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Library of Congress Cataloging-in-Publication Data:

Names: Kerzner, Harold, author. Title: Project management : a systems approach to planning, scheduling, and controlling / Harold Kerzner. Description: Twelfth edition. | Hoboken, New Jersey : John Wiley & Sons, Inc., 2017. | Includes bibliographical references and index. Identifiers: LCCN 2016045434| ISBN 9781119165354 (hardback) | ISBN 9781119165361 (epub); 9781119165378 (epdf) Subjects: LCSH: Project management. | Project management–Case studies. | BISAC: TECHNOLOGY & ENGINEERING / Industrial Engineering. Classification: LCC HD69.P75 K47 2017 | DDC 658.4/04–dc23 LC record available at https://lccn.loc.gov/2016045434

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

To my wife, Jo Ellyn,

for her more than thirty years of unending love, devotion,

and encouragement to continue my writing of project management books

vii

Contents

Preface xix

1 Overview  1

1.0 Introduction 1 1.1 Understanding Project Management 2 1.2 Defining Project Success 6 1.3 Trade-Offs and Competing Constraints 7 1.4 The Entry-Level Project Manager 9 1.5 The Talent Triangle 10 1.6 Technology-Based Projects 10 1.7 The Project Manager–Line Manager Interface 11 1.8 Defining the Project Manager’s Role 13 1.9 Defining the Functional Manager’s Role 15 1.10 Defining the Functional Employee’s Role 17 1.11 Defining the Executive’s Role 17 1.12 Working with Executives 17 1.13 Committee Sponsorship/Governance 19 1.14 The Project Manager as the Planning Agent 20 1.15 Project Champions 21 1.16 Project-Driven versus Non–Project-Driven Organizations 22 1.17 Marketing in the Project-Driven Organization 24 1.18 Classification of Projects 25 1.19 Location of the Project Manager 26 1.20 Differing Views of Project Management 27 1.21 Public-Sector Project Management 28 1.22 International Project Management 31 1.23 Concurrent Engineering: A Project Management Approach 32 1.24 Added Value 32 1.25 Studying Tips for the PMI® Project Management Certification Exam 33

Problems 36

viii CONTENTS

Case Study Williams Machine Tool Company 37

2 Project Management Growth: Concepts and Definitions  39

2.0 Introduction 39 2.1 The Evolution of Project Management: 1945–2017 39 2.2 Resistance to Change 43 2.3 Systems, Programs, and Projects: A Definition 45 2.4 Product versus Project Management: A Definition 47 2.5 Maturity and Excellence: A Definition 49 2.6 Informal Project Management: A Definition 50 2.7 The Many Faces of Success 52 2.8 The Many Faces of Failure 54 2.9 Causes of Project Failure 57 2.10 Degrees of Success and Failure 59 2.11 The Stage-Gate Process 60 2.12 Project Life Cycles 61 2.13 Gate Review Meetings (Project Closure) 65 2.14 Engagement Project Management 66 2.15 Project Management Methodologies: A Definition 67 2.16 From Enterprise Project Management Methodologies to Frameworks 69 2.17 Methodologies Can Fail 70 2.18 Organizational Change Management and Corporate Cultures 71 2.19 Benefits Harvesting and Cultural Change 76 2.20 Agile and Adaptive Project Management Cultures 77 2.21 Project Management Intellectual Property 77 2.22 Systems Thinking 79 2.23 Studying Tips for the PMI® Project Management Certification Exam 82

Problems 85

Case Study Creating a Methodology 86

3 OrGanizatiOnal StruCtureS  89

3.0 Introduction 89 3.1 Organizational Work Flow 90 3.2 Traditional (Classical) Organization 91 3.3 Pure Product (Projectized) Organization 93 3.4 Matrix Organizational Form 95 3.5 Modification of Matrix Structures 99 3.6 The Strong, Weak, or Balanced Matrix 101

Contents ix

3.7 Project Management Offices 101 3.8 Selecting the Organizational Form 103 3.9 Strategic Business Unit (SBU) Project Management 106 3.10 Transitional Management 107 3.11 Seven Fallacies that Delay Project Management Maturity 109 3.12 Studying Tips for the PMI® Project Management Certification Exam 111

Problems 113

4 OrGanizinG anD StaffinG the PrOjeCt OffiCe anD teaM  115

4.0 Introduction 115 4.1 The Staffing Environment 116 4.2 Selecting the Project Manager: an Executive Decision 117 4.3 Skill Requirements for Project and Program Managers 121 4.4 Special Cases in Project Manager Selection 125 4.5 Today’s Project Managers 126 4.6 Duties and Job Descriptions 127 4.7 The Organizational Staffing Process 128 4.8 The Project Office 131 4.9 The Functional Team 133 4.10 The Project Organizational Chart 133 4.11 Selecting the Project Management Implementation Team 136 4.12 Mistakes Made by Inexperienced Project Managers 139 4.13 Studying Tips for the PMI® Project Management Certification Exam 140

Problems 142

5 ManaGeMent funCtiOnS  145

5.0 Introduction 145 5.1 Controlling 146 5.2 Directing 146 5.3 Project Authority 148 5.4 Interpersonal Influences 152 5.5 Barriers to Project Team Development 154 5.6 Suggestions for Handling the Newly Formed Team 157 5.7 Team Building as an Ongoing Process 158 5.8 Leadership in a Project Environment 159 5.9 Value-Based Project Leadership 160 5.10 Transformational Project Management Leadership 163 5.11 Organizational Impact 163 5.12 Employee–Manager Problems 165 5.13 General Management Pitfalls 166 5.14 Time Management Pitfalls 167

x CONTENTS

5.15 Management Policies and Procedures 171 5.16 Human Behavior Education 171 5.17 Studying Tips for the PMI® Project Management Certification Exam 174

Problems 177

Case Studies The Trophy Project 178 McRoy Aerospace 180 The Poor Worker 182 The Prima Donna 182 The Reluctant Workers 184 Leadership Effectiveness (A) 185 Leadership Effectiveness (B) 189 Motivational Questionnaire 195

6 COMMuniCatiOnS ManaGeMent  203

6.0 Introduction 203 6.1 Modeling the Communications Environment 203 6.2 The Project Manager as a Communicator 208 6.3 Project Review Meetings 212 6.4 Project Management Bottlenecks 212 6.5 Active Listening 213 6.6 Communication Traps 214 6.7 Project Problem Solving 215 6.8 Brainstorming 223 6.9 Predicting the Outcome of a Decision 224 6.10 Facilitation 226 6.11 Studying Tips for the PMI® Project Management Certification Exam 228

Problems 230

Case Studies   Communication Failures 231 The Team Meeting 234

7 COnfliCtS  237

7.0 Introduction 237 7.1 The Conflict Environment 238 7.2 Types of Conflicts 239 7.3 Conflict Resolution 240 7.4 The Management of Conflicts 241 7.5 Conflict Resolution Modes 242

Contents xi

7.6 Understanding Superior, Subordinate, and Functional Conflicts 244 7.7 Studying Tips for the PMI® Project Management Certification Exam 246

Problems 248

Case Studies   Facilities Scheduling at Mayer Manufacturing 248 Telestar International 250 Handling Conflict in Project Management 251

8 SPeCial tOPiCS  257

8.0 Introduction 257 8.1 Performance Measurement 257 8.2 Financial Compensation and Rewards 262 8.3 Effective Project Management in the Small Business Organization 270 8.4 Mega Projects 271 8.5 Morality, Ethics, and the Corporate Culture 273 8.6 Professional Responsibilities 275 8.7 Internal and External Partnerships 278 8.8 Training and Education 279 8.9 Integrated Product/Project Teams 281 8.10 Virtual Project Teams 283 8.11 Managing Innovation Projects 284 8.12 Agile Project Management 287 8.13 Studying Tips for the PMI® Project Management Certification Exam 289

Problems 295

Case Study   Is It Fraud? 295

9 the variableS fOr SuCCeSS  299

9.0 Introduction 299 9.1 Predicting Project Success 299 9.2 Project Management Effectiveness 302 9.3 Expectations 303 9.4 Lessons Learned 305 9.5 Understanding Best Practices 306 9.6 Studying Tips for the PMI® Project Management Certification Exam 312

Problems 313

Case Study   Radiance International 313

xii CONTENTS

10 wOrkinG with exeCutiveS  317

10.0 Introduction 317 10.1 The Project Sponsor 317 10.2 Handling Disagreements with the Sponsor 327 10.3 The Collective Belief 327 10.4 The Exit Champion 328 10.5 The In-House Representatives 329 10.6 Stakeholder Relations Management 329 10.7 Project Portfolio Management 335 10.8 Politics 337 10.9 Studying Tips for the PMI® Project Management Certification Exam 338

Problems 339

Case Studies   The Prioritization of Projects 340 The Irresponsible Sponsors 341 Selling Executives on Project Management 342

11 PlanninG  345

11.0 Introduction 345 11.1 Business Case 346 11.2 Validating the Assumptions 348 11.3 Validating the Objectives 351 11.4 General Planning 352 11.5 Life-Cycle Phases 355 11.6 Life-Cycle Milestones 356 11.7 Kickoff Meetings 358 11.8 Understanding Participants’ Roles 360 11.9 Establishing Project Objectives 360 11.10 The Statement of Work 361 11.11 Project Specifications 363 11.12 Data Item Milestone Schedules 364 11.13 Work Breakdown Structure 365 11.14 Wbs Decomposition Problems 370 11.15 Work Breakdown Structure Dictionary 372 11.16 Project Selection 373 11.17 The Role of the Executive in Planning 377 11.18 Management Cost and Control System 378 11.19 Work Planning Authorization 379 11.20 Why Do Plans Fail? 380 11.21 Stopping Projects 381 11.22 Handling Project Phaseouts and Transfers 381

Contents xiii

11.23 Detailed Schedules and Charts 383 11.24 Master Production Scheduling 385 11.25 Project Plan 386 11.26 The Project Charter 391 11.27 Project Baselines 392 11.28 Verification and Validation 395 11.29 Management Control 396 11.30 Configuration Management 397 11.31 Enterprise Project Management Methodologies 398 11.32 Project Audits 399 11.33 Studying Tips for the PMI® Project Management Certification Exam 400

Problems 404

12 netwOrk SCheDulinG teChniqueS  409

12.0 Introduction 409 12.1 Network Fundamentals 411 12.2 Graphical Evaluation and Review Technique (GERT) 416 12.3 Dependencies 417 12.4 Slack Time 417 12.5 Network Replanning 423 12.6 Estimating Activity Time 428 12.7 Estimating Total Project Time 429 12.8 Total PERT/CPM Planning 430 12.9 Crash Times 431 12.10 PERT/CPM Problem Areas 436 12.11 Alternative PERT/CPM Models 436 12.12 Precedence Networks 437 12.13 Lag 440 12.14 Scheduling Problems 441 12.15 The Myths of Schedule Compression 441 12.16 Project Management Software 442 12.17 Studying Tips for the PMI® Project Management Certification Exam 445

Problems 448

Case Study The Invisible Sponsor 451

13 PriCinG anD eStiMatinG  453

13.0 Introduction 453 13.1 Global Pricing Strategies 453 13.2 Types of Estimates 455 13.3 Pricing Process 458

xiv CONTENTS

13.4 Organizational Input Requirements 460 13.5 Labor Distributions 462 13.6 Overhead Rates 463 13.7 Materials/Support Costs 465 13.8 Pricing Out the Work 466 13.9 Smoothing Out Department Man-Hours 469 13.10 The Pricing Review Procedure 471 13.11 Systems Pricing 472 13.12 Developing the Supporting/Backup Costs 474 13.13 The Low-Bidder Dilemma 474 13.14 Special Problems 477 13.15 Estimating Pitfalls 478 13.16 Estimating High-Risk Projects 479 13.17 Project Risks 480 13.18 The Disaster of Applying the 10 Percent Solution to Project Estimates 483 13.19 Life-Cycle Costing (LCC) 484 13.20 Logistics Support 486 13.21 Economic Project Selection Criteria: Capital Budgeting 488 13.22 Payback Period 488 13.23 The Time Value of Money and Discounted Cash Flow (DCF) 489 13.24 Net Present Value (NPV) 490 13.25 Internal Rate of Return (IRR) 490 13.26 Comparing IRR, NPV, and Payback 491 13.27 Risk Analysis 492 13.28 Capital Rationing 492 13.29 Project Financing 494 13.30 Studying Tips for the PMI® Project Management Certification Exam 496

Problems 498

Case Study The Estimating Problem 499

14 COSt COntrOl  501

14.0 Introduction  501 14.1 Understanding Control 503 14.2 The Operating Cycle 506 14.3 Cost Account Codes 506 14.4 Budgets 511 14.5 The Earned Value Measurement System (EVMS) 512 14.6 Variance and Earned Value 513 14.7 The Cost Baseline 529 14.8 Justifying the Costs 531 14.9 The Cost Overrun Dilemma 532

Contents xv

14.10 Recording Material Costs Using Earned Value Measurement 534 14.11 Material Variances: Price and Usage 535 14.12 Summary Variances 536 14.13 Status Reporting 537 14.14 Cost Control Problems 537 14.15 Studying Tips for the PMI® Project Management Certification Exam 539

Problems 542

Case Studies The Bathtub Period 544 Franklin Electronics 545

15 MetriCS  549

15.0 Introduction 549 15.1 Project Management Information Systems 549 15.2 Enterprise Resource Planning 550 15.3 Project Metrics 550 15.4 Key Performance Indicators (KPIS) 555 15.5 Value-Based Metrics 561 15.6 Dashboards and Scorecards 566 15.7 Business Intelligence 569 15.8 Studying Tips for the PMI® Project Management Certification Exam 570

Problems 573

16 traDe-Off analySiS in a PrOjeCt envirOnMent  575

16.0 Introduction 575 16.1 Methodology for Trade-Off Analysis 578 16.2 Contracts: Their Influence on Projects 593 16.3 Industry Trade-Off Preferences 594 16.4 Project Manager’s Control of Trade-Offs 597 16.5 Studying Tips for the PMI® Project Management Certification Exam 597

Problems 598

17 riSk ManaGeMent  599

17.0 Introduction 599 17.1 Definition of Risk 601 17.2 Tolerance for Risk 603 17.3 Definition of Risk Management 604 17.4 Certainty, Risk, and Uncertainty 604 17.5 Risk Management Process 610

xvi CONTENTS

17.6 Plan Risk Management 611 17.7 Risk Identification 612 17.8 Risk Analysis 613 17.9 Qualitative Risk Analysis 615 17.10 Quantitative Risk Analysis 616 17.11 Plan Risk Response 619 17.12 Monitor and Control Risks 621 17.13 Some Implementation Considerations 622 17.14 The Use of Lessons Learned 623 17.15 Dependencies between Risks 624 17.16 The Impact of Risk Handling Measures 628 17.17 Risk and Concurrent Engineering 631 17.18 Studying Tips for the PMI® Project Management Certification Exam 633

Problems 637

Case Studies Teloxy Engineering (A) 640 Teloxy Engineering (B) 640 The Risk Management Department 641

18 learninG CurveS  643

18.0 Introduction 643 18.1 General Theory 643 18.2 The Learning Curve Concept 644 18.3 Graphic Representation 646 18.4 Key Words Associated with Learning Curves 647 18.5 The Cumulative Average Curve 648 18.6 Sources of Experience 649 18.7 Developing Slope Measures 653 18.8 Unit Costs and Use of Midpoints 654 18.9 Selection of Learning Curves 654 18.10 Follow-On Orders 655 18.11 Manufacturing Breaks 656 18.12 Learning Curve Limitations 656 18.13 Competitive Weapon 657 18.14 Studying Tips for the PMI® Project Management Certification Exam 658

Problems 659

19 COntraCt ManaGeMent  661

19.0 Introduction 661 19.1 Procurement 662 19.2 Plan Procurements 664

Contents xvii

19.3 Conducting the Procurements 667 19.4 Conduct Procurements: Request Seller Responses 668 19.5 Conduct Procurements: Select Sellers 669 19.6 Types of Contracts 673 19.7 Incentive Contracts 678 19.8 Contract Type versus Risk 680 19.9 Contract Administration 680 19.10 Contract Closure 683 19.11 Using a Checklist 684 19.12 Proposal-Contractual Interaction 684 19.13 Studying Tips for the PMI® Project Management Certification Exam 686

Problems 691

Case Studies To Bid or Not to Bid 692 The Management Reserve 693

20 quality ManaGeMent  697

20.0 Introduction 697 20.1 Definition of Quality 698 20.2 The Quality Movement 699 20.2 Quality Management Concepts 703 20.3 The Cost of Quality 707 20.4 The Seven Quality Control Tools 709 20.5 Acceptance Sampling 721 20.6 Implementing Six Sigma 722 20.7 Quality Leadership 723 20.8 Responsibility for Quality 724 20.9 Quality Circles 725 20.10 Total Quality Management (TQM) 725 20.11 Studying Tips for the PMI® Project Management Certification Exam 728

Problems 731

21 MODern DevelOPMentS in PrOjeCt ManaGeMent  733

21.0 Introduction 733 21.1 The Project Management Maturity Model (PMMM) 733 21.2 Developing Effective Procedural Documentation 737 21.3 Project Management Methodologies 741 21.4 Continuous Improvement 742 21.5 Capacity Planning 743 21.6 Competency Models 745 21.7 Managing Multiple Projects 747

xviii CONTENTS

21.8 The Business of Scope Changes 748 21.9 End-of-Phase Review Meetings 752

Case Study Honicker Corporation 753 Kemko Manufacturing 755

Appendix A: Solution to Leadership Exercise 759 Appendix B: Solutions to the Project Management Conflict Exercise 765 Appendix C: Dorale Products Case Studies 771 Appendix D: Solutions to the Dorale Products Case Studies 783 Appendix E: Alignment of the PMBOK® Guide to the Text  789

Index 795

PMBOK is a registered mark of the Project Management Institute, Inc.

xix

Preface

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

This book is addressed not only to those undergraduate and graduate students who wish to improve upon their project management skills but also to those func- tional managers and upper-level executives who serve as project sponsors and must provide continuous support for projects. During the past several years, man- agement’s knowledge and understanding of project management has matured to the point where almost every company is using project management in one form or another. These companies have come to the realization that project manage- ment and productivity are related, and that we are now managing our business as though it is a series of projects. Project management coursework is now consum- ing more of training budgets than ever before.

General reference is provided in the text to engineers. However, the reader should not consider project management as strictly engineering-related. The engineering examples are the result of the fact that project management first appeared in the engineering disciplines, and we should be willing to learn from their mistakes. Project management now resides in every profession, including

xx PreFaCe

information systems, healthcare, consulting, pharmaceutical, banks, and govern- ment agencies.

The text can be used for both undergraduate and graduate courses in business, information systems, and engineering. The structure of the text is based upon my belief that project management is much more behavioral than quantitative since projects are managed by people rather than tools. The first seven chapters are part of the basic core of knowledge necessary to understand project management, specifically topics related to PMI’s “Talent Triangle.” Chapters 8 through 10 deal with the support functions and describe factors for predicting success and man- agement support. It may seem strange that ten chapters on organizational behavior and structuring are needed prior to the “hard-core” chapters of planning, schedul- ing, and controlling. These first ten chapters are needed to understand the cultural environment for all projects and systems. These chapters are necessary for the reader to understand the difficulties in achieving cross-functional cooperation on projects where team members are working on multiple projects concurrently and why the people involved, all of whom may have different backgrounds, cannot simply be forged into a cohesive work unit without friction. Chapters 11 through 20 are more of the quantitative chapters on planning, scheduling, cost control, estimating, contracting (and procurement), and quality. Chapter 21 focuses on some of the more advanced topics.

The changes that were made in the twelfth edition include:

● Updated section on the Introduction to Project Management ● Updated section on Competing Constraints ● New section on the Talent Triangle ● New section on entry-Level Project Management ● New section on Technology-Based Projects ● Updated section on the Many Faces of Project Success ● New section on Converting Methodologies to Frameworks ● New section on the Causes of Project Failure ● New section on Degrees of Project Success and Failure ● Updated section on Knowledge Management and Data Warehouses ● Updated section on Project Management Intellectual Property ● New section on Benefits Harvesting and Cultural Change ● New section on Transformational Project Management Leadership ● Updated section on Managing Mega Projects ● Updated section on agile Project Management ● New section on agile and adaptive Project Management Cultures ● Updated section on Multinational Project Management Sponsorship ● New section on Preparing a Project Business Case ● Updated section on Validating the Project’s assumptions ● Updated section on Validating the Project’s Objectives ● New section on Life-Cycle Milestones ● New section on the Project Management Office ● New section on Project Portfolio Management

Preface xxi

● Updated section on Best Practices ● Updated section on resource Leveling Issues

The text contains case studies, multiple choice questions, and discussion questions. There is also a separate companion book of cases (Project Management Case Studies, fifth edition) that provides additional real-world examples. Some of the new case studies include in the case book are:

Case Study Description

Disney (a) Imagineering Project Management Discusses some of the different skill sets needed to be an Imagineering PM

Disney (B) Imagineering in action: The Haunted Mansion

Discusses the challenges with evolving scope on a project

Disney (C) Theme Parks and enterprise environmental Factors

Discusses how important an understanding of the enterprise environmental factors are and how they can impact project success

Disney (D) The Globalization of Disney Discusses the challenges facing the use of project management on a global scale

Disney (e) Hong Kong Ocean Park: Competing against Disney

Discusses how one company competed against Disney by expanding the project’s scope

Olympics (a) Managing Olympic Projects Discusses how the enterprise environmental factors impact Olympic projects

Olympics (B) Olympics, Project Management and PMI’s Code of ethics and Professional responsibility

Discusses the complexity of abiding by PMI’s Code of Conduct and Professional responsibility on some Olympic projects

Olympics (C) Feeding the Olympic athletes Discusses the complexities (including quality control) for feeding 23,000 Olympians, coaches and staff members

Olympics (D) Health and Safety risks at Olympic events

Discusses the health and safety risks when of allowing athletes to compete in environments that have known health risks

Tradeoffs (a), (B) Discusses how the introduction of competing constraints mandated additional tradeoffs and the challenges the company faced

The Project Management audit Discusses the need for occasional audits on a project and what happens executives are displeased with the results

The executive Director Discusses how a newly appointed executive director in a government agency played the political game to prevent being blamed for any wrong-doing

The twelfth edition text, the PMBOK® Guide and the book of cases are ideal as self-study tools for the Project Management Institute’s PMP® Certification exam. Because of this, there are tables of cross references at the end of each chap- ter in the textbook detailing the sections from the book of cases and the Guide to the Project Management Body of Knowledge (PMBOK® Guide) that apply to that

PMBOK is a registered mark of the Project Management Institute

chapter’s content. The left-hand margin of the pages in the text has side bars that identify the cross-listing of the material on that page to the appropriate section(s) of the PMBOK® Guide. at the end of most of the chapters is a section on study tips for the PMP® exam.

This textbook is currently used in the college market, in the reference mar- ket, and for studying for the PMP® Certification exam. Therefore, to satisfy the needs of all markets, a compromise had to be reached on how much of the text would be aligned to the PMBOK® Guide and how much new material would be included without doubling the size of the text. Some colleges and universities use the textbook to teach project management fundamentals without reference to the PMBOK® Guide. The text does not contain all of the material neces- sary to support each section or process in the PMBOK® Guide. Therefore, to study for the PMP® Certification exam, the PMBOK® Guide must also be used together with this text. The text covers material for almost all of the PMBOK® Guide knowledge areas but not necessarily in the depth that appears in the PMBOK® Guide.

an instructor’s manual is available only to college and university faculty members by contacting your local Wiley sales representative or by visiting the Wiley website at www.wiley.com/kerzner. access to the instructor’s material and supporting material can be provided only through John Wiley & Sons Publishers, not the author.

One-, two-, and three-day seminars on project management and the PMP® Certification Training using the text are offered by contacting Lori Milhaven, executive Vice President, the International Institute for Learning, at 800-325- 1533, extension 5121 (e-mail address: lori.milhaven@iil.com).

The problems and case studies at the ends of the chapters cover a variety of industries. almost all of the case studies are real-world situations taken from my consulting practice or from research. Feedback from my colleagues who are using the text has provided me with fruitful criticism, most of which has been incorpo- rated into the twelfth edition.

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

Many colleagues provided valuable criticism. In particular, I am indebted to those industrial/government training managers whose dedication and commit- ment to quality project management education and training have led to valuable changes in this and previous editions. In particular, I wish to thank Frank Saladis, PMP, for his constructive comments, recommendations, and assistance with the mapping of the text to the PMBOK® Guide as well as recommended changes to many of the chapters. I am indebted to Dr. edmund Conrow, PMP, for more than a decade of assistance with the preparation of the risk management chapters in all of my texts. I am also indebted to Dr. rene rendon for his review and recommenda- tions for changes to the chapter on Contract Management.

xxii PreFaCe

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

Harold Kerzner The International Institute for Learning

2017

Preface xxiii

1

1.0 INTRODUCTION

In the United States, the roots of project management date back to the Department of Defense (DOD) and heavy construction companies during the 1960s. Early use of project management focused on the comple- tion of unique, or sometimes repetitive, projects with a heavy focus on compliance to budgets and sched- ules. To maintain standardization and control in the way that projects were managed, DOD established policies and procedures for gate reviews and the way that status should be reported.

In the early years, project management was seen as a part-time job rather than as a career path position. In many companies, project management existed in only a small portion of the business, which made it dif- ficult for some projects to get total company support.

Executives began realizing the complexities of resource control and effective project staffing. In addi- tion, the rapid rate of change in both technology and the marketplace had created enormous strains on existing organizational forms. The traditional structure, which was highly bureaucratic, showed that it could not respond rapidly enough to a changing environment. Thus, the traditional structure was replaced by project management, or other temporary management structures, that were highly organic and could respond very rapidly as situations developed inside and outside the company. The organic nature of project management practices today allow project managers to customize the project management tools and pro- cesses to adapt to a variety of different environments.

The acceptance of project management was not easy. Many executives were not willing to accept change and were inflexible when it came to adapting to a different environment and flexible organizational structures. The project management approach required a departure from the traditional business organiza- tional form, which was basically vertical and which emphasized a strong superior–subordinate relationship. Many executives had very strong beliefs as to how a company should be run and refused to recognize or admit that project management could benefit their company.

1 Overview

2 OvErvIEw

Unfavorable economic conditions forced executives to reconsider the value that project management could bring to a firm. Some of the unfavorable conditions included the recessions of the late 1970s and early 1990s, the housing crisis that began in 2008, the European economy downturn in 2013 and 2014, and the world economic slowdown in 2015. These unfavorable conditions emphasized the need for better control of existing resources, the creation of a portfolio of projects that would maximize the value brought to the firm, and a higher percentage of project successes. It soon became apparent that project management could satisfy all of these needs and that project management is a necessity in both bad and good economic condi- tions. Today, the concept behind project management is being applied in such diverse industries and organi- zations as defense, construction, pharmaceuticals, chemicals, banking, hospitals, accounting, advertising, law, state and local governments, and the United Nations.

Almost all of today’s executives are convinced that project management can and does work well. Pro- ject management is now being applied to all facets of a business rather than just parts of the business. Pro- jects are now being aligned with corporate or strategic objectives. Simply stated, “why work on a project that is not aligned to strategic objectives with the goal of creating business value?” In some companies such as IBM, Microsoft, and Hewlett-Packard, project management is recognized as a strategic competency nec- essary for the survival of the firm. This recognition of the importance of project management today perme- ates almost all industries and companies of all sizes.

1.1 UNDERSTANDING PROJECT MANAGEMENT

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

● Have a specific objective, with a focus on the creation of business value, 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)

The result or outcome of the project can be unique or repetitive, and must be achieved within a finite period of time. Because companies have very limited resources, care must be taken that the right mix of projects is approved. Given this, another outcome of a project is that it provides business value to the company as opposed to being a “pet” project for the personal whims of one person.

Project management is the application of knowledge, skills, and tools necessary to achieve the project’s requirements. The knowledge, skills, and tools are usually grouped into activities or processes. PMI’s PMBOK ® Guide identifies five process groups. Some of the activities within these groups include:

● Project initiation ● Selection of the best project given resource limits ● recognizing the benefits of the project

PMBOK® Guide, 6th Edition Chapter 1 Introduction to the PMBOK®

Guide 1.2.1 Projects 1.2.1 The Importance of Project

Management 1.2.4.5 Project Management Process

Groups

PMBOK is a registered mark of the Project Management Institute, Inc.

Understanding Project Management 3

● Preparation of the documents to sanction the project ● Assigning of the project manager

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

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

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

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

Successful project management can then be defined as achieving a continuous stream of project objectives within time, within cost, at the desired performance/technology level, while utilizing the assigned resources effectively and efficiently, and having the results accepted by the customer and/or stakeholders. Because each project is inherently different and each customer can have different requirements, the activities included within the process groups may change from project to project. The PMBOK ® Guide identifies industry-accepted activity regarded as best practices for each process group and these best practices can be structured to create a project management methodology that can be applied and customized to a variety of projects.

The potential benefits from effective project management are:

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

● Minimizing the need for continuous reporting ● Identification of time limits for scheduling ● Identification of a methodology for trade-off analysis ● Measurement of accomplishment against plans ● Early identification of problems so that corrective action may follow ● Improved estimating capability for future planning ● Knowing when objectives cannot be met or will be exceeded

Unfortunately, the benefits cannot be achieved without overcoming obstacles such as project complexity, customer’s special requirements and scope changes, organizational restructuring, project risks, changes in technology, and forward planning and pricing.

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Project management is designed to make better use of existing resources by getting work to flow horizontally as well as vertically within the company. This approach does not really destroy the vertical, bureaucratic flow of work but simply requires that line organi- zations talk to one another horizontally so that horizontal and vertical work flow will be accomplished more smoothly throughout the organization and in a concurrent manner. The vertical flow of work is still the responsibility of the line managers. The horizontal flow of work is the responsibility of the project managers, and their primary effort is to communi- cate and coordinate activities horizontally between the line organizations.

Figure 1–1 shows how many companies are structured. There are always “class or prestige” gaps between various levels of man- agement. There are also functional gaps between working units of the organization. If we superimpose the management gaps on top of

the functional gaps, we find that companies are made up of small operational islands that refuse to communicate with one another for fear that giving up information may strengthen their opponents. The project manager’s responsibility is to get these islands to communi- cate crossfunctionally toward common goals and objectives.

The project manager may require a difference set of skills when working with each of the islands. The PMBOK ® Guide identifies a talent triangle composed of technical project management, leadership and strategic and business management skills. In today’s environ- ment, strategic and business management skills are getting more attention because project managers are seen as managing part of a business rather than merely a project and, as such, are expected to make both project and business decisions.

The following is an overview definition of project management:

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

PMBOK® Guide, 6th Edition 3.4 Project Management Competence

FIGURE 1–1.  Organizational gaps.

TOP MANAGEMENT:

POLICY

MIDDLE MANAGEMENT:

PLANNING

SUPERVISORS: SCHEDULING

LABORERS: OPERATIONS

MANAGEMENT GAPS FUNCTIONAL GAPS: DEPARTMENTIZATION

OPERATIONAL ISLANDS

Understanding Project Management 5

The preceding definition requires further comment. Classical management is usually considered to have five functions or principles:

● Planning ● Organizing ● Staffing ● Controlling ● Directing

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

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

Figure 1–2 is a pictorial representation of traditional project management the way it was understood in the past. The objective of the figure is to show that project manage- ment is designed to manage or control company resources on a given activity, within time, within cost, and within performance. Time, cost, and performance were considered as the

PMBOK® Guide, 6th Edition 2.4 Organizational Systems

W

ITH IN

GO OD C

USTOMER RELATIONS

TI M

E CO ST

RESOURCES

PERFORMANCE/TECHNOLOGY

FIGURE 1–2.  Overview of project management.

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only constraints on the project. If the project is to be accomplished for an outside customer, then the project had a fourth constraint: good customer relations. Customers can be inter- nal or external to the parent organization. The reader should immediately realize that it is possible to manage a project within time, cost, and performance and then also alienate the customer to such a degree that no further business will be forthcoming. Executives often select project managers based on who the customer is and what kind of customer relations will be necessary.

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

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

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

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

1.2 DEFINING PROJECT SUCCESS

In the previous section, we defined project success as the completion of an activity within the constraints of time, cost, and performance. This was the definition used for the past thirty to forty years or so. More recently, the definition of project success has been modified to include completion:

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

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

Project managers must be willing to manage (and make concessions/trade-offs, if nec- essary) such that the company’s main work flow is not altered. Most project managers

PMBOK® Guide, 6th Edition 1.2.6.4 Project Success Measures

Trade-Offs and Competing Constraints 7

view themselves as self-employed entrepreneurs after project go-ahead and would like to divorce their project from the operations of the parent organization. This is not always possible. The project manager must be willing to manage within the guidelines, policies, procedures, rules, and directives of the parent organization.

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

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

1.3 TRADE-OFFS AND COMPETING CONSTRAINTS

Although many projects are completed successfully, at least in the eyes of the stakehold- ers, the final criteria from which success is measured may be different from the initial criteria because of trade-offs. Trade-offs are situations where one aspect of a project may be sacrificed to gain an advantage with another aspect. As an example, additional time and money may be needed to make further improvements in the quality of the project’s deliverables.

The first triangle shown in Figure 1–2 is referred to as the triple constraints on a pro- ject, namely time, cost, and performance, where performance can be scope, quality, or technology. These are considered to be the primary constraints and are often considered to be the criteria for a project against which success is measured.

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

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

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that the credibility of the corporation is at stake. In such a case, the competing con- straints shown on the right in Figure 1–3 can be more important than the original triple constraints.

Secondary factors are also considered to be constraints and may be more important than the primary constraints. For example, years ago, in Disneyland and Disneyworld, the project managers designing and building the attractions at the theme parks had six con- straints: time, cost, scope, safety, aesthetic value, and quality.

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

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

when managing a project according to the triple constraints of time, cost, and scope, we perform a juggling act and often find a way to meet all three constraints, each of which usually carries an equal degree of importance. when the number of constraints increases to five or six constraints, it may be difficult, if not impossible, to meet all of the constraints and a prioritization of constraints may be necessary.

The prioritization of constraints can change over the life of the project based upon the needs of the project manager, the client, and the stakeholders. Changing the priorities of the constraints can lead to scope changes and play havoc with the requirements and baselines. There must be a valid reason for changing the prioritization of the constraints after project go-ahead.

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