resources are limited to some figure below the maximum found in the project’s resource pro-
file, the project has an overallocation problem that must be addressed and corrected.
Certainly, at this point, the best-case scenario is to discover that resources have been allocated
at or below the maximum across the project baseline. Given the nature of both time and resource
project constraints, however, it is much more common to find situations of resource conflicts that
require leveling. Suppose that in our sample project the maximum number of resource units avail-
able on any day is nine. We have already determined that on January 12, the project is scheduled to
require 10 units, representing an overallocation. The discovery of overallocations triggers the next
step in the resource-leveling process, in which we correct the schedule to eliminate resource conflict.
step Four: level the resource-loading table
Once a determination has been made that the project baseline includes overallocated resources,
an iterative process begins in which the resource-loading table is reconfigured to eliminate the
resource contention points. The most important point to remember in resource leveling is that
Januar Fy ebruary
Activity 1 2 3 4 5 8 12 15 16 17 18 19 22 23 24 25 26 29 30 31 1 2 5 6 7
A 6 6 6 6 6
2
4 4 4 4
9 10 11
2B
4C
3D 3 3 3 3 3
3E 3 3 3 3 3
2F 2 2 2 2 2
4G 4 4 4
3H 3 3 3 3 3 3
4I 4 4 4 4
2J 2 2
K 5 5 5 5 5
Total 6 6 6 6 6 9 9 9 9 10 8 9 9 9 9 8 9 9 7 7 3 3 3 5 5 5 5 5
( Late Finish)
2 2
Figure 12.13 resource-loading table for Sample Network When Activity float is included
12.3 Resource Leveling 413
a ripple effect commonly occurs when we begin to rework the resource schedule to eliminate the
sources of resource conflict. This ripple effect will become evident as we work through the steps
necessary to level the sample project.
phase one Using Figure 12.13, examine the conflict point, January 12, for the tasks that require
10 resource units. Tasks C, D, and E are all scheduled on this day and have resource unit commit-
ments of 4, 3, and 3 hours respectively. Therefore, the first phase in resource leveling consists of
identifying the relevant activities to determine which are likely candidates for modification. Next,
which activity should be adjusted? Using the priority heuristic mentioned previously, first exam-
ine the activities to see which are critical and which have some slack time associated with them.
From developing the network, we know that activity C is on the critical path. Therefore, avoid
reconfiguring this task if possible because any adjustment of its duration will adversely affect the
overall project schedule. Eliminating activity C leaves us the choice of adjusting either activity D
or activity E.
phase two Select the activity to be reconfigured. Both activities D and E have slack time associated
with them. Activity D has three days of slack and activity E has one day. According to the rule of thumb,
we might decide to leave activity E alone because it has the least amount of slack time. In this example,
however, this option would lead to “splitting” activity D; that is, we would begin activity D on January
8, stop on the 12th, and then finish the last two days of work on January 15 and 16. Simply represent-
ing this option, we see in Figure 12.14, which shows the Gantt chart for our project, that the splitting
process complicates our scheduling process to some degree. Note further that the splitting does not
lengthen the overall project baseline, however; with the three days of slack associated with this task,
lagging the activity one day through splitting it does not adversely affect the final delivery date.
For simplicity’s sake, then, we will avoid the decision to split activity D for the time being,
choosing the alternative option of adjusting the schedule for activity E. This option is also viable
in that it does not violate the schedule baseline (there is slack time associated with this activity).
Figure 12.15 shows the first adjustment to the original resource-loading table. The three
resource units assigned to activity E on January 12 are scratched and added back in at the end of
the activity, thereby using up the one day of project slack for that activity. The readjusted resource-
loading table now shows that January 12 no longer has a resource conflict, because the baseline
date shows a total of seven resource units.
phase three After making adjustments to smooth out resource conflicts, reexamine the remain-
der of the resource table for new resource conflicts. Remember that adjusting the table can cause
ripple effects in that these adjustments may disrupt the table in other places. This exact effect has
occurred in this example. Note that under the adjusted table (see Figure 12.15), January 12 no
longer shows a resource conflict; however, the act of lagging activity E by one day would create a
conflict on January 22, in which 11 resource units would be scheduled. As a result, it is necessary to
go through the second-phase process once more to eliminate the latest resource conflict.
Here again, the candidates for adjustment are all project tasks that are active on January
22, including activities E, F, I, and J. Clearly, activities E and F should, if possible, be eliminated
as first choices given their lack of any slack time (i.e., they both now reside on a critical path).
Figure 12.14 reconfiguring the Schedule by Splitting Activity D
Source: MS Project 2013, Microsoft Corporation
414 Chapter 12 • Resource Management
Adjusting (lagging) one day for either of the alternatives, activities I and J, will reduce the resource
requirement to a level below the threshold, suggesting that either of these activities may be used.
The earlier heuristic suggested that priority be given to activities with less slack time, so in this
example we will leave activity I alone and instead lag the start of activity J by one day. Note that
the resource totals summed across the bottom of the table (see Figure 12.15) now show that all
activities are set at or below the cutoff level of nine resource hours per day for the project, complet-
ing our task. Further, in this example, we were able to resource-level the project without adding
additional dates to the project schedule or requiring additional resources; in effect, resource level-
ing in this example violated neither a resource-constrained nor a time-constrained restriction.
Suppose, however, that our project operated under more stringent resource constraints;
for example, instead of a threshold of nine hours per day, what would be the practical effect of
resource-leveling the project to conform to a limit of eight hours per day? The challenge to a
project manager now is to reconfigure the resource-loading table in such a way that the basic
tenet of resource constraint is not violated. In order to demonstrate the complexity of this pro-
cess, for this example, we will break the decision process down into a series of discrete steps
as we load each individual activity into the project baseline schedule (see Table 12.5). Note the
Januar Fy ebruary
Activity 1 2 3 4 5 8 9 10 11 12 15 16 17 18 19 22 23 24 25 26 29 30 31 1 2 5 6 7
A 6 6 6 6 6
B 2 2 2 2
C 4 4 4 4 4
D 3 3 3 3 3 3
3E 3 3 3 3 3 3
2F 2 2 2 2 2
4G 4 4 4
3H 3 3 3 3 3 3
4I 4 4 4 4
2J 2 2 2
K 5 5 5 5 5
Total 6 6 6 6 6 9 9 7 8 9 9 9 9 9 9 9 9 7 3 3 3 5 5 5 5 5
( Late Finish)
99
Figure 12.15 resource-leveling the Network table
taBle 12.5 Steps in resource leveling
Step Action
1 Assign Activity A to the resource table.
2 In selecting among Activities B, C, and D, employ the selection heuristic and prioritize C (critical
activity) and then B (smallest amount of slack). Load C and B into the resource table. Delay Activity D.
3 On January 12, load Activity D. D had 3 days slack and is loaded four days late. Total delay for
Activity D is 1 day.
4 On January 15, load Activities E and F (following completion of B and C). Prioritize F first (critical
activity), and then add E. Both activities finish on January 22, so overall critical path schedule is
not affected. Total project delay to date = 0.
5 Because of resource constraints, Activity G cannot begin until January 23. G had 3 days slack
and is loaded five days late, finishing on January 26. Total delay for Activity G is 2 days.
6 Load Activity H on January 23, following completion of Activities E and F. H is completed on
January 31, so overall critical path schedule is not affected. Total project delay to date = 0.
7 Because of resource constraints, Activity I cannot begin until January 29. I is loaded five days
late. Total delay for Activity I is 2 days (new finish date = February 2).
8 Because of resource constraints, Activity J cannot begin until February 1. Even with slack time,
J is delayed 3 days, completing on February 5.
9 Activity K cannot be loaded until completion of predecessors H, I, and J. K begins on February 6
and completes on February 12. Total project delay = 3 days.
12.3 Resource Leveling 415
need, at times, to make sacrifices to the initial baseline schedule in order to maintain the nonvio-
lation of the resource-loading limit.
Figure 12.16 pictures this resource-leveling example given in Table 12.4 with January and
February stacked. As the steps in the table indicate, the determination of total project delay is
not evident until all predecessor tasks have been loaded, resources leveled at the point each new
activity is added to the table, and the overall project baseline schedule examined. Interestingly,
note from this example that the project’s schedule did not show a delay through the inclusion of
8 of the 11 activities (through activity H). However, once activity H was included in the resource
table, it was necessary to delay the start of activity J in order to account for the project resource
constraint. As a result, the project’s baseline schedule was delayed through a combination of loss
of project slack and the need to reassess the activity network in light of resource constraints. The
overall effect of this iterative process was to delay the completion of the project by three days.
The extended example in this section illustrates one of the more difficult challenges that
project managers face: the need to balance concern for resources with concern for schedule. In conform-
ing to the new, restricted resource budget, which allows us to spend only up to eight resource
units per day, the alternatives often revolve around making reasoned schedule trade-offs to
account for limited resources. The project’s basic schedule dictates that any changes to the avail-
ability of sufficient resources to support the activity network are going to involve lengthening
the project’s duration. Part of the reason for this circumstance, of course, lies in the fact that this
example included a simplified project schedule with very little slack built into any of the project
activities. As a result, major alterations to the project’s resource base were bound to adversely
affect the overall schedule.
January
Total
Slack Activity 1 2 3 4 5 8 9 10 11 12 15 16 17 18 19 22 23 24 25 26
0 A 6 6 6 6 6
1 B
2222 2
0 C 44444
1
2
D 3 3 3 3 3 3
0 E 3 3 3 3 3 3
0 F 2 2 2 2 2
4 4 4 4
3 3 3 3
7 7 7 7
2
G
H
I
J
K
Total 6 6 6 6 6 6 6 66 7 8 8 8 8 8 5
February
Total
Slack Activity 5 6 7 8 9
4 4 4 4 4
3 3 3
7 7 7 6 6
2 2
12 13 14 15 1629 30 31 1 2 17
A
B
C
D
E
F
G
0 H
�2 I
�3 J 2
�3 K 5 5 5 5 5
Total 2 5 5 5 5 5
� Original activity early start time
Figure 12.16 resource-loading table with lowered resource constraints
416 Chapter 12 • Resource Management
In summary, the basic steps necessary to produce a resource-leveled project schedule include
the following:
1. Create a project activity network diagram (see Figure 12.10).
2. From this diagram, create a table showing the resources required for each activity, the activity
durations, and the total float available (see Table 12.4).
3. Develop a time-phased resource-loading table that shows the resources required to complete
each activity, the activity early starts, and the late finish times (Figure 12.13).
4. Identify any resource conflicts and begin to “smooth” the loading table using one or more of
the heuristics for prioritizing resource assignment across activities (Figure 12.15).
5. Repeat step 4 as often as necessary to eliminate the source of resource conflicts. Use your
judgment to interpret and improve the loading features of the table. Consider alternative
means to minimize schedule slippage; for example, use overtime during peak periods.
12.4 resource-loading charts
Another way to create a visual diagram of the resource management problem is to employ resource-
loading charts. resource-loading charts are used to display the amount of resources required as
a function of time on a graph. Typically, each activity’s resource requirements are represented as
a block (resource requirement over time) in the context of the project baseline schedule. Resource-
loading charts have the advantage of offering an immediate visual reference point as we attempt to
lay out the resources needed to support our project as well as smooth resource requirements over
the project’s life.
Here is an example to illustrate how resource-loading charts operate. Suppose our resource
profile indicated a number of “highs” and “lows” across the project; that is, although the resource
limit is set at eight hourly resource units per day, on a number of days our actual resources employed
are far less than the total available. The simplified project network is shown in Figure 12.17 and
summarized in Table 12.6, and the corresponding resource-loading chart is shown in Figure 12.18.
The network lists the early start and finish dates for each activity, as well as the resources required
for each task for each day of work.
4 B 5
Res. = 2
4 C 7
Res. = 2
0 A 4
Res. = 6
5 D 9
Res. = 7
9 E 11
Res. = 3
11 F 12
Res. = 6
Figure 12.17 Sample Project Network
taBle 12.6 resource Staffing (Hourly Units) required for each Activity
Activity resource Duration early Start Slack late finish
A 6 4 0 0 4
B 2 1 4 0 5
C 2 3 4 4 11
D 7 4 5 0 9
E 3 2 9 0 11
F 6 1 11 0 12
12.4 Resource-Loading Charts 417
In constructing a resource-loading chart that illustrates the time-limited nature of resource
scheduling, there are six main steps to follow:8
1. Create the activity network diagram (see Figure 12.17).
2. Produce a table for each activity, the resource requirements, the duration, early start time,
slack, and late finish time (see Table 12.6).
3. List the activities in order of increasing slack (or in order of latest finish time for activities
with the same slack).
4. Draw an initial resource-loading chart with each activity scheduled at its earliest start time,
building it up following the order shown in step 3. This process creates a loading chart with
the most critical activities at the bottom and those with the greatest slack on the top.
5. Rearrange the activities within their slack to create a profile that is as level as possible within
the guidelines of not changing the duration of activities or their dependence.
6. Use your judgment to interpret and improve activity leveling by moving activities with extra
slack in order to “smooth” the resource chart across the project (see Figure 12.18).
Note that the early finish for the project, based on its critical path, is 12 days. However, when
we factor in resource constraints, we find that it is impossible to complete all activities within their
allocated time, causing the schedule to slip two days to a new early finish date of 14 days. Figure 12.18
illustrates the nature of our problem: Although the project allows for a total of eight hours per day for
project activities, in reality, the manner in which the project network is set up relative to the resources
needed to complete each task makes it impossible to use resources as efficiently as possible. In fact,
during days 5 through 7, a total of only two resource hours is being used for each day.
A common procedure in resolving resource conflicts using resource-loading charts is to con-
sider the possibility of splitting activities. As we noted earlier in the chapter, splitting an activity
means interrupting the continuous stream of work on an activity at some midpoint in its develop-
ment process and applying that resource to another activity for some period before returning the
resource to complete the original task. Splitting can be a useful alternative technique for resource
leveling provided there are no excessive costs associated with splitting the task. For example, large
start-up or shutdown costs for some activities make splitting them an unattractive option.
To visually understand the task-splitting option, refer back to the Gantt chart created in
Figure 12.14. Note that the decision there was made to split activity D in order to move the start
of activity E forward. This decision was undertaken to make best use of constrained resources; in
this case, there was sufficient slack in activity D to push off its completion and still not adversely
affect the overall project schedule. In many circumstances, project teams seeking to make best use
of available resources will willingly split tasks to improve schedule efficiency.
What would happen if we attempted to split activities, where possible, in order to make more
efficient use of available resources? To find out, let us return to the activity network in Figure 12.17
and compare it with the resource-loading chart in Figure 12.18. Note that activity C takes three
days to complete. Although activity C is not a predecessor for activity D, we cannot start D until
C is completed, due to lack of available resources (day 5 would require nine resource hours when
only eight are available). However, suppose we were to split activity C so that the task is started
on day 4 and the balance is left until activity D is completed. We can shift part of this activity
because it contains four days of slack. Figure 12.19 illustrates this alternative. Note that two days of
Project Days
2
2
4
6
8
4 6 8 10 12 14
R
e
s
o
u
rc
e
s
A
C
B
D
E
F
Figure 12.18 resource-loading chart for Sample Project
418 Chapter 12 • Resource Management
activity C are held until after D is completed, when they are performed at the same time as activity
E. Because the final task, F, requires that both C and E be completed, we do not delay the start of
activity F by splitting C. In fact, as Figure 12.19 demonstrates, splitting C actually makes more effi-
cient use of available resources and, as a result, moves the completion date for the project two days
earlier, from day 14 back to the originally scheduled day 12. This example illustrates the benefit
that can sometimes be derived from using creative methods for better utilization of resources. In
this case, splitting activity C, given its four days of slack time, enables the project to better employ
its resources and regain the original critical path completion date.
A B
D
E
F
C
C
Project Days
2
2
4
6
8
4 6 8 10 12 14
R
e
s
o
u
rc
e
s
Figure 12.19 Modified resource-loading chart When Splitting task c
Box 12.1
Project Managers in Practice
Captain Kevin O’Donnell, U.S. Marine Corps
As a Marine officer, Captain Kevin O’Donnell has been working as a “project manager” for a number of years.
As O’Donnell freely admits, at first glance, his duties do not seem to align with the traditional roles of project
managers, and yet, the more we consider them, the more we can see that although the circumstances are
unique, the principles and practices of project management remain applicable.
O’Donnell received a bachelor’s degree in Criminal Justice from The Citadel, The Military College of
South Carolina, and was commissioned as a second lieutenant in the U.S. Marine Corps. He is currently posted
as a project officer and company executive officer at Marine Barracks, Washington, DC, and also has been
posted to the presidential retreat, Camp David, as the guard officer and company executive officer.
As a second and first Lieutenant, O’Donnell served in the Second Battalion, 6th Marine Regiment,
as a platoon commander and company executive officer while completing two combat deployments to
Fallujah, Iraq. Although his duties have been far-ranging, including leading a number of missions and
duty assignments, in O’Donnell’s words, he prefers to focus on the way in which he has used project
management in his career. Concepts such as a strategic vision, stakeholder management, scope of work,
Work Breakdown Structure, tasks, time lines, and risk assessments are common to all projects, and the
Marines use them daily during the planning of training, and while deployed and conducting combat
operations.
As a platoon commander, O’Donnell was responsible for leading a force of 45 Marines during his
first deployment to Iraq. They were tasked with conducting a variety of missions, and routinely engaged
in vehicle and foot patrols, convoys, random house searches, and targeted raids on enemy personnel.
O’Donnell notes:
Take, for example, an intelligence-driven targeted raid on a known insurgent. This situation, viewed
as a “project,” required me as the platoon commander to analyze the area of operations and avail-
able intelligence, generate a five-paragraph order that contained a mission statement, tasking state-
ments, scheme of maneuver for the operation, and logistic considerations (very similar to a project
vision, scope of work, and Work Breakdown Structure). Additionally, I would need to coordinate with
all adjacent and subordinate units that would be affected by the mission, and brief senior members
12.4 Resource-Loading Charts 419
Figure 12.20 captain Kevin o’Donnell, USMc
of the chain of command (stakeholder management). I would also conduct an operational risk
assessment, identifying issues that might arise during the execution of the mission, and enemy courses
of action that may occur. Risks were prioritized, accepted, planned for, or mitigated. Finally, I would
issue the order to my subordinate leaders in the platoon; they would, in turn, generate an order for their
squad and issue it to them.
As the project manager for this mission, it was O’Donnell’s responsibility to ensure that everyone on his team
knew what they were going to do, why they were going to do it, how they were going to get it done, and
what the expected outcome was to be.
Moreover, scheduling with important milestones was part of O’Donnell’s duties. These time lines would
be established during the plan, and more times than not, it was critical that they were met. Precombat checks
and inspections would be conducted, along with rehearsals of the raid prior to beginning the mission. As the
order to move was given, the platoon would step out of friendly lines and begin to patrol to the objective
site. Upon reaching the objective, each subordinate unit (a squad) led by their squad leader would begin to
seamlessly perform their portion of the raid. O’Donnell notes that communication, coordination, and control
are critical during these types of operations. Many lessons learned come from after-action reviews, and more
importantly, others can learn from what they had done well or poorly.
O’Donnell further describes his project management duties:
During my second deployment to Iraq, I was charged with planning and executing a large-scale com-
pany operation called Operation Alljah. This operation encompassed a number of smaller missions,
such as the raid example above. Additionally, it involved executing a nontraditional plan of action that
had not been done before in the city of Fallujah. We partnered with the Iraqi Army and Fallujah Police
to re-empower them, provide them with the required training and infrastructure needed to police and
secure their own city, and ultimately transition the responsibility of this mission to them in order to
provide the citizens of Fallujah with a safe and stable living environment. The mission encompassed
just about every principle of project management. In addition to the ones identified above, this mis-
sion required stakeholder management and increased stakeholder involvement, building and leading
multicultural teams, breaking down language and cultural barriers, change management throughout
the organization, command and control, and to a degree, selling the concept, creating ownership, and
achieving “buy-in” amongst the team and the citizens. Strategic vision, described through our com-
mander’s intent, was critical to this mission’s success. Our ability to build, refine, and execute a solid
plan of action, while meeting critical milestones and time lines, significantly impacted the successful
execution of the mission.
The ability of my subordinate leaders, and adjacent units, to seamlessly integrate and interact with
each other and with their Iraqi counterparts played a significant role in the success of the organization
(continued )
420 Chapter 12 • Resource Management
12.5 managing resources in multiproject environments
Most managers of projects eventually will be confronted with the problem of dealing with
resource allocation across multiple projects. The main challenge is one of interdependency:
Any resource allocation decisions made in one project are likely to have ramifications in other
projects. What are some of the more common problems we find when faced with this sort of
interdependency among projects? Some of the better known problems include inefficient use
of resources, resource bottlenecks, ripple effects, and the heightened pressure on personnel to
multitask.9
Any system used to resolve the complex problems with multiproject resource allocation has
to consider the need, as much as possible, to minimize the negative effects of three key parameters:
(1) schedule slippage, (2) resource utilization, and (3) in-process inventory.10 Each of these param-
eters forms an important challenge across multiple projects.
schedule slippage
For many projects, schedule slippage can be more than simply the realization that the project will
be late; in many industries, it can also result in serious financial penalties. It is not uncommon for
companies to be charged thousands of dollars in penalty clauses for each day a project is delayed
past the contracted delivery date. As a result, one important issue to consider when making deci-
sions about resource allocation across multiple projects is their priority based on the impact of
schedule slippage for each individual project.
resource utilization
The goal of all firms is to use their existing pool of resources as efficiently as possible. Adding
resources companywide can be expensive and may not be necessary, depending upon the manner
in which the present resources are employed. To illustrate this point, let us reconsider the exam-
ple of a resource-loading chart, shown in Figure 12.21, applied to a firm’s portfolio of projects
rather than to just one project’s activities. In this load chart, top management can assign up to eight
resource units for each week of their project portfolio. Even using a splitting methodology to bet-
ter employ these resources, there are still some clear points at which the portfolio is underutilizing
available resources. For example, in week 5, only four resource units have been employed. The
shaded area in the load chart (Figure 12.21) shows the additional available resources not employed
in the current project. To maximize the resource utilization parameter, we would attempt to assign
the available resources on other, concurrent projects, thereby improving the overall efficiency with
which we use project resources.
as a whole. We were forced to operate in a continually changing external environment, and our ability
to effortlessly adapt and adjust our plan accordingly paid dividends to the mission’s success. Throughout
the execution of this mission, stakeholder requirements changed, mission parameters were adjusted,
internal and external environment dynamics shifted, and personnel and team compositions were ad-
justed. However, at the end of it, through solid leadership at all levels of the chain of command, and
fundamental execution of project management skills and principles, the mission was completed and
dubbed a huge success. The city of Fallujah is now a self-secured and governed area of Iraq, and my
battalion’s actions there were utilized as the role model for pacifying and defeating the insurgency in
other cities throughout Iraq.
Although O’Donnell’s duties may not seem to be those of traditional project management, he is quick
to point out that, in fact, the opposite is true. Carefully planned operations, defined objectives, clear strate-
gies, and coordination and scheduling are all hallmarks of project management, and they form the critical
processes for O’Donnell’s duties commanding Marines in a hostile environment. “At the end of the day, regard-
less of industry, project management remains the same,” O’Donnell concludes. “Understanding the difference
between leadership and management is critical. Knowing your internal and external environments, along with
how to plan, task and manage personnel, maintain a budget and time lines, have a clear understanding of
your objectives, how you must meet customer and stakeholder requirements, and achieving desired results, are
critical to any project manager’s success.”
12.5 Managing Resources in Multiproject Environments 421
in-process inventory
The third standard for analyzing the optimal use of multiproject resources is to consider their
impact on in-process inventory. in-process inventory represents the amount of work waiting to
be completed but delayed due to unavailable resources. For example, an architectural firm may
find several projects delayed because it only employs one checker responsible for final detailing
of all blueprints. The projects stack up behind this resource bottleneck and represent the firm’s in-
process inventory of projects. Excessive in-process inventory is often caused by a lack of available
resources and represents the kinds of trade-off decisions companies have to make in multiproject
environments. Should we hire additional resources in order to reduce our in-process inventory?
If this problem is only temporary, will hiring additional resources lead to inefficient resource allo-
cation later on?
In effect, project organizations often have to strike an appropriate balance across the three
parameters: schedule slippage, resource allocation, and in-process inventory. The steps necessary
to improve one measure may have negative effects on one or more of the other standards. For
example, steps to maximize resource allocation may provoke schedule slippage or increase in-pro-
cess inventory. Any strategies we use to find a reasonable balance among these parameters must
recognize the need to juggle multiple competing demands.
resolving resource decisions in multiproject environments
The challenge of scheduling resources in multiproject environments has to do with the need to
work on two levels to achieve maximum efficiency. First, with multiple projects, we have to make
considered decisions regarding which projects should be assigned highest priority to resources.
However, it is also vital to recognize that we are often required to schedule the activities of mul-
tiple projects simultaneously. Consider the resource-loading chart in Figure 12.21. On one level, we
can see that this chart has scheduled projects A through G across 12 weeks. Project A will take the
majority of resources for the first four weeks. However, during the fourth week, we have sched-
uled two projects at the same time (B and C). We must now work to balance their individual activ-
ity resource requirements so that both projects can be completed during the same time period. This
figure illustrates the nature of the problem: On a larger level, resource allocation across multiple
projects requires us to schedule projects in order to most efficiently use our resources. However,
on another level, when projects compete for resources at the same time, we need to work to ensure
that we can prioritize our resources across them to maximize their availability.
There are a number of potential methods for resolving resource allocation challenges in a
multiproject setting, ranging from highly simplified heuristics to more complex mathematical pro-
gramming options. The goal of each technique is to make the most efficient use of resources across
multiple projects, often with competing requirements and priorities.
First in line The simplest rule of thumb for allocating resources is to prioritize on the basis of
which projects entered the queue first. This “first come, first served” approach is easy to employ,
because it simply follows the master project calendar. When resource allocation decisions need
to be made, they can be done quickly by comparing the starting dates of the projects in question.
Unfortunately, this technique ignores any other important information that may suggest the need
Project Weeks
2
2
4
6
8
4 6 8 10 12 14
R
e
s
o
u
rc
e
s
Project A B
Project D
F
G
C
E
Figure 12.21 resource-loading chart Across Multiple Projects
422 Chapter 12 • Resource Management
to reorder the resource allocation process, such as strategic priorities, emergency or crisis situa-
tions, or projects with higher potential for commercial success. The first-in-line option can cause
companies to underallocate resources to potentially high-payoff projects purely on the basis of
when they were authorized, relative to earlier and less useful projects.
greatest resource demand This decision rule starts by determining which projects in the
company’s portfolio will pose the greatest demand on available resources. Those projects that
require the most resources are first identified and their resources are set aside. Once they have
been prioritized and resources allocated, the company reexamines the remaining pool of projects
and selects those with the next highest resource demands until the available pool is exhausted.
The logic of the greatest-resource-demand approach is to recognize that resource bottlenecks are
likely to spring from unexpected peaks in resource needs relative to the number of projects under
development. Consequently, this approach identifies these possible bottlenecks and uses them as
the starting point for additional resource allocation.
greatest resource utilization A variation of the greatest-resource-demand heuristic is to
allocate resources in order to ensure the greatest use of project resources, or in order to minimize
resource idle time. For example, an organization may seek to prioritize three projects, A, B, and C,
across a resource pool made up of programmers, system analysts, and networking staff. Although
project A requires the most resources for completion, it does not require any work from the system
analyst resource pool. On the other hand, project B does not require as many total resources for
completion, but it does need to utilize members of all three resource pool groups, that is, program-
mers, system analysts, and network specialists. As a result, the company may elect to prioritize
project B first in order to ensure that all resources are being utilized to the greatest possible degree.
minimum late Finish time This rule stipulates that resource priority should be assigned to
activities and projects on the basis of activity finish dates. The earliest late finishers are scheduled
first. Remember that “late finish” refers to the latest an activity can finish without compromising
the overall project network by lengthening the critical path. The goal of this heuristic is to examine
those project activities that have extra slack time as a result of later late finish dates and prioritize
resources to the activities with minimal slack, that is, early late finish dates.
mathematical programming Math programming can be used to generate optimal solutions
to resource-constrained problems in the multiproject setting, just as it can be employed for single
projects. The common objectives that such models seek to maximize are:11
1. Minimize total development time for all projects
2. Minimize resource utilization across all projects
3. Minimize total lateness across all projects
These goals are subject to the resource constraints that characterize the nature of the problem,
including: (1) limited resources, (2) precedence relationships among the activities and projects, (3)
project and activity due dates, (4) opportunities for activity splitting, (5) concurrent versus noncon-
current activity performance requirements, and (6) substitution of resources to assign to activities.
Although mathematical programming is a worthy approach to resolving the constrained resource
problem in either a single or multiproject setting, its use tends to be limited depending on the
complexity of the problem, the large number of computational variables, and the time necessary to
generate a sufficiently small set of options.
Resource management in projects is a problem that is frequently overlooked by novice proj-
ect managers or in firms that have not devoted enough time to understanding the full nature of
the project management challenge they face. As noted, it is common to develop project plans and
schedules under the assumption of unlimited resources, as if the organization can always find the
trained personnel and other resources necessary to support project activities no matter how commit-
ted they currently are to project work. This practice inevitably leads to schedule slippages and extra
costs as the reality of resource availability overshadows the optimism of initial scheduling. In fact,
resource management represents a serious step in creating reasonable and accurate estimates for
project activity durations by comparing resources needed to undertake an activity to those available
at any point in time. Further, resource management recognizes the nature of time/cost trade-offs
that project managers are frequently forced to make. The extra resources necessary to accomplish
tasks in a timely fashion do not come cheap, and their expense must be balanced against too aggres-
sive project schedules that put a premium on time without paying attention to the budget impact
they are likely to have.
Resource management is an iterative process that can be quite time-consuming. As we bal-
ance our activity network and overall schedule against available resources, the inevitable result
will be the need to make adjustments to the network plan, rescheduling activities in such a way
that they have minimal negative effect on the overall activity network and critical path. Resource
leveling, or smoothing, is a procedure that seeks to make resource scheduling easier through mini-
mizing the fluctuations in resource needs across the project by applying resources as uniformly as
possible. Thus, resource management can make project schedules more accurate while allowing
for optimal scheduling of project resources. Although this process can take time early in the project
planning phase, it will pay huge dividends in the long run, as we create and manage project plans
based on meaningful resource requirements and duration estimates rather than wishful thinking.
Summary
1. recognize the variety of constraints that can
affect a project, making scheduling and planning
difficult. Effectively managing the resources for
projects is a complex challenge. Managers must
first recognize the wide variety of constraints that
can adversely affect the efficient planning of sched-
uling of projects, including technical constraints,
resource constraints, and physical constraints.
Among the set of significant resource constraints
are project personnel, materials, money, and equip-
ment. A reasonable and thorough assessment of
both the degree to which each of these resource
types will be needed for the project and their avail-
ability is critical for supporting project schedules.
2. Understand how to apply resource-loading tech-
niques to project schedules to identify potential
resource overallocation situations. Resource load-
ing is a process for assigning the resource require-
ments for each project activity across the baseline
schedule. Effective resource loading ensures that the
project team is capable of supporting the schedule
by ensuring that all activities identified in the sched-
ule have the necessary level of resources assigned to
support their completion within the projected time
estimates. We can profile the resource requirements
for a project across its life cycle to proactively plan
for the needed resources (both in terms of type of
resource and amount required) at the point in the
project when activities are scheduled to be accom-
plished. One effective, visual method for resource
planning utilizes resource-leveling techniques
to “block out” the activities, including required
resource commitment levels, across the proj-
ect’s baseline schedule. Resource leveling offers a
useful heuristic device for recognizing “peaks and
valleys” in our resource commitment over time that
can make resource scheduling problematic.
3. Apply resource-leveling procedures to proj-
ect activities over the baseline schedule using
appropriate prioritization heuristics. We employ
“resource-smoothing” techniques in an effort to
minimize the problems associated with exces-
sive fluctuations in the resource-loading diagram.
Resource smoothing minimizes these fluctuations
by rescheduling activities in order to make it eas-
ier to apply resources continuously over time. The
first step in resource leveling consists of identifying
the relevant activities to determine which are likely
candidates for modification. The next question to
resolve is: Which activity should be adjusted? Using
the priority heuristic mentioned previously, we
would first examine the activities to see which are
critical and which have some slack time associated
with them. The second step is to select the activity
to be reconfigured. According to the rule of thumb,
we first select the activities with the most slack time
for reconfiguration.
4. follow the steps necessary to effectively smooth
resource requirements across the project life cycle.
In constructing a resource-loading chart that illus-
trates the time-limited nature of resource schedul-
ing, there are six main steps to follow: (1) Create
the activity network diagram for the project; (2)
produce a table for each activity that includes the
resources required, the duration, and the early start
time, slack, and late finish time; (3) list the activi-
ties in order of increasing slack (or in order of latest
finish time for activities with the same slack); (4)
draw an initial resource-loading chart with each
activity scheduled at its earliest start time, building
it up following the order shown in step 3, to create a
loading chart with the most critical activities at the
bottom and those with the greatest slack on the top;
(5) rearrange the activities within their slack to cre-
ate a profile that is as level as possible within the
guidelines of not changing the duration of activi-
ties or their dependence; and (6) use judgment to
interpret and improve activity leveling by moving
Summary 423
424 Chapter 12 • Resource Management
activities with extra slack in order to “smooth” the
resource chart across the project.
5. Apply resource management within a multipro-
ject environment. Resource management is a far
more complex activity when we consider it within
a multiproject environment, that is, when we try
to schedule resources among multiple projects that
are all competing for a limited supply of resources.
In such circumstances, a number of options are
available to project managers to find the optimal
balance between multiple competing projects and
finite resources. Among the decision heuristics we
can employ in making the resource allocation deci-
sions are those which choose on the basis of (1)
which projects are first in line, (2) which projects
have the greatest resource demand, (3) which proj-
ects will enable our firm to use the greatest resource
utilization, (4) which will enable us to reach the goal
of minimizing late finish times, and (5) through the
use of mathematical programming.
Key Terms
In-process inventory (p. 421)
Leveling heuristics (p. 407)
Mixed-constraint project
(p. 403)
Physical constraints (p. 403)
Resource-constrained
project (p. 403)
Resource constraints
(p. 402)
Resource leveling (p. 407)
Resource loading (p. 405)
Resource-loading
charts (p. 416)
Resource-loading
table (p. 411)
Resource usage table (p. 405)
Smoothing (p. 407)
Splitting activities (p. 417)
Time-constrained project
(p. 403)
Solved Problem
Consider the resource-loading table shown here. Assume that
we cannot schedule more than eight hours of work during any
day of the month.
a. Can you identify any days that involve resource conflicts?
b. How would you reconfigure the loading table to resolve
these resource conflicts?
june
Activity 1 2 3 4 5 8 9 10 11 12 15 16 17 18 19 22 23 24 25 26
A 4 4 4 4 4⎦
B 4 4 4 ⎦
C 4 4 4 4 4⎦
D 3 3 3 3 3 3 ⎦
E 3 3 3 3 3 ⎦
F 2 2 2 2 2 2⎦
G 4 4 4 4 ⎦
SoLuTIon
june
Activity 1 2 3 4 5 8 9 10 11 12 15 16 17 18 19 22 23 24 25 26
A 4 4 4 4 4⎦
B 4 4 4 ⎦
C 4 4 4 4 4⎦
D 3 3 3 3 3 3 3 3 3 ⎦
E 3 3 3 3 3 ⎦
F 2 2 2 2 2 2⎦
G 4 4 4 4 4 4 4 4 ⎦
Total 4 4 4 4 4 8 8 8 7 7 8 8 8 8 5 6 4 4 4
a. According to the resource-loading table, the dates June 8, 9,
and 10 are all overallocated (11 hours), as are June 16, 17, 18,
and 19 (9 hours).
b. One solution for leveling the resource-loading table is by
taking advantage of slack time available in activities D and
G and moving these activities later in the schedule to corre-
spond with their late finish dates (see the resource-loading
table shown below).
Discussion Questions
12.1 Consider a project to build a bridge over a river gorge.
What are some of the resource constraints that would
make this project challenging?
12.2 For many projects, the key resources to be managed are
the project team personnel. Explain in what sense and
how project team personnel are often the project’s critical
resource.
12.3 What is the philosophy underlying resource loading?
What does it do for our project? Why is it a critical element
in effectively managing the project plan?
12.4 It has been argued that a project schedule that has not
been resource-leveled is useless. Do you agree or disagree
with this statement? Why or why not?
12.5 Discuss the nature of “time/cost trade-offs” on projects.
What does this concept imply for our project management
practices?
12.6 When resource-leveling a project, a number of heuristics
can help us prioritize those activities that should receive
resources first. Explain how each of the following heuris-
tics works and give an example:
a. Activities with the smallest slack
b. Activities with the smallest duration
c. Activities with the lowest identification number
d. Activities with the most successor tasks
e. Activities requiring the most resources
12.7 Multitasking can have an important negative impact on
your ability to resource-level a project. When team members
are involved in multiple additional commitments, we must
be careful not to assign their time too optimistically. In fact,
it has been said: “Remember, 40 hours is not the same as one
week’s work.” Comment on this idea. How does multitask-
ing make it difficult to accurately resource-level a project?
12.8 Why is resource management significantly more difficult
in a multiproject environment? What are some rules of
thumb to help project managers better control resources
across several simultaneous projects?
Problems
12.1 Consider a project Gantt chart with the following condi-
tions (see Figure 12.22). Susan is your only programmer
and she is responsible for Activities 3 and 4, which over-
lap. In resource-leveling the project so that Susan is only
working a maximum of 8 hours each day, what would the
new Gantt chart look like? What would be the new project
completion date?
12.2 Referring to Figure 12.22, how would splitting Activity
3 on July 1 to complete Activity 4 and then finish
Activity 3 affect the revised project completion date?
Show your work. Do you recommend splitting Activity
3 or allow Susan to first complete it and then perform
Activity 4? Which strategy would allow the project to
finish sooner? Why?
12.3 Refer to the Gantt chart in Figure 12.23. Bob and George
are carpenters who have been scheduled to work on the
construction of a new office building. Just before the start
of the project, George is injured in an accident and cannot
work this job, leaving Bob to handle his own activities as
well as George’s. Resource level this Gantt chart with Bob
now responsible for Activities 3, 4, 6, and 7. What is the
new projected completion date for the project?
12.4 Referring to Figure 12.23, suppose you have the opportu-
nity to hire two new carpenters to perform George’s tasks
(shortening them by 50%). What would be the new pro-
jected completion date for the project? Would it be worth
it to you to hire two replacement carpenters instead of just
one? Show your work.
Figure 12.22 Problem 1
Source: MS Project 2013, Microsoft Corporation
Problems 425
426 Chapter 12 • Resource Management
For Problems 5–9, consider a project with the following
information:
Activity Duration Predecessors
A 3 —
B 5 A
C 7 A
D 3 B, C
E 5 B
F 4 D
G 2 C
H 5 E, F, G
Activity Duration eS ef lS lf Slack
A 3 0 3 0 3 —
B 5 3 8 5 10 2
C 7 3 10 3 10 —
D 3 10 13 10 13 —
E 5 8 13 12 17 4
F 4 13 17 13 17 —
G 2 10 12 15 17 5
H 5 17 22 17 22 —
Activity Duration
total
float
resource
Hours
Needed
per Week
total
resources
required
A 3 weeks — 6 18
B 5 weeks 2 4 20
C 7 weeks — 4 28
D 3 weeks — 6 18
E 5 weeks 4 2 10
F 4 weeks — 4 16
G 2 weeks 5 3 6
H 5 weeks — 6 30
Total 146
12.5 Construct the project activity network using AON
methodology.
12.6 Identify the critical path and other paths through the
network.
12.7 Create a time-phased resource-loading table for this
project, identifying the activity early start and late finish
points.
12.8 Assume that there is a maximum of eight resource hours
per week available for the project. Can you identify any
weeks that have resource overcommitments?
12.9 Resource-level the loading table. Identify the activity that
can be rescheduled and reconfigure the table to show this
reallocation.
Figure 12.23 Problem 3
Source: MS Project 2013, Microsoft Corporation
12.10 Consider the partial resource-loading chart shown below.
Suppose that you can commit a maximum of eight re-
source hours per day.
a. What are the dates on which project resources are over-
allocated?
b. How should the resource-loading table be reconfig-
ured to correct for this overallocation?
c. Now suppose that the maximum number of resource
hours per day you can commit is reduced to six. How
would you reconfigure the resource-loading table to
adjust for this number? What would be the new project
completion date?
CASe STuDy 12.1
The Problems of Multitasking
An eastern U.S. financial services company found itself
way behind schedule and over budget on an important
strategic program. Both the budget and schedule base-
lines had begun slipping almost from the beginning,
and as the project progressed, the lags became severe
enough to require the company to call in expert help
in the form of a project management consulting firm.
After investigating the organization’s operations, the
consulting firm determined that the primary source of
problems both with this project in particular and the
company’s project management practices in general
was a serious failure to accurately forecast resource
requirements. In the words of one of the consultants,
“Not enough full-time [human] resources had been
dedicated to the program.”
The biggest problem was the fact that too many
of the project team members were working on two or
more projects simultaneously—a clear example of mul-
titasking. Unfortunately, the program’s leaders devel-
oped their ambitious schedule without reflecting on
the availability of resources to support the project mile-
stones. With their excessive outside responsibilities, no
one was willing to take direct ownership of their work
on the program, people were juggling assignments, and
everyone was getting farther behind in all the work.
Again, in the words of the consultant, “Project issues
would come up and there would be nobody there to
handle them [in a timely fashion].” Those little issues,
left unattended, eventually grew to become big prob-
lems. The schedule continued to lag, and employee
morale began to bottom out.
Following their recognition of the problem, the
first step made by the consultants was to get top man-
agement to renegotiate the work assignments with the
project team. First, the core team members were freed
from other responsibilities so they could devote their
full-time attention to the program. Then, other support
members of the project were released from multitasking
duties and assigned to the project on a full-time or near
full-time basis as well. The result, coupled with other
Case Study 12.1 427
428 Chapter 12 • Resource Management
suggested changes by the consultants, was to finally
match up the project’s schedule and activity duration
estimates with a realistic understanding of resources
needs and availability. In short, the program was put
back on track because it was finally resource-leveled,
particularly through creating full-time work assign-
ments for the project team that accurately reflected the
need to link resource management with scheduling.12
Questions
1. How does multitasking confuse the resource
availability of project team personnel?
2. “In modern organizations, it is impossible
to eliminate multitasking for the average
employee.” Do you agree or disagree with this
statement? Why?
3. Because of the problems of multitasking, project
managers must remember that there is a differ-
ence between an activity’s duration and the proj-
ect calendar. In other words, 40 hours of work
on a project task is not the same thing as one
week on the baseline schedule. Please comment
on this concept. Why does multitasking “decou-
ple” activity duration estimates from the project
schedule?
12.1 Access www.fastcompany.com/magazine/87/project-man
agement.html. What suggestions does the author offer for
managing the pressures to multitask? The author suggests
the need to “multiproject.” What is her point about the idea
of learning how to multiproject?
12.2 Search the Web for examples of projects that suffer from
each of the following:
a. Time constraints
b. Resource constraints
c. Mixed constraints
For each of these examples, cite evidence of the types
of constraints you have identified. Is there evidence of
how the project is working to minimize or resolve these
constraints?
12.3 Access Web sites related to the Boston tunnel project
known as the “Big Dig.” Describe the problems that the
project had. How did resource management play a role in
the severe delays and cost overruns associated with the
project?
Internet exercises
Exercise 12.1
Refer to the activity network table shown below. Enter this in-
formation using MS Project to produce a Gantt chart. Assume
that each resource has been assigned to the project activity on a
full-time (8 hours/day or 40 hours/week) basis.
Activity Duration Predecessors
resource
Assigned
A. User survey 4 None Gail Wilkins
B. Coding 12 A Tom Hodges
C. Debug 5 B Wilson Pitts
D. Design interface 6 A, C Sue Ryan
E. Develop training 5 D Reed Taylor
Exercise 12.2
Using the information from Exercise 12.1, produce a resource
usage sheet that identifies the total number of hours and daily
commitments of each project team member.
Exercise 12.3
Refer to the activity network table shown in Exercise 12.1.
Suppose that we modified the original table slightly to show
the following predecessor relationships between tasks and
resources assigned to perform these activities. Enter this infor-
mation into MS Project to produce a Gantt chart. Assume that
each resource has been assigned to the project activity on a
full-time (8 hours/day or 40 hours/week) basis.
Activity Duration Predecessors
resource
Assigned
A. User survey 4 None Gail Wilkins
B. Coding 12 A Tom Hodges
C. Debug 5 A Tom Hodges
D. Design interface 6 B, C Sue Ryan
E. Develop training 5 D Reed Taylor
a. Using the Resource Usage view, can you determine any
warning signs that some member of the project team has
been overassigned?
b. Click on the Task Usage view to determine the specific days
when there is a conflict in the resource assignment schedule.
Exercise 12.4
Using the information provided in Exercise 12.3, how might
you resource-level this network to remove the conflicts? Show
how you would resource-level the network. From a schedule
perspective, what is the new duration of the project?
MS Project exercises
PMP certificAtion sAMPle QUestions
1. The project manager identifies 20 tasks needed to com-
plete her project. She has four project team members
available to assign to these activities. The process of as-
signing personnel to project activities is known as:
a. Resource leveling
b. Resource loading
c. Finding the critical path
d. Creating a Work Breakdown Structure (WBS)
2. The correct definition of resource leveling is:
a. A graph that displays the resources used over time
on a project
b. The process of applying resources to a project’s
activities
c. The process of creating a consistent (level) work-
load for the resources on the project, driven by
resource constraints
d. A project schedule whose start and finish dates
reflect expected resource availability
3. Project resource constraints can involve any of the fol-
lowing examples:
a. Poorly trained workers
b. Lack of available materials for construction
c. Environmental or physical constraints of the proj-
ect site itself
d. All of the above would be considered examples of
project resource constraints
4. When adopting resource-leveling heuristics, which of
the following are relevant decision rules?
a. The activities with the least slack time should have
resources allocated to them first
b. The activities with the longest duration are the best
candidates for receiving extra resources
c. Activities with the fewest successor tasks should
have resource priority
d. Activities with the highest WBS identification
numbers are the first to receive available resources
5. One of the benefits of resource-loading charts is that they:
a. Represent a method for finding available activity
slack
b. Graphically display the amount of resources re-
quired as a function of time
c. Help resolve resource conflicts in multiproject
settings
d. All of the above are benefits of using resource-
loading charts
Answers: 1. b—The act of assigning personnel to specific
project activities is usually referred to as resource loading;
2. c—Resource leveling involves smoothing, or creating con-
sistent workloads across the project schedule for the avail-
able resources; 3. d—Project resources can include people,
physical conditions, and material resources; therefore, all of
the examples cited represent project resource constraints;
4. a—As a useful resource-leveling heuristic, the activities
with the least slack time should have resources allocated
to them first; 5. b—Resource-loading charts are a graphic
means of identifying resource requirements as a function of
the project’s duration; they can help visually identify over-
loads or inefficient undercommitment of resources.
MS Project Exercises 429
430 Chapter 12 • Resource Management
iNteGrAteD Project
Managing Your Project’s resources
You have an important task here. Now that you have created a network plan, including a schedule for your
project, it is vital to resource-level the plan. Develop a resource-loading chart for your project. As you do this,
keep in mind the budget you created for your plan and the personnel you have selected for the project team.
Your resource-leveling procedure must be congruent with the project schedule (as much as possible) while
maintaining your commitment to the use of the project resources you are intending to employ.
Remember that the key to doing this task efficiently lies in being able to maximize the use of project
resources while having a minimally disruptive effect on your initial project schedule. As a result, it may be
necessary to engage in several iterations of the resource-leveling process as you begin to shift noncritical tasks
to later dates in order to maximize the use of personnel without disrupting the delivery date for the project.
For simplicity’s sake, you may assume that your resources for the project are committed to you at 100% of
their work time. In other words, each resource is capable of working 40 hours each week on this project.
Create the resource-leveling table. Be sure to include the schedule baseline along the horizontal axis.
What was your initial baseline? How did resource-leveling your project affect the baseline? Is the new pro-
jected completion date later than the original date? If so, by how much?
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notes
431
1 3
■ ■ ■
Project Evaluation and Control
Chapter Outline
Project Profile
New York City’s CityTime Project
introduction
13.1 control cycles—A GenerAl Model
13.2 MonitorinG Project PerforMAnce
The Project S-Curve: A Basic Tool
S-Curve Drawbacks
Milestone Analysis
Problems with Milestones
The Tracking Gantt Chart
Benefits and Drawbacks of Tracking Gantt
Charts
13.3 eArned VAlue MAnAGeMent
Terminology for Earned Value
Creating Project Baselines
Why Use Earned Value?
Steps in Earned Value Management
Assessing a Project’s Earned Value
13.4 usinG eArned VAlue to MAnAGe
A Portfolio of Projects
Project Profile
Earned Value at Northrop Grumman
13.5 issues in the effectiVe use of eArned
VAlue MAnAGeMent
13.6 huMAn fActors in Project
eVAluAtion And control
Critical Success Factor Definitions
Conclusions
Summary
Key Terms
Solved Problem
Discussion Questions
Problems
Case Study 13.1 The IT Department at Kimble College
Case Study 13.2 The Superconducting Supercollider
Case Study 13.3 Boeing’s 787 Dreamliner: Failure to
Launch
Internet Exercises
MS Project Exercises
PMP Certification Sample Questions
Appendix 13.1 Earned Schedule
Notes
Chapter Objectives
After completing this chapter, you should be able to:
1. Understand the nature of the control cycle and four key steps in a general project control model.
2. Recognize the strengths and weaknesses of common project evaluation and control methods.
3. Understand how Earned Value Management can assist project tracking and evaluation.
4. Use Earned Value Management for project portfolio analysis.
5. Understand behavioral concepts and other human issues in evaluation and control.
6. From Appendix 13.1: Understand the advantages of Earned Schedule methods for determining
project schedule variance, schedule performance index, and estimates to completion.
432 Chapter 13 • Project Evaluation and Control
Project MAnAgeMent Body of Knowledge core
concePts covered in this chAPter
1. Control Schedule (PMBoK sec. 6.7)
2. Control Costs (PMBoK sec. 7.4)
3. Earned Value System (PMBoK sec. 7.4.2.1)
4. Forecasting (PMBoK sec. 7.4.2.2)
5. Performance Reviews (PMBoK sec. 7.4.2.4)
Figure 13.1 New York City
Source: Janniswerner/Fotolia
ProjeCt Profile
New York City’s Citytime Project
“… virtually all of the $600 million that the City paid to SAIC for CityTime was tainted, directly or indirectly, by fraud.”
In announcing charges filed against several contractors and project overseers for New York City’s troubled CityTime
automated payroll and time keeping project, Manhattan U.S. Attorney Preet Bharara placed the blame for the mas-
sive cost overruns squarely at the feet of corrupt project managers and their shockingly brazen money skimming
practices.
In 1998, when former mayor Rudolph Giuliani announced the creation of the CityTime project for New York City’s
employees, he was seeking to automate an outdated, paper-based time card and payroll system used by some 300,000
city employees. Over the years, this record-keeping system could not keep up with the large employee base, leading
to allegations of waste and routinely falsified time sheets, all of which cost the city millions a year. CityTime was sup-
posed to fix this problem by automating and updating the old paper-based methods with the latest electronic, inte-
grated information system. When the city authorized the project, the winning bid was awarded to Science Applications
International Corporation (SAIC) for $63 million over a five-year period. SAIC’s job as prime contractor was to oversee
the development of the new computer-based system and support the migration of all record-keeping and payroll
processes to the new system. By the time the dust settled, New York City had spent over $720 million on a system that
took 10 years to install. Worse, much of the money appears to have been siphoned off by a string of “consultants” and
subcontractors, who all used the project to get rich.
How did things get so bad? Federal prosecutors have said that nearly the entire sum the city spent on the project
was stained by an epic fraud that involved hundreds of contractors, systemic overbilling, and an international money-
laundering conspiracy.
Introduction 433
The project involved numerous stakeholders, all with differing motives and all convinced that others were using
the project to push their own agendas. For example, as early as 2003, unions representing city employees were com-
plaining about the new system and the inflated salaries of numerous consultants and officials involved in the project.
Still, nothing happened. That was because CityTime had powerful supporters who included the new mayor, Michael
Bloomberg; his budget chief Mark Page; and Joel Bondy, the director of the Office of Payroll Administration (OPA).
These officials saw the project as a way to control both overtime and pension costs and regarded union complaints as
the predictable anger of city employees being stripped of their ability to game the system.
Official oversight for this project rested with a three-person panel including Mark Page, a representative for
Comptroller Bill Thompson, and Joel Bondy, who led the Office of Payroll Administration up until he was fired. Despite
this oversight, Attorney Baharara says the private contractors and consultants were able to manipulate the terms of
their contracts and inflate the costs eleven times the original estimate. Their biggest coup was getting the project terms
changed from a fixed-price contract to a fixed-price level of effort contract. This meant that in future, the city would be
held responsible for all cost overruns, which quickly became enormous.
Around this time, allegations of fraud and widespread theft were gaining ground. Mark Mazer, for example, was hired
in 2004 to streamline and rescue the project, which had been falling behind its original schedule. He is accused of taking
more than $25 million in kickbacks in addition to his $4.4 million salary from the CityTime project. His job? Ironically, Mazur
was the outside contractor hired by the city to keep a close eye on the other outside contractors who were performing the
work; a classic case of the fox being set to guard the chickens! Meanwhile, the prime CityTime contractor, Science Applications
International Corp. (SAIC), received more than $600 million from the city. SAIC’s project chief, Gerard Denault, is accused of
taking $9 million in kickbacks. SAIC’s systems engineer, Carl Bell, took more than $5 million and pleaded guilty to doing so.
Much of the bribe money flowed through Technodyne, a subcontractor hired by SAIC and headed by an Indian-
American husband and wife team, Reddy and Padma Allen. SAIC paid $450 million to Technodyne, and the Allens
responded with a series of illegal cash payments for Denault, Bell, and Mark Mazer, according to the government. In
return, investigators say, these individuals worked together to pad the CityTime payroll and prolong the project. The
Allens shipped at least $50 million to companies they controlled in India. Part of it was then wired back to the United
States to shell companies controlled by Denault and Bell. Mazer was paid off through a larger web of shell companies.
Mazer then funneled millions of dollars stolen from the city to bank accounts overseas. Investigators found hundreds of
thousands of dollars stashed in safe-deposit boxes around the city that were part of the ill-gotten gains.
Things finally began to unravel in 2010 (over 10 years into the project) when an unhappy CityTime consultant who
had been fired went to the city’s Department of Investigation and blew the whistle. The Department of Investigation
began its own probe and then notified federal authorities who were brought into the case. Federal indictments were
returned in 2010 and the cases were finally brought to trial in 2013.
Before he left office, Mayor Michael Bloomberg demanded that SAIC repay the city more than $600 million spent
on the scandal-plagued CityTime payroll technology project. In 2012, SAIC came to an agreement with New York City
to repay $500 million to avoid federal prosecution. As the U.S. Attorney noted in her indictment, “… the corruption on
the CityTime project was epic in duration, magnitude, and scope. As alleged, CityTime served as a vehicle for an unprec-
edented fraud, which appears to have metastasized over time.”
Ironically, a computer system that was developed to make sure that city employees did not cheat on their time
card hours resulted in one of the biggest cases of graft, cheating, and outright theft that New York City has ever seen.
Project controls and oversight for the project simply did not exist as city officials adopted an attitude that “outside
contractors can do it better.” If by “doing it better,” officials meant “are more capable of theft,” then they may have
been right. It seems that the echoes of the CityTime scandal are finally starting to fade. Of the 11 people arrested in
connection with the fraud and corruption, by 2014, eight had been convicted, the Allens had fled back to India with
at least $35 million, and one died prior to the start of his trial. Most recently, a federal judge in Manhattan sentenced
three men, including Mark Mazur, to 20 years in prison for their roles in the scandal-ridden project, and he also sharply
criticized New York City’s contracting procedures for what he called a lack of “adequate and effective oversight.”1
introduction
One of the most significant challenges with running a project has to do with maintaining an accu-
rate monitoring and control system for its implementation. Because projects are often defined by
their constraints (i.e., budget and schedule limitations), it is vital that we ensure they are controlled
as carefully as possible. Project monitoring and control are the principal mechanisms that allow
the project team to stay on top of a project’s evolving status as it moves through the various life
cycle stages toward completion. Rather than adopting a “no news is good news” approach to
monitoring and control of projects, we need to clearly understand the benefits that can be derived
from careful and thorough status assessments as the project moves forward.
In order to best ensure that the project’s control will be as optimal as possible, we need to focus
our attention on two important aspects of the monitoring process. First, we need to identify the
434 Chapter 13 • Project Evaluation and Control
appropriate cues that signal project status as well as understand the best times across the project’s
life cycle to get accurate assessments of its performance. In other words, we need to be fully aware
of the what and when questions: What information concerning the project should be measured, and
when are the best times to measure it? Our goal is to have a sense of how to develop systematic proj-
ect control that is comprehensive, accurate, and timely. Put another way, when we are responsible
for a multimillion-dollar investment in our organization, we want to know the status of the project,
we want that information as soon as we can get it, and we want it to be as up-to-date as possible.
13.1 control cycles—A generAl Model
A general model of organizational control includes four components that can operate in a continu-
ous cycle and can be represented as a wheel. These elements are:
1. Setting a goal. Project goal setting goes beyond overall scope development to include
setting the project baseline plan. The project baseline is predicated on an accurate Work
Breakdown Structure (WBS) process. Remember that WBS establishes all the deliverables
and work packages associated with the project, assigns the personnel responsible for them,
and creates a visual chart of the project from the highest level down through the deliverable
and task levels. The project baseline is created as each task is laid out on a network diagram
and resources and time durations are assigned to it.
2. Measuring progress. Effective control systems require accurate project measurement mecha-
nisms. Project managers must have a system in place that will allow them to measure the ongoing
status of various project activities in real time. We need a measurement system that can provide
information as quickly as possible. What to measure also needs to be clearly defined. Any number
of devices will allow us to measure one aspect of the project or another; however, the larger ques-
tion is whether or not we are getting the type of information we can really use.
3. Comparing actual with planned performance. When we have some sense of the original base-
line (plan) and a method for accurately measuring progress, the next step is to compare the two
pieces of information. A gap analysis can be used as a basis for testing the project’s status. Gap
analysis refers to any measurement process that first determines the goals and then the degree
to which the actual performance lives up to those goals. The smaller the gaps between planned
and actual performance, the better the outcome. In cases where we see obvious differences
between what was planned and what was realized, we have a clear-cut warning signal.
4. Taking action. Once we detect significant deviations from the project plan, it becomes nec-
essary to engage in some form of corrective action to minimize or remove the deviation.
The process of taking corrective action is generally straightforward. Corrective action can
either be relatively minor or involve significant remedial steps. At its most extreme, correc-
tive action may even involve scuttling a nonperforming project. After corrective action, the
monitoring and control cycle begins again.
As Figure 13.2 demonstrates, the control cycle is continuous. As we create a plan, we begin
measurement efforts to chart progress and compare stages against the baseline plan. Any indica-
tions of significant deviations from the plan should immediately trigger an appropriate response,
1. Setting a goal
4. Taking action
and recycling
the process
2. Measuring
progress
3. Comparing actual
with planned
Figure 13.2 the Project Control Cycle
13.2 Monitoring Project Performance 435
leading to a reconfiguration of the plan, reassessment of progress, and so on. Project monitoring is
a continuous, full-time cycle of target setting, measuring, correcting, improving, and remeasuring.
13.2 Monitoring Project PerForMAnce
As we discovered in the chapters on project budgeting and resource management, once we have
established a project baseline budget, one of the most important methods for indicating the
ongoing status of the project is to evaluate it against the original budget projections. For project
monitoring and control, both individual task budgets and the cumulative project budget are
relevant. The cumulative budget can be broken down by time over the project’s projected duration.
the Project s-curve: A Basic tool
As a basis for evaluating project control techniques, let us consider a simple example. Assume a
project (Project Sierra) with four work packages (Design, Engineering, Installation, and Testing),
a budget to completion of $80,000, and an anticipated duration of 45 weeks. Table 13.1 gives a
breakdown of the project’s cumulative budget in terms of both work packages and time. As we
discussed in Chapter 8, this type of budget is referred to as a time-phased budget.
To determine project performance and status, a straightforward time/cost analysis is often
our first choice. Here the project’s status is evaluated as a function of the accumulated costs and
labor hours or quantities plotted against time for both budgeted and actual amounts. We can see
that time (shown on the x, or horizontal, axis) is compared with money expended (shown on the
y, or vertical, axis). The classic project s-curve represents the typical form of such a relationship.
Budget expenditures are initially low and ramp up rapidly during the major project execution
stage, before starting to level off again as the project gets nearer to its completion (see Figure 13.3).
Cumulative budget projections for Project Sierra shown in Table 13.1 have been plotted against the
project’s schedule. The S-curve figure represents the project budget baseline against which actual
budget expenditures are evaluated.
Monitoring the status of a project using S-curves becomes a simple tracking problem. At the
conclusion of each given time period (week, month, or quarter), we simply total the cumulative
project budget expenditures to date and compare them with the anticipated spending patterns. Any
significant deviations between actual and planned budget spending reveal a potential problem area.
Simplicity is the key benefit of S-curve analysis. Because the projected project baseline is
established in advance, the only additional data shown are the actual project budget expen-
ditures. The S-curve also provides real-time tracking information in that budget expenditures
can be constantly updated and the new values plotted on the graph. Project information can be
visualized immediately and updated continuously, so S-curves offer an easy-to-read evaluation
of the project’s status in a timely manner. (The information is not necessarily easily interpreted,
however, as we shall see later.)
Our Project Sierra example (whose budget is shown in Table 13.1) can also be used to illus-
trate how S-curve analysis is employed. Suppose that by week 21 in the project, the original budget
projected expenditures of $50,000. However, our actual project expenditures totaled only $40,000.
tABle 13.1 Budgeted Costs for Project Sierra (in thousands $)
Duration (in weeks)
5 10 15 20 25 30 35 40 45 total
Design 6 2
Engineer 4 8 8 8
Install 4 20 6
Test 2 6 4 2
Total 6 6 8 12 28 8 6 4 2
Cumul. 6 12 20 32 60 68 74 78 80 80
436 Chapter 13 • Project Evaluation and Control
In effect, there is a $10,000 budget shortfall, or negative variance between the cumulative budgeted
cost of the project and its cumulative actual cost. Figure 13.4 shows the tracking of budgeted expen-
ditures with actual project costs, including identifying the negative variance shown at week 21. In
this illustration, we see the value of S-curve analysis as a good visual method for linking project
costs (both budgeted and actual) over the project’s schedule.
s-curve drawbacks
When project teams consider using S-curves, they need to take the curves’ significant drawbacks
as well as their strengths into consideration. S-curves can identify positive or negative variance
(budget expenditures above or below projections), but they do not allow us to make reasonable
C
u
m
u
la
ti
v
e
C
o
s
t
($
i
n
t
h
o
u
s
a
n
d
s
)
80
60
$10,000 Negative Var.
40
20
5 10 15 20 25 30 35 40 45
Elapsed Time (in weeks)
Cumulative Budgeted Cost
Cumulative Actual Cost
Figure 13.4 Project Sierra’s S-Curve Showing Negative Variance
C
u
m
u
la
ti
v
e
C
o
s
t
($
i
n
t
h
o
u
s
a
n
d
s
)
80
60
40
20
5 10 15 20 25 30 35 40 45
Elapsed Time (in weeks)
Figure 13.3 Project S-Curves
13.2 Monitoring Project Performance 437
interpretations as to the cause of variance. Consider the S-curve shown in Figure 13.4. The actual
budget expenditures have been plotted to suggest that the project team has not spent the total
planned budget money to date (there is negative variance). However, the question is how to
interpret this finding. The link between accumulated project costs and time is not always easily
resolved. Is the project team behind schedule (given that they have not spent sufficient budget to
date) or might there be alternative reasons for the negative variance?
Assume that your organization tracks project costs employing an S-curve approach and uses
that information to assess the status of an ongoing project. Also assume that the project is to be
completed in 12 months and has a budget of $150,000. At the six-month checkup, you discover that
the project S-curve shows significant shortfall; you have spent far less on the project to date than
was originally budgeted. Is this good or bad news?
On the surface, we might suppose that this is a sign of poor performance; we are lagging far
behind in bringing the project along and the smaller amount we have spent to date is evidence
that our project is behind schedule. On the other hand, there are any number of reasons why this
circumstance actually might be positive. For example, suppose that in running the project, you
found a cost-effective method for doing some component of the work or came across a new tech-
nology that significantly cut down on expenses. In that case, the time/cost metric may not only be
misused, but might lead to dramatically inaccurate conclusions. Likewise, positive variance is not
always a sign of project progress. In fact, a team may have a serious problem with overexpendi-
tures that could be interpreted as strong progress on the project when in reality it signals nothing
more than their inefficient use of project capital resources. The bottom line is this: Simply evaluat-
ing a project’s status according to its performance on time versus budget expenditures may easily
lead us into making inaccurate assumptions about project performance.
Another drawback with using S-curves to update a project’s progress is that they are provid-
ing “reactive” data; that is, we plot the results of expenditures after the money has already been
spent. S-curves are a tracking tool that are visually appealing but do not allow the project team to
anticipate or take proactive actions because the information only arrives after the fact. Likewise,
S-curves do not allow the team to forecast project expenditures or other performance metrics to
completion. We know how much we have spent to date, but we only have the initial budget to
suggest how much we should have spent and how much we are likely to spend in the future. Once
significant variances start appearing in the budget, the question of what our final, likely project
costs will be is extremely difficult to determine.
Milestone Analysis
Another method for monitoring project progress is milestone analysis. A milestone is an event or
stage of the project that represents a significant accomplishment on the road to the project’s com-
pletion. Completion of a deliverable (a combination of multiple project tasks), an important activ-
ity on the project’s critical path, or even a calendar date can all be milestones. In effect, milestones
are road markers that we observe on our travels along the project’s life cycle. There are several
benefits to using milestones as a form of project control.
1. Milestones signal the completion of important project steps. A project’s milestones are an
important indicator of the current status of the project under development. They give the
project team a common language to use in discussing the ongoing status of the project.
2. Milestones can motivate the project team. In large projects lasting several years, motiva-
tion can flag as team members begin to have difficulty seeing how the project is proceeding
overall, what their specific contribution has been and continues to be, and how much longer
the project is likely to take. Focusing attention on milestones helps team members become
more aware of the project’s successes as well as its status, and they can begin to develop
greater task identity regarding their work on the project.
3. Milestones offer points at which to reevaluate client needs and any potential change
requests. A common problem with many types of projects is the nature of repetitive and con-
stant change requests from clients. Using project review milestones as formal “stop points,”
both the project team and the clients are clear on when they will take midcourse reviews of
the project and how change requests will be handled. When clients are aware of these formal
project review points, they are better able to present reasonable and well-considered feed-
back (and specification change requests) to the team.
438 Chapter 13 • Project Evaluation and Control
4. Milestones help coordinate schedules with vendors and suppliers. Creating delivery
dates that do not delay project activities is a common challenge in scheduling delivery of
key project components. From a resource perspective, the project team needs to receive
supplies before they are needed but not so far in advance that space limitations, holding
and inventory costs, and in some cases spoilage are problems. Hence, to balance delays of
late shipments against the costs associated with holding early deliveries, a well-considered
system of milestones creates a scheduling and coordinating mechanism that identifies the
key dates when supplies will be needed.
5. Milestones identify key project review gates. For many complex projects, a series of mid-
term project reviews are mandatory. For example, many projects that are developed for the
U.S. government require periodic evaluation as a precondition to the project firm receiving
some percentage of the contract award. Milestones allow for appropriate points for these
reviews. Sometimes the logic behind when to hold such reviews is based on nothing more
than the passage of time (“It is time for the July 1 review”). For other projects, the review gates
are determined based on completion of a series of key project steps (such as the evaluation of
software results from the beta sites).
6. Milestones signal other team members when their participation is expected to begin. Many
times projects require contributions from personnel who are not part of the project team. For
example, a quality assurance individual may be needed to conduct systems tests or quality
inspection and evaluations of work done to date. If the quality supervisor does not know when
to assign a person to our project, we may find when we reach that milestone that no one is
available to help us. Because the quality assurance person is not part of the project team, we
need to coordinate her involvement in order to minimize disruption to the project schedule.
7. Milestones can delineate the various deliverables developed in the Work Breakdown Structure
and thereby enable the project team to develop a better overall view of the project. We then
are able to refocus efforts and function-specific resources toward the deliverables that show
signs of trouble, rather than simply allocating resources in a general manner. For example,
indications that the initial project software programming milestone has been missed allow
the project manager to specifically request additional programmers downstream, in order to
make up time later in the project’s development.
Figure 13.5 gives an example of a simple Gantt chart with milestones included. The mile-
stones in this case are simply arbitrary points established on the chart; we could just as easily have
placed them after completed work packages or by using some other criteria.
Problems with Milestones
Milestones, in one form or another, are probably the simplest and most widely used of all project
control devices. Their benefits lie in their clarity; it is usually easy for all project team members to
relate to the idea of milestones as a project performance metric. The problem with them is that, like
Figure 13.5 Gantt Chart with Milestones
Source: MS Project 2013, Microsoft Corporation
13.2 Monitoring Project Performance 439
S-curves, they are a reactive control system. You must first engage in project activities and then
evaluate them relative to your goal. If you significantly underperform your work to that point, you
are faced with having to correct what has already transpired. Imagine, for example, that a project
team misses a milestone by a large margin. Not having received any progress reports until the
point that the bad news becomes public, the project manager is probably not in a position to craft
an immediate remedy for the shortfall. At this point, the problems are compounded. Due to the
delay in receiving the bad news, remedial steps are themselves delayed, pushing the project even
farther behind.
the tracking gantt chart
One form of the Gantt chart, referred to as a tracking Gantt chart, is useful for evaluating project
performance at specific points in time. The tracking gantt chart allows the project team to con-
stantly update the project’s status by linking task completion to the schedule baseline. Rather than
monitor costs and budget expenditures, a tracking Gantt chart identifies the stage of completion
each task has attained by a specific date within the project. For example, Figure 13.6 represents
Project Blue, involving five activities. As the project progresses, its current status is indicated by
the vertical status bar shown for Thursday, July 24. To date, activity A (Licensing Agreement) has
been 100% completed, while its two subsequent tasks, Specification Design and Site Certification,
are shown as having progressed proportionally by the identified tracking date. That is, activity B
(Specification Design) is rated as 57% completed, and activity C (Site Certification) as 80% com-
pleted. Activities D and E have not yet begun in this example.
It is also possible to measure both positive and negative deviations from the schedule base-
line with the tracking Gantt chart. Let us suppose, using our Project Blue example, that activity B
remains approximately 57% completed as of the baseline date indicated. On the other hand, activ-
ity C has not progressed as rapidly and is only 20% completed as of the July 24 date. The chart can
be configured to identify the variations, either positive or negative, in activity completion against
the project baseline. These features are demonstrated in Figure 13.7, showing the current date for
the project and the delay in progress on activity C.
Figure 13.6 Assessing Project Blue’s Status Using tracking Gantt Chart
Source: MS Project 2013, Microsoft Corporation
Figure 13.7 tracking Gantt with Project Activity Deviation
Source: MS Project 2013, Microsoft Corporation
440 Chapter 13 • Project Evaluation and Control
Benefits and drawbacks of tracking gantt charts
A key benefit of tracking Gantt charts is that they are quite easy to understand. The visual
nature of the feedback report is easy to assimilate and interpret. This type of control chart can be
updated very quickly, providing a sense of real-time project control. On the other hand, track-
ing Gantt charts have some inherent drawbacks that limit their overall utility. First, although
they may show which tasks are ahead of schedule, on schedule, and behind schedule, these
charts do not identify the underlying source of problems in the cases of task slippage. Reasons
for schedule slippage cannot be inferred from the data presented. Second, tracking control
charts do not allow for future projections of the project’s status. It is difficult to accurately
estimate the time to completion for a project, particularly in the case of significant positive or
negative variation from the baseline schedule. Is a series of early finishes for some activities
good news? Does that signal that the project is likely to finish earlier than estimated? Because
of these drawbacks, tracking charts should be used along with other techniques that offer
more prescriptive power.
13.3 eArned VAlue MAnAgeMent
An increasingly popular method used in project monitoring and control consists of a mechanism
that has become known as earned value Management (evM).* The origins of EVM date to
the 1960s when U.S. government contracting agencies began to question the ability of contrac-
tors to accurately track their costs across the life of various projects. As a result, after 1967, the
Department of Defense imposed 35 Cost/Schedule Control Systems Criteria that suggested, in
effect, that any future projects procured by the U.S. government in which the risk of cost growth
was to be retained by the government must satisfy these 35 criteria.2 In the more than four years
since its origin, EVM has been practiced in multiple settings, by agencies from governments as
diverse as Australia, Canada, and Sweden, as well as by a host of project-based firms in numer-
ous industries.
Unlike previous project tracking approaches, EVM recognizes that it is necessary to
jointly consider the impact of time, cost, and project performance on any analysis of current
project status. Put another way: Any monitoring system that only compares actual against
budgeted cost numbers ignores the fact that the client is spending that money to accomplish
something—to create a project. Therefore, EVM reintroduces and stresses the importance of
analyzing the time element in project status updates. Time is important because it becomes
the basis for determining how much work should be accomplished at certain milestone points.
EVM also allows the project team to make future projections of project status based on its
current state. At any point in the project’s development, we are able to calculate both schedule
and budget efficiency factors (the efficiency with which budget is being used relative to the
value that is being created) and use those values to make future projections about the estimated
cost and schedule to project completion.
We can illustrate the advance in the project control process that Earned Value Management
represents by comparing it to the other project tracking mechanisms. If we consider the key metrics
of project performance as those success criteria discussed in Chapter 1 (schedule, budget, and per-
formance), most project evaluation approaches tend to isolate some subset of the overall success
measure. For example, project S-curve analysis directly links budget expenditures with the project
schedule (see Figure 13.8). Again, the obvious disadvantage to this approach is that it ignores the
project performance linkage.
Project control charts such as tracking Gantt charts link project performance with sched-
ule but may give budget expenditures short shrift (see Figure 13.9). The essence of a tracking
approach to project status is to emphasize project performance over time. Although the argument
* Note that Earned Value Management (EVM) is used interchangeably with Earned Value Analysis (EVA). EVA is an older
term, though still widely in use. EVM has become increasingly common and is used within many project firms.
13.3 Earned Value Management 441
could be made that budget is implicitly assumed to be spent in some preconceived fashion, this
metric does not directly apply a link between the use of time and performance factors with
project cost.
earned value (ev), on the other hand, directly links all three primary project success metrics
(cost, schedule, and performance). This methodology is extremely valuable because it allows for
regular updating of a time-phased budget to determine schedule and cost variances, as identified by
the regular measurement of project performance (see Figure 13.10).
terminology for earned Value
Following are some of the key concepts that allow us to calculate earned value and use its
figures to make future project performance projections. Many of these definitions are taken
from the Project Management Institute’s Project Management Body of Knowledge (PMBoK),
5th Edition.
PV Planned value. The authorized budget assigned to scheduled work. At any given moment, planned
value defines the physical work that should have been accomplished to that point in time. It can also
be thought of as a cost estimate of the budgeted resources scheduled across the project’s life cycle
(cumulative baseline). In older terminology, PV used to be referred to as BCWS (Budgeted Cost of
Work Scheduled).
eV earned value. This is a measure of the work performed expressed in terms of the budget
authorized for that work. This is the real budgeted cost, or “value,” of the work that has actually
been performed to date. In older terminology, EV used to be referred to as Budgeted Cost of Work
Performed (BCWP).
Cost
Project
S-Curves
Performance Schedule
Figure 13.8 Monitoring Project Performance
(S-Curve Analysis)
Cost
Tracking Control
Charts (e.g., Gantt Charts)
Performance Schedule
Figure 13.9 Monitoring Project Performance
(Control Charting)
Cost
Earned
Value
Performance Schedule
Figure 13.10 Monitoring Project
Performance (earned Value)
442 Chapter 13 • Project Evaluation and Control
AC Actual cost of work performed. This is the realized cost for the work performed on an activity dur-
ing a specific time period. It is the cumulative total costs incurred in accomplishing the various project
work packages that EV measured. In older terminology, AC used to be referred to as Actual Cost of
Work Performed (ACWP).
SV Schedule variance. This is a measure of schedule performance expressed as the difference between
the earned value and the planned value, or EV – PV. It is the amount by which the project is ahead or
behind the delivery date at a given point in time.
CV Cost variance. This is a measure of cost performance expressed as the difference between the
earned value and the actual cost of work performed, or EV – AC. It is the amount of budget deficit or
surplus at a given point in time.
SPi Schedule Performance index. The rate at which project performance is meeting schedule
expectations up to a point in time. SPI is expressed as the earned value to date divided by the
planned value of work scheduled to be performed (EV/PV). This value allows us to calculate the
projected schedule of the project to completion.
CPi Cost Performance index. The rate at which project performance is meeting cost expectations
during a given period of time. CPI is expressed as the earned value divided by the actual, cumulative
cost of the work performed to date (EV/AC). This value allows us to calculate the projected budget to
completion.
BAC Budgeted cost at completion. This value represents the total budget for a project.
eAC estimate at completion. The expected total cost of completing all work on the project. This is the
projected (forecasted) total cost based on project performance to that point in time. It is represented
as the sum of actual costs (AC) plus an estimate to complete all remaining work.
creating Project Baselines
The first step in developing an accurate control process is to create the project baselines against
which progress can be measured. Baseline information is critical regardless of the control process
we employ, but baselines are elemental when performing EVM. The first piece of information
necessary for performing earned value is the planned value, that is, the project baseline. The
PV should comprise all relevant project costs, the most important of which are personnel costs,
equipment and materials, and project overhead, sometimes referred to as level of effort. Overhead
costs (level of effort) can include a variety of fixed costs that must be included in the project
budget, including administrative or technical support, computer work, and other staff expertise
(such as legal advice or marketing). The actual steps in establishing the project baseline are fairly
straightforward and require two pieces of data: the Work Breakdown Structure and a time-phased
project budget.
1. The Work Breakdown Structure identified the individual work packages and tasks
necessary to accomplish the project. As such, the WBS allowed us to first identify the indi-
vidual tasks that would need to be performed. It also gave us some understanding of the
hierarchy of tasks needed to set up work packages and identify personnel needs (human
resources) in order to match the task requirements to the correct individuals capable of
performing them.
2. The time-phased budget takes the WBS one step further: It allows us to identify the correct
sequencing of tasks, but more importantly, it enables the project team to determine the points in
the project when budget money is likely to be spent in pursuit of those tasks. Say, for example,
that our project team determines that one project activity, Data Entry, will require a budget of
$20,000 to be completed, and further, that the task is estimated to require two months to com-
pletion, with the majority of the work being done in the first month. A time-phased budget for
this activity might resemble the following:
Activity jan feb . . . Dec total
Data Entry $14,000 $6,000 -0- $20,000
Once we have collected the WBS and applied a time-phased budget breakdown, we can create
the project baseline. The result is an important component of earned value because it represents
the standard against which we are going to compare all project performance, cost, and schedule
13.3 Earned Value Management 443
data as we attempt to assess the viability of an ongoing project. This baseline, then, represents
our best understanding of how the project should progress. How the project is actually doing, is
another matter.
Why use earned Value?
Let us illustrate the relevancy of EVM using our Project Sierra example. Return to the information
presented in Table 13.1, as graphically represented on the project S-curve in Figure 13.3. Assume
that it is now week 30 of the project and we are attempting to assess the project’s status. Also
assume that there is no difference between the projected project costs and actual expenditures; that
is, the project budget is being spent within the correct time frame. However, upon examination,
suppose we were to discover that Installation was only half completed and Project Testing had not
yet begun. This example illustrates both a problem with S-curve analysis and the strength of EVM.
Project status assessment is relevant only when some measure of performance is considered in
addition to budget and elapsed schedule.
Consider the revised data for Project Sierra shown in Table 13.2. Note that as of week
30, work packages related to Design and Engineering have been totally completed, whereas
the Installation is only 50% done, and Testing has not yet begun. These percentage values are
given based on the project team or key individual’s assessment of the current status of work
package completion. The question now is: What is the earned value of the project work done
to date? As of week 30, what is the status of this project in terms of budget, schedule, and
performance?
Calculating the earned value for these work packages is a relatively straightforward pro-
cess. As Table 13.3 shows, we can modify the previous table to focus exclusively on the relevant
information for determining earned value as of week 30. The planned budget for each work
package is multiplied by the percentage completed in order to determine the earned value to
date for the work packages, as well as for the overall project. In this case, the earned value at the
30-week point is $51,000.
Now we can compare the planned budget against the actual earned value using the original
project budget baseline, shown in Figure 13.11. This process allows us to assess a more realistic
determination of the status of the project when the earned value is plotted against the budget
baseline. Compare this figure with the alternative method from Figure 13.4, in which a negative
tABle 13.2 Percentage of tasks Completed for Project Sierra (in thousands $)
Duration (in weeks)
5 10 15 20 25 30 35 40 45 % Comp.
Design 6 2 100
Engineer 4 8 8 8 100
Install 4 20 6 50
Test 2 6 4 2 0
Total 6 6 8 12 28 8 6 4 2
Cumul. 6 12 20 32 60 68 74 78 80
tABle 13.3 Calculating earned Value (in thousands $)
Planned % Comp. earned Value
Design 8 100 8
Engineer 28 100 28
Install 30 50 15
Test 14 0 0
Cumul. Earned Value 51
444 Chapter 13 • Project Evaluation and Control
variance is calculated, with no supporting explanation as to the cause or any indication about
whether this figure is meaningful or not. Recall that by the end of week 30, our original budget
projections suggested that $68,000 should have been spent. Instead, we are projecting a shortfall
of $17,000. In other words, we are showing a negative variance not only in terms of money spent
on the project, but also in terms of value created (performance) of the project to date. Unlike the
standard S-curve evaluation, EVM variance is meaningful because it is based not simply on bud-
get spent, but value earned. A negative variance of $10,000 in budget expenditures may or may
not signal cause for concern; however, a $17,000 shortfall in value earned on the project to date
represents a variance of serious consequences.
steps in earned Value Management
There are five steps in Earned Value Management (EVM):
1. Clearly define each activity or task that will be performed on the project, including
its resource needs as well as a detailed budget. As we demonstrated earlier, the Work
Breakdown Structure allows project teams to identify all necessary project tasks. It further
allows for each task to be assigned its own project resources, including equipment and
materials costs, as well as personnel assignments. Finally, coupled with the task break-
downs and resource assignments, it is possible to create the budget figure or cost estimate
for each project task.
2. Create the activity and resource usage schedules. These will identify the proportion
of the total budget allocated to each task across a project calendar. Determine how much
of an activity’s budget is to be spent each month (or other appropriate time period)
across the project’s projected development cycle. Coupled with the development of a
project budget should be its direct linkage to the project schedule. The determination of
how much budget money is to be allocated to project tasks is important. Equally impor-
tant is the understanding of when the resources are to be employed across the project’s
development cycle.
3. Develop a “time-phased” budget that shows expenditures across the project’s life. The
total (cumulative) amount of the budget becomes the project baseline and is referred to as
the planned value (Pv). In real terms, PV just means that we can identify the cumulative
budget expenditures planned at any stage in the project’s life. The PV, as a cumula-
tive value, is derived from adding the planned budget expenditures for each preceding
time period.
C
u
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ti
v
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C
o
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($
i
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)
80
Project Baseline
60
Earned Value
40
20
0 5 10 15 20 25 30 35 40 45
Elapsed Time (in weeks)
Figure 13.11 Project Baseline, Using earned Value
13.3 Earned Value Management 445
4. Total the actual costs of doing each task to arrive at the actual cost of work performed (AC).
We can also compute the budgeted values for the tasks on which work is being performed.
This is referred to as the earned value (EV) and is the origin of the term for this control
process.
5. Calculate both a project’s budget variance and schedule variance while it is still in process.
Once we have collected the three key pieces of data (PV, EV, and AC), it is possible to make
these calculations. Remember from earlier in the chapter that the schedule variance is
calculated by the simple equation SV = EV – PV, or the difference between the earned value
to date minus the planned value of the work scheduled to be performed to date. The budget,
or cost, variance is calculated as CV = EV – AC, or the earned value minus the actual cost of
work performed.
A simplified model that fits the principal elements of earned value together (PV, EV, AC,
BAC, and EAC) is shown in Figure 13.12. The original baseline data, comprising both schedule
and budget for all project tasks, is indicated by the planned value (PV) line and budget at comple-
tion (BAC) estimate for the project. Notice that PV follows a standard S-curve outline. Actual costs
at the time of this assessment (when the calculations are being made) are shown on the AC line,
which has been steadily tracking above the planned value to date. Earned value is illustrated as
a line below the PV baseline, suggesting that the project’s current earned value is below expecta-
tions. The dotted line represents the forecast for project performance to completion (EAC). Note
that the line is tracking well above the project’s planned value, suggesting that based on current
performance, which drives projections to completion, the project is likely to finish over budget
and past the scheduled completion date. We will see how these EVM calculations and forecasted
projections to completion are actually calculated in the next section.
Assessing a Project’s earned Value
Table 13.4 presents the first components of a calculated earned value analysis on Project Mercury.3
This project has a planned seven-month duration and a $118,000 budget. The project began in
January and we are interested in calculating its earned value as of the end of June. For simplicity’s
sake, the total work packages for this project are only seven in number. If we know the amount
budgeted for each work package and when that work is slated to be done, we can construct a
budget table similar to that shown in Table 13.4. Notice that each work package has a fixed budget
across a number of time periods (e.g., Staffing is budgeted to cost $15,000 and is to be performed
almost equally across the months of January and February, while Blueprinting begins in March,
with $4,000 budgeted to be spent, and concludes in April with $6,000).
Management Reserve
Project Budget
Estimate at
Completion (EAC)
Budget at
Completion (BAC)
Planned
Value (PV)
Earned
Value (EV)
Actual
Cost (AC)
Assessment Date Scheduled
Completion Date
C
u
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ti
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C
o
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Time
Figure 13.12 earned Value Milestones
13.3 Earned Value Management 447
variances, as long as we have two very important pieces of data—the cumulative actual cost of
work performed (Ac) and the earned value (EV). The earned value figure has already been calcu-
lated ($44,000), and now we turn back to Table 13.4 to locate the AC. The cumulative actual cost at
the end of June is $78,000. This figure is our AC and is entered into Table 13.6.
As we did in calculating schedule variance, we calculate cost variance by dividing the EV by
AC, or $44,000/78,000 = .56. That is the Cost Performance Index (CPI) for this project. Determining
the projected cost of the project involves taking the reciprocal of the CPI multiplied by the original
project budget ($118,000). The bad news is: Not only is this project well behind schedule, but it also
is projected to end up costing more than $210,000, a significant cost overrun.
Finally, we can plot these variance values graphically, showing the difference between EV
(earned value) and PV and AC (see Figure 13.13). The intriguing result of this example suggests
how misleading simple S-curves can sometimes be. For example, in this case, we have discovered a
difference at the end of June of $25,000 between the AC ($78,000) and PV ($103,000). Although the
analysis at that point showed that we had underspent our budget slightly, the results were actually
more serious when viewed from the perspective of earned value by the end of June ($44,000). In
reality, the schedule and cost variances were much more severe due to the lag in earned value on
tABle 13.5 Schedule Variances for Project Mercury eVM
Schedule Variances
Planned Value (PV) 103
Earned Value (EV) 44
Schedule Performance Index EV/PV = 44/103 = .43
Estimated Time to Completion (1/.43 * 7) = 16.3 months
tABle 13.6 Cost Variances for Project Mercury eVM
Cost Variances
Cumulative Actual Cost of Work Performed (AC) 78
Earned Value (EV) 44
Cost Performance Index EV/AC = 44/78 = .56
Estimated Cumulative Cost to Completion (1/.56 * $118,000) = $210,714
B
u
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g
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(
$
)
PV
AC
EV
Slippage
100
90
80
70
60
50
40
30
20
10
0
MayApril June
Figure 13.13 earned Value Variances for Project Mercury
448 Chapter 13 • Project Evaluation and Control
the project, as calculated by the percentage completion of all scheduled tasks. This example clearly
shows the advantages of earned value for more accurately determining actual project status as a
function of its three component pieces: time, budget, and completion.
Earned value can be employed to measure trends in project performance. Trends are impor-
tant because we want more than simple, one-time assessments of our project’s status; we want to
be able to determine whether CPI and SPI are trending up, down, or remaining stationary. So, for
example, it is possible to develop cumulative values for CPI and SPI as follows:
Cumulative CPI = Cumulative EV/Cumulative AC, or:
CPIC = EVC/ACC
Likewise, Cumulative SPI = Cumulative EV/Cumulative PV, or:
SPIC = EVC/PVC
Let us see how these values can be derived in an actual example. Suppose we collected cost
data for our project over four months as shown in Table 13.7.
Our results suggest that after July, CPI dropped significantly for the month of August, before
trending upwards in each of the final two months. Further, cumulative CPI (CPIC) continued to
track above the threshold 1.0 level and in recent months has shown a steady positive trend.
Now, using the same data, let’s develop the cumulative SPI (SPIC) table for this example.
Suppose that our data is as shown in Table 13.8. We can see from the calculation of SPIC that the
project’s schedule performance has been steadily improving and by the end of this four-month
segment, has improved from 0.92 to nearly 1.0. Cumulative SPI and CPI values are important for
updating overall project performance to a master EVM report, rather than relying on a series of
discrete “snapshots” of the project at different points in time.
We can also perform Earned Value Management using MS Project 2013. Suppose that we
wished to track Project Atlas, shown in Figure 13.14. Notice that as of August 14, the project is
beginning to show some signs of delay. By this point, we should have completed four of the six
work packages, and yet Testing, for which Stewart is responsible, is only now getting under way.
From a monitoring and control perspective, the question we want to answer is: How does EVM
indicate the potential delays in our project?
Suppose that, in addition to regularly updating the baseline schedule, we have been track-
ing the costs associated with each of the work packages and have found, as Figure 13.15 shows,
that we have spent all budgeted money allotted to the work packages of Design, Engineering, and
tABle 13.7 Calculating Cumulative CPi for trend Analysis
eV eVC AC ACC CPi CPiC
July $27,500 $ 27,500 $20,000 $ 20,000 1.38 1.38
August $58,000 $ 85,500 $62,000 $ 82,000 0.94 1.04
September $74,500 $160,000 $69,000 $151,000 1.08 1.06
October $40,000 $200,000 $35,500 $186,500 1.13 1.07
tABle 13.8 Calculating Cumulative SPi for trend Analysis
eV eVC PV PVC SPi SPiC
July $27,500 $ 27,500 $30,000 $ 30,000 0.92 0.92
August $58,000 $ 85,500 $60,500 $ 90,500 0.96 0.94
September $74,500 $160,000 $75,000 $165,500 0.99 0.97
October $40,000 $200,000 $37,500 $203,000 1.07 0.99
13.3 Earned Value Management 449
Figure 13.15 Sample Cost report for Project Atlas on August 14
Source: MS Project 2013, Microsoft Corporation
Figure 13.14 Sample Gantt Chart for Project Atlas Showing Status on August 14
Source: MS Project 2013, Microsoft Corporation
Supplier Qualification. We have only spent $288 of our Testing budget. These are the actual cost
values (AC) for these activities. We now have sufficient updated information to determine the
earned value for Project Atlas as of August 14.
Figure 13.16 shows an example of an earned value report generated by MS Project 2013
for our Project Atlas.* In addition to providing the key metrics of PV, EV, and AC (see footnote),
the report generates both schedule and cost variances. Schedule variance (SV) is simply the
difference between earned value and planned value, while cost variance (CV) is the difference
between earned value and actual cost. The estimate at completion (eAc) column shows the
expected total cost of the project to completion based on performance across the various tasks
up to the status date. Note that for Project Atlas, we are currently projecting schedule and cost
variances, suggesting that our project is over budget and behind schedule. In fact, the EAC dem-
onstrates that based on the progress made by August 14, this project is expected to cost $7,180 to
completion.
* MS Project 2013 uses the term BCWS (Budgeted Cost of Work Scheduled) for planned value (PV), BCWP (Budgeted
Cost of Work Performed) for earned value (EV), and ACWP (Actual Cost of Work Performed) for actual cost (AC). As
Figure 13.16 demonstrates, MS Project 2013 employs older terms in conjunction with the newer terminology that has been
updated by the Project Management Institute’s PMBoK.
450 Chapter 13 • Project Evaluation and Control
13.4 using eArned VAlue to MAnAge A PortFolio oF Projects
Earned Value Management can work at the portfolio level as well as with individual projects. The
process simply involves the aggregation of all earned value measures across the firm’s entire proj-
ect portfolio in order to give an indication as to the efficiency with which a company is managing
its projects. Table 13.9 gives an example of a portfolio-level Earned Value Management control
table that identifies both positive and negative cost and schedule variances and, based on these
evaluations, projects the cost to completion of each current project.4
Other useful information contained in the Portfolio Earned Value Management table includes
the total positive variances for both budget and schedule, as well as a determination of the relative
schedule and cost variances as a percentage of the total project portfolio. In the example shown in
Table 13.7, the company is running average cost and schedule variances on its projects of 7.34%
and 6.84%, respectively. The use of Earned Value Management for portfolio tracking and control
offers top management an excellent window into the firm’s ability to efficiently run projects,
allows for comparisons across all projects currently in development, and isolates both the positive
and negative variances as they occur. All of this is useful information for top-level management of
multiple projects.
Figure 13.16 earned Value report for Project Atlas on August 14
Source: MS Project 2013, Microsoft Corporation
tABle 13.9 Project Portfolio earned Value (in thousands $)
Project PV eV time Var ($) Var AC Cost Var ($) Var + Plan
est. at
Completion
Alpha 91 73 -18 18 83 -10 10 254 289
Beta 130 135 5 0 125 10 0 302 280
Gamma 65 60 -5 5 75 -15 15 127 159
Delta 25 23 -2 2 27 -4 4 48 56
Epsilon 84 82 -2 2 81 1 0 180 178
395 373 391 962
Total Schedule Variance 27 Total Cost Variance 29
Relative Schedule Variance 27/395 = 6.84% Relative Cost Variance 29/395 = 7.34%
13.4 Using Earned Value to Manage a Portfolio of Projects 451
ProjeCt Profile
earned Value at Northrop Grumman
“There comes a time to shoot the engineers and get on with production.” This statement, commonly voiced in defense
industry companies, refers to the engineers’ tendency to continually improve but never complete a project. The pen-
chant for continual “tinkering” has enormous implications for companies that live or die by their ability to effectively
and efficiently implement their projects. The type of work defense contractors perform further complicates the prob-
lem. There is a standing requirement that a company must meet the government’s stringent cost and quality control
tests as it brings projects through the development cycle. In an effort to regain control of the project development
process, defense contractor Northrop Grumman has been committed to the use of Earned Value Management for a
number of years.
Northrop Grumman, one of the world’s leading defense contractors (see Figure 13.17), has been using Earned
Value Management as a key component of its approach to better project tracking and control. Because of the numer-
ous projects the company routinely undertakes, its annual operating budget for projects runs into the billions of dollars.
With dozens of projects under way at any time and enormous capital commitments supporting these ventures, it is
imperative that the corporation develop and maintain the most sophisticated project control system possible.
Northrop Grumman has selected Earned Value Management as its primary project control device for the following
reasons:
1. EVM develops a comprehensive baseline plan for the scope of the program’s work over its entire duration.
2. The system incorporates tools to measure work performance and accomplishments based on objective criteria.
3. EVM analyzes and forecasts the impact of significant variances from the plan.
4. It produces managerial decision-making information in ascending levels of management.
5. EVM provides action plans for corrective actions when something digresses from the baseline plan.
6. All parties involved in the plan agree to and document all changes.
The company has developed a four-tier approach for project control using EVM. All projects are classified into one of
the following categories, requiring an individualized approach to EVM creation:
Tier One is the most stringent because it requires most of the system’s features to be identified. This approach is
employed when a contract requires that a large amount of detailed information be produced and reported.
Tier Two is similar to Tier One except that the contract requires close management oversight because the project
is risky, and there is a heavier burden to meet profit margin goals.
Tier Three applies to programs of significant size that are mature and running smoothly.
Tier Four applies the benefits of earned value to projects with low administrative costs.
Figure 13.17 Northrop Grumman’s B-2 Bomber
Source: Mark Meyer/The Life Images Collection/Getty Images
(continued)
452 Chapter 13 • Project Evaluation and Control
13.5 issues in the eFFectiVe use oF eArned VAlue MAnAgeMent
As with any other metric that helps us understand the “true” status of an ongoing project, the
key to effective use of EVM lies in providing accurate and up-to-date information on the project,
particularly in terms of the percentage of work packages completed. Because this information is
key to determining the earned value at any point in time, the calculated EV is only as accurate as
project team members and managers allow it to be through developing and enforcing an honest
reporting system.
In our Project Mercury example shown earlier (Table 13.4), the percentage completion col-
umn included values ranging from 100, 80, 60, 33, 25, to zero. In reality, organizations often adopt
a simpler decision rule for assigning completion percentages. Among the more common methods
for assigning completion values are the following:
1. 0/100 rule—The simplest and perhaps least effective method requires that a project activity
be assigned a value of zero (0) until the point the activity is finished, at which time the value
switches to 100%. This rule works best for work packages with very short durations, such as
a day or two, but it is not useful for longer work packages because it provides little real-time
information on an ongoing basis. It also makes sense for work packages that require vendor
deliveries or that depend upon external stakeholders performing required steps. For exam-
ple, we count a work package as “complete” when the vendor delivers a needed component.
2. 50/50 rule—Under this decision rule, an activity that has been started automatically receives
a valuation of 50% completed. That value remains attached to the work package until the
Northrop Grumman uses EVM at every stage of a project, from developing the original metrics at the contract
proposal stage, to updating them in the form of a full-blown work breakdown structure (WBS) once a project has been
won and is under development, to routinely updating the status of project activities on a weekly basis. Over time, the
company discovered that monthly reviews were simply too far apart and did not allow for real-time corrective action
when it was necessary.
flow of earned Value System
Earned value begins early at Northrop Grumman projects. In fact, there is a “flow” to the EVM system, beginning at the
proposal stage, moving into a baseline development phase when a contract has been awarded, and then becoming part
of a routine maintenance and data generation phase as the project is in development and moving toward successful
completion.
Proposal stage. The specifics of the program are determined at this stage. Among the key considerations to be
determined is the form of EVM to be applied to the program if the proposal is successful and the contract awarded.
Different clients may require different earned value metrics or evaluation windows that have to become part of the
proposal.
Contract award. When Northrop Grumman is selected as the successful contractor, all critical elements and require-
ments of the project are defined, including WBS, scope, delivery schedule, target budgets, as well as an earned value
plan that will be used as the basis for status measurement and updates across the project life cycle.
Baseline stage. Once the preliminary scope and deliverables have been agreed to between the contractor and
the client, the detailed planning, project schedule, and formal work authorization is developed. The baseline is cre-
ated now that key work packages and deliverables are identified and budgets are assigned to create a time-phased
project budget.
Maintenance phase. Once the project baseline is established and formally signed off by key parties, the project
passes to the monitoring and control stage, where the key advantages of EVM are clearly realized. Performance is
measured, schedules are updated, and all significant variances are identified and reported. People responsible for
the actual performance of the work receive EVM reports at the detailed level and the system is transparent so that
government representatives, interested in status updates, can receive real-time data on cost performance (CPI) and
schedule performance (SPI) in accordance with contract requirements. Throughout the project life cycle, EVM consid-
erations continue to drive the project forward; shaping the organization of the project, the development of critical
planning features, and the manner in which it is controlled.
At Northrop Grumman, EVM is not simply an option, but a corporate mandate. The four-tier approach helps the
company tailor the system to each new project in order to apply it correctly for maximum benefit, cost control, and
corporate profitability.5
13.5 Issues in the Effective Use of Earned Value Management 453
activity has been completed, at which time it becomes 100% completed. Like the 0/100 rule
above, this decision model is used most often for work packages of very short duration.
3. Percentage complete rule—Under the percentage complete rule, the project manager and
team members mutually agree on a set of completion milestones, whether they are based
on quarters (25%, 50%, 75%, 100%), thirds (33%, 67%, 100%), or some other values. Then, on
a regular basis, the status of each in-process work package in the project is updated. A new
completion value may or may not be assigned to the package, and then the project’s EVM
is updated based on this new information. As noted earlier, the key to making this process
work lies in honest appraisal of the status of ongoing activities, based not on time elapsed or
budget spent but on actual percentage of the activity completed.
An important caveat with the percentage complete rule has to do with the controversy surround-
ing the level of detail to be used in calculating task value. Critics of earned value argue that unless
reasonable gradients of completion are acknowledged and used by all parties, there is a high
potential to create misleading information through the earned value analysis. For example, one
criticism leveled at EVM argues that excessive levels of detail are dangerous and essentially not
interpretable. For example, suppose a project uses completion values based on 10% increments
(e.g., 10%, 20%, 30%, etc.). As a practical matter, it is fundamentally impossible to successfully
delineate between, say, 30% and 40% completion for most project activities; hence, the use of too
much detail is more likely to mislead than to clarify the true status of a project.
The chief exception to this difficulty with the project complete rule occurs in projects in
which there is a fair degree of prior knowledge of how well delineated the development process
is or in situations where it is easier to accurately gauge the amount of work done within any proj-
ect task. In a simple construction project, for example, where the project steps are well known in
advance and rigorously followed, a higher level of detail can be employed. Likewise, in the case
of software development where the task consists of writing code, a senior programmer may have
an excellent sense of the total number of lines of code needed to complete the task. Therefore, if
the total task requires approximately 5,000 lines of code and a programmer completes 500 lines of
the program, it would be reasonable to assign a figure of 10% completion of the total task perfor-
mance requirement.
The importance of establishing a reasonable standard for project performance cannot be
overemphasized. In the absence of a clear set of guidelines for identifying cutoff points and the
appropriate level of detail, it is possible to derive very different conclusions from the same project
information. For example, let us revisit the earlier EVM problem shown in Table 13.4. This time,
we will use two decision rules as regards the levels of detail for project activities in calculating
value and EV. In the first example, shown in Table 13.10, column 1 gives the original calculations,
based on the first set of percentage complete values from Table 13.4. In column 2, I have employed
a simple decision rule based on three increments (0, 50%, and 100% complete). Column 3 shows a
slightly more precise level of detail, employing levels of 0, 25%, 50%, 75%, and 100% complete. I
have rounded the original percentage completion values (shown in column 1) to the closest equiv-
alents in the other two alternatives.
Note what occurs as a result of using alternative levels of detail; rounding the level of com-
pletion values to a simplified 0%, 50%, 100% completion scheme results in significantly differ-
ent results, both for projecting future project schedule and cost deviations. The original schedule
overrun that projected a new completion of 16.28 months has been improved to 12.73 months, or
a schedule overrun of only 5.73 months. Likewise, the original earned value budget projection for
the project ($210,714) has been reduced to $163,889, for a savings of $46,825 due merely to adopt-
ing an alternative level of detail for project activity completion. Similarly, using the level of detail
with slightly more gradients (0, 25%, 50%, 75%, and 100%), shown in column 3, and rounding
the original values to most closely match this alternative, we discover that the future projections
for the project, as developed through the SPI and CPI, are more negative than the originals. The
new project schedule is forecast to last 17.5 months and the revised project budget has increased
to $226,923, or $16,209 more than our first projection. Even more compelling, the absolute differ-
ence between the high and low budget projections is more than $63,000, all due to moving from
a three-point level of detail (column 2) to one based on five levels of completion (column 3). Is
one approach “more correct” than the other? Absent some decision rule or logic for making these
determinations, it is virtually impossible to suggest that one level of detail is more representative
of the “true” status of project activity completion.
454 Chapter 13 • Project Evaluation and Control
As this chapter has noted, earned value management is not a flawless methodology for
project tracking and control, particularly as it pertains to the problems in accurately determining
the percentage of work packages completed at any time point during the project’s development.
Nevertheless, EVM does represent a significant step forward in allowing project managers and
their teams to gain a better perspective on the “true” nature of a project’s status midstream, that
is, in the middle of the development and implementation process.6 This sort of real-time informa-
tion can be invaluable in helping us gain current information and begin to develop realistic plans
for correcting any systematic problems with the development process. The more we learn, and the
faster we learn it, of a project’s status, the better equipped we will be to take measured and effec-
tive steps to get a troubled project back on track.
In recent years, developments in project monitoring and control have led to some modifica-
tions and enhancements to the standard EVM processes widely in use. For example, an additional
criticism of earned value relates to its use of cost data (budget) to assess not only cost performance
but also schedule performance. That is, it has been reasonably argued that earned value does a
fine job of monitoring cost performance relative to value earned in a project at any given point in
time. We have seen how this information can be used for forecasting project costs at completion.
However, there is a philosophical disconnect in the idea of using cost data to measure schedule per-
formance; that is, using this same cost information as a means for forecasting schedule performance
has been shown to potentially skewed data, leading to falsely positive or negative status assess-
ments the further into a project we get. One solution recommended is the use of earned schedule
(es) as a complement to standard EVM analysis.7 ES is developed in detail in the appendix to this
chapter. Another criticism of EVM lies in its potential lack of usefulness for some classes of projects
that are more complex or involve uncertain technologies, like R&D or radical new product devel-
opment projects. For these complex product system (CoPS) projects, authors have suggested that
standard metrics of project performance may simply be ineffective and instead, propose a variation
of EVM referred to as earned readiness Management (erM) that focuses on the maturity of the
project and overall system development. Though still in its early stages, ERM shows promise for
combining the best features of earned value with a broader perspective needed for these projects.8
13.6 huMAn FActors in Project eVAluAtion And control
Another recurring problem with establishing accurate or meaningful EVM results has to do with
the need to recognize the human factor in all project activity completion projections. That is,
there is a strong incentive in most organizations for project team members to continuously report
tABle 13.10 Calculating Project Mercury earned Value Based on Alternate levels of Detail (in thousands $)
Col. 1
(original)
Col. 2
(0, 50, 100%)
Col. 3
(0, 25, 50, 75, 100%)
Activity
Planned
Value % Comp. Value % Comp. Value % Comp. Value
Staffing 15 100 15 100 15 100 15
Blueprinting 10 80 8 100 10 75 7.5
Prototype Development 10 60 6 50 5 50 5
Full Design 21 33 7 50 10.5 25 5.25
Construction 32 25 8 50 16 25 8
Transfer 10 0 0 0 0 0 0
Punch List 20 0 0 0 0 0 0
Total EV =
SPI and Projection to Completion
CPI and Project to Completion
44/103 = .43
(1/.43 * 7) = 16.28 mos.
44/78 = .56
$210,714
44
56.5/103 = .55
(1/.55 * 7) = 12.73 mos.
56.5/78 = .72
$163,889
56.5 40.75
40.75/103 = .40
(1/.40 * 7) = 17.5 mos.
40.75/78 = .52
$226,923
13.6 Human Factors in Project Evaluation and Control 455
stronger results than may be warranted in the interest of looking good for the boss or sending the
right signals about the project’s status. Worse, many times implicit or even explicit pressure may
come from the project managers themselves, as they find themselves under pressure from top
management to show steady results. Hence, the level of detail controversy is not simply one of
accurately matching technical performance on the project to the best external indicator or number
of gradients. Often it is also a problem rooted in human behavior, suggesting that excessively fine
levels of detail not only may be inappropriate for the types of project activities we engage in, but
also may be prone to misuse by the project team.
The common feature of control approaches is their reliance on measurable data based on
project outcomes; that is, the results of project actions taken in any one time period are collected
and reported after the fact. Hence, we determine schedule or cost variance after the information
has been collected and reported. Some project management writers, however, have suggested that
it is equally essential to maintain a clear understanding of the importance of the management of
people in the project implementation process. In other words, the data collected from the various
evaluation and control techniques represents important outcome measures of the project; however,
comprehensive project control also requires that the project organization employ sufficient process
evaluations to determine how the development is progressing.
A key component of any process evaluation of project performance must include an assess-
ment of its people, their technical skills, management, teamwork, communication processes, moti-
vation, leadership, and so forth.9 In short, many evaluation and control techniques (such as EVM)
will do an excellent job in answering the “what” questions (What is the status of the project? What
is our cost efficiency factor? What tasks are currently running late?), but they do not attempt to
answer the “why” questions (Why are activities behind schedule? Why is the project team per-
forming at a suboptimal level?). In an effort to provide answers to the “why” questions, work on
the human processes in project management has been initiated and continues to be done.
Past research examining the impact of human factors on project success bears out the impor-
tance of considering the wider “management” challenge inherent in managing projects. For exam-
ple, early work of Baker and colleagues10 identified a variety of factors that directly predict project
success. Included in their list were issues such as:
• Project coordination and relations among stakeholders
• Adequacy of project structure and control
• Project uniqueness, importance, and public exposure
• Success criteria salience and consensus
• Lack of budgetary pressure
• Avoidance of initial overoptimism and conceptual difficulties
Their findings bear out the importance of having a clear knowledge of the managerial challenges
involved when implementing projects. These findings have been reinforced by other research that
has examined a set of both successful and unsuccessful projects across their life cycle.11
The findings of such research are intriguing because of the importance they place on the man-
agerial and human behavioral aspects of project management for project success. As Table 13.11
shows, regardless of whether the project studied was a success or failure, the factors that were of
highest importance demonstrate some clear similarities. Issues such as leadership, top management
support, team and personal motivation, and client support were consistently linked with project
success, suggesting once again that an understanding of the project management process is keenly
important for determining the likelihood of a project’s successful outcome.
One of the key recurring problems, however, with making wider use of nontechnical infor-
mation as a method for controlling projects and assessing their ongoing status lies in the question
of measurement. Although financial and schedule data can be easily acquired and are relatively
easy to interpret, measuring human processes such as motivation level, leadership, top manage-
ment support, and so forth is highly problematic. As a result, even though a number of project
management theorists have accepted the argument for inclusion of human process factors in
assessing the status of ongoing projects, there has been little agreement as to how best to make
such assessments, interpret the results, and use the findings in a prescriptive manner to improve
the project processes.
The work of Pinto and Slevin12 addresses the shortcomings with behavioral assessments
of project management processes. They formulated the Project Implementation Profile (PIP), a
456 Chapter 13 • Project Evaluation and Control
10-factor instrument that assesses the performance of the project team with respect to 10 critical
success factors, that is, those factors they found to be predictive of project success. The advantage
of the PIP is that it allows project teams to formally assess their performance on the ongoing proj-
ect, allowing for midcourse correction and improvement of the management process itself. The 10
critical success factors represent an important, supplemental source of information on the proj-
ect’s status. Coupled with other types of evaluation and control information supplied through the
tracking of cost and schedule variance against the project baseline, project teams can develop a
comprehensive vision of the project’s status throughout its development.
critical success Factor definitions
The 10 critical success factors identified by Pinto and Slevin in formulating the Project
Implementation Profile (PIP) instrument are (1) project mission, (2) top management support,
(3) project plans and schedules, (4) client consultation, (5) personnel, (6) technical tasks, (7) client
acceptance, (8) monitoring and feedback, (9) communication, and (10) troubleshooting. Each of
these factors is discussed in more detail in the text that follows.
Project mission, the first factor, relates to the underlying purpose for the project. Project suc-
cess is predicated on the importance of clearly defining objectives as well as ultimate benefits to be
derived from the project. Many times, the initial stage of project management consists of a feasibil-
ity decision. Are the objectives clear and can they succeed? Project mission refers to a condition in
which the objectives of the project are clear and understood, not only by the project team involved,
but also by the other departments in the organization. The project manager must be concerned
with clarification of objectives as well as achieving broad belief in the congruence of the objectives
with overall organizational objectives.
Top management support, the second factor, has long been considered of great importance in
distinguishing between ultimate success and failure. Project managers and their teams not only are
dependent upon top management for authority, direction, and support, but also are the conduit
for implementing top management’s plans, or goals, for the organization.13 Further, if the project
is being developed for an internal audience (one within the company), the degree of management
tABle 13.11 Key Success Drivers and inhibitors
Stage Successful Projects factors Stage failed Projects factors
Formation Personal ambition Formation Unmotivated team
Top management support Poor leadership
Team motivation Technical limitations
Clear objectives Funding problems
Technological advantage
Buildup Team motivation Buildup Unmotivated team
Personal motivation Conflict in objectives
Top management support Leadership problems
Technical expertise Poor top management support
Technical problems
Main Phase Team motivation Main Phase Unmotivated team
Personal motivation Poor top management support
Client support Deficient procedures
Top management support
Closeout Personal motivation Closeout Poor control
Team motivation Poor financial support
Top management support Unclear objectives
Financial support Leadership problems
13.6 Human Factors in Project Evaluation and Control 457
support for a project will lead to significant variations in the degree of acceptance or resistance
to that project or product. Top management’s support of the project may involve aspects such as
allocation of sufficient resources (financial, personnel, time, etc.) as well as project management’s
confidence in support from top management in the event of a crisis.
The third factor, project plans and schedules, refers to the importance of developing a detailed
plan of the required stages of the implementation process. It is important to remember, however,
that the activities associated with project planning and project scheduling are distinct from each
other. Planning, which is the first and more general step in developing the project implementation
strategy, is composed of scope definition, creation of a Work Breakdown Structure, and resource
and activity assignments. Scheduling is the setting of time frames and milestones for each impor-
tant element in the overall project. The project plans and schedules factor is concerned with the
degree to which time schedules, milestones, labor, and equipment requirements are specified.
There must be a satisfactory measurement system to judge actual performance against budget
allowances and time schedules.
The fourth factor is client consultation. The “client” is anyone who ultimately will be using
the product of the project, either as a customer outside the company or as a department within
the organization. Increasingly, the need for client consultation has been recognized as important in
attempting a system implementation; indeed, the degree to which clients are personally involved
in the implementation process correlates directly with variations in their support for projects.14 It is
important to identify the clients for the project and accurately determine if their needs are being met.
The fifth factor, personnel, includes recruitment, selection, and training of project team mem-
bers. An important, but often overlooked, aspect of the implementation process concerns the
nature of the personnel involved. In many situations, personnel for the project team are chosen
with less than full regard for the skills necessary to actively contribute to implementation success.
The personnel factor is concerned with developing an implementation team with the ability and
commitment to perform their functions.
Technical tasks, the sixth factor, refers to the necessity of having not only the required numbers
of personnel for the implementation team but also ensuring that they possess the technical skills
and the technology and technical support needed to perform their tasks. It is important that people
managing a project understand the technology involved. In addition, adequate technology must
exist to support the system. Without the necessary technology and technical skills, projects quickly
disintegrate into a series of miscues and technical errors.
The seventh factor, client acceptance, refers to the final stage in the project development pro-
cess, at which time the overall efficacy of the project is to be determined. In addition to client
consultation at an earlier stage in the system implementation process, it remains of ultimate impor-
tance to determine whether the clients for whom the project has been initiated will accept it. Too
often project managers make the mistake of believing that if they handle the other stages of the
implementation process well, the client (whether internal or external to the organization) will
accept the resulting system. In fact, client acceptance is a stage in the project life cycle process that
must be managed like any other.
The eighth factor, monitoring and feedback, refers to the project control process by which, at
each stage of the project implementation, key personnel receive feedback on how the project is
progressing compared to initial projections. Making allowances for adequate monitoring and feed-
back mechanisms gives the project manager the ability to anticipate problems, to oversee correc-
tive measures, and to ensure that no deficiencies are overlooked. Project managers need to empha-
size the importance of constant monitoring and fine-tuning project development; tracking control
charts and Earned Value Management are excellent examples of the techniques and types of moni-
toring and control mechanisms necessary to develop a project.
Communication, the ninth factor, is not only essential within the project team itself, but—as we
discussed in regard to stakeholder management—it is also vital between the team and the rest of
the organization as well as with clients. Communication refers both to feedback mechanisms and
to the necessity of exchanging information with both clients and the rest of the organization con-
cerning the project’s capabilities, the goals of the project, changes in policies and procedures, status
reports, and so forth. Therefore, channels of communication are extremely important in creating an
atmosphere for successful project implementation.
Troubleshooting is the tenth and final factor of the model. Problem areas exist in almost every
project development. The measure of a successful project is not the avoidance of problems, but
458 Chapter 13 • Project Evaluation and Control
taking the correct steps once problems develop. Regardless of how carefully the implementation
effort is initially planned, it is impossible to foresee every trouble area or problem that can possibly
arise. As a result, the project manager must include mechanisms in the implementation plan for
recognizing problems and for troubleshooting them when they arise. Such mechanisms make it
easier not only to react to problems as they arise, but also to foresee and possibly forestall potential
problem areas in the implementation process.
conclusions
This chapter has addressed a variety of approaches to project tracking and control. Although most
of the models mentioned have many advantages associated with them, project management pro-
fessionals should be aware of the concomitant problems and shortcomings with these approaches
as well. The key to developing a useful project control process lies in recognizing the strengths and
weaknesses of the alternative methods and ultimately developing an approach that best suits the
organization, the projects undertaken, and the stakeholders of the project. A project control process
should be tailored, to the degree possible, to the specific needs, culture, and uses for which an
organization intends it. Thus, under some circumstances, a simplified control system may be suf-
ficient for providing management with the types of information they require. Alternatively, some
organizations and/or projects will need to employ highly sophisticated control processes because
of either the unique nature of their operating processes or the demands that developing projects
place on them (e.g., governmental stipulations and mandates).15
The comprehensive and intricate concept of project evaluation and control involves the need
to understand alternative evaluation techniques, recognizing their particular usefulness and the
types of information they can provide. Ultimately, however, these techniques are merely as good
as the project planning process; that is, a good control system cannot make up for inadequate or
inaccurate initial plans. Without effective baselines, good project cost estimation and budgeting,
and adequate resource commitments, project control simply will not work. However, if the up-
front planning has been done effectively, project evaluation and control can work in harmony with
the project plans, providing the project team with not only a clear road map to success, but also
excellent mileposts along the highway.
Summary
1. Understand the nature of the control cycle
and four key steps in a general project control
model. Accurately evaluating the status of ongo-
ing projects represents a real challenge for project
teams and their parent organizations. The process
of project control, consisting of a recurring cycle of
four steps (setting goals, measuring progress, com-
paring actual progress with plans, and correcting
significant deviations), demonstrates a theoreti-
cal framework for understanding the continuous
nature of project monitoring and control.
2. recognize the strengths and weaknesses of com-
mon project evaluation and control methods. A
number of project evaluation and control techniques
exist, from the simplistic to the highly sophisticated.
The most basic evaluation process, project S-curves,
seeks to reconcile the project schedule baseline
with planned budget expenditures. The cumula-
tive project budget, resembling the letter S, creates
a schedule/budget relationship that early project
monitoring methods found useful as an indicator
of expected progress. Unfortunately, a number of
problems with S-curve analysis preclude its use as
an accurate evaluation and control technique. Other
evaluation methods include milestone analysis and
tracking Gantt charts. These approaches link project
progress to the schedule baseline, rather than the
project budget. As with S-curves, milestones and
tracking charts have some advantages, but they all
share a common drawback: the inability of these
methods to accurately assess the status of ongoing
activities, and therefore the “true” status of the proj-
ect, in a meaningful way. Specifically, because these
monitoring and control methods do not link sched-
ule and budget baselines to actual ongoing project
performance, they cannot offer a reasonable mea-
sure of project status.
3. Understand how earned value Management can
assist project tracking and evaluation. Earned
Value Management (EVM) is a powerful tool, devel-
oped through a mandate from the federal govern-
ment, to directly link project progress to schedule
and budget baselines. In effect, EVM provides the
missing piece of the control puzzle by requiring the
reporting of actual project activity status on a real-
time basis. Earned Value Management has begun to
Solved Problem 459
diffuse more rapidly within ordinary project-based
organizations as they increasingly perceive the
advantages of its use.
4. Use earned value Management for project portfo-
lio analysis. The basic principles that govern the
use of earned value on a single project can be applied
to a portfolio of projects. Each project is evaluated
in terms of the basic efficiency indexes for time and
cost, and an overall evaluation can be calculated
for a firm’s project portfolio. This portfolio model
allows us to determine the overall efficiency with
which we manage projects, to see which are ahead
and which are behind the firm’s baseline standards.
5. Understand behavioral concepts and other human
issues in evaluation and control. A final method for
tracking and evaluating the status of ongoing projects
lies in the use of alternative control methods, aimed at
assessing and managing the “human issues” in project
management, rather than focusing exclusively on the
technical ones. In other words, EVM and other pre-
viously discussed tracking and control mechanisms
focus on data-driven measures of performance (bud-
get, schedules, and functionality); but other models
that address the managerial and behavioral issues in
project management argue that unless we merge these
data-driven models with those that assess the project
in terms of human interactions (leadership, top man-
agement support, communication, and so forth), it is
possible to generate a great deal of information on the
current status of a project without recognizing the pri-
macy of human behavior in determining the success
or failure of project activities. To create a well-rounded
sense of the project performance, it is necessary to
blend purely data-driven monitoring models with
managerial-based approaches.
6. Understand the advantages of earned schedule
methods for determining project schedule vari-
ance, schedule performance index, and estimates
to completion. The accompanying text should be:
Earned schedule represents an alternative method
for determining the status of a project’s schedule
to completion by recognizing that standard Earned
Value employs budget data to calculate not only
estimates of project cost but also time (schedule).
Arguing that “schedule is different,” earned sched-
ule identifies the possible schedule estimation
errors EVM can be prone to and offers some correc-
tive procedures to adjust these calculations.
Key Terms
Actual cost of work per-
formed (AC) (p. 442)
Budgeted cost at
completion (BAC)
(p. 442)
Control cycle (p. 434)
Cost Performance Index
(CPI) (p. 442)
Earned Readiness
Management (ERM)
(p. 454)
Earned Schedule (ES)
(p. 454)
Earned value (EV) (p. 441)
Earned Value Management
(EVM) (p. 440)
Estimate at Completion
(EAC) (p. 449)
Milestone (p. 437)
Planned value (PV)
(p. 444)
Project baseline (p. 435)
Project control (p. 435)
Project S-curve (p. 435)
Schedule Performance
Index (SPI) (p. 442)
Schedule variance
(p. 445)
Tracking Gantt chart
(p. 439)
exAMPle of eArNeD VAlUe
The Project Management Institute, the largest professional or-
ganization of project management professionals in the world,
has developed a simple example of the logic underlying earned
value assessment for a project. It demonstrates, in the following
steps, the calculation of the more relevant components of earned
value and shows how these steps fit together to contribute an
overall understanding of earned value.
Earned value is a management technique that relates re-
source planning to schedules and to technical cost and schedule
requirements. All work is planned, budgeted, and scheduled in
time-phased planned value increments constituting a cost and
schedule measurement baseline. There are two major objectives of
an earned value system: to encourage contractors to use effective
internal cost and schedule management control systems, and to
permit the customer to be able to rely on timely data produced by
those systems for determining product-oriented contract status.
Baseline. The baseline plan in Table 13.12 shows that six work
units (A–F) would be completed at a cost of $100 for the period
covered by this report.
Solved Problem
tABle 13.12 Baseline Plan Work Units
A B C D e f total
Planned value 10 15 10 25 20 20 100
460 Chapter 13 • Project Evaluation and Control
schedule variance. As work is performed, it is “earned” on
the same basis as it was planned, in dollars or other quantifi-
able units such as labor hours. Planned value compared with
earned value measures the dollar volume of work planned
versus the equivalent dollar volume of work accomplished.
Any difference is called a schedule variance. In contrast to
what was planned, Table 13.13 shows that work unit D was
not completed and work unit F was never started, or $35 of the
planned work was not accomplished. As a result, the schedule
variance shows that 35% of the work planned for this period
was not done.
cost variance. Earned value compared with the actual cost in-
curred (from contractor accounting systems) for the work per-
formed provides an objective measure of planned and actual
cost. Any difference is called a cost variance. A negative variance
means more money was spent for the work accomplished than
was planned. Table 13.14 shows the calculation of cost variance.
The work performed was planned to cost $65 and actually cost
$91. The cost variance is 40%.
spend comparison. The typical spend comparison approach,
whereby contractors report actual expenditures against planned
expenditures, is not related to the work that was accomplished.
Table 13.15 shows a simple comparison of planned and actual
spending, which is unrelated to work performed and therefore
not a useful comparison. The fact that the total amount spent
was $9 less than planned for this period is not useful without
the comparisons with work accomplished.
Use of earned value data. The benefits to project management
of the earned value approach come from the disciplined planning
conducted and the availability of metrics that show real variances
from the plan in order to generate necessary corrective actions.16
tABle 13.13 Schedule Variance Work Units
A B C D e f total
Planned value 10 15 10 25 20 20 100
Earned value 10 15 10 10 20 — 65
Schedule variance 0 0 0 -15 0 -20 -35, or -35%
tABle 13.15 Spend Comparison Approach Work Units
A B C D e f total
Planned spend 10 15 10 25 20 20 100
Actual spend 9 22 8 30 22 — 91
Variance 1 -7 2 -5 -2 20 9, or 9%
tABle 13.14 Cost Variance Work Units
A B C D e f total
Earned value 10 15 10 10 20 — 65
Actual cost 9 22 8 30 22 — 91
Cost variance 1 -7 2 -20 -2 0 -26, or -40%
13.1 Why is the generic four-stage control cycle useful for un-
derstanding how to monitor and control projects?
13.2 Why was one of the earliest project tracking devices re-
ferred to as an S-curve? Do you see value in the desire to
link budget and schedule to view project performance?
13.3 What are some of the key drawbacks with S-curve
analysis?
13.4 What are the benefits and drawbacks with the use of
milestone analysis as a monitoring device?
13.5 It has been said that Earned Value Management (EVM)
came about because the federal government often
used “cost-plus” contractors with project organiza-
tions. Cost-plus contracting allows the contractor to
recover full project development costs plus accumu-
lated profit from these contracts. Why would requiring
contractor firms to employ Earned Value Management
help the government hold the line against project cost
overruns?
Discussion Questions
Problems 461
13.6 What are the major advantages of using EVM as a proj-
ect control mechanism? What do you perceive as its
disadvantages?
13.7 Consider the major findings of the research on human
factors in project implementation. What common themes
seem to emerge from the research on behavioral issues as
a critical element in determining project status?
13.8 The 10 critical success factors have been applied in a
variety of settings and project types. Consider a project
with which you have been involved. Did any of these
factors emerge clearly as being the most important for the
project’s success? Why?
13.9 Identify the following terms: PV, EV, and AC. Why are
these terms important? How do they relate to one another?
13.10 What do the Schedule Performance Index and the Cost
Performance Index demonstrate? How can a project
manager use this information to estimate future project
performance?
13.11 Suppose the SPI is calculated as less than 1.0. Is this good
news or bad news for the project? Why?
Problems
13.1 Using the following information, develop a simple S-curve
representation of the expected cumulative budget expen-
ditures for this project (figures are in thousands).
Duration (in days)
10 20 30 40 50 60 70 80
Activities 4 8 12 20 10 8 6 2
Cumulative 4 12 24 44 54 62 68 70
13.2 Suppose the expenditure figures in Problem 1 were modi-
fied as follows (figures are in thousands).
Duration (in days)
10 20 30 40 50 60 70 80
Activities 4 8 10 14 20 24 28 8
Cumulative 4 12 22 36 56 80 108 116
Draw this S-curve. What does the new S-curve diagram
represent? How would you explain the reason for the dif-
ferent, non-S-shape of the curve?
13.3 Assume the following information (figures are in
thousands):
Budgeted Costs for Sample Project
Duration (in weeks)
5 10 15 20 25 30 35 40 45 total
Design 6 2 1
Engineer 5 10 12 6
Install 7 15 30 8
Test 1 5 8 5 2
Total
Monthly
Cumul.
a. Calculate the monthly budget and the monthly cumu-
lative budgets for the project.
b. Draw a project S-curve identifying the relation-
ship between the project’s budget baseline and its
schedule.
13.4 Use the following information to construct a tracking
Gantt chart using MS Project.
Activities Duration Preceding Activities
A 5 days none
B 4 days A
C 3 days A
D 6 days B, C
E 4 days B
F 2 days D, E
Highlight project status on day 14 using the tracking op-
tion and assuming that all tasks to date have been com-
pleted on time. Print the output file.
13.5 Using the information in Problem 4, highlight the project’s
status on day 14 but assume that activity D has not yet
begun. What would the new tracking Gantt chart show?
Print the output file.
13.6 Use the following table to calculate project schedule vari-
ance based on the units listed (figures are in thousands).
Schedule Variance Work Units
A B C D e f total
Planned Value 20 15 10 25 20 20 110
Earned Value 25 10 10 20 25 15
Schedule Variance
13.7 Using the data in the table below, complete the table
by calculating the cumulative planned and cumula-
tive actual monthly budgets through the end of June.
Complete the earned value column on the right. Assume
the project is planned for a 12-month duration and a
$250,000 budget.
462 Chapter 13 • Project Evaluation and Control
Activity jan feb Mar Apr May jun Plan % Comp. Value
Staffing 8 7 15 100 ____
Blueprinting 4 6 10 100 ____
Prototype
Development
2 8 10 70 ____
Full Design 3 8 10 21 67 ____
Construction 2 30 32 25 ____
Transfer 10 10 0 ____
Monthly Plan ____ ____ ____ ____ ____ ____ ____ ____ ____
Cumulative ____ ____ ____ ____ ____ ____ ____ ____ ____
Monthly Actual 10 15 6 14 9 40
Cumul. Actual ____ ____ ____ ____ ____ ____ ____ ____ ____
13.8 Using the data from Problem 7, calculate the following values:
Schedule Variances
Planned Value (PV) _____________
Earned Value (EV) _____________
Schedule Performance Index _____________
Estimated Time to Completion _____________
Cost Variances
Actual Cost of Work Performed (AC) _____________
Earned Value (EV) _____________
Cost Performance Index _____________
Estimated Cost to Completion _____________
13.9 You are calculating the estimated time to completion for
a project of 15 months’ duration and a budgeted cost of
$350,000. Assuming the following information, calculate
the Schedule Performance Index and the estimated time
to completion (figures are in thousands).
Schedule Variances
Planned Value (PV) 65
Earned Value (EV) 58
Schedule Performance Index _____________
Estimated Time to Completion _____________
13.10 Suppose, for Problem 9, that your PV was 75 and your EV
was 80. Recalculate the SPI and estimated time to com-
pletion for the project with this new data.
13.11 You have collected the following data based on three
months of your project’s performance. Complete the
table. Calculate cumulative CPI (CPIC). How is the proj-
ect performing after these three months? Is the trend pos-
itive or negative?
eV eVC AC ACC CPi CPiC
January $30,000 $35,000
February $95,000 $100,000
March $125,500 $138,000
13.12 You have collected EV, AC, and PV data from your
project for a five-month period. Complete the table.
Calculate SPIC and CPIC. Compare the cost and
schedule performance for the project on a month-
by-month basis and cumulatively. How would you
assess the performance of the project? (All values are
in thousands $.)
eV eVC AC ACC PV PVC SPi SPiC CPi CPiC
April 8 10 7
May 17 18 16
June 25 27 23
July 15 18 15
August 7 9 8
13.13 Assume you have collected the following data for your
project. Its budget is $75,000 and it is expected to last four
months. After two months, you have calculated the fol-
lowing information about the project:
PV = $45,000
EV = $38,500
AC = $37,000
table for Problem 13.12
Case Study 13.1 463
Calculate the SPI and CPI. Based on these values, esti-
mate the time and budget necessary to complete the proj-
ect. How would you evaluate these findings? Are they
good news or bad news?
13.14 (Optional—Based on Earned Schedule discussion in
Appendix 13.1.) Suppose you have a project with a Budget
at Completion (BAC) of $250,000 and a projected length of
10 months. After tracking the project for six months, you
have collected the information in the table below.
a. Complete the table. How do Earned Value SPI (based
on $) and Earned Schedule SPI differ?
b. Calculate the schedule variances for the project for
both Earned Value and Earned Schedule. How do the
values differ?
jan feb Mar Apr May jun
PV ($) 25,000 40,000 70,000 110,000 150,000 180,000
EV ($) 20,000 32,000 60,000 95,000 123,000 151,000
SV ($) -5,000
SPI ($) 0.80
ES (mo.) 0.80
SV (t) -.20
SPI (t) 0.80
CaSe STUDy 13.1
The IT Department at Kimble College
As part of the effort to upgrade the IT capabilities at
Kimble College, the institution initiated a program
more than five years ago to dramatically increase the
size of the IT department while focusing efforts toward
data management and improving administrative func-
tions. As part of the upgrade, Kimble hired a new vice
president of information systems, Dan Gray, and gave
him wide latitude in identifying problems and initiat-
ing projects that would result in improving the IT sys-
tem campuswide. Dan also was given the final power
to determine the development of new projects, which
allowed him to field requests from the various college
departments, determine which needs were most press-
ing, and create a portfolio of prioritized projects. Within
two years of his arrival at Kimble, Dan was overseeing
an IT department of 46 people, divided into four levels:
(1) help desk support, (2) junior programmers, (3) se-
nior programmers, and (4) project team leaders. There
were only four project team leaders, with the majority
of Dan’s staff working either at the entry-level help
desk or as junior programmers.
In the past three years, the performance of
Dan’s department has been mixed. Although it has
been responsible for taking on a number of new proj-
ects, its track record for delivery is shaky; for exam-
ple, well over half of the new projects have run past
their budgets and initial schedules, sometimes by
more than 100%. Worse, from the college president’s
perspective, it does not appear that Dan has a clear
sense of the status of the projects in his department.
At board meetings, he routinely gives a rosy picture
of his performance but seems incapable of answer-
ing simple questions about project delivery beyond
vague declarations that “things are moving along
just fine.” In the president’s view, Dan’s depart-
mental track record is not warranting the additional
funding he keeps requesting for new equipment and
personnel.
You have been called in, as an independent
consultant, to assess the performance of Dan’s
department and, in particular, the manner in which
it runs and monitors the development of its project
portfolio. Your initial assessment has confirmed the
college president’s hunch: The ongoing status of
projects in the IT department is not clearly under-
stood. Everyone is working hard, but no one can
provide clear answers about how the projects being
developed are doing. After asking several project
leaders about the status of their projects and repeat-
edly receiving “Oh, fine” as a response, you realize
that they are not being evasive; they simply do not
know from day to day how their projects are pro-
gressing. When you ask them how they determine
project status, the general consensus is that unless
the project team leaders hear bad news, they assume
everything is going fine. Furthermore, it is clear that
even if they wanted to spend more time monitoring
their ongoing projects, they are not sure what types
of information they should collect to develop better
on-time project tracking and control.
(continued)
464 Chapter 13 • Project Evaluation and Control
Questions
1. As a consultant monitoring this problem, what so-
lutions will you propose? To what degree has Dan’s
management style contributed to the problems?
2. What are some types of project status information
you could suggest the project team leaders begin
to collect in order to assess the status of their
projects?
3. How would you blend “hard data” and “mana-
gerial or behavioral” information to create a com-
prehensive view of the status of ongoing projects
in the IT department at Kimble College?
CaSe STUDy 13.2
The Superconducting Supercollider
Conceived in the 1980s as a device to accelerate particles
in high-energy physics research, the Superconducting
Supercollider (SSC) was a political and technical hot
potato from the beginning. The technical challenges as-
sociated with the SSC were daunting. Its purpose was to
smash subatomic particles together at near the speed of
light. That would require energy levels of 40 trillion elec-
tron volts. Using the physics of quantum mechanics, the
goal of the project was to shed light on some of the fun-
damental questions about the formation of the universe.
The SSC was designed to be the largest particle accelera-
tor ever constructed, far bigger than its counterpart at
Fermi Laboratory. In order to achieve these energy levels,
a set of 10,000 magnets was needed. Each of the magnets,
cylindrical in shape (1 foot in diameter and 57 feet long),
would need to operate at peak levels if the accelerator
were to achieve the necessary energy levels for proton
collision. The expected price tag just for the construction
of the magnets was estimated at $1.5 billion.
The technical difficulties were only part of the over-
all scope of the project. Construction of the SSC would be
an undertaking of unique proportions. Scientists deter-
mined that the accelerator required a racetrack-shaped
form, buried underground for easier use. The overall
circumference of the planned SSC required 54 miles of
tunnel to be bored 165 to 200 feet underground. The ini-
tial budget estimate for completing the project was $5
billion, and the estimated schedule would require eight
years to finish the construction and technical assemblies.
The SSC’s problems began almost immediately
after President Reagan’s 1988 kickoff of the project. First,
the public (including Congress) had little understand-
ing of the purpose of the project. A goal as nebulous as
“particle acceleration” for high-energy physics was not
one easily embraced by a majority of citizens. The origi-
nal operating consortium, URA, consisted of 80 public
and private American research centers and universities,
but it was expected that European and Asian scientists
also would wish to conduct experiments with the SSC.
Consequently, the U.S. Department of Energy hoped to
offset some of the cost through other countries. While
initially receptive to the idea of participating in the
project, these countries became vague about their levels
of contribution and time frame for payment.
Another huge problem was finding a suitable loca-
tion for the site of the SSC. At its peak, work on the SSC
was expected to employ 4,500 workers. Further, once
in full-time operation, the SSC would require a perma-
nent staff of 2,500 employees and an annual operating
budget of $270 million. Clearly, it was to almost every
state’s interest to lure the SSC. The result was a political
nightmare as the National Research Council appointed
a site review committee to evaluate proposals from 43
states. After making their judgments based on a series
of performance and capability criteria, the committee
narrowed their list to eight states. Finally, in late 1988,
the contract for the SSC was awarded to Waxahachie,
Texas, on a 16,000-acre tract south of Dallas. While
Texas was thrilled with the award, the decision meant
ruffled feathers for a number of other states and their
disappointed congressional representatives.
The final problem with the SSC almost from the
beginning was the mounting federal budget deficit,
which caused more and more politicians to question
the decision to allocate money at a time when Congress
was looking for ways to cut more than $30 billion from
the budget. This concern ended up being a long-term
problem, as the SSC was allocated only $100 million for
1989, less than one third of its initial $348 million fund-
ing request. Budget battles would be a constant refrain
throughout the SSC’s short life.
Work proceeded slowly on the Waxahachie site
throughout the early 1990s. Meanwhile, European finan-
cial support for the project was not forthcoming. The
various governments privately suspected that the project
would never be completed. Their fears were becoming
increasingly justified as the cost of the project contin-
ued to rise. By 1993, the original $5 billion estimate had
ballooned to $11 billion. Meanwhile, less than 20% of
the construction had been completed. The process was
further slowed when Congress began investigating
expenditures and determined that accounting proce-
dures were inadequate. Clearly, control of the project’s
budget and schedule had become a serious concern.
Case Study 13.3 465
In a last desperate move to save SSC funding,
Energy Secretary Hazel O’Leary fired URA as prime
contractor for the construction project. There was talk
of replacing URA with a proven contractor—Martin
Marietta and Bechtel were the two leading candidates.
By then, however, it was a case of too little, too late.
Costs continued to climb and work proceeded at such
a snail’s pace that when the 1994 federal budget was
put together, funding for the SSC had been removed
entirely. The project was dead. The nonrecoverable costs
to the U.S. taxpayer from the aborted project have been
estimated at anywhere between $1 billion and $2 billion.
Few questioned the government’s capability to
construct such a facility. The technology, though lead-
ing-edge, had been used previously in other research
laboratories. The problem was that the pro- and anti-
SSC camps tended to split between proponents of
pure research and those who argued (increasingly
swaying political support their way) that multibil-
lion-dollar research having no immediate discernible
impact on society was a luxury we could not afford,
particularly in an era of federal budget cuts and hard
choices. The SSC position was further weakened
by the activities of the research consortium super-
vising the project, URA. Its behavior was termed
increasingly arrogant by congressional oversight
groups that began asking legitimate questions about
expenditures and skyrocketing budget requests. In
place of evidence of definable progress, the project
offered only a sense of out-of-control costs and poor
oversight—clearly not the message to send when
American taxpayers were questioning their decision
to foot a multibillion-dollar bill.17
Questions
1. Suppose you were a consultant called into the
project by the federal government in 1990, when
it still seemed viable. Given the start to the project,
what steps would you have taken to reintroduce
some positive “spin” on the Superconducting
Supercollider?
2. What were the warning signs of impending fail-
ure as the project progressed? Could these signs
have been recognized so that problems could
have been foreseen and addressed or, in your
opinion, was the project simply impossible to
achieve? Take a position and argue its merits.
3. Search for “superconducting supercollider” on the
Internet. How do the majority of stories about the
project present it? Given the negative perspective,
what are the top three lessons to be learned from
this project?
CaSe STUDy 13.3
Boeing’s 787 Dreamliner: Failure to Launch
It was never supposed to be this difficult. When Boeing
announced the development of its newest and most
high-tech aircraft, the 787 Dreamliner, it seemed that it
had made all the right decisions. By focusing on build-
ing a more fuel-efficient aircraft, using lighter compos-
ite materials that saved on overall weight and resulted
in a 20% lower fuel consumption, outsourcing devel-
opment work to a global network of suppliers, and
pioneering new assembly techniques, it appeared that
Boeing had taken a clear-eyed glimpse into the future
of commercial air travel and designed the equivalent of
a “home run”—a new aircraft that ticked all the boxes.
Airline customers seemed to agree. When Boeing
announced the development of the 787 and opened its
order book, it quickly became the best-selling aircraft
in history, booking 847 advance orders for the airplane.
With list prices varying from $161 to $205 million each,
depending on the model, the Dreamliner was worth
billions in long-term revenue streams for the company.
The aircraft was designed for long-range flight and
could seat up to 330 passengers. Most industry analysts
agreed: With the introduction of the Dreamliner, the
future had never seemed brighter for Boeing.
But when the first delivery dates slipped, yet
again, into 2012, four years behind schedule, and
the company’s stock price was battered in the mar-
ketplace, Boeing and its industry backers began try-
ing to unravel a maze of technical and supply chain
problems that were threatening not just the good
name of Boeing, but the viability of the Dreamliner.
Derisively nicknamed the “7-L-7” for “late,” the proj-
ect had fallen victim to extensive cost overruns and
continuous schedule slippages, and had recently
encountered a number of worrisome structural and
electrical faults that were alarming airlines awaiting
delivery of their aircraft. These events combined to
put Boeing squarely on the hot seat, as they sought
to find a means to correct these problems and salvage
both their reputation and the viability of their high-
profile aircraft.
(continued)
466 Chapter 13 • Project Evaluation and Control
The time frame for the development of the
Dreamliner offers some important milestones in its
path to commercialization, including the following:
• 2003—Boeing officially announced the develop-
ment of the “7E7,” its newest aircraft.
• 2004—First orders were received for 55 of the air-
craft from All Nippon Airlines, with a delivery
date set for late 2008.
• 2005—The 7E7 was officially renamed the 787
Dreamliner.
• July 2007—The first Dreamliner was unveiled in
a rollout ceremony at Boeing’s assembly plant in
Everett, Washington.
• October 2007—The first six-month delay was
announced. The problems identified included
supplier delivery delays and problems with the
fasteners used to attach composite components of
the aircraft together. The program director, Mike
Bair, was replaced a week later.
• November 2008—Boeing announced the fifth
delay in the schedule, due to continuing coordi-
nation problems with global suppliers, repeated
failures of fasteners, and the effects of a machin-
ist strike. The first flight was pushed out until the
second quarter of 2009.
• June 2009—Boeing announced that the first flight
was postponed “due to a need to reinforce an area
within the side-of-body section of the aircraft.”
They further delayed the first test flight until late
2009. At the same time, Boeing wrote off $2.5 bil-
lion in costs for the first three 787s built.
• December 7, 2009—First successful test flight of
the 787.
• July 2010—Boeing announced that schedule slip-
pages would push first deliveries into 2011. They
blamed an engine blowout at a test bed in Rolls-
Royce’s plant, although Rolls denied that its en-
gines were the cause of schedule delay.
• August 2010—Air India announced a $1 billion
compensation claim against Boeing, citing re-
peated delivery delays for the twenty-seven 787s
it had on order.
• November 9, 2010—Fire broke out on Dreamliner
#2 on its test flight near Laredo, Texas. The fire was
quickly extinguished and the cause was attributed
to a fault in the electrical systems. The aircraft were
grounded for extensive testing. With that technical
mishap, it was feared that the delivery date for the
aircraft would be pushed into 2012.
• January 19, 2011—Boeing announced another
delay in its 787 delivery schedule. The latest (and
seventh official) delay came more than two months
after the Dreamliner #2 electrical fire. All Nippon
Airways, the jet’s first customer, was informed that
the earliest it could expect delivery of the first of
its 55-airplane order would be the third quarter of
2011, though expectations were high that the air-
line might not receive any aircraft until early 2012,
making final delivery nearly 3½ years late.
There is no question that the Dreamliner is a state-
of-the-art aircraft. The 787 is the first commercial air-
craft that makes extensive use of composite materials in
place of aluminum, both for framing and for the external
“skin.” In fact, each 787 contains approximately 35 tons of
carbon fiber-reinforced plastic. Carbon fiber composites
have a higher strength-to-weight ratio than traditional
Figure 13.18 Boeing’s 787 Dreamliner
Source: Peter Carey/Alamy
Case Study 13.3 467
aircraft materials, such as aluminum and steel, and help
make the 787 a lighter aircraft. These composites are used
on fuselage, wings, tail, doors, and interior sections, and
aluminum is used on wing and tail leading edges. The
fuselage is assembled in one-piece composite barrel sec-
tions instead of the multiple aluminum sheets and some
50,000 fasteners used on existing aircraft. Because of the
lighter weight and a new generation of jet engines used
to power it, the Dreamliner has a lower cost of opera-
tions, which makes it especially appealing to airlines.
Additionally, the global supply chain that Boeing estab-
lished to manufacture components for the aircraft reads
like a who’s who list of international experts. Firms in
Sweden, Japan, South Korea, France, England, Italy, and
India all have major contracts with Boeing to supply
parts of the aircraft, which are shipped to two assembly
plants in the United States (one in Washington and the
other planned for South Carolina) for final assembly and
testing before being sent to customers. In short, the 787
is an incredibly complicated product, both in terms of
its physical makeup and the intricate supply chain that
Boeing created to produce it.
So complicated is the 787 program, in fact, that
it may be the case that in developing the Dreamliner,
Boeing has simply tried to do too much at one time.
Critics have argued that creating a new generation
aircraft with composite materials while routing an
entirely new supply chain, maintaining quality con-
trol, and debugging a long list of unexpected problems
is simply beyond the capability of any organization,
no matter how highly skilled in project manage-
ment they may be. Suppliers have been struggling
to meet Boeing’s exacting technical standards, with
early test versions of the nose section, for example,
failing Boeing’s testing and being deemed unaccept-
able. Boeing has undertaken a huge risk with the
Dreamliner. In a bid to hold down costs, the company
has engaged in extreme outsourcing, leaving it highly
dependent on a far-flung supply chain that includes 43
“top-tier” suppliers on three continents. It is the first
time Boeing has ever outsourced the most critical areas
of the plane, the wing and the fuselage. About 80% of
the Dreamliner is being fabricated by outside suppli-
ers, versus 51% for existing Boeing planes.
Jim McNerney, chief executive of Boeing, has
admitted that the 787 development plans, involving sig-
nificant outsourcing, were “overly ambitious”: “While
game-changing innovation of this magnitude is never
easy, we’ve seen more of the bleeding edge of innova-
tion than we’d ever care to see again. So we are adjusting
our approach for future programs.” McNerney contin-
ued, “We are disappointed over the schedule changes.
Notwithstanding the challenges that we are experienc-
ing in bringing forward this game-changing product, we
remain confident in the design of the 787.”
Three years Later—Update on the Status
of the Dreamliner
Boeing’s 787 officially entered commercial service on
September 25, 2011, with Air Nippon of Japan. As of 2014,
there were orders placed for 1,031 Dreamliners and a total
of 162 had been delivered and were in service world-
wide. Since introduction, Dreamliners have logged more
than 500,000 hours in the air with 21 carriers. Troubles
with reliability continue to dog the Dreamliner, however.
Although original concerns about cracks and structural
flaws in the composite materials appear to have abated,
since its debut in late 2011, the 787 has experienced a
series of malfunctions, including a three-month ground-
ing of the global fleet in 2013 after battery meltdowns on
two planes. Air India, which hasn’t reported an annual
profit since 2007, and low-cost airliner Norwegian Air
built their growth plans around the composite-material
airliner and its promise of more fuel-efficient operation.
However, both airlines have reported dissatisfaction
with the current state of Dreamliner quality and reliabil-
ity, throwing their operating strategies into question. Air
India, which has ordered 27 of the aircraft, was forced
to divert one of its 787s to Kuala Lumpur as recently as
February 2014 as a precaution after a software fault on
a flight to New Delhi from Melbourne. They recently
announced that they would be seeking compensation
from Boeing after the carrier found that its Dreamliners
are not as fuel efficient as Boeing claimed when selling
them. In January 2014, Japan Airlines, one of the biggest
operators of the Dreamliner, found a battery cell in an
empty jet smoking during preflight maintenance.
Randy Tinseth, Boeing’s vice president of market-
ing, said reliability levels are climbing as the company
works closely with airline operations personnel and
makes other changes. “All of our customers are seeing
improvement in reliability over time,” Mr. Tinseth said,
but he declined to predict when the 787 would match
the 777’s track record exceeding 99% reliability.
“We continue on a positive trajectory,” he said,
“but when we get there, it’s difficult to predict.”18
Questions
1. In evaluating the development of the 787
Dreamliner, what are some of the unique factors
in this project that make it so difficult to accu-
rately monitor and control?
2. Comment on the following statement: “In trying
to control development of the 787, Boeing should
have been monitoring and controlling the perfor-
mance of its suppliers.” Do you agree or disagree
that Boeing’s project management should have
been fully extended to its suppliers? Why?
3. As you read the case, what do you see as the criti-
cal issues that appear to be causing the majority
of the project delivery and quality problems?
468 Chapter 13 • Project Evaluation and Control
Internet exercises
13.1 Go to www.brighthubpm.com/monitoring-projects/51982-
understanding-the-s-curve-theory-for-project-manage-
ment-monitoring/ and read the article on the multiple uses
of project S-curves. What does the article suggest about the
use of different S-curves and analysis methods?
13.2 Go to www.nu-solutions.com/downloads/earned_value_
lite and access the article by Q. W. Fleming and J. M.
Koppelman, “Earned Value Lite: Earned Value for the
Masses.” From your reading, summarize the 10 key steps
in EVM and the advantages they argue earned value offers
for project control and evaluation.
13.3 Go to www.acq.osd.mil/evm and explore the various
links and screens. What does the size and diversity of this
site tell you about the acceptance and use of earned value
in organizations today?
13.4 Go to www.erpgenie.com/general/project.htm and ac-
cess the reading on “Six Steps to Successful Sponsorship.”
Consider the critical success factors it identifies for man-
aging an IT project implementation. How do these factors
map onto the 10-factor model of Pinto and Slevin? How do
you account for differences?
13.5 Type in the address www.massdot.state.ma.us/highway/
TheBigDig.aspx and navigate through the Web site sup-
porting the Boston Tunnel project. Evaluate the perfor-
mance of this project using the model of 10 critical project
success factors discussed in this chapter. How does the
project rate, in your opinion? Present specific examples
and evidence to support your ratings.
MS Project exercises
Exercise 13.1
Using the following data, enter the various tasks and create a
Gantt chart using MS Project. Assign the individuals responsi-
ble for each activity, and once you have completed the network,
update it with the percentage complete tool. What does the MS
Project output file look like?
Activity Duration Predecessors resource % Complete
A. Research product 6 — Tom Allen 100
B. Interview customers 4 A Liz Watts 75
C. Design survey 5 A Rich Watkins 50
D. Collect data 4 B, C Gary Sims 0
Exercise 13.2
Now, suppose we assign costs to each of the resources in the
following amounts:
resource Cost
Tom Allen $50/hour
Liz Watts $55/hour
Rich Watkins $18/hour
Gary Sims $12.50/hour
Create the resource usage statement for the project as of the
most recent update. What are project expenses per task to date?
Exercise 13.3
Use MS Project to create a Project Summary Report of the most
recent project status.
Exercise 13.4
Using the data shown in the network precedence table below,
enter the various tasks in MS Project. Then select a date
approximately halfway through the overall project duration,
and update all tasks in the network to show current status.
You may assume that Activities A through I are now 100% com-
pleted. What does the tracking Gantt look like?
Project—Remodeling an appliance
Activity Duration Predecessors
A. Conduct competitive analysis 3 —
B. Review field sales reports 2 —
C. Conduct tech capabilities
assessment 5 —
D. Develop focus group data 2 A, B, C
E. Conduct telephone surveys 3 D
F. Identify relevant specification
improvements 3 E
G. Interface with marketing
staff 1 F
H. Develop engineering
specifications 5 G
I. Check and debug designs 4 H
J. Develop testing protocol 3 G
K. Identify critical performance
levels 2 J
MS Project Exercises 469
Activity Duration Predecessors
L. Assess and modify product
components 6 I, K
M. Conduct capabilities
assessment 12 L
N. Identify selection criteria 3 M
O. Develop RFQ 4 M
P. Develop production master
schedule 5 N, O
Q. Liaison with sales staff 1 P
R. Prepare product launch 3 Q
Exercise 13.5
Use the following information to construct a Gantt chart in MS
Project. What is the expected duration of the project (critical
path)? Assume the project is halfway finished in terms of the
schedule (day 16 completed) but activity completion percent-
ages are as shown. Construct a tracking Gantt chart for the proj-
ect (be sure to show the percentage complete for each activity).
What would it look like?
Activity
Duration
(in Days)
Predecessors
% Completed
(Day 16)
A 6 None 100%
B 2 A 100%
C 4 A 100%
D 7 C 14%
E 10 D 0%
F 6 B, C 33%
G 5 E, F 0%
Exercise 13.6
Using the date for Problem 14, add the resource assignments
to each of the activities and input their hourly rates as shown.
Construct an earned value chart for the project. Which ac-
tivities have negative variances? What is the estimate at
completion (EAC) for the project? (Hint: Remember to click
“Set baseline” prior to creating EVM table. The EVM table
is found by clicking on the “View” tab, then “Tables,” then
“Other Tables”.)
resource Name Hourly rate ($)
Josh 12.00
Mary 13.50
Evan 10.00
Adrian 22.00
Susan 18.50
Aaron 17.00
Katie 32.00
Project—Remodeling an appliance (Continued) PMP certificAtion sAMPle QUestions
1. Suppose your PV for a project was $100,000 and your
EV was $60,000. Your Schedule Performance Index
(SPI) for this project would be:
a. 1.52
b. .60
c. You cannot calculate SPI with the information
provided
d. 1.66
2. Activity A is worth $500, is complete, and actually cost
$500. Activity B is worth $1,000, is 50% complete, and
has actually cost $700 so far. Activity C is worth $100,
is 75% complete, and has actually cost $90 so far. What
is the total earned value for the project?
a. $1,600
b. $1,075
c. $1,290
d. -$1,075
3. Using the information in Question 2, calculate the Cost
Performance Index (CPI) for the project.
a. 1.20
b. -1.20
c. 0.83
d. -0.83
4. Which of the following gives the remaining amount to
be spent on the project in Questions 2 and 3 based on
current spending efficiency?
a. Budget remaining
b. Estimate to complete
c. Cost variance
d. Cost Performance Index (CPI)
5. Activity A is worth $100, is complete, and actually
cost $150. Activity B is worth $500, is 75% complete,
and has actually cost $400 so far. Activity C is worth
$500, is 25% complete, and has actually cost $200 so
far. What is the estimated cost to completion for the
project?
a. $1,100
b. $750
c. $880
d. $1,375
Answers: 1. b—SPI is calculated by dividing earned value
(EV) by planned value (PV); 2. b—Earned Value is $1,075 to
date; 3. c—CPI is calculated as earned value (EV) divided by
actual cost (AC). In this case, that is $1.075/$1,290, or 0.83;
4. b— Estimate to complete; 5. d—Estimate to completion is
based on the formula (1/.80) * $1,100, or $1,375.
470 Chapter 13 • Project Evaluation and Control
APPeNDix 13.1
earned Schedule*
Research and practice using Earned Value Management (EVM) has shown that this method for
project tracking and forecasting is reliable and offers the project team an accurate snapshot of both
the project’s current status and a forecast of its completion conditions. However, in recent years,
some critics have noted that EVM also has some important limitations. One of the most important
of these limitations is the fact that all project status information is derived in terms of the project’s
budget, including the project Schedule Performance Index (SPI) and schedule variance. A second
concern voiced about EVM is that it becomes less precise (unreliable) the farther a project pro-
gresses and that by the latter stages of the project, the information derived from EVM may be either
unjustifiably positive or negative. Finally, it has been suggested that EVM becomes an imprecise
metric for projects that have already overrun, that is, whose duration has exceeded the original
baseline end date. In other words, how do we determine the ongoing status of a project once it is
officially “late”?
Let us consider these objections to EVM in turn. First, we know that EVM is derived from the proj-
ect’s budget, not its schedule performance, but intuitively, it makes better sense that a project’s schedule
performance should be in terms of units of time. For example, remember that Schedule Variance (SV) is
calculated by Earned Value (EV) minus Planned Value (PV), and the formula for finding the Schedule
Performance Index (SPI) is SPI = EV/PV. Thus, we are assessing the project’s schedule performance,
not as a function of time, but of money. We can see this graphically by considering Figure 13.19, which
shows a generic project EVM measure. The vertical axis of the performance chart is in terms of budget
dollars, and the resulting schedule variance is also expressed in terms of the project’s budget. The EVM
metrics for schedule, then, are Earned Value (EV) and Planned Valued (PV).
The second concern suggests that the closer to completion a project gets, the less precise and
useful is the information that EVM provides. The significance of cost-based ratios used with planned
duration to predict a project’s final duration can be illustrated by a simple example. Assume a proj-
ect with a budget of $1,000 has completed most of its planned work, with EV = $990, PV = $1,000,
BAC = $1,000, and PD (Planned Duration) = 12 weeks. These metrics give an SPI of 0.99, which
yields a final duration of 12.12 weeks: Estimate at Completion = 1/.99 * 12. We can see from simple
inspection that as EV approaches PV, and ultimately BAC, forecasted project duration decreases,
because the upper limit for EV is always BAC. Regardless of whether this calculation is performed
during week 10 or week 15, the cost-based ratio yields the same results and can show that an
* Portions of this appendix were prepared in collaboration with Bill Mowery, MPM, PMP.
CPI = EV/AC
PV
CV
SV
EV
AC
Time
$
SPI = EV/PV
Figure 13.19 earned Value Performance
Metrics
Source: Lipke, W. H. (2003, Spring). “Schedule is
different,” The Measureable News, pp. 10–15. Project
Management Institute, Schedule is different,” The
Measureable News “ pp. 10–15. Project Management
Institute, Inc (2003). Copyright and all rights reserved.
Material from this publication has been reproduced
with the permission of PMI.
Appendix 13.1 Earned Schedule 471
in-progress project has a forecasted completion date in the past. This issue suggests that EVM be-
comes less precise the closer a project is to its completion. Where early indicators are reasonably ac-
curate, by the final stages of the project’s life cycle, the project schedule metric (remember, it is based
on monetary units) is likely to show encouraging evidence of completion. However, it is during the
final stages of the project that Cost Variance and Schedule Variance data begin to diverge.
Critics of EVM have pointed out this quirk in the system; as a project moves closer to its sup-
posed completion date, its planned value converges on the project’s planned cost—that is, PV = BAC
(Budgeted at Completion). However, with late projects, the project’s planned value has usually already
converged on the project’s overall budget (i.e., PV = BAC), while EV is still incrementally achieving this
value. Once PV = BAC at the project’s planned completion date, the project cannot be measured as being
“later.” In effect, there are measurement errors that do not become apparent until a project is already late.
The solution that researchers have adopted is to introduce the concept of earned schedule (es)
project management. Earned Schedule recognizes, first, that for accurate forecasts of project sched-
ule, some unit of time must be the metric to consider, rather than EVM’s cost-based approach. Earned
Schedule uses a relatively simple formulation to achieve its purpose, which is to derive a time-based
measurement of schedule performance by comparing a project’s EV today (actual time) to a point on
the performance measurement baseline (the Planned Value curve) where it should have been earned.
The difference in the two times represents a true time-based Schedule Variance, or, in Earned Schedule
notation, SVt. The derivation of Earned Schedule metrics is shown in Figure 13.20. As the figure demon-
strates, the Schedule Performance Index for any project can be reconfigured from the original, SPI($) =
EV/PV, to the alternative: SPI(t) = ES/AT. In the second equation, the Schedule Performance Index for
an Earned Schedule calculation divides the Earned Schedule value by Actual Time. Likewise, in this
second configuration, Earned Schedule variance equals Earned Schedule minus Actual Time (ES – AT).
To calculate Earned Schedule, we use the project’s current earned value (EV) to identify in
which time increment of PV the cost value occurs. The value of ES is then equal to the cumulative
time to the beginning of that increment plus some portion of it. For example, suppose we wished,
at the end of June, to calculate the ES of a project that began January 1 (see Figure 13.20). We use
monthly increments in our calculation; thus, because we are at the end of June, AT = 6. We can see
visually that by the end of June, the project’s schedule has slipped some degree; in fact, we see that
we have completed all of April and some portion of May’s work by the end of June. We can use the
following formula to determine the project’s ES:
ES = C + (EV – PVc)/(PVc + 1 – PVc)
where C is the number of time increments on the project schedule baseline where EV Ú PV. In our
specific example above, with monthly time increments, the formula becomes:
ES = 4 + 3EV(+) – PV(April)4 > 3PV(May) – PV(April)4
PV
Comparison of EV
and PV
SPI(t) = ES/AT SV($) = EV − PV
SV(t) = ES − ATSPI($) = EV/PV
EV
J J JF M M
Time
$
A A
ES = All of April + Portion of May
Figure 13.20 earned Schedule example (end of june)
472 Chapter 13 • Project Evaluation and Control
We can see an example of a complete Earned Schedule calculation in the following case. Sup-
pose we have been collecting data on the status of our project for the past six months, using the
standard EVM method. Table 13.16 gives this information.
Calculating the ES for January, we have the values:
EV (Jan) = 95
PV (Jan) = 105
We can use this information to calculate ES, SV, and SPI for the project, using the formulas we
found previously:
ES = 0 + (95 – 0)/(105 – 0) = 0.90
SV (t) = ES – AT, or 0.90 – 1.0 = -0.10
SPI (t) = ES/C, or 0.90/1 = 0.90
Using this information, let’s complete the ES table to the end of June (see Table 13.15). The table
now aligns with Figure 13.20.
We can see from the information we have calculated in Table 13.17 coupled with Figure 13.20
that by the end of June, a comparison of the project’s PV with actual ES shows a serious slippage.
Specifically, by the end of June, we have only completed the project’s schedule to approximately
halfway through the May period. Furthermore, the schedule variance and SPI values have been
worsening over the past four months, suggesting that the slippage is accelerating. This information
is not necessarily obvious from the standard earned value table, which uses project budget dollars.
Finally, research demonstrates that the SPI based on dollars versus the SPI using time can become
very different as the project moves toward completion. Thus, as noted earlier, real data confirm
one of the central concerns about EVM, namely, that its estimates for schedule become increasingly
imprecise the later into the project we move.
The relative accuracy of Earned Schedule versus EVM can be further illustrated when we use
it to anticipate schedule variances and possible project delays. Let’s use the following example to
compare the results we might find when using EVM versus Earned Schedule. Suppose we have a
tABle 13.16 earned Schedule table
jan feb Mar Apr May jun jul
PV ($) 105 200 515 845 1,175 1,475 1,805
EV ($) 95 180 470 770 1,065 1,315
SV ($) -10 -20 -45 -75 -110 -160
SPI ($) 0.91 0.90 0.91 0.91 0.90 0.89
Month Count 1 2 3 4 5 6 7
ES (mo)
SV (t)
SPI (t)
tABle 13.17 Completed earned Value/Schedule table
jan feb Mar Apr May jun jul
PV ($) 105 200 515 845 1,175 1,475 1,805
EV ($) 95 180 470 770 1,065 1,315
SV ($) -10 -20 -45 -75 -110 -160
SPI ($) 0.91 0.90 0.91 0.91 0.90 0.89
Month Count 1 2 3 4 5 6 7
ES (mo) 0.90 1.79 2.86 3.77 4.66 5.47
SV (t) -0.10 -0.21 -0.14 -0.23 -0.33 -0.53
SPI (t) 0.90 0.90 0.95 0.94 0.93 0.91
Appendix 13.1 Earned Schedule 473
project planned for 18 months’ duration (PD) and a total budget of $231,280 (BAC). At the end of
16 months, $234,080 has been spent (AC) while we only have achieved an EV of $207,470. We first
calculate budget performance, or Cost Variance (CV), as CV = EV – AC, or:
CV = +207,470 – +234,080, or – +26,610
Schedule Variance (SV), for our example, also can be calculated based on this information. Recall
that SV = EV – PV, or:
SV = +207,470 – +220,490, or – +13,020
The above figures show that the project is over budget and behind schedule, but to what degree over
the life of the project? We can also use this information to calculate Schedule Performance Index
(SPI) and Cost Performance Index (CPI) for the project. Respectively, these values are found as:
CPI = EV>AC, or +207,470>+234,080 = .89
SPI = EV>PC, or +207,470>+220,490 = .94
We know from earlier in this chapter that the simple interpretation of these values suggests that
each dollar spent on the project is only producing 89 cents’ worth of work, and each 8-hour day is
producing only 7.5 hours of effective work. What would the long-term effects of these values be on
the project? One way to determine that is to estimate the final schedule duration, the Estimate at
Completion for Time (EACt), found through the following formula:
EACt =
BAC
SPI
BAC
PD
where
BAC = Budget at Completion ($231,280)
PD = Planned Duration (18 months)
SPI = Schedule Performance Index (0.94)
Solving for EACt in our example, we find:
231,280
0.94
231,280
18
= 19.15 months
We can solve a similar equation to find the Estimate at Completion (EAC) for the project’s budget.
Dividing the BAC of $231,280 by the CPI (0.89) yields an estimated cost at completion for the proj-
ect of $259,870.
To see how Earned Value and Earned Schedule calculations can lead to important divergence,
let’s use the same information from the above example, shown in Table 13.18, with ES formulas to
determine the project’s schedule status when we use time metrics, not budget data.
tABle 13.18 Sample Performance Data (in thousands $)
Dec jan feb Mar
Month 13 14 15 16
Planned Value 184.47 198.72 211.49 220.49
Earned Value 173.51 186.71 198.74 207.47
Cumul. Actual Cost 196.76 211.25 224.80 234.08
474 Chapter 13 • Project Evaluation and Control
tABle 13.19 Comparison of eVM and earned Schedule Metrics for Sample Project
Metric earned Value earned Schedule
Schedule Variance (SV) -$13,020 -1.31 months
Schedule Performance Index (SPI) 0.94 0.92
Forecast Duration (IEAC) 19.15 months 19.61 months
Recall that at the end of month 16, we are interested in determining the status of the schedule.
Our formula to calculate Earned Schedule (ES) is given as:
ES = C + (EV – PVc)>(PVc + 1 – PVc)
where
C = the number of time months on the schedule baseline where EV Ú PV, or 14 months
EV = $207,470
PV14 = $198,720
PV15 = $211,490
ES = 14 + (207,470 – 198,720)/(211,490 – 198,720) = 14.69 months
Applying our Schedule Variance equation, SVt = ES – Actual Time (AT), we find that the project is
1.31 months behind schedule (SVt = 16 – 14.69). We can now apply this information to the Earned
Schedule’s Schedule Performance Index (SPIt) formula, given as:
SPIt = ES>AT = 14.69/16 = 0.92
Lastly, we can derive our projection for the project’s final duration, using the Independent
Estimate at Completion for time (IEACt), and come up with the duration forecast, as shown:
IEACt = PD>SPIt
where
PD (Planned Duration) = 18 months
IEACt = 18/0.92 = 19.51 months
Consider the results condensed into Table 13.19. When we compare the variances, perfor-
mance indexes, and projections to completion for the project using EVM versus Earned Schedule,
we can see some important discrepancies. First, note the obvious point that for schedule variance,
Earned Schedule provides an actual duration estimate based on time, not dollars. Thus, we can
relate to the information more easily. However, it is more intriguing to see the differences when
Earned Schedule is applied to the SPI in order to determine the likely overall project duration. In
this case, the Earned Schedule value suggests final project duration of 19.51 months, or about half
a month later than a similar calculation using EVM.
Earned Schedule is a relatively new concept that has sparked debate within the project
management community. To date, most research supporting Earned Schedule has come either
from small samples in field tests or through computer models. Nevertheless, the underlying
arguments supporting Earned Schedule do bear careful consideration. Research suggests that
EVM has a tendency to become unreliable as a project moves to completion, and thus it is im-
portant to understand to what degree that is of the ES approach actually improves. Another
advantage of Earned Schedule is that the calculations are relatively straightforward and the
data can be manipulated from the same information obtained for EVM calculations. Thus, at
a minimum, Earned Schedule offers an important “check” to verify the accuracy of EVM for
project monitoring, particularly as the project begins to overrun its baseline or move toward
completion.19
Notes 475
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Hennelly, B. (2011, June 29). CityTime payroll scandal a
cautionary tale,” WNYC. www.wnyc.org/story/143601-
citytime-cautionary-tale/ Press Release by United States
Attorney, Southern District of New York, “Manhattan U.S.
Attorney Announces Charges Against Four New Defendants
in an Unprecedented Scheme to Defraud New York City in
Connection with CityTime Project,” June 20, 2011. Project
Management Institute, A Guide to the Project Management
Body of Knowledge (PMBOK® Guide)—Fifth Edition.
Project Management Institute, Inc (2013). Copyright and all
rights reserved. Material from this publication has been re-
produced with the permission of PMI
2. Departments of the Air Force, the Army, the Navy, and
the Defense Logistics Agency. (1987). Cost/Schedule Control
Systems Criteria: Joint Implementation Guide. Washington,
DC: U.S. Department of Defense; Fleming, Q., and
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value,” Cost Engineering, 36(11): 21–27; Fleming, Q., and
Koppelman, J. (1996). Earned Value Project Management.
Upper Darby, PA: Project Management Institute; Fleming,
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ect management: A powerful tool for software projects,”
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4. Brandon, Jr., D. M. (1998), ibid.
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11. Morris, P. W. G. (1988), as cited in note 9.
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file: New tool for project managers,” Project Management
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13. Beck, D. R. (1983). “Implementing top management plans
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16. www.acq.osd.mil/pm/evbasics.htm
17. h t t p : / / p s n c e n t r a l . c o m / r e s e a r c h / S S C . h t m ;
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problem; Cohan, P. (2010). “Yet another problem for
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Notes
476 Chapter 13 • Project Evaluation and Control
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26). “787 design and software changes follow fire,”
Aviation Week. www.aviationweek.com/aw/generic/
story.jsp?id=news/awx/2010/11/24/awx_11_24_2010_
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19. Lipke, W. H. (2003, Spring). “Schedule is different,” The
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Schedule. Lulu Publishing; Book, S. A. (2006, Spring).
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477
1 4
■ ■ ■
Project Closeout and Termination
Chapter Outline
Project Profile
Duke Energy and its Cancelled Levy County
Nuclear Power Plant
introduction
14.1 tyPes of Project termination
Project managers in Practice
Mike Brown, Rolls-Royce Plc
14.2 natural termination—the closeout
Process
Finishing the Work
Handing Over the Project
Gaining Acceptance for the Project
Harvesting the Benefits
Reviewing How It All Went
Putting It All to Bed
Disbanding the Team
What Prevents Effective Project Closeouts?
14.3 early termination for Projects
Making the Early Termination Decision
Project Profile
Case—Aftermath of a “Feeding “Frenzy”: Dubai
and Cancelled Construction Projects
Shutting Down the Project
Project management research
in Brief
Project Termination in the IT Industry
Allowing for Claims and Disputes
14.4 PreParing the final Project rePort
Conclusion
Summary
Key Terms
Discussion Questions
Case Study 14.1 New Jersey Kills Hudson River
Tunnel Project
Case Study 14.2 The Project That Wouldn’t Die
Case Study 14.3 The Navy Scraps Development of Its
Showpiece Warship—Until the Next Bad Idea
Internet Exercises
PMP Certification Sample Questions
Appendix 14.1 Sample Pages from Project Sign-off
Document
Notes
Chapter Objectives
After completing this chapter, you should be able to:
1. Distinguish among the four main forms of project termination.
2. Recognize the seven key steps in formal project closeout.
3. Understand key reasons for early termination of projects.
4. Know the challenges and components of a final project report.
Project MAnAgeMent Body of Knowledge core
concePts covered in this chAPter
1. Close Project (PMBoK sec. 4.6)
2. Close Procurements (PMBoK sec. 12.4)
478 Chapter 14 • Project Closeout and Termination
Project Profile
Duke energy and its cancelled levy county Nuclear Power Plant
It was supposed to be another step on nuclear energy’s big comeback to respectability. Since the near-meltdown at
Three Mile Island nuclear power plant in 1979, no new nuclear energy plants have been constructed in the United
States. But with better technology and improved safety measures, combined with the decline in popularity of “dirty”
fossil fuel power plants, proponents of nuclear energy have been lobbying for their industry to be given a second
look. In Florida, there were other inducements to lure energy companies to begin nuclear power plant construction,
including a controversial law passed in 2006 by the state legislature that allowed utility companies to bill customers in
advance in order to defray the costs of the plant construction. Advance billing effectively took the cost risk out of the
equation for building new energy plants and made nuclear power a more attractive option.
Progress Energy, which merged with Duke Energy to become the nation’s largest power utility, proposed a proj-
ect for a new nuclear power plant to support the growth in Florida’s energy needs. In 2008, it hired two primary
contractors to build two 1,100-megawatt nuclear units at a site in Levy County, about 90 miles northwest of Orlando.
At the time, the project’s cost was estimated at $14 billion. The project was particularly urgent because of serious
problems with its Crystal River nuclear plant, situated on the Gulf Coast west of Orlando. Crystal River, built in 1977,
has been slated for closing after Progress Energy’s botched repair efforts left the plant crippled. In trying to save $15
million, Progress Energy unwisely attempted to self-manage a project in 2009 to replace old steam generators at the
nuclear facility. The utility’s do-it-yourself approach led to concrete problems from the failed repair job and left the
plant unable to safely produce power. The plant’s new owner, Duke Energy, decided it was more cost effective to sim-
ply shut down the facility, rather than risk as much as $3.4 billion trying to fix it again.
Armed with the new state regulations that allowed Duke to bill customers to recover the costs of a plant they
had not yet begun constructing, the company empowered its contractors to begin land acquisition, design and engi-
neering, and the purchase of some equipment, such as generators. However, due to delays in licensing by the Nuclear
Regulatory Commission and some recent second-guessing by state legislators about the desirability of putting taxpay-
ers on the hook for plant construction, the project has experienced a series of delays. The two plants were originally
planned for completion in 2016, but last year the utility announced that the still-empty site wouldn’t start produc-
ing power until at least 2024 and would cost nearly $25 billion, almost double the original price tag. With a sliding
Figure 14.1 Nuclear Power Plant under construction
Source: George Hammerstein/Corbis
Introduction 479
construction schedule and ballooning costs, Duke Energy realized that the project in its current form was simply
not viable and announced its cancellation. The utility has commenced discussions with its primary contractors about
winding down the existing contract.
While perhaps not coming out of the cancelled project with its reputation fully intact, Duke Energy will never-
theless avoid the kinds of crippling costs that have been associated with these projects in the past. In fact, as part of
a wide-ranging agreement with the state Public Counsel’s Office, the utility avoids potentially embarrassing public
hearings on the badly handled upgrade that crippled the now closed Crystal River nuclear plant and left customers
facing a $1.7 billion bill. Duke has collected $819.5 million in Florida since 2009 for the Levy County project and work
at a separate planned nuclear site, according to the Florida Public Service Commission (PSC). Under the settlement
with the state, Duke can begin recovering an additional $200 million in costs from the work done to date on the Levy
County site. Further, the settlement enables the utility to collect another $350 million in costs from Florida custom-
ers over 20 years starting in 2017, guaranteeing Duke a minimum profit margin of 9.5 percent through 2018. As for
Duke’s customers, the settlement puts a final cap on the financial bleeding from the Levy and Crystal River misad-
ventures at up to $3.2 billion. The PSC will determine how and when customers will pay off that bill. All told, Duke
Energy is poised to collect nearly $1.3 billion from Florida’s taxpayers for not building a nuclear power plant!
The decision by Duke Energy to cancel the project while still reaping a tidy profit margin has left several
members of Florida’s legislature suspicious of their original motives and questioning whether they ever truly
intended to build the plant in the first place. As state representative Mike Fasano said: “Shame on Duke Energy,
Progress Energy for taking the public on this ride knowing that they were never going to build the nuclear plants.
Shame on them.”
What does this mean for the re-emergence of nuclear power in the United States? Despite rosy expectations that
the country would once again embrace nuclear energy, the reality has been much more disappointing. Within the last
decade, more than two dozen nuclear reactors had been proposed across the country, but only two major projects are
under construction: one in Georgia and another in South Carolina. Duke Energy has suspended plans for its proposed
new reactors at its Shearon Harris plant in North Carolina and delayed plans for proposed reactors at its Lee Nuclear
Plant in South Carolina.
The nuclear renaissance “was just this artificial gold rush,” said Peter Bradford, a former Nuclear Regulatory com-
missioner. “And yes, it does show the renaissance is dead.”1
introduction
One of the unique characteristics of projects, as opposed to other ongoing organizational activities
or processes, is that they are created with a finite life; in effect, when we are planning the project,
we are also planning for its extinction. The project life cycle shown in Chapter 1 illustrates this
phenomenon; the fourth and final stage of the project is defined as its termination. Project termi-
nation consists of all activities consistent with closing out the project. It is a process that provides
for acceptance of the project by the project’s sponsor, completion of various project records, final
revision and issue of documentation to reflect its final condition, and the retention of essential
project documentation.
In this chapter, we will explore the process of project termination and address the steps
necessary to effectively conclude a project. Projects may be terminated for a variety of reasons.
The best circumstance is the case where a project has been successfully completed and all proj-
ect closeout activities are conducted to reflect a job well done. On the other hand, a project may
conclude prematurely for any number of reasons. It may be canceled outright, as in the case of
the Duke Energy nuclear power plant project (above) or the Navy’s Zumwalt destroyer (see Case
Study 14.3). It may become irrelevant over time and be quietly shut down. It may become tech-
nologically obsolete due to a significant breakthrough by the competition. It may fail through a
lack of top management support, organizational changes, or strategic priority shifts. It may be
terminated due to catastrophic failure.
In short, although the best alternative is to be able to approach project termination as the cul-
mination of a task well done, in reality many projects end up being terminated short of realizing
their goals. These two alternatives are sometimes referred to as natural termination, in which the
project has achieved its goals and is moving toward its logical conclusion, and unnatural termina-
tion, in which a shift in political, economic, customer, or technological conditions has rendered the
project without purpose.2 In this chapter, we will explore both types of termination in detail as we
examine the steps we need to take to effectively close out a project during termination.
480 Chapter 14 • Project Closeout and Termination
14.1 types oF project termination
Although “project closeout” might imply that we are referring to a project that has been
successfully completed and requires a systematic closeout methodology, as stated previously,
projects can be terminated for a variety of reasons. The four main reasons for project termina-
tion are:3
1. termination by extinction. This process occurs when the project is stopped due to either a
successful or an unsuccessful conclusion. In the successful case, the project has been transferred
to its intended users and all final phase-out activities are conducted. Whether successful or not,
however, during termination the project’s final budget is audited, team members receive new
work assignments, and any material assets the project employed are dispersed or transferred
according to company policies or contractual terms.
2. termination by addition. This approach concludes a project by institutionalizing it as
a formal part of the parent organization. For example, suppose a new hardware design at
Apple Computer has been so successful that the company, rather than disband the proj-
ect team, turns the project organization into a new operating group. In effect, the project
has been “promoted” to a formal, hierarchical status within the organization. The project
has indeed been terminated, but its success has led to its addition to the organizational
structure.
3. termination by integration. Integration represents a common, but exceedingly compli-
cated, method for dealing with successful projects. The project’s resources, including the
project team, are reintegrated within the organization’s existing structure following the
conclusion of the project. In both matrix and project organizations, personnel released from
project assignments are reabsorbed within their functional departments to perform other
duties or simply wait for new project assignments. In many organizations, it is not uncom-
mon to lose key organizational members at this point. They may have so relished the atmo-
sphere and performance within the project team that the idea of reintegration within the
old organization holds no appeal for them, and they leave the company for fresh proj-
ect challenges. For example, the project manager who spearheaded the development and
introduction of a geographic information system (GIS) for the city of Portland, Maine, left
soon after the project was completed rather than accept a functional job serving as the sys-
tem administrator. He found the challenge of managing the project much more to his liking
than maintaining it.
4. termination by starvation. Termination by starvation can happen for a number of
reasons. There may be political reasons for keeping a project officially “on the books,” even
though the organization does not intend it to succeed or anticipate it will ever be finished.
The project may have a powerful sponsor who must be placated with the maintenance of
his “pet project.” Sometimes projects cannot be continued because of general budget cuts,
but an organization may keep a number of them on file so that when the economic situation
improves, the projects can be reactivated. Meredith and Mantel4 argue that termination by
starvation is not an outright act of termination at all, but rather a willful form of neglect in
which the project budget is slowly decreased to the point at which the project cannot pos-
sibly remain viable.
Box 14.1
Project Managers in Practice
Mike Brown, Rolls-Royce Plc
Recently concluding a 40-year career in project management, Mike Brown (see Figure 14.2) can safely claim
that he has seen and done pretty much everything when it comes to running projects. With a background
that includes degrees in industrial chemistry and engineering construction project management, Brown has
worked on major construction projects around the world. His resume, which makes for fascinating read-
ing, includes (1) running pharmaceutical research and development projects, (2) building refineries and
petrochemical plants, (3) spearheading power and infrastructure projects, and (4) managing a variety of
14.1 Types of Project Termination 481
aeronautical development programs. Among his largest projects were a $500 million liquid natural gas tank
farm project and a $500 million power plant construction project in India. Brown has worked in a number
of exotic locations, including Sri Lanka, India, Africa, and the Pacific Rim.
It was in his former job with Rolls-Royce Corporation, however, that Brown found the greatest opportu-
nities to pass along the wealth of knowledge he has amassed. As Brown describes it:
My title was Head of the Center for Project Management, which is the Rolls-Royce Center of Excellence
for Project Management. The Center is tasked with driving improvement in Project, Program, and Portfo-
lio Management across the entire company under the sponsorship of the Project Management Council,
which is the senior management group that owns project management in Rolls-Royce.
At a personal level I would coach, mentor, run seminars, and give presentations across the com-
pany to individuals and groups of practitioners. Having developed the University of Manchester and Penn
State Masters programs eight years ago, there are now some 350 UK Masters graduates and 200 in
North America. This network is now able to support improvement activities alongside me and is becom-
ing a powerful driver for change.
In addition to my internal role, I represented Rolls-Royce in terms of project management to the
outside world. This included representing the company in various forums, as well as chairing the British
Standards Committee responsible for the Project Management Standard.
When asked what kept him so committed to the project management profession until his recent retirement,
Brown provided these reflections:
In my younger days it was the challenge of carrying on three conversations at the same time, solving
problems, firefighting, and the general buzz of working with a great team, all driving towards the same
goal. As I matured, it became clear to me that you solved problems on projects before you “started”
them, through strategic thinking and actions in areas like requirements management, stakeholder man-
agement, value management, and solid business case development. In addition there are not many
“professions” in which you can touch, feel, or experience the fruits of your labor. In project manage-
ment you can.
When asked about the most memorable experiences of his career, Brown replied:
Every project is unique and so, in many ways, every project has offered its own memorable experiences.
One that stands out for me, however, was a construction project in India that involved the development
of a fertilizer complex. For the heavy lifting, we used everything from standard cranes to my favorite
piece of heavy equipment—an elephant! Someone (probably the site safety officer) had even painted a
Safe Working Load number on the elephant’s back!
I guess one of the reasons that I relished the job is because it is a great developmental role for any-
one in business. As a project manager you have all the responsibilities of a CEO. You deal with your own
people, budgets, customers, and technical issues. You make critical decisions daily and you run your own
operation. Really, with the exception of a company’s CEO, a project manager has the most autonomy
and responsibility within the firm. But it also takes a kind of magic to make it work. You don’t have a lot
of formal authority so you have to understand how to influence, lead your team, and gain respect—all
based on your drive and setting a personal example.
Figure 14.2 Mike Brown of rolls-royce Plc.
482 Chapter 14 • Project Closeout and Termination
14.2 natural termination—the closeout process
When a project is moving toward its natural conclusion, a number of activities are necessary to
close it out.5 Some of the activities we will examine, such as finishing the work, handing over the
project, and gaining acceptance for the project, are intended to occur in a serial path, with one set
of activities leading to the next. At the same time that these tasks are being done, however, other
activities occur concurrently, such as completing documentation, archiving records, and disband-
ing the team. Thus, the process of closing out a project is complex, involving multiple activities
that must occur across a defined period. Let us consider these activities and the steps necessary to
complete them in order.
Finishing the Work
As a project moves toward its conclusion, a number of tasks still need to be completed or pol-
ished, such as a final debug on a software package. At the same time, people working on the
project naturally tend to lose focus—to begin thinking of new project assignments or their pend-
ing release from the team. The challenge for the project manager is to keep the team zeroed in on
the final activities, particularly as the main elements of the project dramatically wind down. An
orderly process for completing final assignments usually requires the use of a checklist as a control
device.6 For example, in building a house, the contractor will walk through the almost completed
house with the new owner, identifying a punch list of final tasks or modifications that are needed
prior to project completion.
Completing the final project activities is often as much a motivational challenge as a technical
or administrative process for the project manager. Checklists and other simple control devices pro-
vide an important element of structure to the final tasks, reminding the project team that although
the majority of the work has been finished, the project is not yet done. Using punch lists also dem-
onstrates that even in the best projects, modifications or adjustments may be necessary before the
project will be acceptable to the client.7
handing over the project
Transferring the project to its intended user can be either a straightforward or a highly complex
process, depending on the contractual terms, the client (either in-house or external), environmen-
tal conditions, and other mediating factors. The process itself usually involves a formal transfer
of ownership of the project to the customer, including any terms and conditions for the transfer.
This transfer may require careful planning and specific steps and processes. Transfer does not just
involve shifting ownership; it also requires establishing training programs for users, transferring
and sharing technical designs and features, making all drawings and engineering specifications
available, and so on. Thus, depending on the complexity of the transfer process, the handing-over
steps can require meticulous planning in their own right.
As a form of risk management in large industrial projects, it has become popular for
customers such as foreign countries to refuse initial acceptance of a project until after a transition
period in which the project contractor must first demonstrate the viability of the project. In the
United Kingdom, these arrangements are often referred to as Private finance initiatives (Pfis)
and are used to protect the excessive financial exposure of a contracting agency to a project
being developed.8 For example, suppose your company has just built a large iron-ore smelting
plant for Botswana at a cost to the country of $1.5 billion. Under these circumstances, Botswana,
for which such an investment is very risky, would first require your firm to operate the plant
for some period to ensure that all technical features check out. This is the Build, operate, and
transfer (Bot) option for large projects, which is a method for allowing the eventual owner of
the project to mitigate risk in the short run. A modification on this BOT alternative is the Build,
own, operate, and transfer (Boot) option. Under a BOOT contract, the project contractor
takes initial ownership of the plant for a specified period to limit the client’s financial exposure
until all problems have been contractually resolved. The disadvantage to project organizations
of BOT and BOOT contracts is that they require the contractor to take on high financial risk
through operation or ownership of the project for some specified period. Hence, although they
serve to protect the client, they expose the contractor to serious potential damages in the event
of project failure.
14.2 Natural Termination—The Closeout Process 483
gaining acceptance for the project
A research study conducted on the critical success factors for projects found that client acceptance
represents an important determination of whether the project is successful.9 “Client acceptance”
represents the recognition that simply transferring the project to the customer is not sufficient to
ensure the customer’s happiness with it, use of it, and recognition of its benefits. Many of us know,
from our own experience, that gaining customer acceptance can be tricky and complex. Customers
may be nervous about their capabilities or level of technical know-how. For example, in transferring
IT projects to customers, it is common for them to experience initial confusion or miscomprehen-
sion regarding features in the final product. Some customers will purposely withhold unconditional
acceptance of a project because they fear that after granting it, they will lose the ability to ask for
modifications or corrections for obvious errors. Finally, depending on how closely our project team
has maintained communication ties with the customer during the project’s development, the final
product may or may not be what the customer actually desires.
Because the process of gaining customer acceptance can be complicated, it is necessary to
begin planning well in advance for both the transfer of the final product to the client and the cre-
ation, if necessary, of a program to ease the client’s transition to ownership. In other words, when
we start planning for the project’s development, we need to also start planning for the project’s
transfer and use. The project team should begin by asking the hard questions, such as “What objec-
tions could the client make to this project, when it is completed?” and “How can we remove the
client’s concerns regarding the project’s commercial or technical value?”
harvesting the Benefits
Projects are initiated to solve problems, capitalize on opportunities, or serve some specific goal or
set of goals. The benefits behind the completion of a project should be easy to determine; in fact,
we could argue that projects are created for the purpose of attaining some benefit to their parent
organizations. As a result, the idea of harvesting these benefits suggests that we be in a position to
assess the value the project adds, either to an external customer or to our own firm, or both.
Benefits come in many forms and relate to the project being created. For example, in a con-
struction project, the benefits may accrue as the result of public acclamation for the project on
aesthetic or functional grounds. For a software project, benefits may include enhanced operating
efficiency and, if designed for the commercial market, high profits and market share. The bottom
line for harvesting the benefits suggests that the project organization should begin to realize a
positive outcome from the completion of the project.
In practical terms, however, it may be difficult to accurately assess the benefits from a proj-
ect, particularly in the short run. For instance, in a project that is created to install and modify
an Enterprise Resource Planning (ERP) package, the benefits may be discovered over a period
of time as the package allows the company to save money on the planning, acquisition, stor-
age, and use of production materials for operations. The true benefits of the ERP system may
not become apparent for several years, until all the bugs have been chased out of the software.
Alternatively, a project that has been well run and is cost-effective may fail in the marketplace
because of a competitor ’s unexpected technological leap forward that renders the project, no mat-
ter how well done, obsolete. For example, manufacturers of external hard drives (data storage
units) for computers, like Seagate, are facing serious competitive challenges due to the introduc-
tion and increasing use of “cloud storage” systems, including Media Fire, Dropbox, and Google
Drive. New advances or even well-run projects in the hard drive industry are at risk because the
technology may simply be passing them by.
The key to begin harvesting the benefits of a project is to first develop an effective and mean-
ingful measurement system that identifies the goals, time frame, and responsibilities involved in
project use and value assessment.10All of these issues must be worked out in advance, either as
part of the project scope statement or during project development.
reviewing how it all Went
Some basic principles must be followed when evaluating a project’s (and project team’s) perfor-
mance. Postproject reviews strive to be as objective as possible, and in many organizations project
reviews are conducted by using outsiders—members of the organization who were themselves
484 Chapter 14 • Project Closeout and Termination
not part of the project team. On one level, this makes sense; it is better to get the evaluation from a
disinterested third party rather than allow team members to make their own assessments and risk
useless self-rationalization or covering up poor practices. Four principles cover proper postproject
reviews: objectivity, internal consistency, replicability, and fairness.11
1. Objectivity—This principle refers to the need for an unbiased, critical review of the project
from the perspective of someone without an agenda or “axe to grind.” Although the idea of
using an objective party is good in theory, there are some common problems with using out-
siders to review a project’s performance, including:
a. Outside reviewers are unfamiliar with the circumstances the project team was dealing
with while implementing the project. The evaluator may not understand the project’s
technical challenges, specific instructions received from top management or clients, or
problems encountered while working on the project. The “outside view” here does not
allow for a knowledgeable perspective on the part of the reviewer and may unfairly influ-
ence their response.
b. Project teams may be suspicious about who selected the reviewers and the instructions
they may have received. The worst thing that can happen is for the project team members
to assume that the reviewers have an agenda they are working from when reviewing a
project. If the reviewer holds a particular ideological or political perspective, it will likely
color their evaluation. For example, the Affordable Healthcare Act, commonly referred to
as Obamacare, has been a political lightning rod for several years now. Were a Republican
Congressman to serve as a program reviewer, the argument could reasonably be raised
that his perspective is biased.
c. Outside evaluators may feel compelled to find problems. Human nature suggests that
when individuals are assigned to serve as project reviewers, they will naturally dig for
problems, with the potential for elevating minor issues into much larger problems than
they really are. As one project management writer put it: Evaluators should be on the
lookout for problems but they should “guard against behaving like traffic police who have
a quota of tickets to issue each day.”12
d. Outside reviewers are not competent. It may be the case that the evaluator assigned to re-
view the project is not technically or otherwise competent to make an accurate assessment.
2. Internal Consistency—A logical and well-constructed procedure must be established and
followed when conducting reviews. All relevant steps in the review must be established
in advance and the process duplicated across all projects in the organization to ensure that
some reviewers are not using ad hoc practices and making up the rules as they go along.
Standardization is key to internally consistent evaluations.
3. Replicability—A standardized review process should yield similar findings regardless of
who conducts the evaluation. Replicability implies that the variation is removed from the
process because the information collected does not depend upon the individual conducting
the review.
4. Fairness—Members of the project team must perceive that the review was conducted fairly,
without agendas, and intended to highlight both successes and failures. If they feel they are
being unfairly criticized, it can influence their willingness to perform on future projects and
instead encourage either disinterest or self-protection behavior (e.g., finding scapegoats for
problems rather than fixing them).
One of the most important elements in the project closeout involves conducting an in-depth lessons
learned analysis based on a realistic and critical review of the project—its high and low points, unan-
ticipated difficulties, and elements that provide suggestions for future projects. Even among firms
that conduct lessons learned reviews, a number of errors can occur at this stage, including:
• Misidentifying systematic errors. It is human nature to attribute failures or mistakes to
external causes, rather than internal reasons. For example, “The client changed the specifi-
cations” is easier to accept than the frank admission, “We didn’t do enough to determine
the customer’s needs for the project.” Closely related to this error is the desire to perceive
mistakes as one-time or nonrecurring events. Rather than looking at our project management
systems to see if the mistakes could be the result of underlying problems with them, many of
14.2 Natural Termination—The Closeout Process 485
us prefer the easier solution of believing that these results were unpredictable, that they were
a one-time occurrence and not likely to recur, and that therefore we could not have prepared
for them and do not need to prepare for them in the future.
• Misapplying or misinterpreting appropriate lessons based on events. A related error of
misinterpretation occurs when project team members or those reviewing the project wrong-
fully perceive the source of an encountered problem. Sometimes the correct lessons from
a terminated project are either ignored or altered to reflect a prevailing viewpoint. For
example, a computer manufacturer became so convinced that the technology its team was
developing was superior to the competition’s that the manager routinely ignored or mis-
interpreted any counteropinions, both within her own company and during focus group
sessions with potential customers. When the project failed in the marketplace, the common
belief within the company was that marketing had failed to adequately support the product,
regardless of the data that marketing had been presenting for months suggesting that the
project was misguided.
• Failing to pass along lessons learned conclusions. Although it is true that an organization’s
projects are characterized as discrete, one-time processes, they do retain enough areas of
overlap, particularly within a single firm’s sphere, to make the application of lessons learned
programs extremely useful. These lessons learned serve as a valuable form of organizational
learning whereby novice project managers can access and learn from information provided
by other project managers reporting on past projects. The success of a lessons learned pro-
cess is highly dependent upon senior managers enforcing the archiving of critical historical
information. Although all projects are, to a degree, unique, that uniqueness should never
be an excuse to avoid passing along lessons learned to the rest of the organization. In the
U.S. Army, for example, past project lessons learned are electronically filed and stored. All
program managers are required to access these previous records based on the type of project
they are managing and to develop a detailed response in advance that addresses likely prob-
lems as the project moves forward.
To gain the maximum benefit from lessons learned meetings, project teams should follow
three important guidelines:
1. Establish clear rules of behavior for all parties to the meeting. Everyone must understand
that effective communication is the key to deriving lasting benefits from a lessons learned
meeting. The atmosphere must be such that it promotes interaction, rather than stifling it.
2. Describe, as objectively as possible, what occurred. People commonly attempt to put a par-
ticular “spin” on events, especially when actions might reflect badly on themselves. The goal
of the lessons learned meeting is to recapitulate the series of events as objectively as possible,
from as many viewpoints as possible, in order to reconstruct sequences of events, triggers for
problems, places for miscommunication or misinterpretation, and so forth.
3. Fix the problem, not the blame. Lessons learned sessions work only when the focus is on
problem solving, not on attaching blame for mistakes. Once the message is out that these ses-
sions are ways for top management to find scapegoats for failed projects, they are valueless.
On the other hand, when personnel discover that lessons learned meetings are opportunities
for everyone to reflect on key events and ways to promote successful practices, defensiveness
will evaporate in favor of meetings to resolve project problems.
putting it all to Bed
The conclusion of a project involves a tremendous amount of paperwork needed to document
and record processes, close out resource accounts, and, when necessary, track contractual agree-
ments and the completed legal terms and conditions. Some of the more important elements in this
phase are:
1. Documentation. All pertinent records of the project must be archived in a central reposi-
tory to make them easy for others to access. These records include all schedule and planning
documents, all monitoring and control materials, any records of materials or other resource
usage, customer change order requests, specification change approvals, and so forth.
2. Legal. All contractual documents must be recorded and archived. These include any terms
and conditions, legal recourse, penalties, incentive clauses, and other legal records.
486 Chapter 14 • Project Closeout and Termination
3. Cost. All accounting records must be carefully closed out, including cost accounting
records, lists of materials or other resources used, and any major purchases, rebates, or other
budgetary items. All cost accounts related to the project must be closed at this time, and any
unused funds or budget resources that are still in the project account must be reverted back
to the general company budget.
4. Personnel. The costs and other charges for all project team personnel must be accounted
for, their time charged against project accounts, and any company overhead in the form
of benefits identified. Further, any nonemployees involved in the project, such as con-
tractors or consultants, must be contractually released and these accounts paid off and
closed.
Figure 14.5 in Appendix 14.1 shows some sample pages of a detailed project sign-off document.
Among the important elements in the full document are a series of required reviews, including:
• General program and project management confidence—assessing the overall project specifi-
cations, plans, resources, costs, and risk assessment
• Commercial confidence—determining that the “business case” driving the project is still valid
• Market and sales confidence—based on pricing policies, sales forecasting, and customer
feedback
• Product quality confidence—verifying all design reviews and relevant change requests
• Manufacturing confidence—manufacturing quality, production capability, and production
confidence in creating the project
• Supply chain logistics confidence—ensuring that the project supply chain, delivery perfor-
mance, and supplier quality are up to acceptable standards
• Aftermarket confidence—analyzing issues of delivery, customer expectations, and project
support during the transfer stage
• Health, safety, and environment confidence—verifying that all HS&E impacts have been
identified and documented
disbanding the team
The close of a project represents the ending of the project team’s relationship, originally founded
on their shared duties to support the project. Disbanding the project team can be either a highly
informal process (holding a final party) or one that is very structured (conducting detailed per-
formance reviews and work evaluations for all team members). The formality of the disbanding
process depends, to a great degree, on the size of the project, the authority granted the project
manager, the organization’s commitment to the project, and other factors.
We noted in Chapter 2 that, in some project organizations, a certain degree of stress accom-
panies the disbanding of the team, due to the uncertainty of many members about their future
status with the firm. In most cases, however, project team members are simply transferred back to
departmental or functional duties to await their appointment to future projects. Research clearly
demonstrates that when team members have experienced positive “psychosocial” outcomes from
the project, they are more inclined to work collaboratively in the future, have more positive feel-
ings toward future projects, and enter them with greater enthusiasm.13 Thus, ending project team
relationships should never be handled in an offhand or haphazard manner. True, these team mem-
bers can no longer positively affect the just-completed project, but their accomplishments, depend-
ing upon how they are celebrated, can be a strong force of positive motivation for future projects.
What prevents effective project closeouts?
The creation of a system for capturing the knowledge from completed projects is so important that it
seems the need for such a practice would be obvious. Yet research suggests that many organizations
do not engage in effective project closeouts, systematically gathering, storing, and making avail-
able for future dissemination the lessons they have learned from projects.14 Why is project closeout
handled haphazardly or ineffectively in many companies? Some of the common reasons are:
• Getting the project signed off discourages other closeout activities. Once the project is
paid for or has been accepted by the client, the prevailing attitude seems to be that this sig-
nals that no further action is necessary. Rather than addressing important issues, the final
14.3 Early Termination for Projects 487
“stamp of approval,” if applied too early, has the strong effect of discouraging any addi-
tional actions on the project. Final activities drag on or get ignored in the hope that they are
no longer necessary.
• The assumed urgency of all projects pressures us to take shortcuts on the back end. When a
company runs multiple projects at the same time, its project management resources are often
stretched to the hilt. An attitude sometimes emerges suggesting that it is impossible to delay
the start of new projects simply to complete all closeout activities on ones that are essentially
finished. In effect, these companies argue that they are too busy to adequately finish their
projects.
• Closeout activities are given a low priority and are easily ignored. Sometimes, firms assign
final closeout activities to people who were not part of the project team, such as junior managers
or accountants with little actual knowledge of the project. Hence, their analysis is often cursory
or based on a limited understanding of the project and its goals, problems, and solutions.
• Lessons learned analysis is viewed simply as a bookkeeping process. Many organizations
require lessons learned analyses only to quickly file them away and forget they ever occurred.
Organization members learn that these analyses are not intended for wider dissemination
and, consequently, do not take them seriously, do not bother reading past reports, and do a
poor job of preparing their own.
• People may assume that because all projects are unique, the actual carryover from project
to project is minimal. This myth ignores the fact that although projects may be unique,
they may have several common points. For example, if projects have the same client, employ
similar technologies, enlist similar contractors or consultants, or employ similar personnel
over an extended period, they may have many more commonalties than are acknowledged.
Although it is true that each project is unique, that does not imply that all project manage-
ment circumstances are equally unique and that knowledge cannot be transferred.
Developing a natural process for project closeout offers the project organization a number of
advantages. First, it allows managers to create a database of lessons learned analyses that can be
extremely beneficial for running future projects more effectively. Second, it provides a structure
to the closeout that turns it from a slipshod process into a series of identifiable steps for more sys-
tematic and complete project shutdown. Third, when handled correctly, project closeout can serve
as an important source of information and motivation for project team members. They discover,
through lessons learned analysis, both good and bad practices and how to anticipate problems in
the future. Further, when the team is disbanded in the proper manner, the psychological benefits
are likely to lead to greater motivation for future projects. Thus, systematic project closeout usually
results in effective project closeout.
14.3 early termination For projects
Under what circumstances can a project organization reasonably conclude that a project is a can-
didate for early termination? Although a variety of factors can influence this decision, Meredith
identifies six categories of dynamic project factors and suggests that it is necessary to conduct
periodic monitoring of these factors to determine if they have changed significantly.15 In the event
that answer is “yes,” follow-up questions should seek to determine the magnitude of the shift as
a basis for considering if the project should be continued or terminated. Table 14.1 shows these
dynamic project factors and some of the subjects within them about which pertinent questions
should be asked.
As shown in Table 14.1, static project factors, relating to the characteristics of the project itself
and any significant changes it has undergone, are the first source of information about potential
early termination. Factors associated with the task itself or with the composition of the project team
are another important source of information about whether a project should be terminated. Other
important cues include changes to project sponsorship, changes in economic conditions or the orga-
nization’s operating environment that may negate the value of continuing to pursue the project, and
user-initiated changes. For example, the client’s original need for a project may be obviated due to
changes in the external environment, such as when Apple’s purchase of Beats Audio allowed it to
cancel several of its own audio hardware and music streaming projects because the purchase sup-
plied it with the technologies it had been pursuing.
488 Chapter 14 • Project Closeout and Termination
A great deal of research has been conducted on the decision to cancel projects in order to identify
the key decision rules by which organizations determine that they no longer need to pursue a project
opportunity. An analysis of 36 companies terminating R&D projects identified low probabilities of
achieving technical or commercial success as the number one cause for terminating R&D projects.16
Other important factors in the termination decision included low probability of return on investment,
low market potential, prohibitive costs for continuing with the project, and insurmountable technical
problems. Other authors have highlighted additional critical factors that can influence the decision of
whether to terminate projects, including (1) project management effectiveness, (2) top management
support, (3) worker commitment, and (4) project leader championship of the project.17
One study has attempted to determine warning signs of possible early project termination
that can be identified before a termination decision has, in fact, been made.18 The authors exam-
ined 82 projects over four years. Their findings suggest that for projects that were eventually termi-
nated, within the first six months of their existence, project team members already recognized these
projects as having a low probability of achieving commercial objectives, as not being managed by
taBle 14.1 Project factors to review
1. Static factors
a. Prior experience
b. Company image
c. Political forces
d. High sunk costs
e. Intermittent rewards
f. Salvage and closing costs
g. Benefits at end
2. task-team factors
a. Difficulty achieving technical performance
b. Difficulty solving technological/manufacturing problems
c. Time to completion lengthening
d. Missing project time or performance milestones
e. Lowered team innovativeness
f. Loss of team or project manager enthusiasm
3. Sponsorship factors
a. Project less consistent with organizational goals
b. Weaker linkage with other projects
c. Lower impact on the company
d. Less important to the firm
e. Reduced problem or opportunity
f. Less top management commitment to project
g. Loss of project champion
4. economic factors
a. Lower projected ROI, market share, or profit
b. Higher cost to complete project
c. Less capital availability
d. Longer time to project returns
e. Missing project cost milestones
f. Reduced match of project financial scope to firm’s budget
5. environmental factors
a. Better alternatives available
b. Increased competition
c. Less able to protect results
d. Increased government restrictions
6. User factors
a. Market need obviated
b. Market factors changed
c. Reduced market receptiveness
d. Decreased number of end-use alternatives
e. Reduced likelihood of successful commercialization
f. Less chance of extended or continuing success
14.3 Early Termination for Projects 489
team members with sufficient decision authority, as being targeted for launch into relatively stable
markets, and as being given low priority by the R&D top management. In spite of the fact that
these projects were being managed effectively and given valuable sponsorship by top manage-
ment, these factors allowed project team members to determine after very little time had been
spent on the project that it was likely to fail or suffer from early termination by the organization.
making the early termination decision
When a project is being considered as a candidate for early termination, the decision to pull the plug
is usually not clear-cut. There may be competing information sources, with some suggesting the proj-
ect can succeed and others arguing that the project is no longer viable. Often the first challenge in
project termination is sorting among these viewpoints to determine which views of the project are
the most accurate and objective ones. Remember, typically a project’s viability is not a purely internal
issue; that is, just because the project is being well developed does not mean that it should continue to
be supported. A significant shift in external forces can render any project pointless long before it has
been completed.19 For example, if the project’s technology has been superseded or market forces have
made the project’s goals moot, the project should be shut down. Alternatively, a project that can fulfill
a useful purpose in the marketplace may still be terminated if the project organization has begun to
view its development as excessively long and costly. Another common internal reason for ending a
project in midstream is the recognition that the project does not meet issues of strategic fit within the
company’s portfolio of products. For example, a major strategic shift in product offerings within a
firm can make several ongoing projects no longer viable because they do not meet new requirements
for product development. In other words, projects may be terminated for either external reasons
(e.g., changes in the operating environment) or internal reasons (e.g., projects that are no longer cost-
effective or that do not fit with the company’s strategic direction).
Some important decision rules that are used in deciding whether to terminate an ongoing
project include the following:20
1. When costs exceed business benefits. Many projects must first clear return on investment
(ROI) hurdles as a criterion for their selection and start-up. Periodic analysis of the expected
cost for the project versus the expected benefits may highlight the fact that the project is no
longer financially viable. This may be due either to higher costs than anticipated in complet-
ing the project or a lower market opportunity than the company had originally hoped for. If
the net present value of an ongoing project dips seriously into financial losses, the decision to
terminate the project may make sound business sense.
2. When the project no longer meets strategic fit criteria. Firms often reevaluate their stra-
tegic product portfolios to determine whether the products they offer are complementary
and their portfolio is balanced. When a new strategic vision is adopted, it is common to
make significant changes to the product mix, eliminating product lines that do not fit the
new goals. For example, EveryBlock was a “hyperlocal” news and data service acquired
by MSNBC in 2009 in the hopes of using the neighborhood news model as a way of com-
plementing its national online news programming. Ultimately, it was unable to make the
neighborhood news model work due to the economics of the 24-hour news industry and
the lack of perceived fit within the NBC product portfolio. The decision was made to shut
down EveryBlock in 2013.21
3. When deadlines continue to be missed. Continually missed key milestones or deadlines are a
signal that a project is in trouble. Even when there are some good reasons for initially missing
these milestones, the cumulative effect of continuing to miss deadlines will, at a minimum, cause
the project organization to analyze the causes of these lags. Are they due to poor project manage-
ment, unrealistic initial goals, or simply the fact that the technology is not being developed fast
enough? During President Reagan’s first term in office, the Strategic Defense Initiative (SDI) was
started. More than 30 years later, many of the technical problems with creating a viable missile
defense are still being addressed. Most experts readily admit that they do not have a good idea
when the system will be sufficiently robust to be deployed with confidence.
4. When technology evolves beyond the project’s scope. In many industries, such as the IT
arena, technological changes are rapid and often hugely significant. Thus, IT profession-
als always face the challenge of completing projects while the technology is in flux. Their
natural fear is that by the time the project is introduced, the technology will have advanced
490 Chapter 14 • Project Closeout and Termination
so far beyond where the project is that the project will no longer be useful. The basic chal-
lenge for any IT project is trying to find a reasonable compromise between freezing the proj-
ect’s scope and allowing for ongoing spec changes that reflect new technology. Obviously, at
some point the scope must be frozen or the project could never be completed. On the other
hand, freezing the scope too early may lead to a project that is already obsolete before it has
been launched.
Project Profile
case—Aftermath of a “feeding frenzy”: Dubai and cancelled construction Projects
The past 20 years have seen an enormous level of construction activity in the wealthy UAE Emirate of Dubai. With a
commitment to development, an educated and cosmopolitan workforce, and supportive tax laws, Dubai has long been
an attractive center for business and leisure. To bring foreign dollars to the Emirate, Dubai invested hundreds of billions
in skyscrapers, theme parks, shopping centers, and residential projects over the past 20 years and encouraged private
investors to do the same. The frenzy of expansion came to a sudden halt following the Great Recession of 2009 and
the subsequent loss of solvency in the banking industry. Loans used to finance prospective ventures were cancelled, fol-
lowed by a worldwide glut of office space and the suspension of some of the more creative residential projects. Among
the 217 cancelled projects in Dubai between 2010 and 2011 were a planned Tiger Woods–branded golf course and a
kilometer-high skyscraper.
The aftermath of this sudden downturn lowered property values in Dubai by more than 50%, forcing developers to
delay or cancel showcase projects and, in some cases, simply shut down and leave the Emirate without telling customers.
Many individuals and companies bought into property deals, signed over large deposits, and have been unable to recoup
their money or receive their property. With a portfolio of cancelled projects and a natural reluctance among developers
to reinvest in the aftermath of the real estate bust, the government of Dubai was forced to offer some creative incentives
to reinvigorate their construction market. Among the initiatives they created was a commission set up to liquidate scores
of cancelled project projects and use the funds to repay investors who had been burned in the recession. The commission’s
role is to investigate the finances of various investors, determine whether payments or property transfers were unlawfully
withheld, and order restitution for cheated investors. Dubai is anxious to reclaim its good name as a safe haven for invest-
ment and at the same time, encourage a new round of construction development.
Cancelled construction projects are a common phenomenon, especially during the banking crisis that precipi-
tated the Great Recession. Both individual investors and companies took significant risks in making investments in
the Emirate of Dubai only to see their money disappear or property values plummet. Unlike its oil-rich neighbor, Abu
Dhabi, Dubai does not have a means to recoup losses through exploiting its natural resources and instead must support
reinvestment through banking and commerce development. One creative option is issuing Islamic Bonds (“sukuk”) as
a means to finance the next generation of development. Dubai’s response in guaranteeing the loans for many of these
ventures has gone a long way to bringing stability back to the Emirate and encouraging a new round of investment.
Dubai’s response to the cancellation of so many development projects has been to demonstrate that where one project
fails, others may succeed, provided there are visionary leaders at the top.22
shutting down the project
Let us assume that following an analysis of a troubled project and its ongoing viability, the deci-
sion has been reached to terminate it. The next steps involved in the termination process can be
difficult and very complex. Particularly, there are likely to be a number of issues that must be
resolved both prior to and following the project’s early termination. These termination decisions
are sometimes divided into two classes: emotional and intellectual.23 Further, under each heading,
additional concerns are listed. Figure 14.3 shows the framework that employs a modified Work
Breakdown Structure to identify the key decisions in a project termination.
The decision to terminate a project will give rise to a variety of responses and new duties for
the project manager and team (see Table 14.2). Pulling the plug on a project usually leads to seri-
ous emotional responses from stakeholders. Within the project team itself, it is natural to expect
a dramatic loss in motivation, loss of team identity, fear of no future work among team members,
and a general weakening and diversion of their efforts. The project’s intended clients also begin
disassociating themselves from the project, in effect, distancing themselves from the project team
and the terminated project.
14.3 Early Termination for Projects 491
Identification of
remaining
deliverables
Certification needs
Identification of
outstanding
commitments
Control of charges
to project
Screening of partially
completed tasks
Closure of work
orders and work
packages
Disposal of unused
material
Agreement with
client on remaining
deliverables
Communicating closure
Closing down facilities
Determination of
requirements for audit
trail data
Agreement with
suppliers on outstanding
commitments
Intellectual
Project
Termination
Issues
Fear of no future work
Loss of interest in
remaining tasks
Loss of project–derived
motivation
Loss of team identity
Selection of personnel
to be reassigned
Diversion of effort
Change in attitude
Loss of interest
in project
Change in personnel
dealing with project
Unavailability of
key personnel
Emotional
Internal ExternalStaff Client
Figure 14.3 Work Breakdown for Project termination issues
taBle 14.2 concerns When Shutting Down a Project
emotional issues of the Project team
1. Fear of no future work—The concern that once the project is shut down, there is no avenue for future
work for team members.
2. Loss of interest in remaining tasks—The perception that a terminated project requires no additional
performance.
3. Loss of project-derived motivation—All motivation to perform well on the project or to create a successful
project is lost.
4. Loss of team identity—The project is being disbanded; so is the team.
5. Selection of personnel to be reassigned—Team members already begin jockeying for reassignment to
better project alternatives.
6. Diversion of effort—With the project winding down, other jobs take greater priority.
emotional issues of the clients
1. Changes in attitude—Now that the project has been canceled or concluded, client attitude may become
hostile or indifferent.
2. Loss of interest in the project—As the project team loses interest, so does the client.
3. Change in personnel dealing with the project—Many times, as they move their key people to new challeng-
es, clients will shift new people into the project who have no experience with it.
4. Unavailability of key personnel—Resources at the client organization with needed skills are no longer avail-
able or interested in contributing their input to the project that is being terminated.
intellectual issues—internal
1. Identification of the remaining deliverables—The project team must distinguish between what has
been accomplished and what has not been completed.
2. Certification needs—It may be necessary to provide certification of compliance with environmental or
regulatory standards as part of the project closeout.
3. Identification of outstanding commitments—The project team must identify any outstanding supply
deliveries, milestones that will not be met, and so forth.
4. Control of charges to the project—By the closeout, a number of people and departments are aware of
project account numbers. It is necessary to quickly close out these accounts to prevent other groups from
hiding their expenses in the project.
(continued )
492 Chapter 14 • Project Closeout and Termination
Box 14.2
Project Management research in Brief
Project Termination in the IT Industry
In mid-2010, a lawsuit was settled between Waste Management and SAP Corporation. The original lawsuit
arose from a failed implementation effort to install and make usable SAP’s Enterprise Resource Planning
(ERP) software throughout Waste Management’s organization. Waste Management is a giant company
that has been built through acquisition. As a result, legacy systems were everywhere, and many of them
were outdated. In 2005, Waste Management was looking to overhaul its order-to-cash process—billing,
collections, pricing, and customer setup. It was at this point that SAP stepped in, promising that its out-of-
the-box ERP system would be capable of handling all Waste Management’s needs with minimal tweaking.
It wasn’t. The trash-disposal conglomerate claimed it suffered significant damages, including more than
$100 million, which is the amount it spent on the project (dubbed by Waste Management as “a complete
and utter failure”) and more than $350 million for benefits it would have realized if the software had been
successful.
As part of its complaint in the lawsuit, Waste Management argued that it wanted an ERP package that
could meet its business requirements without large amounts of custom development, but instead, SAP used
a “fake” product demonstration to trick Waste Management officials into believing its software fit the bill.
Although SAP did not accept guilt in the case, Waste Management received “a one-time cash payment” in
accordance with the settlement.
Some of the most difficult challenges faced in effectively running and completing projects are those
presented in the information technology (IT) industry. Research investigating project management in IT has not
5. Screening of partially completed tasks—It is necessary to begin eliminating the work being done on
final tasks, particularly when they no longer support the project’s development.
6. Closure of work orders and work packages—Formal authorization to cancel work orders and project
work packages is necessary once ongoing tasks have been identified.
7. Disposal of unused material—Projects accumulate quantities of unused supplies and materials. A method
must be developed for disposing of or transferring these materials to other locations.
intellectual issues—external
1. Agreement with the client on remaining deliverables—When a project is being canceled, the project
organization and the client must jointly agree on what final deliverables will be supplied and when they
will be scheduled.
2. Agreement with suppliers on outstanding commitments—Suppliers who are scheduled to continue
delivering materials to the project must be contacted and contracts canceled.
3. Communicating closure—The project team must ensure that all relevant stakeholders are clearly aware of
the project shutdown, including the date by which all activities will cease.
4. Closing down facilities—When necessary, a schedule for facilities shutdown is needed.
5. Determination of requirements for audit trail data—Different customers and stakeholders have different
requirements for record retention used in postproject audits. The project team needs to conduct an assess-
ment of the records required from each stakeholder in order to close out the project.
taBle 14.2 continued
In addition to the expected emotional reactions to the termination decision, there are a number
of administrative, or intellectual, matters to which the project team must attend. For example, internal
to the project organization, closing down a project requires a detailed audit of all project deliverables,
closure of work packages, disposal of unused equipment or materials, and so forth. In relation to the
client, the termination decision requires closure of any agreements regarding deliverables, termination
of outstanding contracts or commitments with suppliers, and the mothballing of facilities, if necessary.
The important point is that a systematic process needs to be established for terminating a project, in
terms of both the steps used to decide if the project should be terminated and, once the decision has
been made, the manner in which the project can be shut down most efficiently.
14.3 Early Termination for Projects 493
allowing for claims and disputes
For some types of projects, the termination decision itself can initiate a host of legal issues with
the client. The most common types of problems revolve around outstanding or unresolved claims
that the customer or any project suppliers may hold against the project organization for early ter-
mination. Although the legal ramifications of early termination decisions cannot be explored in
great detail here, it is important to recognize that the termination of a project can itself generate
a number of contractual disagreements and settlements. This potential for dealing with claims or
disputes should be factored into the decision on terminating a project. For example, a company
could discover that because of severe penalties for nondelivery, it actually would be less expensive
to complete a failing project than to shut it down.
Two common types of claims that can arise in the event of project closure are:
1. Ex-gratia claims. These are claims that a client can make when there is no contractual basis
for the claim but when the client thinks the project organization has a moral or commer-
cial obligation to compensate it for some unexpected event (such as premature termination).
Suppose, for example, that a client was promoting a new line of products that was to use a
technology the project organization had been contracted to develop. Should the project firm
cancel the project, the client might decide to make an ex-gratia claim based on its charge that
it had planned its new product line around this advanced technology.
2. Default claims by the project company in its obligations under the contract. When con-
tractual claims are defaulted due to the failure of a project to be completed and delivered, the
client firm may have some legal claim to cost recovery or punitive damages. For example,
liquidated damages claims may be incurred when a contractor awards a project to a supplier
and uses financial penalties as an inducement for on-time delivery of the project. In the event
of noncompliance or early project termination, the client can invoke the liquidated damages
clause to recoup its financial investment at the expense of the project organization.
In addition to claims from interested stakeholders, the project organization also may face legal
disputes over contractual terms, prepurchased materials or supplies, long-term agreements with
suppliers or customers, and so forth.
been reassuring. The Standish Group of Dennis, Massachusetts, conducted a lengthy and thorough study of
IT projects and determined that:
• 18% of IT application development projects are canceled before completion.
• 43% of the remaining projects face significant cost and/or schedule overruns or changes in scope.
• IT projects failures cost U.S. companies and governmental agencies an estimated $1.2 trillion each year,
with California the leading waster of IT projects funds at 164 billion annually.
Worldwide, estimates for cancelled IT projects range as high as $3 trillion, or 4.7% of the total GDP on the
planet, more than the entire economic output of Germany.24
Given all the examples of projects at risk, what are some of the warning signs that signal a project may
become a candidate for cancellation? The 10 signs of pending IT project failure are:
1. Project managers do not understand users’ needs.
2. Scope is ill defined.
3. Project changes are poorly managed.
4. Chosen technology changes.
5. Business needs change.
6. Deadlines are unrealistic.
7. Users are resistant.
8. Sponsorship is lost.
9. Project lacks people with appropriate skills.
10. Best practices and lessons learned are ignored.
In order to avoid the inevitability of project failure, it is critical to recognize the warning signs, including the
inability to hit benchmark goals, the piling up of unresolved problems, communication breakdowns among
the key project stakeholders, and escalating costs. Such red flags are sure signals that an IT project may be a
candidate for termination.25
494 Chapter 14 • Project Closeout and Termination
Project organizations can protect themselves from problems with claims during project ter-
mination by the following means:26
• Consider the possible areas of claims at the start of the contract and plan accordingly. Do not
wait until they happen.
• Make sure that the project stakeholders know their particular areas of risk under the contract
to help prevent baseless claims after the fact.
• Keep accurate and up-to-date records from the start of the contract. A good factual diary can
help answer questions if the project develops fatal flaws downstream.
• Keep clear details of customer change requests or other departures from the original con-
tracted terms.
• Ensure that all correspondence between you and clients is retained and archived.
When disputes are encountered, they are typically handled through legal recourse, often in the
form of arbitration.
Arbitration refers to the formalized system for dealing with grievances and administering cor-
rective justice to parties in a bargaining situation. It is used to obtain a fair settlement or resolution of
disputes through an impartial third party. For projects, arbitration may be used as a legal recourse if
parties who disagree on the nature of contractual terms and conditions require a third party, usually
a court-appointed arbitrator, to facilitate the settlement of disputed terms. Provided that all parties
agree to the use of arbitration, it can serve as a binding settlement to all outstanding claims or dis-
putes arising from a contract that was not adequately completed. Alternatively, the parties may opt for
nonbinding arbitration, in which the judge can offer suggestions or avenues for settlement but cannot
enforce these opinions. Although arbitration has the advantage of being faster than pursuing claims
through standard litigation, in practice, it is risky: The judge or arbitrator can side with the other party
in the dispute and make a decision that is potentially very expensive to the project organization; and
when nonbinding, arbitration can be considered “advisory.” If the parties wish to adopt the award as
their settlement, they may do so. On the other hand, if they decide against adopting the award, they
may be forced to repeat the entire process at a subsequent administrative hearing, court trial, or bind-
ing arbitration. Any of these choices can lengthen the dispute even further.27
Not all claims against a project are baseless. Many times the decision to terminate a proj-
ect will be made with the understanding that it is going to open the company to litigation or
claims from external parties, such as the client firm. In these cases, the termination decision must
be carefully weighed before being enacted. If a project is failing and termination is the only realistic
option, the resulting claims the company is likely to face must be factored into the decision process
and then addressed in full after the fact.
14.4 preparing the Final project report
The final project report is the administrative record of the completed project, identifying all its func-
tional and technical components, as well as other important project history. A final project report
is valuable to the organization precisely to the degree that the project team and key organizational
members take the time to conduct it in a systematic fashion, identify all relevant areas of concern,
and enact processes to ensure that relevant lessons have been identified, learned, and passed on.
The important point to remember is that a final project report is more than a simple recitation of
the history of the project; it is also an evaluative document that highlights both the strengths and
weaknesses of the project’s development. As such, the final project report should offer a candid
assessment of what went right and what went wrong for the project over its life cycle.
The elements of the final project report include an evaluation of a number of project and
organizational factors, including:28
1. Project performance. The project performance should involve a candid assessment of the
project’s achievements relative to its plan. How did the project fare in terms of standard met-
rics such as baseline schedule and budget? Did the project achieve the technical goals that it
set out to accomplish? How did the project perform in terms of stakeholder satisfaction, par-
ticularly customer satisfaction? Are there any hard data to support the assessments? The final
project report is an evaluative document that should offer candid criticisms, where appro-
priate, of the project’s performance and, if performance was deemed substandard, the most
14.4 Preparing the Final Project Report 495
likely causes of that performance and recommended remedial steps to ensure that similar
results do not occur in the future.
2. Administrative performance. The project’s administrative performance evaluation refers to
the evaluation of any standard administrative practices that occur within the organization,
and their benefits or drawbacks in developing the just-completed project. For example, in
one organization, it was found that all project change order requests had to be endorsed by
five layers of management before they could be addressed, leading to a long lag between the
time a customer asked for a change and when the decision was made to either accept or reject
the change request. The result of this analysis led to a streamlined change order process that
made the organization much faster at responding to clients’ change order requests.
3. Organizational structure. The final report should offer some comments on how the orga-
nization’s operating structure either helped or hindered the project team and their efforts.
It may be found, for example, that the standard functional structure is a continual problem
when trying to respond quickly to opportunities in the marketplace or that it represents a
problem in communicating between groups involved in the project. Although it is unlikely
that one bad project experience will trigger an immediate demand to change the company’s
structure, repeated project failures that point squarely to problems with the organizational
structure can eventually create the impetus to make changes that will better align the struc-
ture with project activities.
4. Team performance. The final report should also reflect on the effectiveness of the project
team, not only in terms of their actual performance on the project, but also with regard to
team-building and staffing policies, training or coaching, and performance evaluations for
all project team members. In short, the team performance assessment should address the effi-
cacy of the company’s staffing of its project teams (“Did we find the best people within the
organization to serve on the project?”), its team-building and training activities (“How are
we ensuring that team members are adequately trained?” “If team members need training,
do we have programs to provide it?”), and postproject evaluation policies (“Does the project
manager have the ability to evaluate the performance of project team members?” “Does the
project manager’s evaluation carry weight in the subordinate’s annual review?”).
5. Techniques of project management. In the final report, it is useful to consider the methods
used by the organization for estimating activity duration and cost, as well as any scheduling
processes or techniques used. It may be found, for example, that the organization consistently
underestimates the duration time necessary to complete tasks or underestimates the resource
costs associated with these tasks. This information can be extremely helpful for future project
estimation. Further, other techniques that are used for project management (e.g., scheduling
software, rules and procedures, etc.) should be critically reviewed in order to suggest ways to
improve the process for future projects.
6. Benefits to the organization and the customer. All projects are guided by a goal or series
of discrete goals that have, as their bottom line, the assumption of providing benefits to the
sponsoring organization and the project’s clients. A final analysis in the final project report
should consider the degree to which the project has succeeded in accomplishing its goals and
providing the anticipated benefits. One important proviso, however: Remember that in some
cases, the benefits that are anticipated from a completed project may not occur immediately,
but over time. For example, if our goal in constructing a housing development is to return a
high profit to our company, it may be necessary to wait several months or even years, until all
lots and houses have been sold, before evaluating whether the goal has been achieved. Thus,
we have to always try to maintain a balance between assessments of immediate benefits and
those that may accrue over time.
The goal in requiring a final project report is to lay the groundwork for successful future projects.
Although the final report is used to reflect on what went right and what went wrong with the
current project, it is fundamentally a forward-looking document used to improve organizational
processes in order to make future projects more effective, project activities more productive, and
project personnel more knowledgeable.
Learning organizations are keen to apply the important lessons learned from experience.
As one senior project manager has explained, “It is the difference between a manager with 10
years’ experience, and one with one year ’s experience 10 times!” The more we can apply the
496 Chapter 14 • Project Closeout and Termination
important lessons from past projects through activities such as final reports, the greater the like-
lihood that our project managers will evolve into knowledgeable professionals, as opposed to
simply repeating the same mistakes over and over—the classic definition of a manager with
“one year ’s experience 10 times.”
conclusion
“The termination of a project is a project.”29 This statement suggests that the degree to which
a project team makes a systematic and planned effort to close out a project affects whether the
termination will be done efficiently and with minimal wasted effort or loss of time. In the case of
projects that are naturally terminated through being completed, the steps in termination can be
thought out in advance and pursued in an orderly manner. On the other hand, in circumstances
where the project suffers early termination, the closeout process may be shorter and more ad hoc,
that is, it may be done in a less-than-systematic manner.
This chapter has highlighted the processes of both natural and unnatural project termina-
tions. One of the greatest challenges facing project teams during termination is maintaining the
energy and motivation to make the final “kick to the finish line.” It is natural to start looking
around for the next project challenge once a project is moving toward its inevitable conclusion.
Our challenge as project managers is, first, to recognize that it is natural for team members to lose
their enthusiasm and, second, to plan the steps needed to close out the project in the most effective
way. When the project’s termination is treated as a project, it signals that we are intent on having
our projects end not with a negative whimper, but with a positive bang.
Summary
1. distinguish among the four main forms of project
termination. We identified four ways in which
projects get terminated; they are termination by
(a) extinction, (b) addition, (c) integration, and
(d) starvation. Termination by extinction refers to
projects in which all activity ends without extend-
ing the project in any way, usually as the result of
a successful completion or decision to end the proj-
ect early. Termination by addition implies bring-
ing the project into the organization as a separate,
ongoing entity. Termination by integration is the
process of bringing the project activities into the
organization and distributing them among exist-
ing functions. Finally, termination by starvation
involves cutting a project’s budget sufficiently to
stop progress without actually killing the project.
2. recognize the seven key steps in formal project
closeout. The seven steps of the formal project
closeout are:
• Finishing the work
• Handing over the project
• Gaining acceptance for the project
• Harvesting the benefits
• Reviewing how it all went
• Putting it all to bed
• Disbanding the team
3. Understand key reasons for early termination of
projects. A project may become a candidate for
early termination for a number of reasons, including
the recognition of significant changes in the follow-
ing critical factors: (a) static factors, (b) task-team fac-
tors, (c) sponsorship, (d) economics, (e) environment,
and (f) user requirements. Research has determined a
number of early warning signs of pending problems
with projects that can signal fatal errors or irrecover-
able problems. This chapter also examined some of
the decision rules that allow us to make reasonable
choices about whether to cancel an ongoing project.
Specifically, we may choose to terminate ongoing
projects when:
• Costs exceed business benefits.
• The project no longer meets strategic fit criteria.
• Deadlines continue to be missed.
• Technology evolves beyond the project’s scope.
4. Know the challenges and components of a final
project report. The components of the final proj-
ect report include evaluations of project perfor-
mance, administrative performance, organizational
structure, team performance, techniques of proj-
ect management, and benefits of the project to the
organization and the customer. Two challenges are
involved in developing effective final reports: first,
being willing to take a candid and honest look at
how the project progressed, highlighting both its
strengths and weaknesses; and second, developing
reports in such a manner that they contain a com-
bination of descriptive analysis and prescriptive
material for future projects. The goal in requiring
Case Study 14.1 497
a final project report is to lay the groundwork for
successful future projects. Although the final report
is used to reflect on what went right and wrong
with the current project, it is fundamentally a
forward-looking document used to improve organi-
zational processes in order to make future projects
more effective, project activities more productive,
and project personnel more knowledgeable.
Key Terms
Arbitration (p. 494)
Build, Operate, and
Transfer (BOT) (p. 482)
Build, Own, Operate, and
Transfer (BOOT) (p. 482)
Default claims (p. 493)
Disputes (p. 493)
Early termination
(p. 487)
Ex-gratia claims
(p. 493)
Lessons learned (p. 484)
Natural termination
(p. 479)
Private Finance Initiatives
(PFIs) (p. 482)
Project termination (p. 479)
Termination by addition
(p. 480)
Termination by extinction
(p. 480)
Termination by integration
(p. 480)
Termination by starvation
(p. 480)
Unnatural termination
(p. 479)
Discussion Questions
14.1 Why is the decision to terminate a project often as much
an emotional one as an intellectual one?
14.2 Comment on the different methods for project termi-
nation. How have you seen an example of one of these
methods, through either your school or work experience?
14.3 Why do so many projects end up terminated as a re-
sult of termination through starvation? Discuss the
role of ego, power, and politics in this form of project
termination.
14.4 Refer back to Chapter 2. How does the concept of escala-
tion of commitment factor into decisions of whether to
terminate projects?
14.5 Consider the case of the Navy’s Zumwalt-class destroyer
in Case Study 14.3. Take the position that terminating
this project after having invested so much in research
and development represented a good or bad decision by
the Navy. Argue your case.
14.6 Of the seven elements in project closeout management,
which do you view as being most important? Why?
14.7 What are four principles of effective postproject reviews?
14.8 What are some of the reasons why objective project eval-
uation may be difficult to achieve?
14.9 Why do lessons learned programs often fail to capture
meaningful information that could help guide future
projects?
14.10 Comment on the following statement: “In deciding on
whether or not to kill a project, it is critical to continu-
ally monitor the environment for signs it may no longer
be viable.”
14.11 Refer to the Project Management Research in Brief box
in this chapter. In your opinion, why is it so difficult
to bring IT projects to successful completion? In other
words, identify some reasons why the cancellation rate
for IT projects is 40%.
14.12 Imagine you are a team member on a project that has
missed deadlines, has not produced the hoped-for tech-
nological results, and has been a source of problems be-
tween your team and the customer. You have just been
informed that the project is being canceled. In what ways
is this good news? How would you view it as bad news?
CaSe STuDy 14.1
New Jersey Kills Hudson River Tunnel Project
When dignitaries broke ground on the Access to the
Region’s Core (ARC) project in northern New Jersey in
2009, it was supposed to be a celebration to signal the
start of a bright new future. Creating a commuter rail
tunnel under the Hudson River was not a particularly
new or difficult idea, but it was viewed as a critical
need. The project was first proposed in 1995, and every
New Jersey governor after that time had publicly sup-
ported the need for the tunnel. The reasons were com-
pelling: The entire commuter rail system connecting
New York and New Jersey was supported by only one
congested 100-year-old, two-track railroad tunnel into
an overcrowded Penn Station in midtown Manhattan;
both tracks had reached capacity and could no longer
accommodate growth. Passengers were making more
than 500,000 trips through Penn Station every day,
with station congestion and overcrowding the norm.
The project was especially critical for New Jersey resi-
dents because their commuter ridership to New York
had more than quadrupled in the past 20 years from
(continued)
498 Chapter 14 • Project Closeout and Termination
10 million annual trips to more than 46 million annual
passenger trips. In the peak hours, the New Jersey
Transit Authority operated 20 of the 23 trains heading
into or out of New York. Building the ARC would dou-
ble the number of New Jersey Transit commuter trains,
from 45 to about 90, that could come into Manhattan
every morning at rush hour.
In the face of such congestion and perceived
need, the ARC project was conceived to include the
following elements:
• Two new tracks under the Hudson River and the
New Jersey Palisades
• A new six-track passenger station, to be known
as “New York Pennsylvania Station Extension”
(NYPSE) under 34th Street, with passenger con-
nection to Penn Station
• A new rail loop near the Lautenberg Secaucus
Junction station to allow two northern New
Jersey line trains access to New York City
• A midday rail storage yard in Kearny, New Jersey
Proponents also argued the environmental advantages
of the project, noting that the ARC project would elim-
inate 30,000 daily personal automobile trips, taking
22,000 cars off the roads and resulting in 600,000 fewer
daily vehicle miles traveled. The project was expected
to thus reduce greenhouse gas emissions by nearly
66,000 tons each year.
The ARC project was anticipated to take eight
years to complete, coming into service in 2017. The
cost of the project was significant, as the Federal
Transit Administration (FTA) reported the project cost
as $8.7 billion in their Annual Report. In order to share
the burden of the project costs, the funding as origi-
nally proposed included the following sources:
• Federal government: $4.5 billion
• Port Authority of New York and New Jersey:
$3.0 billion
• New Jersey Turnpike Authority: $1.25 billion
A final important feature of the funding plan lim-
ited the exposure of the federal government for any
project overruns, meaning that the government was
locked into its original commitment amount only. Any
cost overruns or project slippages would have to be
covered exclusively by the state of New Jersey.
The contracts for various parts of the project
began to be awarded following competitive bidding
in June 2009, and the first tunneling contract was
awarded in May 2010. Within little more than three
months, rumbles began being heard from the New
Jersey governor’s office on the viability of the proj-
ect. Governor Chris Christie ran and was elected on
the promise of reining in what many viewed as out-
of-control spending by the state’s legislature, coupled
with some of the highest property and business taxes
in the country. As a self-described “budget hawk,”
Christie was increasingly troubled by rumors of cost
overruns in the ARC project. Worse, all projections for
completion of the project pointed to a much higher
final price tag than the original $8.7 billion estimate.
In early September 2010, Governor Christie
ordered a temporary halt in awarding new contracts
for the project until his office had a chance to study
project cost projections more thoroughly. This issue
was highlighted when U.S. Transportation Secretary
Figure 14.4 Artist’s rendition of Underground train Platform at Penn Station for Arc Project
Source: Star-Ledger
Case Study 14.2 499
CaSe STuDy 14.2
The Project That Wouldn’t Die
Ben walked into his boss’s office Tuesday morning in a
foul mood. Without wasting any time on pleasantries,
he confronted Alice. “How on earth did I get roped
into working on the Regency Project?” he asked, hold-
ing the memo that announced his immediate transfer.
Alice had been expecting such a reaction and sat back
a moment to collect her thoughts on how to proceed.
The Regency Project was a minor legend around
the office. Begun as an internal audit of business prac-
tices 20 months earlier, the project never seemed to get
anything accomplished, was not taken seriously within
the company, and had yet to make one concrete pro-
posal for improving working practices. In fact, as far
as Ben and many other members of the company were
concerned, it appeared to be a complete waste of time.
And now here Ben was, assigned to join the project!
Ben continued, “Alice, you know this assign-
ment is misusing my abilities. Nothing has come
from Regency; in fact, I’d love to know how top man-
agement, who are usually so cost conscious, have
allowed this project to continue. I mean, the thing just
won’t die!”
Alice laughed. “Ben, the answer to your question
can be easily found. Have you bothered taking a look
at any of the early work coming out of Regency during
its first three months?” When Ben shook his head, she
continued, “The early Statement of Work and other
scope development was overseen by Harry Shapiro.
He was the original project manager for Regency.”
All of a sudden, light dawned on Ben. “Harry
Shapiro? You mean Vice President Harry Shapiro?”
“That’s right. Harry was promoted to the VP job
just over a year ago. Prior to that, he was responsible
for getting Regency off the ground. Think about it—do
you really expect Harry to kill his brainchild? Useless
or not, Regency will be around longer than any of us.”
Ben groaned, “Great, so I’m getting roped into
serving on Harry’s pet project! What am I supposed
to do?”
Alice offered him a sympathetic look. “Look,
my best advice is to go into it with good intentions
and try to do your best. I’ve seen the budget for
Regency, and top management has been trimming
their support for it. That means they must recognize
(continued)
Ray LaHood, though a supporter of the tunnel, pub-
licly admitted that federal estimates showed the proj-
ect could go between $1 billion and $4 billion over
budget. Christie suspected that even those estimates
might be low, putting his state on the hook for a
potentially huge new debt, at a time when the econ-
omy was sour and the state was already desperately
seeking means to trim runaway spending. As addi-
tional evidence of highly suspect initial cost estimates,
Christie’s supporters pointed to the recently com-
pleted “Big Dig” project in Boston, which started with
an initial price tag of $2.5 billion and ultimately ended
up costing well over $14 billion to complete.
Governor Christie first canceled the contract on
October 7, 2010, citing cost overruns for which he said
the state had no way to pay. The following day, he
agreed to temporarily suspend his cancellation order
so that he could try to resolve the funding dilemma
with federal transportation officials and other project
stakeholders. After a two-week period to analyze all
their options, the governor made the cancellation offi-
cial. Christie said that given the impact of the reces-
sion and the probability of continuing cost overruns,
the state could no longer afford the tunnel’s escalating
costs. More than a half-billion dollars had already been
spent on construction, engineering, and land acquisi-
tion for a project that was budgeted at $8.7 billion, but
which the governor said could go as high as $14 bil-
lion. “The only prudent move is to end this project,”
Governor Christie said at a Trenton news conference.
“I can’t put taxpayers on a never-ending hook.”30
Questions
1. How would you respond to the argument that it
is impossible to judge how successful a project
like this one would have been unless you actu-
ally do it?
2. Take a position, either pro or con, on Christie’s
decision to kill the ARC. Develop arguments to
support your point of view.
3. In your opinion, how clearly must a large infra-
structure project like ARC have determined its
need, costs, and so forth before being approved?
If the criteria are too stringent, what is the impli-
cation for future projects of this type? Would any
ever be built?
500 Chapter 14 • Project Closeout and Termination
the project isn’t going well. They just don’t want to
kill it outright.”
“Remember,” Alice continued, “the project may
not die because Harry’s so committed to it, but that
also means it has high visibility for him. Do a good job
and you may get noticed. Then your next assignment
is bound to be better.” Alice laughed. “Heck, it can’t be
much worse!”
Questions
1. What termination method does it appear the
company is using with the Regency Project?
2. What are the problems with motivation when
project team members perceive that a project is
earmarked for termination?
3. Why would you suspect Harry Shapiro has a role
in keeping the project alive?
CaSe STuDy 14.3
The Navy Scraps Development of Its Showpiece Warship—Until the Next Bad Idea
In midsummer 2008, the U.S. Navy announced its
decision to cancel the DDG 1000 Zumwalt destroyer,
after the first two were completed at shipyards in
Maine and Mississippi. This decision, originally stated
as due to the ship’s high construction cost, points to
a highly controversial and, it could be argued, poor
scope management process since the beginning.
The Zumwalt class of destroyers was conceived
for a unique role. They were to operate close offshore
(in what is referred to as the littoral environment)
and provide close-in bombardment support against
enemy targets, using their 155-millimeter guns and
cruise missiles. With a displacement of 14,500 tons
and a length of 600 feet, the ships have a crew of only
142 people due to advanced automated systems used
throughout. Additional features of the Zumwalt class
include advanced “dual-band” radar systems for accu-
rate targeting and fire support, as well as threat iden-
tification and tracking. The sonar is also considered
superior for tracking submarines in shallow, coastal
waterways. However, the most noticeable characteris-
tic of the Zumwalt class was the decision to employ
“stealth” technology in its design, in order to make
the destroyer difficult for enemy radar to track. This
technology included the use of composite, “radar-
absorbing” materials and a unique, wave-piercing hull
design. Thus, the Zumwalt, in development since the
late 1990s, was poised to become the newest and most
impressive addition to the Navy’s fleet.
Unfortunately, the ship was hampered from the
beginning by several fundamental flaws. First, its price
tag, which was originally expected to be nearly $2.5
billion per vessel, ballooned to an estimated $5 billion
for each ship. In contrast, the Navy’s current state-
of-the-art Arleigh Burke class of destroyers cost $1.3
billion per ship. Cost overruns became so great that
the original 32 ships of the Zumwalt class the Navy
intended to build were first reduced to 12 and then
to seven. Finally, after another congressional review,
the third destroyer in the class, to be built at Maine’s
Bath Iron Works, was funded with the proviso that this
would be the last built, effectively killing the program
after three destroyers were completed. The first ship of
the class was christened in April 2014 at the Bath Iron
Works shipyard and is expected to be delivered to the
Navy in September.
In addition to the high cost, of significantly more
concern were the design and conceptual flaws in the
Zumwalt destroyers, a topic the Navy has been keen
to avoid until recently. For example, the ship is not fit-
ted with an effective antiship missile system. In other
words, the Zumwalt cannot defend itself against bal-
listic antiship missiles. Considering that the mission of
the Zumwalt is close-in support and shore bombard-
ment, the inability to effectively defend itself against
antiship missiles is a critical flaw. Critics have con-
tended that the Navy knew all along that the Zumwalt
could not employ a reasonable antiship missile
defense. The Navy argues that the ship can carry such
missiles of its own but acknowledges that it cannot
guide those missiles toward a target. This raises the
question: If these ships need nonstealth vessels around
them for protection against incoming threats, what is
the point of creating a stealth ship in the first place?
Another problem has emerged from a closer
examination of the role the Navy envisioned for the
Zumwalt. If its main purpose was truly to serve as
an offshore bombardment platform, why use it at all?
Couldn’t carrier-based aircraft hit these targets just as
easily? How about GPS-guided cruise missiles? The
then-deputy chief of naval operations, Vice Admiral
Barry McCullough, conceded this critical point in
acknowledging, “With the accelerated advancement of
precision munitions and targeting, excess fire capacity
already exists from tactical aviation.” In other words,
why take the chance of exposing nearly defenseless
Internet Exercises 501
ships near enemy shorelines to destroy the same tar-
gets that air power can eliminate at much lower risk?
In short, despite initially protesting that the
Zumwalt was a crucial new weapon platform to
support the Navy’s role, critics and the Navy’s
own analysis have confirmed that the DDG 1000
destroyer class represents an investment in risky
technology based on a questionable need. It is too
expensive, cannot adequately defend itself, and is
intended to do a job for which other options are bet-
ter suited. The cancellation of the Zumwalt destroyer
project was ultimately the correct decision, albeit a
tardy one, in that it has cost the American taxpayers
an estimated $13 billion in R&D and budget funding
to build three ships that are likely to have no imme-
diate or useful role in the near future.
Sadly, it is debatable whether the Navy truly
learned the hard lessons of the Zumwalt destroyer
development, as its newest generation of ship, the
Littoral Combat Ship (LCS), is currently being sub-
jected to the same kind of scrutiny and criticism that
characterized the long controversy of the Zumwalt.
For example, with initial cost overruns corrected,
the LCS class is estimated to cost $400 million per
ship, which is a substantial savings over the DDG-
1000. However, critics charge that, as with the
Zumwalt destroyer, the Navy continues to cram too
much cutting-edge and unproven technology into
the ships, without a clear sense of the mission they
were designed to undertake. Small and fragile, crit-
ics have contended that even the Navy’s own assess-
ment admits that placing these craft in harm’s way
will invite severe problems, with one report conclud-
ing, “LCS is not expected to be survivable in a hos-
tile combat environment . . . .” Finally, the decision to
continue making hull and weapon modifications to
the ship, even as the first of the class are in produc-
tion, leads to concern about the stability of the pro-
gram. Will the missions the latter ships are capable of
performing even resemble the role designed for them
today? Although the Navy envisioned building 52 of
the craft, current plans are to limit production to 32,
with senior Congressmen demanding that no more
than 24 ever be produced. Over budget, with a too-
complicated design and uncertain mission capabili-
ties—it appears that the LCS is taking the place of the
Zumwalt, with the Navy still relearning its lessons.31
Questions
1. The U.S. Department of Defense has a long his-
tory of sponsoring projects that have questionable
usefulness. If you were assigned as a member of a
project review team for a defense project, what cri-
teria would you insist such a project has in order
to be supported? In other words, what are the bare
essentials needed to support such a project?
2. Why, in your opinion, is there such a long his-
tory of defense projects overshooting their bud-
gets or failing some critical performance metrics?
(Consider other project cases in this text, includ-
ing the Expeditionary Fighting Vehicle discussed
in Chapter 5.)
3. “The mystery is not that the Zumwalt was can-
celed. The mystery is why it took so long for it to
be canceled.” Do you agree with this assessment?
Why or why not?
4. Google “criticisms of the Littoral Combat Ship”
and identify some of the problems that critics
have listed. In light of these problems, why do
you think the Navy has pressed ahead with the
development of the LCS?
Internet exercises
14.1 Search the Internet for links to the Boston Tunnel, “The Big
Dig”; the Channel Tunnel, “The Chunnel”; and London’s
Millennium Dome. Why do you think these projects were
supported to their conclusion in spite of their poor cost
performance? What would it take to kill a high-visibility
project such as these?
14.2 Go to http://project-dvr.tumblr.com/post/7190974154/
why-bad-projects-are-so-hard-to-kill and read the
perspective on the difficulty in killing bad projects.
What are some of the critical stories or pieces of advice
offered by the blog writer and those commenting on
his suggestions? How do corporate politics play a
role in the continuation of poorly conceived projects?
Which of these arguments makes the most sense to
you? Why?
14.3 Go to http://cs.unc.edu/~welch/class/comp145/media/
docs/Boehm_Term_NE_Fail and read the article
“Project Termination Doesn’t Equal Project Failure” by
Barry Boehm. Summarize his main arguments. What does
he cite as the top 10 reasons for project failure?
14.4 Go to www.pmhut.com/wp-content/uploads/2008/03/
project-closeout-document . Critique the content of
this closeout form. What information would you suggest
adding to the form to make it a more comprehensive close-
out document?
14.5 Go to a search engine (Google, Yahoo!, Ask, etc.) and enter
the term “project failure” or “project disaster.” Select one
example and develop an analysis of the project. Was the
project terminated or not? If not, why, in your opinion,
was it allowed to continue?
502 Chapter 14 • Project Closeout and Termination
PMP certificAtion sAMPle QUestions
1. When does a project close?
a. When a project is canceled
b. When a project runs out of money
c. When a project is successfully completed
d. All of the above are correct answers
2. You have just completed your project and have to con-
front the final activities your company requires when
putting a project to bed. Which of the following activi-
ties is not expected to be part of the project closeout?
a. Lessons learned
b. Project archives
c. Release of resources
d. Supplier verification
3. Your project is nearing completion. At your request, mem-
bers of your project team are grouping together critical
project documentation, including contracts and financial
records, change orders, scope and configuration manage-
ment materials, and supplier delivery records. This pro-
cess involves the creation of which of the following?
a. Archives
b. Lessons learned
c. Contract and legal files
d. Scope document
4. The execution phase of the IT project has just finished.
The goals of this project were to update order-entry
systems for your company’s shipping department.
Which of the following is the next step in the process of
completing the project?
a. Gaining acceptance or the project by your shipping
department
b. Finishing the work
c. Closing the contract
d. Releasing the resources
5. The team has just completed work on the project. By all
accounts, this was a difficult project from the beginning
and the results bear this out. You were over budget by
20% and significantly behind your schedule. Morale
became progressively worse in the face of the numer-
ous challenges. At the close of the project, you decide to
hold an informal meeting with the team to discuss the
problems and identify their sources, all with the goal of
trying to prevent something like this from happening
again. This process is known as what?
a. Closing the project
b. Procurement audit
c. Lessons learned
d. Early termination
Answers: 1. d—All are reasons why a project will close;
2. d—Supplier verification is a process that must occur
early in the project to ensure that deliveries will arrive when
needed and are of sufficient quality; 3. a—The collection
of relevant project documentation is known as archiving;
4. b—The start of the final phase of a project usually in-
volves completing all final tasks; 5. c—A lessons learned
meeting is intended to critically evaluate what went well
and what went poorly on a project to promote good prac-
tices and prevent poor ones on future projects.
Appendix 14.1 Sample Pages from Project Sign-off Document 503
APPeNDix 14.1
Sample Pages from Project Sign-off Document
Figure 14.5 Sample Pages from Project Sign-off Document
chair: The meeting chair is either the Project Manager or some other person instructed by the project manager.
Discipline Attendee comment/Approval Signature
Engineering
Manufacturing
Product & Tech Develop.
Quality & Safety
Finance
Marketing
Additional Attendees
Procurement
Legal
review Decision
The Chair is to sign appropriate box and insert expenditure limit.
APProVAl leVel
a. Proceed to next phase
b. Proceed with actions to next phase
c. Stop until designated actions have been completed
d. No further work
fiNANciAl liMitS
Approved expenditure limit for next phase $
Additional Notes/comments/Summary
Actions Arising
This action sheet should be used to document actions required by the review and conditions of approval.
The project team is responsible for completing all actions by the due date. The named individual will be responsible
for the review on or before the due date if the action has been completed. The project will proceed at risk until
all actions are completed and accepted.
504 Chapter 14 • Project Closeout and Termination
Action No. Action Description Date Due
Person
responsible
Accepted/
Signature
Figure 14.5 continued
Appendix 14.1 Sample Pages from Project Sign-off Document 505
Project Management confidence Yes No comments/reference
required reviews
Have all actions from the project review been cleared?
Has an implementation sign-off review been held? ref:
Have all actions from the implementation sign-off review
been cleared?
lessons learned
Have lessons learned from project been recorded and
archived? (Indicate storage locations and who may access
these records.)
Have action plans been prepared for follow-up on projects?
Project Specifications
Have project specifications been collected and reported since
the last review?
Project Plan
Has the Project Plan been updated and issued? ref:
Have all planned key customer milestones been achieved
since the last review?
Have all planned key internal milestones been achieved since
the last review?
Project resources
Have all planned resources been released into and out of the
project on schedule?
Have all comparisons of planned versus actual resource
usage been carried out and relevant departmental metrics
updated?
Project costs
Has the project met its cost targets?
Project risk Assessment
Is an updated risk assessment available?
Project General
Has the team carried out a review of the entire project? ref:
Has it been confirmed that the customer has received all
agreed-upon deliverables, including documents, mock-ups,
etc.?
Has the project closure report been prepared?
Are there any follow-up projects that need to be initiated?
Have all project accounts been closed?
Figure 14.5 continued
506 Chapter 14 • Project Closeout and Termination
Business confidence Yes No comments/reference
Business case
Is the current product cost acceptable? ref:
Are the assumptions of the product life cycle and their effect
on product cost still valid?
Have customer schedule adherence targets been met?
Has the commercial performance matched the financial
criteria in the initial business case?
ref:
Has the business model been updated?
Are the other financial measures (including IRR and NPV) still
acceptable?
Are follow-up projects still viable under this business case
model?
Market and Sales confidence Yes No comments/reference
Pricing Policy
Is the pricing policy for original equipment and spares still
valid?
Sales forecast—confidence
Have all sales schedules, including customer support group
schedules, been agreed on?
customer feedback
Has customer feedback been received on project
performance?
Have action plans been created to identify opportunities for
improvement based on customer feedback?
Product Quality confidence Yes No comments/reference
Design
Have the design changes since previous reviews been listed?
Have all design change requests (DCRs) been implemented?
Are all engineering design review actions complete? ref:
Is the certification of project performance up-to-date and
approved?
ref:
Has the design process been reviewed and any lessons
learned been highlighted?
Have the lessons learned been summarized and entered in
the database?
Figure 14.5 continued
Notes 507
Notes
1. Penn, I. (2013, May 14). “Duke Energy to cancel proposed
Levy County nuclear plant,” Tampa Bay Times. www.
tampabay.com/news/business/energy/duke-energy-
to-cancel-proposed-levy-county-nuclear-plant-fasano-
says/2134287; Henderson, B. (2013, August 1). “Duke
Energy cancels contract for Levy County nuclear power
plants,” Orlando Sentinel. http://articles.orlandosentinel.
com/2013-08-01/business/os-duke-energy-cancels-levy-
county-nuclear-plant-i-20130801_1_levy-county-nuclear-
plants-orlando-area; Judy, S. (2013, August 2). “Duke
Energy cancels $24.7B Florida nuke plant project,” ENR
Southeast. http://southeast.construction.com/southeast_
construction_news/2013/0802-duke-energy-cancels-
247b-florida-nuke-plant-project.asp
2. Spirer, H. F., and Hamburger, D. (1983). “Phasing out
the project,” in Cleland, D. I., and King, W. R. (Eds.),
Project Management Handbook. New York: Van Nostrand
Reinhold, pp. 231–50.
3. Meredith, J. R., and Mantel, Jr., S. J. (2003). Project
Management, 5th ed. New York: Wiley.
4. Meredith, J. R., and Mantel, Jr., S. J. (2011). Project
Management, 8th ed. New York: Wiley.
5. Cooke-Davies, T. (2001). “Project closeout manage-
ment: More than simply saying good-bye and moving
on,” in Knutson, J. (Ed.), Project Management for Business
Professionals. New York: Wiley, pp. 200–14.
6. Cooke-Davies, T. (2001), ibid.
7. Turner, J. R. (1993). Handbook of Project-Based Work. London:
McGraw-Hill.
8. Ive, G. (2004). “Private finance initiatives and the man-
agement of projects,” in Morris, P. W. G., and Pinto, J. K.
(Eds.), The Wiley Guide to Managing Projects. New York:
Wiley.
9. Pinto, J. K., and Slevin, D. P. (1987). “Critical factors in
successful project implementation,” IEEE Transactions on
Engineering Management, EM-34: 22–27.
10. Cooke–Davies, T. (2001), ibid.
11. Frame, J. D. (2004). “Lessons learned: Project evaluation,”
in Morris, P. W. G., and Pinto, J. K. (Eds.), The Wiley Guide
to Managing Projects. Hoboken, NJ: John Wiley and Sons,
pp. 1197–1213.
12. Frame, J. D. (2004), ibid., p. 1202.
13. Pinto, M. B., Pinto, J. K., and Prescott, J. E. (1993).
“Antecedents and consequences of project team cross-
functional cooperation,” Management Science, 39: 1281–97.
14. Cooke-Davies, T. (2001), as cited in note 5; Dinsmore, P.
C. (1998). “You get what you pay for,” PMNetwork, 12(2):
21–22.
15. Meredith, J. R. (1988). “Project monitoring and early ter-
mination,” Project Management Journal, 19(5): 31–38.
16. Dean, B. V. (1968). Evaluating, Selecting and Controlling R&D
Projects. New York: American Management Association.
17. Balachandra, R. (1989). Early Warning Signals for R&D
Projects. Boston: Lexington Books; Balachandra, R., and
Raelin, J. A. (1980). “How to decide when to abandon a
project,” Research Management, 23(4): 24–29; Balachandra,
R., and Raelin, J. A. (1984). “When to kill that R&D proj-
ect,” Research Management, 27: 30–33; Balachandra, R., and
Raelin, J. A. (1985). “R&D project termination in high-tech
industries,” IEEE Transactions on Engineering Management,
EM-32: 16–23.
18. Green, S. G., Welsh, M. A., and Dehler, G. E. (1993). “Red
flags at dawn or predicting project termination at start-
up,” Research Technology Management, 36(3): 10–12.
19. Meredith, J. R. (1988), as cited in note 15; Cleland, D. I., and
Ireland, L. R. (2002). Project Management: Strategic Design
and Implementation, 4th ed. New York: McGraw-Hill; Staw,
B. M., and Ross, J. (1987, March–April). “Knowing when
to pull the plug,” Harvard Business Review, 65: 68–74;
Shafer, S. M., and Mantel, Jr., S. J. (1989). “A decision sup-
port system for the project termination decision,” Project
Management Journal, 20(2): 23–28; Tadasina, S. K. (1986).
“Support system for the termination decision in R&D
management,” Project Management Journal, 17(5): 97–104;
Cooper, R. G., and Kleinschmidt, E. J. (1990). “New prod-
uct success: A comparison of ‘kills’ versus successes and
failures,” Research and Development Management, 20(1):
47–63; Royer, I. (2003). “Why bad projects are so hard to
kill,” Harvard Business Review, 81(2): 48–56; Spiller, P. T.,
and Teubal, M. (1977). “Analysis of R&D failure,” Research
Policy, 6: 254–75; Charvat, J. P. (2002). “How to identify
a failing project,” articles.techrepublic.com.com/5100-
10878_11-1061879.html; Mersino, A. (2001). “Three warn-
ing signs that your project is doomed,” articles.techrepub-
lic.com.com/5100-10878_111046522.html?tag=rbxccnbtr1;
Mersino, A. (2001). “Four more warning signs that your
project is doomed,” articles.techrepublic.com.com/5100-
10878_11-1046005. html?tag=rbxccnbtr1
20. Frame, J. D. (1998). “Closing out the project,” in Pinto, J. K.
(Ed.), The Project Management Institute Project Management
Handbook. San Francisco, CA: Jossey-Bass, pp. 237–46;
Kumar, V., Sersaud, A. N. S., and Kumar, U. (1996). “To
terminate or not an ongoing R&D project: A managerial
dilemma,” IEEE Transactions on Engineering Management,
43(3): 273–84; Pritchard, C. L. (1998). “Project termination:
The good, the bad, the ugly,” in Cleland, D. I. (Ed.), Field
Guide to Project Management. New York: Van Nostrand
Reinhold, pp. 377–93.
21. Bishop, T. (2013, February 7). “EveryBlock closes: NBC
cites lack of strategic fit,” Geek Wire. www.geekwire.
com/2013/everyblock-closes-nbc-news-strategic-fit/
22. Menon, P. (2013, July 30). “Dubai sets up panel to pay
investors in scrapped projects,” Reuters. www.reuters.
com/article/2013/07/30/dubai-property-cashback-
idUSL6N0G02IE20130730; Menon, P. (2012, November 27).
“Government tries to revive its construction boom but can it
find the cash?” Reuters. www.dailyfinance.com/2012/11/27/
dubai-construction-boom-money-islamic-bonds/.
23. Spirer, H. F., and Hamburger, D. (1983), as cited in note 2.
24. Krigsman, M. (2012, April 10). “Worldwide cost of IT
failure (revisited): $3 trillion,” ZDNet. www.zdnet.
c o m / b l o g / p ro j e c t f a i l u re s / w o r l d w i d e – c o s t – o f – i t –
failure-revisited-3-trillion/15424; Mayhew, P. (2010).
“Annual cost of project failure,” Papercut PM. http://
edge.papercutpm.com/annual-cost-of-project-fail-
ure/; Standish Group. (2013). Chaos Report 2013.
Cambridge, MA. www.versionone.com/assets/img/
files/CHAOSManifesto2013
508 Chapter 14 • Project Closeout and Termination
25. Field, T. (1997, October 15). “When bad things hap-
pen to good projects,” CIO Magazine; Dignan, L. (2008).
“Promises, promises: A look at Waste Management’s case
against SAP,” www.zdnet.com/blog/btl/promises-prom-
ises-a-look-at-waste-managements-case-against-sap/833;
Kanaracus, C. (2010, May 3). “SAP, Waste Management set-
tle lawsuit,” www.computerworld.com/s/article/9176259/
SAP_Waste_Management_settle_lawsuit.
26. Marsh, P. (2000). “Managing variation, claims, and dis-
putes,” in Turner, J. R., and Simister, S. J. (Eds.), Gower
Handbook of Project Management, 3rd ed. Aldershot, UK:
Gower.
27. Bennett, S. C. (2006). “Non-binding arbitration: An intro-
duction,” Dispute Resolution Journal, 61(2), 22–27.
28. Frame, J. D. (1998), as cited in note 20.
29. Spirer, H. F., and Hamburger, D. (1983), as cited in note 2.
30. Malanga, S. (2010, October 16–17). “Christie is right about
the Hudson River big dig,” Wall Street Journal, p. A15;
Schuerman, M. (2010). “New Jersey Governor Chris
Christie kills Hudson River train tunnel for second time,”
www.wnyc.org/articles/wnyc-news/2010/oct/26/new-
jersey-governor-chris-christie-kills-hudson-river-train-
tunnel-second-time/; “N.J. Gov. Christie kills Hudson
River tunnel project, citing taxpayers woes.” (2010, October
7). www.nj.com/news/index.ssf/2010/10/gov_christie_
kills_hudson_rive.html; http://en.wikipedia.org/wiki/
Access_to_the_Region%27s_Core; www.arctunnel.com/
pdf/news/Tunnel%20Info%20Kit_Dec2009_single%20
page%20layout ; http://blog.nj.com/njv_editorial_
page/2009/06/arc_transhudson_rail_tunnel_co.html;
Smart, M. (2009). “Digging deep,” PMNetwork, 23(10):
40–45.
31. “Navy scraps plans to build more than two stealth destroy-
ers,” www.foxnews.com/0,3566,389222,00.html; Cavas,
C. P. (2008, July 22). “DDG 1000 program will end at two
ships,” Defense News. www.defensenews.com/story.php?
i=3639737; Axe, D., and Shachtman, N. (2008, August 4).
“Stealth destroyer largely defenseless, admiral says,”
Wired Blog Room, blog.wired.com/defense/2008/08/
navys-stealth-d.html; “The A-12 and the arsenal ship.”
(2008, August 3). Information Dissemination. information-
dissemination.blogspot.com/2008/08/a-12-and-arsenal-
ship.html; Sharp, D. (2008, July 23). “Cost big factor in
decision to sack DDG-1000.” www.boston.com/news/
local/maine/articles/2008/07/23/navy_scraps_new_de-
stroyer_to_build_older_models/; Shalal, A. (2014, April 9).
“McCain blasts Navy’s LCS ship plan; urges cut to 24 ves-
sels,” Reuters. www.reuters.com/article/2014/04/10/
us-navy-ships-mccain-idUSBREA3900T20140410; Patch,
J. (2011). “The wrong ship at the wrong time,” Proceedings
Magazine, 137: 1,295. www.usni.org/magazines/
proceedings/2011-01/wrong-ship-wrong-time#footnotes
510
Appendix B
Tutorial for MS Project 2013
ExErcisE A: constructing thE nEtwork: sitE PrEPArAtion ProjEct
tAblE 1 Site Preparation Project
FigurE A.1 Entering Project Information
Source: MS Project 2013, Microsoft Corporation
Task Title Predecessors Duration
A Contract Approval — 5
B Site Survey A 5
C Permit Application A 4
D Grading B, C 5
E Sewer Lines B 7
F Base Paving D 3
G City Approval C, F 6
H Final Paving E, G 8
Using the above information, complete the following tasks:
1. Construct this network using MS Project 2013.
2. Identify the critical path. How long will this project take?
3. Assign and level resources.
4. Suppose Rose is responsible for Activities B and C. Are there any resource conflicts? How do
we know?
5. Show the same project using a Gantt chart and a network diagram.
1. construct this nEtwork using Ms ProjEct 2013
To create an MS Project 2013 file, the first step is to enter the information on the MS Project home
screen. Under “Task Name,” list the different tasks and fill in their expected durations under the
Duration column. Figure A.1 shows a partially completed network with task names and their
respective durations. Note that not all durations have been completed. Further, note that at this
point all the activities are shown as starting immediately (Gantt chart on the extreme right of
Figure A.1). In other words, precedence has not yet been assigned to order the activities.
The second step is to assign the predecessor relationships to each of the activities. Double-click
on Task B, Site Survey. This will open a new dialogue box in the window, as seen in Figure A.2.
Note that one of the tabs in this dialogue box is labeled “Predecessors.” Click on this tab
to open a second dialogue box. Then click on the first line under “Task Name” and the list of all
activities will come up. Click on the “Contract Approval” activity, as shown in Figure A.3.
Finally, click out of the dialogue box and observe what has happened to the Gantt chart:
A predecessor arrow has been added from Activity A to Activity B (see Figure A.4). “Start” and
“Finish” dates have been automatically created, based on the date the chart was created.
511
FigurE A.2 Assigning Predecessor Relationships
Source: MS Project 2013, Microsoft Corporation
FigurE A.3 Selecting Predecessors
Source: MS Project 2013, Microsoft Corporation
FigurE A.4 Predecessor Arrow Added
Source: MS Project 2013, Microsoft Corporation
Exercise A: Constructing the Network: Site Preparation Project 511
512 Appendix B • Tutorial for MS Project 2013
To complete the chart, double-click on each activity and assign its predecessors (based on
Table 1) in the dialogue window. When you have finished, the Gantt chart should look like that
shown in Figure A.5.
2. idEntiFy thE criticAl PAth. how long will this ProjEct tAkE?
How do you determine which are the critical tasks; that is, what does the project’s critical path look
like? In order to find this information, click on the “Format” tab at the top of the screen and then
check the box that says “Critical Tasks” beneath it. Immediately, on a computer monitor, all the
critical activities will be highlighted in red (see Figure A.6). The critical path follows the activity
path A – B – D – F – G – H and results in a duration of 32 days (or June 24 through August 6, using
the calendar and allowing for weekends off).
FigurE A.5 Predecessor Arrows Completed
Source: MS Project 2013, Microsoft Corporation
FigurE A.6 Critical Path and Project Duration Identified
Note: In predecessor column, all activities are assigned a number corresponding to their row in the leftmost
column. Thus, “Contract Approval” is assigned the number “2”.
Source: MS Project 2013, Microsoft Corporation
3. Assign And lEvEl rEsourcEs
We then can add resources to the project based on the information given below:
tAblE 2 Resources
Activity Resource Responsible
A Todd
B Rose
C Rose
D Mike
E Josh
F Todd
G Mary
H Todd
Click on the “Resource” tab and then click on “Assign Resources.” This will open up a new window
for entering all the resource names for the project. Once the name “Todd” has been assigned to
Activity A, the screen should look like Figure A.7.
Exercise A: Constructing the Network: Site Preparation Project 513
Continue assigning resources to the project activities from the people identified in the “Assign
Resources” box. The completed resource assignment will look like Figure A.8.
4. suPPosE rosE is rEsPonsiblE For ActivitiEs b And c.
ArE thErE Any rEsourcE conFlicts? how do wE know?
Will assigning Rose to Activities B and C cause a resource conflict? To determine this information,
take a look at the Gantt chart constructed in Figure A.9 and note the human figures in the informa-
tion column at the left. This is a warning of resource conflict. Just by looking at the Gantt chart,
you can see that assigning Rose to Activities B and C will be a problem because both activities are
scheduled to begin at the same time. How do you resolve this conflict?
FigurE A.7 Assigning Resources
Source: MS Project 2013, Microsoft Corporation
FigurE A.8 Resource Assignment Completed
Source: MS Project 2013, Microsoft Corporation
FigurE A.9 Resource Conflict Warning
Source: MS Project 2013, Microsoft Corporation
514 Appendix B • Tutorial for MS Project 2013
One option is to click on the “Resource” tab and highlight the two activities that are in con-
flict (B and C). Then, click the “Level Resource” option and a dialogue box will appear in which
you can highlight the name of the resource conflict (Rose). Figure A.10 shows the screen with
Rose’s name highlighted. Click “Level Now” in the box.
Notice that the project schedule (Gantt chart shown in Figure A.11) has been modified as a
result of the decision to level the resource. As the figure shows, the new precedence ordering for
the activities moves Activity C into a sequential relationship with Activity D. The important ques-
tion is, “What happens to the project’s duration as a result of leveling the resources?” If we go to
the Task tab and click on “Auto Schedule,” it shows that accommodating a sequential use of Rose
for Tasks B and C will lead to other sequencing conflicts for Activities D, F, G, and H. Using the
Auto Schedule function for each of these activities in turn (Figure A.12) shows a new project sched-
ule with a completion date that has expanded by six days (to August 12).
FigurE A.10 Leveling Resources
Source: MS Project 2013, Microsoft Corporation
FigurE A.11 Modified Project Schedule with Resource Leveling
Source: MS Project 2013, Microsoft Corporation
FigurE A.12 New Project Critical Path After Resource Leveling
Source: MS Project 2013, Microsoft Corporation
Exercise B: Adding Details and Updating the Network for an Ongoing Project 515
5. show thE sAME ProjEct with A gAntt chArt And A nEtwork
diAgrAM
Finally, this project schedule can be shown as a network diagram rather than in Gantt chart format.
To do this, click on the “Task” tab on the far left and click on the “Gantt Chart View” option. From
the pull-down menu, click on “Network Diagram” and the view shown in Figure A.13 will appear.
ExErcisE b: Adding dEtAils And uPdAting thE nEtwork
For An ongoing ProjEct
It is important to be able to make mid-project adjustments to a project schedule to reflect the latest
information and update the schedule accordingly. Maintaining up-to-date MS Project plans allows
you to generate the latest cost information, earned value or other status updates, and any addi-
tional reports that will help keep track of the ongoing project.
Consider the Site Preparation Project plan from Exercise A. We have created a resource-lev-
eled schedule that will take 32 days to complete. For simplicity’s sake, Mary has replaced Rose for
Activity C (Permit Application) to omit the resource conflict from the first exercise (see Figure B.1).
This reassignment does not change the network logic or the expected duration of the project; it
merely removes the potential resource conflict from the first tutorial exercise.
More detailed information can be added to this project plan, including details about each activ-
ity (lag relationships, priority, activity hours, etc.), assignable costs of materials and equipment, and
the hourly cost of each of the assigned resources. In the Resource tab, select “Details” to see the current
list of resources for the project, including spaces for their standard and overtime rates, and other perti-
nent information. Assign the hourly costs for the resources at the following example rates:
FigurE A.13 Network Diagram
Source: MS Project 2013, Microsoft Corporation
FigurE b.1 Starting Conditions for Site Preparation Project
Source: MS Project 2013, Microsoft Corporation
Resource Hourly Cost
Todd $22/hour
Rose $30/hour
Mike $14/hour
Josh $18/hour
Mary $10/hour
Fill these values in on the resource sheet shown in Figure B.2.
tAblE 3 Hourly cost
516 Appendix B • Tutorial for MS Project 2013
The next step is to update the actual performance of the project. Suppose that we decide to
update the project to the date July 16 on our schedule. The simplest way to do this is to click on the
Project tab and the “Update Project” option. This will open a dialogue box requesting the date you
wish to update the project to. Once we have set the date to July 16, you will see that several events
occur (see Figure B.3). First, the program assumes that all tasks have been successfully completed to
that point in time. In the far left column, check marks appear to indicate the completion of the first
five activities (A–E). Furthermore, a solid bar is drawn through the middle of the activities com-
pleted, while a partial bar appears in Activity F (Base Paving) because this task is only 67% finished.
We can also update the project on a task-by-task basis by clicking on the Task tab and then
highlighting each task in order. We have the option of marking each as “Mark on Track,” or we can
manually click on the options to the left of “Mark on Track” and assign project completion rates of
0%, 25%, 50%, 75%, or 100% complete for each activity. Finally, we can click on the activities them-
selves on the Gantt chart and, holding down the left mouse button, drag the cursor to the right,
over the activity bar, to highlight the amount of work completed on the task. Doing so will identify
the task as being complete through a specific date in the schedule.
In addition, we can generate other useful information about the current status of the project.
For example, suppose we would like to know about resource usage and project costs to date
(remember that for this example, all project costs are understood to be resource costs; no addi-
tional costs of materials or machinery are included). We can access this information by clicking
on the Project tab and the “Reports” option. In the opened box, click on the “Dashboards” to pull
up highly visual reports, such as a “Project Overview” or “Burndown.” Figure B.4 shows the
Overview, which lists the major details of the project as of July 16.
FigurE b.3 Updating the Project to July 16
Source: MS Project 2013, Microsoft Corporation
FigurE b.2 Resource Sheet
Source: MS Project 2013, Microsoft Corporation
Exercise B: Adding Details and Updating the Network for an Ongoing Project 517
The project summary table highlights all the most important project information, including
the scheduled project duration, the amount of scheduled work (in hours) both completed and
remaining, and so forth.
Let us return to our example of the project’s status on July 16, but with some different param-
eters this time. For example, suppose that the actual performance of the project tasks by July 16
were as follows:
FigurE b.4 Project Summary
Source: MS Project 2013, Microsoft Corporation
tAblE 4 Tasks Completed
Activity Percentage Completed
A 100
B 100
C 75
D 40
E 40
F 0
G 0
H 0
518 Appendix B • Tutorial for MS Project 2013
We can update the progress of our project by taking the following steps: First, on the Task tab, click
the arrow on “Details.” This will show each activity, the amount of work assigned to complete it,
and the amount that has actually been done to date. In the “View” tab, click on “Team Planner” to
see the visual overview of the updated status of the project. You can also click on the “View” tab,
click on “Tables,” and then click on “Work.” It is possible to update all project information, one
task at a time, using the information shown in the Table 4. The reconfigured Task Sheet is shown
in Figure B.5.
The Task Sheet corresponds to an updated Gantt chart shown in Figure B.6. Note that because
we specified the actual work completed, only Activities A and B are shown as having been com-
pleted. For the other ongoing activities, the task bars now show only partial completion.
As a last exercise, suppose we wished to determine the earned value for this project as of
July 16 with the updated activity status information. Several steps are needed to create the neces-
sary information for an earned value table. First, it is necessary to set the project baseline. This
can be done by clicking the Project tab. In the Schedule group, point to “Set Baseline” and click
on this option. This establishes the overall project baseline. Then, in the Report tab, click “Costs,”
and then select the “Cost Overruns” option. This will show the breakdown of costs, including
any variances, for each task (see Figure B.7). The Earned Value for the project can also be found
on the Report tab and “Costs” option. Simply click “Earned Value” and the information becomes
available in the earned value chart shown in Figure B.8. The chart in Figure B.8 also contains the
Estimate at Completion (EAC), Earned Value (EV or BCWP), and Actual Cost (ACWP). As with the
other tables and charts, this information can be continuously updated by adding more information
on actual task performance throughout the life of the project.
FigurE b.5 Reconfigured Task Sheet for July 16
Source: MS Project 2013, Microsoft Corporation
FigurE b.6 Reconfigured Gantt Chart
Source: MS Project 2013, Microsoft Corporation
Exercise B: Adding Details and Updating the Network for an Ongoing Project 519
FigurE b.8 Earned Value Table
Source: MS Project 2013, Microsoft Corporation
FigurE b.7 Cost Breakdown Table
Source: MS Project 2013, Microsoft Corporation
520
Appendix C
Project Plan Template
Project execution Plan for Project
Note: this plan covers the minimum information required in order to gain approval for a project.
Additional information may be included in appendices at the back of the plan. For any sections of
this document left blank, please write N/A in the corresponding space and provide an explanation
at the end of the document for not including this information.
execution Plan revision History
Version #
Implemented
by
Revision
Date
Approved
by
Approval
Date Reason
Table of Contents
1. Project overview
1.1 Purpose, Scope and Objectives,
and Business Case
1.1.1 Scope
1.1.2 Statement of Work (SOW)
1.1.3 Business Case
1.2 Project Deliverables
1.3 Project Organization
1.4 Work Breakdown Structure (WBS)
1.4.1 Task description documentation
1.4.2 Organization Breakdown
Structure (OBS)
1.5 Responsibility Assignment Matrix
(RAM)
1.6 Work Authorization
1.7 Project Charter
2. risk Assessment
2.1 Risk Identification
2.2 Assessment of Probability
and Consequence (Qualitative)
2.3 Assessment of Probability
and Consequence (Quantitative)
2.4 Mitigation Strategies
3. Project schedule
3.1 Activity Duration Estimates
3.2 Gantt Chart
3.3 Activity Network
4. Project Budget
4.1 Project Resources
4.2 Other costs
4.3 Cost estimates
4.4 Time-phased budget
5. communicAtions mAnAgement
6. trAcking And stAtus uPdAtes
6.1 Tracking method
6.2 Notification record
6.3 Control systems
7. Project close-out
7.1 Close cost accounts
7.2 Lessons Learned
1. Project Overview—This section is intended to provide a brief background description of the
project, including motivation, goals and objectives, success criteria by which it will be evalu-
ated, major project deliverables, and identified constraints. See Chapter 5 for development of
project scope.
1.1 Purpose, Scope and Objectives, and Business Case
Describe the purpose of the project here. What are the key deliverables; that is, major
items to be delivered to the customer, other stakeholders, suppliers, or other parties.
1.1.1 Scope
Describe the project scope in general terms. Include a problem statement, detailed
steps in requirements gathering (who was consulted, when?), information gather-
ing (critical features uncovered from investigation), project constraints, alternatives
analysis, and business case documentation.
Execution Plan Revision History 521
1.1.2 Statement of Work (SOW)
Include a detailed SOW for the project. Include:
1. Key milestones
2. Resource requirements
3. Risks and concerns
4. Acceptance criteria
1.1.3 Business Case
Insert the project Business Case here. You can find an explanation of the business
case in Chapter 5. Briefly identify the business needs to be satisfied, the feasibility
of the project, a description of internal and external forces likely to affect the proj-
ect, a comparative analysis of the costs and benefits of this project over alternative
solutions, and time estimates to return on investment. Identify how the satisfaction
of business needs will be determined.
1.2 Project Deliverables—List the major items or project features to be delivered to the cli-
ent. Include sign-off documentation from client to demonstrate their concurrence with
the deliverable set.
1.3 Project Organization—Indicate all project team members, their specific roles, and project
organization hierarchy. Where appropriate, indicate joint responsibility between project man-
ager and functional manager. Develop project team reporting structure and include sponsor
and/or executive team sign-off. See Chapter 3 for examples of project organization types.
1.4 Work Breakdown Structure (WBS)—Insert a WBS for the project, including all key
deliverables and work packages. Include sign-off from project stakeholders on WBS.
1.4.1 Include project task description documentation
If appropriate, complete project task description data sheets (for an example, see
Figure 5.5 from Chapter 5.
1.4.2 Include an organization breakdown structure (OBS) if needed. Identify all cost
accounts across cooperating departments in the organization. See Figure 5.8 from Chapter 5.
1.5 Responsibility Assignment Matrix—Include a copy of a RAM for the project identifying
all team members by WBS task code, including tasks for which they assume responsibil-
ity, notification, support, or approval upon completion. See Figure 5.10 from Chapter 5.
1.6 Work Authorization—Include a copy of the contract or specific mention of contract terms
and conditions. Include all penalty clauses and specific events that will trigger execution
of penalties. Include all notification information, including members of the organization
to be notified of changes in contract terms.
1.7 Project Charter—Include a copy of the project charter here. Include the formal sanction
of the project and authorization to apply organizational resources to the project’s execu-
tion. See an example in the Appendix to Chapter 5.
2. Risk Assessment—This section requires evidence of project risk assessment. The section is
divided into subsections on identification of risks, analysis (assessment of risk probability and
consequences), and mitigation strategies. See Chapter 7 for methods for risk management.
2.1 Risk Identification—Identify all relevant risk variables for the project, including a brief
description of the risk variable and the ways in which it is likely to affect the project.
2.2 Assessment of Probability and Consequence (Qualitative)—Insert a qualitative risk as-
sessment matrix in this space. Give evidence of how you arrived at this assessment, includ-
ing sign-offs from key project stakeholders participating in the risk assessment exercise.
Sample Qualitative Risk Assessment Matrix
Low Consequences High Consequences
Low Likelihood Low Priority Medium Priority
High Likelihood Medium Priority High Priority
2.3 Assessment of Probability and Consequence (Quantitative)—Insert a quantitative
assessment of probability and consequences, clearly identifying the criteria used for
determining both probability of failure and consequence of failure. Insert this analysis here.
522 Appendix C • Project Plan Template
2.4 Mitigation Strategies—Identify individual mitigation strategies for each high priority
risk factor. Briefly describe the strategy as either: Accept, Minimize, Transfer, or Share
and specify actions to be taken in order to accomplish the strategy.
3. Project Schedule—This section addresses the duration estimates for all project activities,
their activity networks, project critical path, and estimated project duration. A copy of the
approved project schedule, including both activity network and Gantt chart, should be
inserted in this section of the execution plan. See Chapters 9 and 11 for methods for project
schedule development.
3.1 Activity Duration Estimates—Insert table with all activity duration estimates shown.
Indicate if each estimate was derived stochastically (through PERT probability estimates)
or deterministically. Add sign-off documentation from key organization members, in-
cluding the project sponsor, that supports these duration estimates.
3.2 Gantt Chart—Insert copy of project Gantt chart from MS Project output file. On the
chart, make sure and identify the project critical path, estimated time to completion, and
resource assignments. Indicate all activity precedence relationships, including any lag
requirements. Show all milestones and other significant mid-project stages, including
scheduled supplier delivery dates (where appropriate).
3.3 Activity Network—Provide activity-on-node (AON) project network from MS Project
output file.
4. Project Budget—This section includes activity cost estimation and the project budget. All
direct and indirect costs should be included as well as the method used to develop fully
loaded costs for all project resources. See Chapters 8 and 12 for examples of methods for cost
estimation, fully loaded resource charges, time-phased budgeting, and resource leveling.
4.1 Project Resources—Identify all project resources. Include employment status (full-time,
part-time, exemption status, etc.). Develop fully loaded cost table for all project resources.
4.2 Other costs—Identify all significant costs for materials, equipment, overhead, expediting, etc.
4.3 Cost estimates—Submit ballpark, comparative, and feasibility estimates. Show all infor-
mation gathered to support these estimates. Identify who participated in the cost estimate
exercise. Provide final, definitive estimate with sponsor sign-off for final project budget.
4.4 Time-phased Budget—Submit time-phased budget with estimated expenses costed by
project duration increments (weeks, months, quarters, etc.).
5. Communications Management—This section identifies all critical communication chan-
nels for project stakeholders, frequency of communications, types of information to be com-
municated, and project status tracking plan. Where appropriate, include electronic media
used for collaborative purposes (e.g., Google Docs, Yammer, Facebook, etc.). Also, in cases
of geographically dispersed project teams, indicate methods for regular communication. See
discussion from Chapter 6 on team communication methods. An example of a communica-
tion management protocol is shown below.
Purpose of
communication Schedule frequency
Media or mechanism
used Called by: Participants
Status updates Weekly Meeting and/or
teleconference
Project manager Full project team
Exception/variance
reports
As needed Meeting and/or
teleconference
Project manager or
technical lead
Impacted team members
and client
Project reviews Monthly or at milestone Meeting and/or
teleconference
Project manager Full project team, sponsor
Configuration changes As changes are approved Meeting for impacted
parties; e-mail for team
Project manager,
sponsor or technical
lead
Impacted team members
and client
Supplier coordination As needed prior to and
post deliveries
Phone call Supply chain lead Project manager and
supply chain lead
Emergency or critical
events
As needed Face to face Any team member Full project team
Execution Plan Revision History 523
6. Tracking and Status Updates—This section of the plan indicates the methods the project
team will use to regularly update the project status, including methods for tracking project
progress, and which organizational stakeholders receive notification of project status. See
Chapter 13 for examples of tracking and status updating methods.
6.1 Tracking method—Show the method used to track project status (S-curve, earned value,
milestones, etc.). Indicate the regularity of these assessments (i.e., monthly, as needed,
upon completion of major deliverables, etc.). For earned value assessments, indicate how
you will provide updated cost performance index (CPI) and schedule performance index
(SPI) data in a sample format as shown below.
Date CPI Trend SPI Trend
Month 1
Month 2
Month 3
6.2 Notification record—Maintain record of project status update communications. Indicate
who received project updates and show sign-off by key stakeholders upon their receipt
of status updates.
6.3 Control systems—Indicate the forms of project control that will be used for the project,
including configuration control, design control, quality control, document control, and
trend monitoring. Develop control documentation for each form of control you intend to
use including a list of key organizational stakeholders who will be copied on all control
documents and status updates.
7. Project Close-out—In this section, all necessary project close-out documentation and sign-
offs must be included. Work completed or soon-to-complete must be identified, as well
as configuration management changes, all sign-off documentation, warranties, notices of
completion, supplier contracts, and charges for or against suppliers must be recorded and
formally documented. Include copies of client sign-off, including satisfaction of contracted
terms and conditions. See Chapter 14 for examples of steps in project close-out.
7.1 Close cost-accounts—Complete and close all project cost-accounts and other financial
closeouts.
7.2 Lessons Learned—Complete a Lessons Learned assessment that identifies all excep-
tions and other problems, mitigation strategies employed, success of the strategies, and
suggestions for the future, and include sign-off documentation that key project team
members participated in Lessons Learned meetings. Develop and embed an action plan
for future projects in the Lessons Learned documentation.
Glossary 525
attributes include activity codes, predecessor activities, successor activities,
logical relationships, leads and lags, resource requirements, imposed dates,
constraints, and assumptions.
Activity Code. One or more numerical or text values that identify character-
istics of the work or in some way categorize the schedule activity that allows
filtering and ordering of activities within reports.
Activity Duration. The time in calendar units between the start and finish
of a schedule activity. See also duration.
Activity Identifier. A short unique numeric or text identification assigned
to each schedule activity to differentiate that project activity from other
activities. Typically unique within any one project schedule network diagram.
Activity List [Output/Input]. A documented tabulation of schedule activi-
ties that shows the activity description, activity identifier, and a sufficiently
detailed scope of work description so project team members understand
what work is to be performed.
Actual Cost (AC). Total costs actually incurred and recorded in accom-
plishing work performed during a given time period for a schedule activ-
ity or work breakdown structure component. Actual cost can sometimes be
direct labor hours alone, direct costs alone, or all costs including indirect
costs. Also referred to as the actual cost of work performed (ACWP). See
also earned value management and earned value technique.
Actual Cost of Work Performed (ACWP). See actual cost (AC).
Actual Duration. The time in calendar units between the actual start date
of the schedule activity and either the data date of the project schedule if
the schedule activity is in progress or the actual finish date if the schedule
activity is complete.
Administer Procurements [Process]. The process of managing procurement
relationships, monitoring contract performance, and making changes and
corrections as needed.
Analogous Estimating [Technique]. An estimating technique that uses the
values of parameters, such as scope, cost, budget, and duration or measures
of scale such as size, weight, and complexity from a previous, similar activ-
ity as the basis for estimating the same parameter or measure for a future
activity.
Application Area. A category of projects that have common components
significant in such projects, but are not needed or present in all projects.
Application areas are usually defined in terms of either the product (i.e., by
similar technologies or production methods), the type of customer (i.e., internal
versus external, government versus commercial), or the industry sector (i.e.,
utilities, automotive, aerospace, information technologies, etc.). Application
areas can overlap.
Approved Change Request [Output/Input]. A change request that has been
processed through the integrated change control process and approved.
Assumptions. Assumptions are factors that, for planning purposes, are
considered to be true, real, or certain without proof or demonstration.
Assumptions Analysis [Technique]. A tech nique that explores the accuracy
of assumptions and identifies risks to the project from inaccuracy, inconsis-
tency, or incompleteness of assumptions.
Authority. The right to apply project resources, expend funds, make deci-
sions, or give approvals.
Backward Pass. The calculation of late finish dates and late start dates for
the uncompleted portions of all schedule activities. Determined by working
backwards through the schedule network logic from the project’s end date.
See also schedule network analysis.
Baseline. An approved plan for a project, plus or minus approved changes.
It is compared to actual performance to determine if performance is within
acceptable variance thresholds. Generally refers to the current baseline, but
may refer to the original or some other baseline. Usually used with a modi-
fier (e.g., cost performance baseline, schedule baseline, performance mea-
surement baseline, technical baseline).
Bottom-up Estimating [Technique]. A method of estimating a component
of work. The work is decomposed into more detail. An estimate is prepared
of what is needed to meet the requirements of each of the lower, more
detailed pieces of work, and these estimates are then aggregated into a total
quantity for the component of work. The accuracy of bottom-up estimating
is driven by the size and complexity of the work identified at the lower
levels.
Brainstorming [Technique]. A general data gathering and creativity tech-
nique that can be used to identify risks, ideas, or solutions to issues by using
a group of team members or subject-matter experts.
Budget. The approved estimate for the project or any work breakdown
structure component or any schedule activity. See also estimate.
Budget at Completion (BAC). The sum of all the budgets established for
the work to be performed on a project or a work breakdown structure com-
ponent or a schedule activity. The total planned value for the project.
Budgeted Cost of Work Performed (BCWP). See earned value (EV).
Budgeted Cost of Work Scheduled (BCWS). See planned value (PV).
Buffer. See reserve.
Buyer. The acquirer of products, services, or results for an organization.
Calendar Unit. The smallest unit of time used in scheduling a project. Calendar
units are generally in hours, days, or weeks, but can also be in quarter years,
months, shifts, or even in minutes.
Change Control. Identifying, documenting, approving or rejecting, and con-
trolling changes to the project baselines.
Change Control Board (CCB). A formally constituted group of stakehold-
ers responsible for reviewing, evaluating, approving, delaying, or reject-
ing changes to a project, with all decisions and recommendations being
recorded.
Change Control System [Tool]. A collection of formal documented proce-
dures that define how project deliverables and documentation will be con-
trolled, changed, and approved. In most application areas, the change con-
trol system is a subset of the configuration management system.
Change Request. Requests to expand or reduce the project scope; modify
policies, processes, plans, or procedures; modify costs or budgets; or revise
schedules.
Charter. See project charter.
Claim. A request, demand, or assertion of rights by a seller against a buyer,
or vice versa, for consideration, compensation, or payment under the terms
of a legally binding contract, such as for a disputed change.
Close Procurements [Process]. The process of completing each project
procurement.
Close Project or Phase [Process]. The process of finalizing all activities
across all of the Project Management Process Groups to formally complete
the project or phase.
Closing Processes [Process Group]. Those processes performed to final-
ize all activities across all Project Management Process Groups to formally
close the project or phase.
Code of Accounts [Tool]. Any numbering system used to uniquely identify
each component of the work breakdown structure.
Collect Requirements [Process]. The process of defining and documenting
stakeholders’ needs to meet the project objectives.
Co-location [Technique]. An organizational placement strategy where the
project team members are physically located close to one another in order to
improve communication, working relationships, and productivity.
Common Cause. A source of variation that is inherent in the system and
predictable. On a control chart, it appears as part of the random process vari-
ation (i.e., variation from a process that would be considered normal or not
unusual), and is indicated by a random pattern of points within the control
limits. Also referred to as random cause. Contrast with special cause.
Communication Management Plan [Output/Input]. The document that
describes the communications needs and expectations for the project, how
and in what format information will be communicated, when and where each
communication will be made, and who is responsible for providing each type
of communication. The communication management plan is contained in, or
is a subsidiary plan of, the project management plan.
Conduct Procurements [Process]. The process of obtaining seller responses,
selecting a seller, and awarding a contract.
Configuration Management System [Tool]. A subsystem of the overall proj-
ect management system. It is a collection of formal documented procedures
used to apply technical and administrative direction and surveillance to iden-
tify and document the functional and physical characteristics of a product,
result, service, or component; control any changes to such characteristics;
record and report each change and its implementation status; and support
the audit of the products, results, or components to verify conformance to
requirements. It includes the documentation, tracking systems, and defined
approval levels necessary for authorizing and controlling changes.
Constraint [Input]. The state, quality, or sense of being restricted to a given
course of action or inaction. An applicable restriction or limitation, either
526 Glossary
internal or external to a project, which will affect the performance of the
project or a process. For example, a schedule constraint is any limitation or
restraint placed on the project schedule that affects when a schedule activity
can be scheduled and is usually in the form of fixed imposed dates.
Contingency. See reserve.
Contingency Allowance. See reserve.
Contingency Reserve [Output/Input]. The amount of funds, budget, or
time needed above the estimate to reduce the risk of overruns of project
objectives to a level acceptable to the organization.
Contract [Output/Input]. A mutually binding agreement that obligates the
seller to provide the specified product or service or result and obligates the
buyer to pay for it.
Control. Comparing actual performance with planned performance, ana-
lyzing variances, assessing trends to effect process improvements, evaluat-
ing possible alternatives, and recommending appropriate corrective action
as needed.
Control Account [Tool]. A management control point where scope, bud-
get (resource plans), actual cost, and schedule are integrated and compared
to earned value for performance measurement. See also work package.
Control Chart [Tool]. A graphic display of process data over time and
against established control limits, and that has a centerline that assists in
detecting a trend of plotted values toward either control limit.
Control Costs [Process]. The process of monitoring the status of the project
to update the project budget and managing changes to the cost baseline.
Control Limits. The area composed of three standard deviations on either
side of the centerline, or mean, of a normal distribution of data plotted
on a control chart that reflects the expected variation in the data. See also
specification limits.
Control Schedule [Process]. The process of monitoring the status of the
project to update project progress and managing changes to the schedule
baseline.
Control Scope [Process]. The process of monitoring the status of the project
and product scope and managing changes to the scope baseline.
Controlling. See control.
Corrective Action. Documented direction for executing the project work
to bring expected future performance of the project work in line with the
project management plan.
Cost Management Plan [Output/Input]. The document that sets out the for-
mat and establishes the activities and criteria for planning, structuring, and
controlling the project costs. The cost management plan is contained in, or is
a subsidiary plan of, the project management plan.
Cost of Quality (COQ) [Technique]. A method of determining the costs
incurred to ensure quality. Prevention and appraisal costs (cost of conformance)
include costs for quality planning, quality control (QC), and quality assurance
to ensure compliance to requirements (i.e., training, QC systems, etc.). Failure
costs (cost of non-conformance) include costs to rework products, components,
or processes that are non-compliant, costs of warranty work and waste, and
loss of reputation.
Cost Performance Baseline. A specific version of the time-phased budget
used to compare actual expenditures to planned expenditures to determine
if preventive or corrective action is needed to meet the project objectives.
Cost Performance Index (CPI). A measure of cost efficiency on a project.
It is the ratio of earned value (EV) to actual costs (AC). CPI = EV divided
by AC.
Cost-Plus-Fixed-Fee (CPFF) Contract. A type of cost-reimbursable contract
where the buyer reimburses the seller for the seller’s allowable costs (allowable
costs are defined by the contract) plus a fixed amount of profit (fee).
Cost-Plus-Incentive-Fee (CPIF) Contract. A type of cost-reimbursable con-
tract where the buyer reimburses the seller for the seller’s allowable costs
(allowable costs are defined by the contract), and the seller earns its profit if
it meets defined performance criteria.
Cost-Reimbursable Contract. A type of contract involving payment to the
seller for the seller’s actual costs, plus a fee typically representing seller’s
profit. Cost-reimbursable contracts often include incentive clauses where,
if the seller meets or exceeds selected project objectives, such as schedule
targets or total cost, then the seller receives from the buyer an incentive or
bonus payment.
Cost Variance (CV). A measure of cost performance on a project. It is the
difference between earned value (EV) and actual cost (AC). CV = EV minus
AC.
Crashing [Technique]. A specific type of project schedule compression
technique performed by taking action to decrease the total project schedule
duration after analyzing a number of alternatives to determine how to get the
maximum schedule duration compression for the least additional cost. Typical
approaches for crashing a schedule include reducing schedule activity dura-
tions and increasing the assignment of resources on schedule activities. See
also fast tracking and schedule compression.
Create WBS (Work Breakdown Structure) [Process]. The process of subdi-
viding project deliverables and project work into smaller, more manageable
components.
Criteria. Standards, rules, or tests on which a judgment or decision can be
based, or by which a product, service, result, or process can be evaluated.
Critical Activity. Any schedule activity on a critical path in a project sched-
ule. Most commonly determined by using the critical path method. Although
some activities are “critical,” in the dictionary sense, without being on the
critical path, this meaning is seldom used in the project context.
Critical Chain Method [Technique]. A schedule network analysis technique
that modifies the project schedule to account for limited resources.
Critical Path. Generally, but not always, the sequence of schedule activities
that determines the duration of the project. It is the longest path through the
project. See also critical path methodology.
Critical Path Methodology (CPM) [Technique]. A schedule network anal-
ysis technique used to determine the amount of scheduling flexibility (the
amount of float) on various logical network paths in the project schedule
network, and to determine the minimum total project duration. Early start
and finish dates are calculated by means of a forward pass, using a specified
start date. Late finish and start dates are calculated by means of a backward
pass, starting from a specified completion date, which sometimes is the proj-
ect early finish date determined during the forward pass calculation. See
also critical path.
Data Date. The date up to or through which the project’s reporting system
has provided actual status and accomplishments. Also called as-of date and
time-now date.
Decision Tree Analysis [Technique]. The decision tree is a diagram that
describes a decision under consideration and the implications of choosing
one or another of the available alternatives. It is used when some future sce-
narios or outcomes of actions are uncertain. It incorporates probabilities and
the costs or rewards of each logical path of events and future decisions, and
uses expected monetary value analysis to help the organization identify the
relative values of alternate actions. See also expected monetary value.
Decomposition [Technique]. A planning technique that subdivides the
project scope and project deliverables into smaller, more manageable com-
ponents, until the project work associated with accomplishing the project
scope and providing the deliverables is defined in sufficient detail to support
executing, monitoring, and controlling the work.
Defect. An imperfection or deficiency in a project component where that
component does not meet its requirements or specifications and needs to be
either repaired or replaced.
Defect Repair. The formally documented identification of a defect in a
project component with a recommendation to either repair the defect or
completely replace the component.
Define Activities [Process]. The process of identifying the specific actions
to be performed to produce the project deliverables.
Define Scope [Process]. The process of developing a detailed description of
the project and product.
Deliverable [Output/Input]. Any unique and verifiable product, result, or
capability to perform a service that must be produced to complete a process,
phase, or project. Often used more narrowly in reference to an external deliv-
erable, which is a deliverable that is subject to approval by the project sponsor
or customer. See also product and result.
Delphi Technique [Technique]. An information-gathering technique used
as a way to reach a consensus of experts on a subject. Experts on the subject
participate in this technique anonymously. A facilitator uses a questionnaire
to solicit ideas about the important project points related to the subject. The
responses are summarized and are then recirculated to the experts for fur-
ther comment. Consensus may be reached in a few rounds of this process.
Glossary 527
The Delphi technique helps reduce bias in the data and keeps any one per-
son from having undue influence on the outcome.
Dependency. See logical relationship.
Determine Budget [Process]. The process of aggregating the estimated
costs of individual activities or work packages to establish an authorized
cost baseline.
Develop Human Resource Plan [Process]. The process of identifying and
documenting project roles, responsibilities, and required skills; reporting re-
lationships; and creating a staffing management plan.
Develop Project Charter [Process]. The process of developing a document
that formally authorizes a project or a phase and documenting initial require-
ments that satisfy the stakeholder’s needs and expectations.
Develop Project Management Plan [Process]. The process of documenting
the actions necessary to define, prepare, integrate, and coordinate all subsidiary
plans.
Develop Project Team [Process]. The process of improving the competen-
cies, team interaction, and the overall team environment to enhance project
performance.
Develop Schedule [Process]. The process of analyzing activity sequences,
durations, resource requirements, and schedule constraints to create the
project schedule.
Direct and Manage Project Execution [Process]. The process of performing
the work defined in the project management plan to achieve the project’s
objectives.
Distribute Information [Process]. The process of making relevant informa-
tion available to project stakeholders as planned.
Duration (DU or DUR). The total number of work periods (not includ-
ing holidays or other nonworking periods) required to complete a sched-
ule activity or work breakdown structure component. Usually expressed as
workdays or workweeks. Sometimes incorrectly equated with elapsed time.
Contrast with effort.
Early Finish Date (EF). In the critical path method, the earliest possible
point in time on which the uncompleted portions of a schedule activity (or
the project) can finish, based on the schedule network logic, the data date,
and any schedule constraints. Early finish dates can change as the project
progresses and as changes are made to the project management plan.
Early Start Date (ES). In the critical path method, the earliest possible point in
time at which the uncompleted portions of a schedule activity (or the project)
can start, based on the schedule network logic, the data date, and any sched-
ule constraints. Early start dates can change as the project progresses and as
changes are made to the project management plan.
Earned Value (EV). The value of work performed expressed in terms of
the approved budget assigned to that work for a schedule activity or work
breakdown structure component. Also referred to as the budgeted cost of
work performed (BCWP).
Earned Value Management (EVM). A management methodology for
integrating scope, schedule, and resources, and for objectively measuring
project performance and progress. Performance is measured by determining
the budgeted cost of work performed (i.e., earned value) and comparing it to
the actual cost of work performed (i.e., actual cost).
Earned Value Technique (EVT) [Technique]. A specific technique for
measuring the performance of work and used to establish the performance
measurement baseline (PMB).
Effort. The number of labor units required to complete a schedule activity
or work breakdown structure component. Usually expressed as staff hours,
staff days, or staff weeks. Contrast with duration.
Enterprise Environmental Factors [Output/Input]. Any or all external
environmental factors and internal organizational environmental factors that
surround or influence the project’s success. These factors are from any or all
of the enterprises involved in the project, and include organizational cul-
ture and structure, infrastructure, existing resources, commercial databases,
market conditions, and project management software.
Estimate [Output/Input]. A quantitative assessment of the likely amount
or outcome. Usually applied to project costs, resources, effort, and durations
and is usually preceded by a modifier (i.e., preliminary, conceptual, feasibility,
order-of-magnitude, definitive). It should always include some indication of
accuracy (e.g., ±x percent). See also budget.
Estimate Activity Durations [Process]. The process of approximating the
number of work periods needed to complete individual activities with
estimated resources.
Estimate Activity Resources [Process]. The process of estimating the type
and quantities of material, people, equipment, or supplies required to
perform each activity.
Estimate at Completion (EAC) [Output/Input]. The expected total cost of
a schedule activity, a work breakdown structure component, or the project
when the defined scope of work will be completed. The EAC may be calcu-
lated based on performance to date or estimated by the project team based
on other factors, in which case it is often referred to as the latest revised
estimate. See also earned value technique and estimate to complete.
Estimate Costs [Process]. The process of developing an approximation of
the monetary resources needed to complete project activities.
Estimate to Complete (ETC) [Output/Input]. The expected cost needed to
complete all the remaining work for a schedule activity, work breakdown
structure component, or the project. See also earned value technique and
estimate at completion.
Execute. Directing, managing, performing, and accomplishing the proj-
ect work, providing the deliverables, and providing work performance
information.
Executing Processes [Process Group]. Those processes performed to com-
plete the work defined in the project management plan to satisfy the project
objectives.
Expected Monetary Value (EMV) [Analysis]. A statistical technique that
calculates the average outcome when the future includes scenarios that may
or may not happen. A common use of this technique is within decision tree
analysis.
Expert Judgment [Technique]. Judgment provided based upon expertise in
an application area, knowledge area, discipline, industry, etc., as appropriate
for the activity being performed. Such expertise may be provided by any
group or person with specialized education, knowledge, skill, experience,
or training.
Failure Mode and Effect Analysis (FMEA) [Technique]. An analytical pro-
cedure in which each potential failure mode in every component of a prod-
uct is analyzed to determine its effect on the reliability of that component
and, by itself or in combination with other possible failure modes, on the
reliability of the product or system and on the required function of the com-
ponent; or the examination of a product (at the system and/or lower levels)
for all ways that a failure may occur. For each potential failure, an estimate is
made of its effect on the total system and of its impact. In addition, a review
is undertaken of the action planned to minimize the probability of failure
and to minimize its effects.
Fast Tracking [Technique]. A specific project schedule compression tech-
nique that changes network logic to overlap phases that would normally
be done in sequence, such as the design phase and construction phase, or
to perform schedule activities in parallel. See also crashing and schedule
compression.
Finish Date. A point in time associated with a schedule activity’s comple-
tion. Usually qualified by one of the following: actual, planned, estimated,
scheduled, early, late, baseline, target, or current.
Finish-to-Finish (FF). The logical relationship where completion of work
of the successor activity cannot finish until the completion of work of the
predecessor activity. See also logical relationship.
Finish-to-Start (FS). The logical relationship where initiation of work of the
successor activity depends upon the completion of work of the predecessor
activity. See also logical relationship.
Firm-Fixed-Price (FFP) Contract. A type of fixed price contract where the
buyer pays the seller a set amount (as defined by the contract), regardless of
the seller’s costs.
Fixed-Price-Incentive-Fee (FPIF) Contract. A type of contract where the
buyer pays the seller a set amount (as defined by the contract), and the
seller can earn an additional amount if the seller meets defined performance
criteria.
Float. Also called slack. See total float and free float.
Flowcharting [Technique]. The depiction in a diagram format of the inputs,
process actions, and outputs of one or more processes within a system.
528 Glossary
Forecast. An estimate or prediction of conditions and events in the proj-
ect’s future based on information and knowledge available at the time of
the forecast. The information is based on the project’s past performance and
expected future performance, and includes information that could impact
the project in the future, such as estimate at completion and estimate to
complete.
Forward Pass. The calculation of the early start and early finish dates for
the uncompleted portions of all network activities. See also schedule network
analysis and backward pass.
Free Float. The amount of time that a schedule activity can be delayed with-
out delaying the early start date of any immediately following schedule
activities. See also total float.
Functional Manager. Someone with management authority over an orga-
nizational unit within a functional organization. The manager of any group
that actually makes a product or performs a service. Sometimes called a line
manager.
Functional Organization. A hierarchical organization where each employee
has one clear superior, and staff are grouped by areas of specialization and
managed by a person with expertise in that area.
Gantt Chart [Tool]. A graphic display of schedule-related information. In
the typical bar chart, schedule activities or work breakdown structure com-
ponents are listed down the left side of the chart, dates are shown across the
top, and activity durations are shown as date-placed horizontal bars.
Grade. A category or rank used to distinguish items that have the same
functional use (e.g., “hammer”), but which do not share the same require-
ments for quality (e.g., different hammers may need to withstand different
amounts of force).
Hammock Activity. See summary activity.
Historical Information. Documents and data on prior projects including
project files, records, correspondence, closed contracts, and closed projects.
Human Resource Plan. A document describing how roles and responsibili-
ties, reporting relationships, and staffing management will be addressed and
structured for the project. It is contained in or is a subsidiary plan of the
project.
Identify Risks [Process]. The process of determining which risks may affect
the project and documenting their characteristics.
Identify Stakeholders [Process]. The process of identifying all people or
organizations impacted by the project, and documenting relevant informa-
tion regarding their interests, involvement, and impact on project success.
Imposed Date. A fixed date imposed on a schedule activity or schedule
milestone, usually in the form of a “start no earlier than” and “finish no later
than” date.
Influence Diagram [Tool]. A graphical representation of situations showing
causal influences, time ordering of events, and other relationships among
variables and outcomes.
Initiating Processes [Process Group]. Those processes performed to define
a new project or a new phase of an existing project by obtaining authoriza-
tion to start the project or phase.
Input [Process Input]. Any item, whether internal or external to the project,
that is required by a process before that process proceeds. May be an output
from a predecessor process.
Inspection [Technique]. Examining or measuring to verify whether an
activity, component, product, result, or service conforms to specified
requirements.
Invitation for Bid (IFB). Generally, this term is equivalent to request for
proposal. However, in some application areas, it may have a narrower or
more specific meaning.
Issue. A point or matter in question or in dispute, or a point or matter that is
not settled and is under discussion or over which there are opposing views
or disagreements.
Lag [Technique]. A modification of a logical relationship that directs a
delay in the successor activity. For example, in a finish-to-start dependency
with a ten-day lag, the successor activity cannot start until ten days after the
predecessor activity has finished. See also lead.
Late Finish Date (LF). In the critical path method, the latest possible point
in time that a schedule activity may be completed based upon the schedule
network logic, the project completion date, and any constraints assigned to
the schedule activities without violating a schedule constraint or delaying
the project completion date. The late finish dates are determined during the
backward pass calculation of the project schedule network.
Late Start Date (LS). In the critical path method, the latest possible point in
time that a schedule activity may begin based upon the schedule network logic,
the project completion date, and any constraints assigned to the schedule activ-
ities without violating a schedule constraint or delaying the project completion
date. The late start dates are determined during the backward pass calculation
of the project schedule network.
Lead [Technique]. A modification of a logical relationship that allows an
acceleration of the successor activity. For example, in a finish-to-start de-
pendency with a ten-day lead, the successor activity can start ten days be-
fore the predecessor activity has finished. A negative lead is equivalent to
a positive lag. See also lag.
Lessons Learned [Output/Input]. The learning gained from the process of
performing the project. Lessons learned may be identified at any point. Also
considered a project record, to be included in the lessons learned knowledge
base.
Lessons Learned Knowledge Base. A store of historical information and
lessons learned about both the outcomes of previous project selection deci-
sions and previous project performance.
Leveling. See resource leveling.
Life Cycle. See project life cycle.
Log. A document used to record and describe or denote selected items iden-
tified during execution of a process or activity. Usually used with a modifier,
such as issue, quality control, action, or defect.
Logical Relationship. A dependency between two project schedule activi-
ties, or between a project schedule activity and a schedule milestone. The
four possible types of logical relationships are Finish-to-Start, Finish-to-
Finish, Start-to-Start, and Start-to-Finish. See also precedence relationship.
Manage Project Team [Process]. The process of tracking team member per-
formance, providing feedback, resolving issues, and managing changes to
optimize project performance.
Manage Stakeholder Expectations [Process]. The process of communicating
and working with stakeholders to meet their needs and addressing issues as
they occur.
Master Schedule [Tool]. A summary-level project schedule that identifies
the major deliverables and work breakdown structure components and key
schedule milestones. See also also milestone schedule.
Material. The aggregate of things used by an organization in any under-
taking, such as equipment, apparatus, tools, machinery, gear, material, and
supplies.
Matrix Organization. Any organizational structure in which the project
manager shares responsibility with the functional managers for assigning
priorities and for directing the work of persons assigned to the project.
Methodology. A system of practices, techniques, procedures, and rules
used by those who work in a discipline.
Milestone. A significant point or event in the project.
Milestone Schedule [Tool]. A summary-level schedule that identifies the
major schedule milestones. See also master schedule.
Monitor. Collect project performance data with respect to a plan, pro-
duce performance measures, and report and disseminate performance
information.
Monitor and Control Project Work [Process]. The process of tracking,
reviewing, and regulating the progress to meet the performance objectives
defined in the project management plan.
Monitor and Control Risks [Process]. The process of implementing risk
response plans, tracking identified risks, monitoring residual risks, identify-
ing new risks, and evaluating risk process throughout the project.
Monitoring and Controlling Processes [Process Group]. Those processes
required to track, review, and regulate the progress and performance of the
project; identify any areas in which changes to the plan are required; and
initiate the corresponding changes.
Monte Carlo Analysis. A technique that computes, or iterates, the project
cost or project schedule many times using input values selected at random
from probability distributions of possible costs or durations to calculate a
distribution of possible total project cost or completion dates.
Glossary 529
Monte Carlo Simulation. A process that generates hundreds or thousands
of probable performance outcomes based on probability distributions for
cost and schedule on individual tasks. The outcomes are then used to
generate a probability distribution for the project as a whole.
Near-Critical Activity. A schedule activity that has low total float. The con-
cept of near-critical is equally applicable to a schedule activity or schedule
network path. The limit below which total float is considered near critical is
subject to expert judgment and varies from project to project.
Network. See project schedule network diagram.
Network Analysis. See schedule network analysis.
Network Logic. The collection of schedule activity dependencies that makes
up a project schedule network diagram.
Network Path. Any continuous series of schedule activities connected with
logical relationships in a project schedule network diagram.
Node. One of the defining points of a schedule network; a junction point
joined to some or all of the other dependency lines.
Objective. Something toward which work is to be directed, a strategic posi-
tion to be attained, a purpose to be achieved, a result to be obtained, a prod-
uct to be produced, or a service to be performed.
Opportunity. A condition or situation favorable to the project, a positive
set of circumstances, a positive set of events, a risk that will have a positive
impact on project objectives, or a possibility for positive changes. Contrast
with threat.
Organizational Breakdown Structure (OBS) [Tool]. A hierarchically orga-
nized depiction of the project organization arranged so as to relate the work
packages to the performing organizational units.
Organizational Process Assets [Output/Input]. Any or all process related
assets, from any or all of the organizations involved in the project that are
or can be used to influence the project’s success. These process assets in-
clude formal and informal plans, policies, procedures, and guidelines. The
process assets also include the organizations’ knowledge bases such as les-
sons learned and historical information.
Output [Process Output]. A product, result, or service generated by a pro-
cess. May be an input to a successor process.
Parametric Estimating [Technique]. An estimating technique that uses
a statistical relationship between historical data and other variables (e.g.,
square footage in construction, lines of code in software development) to
calculate an estimate for activity parameters, such as scope, cost, budget,
and duration. An example for the cost parameter is multiplying the planned
quantity of work to be performed by the historical cost per unit to obtain the
estimated cost.
Pareto Chart [Tool]. A histogram, ordered by frequency of occurrence, that
shows how many results were generated by each identified cause.
Path Convergence. The merging or joining of parallel schedule network
paths into the same node in a project schedule network diagram. Path con-
vergence is characterized by a schedule activity with more than one prede-
cessor activity.
Path Divergence. Extending or generating parallel schedule network paths
from the same node in a project schedule network diagram. Path divergence
is characterized by a schedule activity with more than one successor activity.
Percent Complete. An estimate, expressed as a percent, of the amount of
work that has been completed on an activity or a work breakdown structure
component.
Perform Integrated Change Control [Process]. The process of reviewing all
change requests, approving changes, and managing changes to the deliver-
ables, organizational process assets, project documents, and project manage-
ment plan.
Performance Measurement Baseline. An approved integrated scope-
schedule-cost plan for the project work against which project execution is
compared to measure and manage performance. Technical and quality pa-
rameters may also be included.
Performance Reports [Output/Input]. Documents and presentations
that provide organized and summarized work performance information,
earned value management parameters and calculations, and analyses of
project work progress and status.
Performing Organization. The enterprise whose personnel are most di-
rectly involved in doing the work of the project.
Perform Qualitative Analysis [Process]. The process of prioritizing risks for
further analysis or action by assessing and combining their probability of
occurrence and impact.
Perform Quality Assurance [Process]. The process of auditing the quality
requirements and the results from quality control measurements to ensure
appropriate quality standards and operational definitions are used.
Perform Quality Control [Process]. The process of monitoring and record-
ing results of executing the quality activities to assess performance and rec-
ommend necessary changes.
Perform Quantitative Analysis [Process]. The process of numerically ana-
lyzing the effect of identified risks on overall project objectives.
Phase. See project phase.
Plan Communications [Process]. The process of determining project stake-
holder information needs and defining a communication approach.
Plan Procurements [Process]. The process of documenting project pur-
chasing decisions, specifying the approach, and identifying potential
sellers.
Plan Quality [Process]. The process of identifying quality requirements
and/or standards for the project and product, and documenting how the
project will demonstrate compliance.
Plan Risk Management [Process]. The process of defining how to conduct
risk management activities for a project.
Plan Risk Responses [Process]. The process of developing options and
actions to enhance opportunities and to reduce threats to project objectives.
Planned Value (PV). The authorized budget assigned to the scheduled work
to be accomplished for a schedule activity or work breakdown structure com-
ponent. Also referred to as the budgeted cost of work scheduled (BCWS).
Planning Package. A work breakdown structure component below the con-
trol account with known work content but without detailed schedule activi-
ties. See also control account.
Planning Processes [Process Group]. Those processes performed to
establish the total scope of the effort, define and refine the objectives, and
develop the course of action required to attain those objectives.
Portfolio. A collection of projects or programs and other work that are
grouped together to facilitate effective management of that work to meet
strategic business objectives. The projects or programs of the portfolio may
not necessarily be interdependent or directly related.
Portfolio Management [Technique]. The centralized management of one or
more portfolios, which includes identifying, prioritizing, authorizing, man-
aging, and controlling projects, programs, and other related work, to achieve
specific strategic business objectives.
Practice. A specific type of professional or management activity that con-
tributes to the execution of a process and that may employ one or more tech-
niques and tools.
Precedence Diagramming Method (PDM) [Technique]. A schedule net-
work diagramming technique in which schedule activities are represented
by boxes (or nodes). Schedule activities are graphically linked by one or
more logical relationships to show the sequence in which the activities are
to be performed.
Precedence Relationship. The term used in the precedence diagramming
method for a logical relationship. In current usage, however, precedence
relationship, logical relationship, and dependency are widely used inter-
changeably, regardless of the diagramming method used. See also logical
relationship.
Predecessor Activity. The schedule activity that determines when the logi-
cal successor activity can begin or end.
Preventive Action. A documented direction to perform an activity that can
reduce the probability of negative consequences associated with project
risks.
Probability and Impact Matrix [Tool]. A common way to determine
whether a risk is considered low, moderate, or high by combining the two
dimensions of a risk: its probability of occurrence and its impact on objec-
tives if it occurs.
Procurement Documents [Output/Input]. The documents utilized in
bid and proposal activities, which include the buyer ’s Invitation for
Bid, Invitation for Negotiations, Request for Information, Request for
Quotation, Request for Proposal, and seller ’s responses.
530 Glossary
Procurement Management Plan [Output/Input]. The document that
describes how procurement processes from developing procurement docu-
mentation through contract closure will be managed.
Product. An artifact that is produced, is quantifiable, and can be either an
end item in itself or a component item. Additional words for products are
material and goods. Contrast with result. See also deliverable.
Product Life Cycle. A collection of generally sequential, non-overlapping
product phases whose name and number are determined by the manu-
facturing and control needs of the organization. The last product life cycle
phase for a product is generally the product’s retirement. Generally, a proj-
ect life cycle is contained within one or more product life cycles.
Product Scope. The features and functions that characterize a product,
service, or result.
Product Scope Description. The documented narrative description of the
product scope.
Program. A group of related projects managed in a coordinated way to
obtain benefits and control not available from managing them individually.
Programs may include elements of related work outside of the scope of the
discrete projects in the program.
Program Evaluation and Review Technique (PERT). A technique for
estimating that applies a weighted average of optimistic, pessimistic, and
most likely estimates when there is uncertainty with the individual activity
estimates.
Program Management. The centralized coordinated management of a pro-
gram to achieve the program’s strategic objectives and benefits.
Progressive Elaboration [Technique]. Continuously improving and detail-
ing a plan as more detailed and specific information and more accurate es-
timates become available as the project progresses, and thereby producing
more accurate and complete plans that result from the successive iterations
of the planning process.
Project. A temporary endeavor undertaken to create a unique product, ser-
vice, or result.
Project Calendar. A calendar of working days or shifts that establishes those
dates on which schedule activities are worked and nonworking days that de-
termine those dates on which schedule activities are idle. Typically defines
holidays, weekends, and shift hours. See also resource calendar.
Project Charter [Output/Input]. A document issued by the project ini-
tiator or sponsor that formally authorizes the existence of a project, and
provides the project manager with the authority to apply organizational
resources to project activities.
Project Communications Management [Knowledge Area]. The processes
required to ensure timely and appropriate generation, collection, distribu-
tion, storage, retrieval, and ultimate disposition of project information.
Project Cost Management [Knowledge Area]. The processes involved in
estimating, budgeting, and controlling costs so that the project can be com-
pleted within the approved budget.
Project Human Resource Management [Knowledge Area]. The processes
that organize and manage the project team.
Project Initiation. Launching a process that can result in the authorization
of a new project.
Project Integration Management [Knowledge Area]. The processes and ac-
tivities needed to identify, define, combine, unify, and coordinate the various
processes and project management activities within the Project Management
Process Groups.
Project Life Cycle. A collection of generally sequential project phases whose
name and number are determined by the control needs of the organization
or organizations involved in the project. A life cycle can be documented with
a methodology.
Project Management. The application of knowledge, skills, tools, and tech-
niques to project activities to meet the project requirements.
Project Management Body of Knowledge. An inclusive term that de-
scribes the sum of knowledge within the profession of project management.
As with other professions, such as law, medicine, and accounting, the body
of knowledge rests with the practitioners and academics that apply and ad-
vance it. The complete project management body of knowledge includes
proven traditional practices that are widely applied and innovative prac-
tices that are emerging in the profession. The body of knowledge includes
both published and unpublished materials. This body of knowledge is
constantly evolving. PMI’s PMBOK® Guide identifies that subset of the proj-
ect management body of knowledge that is generally recognized as good
practice.
Project Management Information System (PMIS) [Tool]. An informa-
tion system consisting of the tools and techniques used to gather, integrate,
and disseminate the outputs of project management processes. It is used to
support all aspects of the project from initiating through closing, and can
include both manual and automated systems.
Project Management Knowledge Area. An identified area of project man-
agement defined by its knowledge requirements and described in terms of
its component processes, practices, inputs, outputs, tools, and techniques.
Project Management Office (PMO). An organizational body or entity
assigned various responsibilities related to the centralized and coordinated
management of those projects under its domain. The responsibilities of a
PMO can range from providing project management support functions to
actually being responsible for the direct management of a project.
Project Management Plan [Output/Input]. A formal, approved document
that defines how the project is executed, monitored, and controlled. It may
be a summary or detailed and may be composed of one or more subsidiary
management plans and other planning documents.
Project Management Process Group. A logical grouping of project manage-
ment inputs, tools and techniques, and outputs. The Project Management
Process Groups include initiating processes, planning processes, executing
processes, monitoring and controlling processes, and closing processes.
Project Management Process Groups are not project phases.
Project Management System [Tool]. The aggregation of the processes, tools,
techniques, methodologies, resources, and procedures to manage a project.
Project Management Team. The members of the project team who are
directly involved in project management activities. On some smaller proj-
ects, the project management team may include virtually all of the project
team members.
Project Manager (PM). The person assigned by the performing organiza-
tion to achieve the project objectives.
Project Organization Chart [Output/Input]. A document that graphically
depicts the project team members and their interrelationships for a specific
project.
Project Phase. A collection of logically related project activities, usually cul-
minating in the completion of a major deliverable. Project phases are mainly
completed sequentially, but can overlap in some project situations. A project
phase is a component of a project life cycle. A project phase is not a Project
Management Process Group.
Project Procurement Management [Knowledge Area]. The processes to
purchase or acquire the products, services, or results needed from outside
the project team to perform the work.
Project Quality Management [Knowledge Area]. The processes and activi-
ties of the performing organization that determine quality policies, objec-
tives, and responsibilities so that the project will satisfy the needs for which
it was undertaken.
Project Risk Management [Knowledge Area]. The processes concerned
with conducting risk management planning, identification, analysis,
responses, and monitoring and control on a project.
Project Schedule [Output/Input]. The planned dates for performing sched-
ule activities and the planned dates for meeting schedule milestones.
Project Schedule Network Diagram [Output/Input]. Any schematic
display of the logical relationships among the project schedule activities.
Always drawn from left to right to reflect project work chronology.
Project Scope. The work that must be performed to deliver a product,
service, or result with the specified features and functions.
Project Scope Management [Knowledge Area]. The processes required
to ensure that the project includes all the work required, and only the work
required, to complete the project successfully.
Project Scope Statement [Output/Input]. The narrative description of the
project scope, including major deliverables, project assumptions, project
constraints, and a description of work, that provides a documented basis for
making future project decisions and for confirming or developing a common
understanding of project scope among the stakeholders.
Project Team Directory. A documented list of project team members, their
project roles, and communication information.
Glossary 531
Project Time Management [Knowledge Area]. The processes required to
manage the timely completion of a project.
Projectized Organization. Any organizational structure in which the proj-
ect manager has full authority to assign priorities, apply resources, and di-
rect the work of persons assigned to the project.
Quality. The degree to which a set of inherent characteristics fulfills
requirements.
Quality Management Plan [Output/Input]. Describes how the project
management team will implement the performing organization’s qual-
ity policy. The quality management plan is a component or a subsidiary
plan of the project management plan.
Regulation. Requirements imposed by a governmental body. These re-
quirements can establish product, process, or service characteristics, includ-
ing applicable administrative provisions that have government-mandated
compliance.
Report Performance [Process]. The process of collecting and distributing
performance information, including status reports, progress measurements,
and forecasts.
Request for Information (RFI). A type of procurement document whereby
the buyer requests a potential seller to provide various pieces of information
related to a product or service or seller capability.
Request for Proposal (RFP). A type of procurement document used to
request proposals from prospective sellers of products or services. In some
application areas, it may have a narrower or more specific meaning.
Request for Quotation (RFQ). A type of procurement document used to
request price quotations from prospective sellers of common or standard
products or services. Sometimes used in place of request for proposal, and
in some application areas it may have a narrower or more specific meaning.
Requested Change [Output/Input]. A formally documented change re-
quest that is submitted for approval to the integrated change control process.
Requirement. A condition or capability that must be met or possessed by a
system, product, service, result, or component to satisfy a contract, standard,
specification, or other formally imposed document. Requirements include
the quantified and documented needs, wants, and expectations of the spon-
sor, customer, and other stakeholders.
Requirements Traceability Matrix. A table that links requirements to their
origin and traces them throughout the project life cycle.
Reserve. A provision in the project management plan to mitigate cost and/
or schedule risk. Often used with a modifier (e.g., management reserve, con-
tingency reserve) to provide further detail on what types of risk are meant
to be mitigated.
Reserve Analysis [Technique]. An analytical technique to determine the es-
sential features and relationships of components in the project management
plan to establish a reserve for the schedule duration, budget, estimated cost,
or funds for a project.
Residual Risk. A risk that remains after risk responses have been implemented.
Resource. Skilled human resources (specific disciplines either individually
or in crews or teams), equipment, services, supplies, commodities, material,
budgets, or funds.
Resource Breakdown Structure. A hierarchical structure of resources by re-
source category and resource type used in resource leveling schedules and to
develop resource-limited schedules, and which may be used to identify and
analyze project human resource assignments.
Resource Calendar. A calendar of working and nonworking days that
determines those dates on which each specific resource is idle or can be
active. Typically defines resource-specific holidays and resource availabil-
ity periods. See also project calendar.
Resource Histogram. A bar chart showing the amount of time that a resource
is scheduled to work over a series of time periods. Resource availability may
be depicted as a line for comparison purposes. Contrasting bars may show
actual amounts of resources used as the project progresses.
Resource Leveling [Technique]. Any form of schedule network analysis in
which scheduling decisions (start and finish dates) are driven by resource
constraints (e.g., limited resource availability or difficult-to-manage changes
in resource availability levels).
Responsibility Assignment Matrix (RAM) [Tool]. A structure that relates
the project organizational breakdown structure to the work breakdown
structure to help ensure that each component of the project’s scope of work
is assigned to a person or team.
Result. An output from performing project management processes and
activities. Results include outcomes (e.g., integrated systems, revised pro-
cess, restructured organization, tests, trained personnel, etc.) and docu-
ments (e.g., policies, plans, studies, procedures, specifications, reports, etc.).
Contrast with product. See also deliverable.
Rework. Action taken to bring a defective or nonconforming component
into compliance with requirements or specifications.
Risk. An uncertain event or condition that, if it occurs, has a positive or
negative effect on a project’s objectives.
Risk Acceptance [Technique]. A risk response planning technique that
indicates that the project team has decided not to change the project man-
agement plan to deal with a risk, or is unable to identify any other suitable
response strategy.
Risk Avoidance [Technique]. A risk response planning technique for a
threat that creates changes to the project management plan that is meant to
either eliminate the risk or to protect the project objectives from its impact.
Risk Breakdown Structure (RBS) [Tool]. A hierarchically organized depic-
tion of the identified project risks arranged by risk category and subcategory
that identifies the various areas and causes of potential risks. The risk break-
down structure is often tailored to specific project types.
Risk Category. A group of potential causes of risk. Risk causes may be
grouped into categories such as technical, external, organizational, environ-
mental, or project management. A category may include subcategories such
as technical maturity, weather, or aggressive estimating.
Risk Management Plan [Output/Input]. The document describing how
project risk management will be structured and performed on the project.
It is contained in or is a subsidiary plan of the project management plan.
Information in the risk management plan varies by application area and
project size. The risk management plan is different from the risk register
that contains the list of project risks, the results of risk analysis, and the risk
responses.
Risk Mitigation [Technique]. A risk response planning technique associ-
ated with threats that seeks to reduce the probability of occurrence or impact
of a risk to below an acceptable threshold.
Risk Register [Output/Input]. The document containing the results of
the qualitative risk analysis, quantitative risk analysis, and risk response
planning. The risk register details all identified risks, including description,
category, cause, probability of occurring, impact(s) on objectives, proposed
responses, owners, and current status.
Risk Tolerance. The degree, amount, or volume of risk that an organization
or individual will withstand.
Risk Transference [Technique]. A risk response planning technique that
shifts the impact of a threat to a third party, together with ownership of the
response.
Role. A defined function to be performed by a project team member, such as
testing, filing, inspecting, coding.
Rolling Wave Planning [Technique]. A form of progressive elaboration plan-
ning where the work to be accomplished in the near term is planned in de-
tail at a low level of the work breakdown structure, while the work far in the
future is planned at a relatively high level of the work breakdown structure,
but the detailed planning of the work to be performed within another one or
two periods in the near future is done as work is being completed during the
current period.
Root Cause Analysis [Technique]. An analytical technique used to determine
the basic underlying reason that causes a variance or a defect or a risk. A root
cause may underlie more than one variance or defect or risk.
Schedule. See project schedule and see also schedule model.
Schedule Baseline. A specific version of the schedule model used to com-
pare actual results to the plan to determine if preventive or corrective action
is needed to meet the project objectives.
Schedule Compression [Technique]. Shortening the project schedule dura-
tion without reducing the project scope. See also crashing and fast tracking.
Schedule Management Plan [Output/Input]. The document that estab-
lishes criteria and the activities for developing and controlling the project
schedule. It is contained in, or is a subsidiary plan of, the project manage-
ment plan.
532 Glossary
Schedule Model [Tool]. A model used in conjunction with manual methods
or project management software to perform schedule network analysis to
generate the project schedule for use in managing the execution of a project.
See also project schedule.
Schedule Network Analysis [Technique]. The technique of identifying
early and late start dates, as well as early and late finish dates, for the un-
completed portions of project schedule activities. See also critical path method,
critical chain method, and resource leveling.
Schedule Performance Index (SPI). A measure of schedule efficiency on a
project. It is the ratio of earned value (EV) to planned value (PV). The SPI =
EV divided by PV.
Schedule Variance (SV). A measure of schedule performance on a project.
It is the difference between the earned value (EV) and the planned value
(PV). SV = EV minus PV.
Scheduled Finish Date (SF). The point in time that work was scheduled to
finish on a schedule activity. The scheduled finish date is normally within
the range of dates delimited by the early finish date and the late finish
date. It may reflect resource leveling of scarce resources. Sometimes called
planned finish date.
Scheduled Start Date (SS). The point in time that work was scheduled to
start on a schedule activity. The scheduled start date is normally within the
range of dates delimited by the early start date and the late start date. It may
reflect resource leveling of scarce resources. Sometimes called planned start
date.
Scope. The sum of the products, services, and results to be provided as a
project. See also project scope and product scope.
Scope Baseline. An approved specific version of the detailed scope state-
ment, work breakdown structure (WBS), and its associated WBS dictionary.
Scope Change. Any change to the project scope. A scope change almost
always requires an adjustment to the project cost or schedule.
Scope Creep. Adding features and functionality (project scope) without
addressing the effects on time, costs, and resources, or without customer
approval.
Scope Management Plan [Output/Input]. The document that describes
how the project scope will be defined, developed, and verified and how the
work breakdown structure will be created and defined, and that provides
guidance on how the project scope will be managed and controlled by the
project management team. It is contained in or is a subsidiary plan of the
project management plan.
S-Curve. Graphic display of cumulative costs, labor hours, percentage
of work, or other quantities, plotted against time. Used to depict planned
value, earned value, and actual cost of project work. The name derives from
the S-like shape of the curve (flatter at the beginning and end, steeper in the
middle) produced on a project that starts slowly, accelerates, and then tails
off. Also a term used to express the cumulative likelihood distribution that is
a result of a simulation, a tool of quantitative risk analysis.
Secondary Risk. A risk that arises as a direct result of implementing a risk
response.
Seller. A provider or supplier of products, services, or results to an
organization.
Sensitivity Analysis. A quantitative risk analysis and modeling technique
used to help determine which risks have the most potential impact on the
project. It examines the extent to which the uncertainty of each project
element affects the objective being examined when all other uncertain ele-
ments are held at their baseline values. The typical display of results is in the
form of a tornado diagram.
Sequence Activities [Process]. The process of identifying and documenting
relationships among the project activities.
Simulation. A simulation uses a project model that translates the uncer-
tainties specified at a detailed level into their potential impact on objectives
that are expressed at the level of the total project. Project simulations use
computer models and estimates of risk, usually expressed as a probability
distribution of possible costs or durations at a detailed work level, and are
typically performed using Monte Carlo analysis.
Slack. Also called float. See total float and free float.
Special Cause. A source of variation that is not inherent in the system, is not
predictable, and is intermittent. It can be assigned to a defect in the system.
On a control chart, points beyond the control limits, or non-random patterns
within the control limits, indicate it. Also referred to as assignable cause.
Contrast with common cause.
Specification. A document that specifies, in a complete, precise, verifiable
manner, the requirements, design, behavior, or other characteristics of a sys-
tem, component, product, result, or service and, often, the procedures for
determining whether these provisions have been satisfied. Examples are re-
quirement specification, design specification, product specification, and test
specification.
Specification Limits. The area, on either side of the centerline, or mean,
of data plotted on a control chart that meets the customer ’s requirements
for a product or service. This area may be greater than or less than the area
defined by the control limits. See also control limits.
Sponsor. The person or group that provides the financial resources, in cash
or in kind, for the project.
Staffing Management Plan. The document that describes when and how
human resource requirements will be met. It is contained in, or is a subsid-
iary plan of, the human resource plan.
Stakeholder. Person or organization (e.g., customer, sponsor, performing
organization, or the public) that is actively involved in the project, or whose
interests may be positively or negatively affected by execution or completion
of the project. A stakeholder may also exert influence over the project and its
deliverables.
Standard. A document that provides, for common and repeated use, rules,
guidelines, or characteristics for activities or their results, aimed at the
achievement of the optimum degree of order in a given context.
Start Date. A point in time associated with a schedule activity’s start, usu-
ally qualified by one of the following: actual, planned, estimated, sched-
uled, early, late, target, baseline, or current.
Start-to-Finish (SF). The logical relationship where completion of the suc-
cessor schedule activity is dependent upon the initiation of the predecessor
schedule activity. See also logical relationship.
Start-to-Start (SS). The logical relationship where initiation of the work of
the successor schedule activity depends upon the initiation of the work of
the predecessor schedule activity. See also logical relationship.
Statement of Work (SOW). A narrative description of products, services,
or results to be supplied.
Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis. This
information-gathering technique examines the project from the perspective of
each project’s strengths, weaknesses, opportunities, and threats to increase
the breadth of the risks considered by risk management.
Subnetwork. A subdivision (fragment) of a project schedule network dia-
gram, usually representing a subproject or a work package. Often used to
illustrate or study some potential or proposed schedule condition, such as
changes in preferential schedule logic or project scope.
Subphase. A subdivision of a phase.
Subproject. A smaller portion of the overall project created when a project
is subdivided into more manageable components or pieces.
Successor Activity. The schedule activity that follows a predecessor activ-
ity, as determined by their logical relationship.
Summary Activity. A group of related schedule activities aggregated at
some summary level, and displayed/reported as a single activity at that
summary level. See also subproject and subnetwork.
Technical Performance Measurement [Technique]. A performance mea-
surement technique that compares technical accomplishments during
project execution to the project management plan’s schedule of planned
technical achievements. It may use key technical parameters of the product
produced by the project as a quality metric. The achieved metric values are
part of the work performance information.
Technique. A defined systematic procedure employed by a human resource
to perform an activity to produce a product or result or deliver a service, and
that may employ one or more tools.
Template. A partially complete document in a predefined format that pro-
vides a defined structure for collecting, organizing, and presenting informa-
tion and data.
Threat. A condition or situation unfavorable to the project, a negative set
of circumstances, a negative set of events, a risk that will have a negative
Glossary 533
impact on a project objective if it occurs, or a possibility for negative changes.
Contrast with opportunity.
Three-Point Estimate [Technique]. An analytical technique that uses three
cost or duration estimates to represent the optimistic, most likely, and pes-
simistic scenarios. This technique is applied to improve the accuracy of the
estimates of cost or duration when the underlying activity or cost compo-
nent is uncertain.
Threshold. A cost, time, quality, technical, or resource value used as a pa-
rameter, and which may be included in product specifications. Crossing
the threshold should trigger some action, such as generating an exception
report.
Time and Material (T&M) Contract. A type of contract that is a hybrid con-
tractual arrangement containing aspects of both cost-reimbursable and fixed-
price contracts. Time and material contracts resemble cost-reimbursable type
arrangements in that they have no definitive end, because the full value of the
arrangement is not defined at the time of the award. Thus, time and material
contracts can grow in contract value as if they were cost-reimbursable-type ar-
rangements. Conversely, time and material arrangements can also resemble
fixed-price arrangements. For example, the unit rates are preset by the buyer
and seller, when both parties agree on the rates for the category of senior
engineers.
Time-Scaled Schedule Network Diagram [Tool]. Any project schedule
network diagram drawn in such a way that the positioning and length of
the schedule activity represents its duration. Essentially, it is a bar chart
that includes schedule network logic.
To-Complete-Performance-Index (TCPI). The calculated projection of cost
performance that must be achieved on the remaining work to meet a speci-
fied management goal, such as the budget at completion (BAC) or the esti-
mate at completion (EAC). It is the ratio of “remaining work” to the “funds
remaining.”
Tool. Something tangible, such as a template or software program, used in
performing an activity to produce a product or result.
Total Float. The total amount of time that a schedule activity may be
delayed from its early start date without delaying the project finish date, or
violating a schedule constraint. Calculated using the critical path method
technique and determining the difference between the early finish dates and
late finish dates. See also free float.
Trend Analysis [Technique]. An analytical technique that uses mathematical
models to forecast future outcomes based on historical results. It is a method of
determining the variance from a baseline of a budget, cost, schedule, or scope
parameter by using prior progress reporting periods’ data and projecting how
much that parameter’s variance from baseline might be at some future point
in the project if no changes are made in executing the project.
Triggers. Indications that a risk has occurred or is about to occur. Triggers
may be discovered in the risk identification process and watched in the risk
monitoring and control process. Triggers are sometimes called risk symp-
toms or warning signs.
Validation. The assurance that a product, service, or system meets the
needs of the customer and other identified stakeholders. It often involves
acceptance and suitability with external customers. Contrast with verification.
Value Engineering. An approach used to optimize project life cycle costs,
save time, increase profits, improve quality, expand market share, solve
problems, and/or use resources more effectively.
Variance. A quantifiable deviation, departure, or divergence away from a
known baseline or expected value.
Variance Analysis [Technique]. A method for resolving the total variance in
the set of scope, cost, and schedule variables into specific component vari-
ances that are associated with defined factors affecting the scope, cost, and
schedule variables.
Verification. The evaluation of whether or not a product, service, or system
complies with a regulation, requirement, specification, or imposed condition. It
is often an internal process. Contrast with validation.
Verify Scope [Process]. The process of formalizing acceptance of the com-
pleted project deliverables.
Virtual Team. A group of persons with a shared objective who fulfill their
roles with little or no time spent meeting face to face. Various forms of tech-
nology are often used to facilitate communication among team members.
Virtual teams can be composed of persons separated by great distances.
Voice of the Customer. A planning technique used to provide products,
services, and results that truly reflect customer requirements by translating
those customer requirements into the appropriate technical requirements for
each phase of project product development.
Work Authorization. A permission and direction, typically written, to
begin work on a specific schedule activity or work package or control ac-
count. It is a method for sanctioning project work to ensure that the work
is done by the identified organization, at the right time, and in the proper
sequence.
Work Authorization System [Tool]. A subsystem of the overall project
management system. It is a collection of formal documented procedures
that defines how project work will be authorized (committed) to ensure that
the work is done by the identified organization, at the right time, and in
the proper sequence. It includes the steps, documents, tracking system, and
defined approval levels needed to issue work authorizations.
Work Breakdown Structure (WBS) [Output/Input]. A deliverable-oriented
hierarchical decomposition of the work to be executed by the project team
to accomplish the project objectives and create the required deliverables. It
organizes and defines the total scope of the project.
Work Breakdown Structure Component. An entry in the work breakdown
structure that can be at any level.
Work Breakdown Structure Dictionary [Output/Input]. A document that
describes each component in the work breakdown structure (WBS). For each
WBS component, the WBS dictionary includes a brief definition of the scope
or statement of work, defined deliverable(s), a list of associated activities, and
a list of milestones. Other information may include responsible organization,
start and end dates, resources required, a cost estimate, charge number, con-
tract information, quality requirements, and technical references to facilitate
performance of the work.
Work Package. A deliverable or project work component at the lowest level
of each branch of the work breakdown structure. See also control account.
Work Performance Information [Output/Input]. Information and data on
the status of the project schedule activities being performed to accomplish
the project work, collected as part of the direct and manage project execu-
tion processes. Information includes status of deliverables; implementation
status for change requests, corrective actions, preventive actions, and defect
repairs; forecasted estimates to complete; reported percent of work physi-
cally completed; achieved value of technical performance measures; start
and finish dates of schedule activities.
Workaround [Technique]. A response to a negative risk that has occurred.
Distinguished from contingency plan in that a workaround is not planned in
advance of the occurrence of the risk event.
Company Index
Software Engineering Institute
(SEI), 21
South African Airways, 247
Special Inspector General for Iraq
Reconstruction (SIGIR), 9
Standish Group International, 8,
270
SteelFabrik, Inc. (SFI), 219
SunTrust, 230
Sylvania, 79
T
Taxpayers for Common Sense, 177,
289
Taylor Made, 137
Tesla Motors, 37–38
Texas Instruments, 62, 368
3M, 10, 40, 77
Titleist, 137
Toshiba, 44
Total, 297
Trust and Lucent
Technologies, 227
U
UCLA, 198
United Technologies Corporation,
67, 98
University of Calgary, 202n18
University of Manchester, 481
University of Pittsburgh, 15
U.S. Air Force, 440n2
U.S. Army, 132, 237, 251, 440n2, 485
U.S. Congress, 177, 464
U.S. Customs and Border
Protection, 172
U.S. Department for Work and
Pensions, 8
U.S. Department of Defense (DoD),
150, 176, 177, 440n2
U.S. Department of Energy, 134,
134n28, 464
U.S. Department of Homeland
Security (DHS), 172
U.S. Department of Civil
Engineering, 202n18
U.S. House of Representatives,
134n28
U.S. Marines, 61, 176–177, 273, 418,
420, 500
U.S. Navy, 32, 168, 177, 273, 302,
440n2, 500–501
U.S. Nuclear Regulatory
Commission (NRC), 15, 478
V
Volkswagen, 37
W
Walt Disney World Resort, 31
Waste Management, 492,
493n25
Wells Fargo, 230
Westinghouse Electric Company,
15–16
Weyerhaeuser, 77
Widgets ’R Us (WRU), 70
World Bank, 174
WorldCom, 62
World Trade Center, 172
x
Xerox Corporation, 62, 68
Xinhua, 240
a
Accident Fund Insurance Co. of
America, 59
Adelphia Cable Company, 62
Advanced Network &
Services, 204
Airbus, 50, 68, 228, 235
Air France, 246
Air India, 467
All Nippon Airlines, 466
Amazon, 8
AMEC Corporation, 63
Apple Computer Corporation, 4, 6,
7–8, 10, 69, 199, 379, 480
B
Bank of America, 230
Bayer Corporation, 100
Bechtel Corporation, 10, 62, 135, 213,
290, 465
Ben and Jerry’s Ice Cream, 63
Blanque Cheque Construction
(BCC), 360
Boeing Corporation, 4, 20, 50, 68,
113, 168, 172–173, 184n25, 228,
235, 246, 263, 273, 465–466,
475n18
Booz-Allen Hamilton, 302
British Broadcasting Corporation
(BBC), 10
British Overseas Airways
Corporation (BOAC), 246
Building Contractors of Toledo
(BCT), 219–220
C
California High-Speed Rail
Authority (CHSRA),
173–174
Calloway, 137
Carnegie Mellon University, 21,
35n33
Center for Business Practices, 21,
114n21
Chartered Institute of Building,
329n9
Chevrolet, 6
Chrysler, 49, 167, 377
Ciampino Airport, 247
Civil Aviation Board (CAB), 247
Cleveland, 137
Columbus Instruments, Inc. (CIC),
215–216
Computer Sciences Corporation
(CSC), 132–133
ConocoPhillips, 297
Construx Software, 270
Cover Oregon, 146
Crown Corporation, 110
d
Dallas Cowboys, 146
Data General Corporation, 49, 104
Defense Logistics Agency, 475n2
de Havilland Aircraft Company,
245–246, 247
Denver International Airport, 273
Development Center of
Excellence, 385
DHL Express, 999
Disney, 7, 31–32
Dotcom.com, 175–176
Duke Energy, 478–479
DuPont, Inc., 302
e
Electronic Arts, 64
Eli Lilly Corporation, 385
EMC Corporation, 45, 104
Eni, 297
Enron, 62
Ericsson, 4
Ernst & Young, 134
Escambia High, 147
ESI International, 21, 35n33
European Association for Project
Management, 241
European Space Agency (ESA), 235
Exxon Chemical, 77
Exxon Mobil, 297
F
Fallujah Police, 419
Federal Geographic Data
Committee, 150
Federal Highway Administration, 290
Federal Reserve, 273
Federal Transit Administration
(FTA), 498
Fédération Internationale de
Football Association (FIFA), 64
Fermi Laboratory, 464
Financial Services Group (FSG), 132
Fluor-Daniel Corporation, 20, 62
Freefield Memorial Hospital, 148
Freefield Public Library, 148
G
General Dynamics Corporation,
176, 177
General Electric Company, 4, 10, 61,
63, 67, 97–98, 117, 131, 227
George Washington University,
75n27
Geotec Boyles Brothers, 31
Gillette, 104
Goodrich Corporation, 228
Google, 61
Grace Hospital, 128
H
Hamelin Hospital, 30
Hoechst Marion Roussel, 77, 84
Honda, 104
Honeywell, 368
I
IBM, 69, 343
Infrastructure Management
Group, 174
Institute for Operations Research
and the Management
Sciences, 200
Institution of Chemical Engineers,
294n19
Intel, 44
International Function Point Users
Group, 272n18
Iraqi Army, 419
J
Jaguar, 224
Johnson & Rogers Software
Engineering, 217–218
JPMorgan Chase, 230
K
Keflavik Paper Company, 111–112
Kimble College, 463
L
Layne Christensen Company, 32
Lilly Research Labs, 385
Lockheed Corporation, 55,
294n11, 302
Logan Airport, 288
Lucent Technologies, 227, 368
m
Macintosh, 8, 61
Martin Marietta, 465
Maryland State Department of
Health, 148
Massachusetts Turnpike Authority,
288, 289
McKinsey Group, 270
MegaTech, Inc., 29–30, 285
META Group, 8
Microsoft, 10, 26, 131, 303, 306,
404, 405
Military College of South Carolina,
418
Mobil Chemical, 77
Modern Continental, 289
n
National Aeronautics and Space
Administration (NASA), 32, 134
National Audit Office, 12
National Research Council, 464
New England Patriots, 289
Nike, 137
Nissan, 37
Northrop Grumman, 451–452
Nova Western, Inc., 112–113
o
Occupational Safety and Health
Administration (OSHA), 74
Oracle, 4, 26, 41, 145–146
Oxford University, 270
p
Palo Alto Research Center (PARC),
62, 68–69
Parson Brinckerhoff, 290
Pentagon, 9, 176, 177, 178
Pfizer, 101, 103
PING, 137
Pitney-Bowes Credit Corporation
(PBCC), 61
Pratt & Whitney Jet Engines,
67, 98
Project Management Association, 5,
84n7, 99n24, 101n26
Project Management Institute (PMI),
5, 20, 26, 98, 225, 300, 441
Public Works Administration, 249
Pureswing Golf, Inc., 137
R
Ramstein Products, 397
Rauma Corporation, 10, 230
Rolls-Royce plc, 338, 480
Royal Bank of Canada, 77
Rubbermaid Corporation, 40, 78, 103
S
Samsung, 10, 103, 341
SAP Corporation, 81, 82–83, 88, 492
Science Applications International
Corporation (SAIC), 432–433
Shell, 297
Siemens, 10–11, 77
534
535
Name INdex
a
Aalto, T., 84n7
Ackerman, S., 178n27
Adams, D., 333n1
Adams, J. R., 202n18, 204n24
Adams, L. L., 202n18
Alexander, R. C., 68n38
Allen, D. C., 308n6
Amiel, G., 298n1
Amor, J. P., 267n8, 267n10
Anderson, C. C., 54n23
Ansar, A., 287n25
Antonini, R., 454n6
Antonioni, D., 169n24
Artto, K. A., 84n7, 99n24, 228n3,
243n14
Atkinson, R., 18n29
Aubry, M., 57n28
Axe, D., 501n31
Ayas, K., 134n28, 134n29
Azani, H., 80n5
B
Badiru, A. B., 267n8, 300n3
Baime, A. J., 104n30
Baker, B. N., 455n10
Balachandra, R., 488n17
Bard, J. F., 272n19, 354n5
Barndt, S. E., 204n24
Barnes, M., 272n18, 391n30
Beale, P., 16n25
Beck, D. R., 456n13
Beck, K., 377n10
Beedle, M., 373n6
Belout, A., 455n12
Bennett, S. C., 494n7
Bennis, W., 131n24
Bishop, T., 489n21
Bisson, P., 45n16
Blakeslee, T. R., 104n30
Blank, E. L., 203n20, 203n21
Blass, G., 467n18
Bloch, M., 270n15
Block, P., 118n5
Block, R., 45n15
Block, T., 57n28
Blomquist, T., 57n28
Blumberg, S., 270n15
Boctor, F. F., 407n6
Boddy, D., 5n6
Book, S. A., 474n19
Bose, M., 117n1
Brandon, Jr., D. M., 445n3, 450n3
Bredillet, C. N., 454n6
Brooks, F. P., Jr., 343n3
Brown, A., 41n9
Brown, S. L., 103n28
Bryde, D., 128n19
Buchanan, D. A., 5n6
Budd, C. S., 390n25
Budzier, A., 270n15, 287n25
Bughin, J., 45n16
Buhl, S., 275n21
Burgess, T. F., 167n19, 169n22
C
Callahan, J., 300n3, 321n10
Cameron, D., 467n18
Camm, J. D., 267n8
Campanis, N. A., 308n6
Carland, J. C., 78n2
Carland, J. W., 78n2
Casey, W., 58n29
Castaneda, V., 175n26
Cavas, C. P., 501n31
Chae, K. C., 302n4
Chakrabarti, A. K., 130n21
Chan, M., 204n24
Chan, T., 96n17
Chapman, C. B., 228n3, 241n13
Chapman, R. J., 230n4
Charette, R., 433n1
Charvat, J. P., 483n9
Christensen, D. S., 276n22, 454n6
Chui, M., 45n16
Clark, C. E., 300n3
Clark, K. B., 55n25, 78n2
Clarke, N., 124n11
Clausing, J., 8n18
Cleland, D. I., 5n5, 6n11, 20n31,
40n3, 41n10, 42n12, 44n14, 81n6,
142n3, 153n11, 204n24, 259n3,
455n9, 455n10, 456n13, 479n2
Clements, J. P., 194n7
Cohan, P., 467n18
Collins, D., 433n1
Conlan, T., 12n23
Cooke-Davies, T., 18n29, 482n5,
482n6, 486n14
Cooper, K. G., 343n3
Cooper, M. J., 390n25
Cooper, R. G., 97n19, 98n23, 100n25,
104n29, 489n19
Copeland, L., 377n10
Coutu, D. L., 202n19
Cowley, S., 368n1
Crawford, J. K., 20n32, 21n33, 77n1
Crawford, J. R., 269n11
Cullen, J., 402n1
Curnow, R., 4n2
d
Daft, R. L., 47n20, 54n23, 61n32,
122n7
Dai, C., 57n27
Dai, C. X., 57n28, 85n11
Daly, M., 8n18
Daniel, E., 12n23
Dastmachian, A., 125n13
David, F. R., 39n2
Davis, C., 248n16
Davis, T. E., 201n15
Dean, B. V., 488n16
Dehler, G. E., 488n18
Delisle, C., 202n18
DeLone, W. H., 19n28
DeMarco, T., 320n9
DeYoung-Currey, J., 308n6
Dignan, L., 493n25
Dillibabu, R., 272n18
DiMarco, N., 125n13
Ditlea, S., 204n23
Dixit, A. K., 96n17
Dobbs, R., 45n16
Dobson, M., 104n29
Done, K., 467n18
Dulewicz, V., 118n3
Dumaine, B., 403n2
Duncan, W. R., 153n10, 391n28
Duthiers, V., 4n2
Dvir, D., 17n27, 391n30
Dworatschek, S., 57n26
Dye, L. D., 98n21
e
Edgett, S. J., 100n25, 104n29
Edwards, J., 368n1
Eidsmoe, N., 57n28
Einsiedel, A. A., 125n14
Eisenhardt, K. M., 103n28
Eksioglu, S. D., 380n17
Elmaghraby, S. E., 300n3
Elmes, M., 60n31
Elton, J., 98n22, 379n14, 391n29
Emam, K. E., 390n26
Emsley, M., 320n9
Englund, R. L., 59n30
Engwall, M., 55n24
Enthoven, A., 175n26
Evans, D. A., 88n14, 96n16
Evans, J. R., 267n8
F
Faganson, Z., 333n1
Fagerhaug, T., 202n18
Fazar, W., 300n3
Feickert, A., 178n27
Felan, J., 388n22
Fendley, L. G., 407n6, 407n7
Field, M., 5n8, 417n8
Field, T., 493n25
Fields, M. A., 267n8
Fisher, D., 455n10
Fisher, R., 46n17, 210n34, 211n35,
211n36, 213n37
Fleming, M. M. K., 54n23
Fleming, Q., 59n30, 440n2
Flyvbjerg, B., 258n1, 270n15, 275n21,
287n25
Ford, R. C., 54n23
Foreman, E. H., 86n12
Foti, R., 20n32, 77n1
Frame, J. D., 5n7, 46n18¸ 57n28,
168n21, 201n16, 484n11, 484n12,
489n20, 494n28
Francis, D., 9n20
Freeman, M., 16n25
G
Galbraith, J. R., 200n14
Gale, S., 58n29
Gallagher, C., 302n4
Garbuio, M., 275n21
Gareis, R., 20n32
Garrahan, M., 175n26
Gauvreau, C., 455n12
Geere, D., 258n1
Geoghegan, L., 118n3
Gersick, C., 198n11
Gido, J., 194n7
Gilbreath, Robert D., 5n5
Globerson, S., 163n15, 272n19, 354n5
Gobeli, D. H., 50n22, 55n24, 57n26
Goldman, D., 368n1
Goldratt, E., 378n12, 379n14, 387n21
Goleman, D., 124n11
Gong, D., 300n3, 302n4
Goodson, J. R., 125n13
Gordon, J. A., 276n22, 404n4
Gousty, Y., 80n5
Govan, F., 248n16
Govekar, M., 118n3
Gower, P., 225n1
Goyal, S. K., 272n19
Grae, K., 193n5
Graham, R. J., 7n13, 59n30
Grant, K. P., 20n30
Graves, R., 231n9
Gray, C. F., 9n21, 57n26, 57n27,
279n24, 302n5, 353n4, 420n9
Gray, V., 388n22
Green, S. G., 192n3, 488n18
Grindley, W., 175n26
Gross, S., 433n1
Grundy, T., 46n19
H
Hackbarth, G., 241n13
Hamburger, D., 272n19, 479n2,
490n23, 496n29
Hamburger, D. H., 236n11
Hannon, E., 127n16
Hansford, M., 117n1
Hartman, F. T., 132n26, 193n5, 193n6
Hatfield, M. A., 440n2
Hauschildt, J., 125n15
Hayward, S., 103n27
Heiser, J., 269n12
Henderson, B., 479n1
Hennelly, B., 433n1
Hewlett, S., 12n23
Hill, J., 308n6
Hillier, B., 64n36
Hillson, D., 40n4, 231n7, 231n8
Hobbs, B., 57n28
Hodge, N., 178n27
Hoegl, M., 192n3
Hoel, K., 382n19
Hoffman, E. J., 134n29
Holm, M. S., 275n21
Horner, R. M. W., 320n9
Houser, H. F., 125n13
Howell, G., 340n2
Huchzermeier, W., 96n17
Huemann, M., 20n32
Hugsted, R., 300n3
Hulett, D., 302n4, 340n2
Hull, S., 247n15
Humphrey, W. S., 21n33
Hunger, J. D., 41n8
I
Ibbs, C. W., 20n31, 20n32
Ive, G., 482n8
J
Javidan, M., 125n13
Jeffery, R., 272n18
Jenkins, Robert N., 27n34
Jensen, M. A., 196n8, 196n9
Johnsson, J., 467n18
Johnston, K., 333n1
Jones, W., 146n1
Joy, O., 4n2
Judy, S., 479n1
K
Kadefors, A., 193n5
Kahkonen, K., 228n3
Kahneman, D., 275n21
Kallqvist, A. S., 55n24
Kamburowski, J., 300n3, 302n4
Kanaracus, C., 493n25
Kapur, G. K., 8n16
Karlsen, J. T., 193n5
Keefer, D. L., 302n4
Keim, G., 125n15
Keller, L., 5n8, 417n8
Kelley, M., 9n20
Keown, A. J., 96n16
Kermeliotis, T., 4n2
Kerzner, H., 5n8, 21n33, 57n28,
59n30, 259n3
Kezbom, D., 134n29
Kharbanda, O. P., 68n38, 118n4,
250n18
Khorramshahgol, R., 80n5
Kidd, C., 167n19, 169n22
Kidd, J. B., 300n3
Kilmann, R. H., 61n34
Kim, S., 302n4
536 Name Index
Patch, J., 501n31
Patel, P., 188n1
Patrick, F., 382n19
Patterson, J. H., 417n8
Peck, W., 58n29
Penn, I., 479n1
Pennypacker, J. S., 20n30, 98n21
Pepitone, J., 368n1
Peters, T. A., 4n3, 128n18
Petersen, P., 404n4
Petri, K. L., 259n2, 261n5, 262n6
Petro, T., 452n5
Petroski, H., 10n22
Pettersen, N., 125n13
Petty, J. W., 96n16
Phillips, C. R., 302n4
Pindyck, R. S., 96n17
Piney, C., 392n32
Pinto, J. K., 8n15, 9n21, 20n31, 68n38,
84n8, 118n3, 118n4, 128n19,
130n20, 153n10, 192n4, 199n12,
250n18, 272n19, 376n9, 391n31,
455n12, 483n9, 486n13,
Pinto, M. B., 199n12, 486n13
Pondy, L., 205n26
Posner, B. Z., 118n3, 122n7, 125n12,
132n25, 204n24, 207n30
Prasad, J., 308n6
Prescott, J. E., 192n4, 199n12, 486n13
Pressman, R., 131n23
Pritchard, C. L., 21n33, 489n20
Purvis, R. L., 193n5, 407n6
Q
Qiu, F., 96n17
R
Raelin, J. A., 488n17
Ramirez-Marquez, J. E., 454n8
Ramnath, N. S., 127n16
Ramsey, M., 38n1
Randall, W., 454n8
Randolph, W. A., 54n23
Rathi, A., 258n1
Raz, T., 80n5, 382n19, 391n30,
403n3
Reginato, P. E., 20n31
Reilly, F. K., 88n15
Reina, P., 117n1
Reinen, J., 146n1
Render, B., 269n12
Richey, J., 173n25
Robinson, P. B., 440n2
Roe, J., 98n22, 379n14, 391n29
Rom, W. O., 380n17
Roseboom, J. H., 300n3
Ross, J., 65n37, 489n19
Rosser, B., 103n27
Rouhiainen, P., 9n21
Rowlings, J. E., 302n4
Royer, I., 130n22, 489n19
Ruiz, P., 454n6
S
Saaty, T. L., 84n9, 86n12
Sandahl, D., 104n29
Sanders, P., 467n18
Sasieni, M. W., 302n4
Sauser, B. J., 454n8
Saxton, M. J., 61n34
Schaan, J., 354n5
Scheck, J., 298n1
Scheid, J., 230n6
Schein, E. H., 60n31
Schmidt, W. H., 205n25
Schon, D. A., 128n17
Schoner, B., 87n13
Schuerman, M., 499n30
Marrs, A., 45n16
Marsh, P., 494n26
Marshall, B., 382n19, 403n3
Marshall, R. A., 454n6
Martin, J. D., 96n16
Martin, M. G., 150n6
Martin, P., 230n5
Martinsuo, M., 84n7
Massaoud, M. J., 193n5
Matheson, D., 100n25
Matheson, J. E., 100n25
Mauborgne, R. A., 118n2
Mayhew, P., 493n24
McComb, S. A., 192n3
McConnell, S., 270n17
McCray, C. G., 407n6
McCray, G. E., 193n5, 407n6
McIntosh, J. O., 407n6
McKain, S., 17n26
McKinney, J., 454n6
McLean, E. R.19n28
Medcof, J. W., 125n15
Mendelow, A., 41n10
Menon, P., 490n22
Mepyans-Robinson, R., 147n3
Meredith, J. A., 50n21, 79n4, 96n18,
128n19, 159n14, 168n20, 261n4,
267n9, 276n22, 310n7, 405n5,
420n10, 422n11, 480n3, 480n4, ,
481n9, 487n15
Merle, R., 178n27
Merrill, J., 385n20
Mersino, A., 489n19
Mian, S. A., 85n11
Milani, K., 452n5
Miller, G. J., 259n3
Millet, I., 8n15, 84n8, 85n10, 87n13
Mitchell, J., 175n26
Moder, J. J., 302n4
Mollick, E. R., 368n1
Mongalo, M. A., 302n4
Moore, D., 47n20
Moretton, B., 300n3, 321n10
Morris, P. W. G., 17n26, 455n9,
455n11
Morse, L. C., 407n6
Müller, R., 57n28, 125n13
Mulrine, A., 9n20
Mummolo, G., 302n4
Murphy, D. C., 455n10
N
Navarre, C., 354n5
Needy, K. S., 259n2, 261n5, 262n6
Newbold, R. C., 380n17
Nicholas, J. M., 340n2
Nonaka, I., 371n3, 371n4
Noqicki, D., 454n8
Norris, G., 467n18
O
Obradovitch, M. M., 154n12,
163n16
Oglesby, P., 340n2
Ogunbiyi, T., 4n2
Olson, D. L., 18n29
Onsrud, H. J., 130n20
Osborne, A., 117n1
P
Padgett, T., 333n1
Palmer, T., 118n3
Panknin, S., 274n20
Parboteeah, K. P., 192n3
Parker, H., 340n2
Pascale, S., 78n2, 231n9
Pasztor, A., 467n18
Patanakul, P., 454n8
Kim, W. C., 118n2
Kimball, R. K., 147n3
King, W. R., 5n5, 41n10, 42n12, 81n6,
142n3, 153n11, 204n24, 259n3,
455n9, 455n10, 456n13, 479n2
Kinlaw, C. S., 134n29
Kinlaw, D. C., 134n29
Kirsner, S., 61n32
Kleinschmidt, E. J., 100n25, 489n19
Knoepfel, H., 57n26
Koppelman, J., 59n30, 440n2
Koru, A. G., 390n26
Koskela, L., 4n13
Kostner, J., 202n18
Kotoky, A., 467n18
Kouri, J., 173n25
Kouzes, J. M., 122n7, 125n12, 132n25
Krigsman, M., 173n25, 493n24
Krishnaiah, K., 272n18
Kumar, U., 489n20
Kumar, V., 489n20
Kwak, Y. H., 20n32
L
Laartz, J., 270n15
Lai, K. -K., 96n17
Lakshman, N., 127n16
Lallanilla, M., 225n1
Lander, M. C., 193n5
Lane, D., 146n1
Lanier, J., 203n22
Larson, E. W., 9n21, 50n22, 55n24,
57n26, 57n27, 279n24, 302n5,
353n4, 420n9
Laufer, A., 148n5
Lavallo, D., 275n21
Lavold, G. D., 153n11
Leach, L. P., 368n2, 378n13, 382n19,
388n23, 388n24
Lederer, A. L., 308n6
Lee, J., 302n4
Lee, S. A., 343n3
Lehtonen, M., 101n26
Leigh, W., 193n5
Lemer, J., 467n18
Levene, H., 404n4
Levine, H. A., 236n11
Levy, F. K., 302n4
Levy, O., 17n27
Li, M. I., 343n3
Libertore, M. J., 308n6
Light, M., 103n27
Lipke, W. H., 454n7, 474n19
Lipowicz, A., 173n25
Loch, C. H., 96n17
Lock, D., 263n7, 458n15
Logue, A. C., 202n17
Longman, A., 104n29
Lorenz, C., 231n9
Louk, P., 259n3
Lovallo, D., 275n21
Low, G. C., 272n18
Lundin, R. A., 7n12
Lunn, D., 287n25
m
MacLeod, K., 404n4
Magnaye, R., 454n8
Magnaye, R. B., 454n8
Maher, M., 276n23
Malanga, S., 499n30
Malcolm, D. G., 300n3
Manley, J. H., 457n14
Mantel, S. J., Jr., 50n21, 79n4, 96n18,
159n14, 168n20, 261n4, 267n9,
276n22, 310n7, 405n5, 420n10,
422n11, 480n3, 480n4, 481n9
Manyika, J., 45n16
Schwaber, K., 372n5, 373n6,
375n7
Scott, Jr., D. F., 96n16
Seddon, P. B.19n28
Selly, M., 86n12
Serpa, R., 61n34
Serrador, P., 376n9
Sersaud, A. N. S., 489n20
Severston, A., 175n26
Shachtman, N., 501n31
Shafer, S. M., 489n19
Shalal, A., 501n31
Shanahan, S., 417n8
Sharp, D., 501n31
Shenhar, A. J., 17n27, 134n31
Shepheard, C., 146n1
Sherif, M., 199n13
Sherman, E., 379n16
Sherman, J. D., 78n3
Shtub, A., 272n19, 354n5
Sigurdsen, A., 272n19
Silver, D., 133n27
Singletary, N., 440n2
Slevin, D. P., 20n31, 118n3, 123n9,
128n19, 130n22, 209n33, 455n12,
483n9
Smart, M., 499n30
Smith, D. K., 68n38
Smith, N. J., 272n19
Smith, P. G., 203n20, 203n21
Smith-Daniels, D. E., 300n3
Smith-Daniels, V., 300n3
Smith-Spark, L., 225n1
Smyth, H. J., 193n5
Soderholm, A., 7n12
Sohmen, Victor, 14n24
Souder, W. E., 78n3, 88n14, 96n16
Speir, W., 104n29
Spiller, P. T., 489n19
Spirer, H. F., 479n2, 490n23, 496n29
Staw, B. M., 65n37, 489n19
Stephanou, S. E., 154n12, 163n16
Stewart, A., 258n1
Stewart, T H., 4n4
Steyn, H., 379n15, 381n18, 392n32
Stuckenbruck, L. C., 148n5
Sutherland, J., 372n5, 375n7
Swanson, S., 127n16
Sweeting, J., 272n19
T
Tadasina, S. K., 489n19
Takahashi, D., 64n36
Takeuchi, H., 371n3, 371n4
Talbot, B. F., 417n8
Talhouni, B. T., 320n9
Tate, K., 230n5
Taylor, A., 258n1
Taylor, S. G., 382n19
Teplitz, C. J., 267n8, 267n10
Teubal, M., 489n19
Thamhain, H. J., 131n23, 204n24,
205n27, 207n30
Thomas, K. W., 205n25, 205n26
Thomas, L. C., 308n6
Thompson, N. J., 193n5
Thoms, P., 118n3
Thorp, F., 146n1
Tjosvold, D., 202n17
Toney, F., 272n19
Trailer, J., 118n3
Troilo, L., 231n9
Tuchman, B. W., 196n8, 196n9
Tukel, O. I., 380n17
Tulip, A., 404n4
Turbit, N., 272n18
Turner, J. R., 125n13, 169n23,
482n7
Name Index 537
Woodworth, B. M., 407n6
Wright, J. N., 128n19
Y
Yaffa, J., 258n1
Yasin, M. M., 123n10
Yeo, K. T., 96n17
Young, J., 258n1
Yourdon, E., 166n18
Yourker, R., 47n20
Yukl, G., 122n7, 122n8
Z
Zalmenson, E., 391n27
Zhang, J., 96n17
Zimmerer, T. W., 123n10
W
Waldron, R., 86n12
Waldron, T., 258n1
Ward, J., 12n23
Ward, S. C., 228n3,
241n13
Ware, J., 208n32
Warren, W., 175n26
Waters, K., 376n8
Weaver, P., 428n12
Weihrich, H., 40n4
Weikel, D., 175n26
Weiser, B., 433n1
Wells, W. G., 57n28
Welsh, M. A., 488n18
Westney, R. E., 146n2
Wheatley, M., 77n1
Wheelen, T. L., 41n8
Wheelwright, S. C., 55n25, 78n2
Whitehouse, G. E., 407n6
Wideman, R. M., 42n11, 134n31,
153n10, 225n2
Wiener, E., 41n9
Wiest, J. D., 302n4
Wilemon, D. L., 60n31, 204n24,
205n27, 207n30
Williams, S., 298n1
Williams, T. M., 243n14,
302n4
Willie, C. J., 407n6
Winch, G. M., 41n10
Womer, N. K., 267n8
U
Umble, E., 388n22
Umble, M., 388n22
Ury, W., 46n17, 210n34, 211n35,
211n36, 213n37
V
Valery, Paul, 2n1
Vandevoorde, S., 474n19
Vanhouckel, M., 474n19
Venkataraman, R., 272n19
Verdini, W. A., 302n4
Verma, V. K., 122n6, 189n2,
197n10, 205n28, 207n29, 208n31
Viswanathan, B., 231n8
Vrijhoef, R., 44n13
Subject Index
A
Acceleration of project, 340–346
Acceptance
of conflict, 208
of project, 482
of risk, 234
Accessibility, 201
Accounting, 44–45
Acquisition control, 167
Activities, 299, 333
burst, 301
concurrent, 303–304
merge, 301
ordered, 299
splitting, 417
Activity-based costing (ABC),
276–278
Activity duration estimates, 302,
309–311
Activity late finish dates,
determining, 412
Activity-on-Arrow networks (AOA),
348–354
Activity-on-Node networks vs.,
353–354
backward passes on, 352–353
definition of, 302, 348
differentiation of, 348–350
dummy activities, 351
forward passes on, 352–354
Activity-on-Node networks (AON)
Activity-on-Arrow networks vs.,
353–354
definition of, 302, 348
Acts of God, 237
Actual cost of work performed
(AC), 442
Adding details to networks, 515–519
Addition, termination by, 480
Adjourning, 198
Administrative conflict, 205
Administrative performance, 495
Affordable Care Act (ACA), 145
Aggregation of risk, 379–380
Agile PM, key terms
burndown chart, 372
development team, 373
product backlog, 373
product owner, 373
scrum master, 372
scrum, 372
sprint backlog, 372
sprint, 372
time-box, 372
user stories, 372
work backlog, 373
Agile process, steps in
daily scrums, 374
development work, 374
problems with, 376
sprint planning, 374
sprint retrospective, 376
sprint views, 375
work of, 376
Agile Project Management (Agile
PM), 369
designed for managing projects,
370–371
evolve customer needs, 369
iterative planning process, 369
key terms in, 372–373
reduces the complexity, 471
rolling wave process, 371
scrum process, 371–372
steps in, 373–376
tasks vs. stories, 371–373
unique about, 370–371
waterfall model, project
development, 369–370
Agile World, 396–397
Alternative analysis, in conceptual
development, 148–149
Analytical Hierarchy Process
(AHP), 84–87
criteria for, 84–85
evaluation dimensions of,
assignment of numerical
values to, 86
project proposals, evaluation of,
86–87
Arbitration, 494
of conflict, 208
Armitt, John, 116
Arrow, 302, 348
Assessments in risk management,
228–229
b
Backward pass, 301, 313–314,
313–316, 354–356
Balanced matrix, 54
Ballpark estimates, 263
Baseline
definition of, 167
project, 435
scope, 153
BBC’s Digital Media, 10–12
Behavioral view of conflict, 205
Benchmarking, 20
Beta distributions, 308
“Big Dig” project, 288–290
Blanque Cheque Construction,
project scheduling at, 360
Boeing’s 787 Dreamliner, 465–467
Boston’s Central Artery/Tunnel
Project, 288–290
Bottom-up budgeting, 276
Breakeven point, 91
Brook’s Law, 343
Brown, Mike, 480–481
Budget/budgeting, 275
activity-based costing, 276–278
bottom-up, 276
contingencies, development of,
278–280
crashing projects, effects of,
344–346
creation of, 275–278
top-down, 275–276
Budgeted cost at completion
(BAC), 442
Build, Operate, and Transfer
(BOT), 482
Build, Own, Operate, and Transfer
(BOOT), 482
Building Dams, hidden costs,
286–287
Burst activities, 301, 304–307
c
California High-Speed Rail Project,
173–175
Capability Maturity Model, 44–45
Capacity constraint buffer
(CCB), 387
Caspian Kashagan Project, 297–298
Center for Business Practices, 21
Central limit theorem, 379–380
Change management, 238
Checklist model, 80–81
CityTime Project, New York, 432
Claims following early project
termination, 493–494
Clearinghouse effect, 57
Client acceptance, 457
Client consultation, 456–457
Clients, 43
acceptance of, 16
Closeout process, 482–487
Cohesiveness, 193
Columbus Instruments, Inc. (CIC),
215–216
Comet, 245–247
Commercial risk, 229
Communication, 457
faulty, 207
freedom of, 103
poor, 194
project manager, 119–125
team members, with potential,
189–190
Comparative estimates, 263
Competitors, 44
Conceptual development, 148–153
Conceptualization phase, 13–14
Conclusion to project, 485
Concurrent activities, 303–304
Conduct codes, 203
Confidence interval, 309
Configuration control, 167
Configuration management,
167–169
Conflict
acceptance, 208
administrative, 205
arbitration, 208
control, 208
definition of, 205–206
elimination of, 208–209
goal-oriented, 205
interpersonal, 205, 207
management of, 205–209
mediation of, 208
organizational causes of, 206–207
resolving, methods for, 208–209
resource, 386–387
sources of, 206–208
from unclear goals, 194
Consequences
analysis of, 229, 231–233
of failure, 233
to top management, notification
of, 191
Conservative technical
communities, 104
Contingencies of budget,
development of, 278–280
Contingency reserves, 236–237
managerial contingency,
236–237
task contingency, 236–237
Contracts
fixed-price, 235
turnkey, 164
Contractual risk, 229
Control, 237–239
of conflict, 208
cycle, 434
definition of, 229
Control systems, 167–169
configuration management,
167–169
Control tower PMO, 59
Corporate strategy, 40
Cost control accounts, 159
Cost estimation, 259, 262–275
learning curves in, 266–268
problems with, 272–275
of software project, 270–271
Cost Performance Index (CPI),
442, 447
Cost-plus contracts, 164
Cost Variance, 449, 460
Costs. See also Project budget
direct vs. indirect, 260–261
fixed vs. variable, 261–262
management of, 259–261
normal vs. expedited, 262
recurring vs. nonrecurring, 261
Crashing, 262, 302, 340
Crashing projects, 340–348
acceleration of projects, options
for, 340–346
budget, effects of, 344–346
definition of, 340
Creative originator, 128
Criteria weights, in AHP, 85–86
Critical chain activity network,
development of, 381–383
critical chain solutions vs. critical
path solutions, 383–384
Critical chain methodology, 379
Critical Chain Project Management
(CCPM)
critiques of, 391
definition of, 368
of Elli Lilly Pharmaceuticals, 385
of project portfolio, 387–389
Critical chain project scheduling.
See also Critical Chain Project
Management (CCPM)
critical chain activity network,
development of, 381–383
critical chain solution to,
379–380
introduction to, 368–369
theory of constraints and, 378–379
Critical chain scheduling, 390
Critical chain solutions, 379–384
critical path solutions vs.,
383–384
resource conflicts, 386–387
Critical incidents, 63
Critical path, 379
backward pass, 313–316
construction of, 311–321
critical chain solutions vs.
solutions of, 383–384
definition of, 301, 337
forward pass, 312–313
hammock activities, 319
identification of, 512
laddering activities, 318–319
network, calculation of, 311–312
project completion, probability of,
316–321
reduction of, options for, 320–321
Critical Path Model (CPM), 301–302
Critical success factors, 456–457
Cross-functional cooperation,
achievement of, 199–202
accessibility, 201
outcomes of, 201
physical proximity, 201
procedures, 200
rules, 200
superordinate goals, 199–200
Cross-training, 237
Crowdsourcing, 367
Culture, 59
538
Subject Index 539
j
James, John, 138–140
Jobs, Steven, 117
Johnson & Rogers Software
Engineering, Inc., 217–218
K
Keflavik Paper Company, 111
Key organizational members, 63
Kickstarter, projects, 367–368
Kimble College, 463–464
L
Labor costs, 259
Laddering activates, 318–319
Lag, 333
Late start (LS) date, 301, 337
Leadership
definition of, 117
emotional intelligence and,
124, 138
introduction to, 117
poor, 194–195
project, 131–132
project champions, 127–131
project leaders, 125–126
project management
professionalism, 134–135
project manager, 117–123
Learning curves in cost estimation,
266–268
Legal risk, 229
Lessons learned, 484
Leveling heuristics, 407
Linear responsibility chart, 160
Liquidated damages, 235
London Olympics, 116–117
Lump sum contracts, 164
M
Managerial contingency, 236–237
Matching skills, identification of, 189
Materials, costs for, 259
Mathematical programming,
422–423
Matrix organizations, 53–55
Matrix structure, 53–54
Maturity models, 19–23
Mediation of conflict, 208
MegaTech, Inc., 29–30
Melted Cars, building, 224–225
Member turnover rate, 196
Mentoring, 237
Merge activities, 301, 304
Microsoft Project 2013 tutorial on
networks
adding details to, 515–519
construction of, 510–511
critical path, identification of, 512
Gantt chart, 515
network diagram, 515
resource conflicts, 513–514
resources, assigning and leveling
of, 512
updating, 515–519
Milestone analysis, 437–438
definition of, 437
problems with, 438–439
Minimum late finish time, 422
Mission, clarity of, 192
Mission statements, 39
Mixed-constraint project, 403–404
Monitoring, 457
Motivation
lack of, 195
leadership and, 120, 124
Mowery, Bill, 132–133
Multiproject environments
in-process inventory, 421
G
Gantt charts, 335–338
definition of, 335
lags in, incorporation of, 338
on networks, 515
resources to, addition of, 337–338
tracking, 439
Gehry, Frank, 224
General Electric Corporation,
project screening and selection
at, 97–98
Geographical location,
organizational culture and, 62
Gibeau, Frank, 64
Goal-oriented conflict, 205
Goals
employee commitment to, 63
scope statement and, 153
Godfather, 129
Group development, stages of,
196–199
adjourning, 198
forming, 196–199
norming, 198
performing, 198
punctuated equilibrium,
198–199
storming, 197
Group maintenance, 122
Giuliani, Rudolph, 432
H
Hamelin Hospital, information
technology at, 30
Hammock activates, 319
Heavyweight project organizations,
moving to, 55–56
Henry, Simon, 298
Hudson River Tunnel Project,
497–499
Human factors in project evaluation
and control, 454–458
I
Immelt, Jeff, 117
India, 126–127
Indirect vs. direct costs, 260–261
Inflation, 90, 94, 273
Information technology (IT)
“Death March” projects,
165–166
at Hamelin Hospital, 30
project termination in,
490–491
success project, 19
In-process inventory, 421
Integrated Project
cost estimation and budgeting,
256–280
organization context, 36–65
project scheduling, 296–321
resource management, 400–423
risk management, 223–243
scope management, 144–171
Integration, termination by, 480
Interaction, 193
Interactionist view of conflict, 205
Interdependencies, 192
Interests vs. positions, focusing on,
211–212
Internal rate of return (IRR), 90,
94–95
International management,
challenge of, 133
Interpersonal conflict, 205
causes of, 207–208
Intervenor groups, 44
Iribe, Brendan, 367
Iron triangle, 19
Elli Lilly Pharmaceuticals, critical
chain project management
of, 385
Emotional commitment of project
champions, 131
Emotional intelligence, leadership
and, 124, 137
Emotions
negotiation and, 211
project termination and, 490
Empathy, 124
Enthusiasm, 193–194
Entrepreneur, 128
Environments, 62. See also
Multiproject environments
assessment of, 45
external, 48
scanning of, low-cost, 103
Estimation at Completion
(EAC), 449
Event, 301
Event marker, 349
Execution phase, 13–14
Execution risk, 229
Ex-gratia claims, 493
Expedited vs. normal costs, 262
Expeditionary Fighting Vehicle
(EFV), 167, 170, 176–178
Expedition Everest (Disney), 31–32
Expert opinion, 229, 308
External environment, 48
Extinction, termination by, 480
Extreme Programming (XP), 377
vs. Agile PM, 377
for Chrysler Corporation, 377
guiding features of, 377
pair programming, 377
software development
methodology, 377
F
Failure, probability and
consequences of, 228, 233–235
Fallback positions, team building in,
191–192
Fast-tracking, 334
Faulty attributions, 207
Feasibility estimates, 264
Feedback, 457
Feeder buffers, 381–383
Feeding Frenzy, construction
project, 490
50/50 rule, 452–453
Final project report, preparation of,
494–496
Financial risk, 228
Finish to finish, 334
Finish to start, 333–334
Finishing work, 482
Firefighting, 121
First in line resource allocation,
421–422
Fixed-price contracts, 235
Fixed vs. variable costs, 261–262
Flexible schedule, 103
Float, 301, 315–316, 334
Forming, 197
Forrest, Brett, 257
Forward pass, 301, 312–313,
352–354
Frustration, 207
Fultz, Christopher, 338
Functional managers, 45
Functional matrix, 54
Functional organizations, 48–50
Functional siloing, 49
Functional structure, 48–50
Function point analysis, 271
Function points, 271
d
DDG 1000 Zumwalt destroyer,
500–501
“Death Marches, project”,
165–166
Decision making, 99
for early project termination,
488–489
Default claims, 493
Definitive estimates, 264
Defusion, 208
de Havilland Aircraft Company,
245–247
Deliverables, 5
Department managers, negotiating
with, 189–190
Departments, 159, 161
Design control, 167
Differentiation, 192, 206
Direct vs. indirect costs, 260–261
Disagreements, resolution of,
193, 203
Disbanding project team, 486
Discounted cash flow (DCF)
method, 90
Discounted payback, 94
Discount rate, 92
Disney, 31–32
Disputes following early project
termination, 493–494
Documentation, 237–239
definition of, 229
Document control, 167
Dotcom.com, project management
at, 175–176
Drum, 387
Drum buffers, 387
Dual hierarchy, 53
Duke Energy, Nuclear Power Plant,
478–479
Dummy activities, 351
Duration estimation of project,
307–311
Dysfunctional behavior, 196
e
Early project termination, 487–494
claims following, 493–494
decision making for, 489–490
disputes following, 493–494
shutting down project, 490–492
Early start (ES) date, 301, 333
Early termination, 487
Earned Schedule (ES), 470–474
definition of, 471
Earned value (EV), 440, 441
at Northrop Grumman,
451–452
assessment of, 445–449
Earned Value Management (EVM),
440–450
definition of, 440
earned value, assessment of,
445–449
effective use of, issues in,
452–454
for portfolio management, use of,
450–451
project baselines, creation
of, 442
for project management, use of,
450–451
purpose of, 443–444
steps in, 444–445
terminology for, 441
Effective natural termination,
prevention of, 487
Efficient frontier, 88
Elimination of conflict, 208–209
540 Subject Index
drawbacks of, 440
milestone analysis, 437–438
organizational structure’s impact
on, 56–57
project S-curve, 435–436
tracking Gantt chart for, 439–440
Project Plan Template, 520–523
Project planning, 299, 457
Project portfolio
Critical Chain Project
Management of, 387–389
definition of, 78
proactive, development of,
100–103
Project portfolio management,
98–105
definition of, 98
Earned Value Management for,
use of, 450–451
implementation of, problems in,
104–105
initiatives of, 99
introduction to, 78
keys to successful, 103
objectives of, 99–100
proactive project portfolio,
development of, 100–103
Project resources, acquisition of,
119–120
Project risk, 225
Project Risk Analysis and
Management (PRAM), 241–242
Projects
acceleration of, 340–346
acceptance of, 483
characteristics of, 6–9
conclusion to, 485
definition of, 5–6
duration estimation of, 307–311
elements of, 23–26
importance of, 9–12
organizational strategy of, 39–41
out-of-sync, 104
scope, 146, 301
shutting down, 490–492
success of, determinants of,
16–19
text organization in, 23–27
transferring, 482
unpromising, 104
Projects in Lagos, 6–8
development, 2–4
Project safety, 379, 391
Project scheduling/schedules,
299–300. See also Critical chain
project scheduling
Activity-on-Arrow networks
(AOA), 348–354
adjusting, 191
conclusion on, 356
crashing projects, 340–348
critical path, construction of,
311–321
duration estimation, 307–311
Gantt charts, 335–338
introduction to, 299, 335
networks, 302–307, 354–355
precedence relationships, lags in,
333–335
terminology, 301–302
Project screening
Analytical Hierarchy Process
(AHP), 84–87
approaches to, 80–90
checklist model, 80–81
at General Electric Corporation,
97–98
simplified scoring models, 82–84
Project S-curve, 435–436
drawback of, 437
Program Evaluation and Review
Technique/Critical Path
Method (PERT/CPM), 302,
354–355
Project baseline, 434, 442
Project budget, 275–278
Project charter, 151, 180–181
Project champions, 127–131
definition of, 128
development of, 130–131
emergence of, 131
emotional commitment of, to their
project, 131
identification of, 131
nontraditional duties of, 131
risk takers, encouraging and
rewarding, 131
role of, 129–130
Project closeout, 169–170
Project completion, probability of,
316–318
Project control, 434. See also Earned
Value Management (EVM)
cycles of, 434–435
human factors in, 454–458
introduction to, 434
Project evaluation. See also Earned
Value Management (EVM)
human factors in, 454–458
Project Execution Plan, 520–523
Project leaders
conclusions about, 126
project managers vs., 117–123
traits of effective, 124–125
Project leadership, 131–132
Project life cycle, 13
Project management
definition of, 8
at Dotcom.com, 175–176
Earned Value Management for,
use of, 450–451
India, 126–127
introduction to, 4
maturity models, development
of, 19–23
organizational culture and,
63–64
professionalism, 134–135
techniques of, 495
Project Management Body of
Knowledge (PMBOK), 153
Project Management Institute (PMI),
5, 26–27
Project management maturity
models, development of, 19–23
Project management office (PMO),
57–59
Project manager, 119, 129
communication, 121–123
effective, 137
firefighting, 121
process of, 119–123
project leaders vs., 117–123
project resources, acquisition of,
119–120
strategic vision, 121
teams, motivation and building
of, 120
Project matrix, 54
Project monitoring. See also Earned
Value Management (EVM)
conclusions to, 458
human factors in, 454–458
introduction to, 434
of performance, 435–440
Project network diagram (PND), 301
Project organizations, 50–53
heavyweight, moving to, 55–56
Project performance, 435–440, 494
benefits of, 440
project management office,
57–59
stakeholder management, 41–47
Organizational culture, 59–65
formation of, 61–63
project management and, 63–64
Organizational entrepreneur, 128
Organizational strategy of project,
39–41
Organizational structure, 47, 494
forms of, 47–56
project performance, 56–57
Organization Breakdown Structure
(OBS), 159–160
Orientation, 194
O’Rourke, Ray, 116
Outcomes, 194
Out-of-sync projects and
portfolios, 104
P
Pair programming, XP, 377
Pairwise comparison approach, 85
Panama Canal, enlarging, 331–333
Parametric estimation, 263
Partial assistance, negotiating
for, 191
Path, 301
Paul, Mathew, 227
Payback period, 90–91
People skills, 189
Percentage complete rule, 453
Performing, 198
Personal grudges, 207
Peterson, Laura, 177
Physical constraints, 403
Physical proximity, 201
Planned value (PV), 441
Planning, 6, 13, 24, 63, 168, 299
Positions vs. interests, focusing on,
211–212
Precedence relationships,
333–335
finish to finish, 334
finish to start, 333–334
start to finish, 335
start to start, 334–335
Preceding activities, 299
Predecessors, 301
Prejudices, 207
Present value of money, 90
Principal actors, identification of
goals of, 46
Principled negotiation, 210–212
interests vs. positions, focusing
on, 211–212
separation of person and
problem, 210–211
Prioritization, 99
adjusting, 191
Private Finance Initiatives (PFIs),
482–483
Probability
analysis of, 229, 231–234
of failure, 233, 234
Problem, defining, 46
Procedures, organizational, 62, 200
Process
definition of, 5
orientation, 7
Productive interdependency,
192–193
Profile models, 90–97
discounted payback, 94
internal rate of return, 94–95
net present value, 92–94
options models, 96
payback period, 90–91
project selection approach,
choosing of, 97–98
Multiproject environments (continued)
resource allocation, resolution of,
421–423
resource management in, 420–423
resource utilization, 420
schedule slippage, 420
Multitasking, 427–428
Murphy’s law, 279
Musk, Elon, 37
Mutual gain, invention of options
for, 212
n
Natural gas pipeline, Hong Kong,
401–402
Natural termination, 482–487
acceptance of project, 483
benefits, harvesting, 483
closeout process, 482–487
conclusion to project, 485
definition of, 479
disbanding project team, 486
effective, prevention of, 487
finishing work, 482
review project, 483–485
transferring project, 482–483
Necessary skills, identification
of, 189
Need statement, 148
Negative float, 316
Negotiation, 209–213
definition of, 209
with department managers,
189–190
mutual gain, invention of
options for, 212
objective criteria, 213
for partial assistance, 191
principled, 210–212
questions to ask prior to, 209–210
Nemtsov, Boris, 258
Net present value (NPV), 92–94
Network diagram, 299–300, 515
Networks. See also Microsoft Project
2013 tutorial on networks
calculation of, 311–312
controversies in using, 354–355
development of, 302–307
New project leadership, 131–133
Nigeria’s Kainji Dam, 287
Nodes, 301, 303, 348
Nonnumeric models, 79
Nonrecurring vs. recurring
costs, 261
Normal vs. expedited costs, 262
Norming, 198
Norms, 59–60, 198
Northrop Grumman, earned value
at, 451–452
Nova Western, Inc., project selection
procedures for, 112
Numeric models, 79
O
Objective criteria, 213
Objectives, 39
O’Donnell, Kevin, 418–420
Operating risk, 236
Operational reality, 40
Options models, 96
Ordered activity, 299
Order of magnitude, 263
Organizational causes of
conflict, 206
Organizational context
introduction to, 38
organizational culture, 59–65
organizational strategy of project,
39–41
organizational structure, 47
Subject Index 541
Sreedharan, Elattuvalapil, 126–127
Stakeholder management, 41–47.
See also Project stakeholders
Start to finish, 335
Start to start, 334–335
Starvation, termination by, 480
Statement of Work (SOW), 150–151
Storming, 197
Strategic management, 39
Strategic vision, 121
Strong matrix, 54
Subsequent activity, 299
Successors, 301, 333
Success project, 19
Superconducting Supercollider
(SSC), 464–465
Superordinate goals, 199–200
Suppliers, 44
t
Tacoma Narrows suspension
bridge, 249–251
Task contingency, 236
Task outcomes, 201
Tasks, 299, 333
Team building, 189–192
definition of, 189
department managers, 189–190
in fallback positions, 191–192
introduction to, 189
priorities, adjusting, 191
project schedules, adjusting, 191
skills, 189
team members, 189–191
top management, notification of
consequences to, 191–192
Team members
assembly of, 191–192
communication with potential,
189–190
Team performance, 495
Teams, motivation and building
of, 121
Technical communities,
conservative, 104
Technical risk, 228
Technical tasks, 457
Technology, 62
organizational culture and, 59–61
Tele-Immersion Technology,
203–204
Termination
by addition, 480
by extinction, 480
by integration, 480
by starvation, 480
Tesla Model S, 38
Text organization, 23–27
Theory of constraints (TOC),
378–379
Time, scarcity of, 403–405
Time-constrained project, 403
Time-paced transition, 104
Time-phased budget, 277
Time value of money, 90
Tollgate process, 97–98
Top-down budgeting, 275–276
Top management, 44
consequences to, notification
of, 191
support of, 456
Torrijos, Martin, 331
TOWS matrix, 40
Tracking Gantt chart, 439–440
Transferring of risk, 235–236
Transferring project, 482–483
Trend monitoring, 167
Triple constraint, 16
Troubleshooting, 457
risk mitigation strategies,
234–235
Risk mitigation strategies, 228,
234–235. See also Risk
other types of, 237
Risk/return options, 88–89
Risk takers, encouraging and
rewarding, 131
Roles, poorly defined, 195
Rolls-Royce Corporation, 67–68,
480–481
Rules, organizational, 62, 200
S
Scarce resources, 104–105
Scaroni, Paolo, 298
Schedule Performance Index (SPI),
442
Schedule slippage, 420
Scheduling. See Project scheduling/
schedules
Scheduling at Blanque Cheque
Construction, 360
Scope baseline, 153
Scope management
conceptual development, 148–153
control systems, 167–169
definition of, 146
introduction to, 146
project closeout, 169–170
scope reporting, 164–165
scope statement, 153–160
work authorization, 161–164
Scope, project, 146, 301
Scope reporting, 164–165
Scope statement, 153–160
organization breakdown struc-
ture, 159–160
responsibility assignment matrix,
160–161
work breakdown structure,
153–159
Selection models, 78
Self-capabilities, assessment of, 46
Self-regulation, 124
Separation of person and problem,
210–211
Serial activates, 303
Serial path, 333
Shanghai apartment building col-
lapse, 239–240
Sharing of risk, 235
Shepherd, Chris, 224
Showpiece Warship, Navy Scraps
Development, 500–501
Shutting down project, 490–492
Siloing, 49–50
Simplified scoring models, 82–83
limitations of, 84
Skills
matching, identification of,
189–190
necessary, identification of, 189
Slack, 315–316
Smith, Stephanie, 15–16
Smoothing, 407
Sochi Olympics, 257–258
Software project
cost estimation, 272–273
cost estimation of, 270–271
development, delays and
solutions to, 321
function points, 270–271
Solutions
development of, 46–47
testing and refining, 47
Specification control, 167
Splitting activities, 417
Sponsor, 129
resources, scarcity of, 402–405
time, scarcity of, 403–405
Resource demands
greatest, 422
resource allocation and, 422
utilization of, 422
Resource leveling, 407–416
activity late finish dates, deter-
mining, 412
resource-loading table, 411–416
resource overallocation,
identification of, 412
Resource-limited schedule, 302
Resource loading, 405–407
Resource-loading charts, 416–418
Resource-loading table
development of, 411–412
leveling of, 412–416
Resource management
introduction to, 402
in multiproject environments,
420–423
resource constraints, 403–405
resource leveling, 407–416
resource loading, 405–407
resource-loading charts, 416–418
Resource overallocation,
identification of, 412
Resource pool PMO, 59
Resources
assigning, 513
definition of, 53
for Gantt charts, 337–338
leveling, 514
in networks, 515
scarcity of, 206, 403–405
Resource smoothing, 407
Resource usage table, 405–407
Resource utilization in multiproject
environments, 420
Responsibilities, poorly defined, 195
Responsibility Assignment Matrix
(RAM), 160–161
Results orientation, 194
Return on investment (ROI), 96, 99
Review, 99, 484–485
Reward systems, 62, 206
Risk
acceptance of, 234
commercial, 229
contractual, 229
execution, 229
financial, 228
identification of, 228–231
legal, 229
minimization of, 235
project, 225
sharing of, 235
technical, 228
transferring of, 235
Risk Breakdown Structure (RBS),
231
Risk impact matrix, 231–232
Risk management
breakdown structures, 231
consequences, analysis of,
231–234
contingency reserves, use of,
236–237
control, 237–239
definition of, 225
documentation, 237–239
four-stage process for, 228–239
integrated approach to,
241–242
insurance, 237
introduction to, 225–226
probability, analysis of, 231–234
risk identification, 228–230
Project selection, 77, 78–80
approach to, 97–98
at General Electric Corporation,
97–98
introduction to, 78
for Nova Western, Inc., 112
profile models, 90–97
project screening and, approaches
to, 80–90
Project stakeholders, 41
analysis of, 41
definition of, 14
identification of, 41–47
management of, 45–47
project, 41
Project structure, 50–53
Project task estimation, 69
Project team
building of, 189–192
characteristics of effective,
192–194
conflict management, 205–209
cross-functional cooperation,
achievement of, 199–202
disbanding, 486
failure of, reasons for, 194–195
group development, stages of,
196–199
impacting lives, 187–188
members of, 45
negotiation, 209–213
virtual, 203
Project termination
conclusions to, 496
definition of, 479
early, 487–494
final project report, preparation
of, 494–496
in information technology,
490–491
introduction to, 479
natural termination, 482–487
types of, 480
Project work packaging,
defining, 163
Psychosocial outcomes, 201
Psychosocial results, 201
Punch list, 482
Punctuated equilibrium, 198–199
Putin, Vladimir, 258
Q
Quadruple constraint, 17
Qualitative risk assessment, 253
Quantitative risk assessment, 254
Questions to ask prior to negotia-
tion, 209–210
R
Ramstein Products, Inc., 397–398
Realignment, 100
Recurring vs. nonrecurring costs,
261
Refactoring process, extreme
programming, 377
Reprioritization, 100
Required rate of return (RRR), 94
Resource allocation, resolution of,
421–423
first in line, 421–422
mathematical programming,
422–423
minimum late finish time, 422
resource demands, 422
Resource conflicts, 386–387
in networks, 512–513
Resource-constrained project, 403
Resource constraints, 402–405
definition of, 402
542 Subject Index
Work Breakdown Structure (WBS),
153–154, 231, 301
purpose of, 154–159
Work packages, 13,
156–157, 301
x
Xerox Alto, 68–69
Xerox Corporation, 62
Z
0/100 rule, 452
development process
in, 370
different phases, 369–370
logical series of steps, 370
WBS codes, 156
Weak matrix, 54
Weather station PMO, 58
Welch, Jack, 117
Westinghouse Electric Company,
15–16
Widgets ’R Us (WRU), 70
Winterkorn, Martin, 37
Work authorization, 161–164
V
Valid consideration, 147, 163
Variable vs. fixed costs, 261–262
Variance, 309
Viñoly, Rafael, 224
Virtual Fence Project, 172–173
Virtual project team, 202
Virtual teams, 202, 203–204
W
Waterfall model, 369, 370
to address the critical issue,
created, 370
Trust, 192
Tunnel Project, Hudson River,
497–499
Turnkey contracts, 164
u
Uncertainty, 14, 206
Unclear goals, 194
U.S. Army, 132, 237
U.S. Marine Corps, 418–420
Unnatural termination, 479
Unpromising projects, 104
Updating networks, 515–519
Front Cover
Title Page
Copyright Page
Brief Contents
Contents
Preface
Introduction: Why Project Management?
Project Profile: Development Projects in Lagos, Nigeria
Introduction
1.1 What Is a Project?
General Project Characteristics
1.2 Why Are Projects Important?
Project Profile: “Throwing Good Money after Bad”: the BBC’s Digital Media Initiative
1.3 Project Life Cycles
Box 1.1: Project Managers in Practice
1.4 Determinants of Project Success
Box 1.2: Project Management Research in Brief
1.5 Developing Project Management Maturity
1.6 Project Elements and Text Organization
Summary
Key Terms
Discussion Questions
Case Study 1.1 MegaTech, Inc.
Case Study 1.2 The IT Department at Hamelin Hospital
Case Study 1.3 Disney’s Expedition Everest
Case Study 1.4 Rescue of Chilean Miners
Internet Exercises
PMP Certification Sample Questions
Notes
The Organizational Context: Strategy, Structure, and Culture
Project Profile: Tesla’s $5 Billion Gamble
Introduction
2.1 Projects and Organizational Strategy
2.2 Stakeholder Management
Identifying Project Stakeholders
Managing Stakeholders
2.3 Organizational Structure
2.4 Forms of Organizational Structure
Functional Organizations
Project Organizations
Matrix Organizations
Moving to Heavyweight Project Organizations
Box 2.1: Project Management Research in Brief
2.5 Project Management Offices
2.6 Organizational Culture
How Do Cultures Form?
Organizational Culture and Project Management
Project Profile: Electronic Arts and the Power of Strong Culture in Design Teams
Summary
Key Terms
Discussion Questions
Case Study 2.1 Rolls-Royce Corporation
Case Study 2.2 Classic Case: Paradise Lost—The Xerox Alto
Case Study 2.3 Project Task Estimationand the Culture of “Gotcha!”
Case Study 2.4 Widgets ’R Us
Internet Exercises
PMP Certification Sample Questions
Integrated Project—Building Your Project Plan
Notes
Project Selection and Portfolio Management
Project Profile: Project Selection Procedures: A Cross-Industry Sampler
Introduction
3.1 Project Selection
3.2 Approaches to Project Screening and Selection
Method One: Checklist Model
Method Two: Simplified Scoring Models
Limitations of Scoring Models
Method Three: The Analytical Hierarchy Process
Method Four: Profile Models
3.3 Financial Models
Payback Period
Net Present Value
Discounted Payback
Internal Rate of Return
Choosing a Project Selection Approach
Project Profile: Project Selection and Screening at GE: The Tollgate Process
3.4 Project Portfolio Management
Objectives and Initiatives
Developing a Proactive Portfolio
Keys to Successful Project Portfolio Management
Problems in Implementing Portfolio Management
Summary
Key Terms
Solved Problems
Discussion Questions
Problems
Case Study 3.1 Keflavik Paper Company
Case Study 3.2 Project Selection at Nova Western, Inc.
Internet Exercises
Notes
Leadership and the Project Manager
Project Profile: Leading by Example for the London Olympics—Sir John Armitt
Introduction
4.1 Leaders Versus Managers
4.2 How the Project Manager Leads
Acquiring Project Resources
Motivating and Building Teams
Having a Vision and Fighting Fires
Communicating
Box 4.1: Project Management Research in Brief
4.3 Traits of Effective Project Leaders
Conclusions about Project Leaders
Project Profile: Dr. Elattuvalapil Sreedharan, India’s Project Management Guru
4.4 Project Champions
Champions—Who Are They?
What Do Champions Do?
How to Make a Champion
4.5 The New Project Leadership
Box 4.2: Project Managers in Practice
Project Profile: The Challenge of Managing Internationally
4.6 Project Management Professionalism
Summary
Key Terms
Discussion Questions
Case Study 4.1 In Search of Effective Project Managers
Case Study 4.2 Finding the Emotional Intelligence to Be a Real Leader
Case Study 4.3 Problems with John
Internet Exercises
PMP Certification Sample Questions
Notes
Scope Management
Project Profile: “We look like fools.”—Oregon’s Failed Rollout of Its Obamacare Web Site
Introduction
5.1 Conceptual Development
The Statement of Work
The Project Charter
Project Profile: Statements of Work: Then and Now
5.2 The Scope Statement
The Work Breakdown Structure
Purposes of the Work Breakdown Structure
The Organization Breakdown Structure
The Responsibility Assignment Matrix
5.3 Work Authorization
Project Profile: Defining a Project Work Package
5.4 Scope Reporting
Box 5.1: Project Management Research in Brief
5.5 Control Systems
Configuration Management
5.6 Project Closeout
Summary
Key Terms
Discussion Questions
Problems
Case Study 5.1 Boeing’s Virtual Fence
Case Study 5.2 California’s High-Speed Rail Project
CaseStudy 5.3 Project Management at Dotcom.com
Case Study 5.4 The Expeditionary Fighting Vehicle
Internet Exercises
PMP Certification Sample Questions
MS Project Exercises
Appendix 5.1: Sample Project Charter
Integrated Project—Developing the Work Breakdown Structure
Notes
Project Team Building, Conflict, and Negotiation
Project Profile: Engineers Without Borders: Project Teams Impacting Lives
Introduction
6.1 Building the Project Team
Identify Necessary Skill Sets
Identify People Who Match the Skills
Talk to Potential Team Members and Negotiate with Functional Heads
Build in Fallback Positions
Assemble the Team
6.2 Characteristics of Effective Project Teams
A Clear Sense of Mission
A Productive Interdependency
Cohesiveness
Trust
Enthusiasm
Results Orientation
6.3 Reasons Why Teams Fail
Poorly Developed or Unclear Goals
Poorly Defined Project Team Roles and Interdependencies
Lack of Project Team Motivation
Poor Communication
Poor Leadership
Turnover Among Project Team Members
Dysfunctional Behavior
6.4 Stages in Group Development
Stage One: Forming
Stage Two: Storming
Stage Three: Norming
Stage Four: Performing
Stage Five: Adjourning
Punctuated Equilibrium
6.5 Achieving Cross-functional Cooperation
Superordinate Goals
Rules and Procedures
Physical Proximity
Accessibility
Outcomes of Cooperation: Task and Psychosocial Results
6.6 Virtual Project Teams
Project Profile: Tele-Immersion Technology Eases the Useof Virtual Teams
6.7 Conflict Management
What Is Conflict?
Sources of Conflict
Methods for Resolving Conflict
6.8 Negotiation
Questions to Ask Prior to the Negotiation
Principled Negotiation
Invent Options for Mutual Gain
Insist on Using Objective Criteria
Summary
Key Terms
Discussion Questions
Case Study 6.1 Columbus Instruments
Case Study 6.2 The Bean Counterand the Cowboy
Case Study 6.3 Johnson & Rogers Software Engineering, Inc.
Exercise in Negotiation
Internet Exercises
PMP Certification Sample Questions
Notes
Risk Management
Project Profile: The Building that Melted Cars
Introduction
Box 7.1: Project Managers in Practice
7.1 Risk Management: a Four-Stage Process
Risk Identification
Project Profile: Bank of America Completely Misjudges Its Customers
Risk Breakdown Structures
Analysis of Probability and Consequences
Risk Mitigation Strategies
Use of Contingency Reserves
Other Mitigation Strategies
Control and Documentation
Project Profile: Collapse of Shanghai Apartment Building
7.2 Project Risk Management: An Integrated Approach
Summary
Key Terms
Solved Problem
Discussion Questions
Problems
Case Study 7.1 Classic Case: deHavilland’s Falling Comet
Case Study 7.2 The Spanish Navy Pays Nearly $3 Billion for a Submarine That Will Sink Like a Stone
Case Study 7.3 Classic Case: Tacoma Narrows Suspension Bridge
Internet Exercises
PMP Certification Sample Questions
Integrated Project—Project Risk Assessment
Notes
Cost Estimation and Budgeting
Project Profile: Sochi Olympics—What’s the Cost of National Prestige?
8.1 Cost Management
Direct Versus Indirect Costs
Recurring Versus Nonrecurring Costs
Fixed Versus Variable Costs
Normal Versus Expedited Costs
8.2 Cost Estimation
Learning Curves in Cost Estimation
Box 8.1: Project Management Research in Brief
Problems with Cost Estimation
Box 8.2: Project Management Research in Brief
8.3 Creating a Project Budget
Top-Down Budgeting
Bottom-Up Budgeting
Activity-Based Costing
8.4 Developing Budget Contingencies
Summary
Key Terms
Solved Problems
Discussion Questions
Problems
Case Study 8.1 The Hidden Costs of Infrastructure Projects—The Case of Building Dams
Case Study 8.2 Boston’s Central Artery/Tunnel Project
Internet Exercises
PMP Certification Sample Questions
Integrated Project—Developing the Cost Estimates and Budget
Notes
Project Scheduling: Networks, Duration Estimation, and Critical Path
Project Profile: After 20 Years and More Than $50 Billion, Oil is No Closer to the Surface: The Caspian Kashagan Project
Introduction
9.1 Project Scheduling
9.2 Key Scheduling Terminology
9.3 Developing a Network
Labeling Nodes
Serial Activities
Concurrent Activities
Merge Activities
Burst Activities
9.4 Duration Estimation
9.5 Constructing the Critical Path
Calculating the Network
The Forward Pass
The Backward Pass
Probability of Project Completion
Laddering Activities
Hammock Activities
Options for Reducing the Critical Path
Box 9.1: Project Management Research in Brief
Summary
Key Terms
Solved Problems
Discussion Questions
Problems
Internet Exercises
MS Project Exercises
PMP Certification Sample Questions
Notes
Project Scheduling: Lagging, Crashing, and Activity Networks
Project Profile: Enlarging the Panama Canal
Introduction
10.1 Lags in Precedence Relationships
Finish to Start
Finish to Finish
Start to Start
Start to Finish
10.2 Gantt Charts
Adding Resources to Gantt Charts
Incorporating Lags in Gantt Charts
Box 10.1: Project Managers in Practice
10.3 Crashing Projects
Options for Accelerating Projects
Crashing the Project: Budget Effects
10.4 Activity-on-Arrow Networks
How Are They Different?
Dummy Activities
Forward and Backward Passes with AOA Networks
AOA Versus AON
10.5 Controversies in the Use of Networks
Conclusions
Summary
Key Terms
Solved Problems
Discussion Questions
Problems
Case Study 10.1 Project Scheduling at Blanque Cheque Construction (A)
Case Study 10.2 Project Scheduling at Blanque Cheque Construction (B)
MS Project Exercises
PMP Certification Sample Questions
Integrated Project—Developing the Project Schedule
Notes
Advanced Topics in Planning and Scheduling: Agile and Critical Chain
Project Profile: Developing Projects Through Kickstarter—Do Delivery Dates Mean Anything?
Introduction
11.1 Agile Project Management
What Is Unique About Agile PM?
Tasks Versus Stories
Key Terms in Agile PM
Steps in Agile
Sprint Planning
Daily Scrums
The Development Work
Sprint Reviews
Sprint Retrospective
Problems with Agile
Box 11.1: Project Management Research in Brief
11.2 Extreme Programming (XP)
11.3 the Theory of Constraints and Critical Chain Project Scheduling
11.4 the Critical Chain Solution to Project Scheduling
Developing the Critical Chain Activity Network
Critical Chain Solutions Versus Critical Path Solutions
Project Profile: Eli Lilly Pharmaceuticals and Its Commitment to Critical Chain Project Management
11.5 Critical Chain Solutions to Resource Conflicts
11.6 Critical Chain Project Portfolio Management
Box 11.2: Project Management Research in Brief
11.7 Critiques of CCPM
Summary
Key Terms
Solved Problem
Discussion Questions
Problems
Case Study 11.1 It’s an Agile World
Case Study 11.2 Ramstein Products, Inc.
Internet Exercises
Notes
Resource Management
Project Profile: Hong Kong Connects to the World’s Longest Natural Gas Pipeline
Introduction
12.1 The Basics of Resource Constraints
Time and Resource Scarcity
12.2 Resource Loading
12.3 Resource Leveling
Step One: Develop the Resource-Loading Table
Step Two: Determine Activity Late Finish Dates
Step Three: Identify Resource Overallocation
Step Four: Level the Resource-Loading Table
12.4 Resource-Loading Charts
Box 12.1: Project Managers in Practice
12.5 Managing Resources in Multiproject Environments
Schedule Slippage
Resource Utilization
In-Process Inventory
Resolving Resource Decisions in Multiproject Environments
Summary
Key Terms
Solved Problem
Discussion Questions
Problems
Case Study 12.1 The Problems of Multitasking
Internet Exercises
MS Project Exercises
PMP Certification Sample Questions
Integrated Project—Managing Your Project’s Resources
Notes
Project Evaluation and Control
Project Profile: New York City’s City Time Project
Introduction
13.1 Control Cycles—a General Model
13.2 Monitoring Project Performance
The Project S-Curve: A Basic Tool
S-Curve Drawbacks
Milestone Analysis
Problems with Milestones
The Tracking Gantt Chart
Benefits and Drawbacks of Tracking Gantt Charts
13.3 Earned Value Management
Terminology for Earned Value
Creating Project Baselines
Why Use Earned Value?
Steps in Earned Value Management
Assessing a Project’s Earned Value
13.4 Using Earned Value to Manage a Portfolio of Projects
Project Profile: Earned Value at Northrop Grumman
13.5 Issues in the Effective Use of Earned Value Management
13.6 Human Factors in Project Evaluation and Control
Critical Success Factor Definitions
Conclusions
Summary
Key Terms
Solved Problem
Discussion Questions
Problems
Study 13.1 The IT Department at Kimble College
Case Study 13.2 The Superconducting Supercollider
Case Study 13.3 Boeing’s 787 Dreamliner: Failure to Launch
Internet Exercises
MS Project Exercises
PMP Certification Sample Questions
Appendix 13.1: Earned Schedule*
Notes
Project Closeout and Termination
Project Profile: Duke Energy and Its Cancelled Levy County Nuclear Power Plant
Introduction
14.1 Types of Project Termination
Box 14.1: Project Managers in Practice
14.2 Natural Termination—the Closeout Process
Finishing the Work
Handing Over the Project
Gaining Acceptance for the Project
Harvesting the Benefits
Reviewing How It All Went
Putting It All to Bed
Disbanding the Team
What Prevents Effective Project Closeouts?
14.3 Early Termination for Projects
Making the Early Termination Decision
Project Profile: Aftermath of a “Feeding Frenzy”: Dubai and Cancelled Construction Projects
Shutting Down the Project
Box 14.2: Project Management Research in Brief
Allowing for Claims and Disputes
14.4 Preparing the Final Project Report
Conclusion
Summary
Key Terms
Discussion Questions
Case Study 14.1 New Jersey Kills Hudson River Tunnel Project
Case Study 14.2 The Project That Wouldn’t Die
Case Study 14.3 The Navy Scraps Development of Its Showpiece Warship—Until the Next Bad Idea
Internet Exercises
PMP Certification Sample Questions
Appendix 14.1: Sample Pages from Project Sign-off Document
Notes
Appendix A The Cumulative Standard Normal Distribution
Appendix B Tutorial for MS Project 2013
Appendix C Project Plan Template
Glossary
Company Index
Name Index
Subject Index
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