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Management Question

Description

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬

Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University

College of Administrative and Financial Sciences

Assignment 1
Project Management (MGT 323)
Due Date: 05/10/2024 @ 23:59
Course Name: Project Management

Student’s Name:

Course Code: MGT323

Student’s ID Number:

Semester: First Semester

CRN:
Academic Year:2024-25-1st

For Instructor’s Use only
Instructor’s Name:
Students’ Grade: /10

Level of Marks: High/Middle/Low

General Instructions – PLEASE READ THEM CAREFULLY
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The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted. Peer-Reviewed Journals are required as
references.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.

• Do not make any changes in the cover page.

Assignment Workload:
• This Assignment comprise of a Case Study and Discussion Questions.
• Assignment is to be submitted by each student individually.
Assignment Purposes/Learning Outcomes:
After completion of Assignment-1 students will able to understand the
1. Defining the concepts, theories and approaches of project management. (L.O-1.1)
2. Estimate the project budget and cost control. (L.O-2.2)
3. Analyze to work effectively and efficiently as a team member for project related
cases. (L.O-3.1)

Assignment-1
Assignment Case Study Question:

( Marks 6)

Please read the Case-2.1 “Hector Gaming Company.” from Chapter 2 “Organization
strategy and Project Selection” given in your textbook – Project Management: The
Managerial Process 8th edition by Larson and Gray page no: 61 also refer to specific
concepts you have learned from the chapter to support your answers. Answer the following
questions with 500 Words limit.
Peters has hired you as a consultant. She has suggested the following format for your
consulting contract. You are free to use another format if it will improve the effectiveness
of the consulting engagement.
Provide a detailed action plan that attacks the problem. Be specific and provide examples
that relate to HGC.
1. What is our major problem? (2 Marks)
2. Identify some symptoms of the problem. (2 Marks)
3. What is the major cause of the problem? (2 Marks)

Discussion Question:

(4 Marks)

4. What impact will artificial intelligence (AI) have on the field of project
management? (2 Marks) Refer Chapter-2
5. How are projects linked to the strategic plan? (2 Marks) Refer Chapter-2

Answers:

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Chapter One
Modern Project
Management

© 2021 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.

An Overview of Project Management 8th Ed

Learning Objectives
1-1

Understand why project management (PM) is crucial in
today’s world

1-2

Distinguish a project from routine operations

1-3

Identify the different stages of a project life cycle

1-4

Describe how Agile PM is different from traditional PM

1-5

Understand that managing projects involves balancing the
technical and sociocultural dimensions of the project

Chapter Outline
1.1

What Is a Project?

1.2

Current Drivers of Project Management

1.3

Agile Project Management

1.4

Project Management Today: A Socio-Technical Approach

Examples of Projects Given to Recent College Graduates
• Business information: install new data security system
• Physical education: develop a new fitness program for senior citizens
• Marketing: execute a sales program for a new home air purifier
• Industrial engineering: create a value chain report for every aspect of a key product from
design to customer delivery
• Chemistry: develop a quality control program for an organization’s drug production facilities
• Management: implement a new store layout design
• Pre-med neurology student: join a project team linking mind mapping to an imbedded
prosthetic that will allow blind people to function normally
• Sport communication: create a promotion plan for a women’s basketball project
• Systems engineers: develop data mining software of medical papers and studies related to
drug efficacy
• Accounting: work on an audit of a major client
• Public health: design a medical marijuana educational program
• English: create a web-based user manual for a new electronics product

1.1 What Is a Project?
Project Defined (according to PMI)
• A temporary endeavor undertaken to create a unique product, service,
or result
Major Characteristics of a Project
• Has an established objective
• Has a defined life span with a beginning and an end
• Involves several departments and professionals
• Involves doing something never been done before
• Has specific time, cost, and performance requirements

Program versus Project
Program Defined
• A group of related projects designed to accomplish a common goal
over an extended period of time
Program Management Defined
• A process of managing a group of ongoing, interdependent, related
projects in a coordinated way to achieve strategic objectives
Examples:
• Project: completion of a required course in project management
• Program: completion of all courses required for a business major

Comparison of Routine Work with Projects
Routine, Repetitive Work

Projects

Taking class notes

Writing a term paper

Daily entering sales receipts into the
accounting ledger

Setting up a sales kiosk for a
professional accounting meeting

Responding to a supply-chain request

Developing a supply-chain information
system

Practicing scales on the piano

Writing a new piano piece

Routine manufacture of an Apple iPod

Attaching tags on a manufactured
product

Designing an iPod that is approximately
2 X 4 inches, interfaces with PC, and
stores 10,000 songs
Wire-tag projects for GE and
Wal-Mart

TABLE 1.1

Project Life Cycle

FIGURE 1.1

The Challenge of Project Management
The Project Manager
• Manages temporary, non-repetitive activities and frequently acts
independently of the formal organization.
• Marshals resources for the project.
• Is the direct link to the customer.
• Works with a diverse troupe of characters.
• Provides direction, coordination, and integration to the project team.
• Is responsible for performance and success of the project.
• Must induce the right people at the right time to address the right
issues and make the right decisions.

1.2 Current Drivers of Project Management
Factors leading to the increased use of project management:
• Compression of the product life cycle
• Knowledge explosion
• Triple bottom line (planet, people, profit)
• Increased customer focus
• Small projects represent big problems

1.3 Agile Project Management
Agile Project Management (Agile PM)
• Is a methodology emerged out of frustration with using traditional
project management processes to develop software.
• Is now being used across industries to manage projects with high
levels of uncertainty.
• Employs an incremental, iterative process sometimes referred to as a
‘rolling wave’ approach to complete projects.
• Focuses on active collaboration between the project and customer
representatives, breaking projects into small functional pieces, and
adapting to changing requirements.
• Is often used up front in the defining phase to establish specifications
and requirements, and then traditional methods are used to plan,
execute, and close the project.
• Works best in small teams of four to eight members.
© McGraw-Hill Education

Rolling Wave Development

• Iterations typically last from one to four weeks.
• The goal of each iteration is to make tangible progress such as define
a key requirement, solve a technical problem, or create desired
features to demonstrate to the customer.
• At the end of each iteration, progress is reviewed, adjustments are
made, and a different iterative cycle begins.
• Each new iteration subsumes the work of the previous iterations until
the project is completed and the customer is satisfied.
© McGraw-Hill Education

FIGURE 1.3

1.4 Project Management Today: A Socio-Technical Approach
The Technical Dimension (The “Science”)
• Consists of the formal, disciplined, purely logical parts of the process.
• Includes planning, scheduling, and controlling projects.
The Sociocultural Dimension (The “Art”)
• Involves the contradictory and paradoxical world of implementation.
• Centers on creating a temporary social system within a larger
organizational environment that combines the talents of a divergent
set of professionals working to complete the project.

A Socio-Technical Approach to Project Management

FIGURE 1.4

Text Overview
• Chapter 2 focuses on how organizations go about evaluating and
selecting projects.
• Chapter 3 discusses matrix management and other organization forms
and also discusses the significant role that culture of an organization
plays in the implementation of projects.
• Chapter 4 deals with defining the scope of the project and developing a
work breakdown structure (WBS).
• Chapter 5 explores the challenge of formulating cost and time estimates.
• Chapter 6 focuses on utilizing the information from the WBS to create a
project plan in the form of a timed and sequenced network of activities.

Text Overview (Continued)
•

Chapter 7 examines how organizations and managers identify and manage
risks associated with project work.

•

Chapter 8 explores resource allocation and how resource limitations impact the
project schedule.

•

Chapter 9 examines strategies for reducing project time either prior to the
initiation of the project or in response to problems or new demands placed on
the project.

•

Chapter 10 focuses on the role of the project manager as a leader and stresses
the importance of managing project stakeholders within the organization.

•

Chapter 11 focuses on the core project team and combines the latest
information on team dynamics with leadership skills/techniques of developing a
high-performance project team.

Text Overview (Continued)
•

Chapter 12 discusses how to outsource project work and negotiates
with contractors, customers, and suppliers.

•

Chapter 13 focuses on the kinds of information managers use to
monitor project progress and discusses the key concept of earned value

•

Chapter 14 covers closing out a project and the important assessment
of performance and lessons learned.

•

Chapter 15 discusses agile project management, a much more flexible
approach to managing projects with high degree of uncertainty.

•

Chapter 16 focuses on working on projects across cultures.

Key Terms
Agile project management (Agile PM)
Program
Project
Project life cycle
Project Management Professional (PMP)

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Chapter Two
Organization Strategy
and Project Selection

Where We Are Now

Learning Objectives
02-01
02-02
02-03
02-04
02-05
02-06
02-07
02-08
02-09

Explain why it is important for project managers to understand
their organization’s strategy
Identify the significant role projects contribute to the strategic
direction of the organization
Understand the need for a project priority system
Distinguish among three kinds of projects
Describe how the phase gate model applies to project
management
Apply financial and nonfinancial criteria to assess the value of
projects
Understand how multi-criteria models can be used to select
projects
Apply an objective priority system to project selection
Understand the need to manage the project portfolio

Chapter Outline
2.1

Why Project Managers Need to Understand Strategy

2.2

The Strategic Management Process: An Overview

2.3

The Need for a Project Priority System

2.4

Project Classification

2.5

Phase Gate Model

2.6

Selection Criteria

2.7

Applying a Selection Model

2.8

Managing the Portfolio System

2.1 Why Project Managers Need to Understand Strategy
Two main reasons project managers need to understand their
organization’s mission and strategy:
1. So they can make appropriate decisions and adjustments.
• How a project manager would respond to a suggestion to modify the
design of a product or to delays may vary depending upon strategic
concerns.
2. So they can be effective project advocates. They have to be able to:
• demonstrate to senior management how their project contributes to
the firm’s mission in order to garner their continued support.
• explain to stakeholders why certain project objectives and priorities
are critical in order to secure buy-in on contentious trade-off
decisions.
• explain why the project is important to motivate and empower the
project team (Brown, Hyer and Ettenson, 2013).
© McGraw-Hill Education

2.2 The Strategic Management Process: An Overview
Strategic Management Defined
• Is the process of assessing “what we are” and deciding and
implementing “what we intend to be and how we are going to get
there.”
• Is a continuous, iterative process aimed at developing an integrated
and coordinated long-term plan of action.
• Requires strong links among mission, goals, objectives, strategy, and
implementation.
Two Major Dimensions of Strategic Management:
1. Responds to changes in the external environment and allocates the
firm’s scare resources to improve its competitive position.
2. Internal responses to new action programs aimed at enhancing the
competitive position of the firm.

Four Activities of the Strategic Management Process
The sequence of activities of the strategic management process is:
1. Review and define the organizational mission
•

The mission identifies “what we want to become.” Mission statements identify the scope
of the organization in terms of its product and service.

2. Analyze and formulate strategies
•

Formulating strategy answers the question of what needs to be done to reach
objectives. Strategy formulation includes determining and evaluating alternatives that
support the organization’s objectives and selecting the best alternative.

3. Set objectives to achieve strategies
•

Objectives translate the organization strategy into specific, concrete, measureable
terms. Objectives answer in detain where a firm is headed and when it is going to get
there.

4. Implement strategies through projects
•

Implementation answers the question of how strategies will be realized, given available
resources.

Strategic Management Process

FIGURE 2.1

Characteristics of Objectives

EXHIBIT 2.1

2.3 The Need for a Project Priority System
Implementation of projects without a strong priority system linked to strategy
create problems.
Problem 1: The Implementation Gap
•

The implementation gap is the lack of understanding and consensus of
organization strategy among top and middle-level managers.

Problem 2: Organization Politics
•

Project selection may be based not so much on facts and sound reasoning as on
the persuasiveness and power of people advocating projects.

•

The term sacred cow is often used to denote a project that a powerful, highranking official is advocating.

Problem 3: Resource Conflicts and Multitasking
•

A multi-project environment creates the problems of project interdependency and
the need to share resources. Resource sharing leads to multitasking—involves
starting and stopping work on one task to go and work on another project, then
returning to the work on the original task.

Benefits of Project Portfolio Management

EXHIBIT 2.2

2.4 Project Classification

FIGURE 2.2

2.5 Phase Gate Model
Phase Gate Model
• Is a series of gates that a project must pass through in order to be
completed.
• Its purpose is to ensure that the organization is investing time and
resources on worthwhile projects that contribute to its mission and
strategy.
• Each gate is associated with a project phase and represents a
decision point.
• A gate can lead to three possible outcomes: go (proceed), kill
(cancel), or recycle (revise and resubmit).

Phase Gate Process Diagram

FIGURE 2.3

2.6 Selection Criteria
• Financial Criteria
• Payback
• Net present value (NPV)
• Nonfinancial Criteria
• Projects of strategic importance to the firm
• Two Multi-Criteria Selection Models
• Checklist Models
• Multi-Weighted Scoring Models

Financial Criteria: The Payback Model
The Payback Model
• Measures the time the project will take to recover the project investment.
• Desires shorter paybacks.
• Is the simplest and most widely used model.
• Emphasizes cash flows, a key factor in business.
Limitations of the Payback Method
• Ignores the time value of money.
• Assumes cash inflows for the investment period (and not beyond).
• Does not consider profitability.
The Payback formula is
© McGraw-Hill Education

Example Comparing Two Projects Using Payback Method

EXHIBIT 2.3A

Financial Criteria: Net Present Value (NPV)
Net Present Value (NPV)
• Uses management’s minimum desired rate of return (discount rate) to compute
the present value of all net cash inflows.
• Prefers positive NPV to negative NPV.
• Desires higher positive NPVs.
• Is more realistic because it considers the time value of money, cash flows, and
profitability.
The NPV formula using Microsoft Excel is
where
I0 = Initial investment (since it is an outflow, the number will be negative)
Ft = Net cash inflow for period t
k = Required rate of return
n = Number of years
© McGraw-Hill Education

Example Comparing Two Projects Using Net Present Value Method

EXHIBIT 2.3B

Nonfinancial Criteria
Examples of strategic objectives are:
• To capture larger market share.
• To make it difficult for competitors to enter the market.
• To develop an enabler product, which by its introduction will increase
sales in more profitable products.
• To develop core technology that will be used in next-generation
products.
• To reduce dependency on unreliable suppliers.
• To prevent government intervention and regulation.

Two Multi-Criteria Selection Models
Checklist Models
• Use a list of questions to review potential projects and to determine their
acceptance or rejection.
• Allow greater flexibility in selecting among many different types of projects
and are easily used across different divisions and locations.
• Fail to answer the relative importance or value of a potential project to the
organization and does not allow for comparison with other potential projects.
Multi-Weighted Scoring Models
• Use several weighted selection criteria to evaluate project proposals.
• Include qualitative and/or quantitative criteria.
• Allow for comparison with other potential projects.

Checklist Models: Sample Selection Questions Used in Practice

EXHIBIT 2.4

Multi-Weighted Scoring Models: Project Screening Matrix

FIGURE 2.4

2.7 Applying a Selection Model
Project Classification
• Deciding whether the project fits with the organization strategy.
• Selecting a Model
• Weighted scoring criteria seem the best alternative because:
• They reduce the number of wasteful projects using resources.
• They help to identify project goals that can be communicated using the
selection criteria as corroboration.
• They help project managers understand how their project was selected,
how their project contributes to organization goals, and how it compares
with other projects.

Applying a Selection Model (Continued)
Sources and Solicitation of Project Proposals
• Within the organization
• Request for Proposal (RFP) from external sources
(contractors/vendors)
Ranking Proposal and Selection of Projects
• Evaluating each proposal in terms of feasibility, potential contribution
to strategic objectives, and fit within a portfolio of current projects.
• Rejecting or accepting the projects based on given selection criteria
and current portfolio.
• Prioritizing projects by senior management.

A Proposal Form for an Automatic Vehicular Tracking (AVL)
Public Transportation Project

FIGURE 2.5A

Risk Analysis for a 500-Acre Wind Farm

FIGURE 2.5B

Project Screening Process

FIGURE 2.6

Priority Screening Analysis

FIGURE 2.7

2.8 Managing the Portfolio System
Senior Management Input
• Provides guidance in establishing selection criteria that strongly align with
the current organization strategies.
• Annually decides how to balance the available organizational resources
(people and capital) among the different types of projects.
Governance Team Responsibilities
• Publish the priority of every project.
• Ensure the selection process is open and free of power politics.
• Evaluate the progress of current projects.
• Constantly scan the external environment to determine if organization
focus and/or selection criteria need to be changed.
© McGraw-Hill Education

Balancing the Portfolio for Risks and Types of Projects
David and Jim Matheson studied R&D organizations and developed a
classification scheme that could be used for assessing a project portfolio. They
separated projects in terms of degrees of difficulty and commercial value. The
four basic types of projects are:
• Bread-and-butter projects involve evolutionary improvements to current
products and services.
• Pearls represent revolutionary commercial advances using proven technology.
• Oysters involve technological breakthroughs with tremendous commercial
potential.
• White elephants showed promise at one time but are no longer viable.

Key Terms
Implementation gap
Net present value (NPV)
Organization politics
Payback
Phase gate model
Priority system
Priority team
Project portfolio
Project sponsor
Sacred cow
Strategic management
© McGraw-Hill Education

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Chapter Three
Organization: Structure
and Culture

Where We Are Now

Learning Objectives
03-01
03-02
03-03
03-04

03-05
03-06
03-07

Identify different project management structures and understand
their strengths and weaknesses.
Distinguish three different types of matrix structures and
understand their strengths and weaknesses.
Describe how project management offices (PMOs) can support
and improve project execution.
Understand organizational and project considerations that should
be considered in choosing an appropriate project management
structure.
Appreciate the significant role that organizational culture plays in
managing projects.
Interpret the culture of an organization.
Understand the interaction between project management
structure and the culture of an organization.

Chapter Outline
3.1

Project Management Structures

3.2

Project Management Office (PMO)

3.3

What Is the Right Project Management Structure?

3.4

Organizational Culture

3.5

Implications of Organizational Culture for Organizing Projects

3.1 Project Management Structures
Three different project management structures are:
1. Functional organization
2. Dedicated project teams
3. Matrix structure
• Weak matrix
• Balanced matrix
• Strong matrix

Organizing Projects within the Functional Organization
• Top management decides to implement the project, and different
segments of the project are distributed to appropriate areas.
• Coordination is maintained through normal management channels.
• It is commonly used when one functional area plays a dominant role in
completing the project or has a dominant interest in the success of the
project.

Functional Organizations

FIGURE 3.1

Advantages and Disadvantages of using Functional
Organization to Administer and Complete projects
Advantages

Disadvantages

1. No change

1. Lack of focus

2. Flexibility

2. Poor integration

3. In-depth expertise

3. Slow

4. Easy post-project transition

4. Lack of ownership

Organizing Projects as Dedicated Teams
• Dedicated project teams operate as units separate from the rest of the
parent organization.
• A full-time project manager is designated to pull together a core group of
specialists who work full time on the project.
• The project manager recruits necessary personnel from both within and
outside the parent company.
• In a projectized organization where projects are the dominant form of
business, the entire organization is designed to support project teams.
• “Projectitis” is referred to as a negative dimension to dedicated project
teams. A we-they attitude can emerge between project team members
and the rest of the organization.
© McGraw-Hill Education

Dedicated Project Team

FIGURE 3.2

Projectized Organization Structure

FIGURE 3.3

Strengths and Weaknesses of the Dedicated Project Team Approach

Strengths

Weaknesses

1. Simple

1. Expensive

2. Fast

2. Internal strife

3. Cohesive

3. Limited technological expertise

4. Cross-functional integration

4. Difficult post-project transition

Organizing Projects within a Matrix Arrangement
•

Matrix management is a hybrid organizational form in which horizontal project
management structure is overlaid on the normal functional hierarchy.
•

There are usually two chains of command, one along functional lines and the other
along project lines.

•
•

Project participants report simultaneously to both functional and project managers.

The matrix structure is designed to utilize resources optimally.
•

Individuals work on multiple projects as well as being capable of performing normal
functional duties.

•

It attempts to achieve greater integration by creating and legitimizing the authority
of a project manager.

•

It provides dual focus between functional/technical expertise and project
requirements.

Matrix Organization Structure

FIGURE 3.4

Division of Project Manager and Functional Manager
Responsibilities in a Matrix Structure

TABLE 3.1

Different Matrix Forms
Weak matrix
• This form is very similar to a functional approach with the exception
that there is a formally designed project manager responsible for
coordinating project activities.
• Functional managers are responsible for managing their segment of
the project.
• The project manager acts as a staff assistant who draws the
schedules and checklists, collects information on the status of the
work, and facilitates project completion.

Different Matrix Forms (Continued)
Balanced matrix
• The project manager is responsible for defining what needs to be
accomplished. The project manager establishes the overall plan for
completing the project, integrates the contribution of the different
disciplines, set schedules, and monitors progress.
• The functional managers are concerned with how it will be
accomplished. The functional managers are responsible for assigning
personnel and executing their segment of the project according to the
standards and schedules set by the project manager.

Different Matrix Forms (Continued)
Strong matrix
• The project manager controls most aspects of the project, including
scope trade-offs and assignment of functional personnel. The project
manager controls when and what specialists do and has final say on
major project decisions.
• The functional managers have title over their people and are
consulted on a need basis. The functional managers serve as
subcontractors for the project.

Advantages and Disadvantages of Matrix Management
Advantages

Disadvantages

1. Efficient

1. Dysfunctional conflict

2. Strong project focus

2. Infighting

3. Easier post-project transition

3. Stressful

4. Flexible

4. Slow

3.2 Project Management Office (PMO)
• Is a centralized unit within an organization or a department that
oversees and supports the execution of projects.
• Plays a critical role in helping matrix systems mature into more
effective project delivery platforms.
• Can be characterized in different kinds:
• Weather station—tracks and monitors project performance.
• Control tower—improves project execution.
• Resource pool—provides the organization with a cadre of trained
project managers and professionals.
• Command and control center—has direct authority over the project.

3.3 What Is the Right Project Management Structure?
Organization Considerations
• How important is the project management to the success of the firm?
• What percentage of core work involves projects?
• What level of resources are available?
Project Considerations
• Size of project
• Strategic importance
• Novelty and need for innovation
• Need for integration (number of departments involved)
• Environmental complexity (number of external interfaces)
• Budget and time constraints
• Stability of resource requirements
© McGraw-Hill Education

3.4 Organizational Culture
Organizational Culture Defined
• Is a system of shared norms, beliefs, values, and assumptions that
blinds people together, thereby creating shared meanings.
• Reflects the “personality” of the organization.
• Performs several important functions in organizations.
• Provides a sense of identity for its members
• Helps legitimize the management system
• Clarifies and reinforces standards of behavior
• Helps create social order

Key Dimensions Defining an Organization’s Culture

FIGURE 3.5

Identifying Cultural Characteristics
• Study the physical characteristics of an organization.
• Read about the organization.
• Observe how people interact within the organization.
• Interpret stories and folklore surrounding the organization.

Organizational Culture Diagnosis Worksheet

FIGURE 3.6

3.5 Implications of Organizational Culture for Organizing Projects

• Project managers interact with:
• The culture of their parent organizations as well as the subcultures
of various departments.
• The project’s clients or customer organizations.
• Other organizations connected to the project such as suppliers and
vendors, subcontractors, consulting firms, government and
regulatory agencies, and community groups.
• “A riverboat trip” is a metaphor describing the relationship between
organizational culture and project management. Culture is the river
and the project is the boat.

Cultural Dimensions of an Organization Supportive of Project Management

FIGURE 3.7

Key Terms
Balanced matrix
Dedicated project team
Matrix
Organizational culture
Projectitis
Projectized organization
Project management office (PMO)
Strong matrix
Weak matrix

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Chapter Four
Defining the Project

Where We Are Now

Learning Objectives
04-01

Identify key elements of a project scope statement and understand
why a complete scope statement is critical to project success.

04-02

Describe the causes of scope creep and ways to manage it.

04-03

Understand why it is important to establish project priorities in terms
of cost, time, and performance.

04-04

Demonstrate the importance of a work breakdown structure (WBS)
to the management of projects and how it serves as a database for
planning and control.

04-05

Demonstrate how the organization breakdown structure (OBS)
establishes accountability to organization units.

04-06

Describe a process breakdown structure (PBS) and when to use it.

04-07

Create responsibility matrices for small projects.

04-08

Create a communication plan for a project.

Chapter Outline
4.1

Step 1: Defining the Project Scope

4.2

Step 2: Establishing Project Priorities

4.3

Step 3: Creating the Work Breakdown Structure

4.4

Step 4: Integrating the WBS with the Organization

4.5

Step 5: Coding the WBS for the Information System

4.6

Process Breakdown Structure

4.7

Responsibility Matrices

4.8

Project Communication Plan

Five General Steps for Collecting Project Information
Step 1: Defining the Project Scope
Step 2: Establishing Project Priorities
Step 3: Creating the Work Breakdown Structure
Step 4: Integrating the WBS with the Organization
Step 5: Coding the WBS for the Information System

4.1 Step 1: Defining the Project Scope
Project Scope Defined
• Is a definition of the end result or mission of your project—a product or
service for your client/customer.
• Defines the results to be achieved in specific, tangible, and measurable
terms.
Purposes of the Project Scope Statement
• To clearly define the deliverable(s) for the end user
• To direct focus on the project purpose throughout the life of the project for
the customer and project participants
• To be published and used by the project owner and project participants
for planning and measuring project success
© McGraw-Hill Education

Project Scope Checklist
1. Project objective
2. Product scope description
3. Justification
4. Deliverables
5. Milestones
6. Technical requirements
7. Limits and exclusions
8. Acceptance criteria

Project Scope: Terms and Definitions
Scope Statements
•

Is a short, one- to two-page summary of key elements of the scope, followed by
extended documentation of each element.

•

Is also referred to as “statements of work (SOWs)”

Project Charter
•

Is a documentation that authorizes the project manager to initiate and lead the
project.

•

Often includes a brief scope description as well as such items as risk limits,
business case, spending limits, and even team composition.

Scope Creep
•

Is the tendency for the project scope to expand over time—usually by changing
requirements, specifications, and priorities.

Five of the Most Common Causes of Scope Creep
• Poor requirement analysis
• Not involving users early enough
• Underestimating project complexity
• Lack of change control
• Gold plating

4.2 Step 2: Establishing Project Priorities
Three major criteria (trade-offs) that a project manager has to manage
are:
• Cost (budget)
• Time (schedule)
• Performance (scope)
A project manager can manage the project trade-offs by completing a
priority matrix for the project and identifying which criterion is:
• Constrain—original parameter is fixed.
• Enhance—a criterion should be optimized.
• Accept—a criterion is tolerable not to meet the original parameter.

Project Management Trade-offs

FIGURE 4.1

Project Priority Matrix for the Development of a New Wireless
Router

FIGURE 4.2

4.3 Step 3: Creating the Work Breakdown Structure
Work Breakdown Structure (WBS)
• Is a hierarchical outline of the project with different levels of detail.
• Identifies the products and work elements involved in a project.
• Defines the relationship of the final deliverable (the project) to its subdeliverables, and, in turn, their relationships to work packages.
• Serves as a framework for tracking cost and work performance.
• Is best suited for design and build projects that have tangible
outcomes rather than process-oriented projects.

Hierarchical Breakdown of the WBS

* This breakdown groups work packages by type of work within a deliverable and
allows assignment of responsibility to an organizational unit. This extra step
facilitates a system for monitoring project progress (discussed in Chapter 13).
© McGraw-Hill Education

FIGURE 4.3

How WBS Helps the Project Manager
• Assures project managers that all products and work elements are identified, to
integrate the project with the current organization, and to establish a basis for control.
• Facilitates the evaluation of cost, time, and technical performance at all levels in the
organization over the life of the project.
• Provides management with information appropriate to each organizational level.
• Helps project managers to plan, schedule, and budget the project.
• Helps in the development of the organization breakdown structure (OBS), which
assigns project responsibilities to organization units and individuals.
• Provides the opportunity to “roll up” (sum) the budget and actual costs of the smaller
work packages into larger work elements.
• Defines communication channels and assists in understanding and coordinating
many parts of the project.

Work Breakdown Structure

FIGURE 4.4

A Work Package
• Is the lowest level of the WBS.
• Is a short-duration task that has a definite start and stop point,
consumes resources, and represents cost.
• Should not exceed 10 workdays or one reporting period.
• Should be as independent of other work packages of the project as
possible.
• Is the basic unit used for planning, scheduling, and controlling the
project.

Each Work Package in the WBS
• Defines work (what).
• Identifies time to complete a work package (how long).
• Identifies a time-phased budget to complete a work package (cost).
• Identifies resources needed to complete a work package (how much).
• Identifies a single person responsible for units of work (who).
• Identifies monitoring points for measuring progress (how well).

4.4 Step 4: Integrating the WBS with the Organization
Organization Breakdown Structure (OBS)
• Depicts how the firm has organized to discharge work responsibility.
• Provides a framework to summarize organization unit work
performance.
• Identifies the organization units responsible for work packages.
• Ties the organizational unit to cost control accounts.
The intersection of work packages and the organization unit creates a
project cost point or cost account that integrates work and responsibility.

Integration of WBS and OBS

FIGURE 4.5

4.5 Step 5: Coding the WBS for the Information System
WBS Coding System
• Defines
• Levels and elements in the WBS
• Organization elements
• Work packages
• Budget and cost information
• Allows reports to be consolidated at any level in the structure.
WBS Dictionary
• Provides detailed information about each element in the WBS.

Coding the WBS

EXHIBIT 4.1

4.6 Process Breakdown Structure
Process Breakdown Structure (PBS)
• Is used for process-oriented projects.
• Is often referred to as the “waterfall method” in the software industry.
Process-oriented project
• Is a project that the final outcome is a product of a series of steps and
phases.
• Is a project that evolves over time with each phase affecting the next
phase.
• Is a project that is driven by performance requirements, not by
plans/blueprints.

PBS for Software Development Project

FIGURE 4.6

4.7 Responsibility Matrices
Responsibility Matrix (RM)
•

Is also called a linear responsibility chart.

•

Summarizes the tasks to be accomplished and who is responsible for
what on the project.

•

Lists all the project activities and the participants responsible for each
activity.

•

Clarifies interfaces between units and individuals that require coordination.

•

Provides a mean for all participants in a project to view their
responsibilities and agree on their assignments.

•

Clarifies the extent or type of authority exercised by each participant.

Responsibility Matrix for a Market Research Project

FIGURE 4.7

Responsibility Matrix for the Conveyor Belt Project

FIGURE 4.8

4.8 Project Communication Plan
Project communication plans address the following questions:
• What information needs to be collected and when?
• Who will receive the information?
• What methods will be used to gather and store information?
• What are the limits, if any, on who has access to certain kinds of
information?
• When will the information be communicated?
• How will it be communicated?

Steps for Developing a Communication Plan
1. Stakeholder analysis—identify the target groups.
2. Information needs—project status reports, deliverable issues,
changes in scope, team status meetings, gating decisions, accepted
request changes, action items, milestone reports, etc.
3. Sources of information—where does the information reside?
4. Dissemination modes—hardcopy, e-mail, teleconferencing,
SharePoint, and a variety of database sharing programs.
5. Responsibility and timing—determine who will send out the formation
and when.

Stakeholder Communications

FIGURE 4.9

Shale Oil Research Project Communication Plan

FIGURE 4.10

Key Terms
Acceptance criteria

Product scope description

Cost account

Project charter

Gold plating

Responsibility matrix

Milestone

Scope creep

Organization breakdown structure (OBS)

Scope statement

Priority matrix

WBS dictionary

Process breakdown structure (PBS)

Work breakdown structure (WBS)
Work package

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Chapter Five
Estimating Project Times
and Costs

Where We Are Now

Learning Objectives
05-01

Understand estimating project times and costs is the foundation for

project planning and control.
05-02

Describe guidelines for estimating time, costs, and resources.

05-03

Describe the methods, uses, and advantages and disadvantages of

top-down and bottom-up estimating methods.
05-04

Distinguish different kinds of costs associated with a project.

05-05

Suggest a scheme for developing an estimating database for future

projects.
05-06

Understand the challenge of estimating mega projects and describe steps

that lead to better informed decisions.
05-07

Define a “white elephant” in project management and provide

examples.

Chapter Outline
5.1 Factors Influencing the Quality of Estimates
5.2 Estimating Guidelines for Times, Costs, and Resources
5.3 Top-Down versus Bottom-Up Estimating
5.4 Methods for Estimating Project Times and Costs
5.5 Level of Detail
5.6 Types of Costs
5.7 Refining Estimates
5.8 Creating a Database for Estimating
5.9 Mega Projects: A Special Case

Project Estimating
Estimating Defined
–

Is the process of forecasting or approximating the time and cost of
completing project deliverables.

–

Is a trade-off, balancing the benefits of better accuracy against the
costs of secured increased accuracy.

Types of Estimates
–

Top-down (macro) estimates—analogy, group consensus, or
mathematical relationships

–

Bottom-up (micro) estimates—based on estimates of elements found
in the work breakdown structure

Why Estimating Time and Cost Is Important

EXHIBIT 5.1

5.1 Factors Influencing the Quality of Estimates
–

Planning Horizon

–

Project Complexity

–

People

–

Project Structure and Organization

–

Padding Estimates

–

Organizational Culture

–

Other Factors

5.2 Estimating Guidelines for Times, Costs, and Resources
1. Responsibility
2. The use of several people to estimate
3. Normal conditions
4. Time units
5. Independence
6. Contingencies
7. Risk assessment added to the estimate to avoid surprises to
stakeholders

5.3 Top-Down versus Bottom-Up Estimating
Top-Down Estimates
–

Are usually derived from someone who uses experience and/or
information to determine the project duration and total cost.

–

Are sometimes made by top managers who have very little knowledge of
the component activities used to complete the project.

Bottom-Up Estimates
–

Can take place after the project has been defined in detail.

–

Can serve as a check on cost elements in the WBS by rolling up the work
packages and associated cost accounts to major deliverables.

–

Provide the customer with an opportunity to compare the low-cost,
efficient method approach with any imposed restrictions.

Conditions for Preferring Top-Down or Bottom-Up Time and
Cost Estimates

TABLE 5.1

The Preferred Approach in Defining the Project
–

Make rough top-down estimates

–

Develop the WBS/OBS

–

Make bottom-up estimates

–

Develop schedules and budgets

–

Reconcile differences between top-down and bottom-up estimates

5.4 Methods for Estimating Project Times and Costs
Top-Down Approaches

Bottom-Up Approaches

–

Consensus Method

–

Template Method

–

Ratio Method

–

Parametric Procedures Applied

–

Apportion Method

–

Function Point Methods for

to Specific Tasks
–

Range Estimating

Software and System Projects
–

Learning Curves

Apportion Method of Allocating Project Costs Using the WBS

FIGURE 5.1

Simplified Basic Function Point Count Process for a
Prospective Project or Deliverable

TABLE 5.2

Example: Function Point Count Method

TABLE 5.3

Range Estimating Template

FIGURE 5.2

A Hybrid: Phase Estimating

FIGURE 5.3

Top-Down and Bottom-Up Estimates

FIGURE 5.4

5.5 Level of Detail
The level of detail in the WBS varies with:
–

The complexity of the project

–

The need for control

–

The project size, cost, and duration

–

Other factors

Excessive detail:
–

Emphasizes departmental outcomes rather than deliverable outcomes

–

Creates more unproductive paperwork

Inadequate detail:
–

Falls short of meeting the structure’s needs

5.6 Types of Costs
Direct Costs
–

Are clearly chargeable to a specific work package
• Examples: Labor, materials, equipment, and other

Direct Project Overhead Costs
–

Can be tied to project deliverables or work packages
• Examples: Salary of the project manager, temporary rental space for
the project team, supplies, specialized machinery

General and Administrative (G&A) Overhead Costs
–

Are not directly linked to a specific project
• Examples: Advertising, accounting, salary of senior management
above the project level

Contract Bid Summary Costs

FIGURE 5.5

Three Views of Cost

FIGURE 5.6

5.7 Refining Estimates
Reasons for adjusting estimates
–

Interaction costs are hidden in estimates.

–

Normal conditions do not apply.

–

Things go wrong on projects.

–

Project scope and plans change.

–

People are overly optimistic.

–

People engage in strategic misrepresentation.

5.8 Creating a Database for Estimating

FIGURE 5.7

5.9 Mega Projects: A Special Case
Mega Projects Defined
–

Are large-scale, complex ventures that typically cost $1 billion or more,
take many years to complete, and involve multiple private and public
stakeholders.
• Examples: High-speed rail lines, airports, healthcare reform, the
Olympics, development of new aircraft

–

Often involve a double whammy.
• Projects cost much more than expected and under-deliver on benefits
the projects were to provide.

–

Are sometimes referred to as “white elephant.”
• Projects are over budget, under value and the costs of maintaining the
project exceed the benefits received.

The Reference Class Forecasting (RCF)
Three Major Steps:
1. Select a reference class of projects similar to your potential project.
2. Collect and arrange outcome data as a distribution. Create a distribution of cost
overruns as a percentage of the original project estimate (low to high).
3. Use the distribution data to arrive at a realistic forecast. Compare the original cost
estimate for the project with the reference class projects.
Benefits:
–

Outside empirical data mitigates human bias.

–

Politics, strategic, and promoter forces have difficulty ignoring outside RCF information.

–

RCF serves as a reality check for funding large projects.

–

RCF helps executives avoid unsound optimism.

–

RCF leads to improved accountability.

–

RCF provides a basis for project contingency funds.

Key Terms
Apportionment

Range estimating

Bottom-up estimates

Ratio method

Delphi Method

Reference class forecasting (RCF)

Direct costs

Template method

Function points

Time and cost databases

Learning curve

Top-down estimates

Overhead costs

White elephant

Phase estimating

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Chapter Six
Developing a Project
Schedule

Where We Are Now

Learning Objectives
06-01

Understand the linkage between WBS and the project network.

06-02

Diagram a project network using AON methods.

06-03

Calculate early, late, and slack activity times.

06-04

Identify and understand the importance of managing the critical
path.

06-05

Distinguish free slack from total slack.

06-06

Demonstrate understanding and application of lags in
compressing projects or constraining the start or finish of an
activity.

Chapter Outline
6.1

Developing the Project Network

6.2

From Work Package to Network

6.3

Constructing a Project Network

6.4

Activity-on-Node (AON) Fundamentals

6.5

Network Computation Process

6.6

Using the Forward and Backward Pass Information

6.7

Level of Detail for Activities

6.8

Practical Considerations

6.9

Extended Network Techniques to Come Closer to Reality

6.1 Developing the Project Network
The Project Network Defined
–

Is a graphic flow chart depicting the project activities that must be completed, the
logical sequences, the interdependencies of the activities to be completed, and
the times for the activities to start and finish along with the longest path(s) through
the network—the critical path.

–

Provides the basis for scheduling labor and equipment.

–

Enhances communication among project stakeholders.

–

Provides an estimate of project duration.

–

Provides the basis for budgeting the cash flow.

–

Identifies which activities are “critical” and should not be delayed.

–

Highlights which activities to consider for compressing the project duration.

–

Helps managers get and stay on the project plan.

6.2 From Work Package to Network

FIGURE 6.1

6.3 Constructing a Project Network
Terminology
–

Activity: an element of the project that requires time but may not require
resources

–

Parallel activities: activities that can take place at the same time, if desired.

–

Burst activity: an activity that has more than one activity immediately following
it (more that one dependency arrow flowing from it)

–

Merge activity: an activity that has more than one activity immediately
preceding it (more than one dependency arrow flowing to it)

–

Path: a sequence of connected, dependent activities

–

Critical path: the path with the longest duration through the network

Two approaches
–

Activity-on-Node (AON) uses a node to depict an activity.

–

Activity-on-Arrow (AOA) uses an arrow to depict an activity.

Basic Rules to Follow in Developing Project Networks
1. Networks flow typically from left to right.
2. An activity cannot begin until all preceding connected activities have been
completed.
3. Arrows on networks indicate precedent and flow and can cross over each other.
4. Each activity should have a unique identification number.
5. An activity identification number must be greater than that of any activities that
precede it.
6. Looping is not allowed.
7. Conditional statements are not allowed.
8. Where there are multiple starts, a common start node can be used to indicate a
clear project beginning on the network. Similarly, a single project end node can
be used to indicate a clear ending.

6.4 Activity-on-Node (AON) Fundamentals

FIGURE 6.2

Network Information (Automated Warehouse)

TABLE 6.1

Automated Warehouse—Partial Network

FIGURE 6.3

Automated Warehouse—Completed Network

FIGURE 6.4

6.5 Network Computation Process
Forward Pass—Earliest Times
• How soon can the activity start? (early start—ES)
• How soon can the activity finish? (early finish—EF)
• How soon can the project finish? (expected time—TE)
Backward Pass—Latest Times
• How late can the activity start? (late start—LS)
• How late can the activity finish? (late finish—LF)
• Which activities represent the critical path? (critical path—CP)
• How long can the activity be delayed? (slack or float—SL)

Network Information (Automated Warehouse)

TABLE 6.2

Activity-on-Node Network

FIGURE 6.5

Activity-on-Node Network Forward Pass

FIGURE 6.6

Forward Pass Computation
• Add activity times along each path in the network (ES + Duration =
EF).
• Carry the early finish (EF) to the next activity where it becomes its
early start (ES) unless…
• The next succeeding activity is a merge activity, in which case the
largest early finish (EF) number of all its immediate predecessor
activities is selected.

Activity-on-Node Network Backward Pass

FIGURE 6.7

Backward Pass Computation
• Subtract activity times along each path starting with the project end
activity (LF – Duration = LS).
• Carry the late start (LS) to the next preceding activity where it
becomes its late finish (LF) unless…
• The next succeeding activity is a burst activity, in which case the
smallest late start (LS) number of all its immediate successor activities
is selected.

Forward and Backward Pass Completed with Slack Times

FIGURE 6.8

Determining Slack (or Float) Times
Total Slack
• Tells us the amount of time an activity can be delayed and not delayed the project.
• Is how long an activity can exceed its early finish date without affecting the project end
date or an imposed completion date.
• Is simply the difference between the LS and ES (LS – ES = SL) or between LF and EF
(LF – EF = SL).
Free Slack
• Is the amount of time an activity can be delayed without delaying any immediately
following (successor) activity.
• Is how long an activity can exceed its early finish date without affecting the early start
dates of any successor(s).
• Allows flexibility in scheduling scarce resources.
• Occurs only activity at the end of a chain of activities, where you have a merge activity.
© McGraw-Hill Education

The Critical Path
• Is the network path(s) that has (have) the least slack in common.
• Is the longest path through the activity network.
• Is the shortest expected time in which the entire project can be
completed.
• Is important because it impacts completion time.
• Is where you put best people on.
• Is where you pay extra attention when doing risk assessment.
• Is where you don’t look when other managers are asking to ‘borrow’
people or equipment.
• Is where you look when you don’t have time to monitor all activities.

Sensitivity
• Network sensitivity is the likelihood the original critical path(s) will
change once the project is initiated.
• A network schedule that has only one critical path and noncritical
activities that enjoy significant slack would be labeled ‘insensitive’.

6.8 Practical Considerations
• Network Logic Errors
• Activity Numbering
• Use of Computers to Develop Networks (and Gantt Chart)
• Calendar Dates
• Multiple Starts and Multiple Projects

Network Logic Errors—Illogical Loop

FIGURE 6.9

Automated Warehouse Picking System Network

FIGURE 6.10

Automated Warehouse Picking System Gantt Chart

FIGURE 6.11

6.9 Extended Network Techniques to Come Closer to Reality
Laddering
• Activities are broken into segments so the following activity can begin
sooner and not delay the work.
Use of Lags to Reduce Schedule Detail and Project Duration
• A lag is the minimum amount of time a dependent activity must be
delayed to begin or end.
• Lengthy activities are broken down to reduce the delay in the start of
successor activities.
• Lags can be used to constrain finish-to-start, start-to-start, finish-tofinish, start-to-finish, or combination relationships.

Example of Laddering Using Finish-to-Start Relationship

FIGURE 6.12

Use of Lags
Finish-to-Start Relationship

Start-to-Start Relationship

FIGURE 6.13 and Figure 6.14

Use of Lags to Reduce Project Duration

FIGURE 6.15

New Product Development Process

FIGURE 6.16

Use of Lags (Continued)

Finish-to-Finish
Relationship

Start-to-Finish
Relationship

Combination
Relationships

FIGURE 6.17, Figure 6.18 and Figure 6.19

Network Using Lags

FIGURE 6.20

Hammock Activity
• Spans over a segment of a project.
• Has a duration that is determined after the network plan is drawn.
• Is very useful in assigning and controlling indirect project costs.
• Is used to aggregate sections of the project to facilitate getting the
right level of detail for specific sections of a project.

Hammock Activity Example

FIGURE 6.21

Key Terms
Activity

Hammock activity

Activity-on-arrow (AOA)

Lag relationship

Activity-on-node (AON)

Late time

Burst activity

Merge activity

Concurrent engineering

Parallel activities

Critical path

Path

Early time

Sensitivity

Free slack (FS)

Total slack

Gantt chart

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Chapter Seven
Managing Risk

Where We Are Now

Learning Objectives
07-01

Describe the risk management process.

07-02

Understand how to identify project risks.

07-03

Assess the significance of different project risks.

07-04

Describe the five responses to managing risks.

07-05

Understand the role contingency plans play in the risk management
process.

07-06

Understand opportunity management and describe the five

approaches to

responding to opportunities in a project.
07-07

Understand how contingency funds and time buffers are used to
manage risks on a project.

07-08

Recognize the need for risk management being an ongoing activity.

07-09

Describe the change control process.

Chapter Outline
7.1

Risk Management Process

7.2

Step 1: Risk Identification

7.3

Step 2: Risk Assessment

7.4

Step 3: Risk Response Development

7.5

Contingency Planning

7.6

Opportunity Management

7.7

Contingency Funding and Time Buffers

7.8

Step 4: Risk Response Control

7.9

Change Control Management

7.1 Risk Management Process
Risk Defined
–

An uncertain event or condition that if it occurs, has a positive or negative
effect on project objectives.

–

No amount of planning can overcome or control risk.

Risk Management Defined
–

An attempt to recognize and manage potential and unforeseen trouble
spots that may occur when the project is implemented.
• What can go wrong (risk event)
• How to minimize the risk event’s impact (consequences)
• What can be done before an event occurs (anticipation)
• What to do when an event occurs (contingency plans)

Risk Event Graph

FIGURE 7.1

Benefits of Risk Management
–

A proactive rather than reactive approach

–

Reduces surprises and negative consequences

–

Prepares the project manager to take appropriate action

–

Provides better control over the future

–

Improves chances of reaching project objectives on time, within
budget, and of meeting required performance.

The Risk Management Process

FIGURE 7.2

7.2 Step 1: Risk Identification
–

Generate a list of all the possible risks that could affect the project
through brainstorming and other problem identifying techniques.

–

Focus on the events that could produce consequences, not on project
objectives.

–

Use risk breakdown structure (RBS) in conjunction with work
breakdown structure (WBS) to identify and analyze risks.

–

Identify the macro risks first then specific areas can be checked.

–

Use risk profile (a list of questions) to address traditional areas of
uncertainty on a project.

The Risk Breakdown Structure (RBS)

FIGURE 7.3

Partial Risk Profile for Product Development Project

FIGURE 7.4

7.3 Step 2: Risk Assessment
Scenario analysis assesses the significance of each risk event in terms of
probability and impact.
Risk assessment form evaluates the severity, probability of risk events and its
detection difficulty.
Risk severity matrix prioritizes which risks to address.
–

Failure Mode and Effects Analysis (FMEA) extends the risk severity matrix
by including ease of detection in the equation:
Risk Value = Impact x Probability x Detection

Probability analysis uses statistical techniques in assessing project risk.
–

Decision trees, net present value (NPV), program evaluation and review
technique (PERT), PERT simulation

Defined Conditions for Impact Scales of a Risk on Major Project
Objectives (examples for negative impacts only)

FIGURE 7.5

Risk Assessment Form

FIGURE 7.6

Risk Severity Matrix
Failure Mode and Effects Analysis (FMEA)
Impact × Probability × Detection = Risk Value
5

User
Backlash

Likelihood

Interface
problems

Red zone (major risk)
Yellow zone (moderate risk)
Green zone (minor risk)

System
freezing

Hardware
malfunctioning
1

FIGURE 7.7

7.4 Step 3: Risk Response Development
Mitigating Risk
–

Reducing the likelihood that the event will occur

–

Reducing the impact that the adverse event would have on the project

Avoiding Risk
–

Changing the project plan to eliminate the risk or condition

Transferring Risk
–

Passing risk to another party
•

Examples: Fixed-price contracts, insurance, Build-Own-Operate-Transfer (BOOT)
provisions

Escalating Risk
–

Notifying the appropriate people within the organization of the threat

Retaining Risk
–

Making a conscious decision to accept the risk of an event occurring

7.5 Contingency Planning
Contingency Plan Defined
–

Is an alternative plan that will be used if a possible foreseen risk event
becomes a reality.

–

Is a plan of action that will reduce or mitigate the negative impact of the risk
event.

–

Is not a part of the initial implementation plan and only goes into effect after
the risk is recognized.

Risks of the absence of a contingency plan
–

Cause a manager to delay or postpone the decision to implement a remedy

–

Lead to panic and acceptance of the first remedy suggested

–

Make the decision making under pressure which can be dangerous and
costly

Risk Response Matrix

FIGURE 7.8

Risk and Contingency Planning
Technical Risks
–

Backup strategies if chosen technology fails

–

Assess whether technical uncertainties can be resolved

Schedule Risks
–

Expedite or “crash” the project to get it back on track

–

Schedule activities in parallel or use start-to-start lag relationships

–

Use the best people for high-risk tasks

Cost Risks
–

Review price to avoid the trap of using one lump sum to cover price risks

Funding Risks
–

Evaluate the risk of reductions in funding—a cut in the project

7.6 Opportunity Management
An opportunity is an event that can have positive impact on project objectives.
Exploit
–

Seek to eliminate the uncertainty associated with an opportunity to ensure that it definitely
happens

Share
–

Allocate some or all of the ownership of an opportunity to another party who is best able to
capture the opportunity for the benefit of the project

Enhance
–

Take action to increase the probability and/or the positive impact of an opportunity

Escalate
–

Notify the appropriate people within the organization of the opportunity

Accept
–

Be willing to take advantage of the opportunity if it occurs, but not taking action to pursue it

7.7 Contingency Funding and Time Buffers
Contingency Funds
–

Are funds to cover project risks—identified and unknown

–

For control purposes, contingency funds are divided into
• Contingency reserves—cover identified risks and allocated to specific segments or
deliverables of the project
• Management reserves—cover unidentified risks and are allocated to risks associated with
the total project

Time Buffers
–

Are amounts of time used to cushion against potential delays in the project
• Add to activities with severe risks
• Add to merge activities that are prone to delays
• Add to noncritical activities to reduce the likelihood that they will create another critical
path
• Add to activities that require scare resources

Budget Estimate

TABLE 7.1

7.4 Step 4: Risk Response Control
Risk Register
–

Details all identified risks, including descriptions, category, probability of occurring,
impact, responses, contingency plans, owners, and current status

Risk Control involves
–

Executing the risk response strategy

–

Monitoring triggering events

–

Initiating contingency plans

–

Watching for new risks

Establishing a Change Management System
–

Monitoring, tracking, and reporting risk

–

Fostering an open organization environment

–

Repeating risk identification/assessment exercises

–

Assigning and documenting responsibility for managing risk

7.9 Change Control Management
Sources of Change
–

Project scope changes

–

Implementation of contingency plans

–

Improvement changes

Change Management Systems
1. Identify proposed changes
2. List expected effects of proposed change(s) on schedule and budget
3. Review, evaluate, and approve or disapprove of changes formally
4. Negotiate and resolve conflicts of change, condition, and cost
5. Communicate changes to parties affected
6. Assign responsibility for implementing change
7. Adjust master schedule and budget
8. Track all changes that are to be implemented
© McGraw-Hill Education

Change Control Process

FIGURE 7.9

Benefits of Change Control Systems
1. Inconsequential changes are discouraged by the formal process.
2. Costs of changes are maintained in a log.
3. Integrity of the WBS and performance measures is maintained.
4. Allocation and use of contingency and management reserves are
tracked.
5. Responsibility for implementation is clarified.
6. Effect of changes is visible to all parties involved.
7. Implementation of change is monitored.
8. Scope changes will be quickly reflected in baseline and performance
measures.

Sample Change Request

FIGURE 7.10

Change Request Log

FIGURE 7.11

Key Terms
Avoiding risk

Risk

Change management system

Risk breakdown structure (RBS)

Contingency plan

Risk profile

Contingency reserves

Risk register

Escalating risk

Risk severity matrix

Management reserves

Scenario analysis

Mitigating risk

Time buffer

Opportunity

Transferring risk

Retaining risk

PERT and PERT Simulation

7–30

PERT—Program Evaluation and Review Technique
–

Assumes each activity duration has a range that statistically follows a
beta distribution

–

Uses three time estimates for each activity: optimistic, pessimistic,
and a most likely time estimate to represent activity durations
• From these three time estimates, a weighted average time estimate and a
variance is calculated
• Knowing the weighted average and variances for each activity allows the
project planner to compute the probability of meeting different project
durations
• The longer the project duration is, the higher is the probability of meeting
that duration

Activity and Project Frequency Distributions

FIGURE A7.1

Activity Time Calculations
The weighted average activity time is computed by the following formula:

(7.1)

where te = weighted average activity time
a = optimistic activity time (1 chance in 100 of completing the
activity earlier under normal conditions)
b = pessimistic activity time (1 chance in 100 of completing the
activity later under normal conditions)
m = most likely activity time

Activity Time Calculations (Continued)
The variability in the activity time estimates is approximated by the
following equations:
The standard deviation for the activity
The standard deviation for the project

(7.2)

The above formula is just the square-root of the sum of the variances of
all critical tasks
(7.3)

Activity Times and Variances

TABLE A7.1

Probability of Completing the Project
The equation below is used to compute the “Z” value found in statistical
tables (Z = number of standard deviations from the mean), which, in turn,
tells the probability of completing the project in the time specified.
(7.4)

where TE = critical path duration
TS = scheduled project duration
Z = probability (of meeting scheduled duration)
(see statistical Table A7.2)

Hypothetical Network

FIGURE A7.2

Possible Project Durations
Probability project is completed before
scheduled time (TS) of 67 units

Probability project is completed
by the 60th unit time period (TS)

FIGURE A7.3

Z Values and Probabilities

TABLE A7.2

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Because learning changes everything.

Chapter Eight
Scheduling Resources
and Costs

Where We Are Now

Learning Objectives
08-01

Understand the differences between time-constrained and resourceconstrained schedules.

08-02

Identify different types of resource constraints.

08-03

Describe how the smoothing approach is used on time-constrained projects.

08-04

Describe how the leveling approach is used for resource-constrained
projects.

08-05

Understand how project management software creates resource-constrained
schedules.

08-06

Understand when and why splitting tasks should be avoided.

08-07

Identify general guidelines for assigning people to specific tasks.

08-08

Identify common problems with multiproject resource scheduling.

08-09

Explain why a time-phased budget baseline is needed.

08-10

Create a time-phased project budget baseline.

Chapter Outline
8.1

Overview of the Resource Scheduling Problem

8.2

Types of Resource Constraints

8.3

Classification of a Scheduling Problem

8.4

Resource Allocation Methods

8.5

Computer Demonstration of Resource-Constrained Scheduling

8.6

Splitting Activities

8.7

Benefits of Scheduling Resources

8.8

Assigning Project Work

8.9

Multiproject Resource Schedules

8.10

Using the Resource Schedule to Develop a Project Cost

Project Planning Process

FIGURE 8.1

8.1 Overview of the Resource Scheduling Problem
Resources and Priorities
–

Project network times are not a schedule until resources have been
assigned.
• There are always more project proposals than there are available
resources.
• The project priority team will add a new project only if resources
are available.

–

Cost estimates are not a budget until they have been time-phased.
• Once resource assignments have been finalized, you are able to
develop a baseline budget schedule for the project.

The Resource Scheduling Problem
Resource Smoothing
–

Involves attempting to even out varying demands on resources by
delaying non-critical activities (using slack) to lower peak resource
demand and, thus, increase resource utilization when resources are
adequate over the life of the project.

Resource-Constrained Scheduling
–

Occurs when resources are not adequate to meet peak demands.
The late start of some activities must be delayed, and the duration of
the project may be increased.

Types of Project Constraints
Technical or Logical Constraints
–

Are related to the networked sequence in which project activities must occur.

Resource Constraints
–

Occur when the absence, shortage, or unique interrelationship and interaction
characteristics of resources require a particular sequencing of project activities.

–

Note that the resource dependency takes priority over the technological
dependency but does not violate the technological dependency.

Types of Resources Constraints
–

People

–

Materials

–

Equipment

Constraint Examples

FIGURE 8.2

8.3 Classification of a Scheduling Problem
Time-Constrained Project
–

Must be completed by an imposed date.

–

Time (project duration) is fixed and resources are flexible. If required,
resources can be added to ensure the project is completed by a specific date.

Resource-Constrained Project
–

Assumes the level of resources available cannot be exceeded.

–

Resources are fixed and time is flexible. If the resources are inadequate, it will
be acceptable to delay the project.

8.4 Resource Allocation Methods
Limiting Assumptions
–

Splitting activities will not be allowed.
• Splitting refers to interrupting work on one task and assigning the
resources to work on a different task for a period of time, then
reassigning them to work on the original task.

–

Level of resources used for an activity cannot be changed.

Risk Assumptions
–

Activities with the most slack pose the least risk.

–

Reduction of flexibility does not increase risk.

–

The nature of an activity (easy, complex) doesn’t increase risk.

Time-Constrained Projects
–

Must be completed by an imposed date.

–

Focus on resource utilization.

–

Require use of resource smoothing techniques that balance demand for a resource.

Leveling (Smoothing) Techniques
–

Delay noncritical activities by using positive slack to reduce peak demand and fill in the valleys for
the resources without delaying the entire project.

Goals of Smoothing Resource Demand
–

Reduce the peak of demand for the resource

–

Reduce the number of resources over the life of the project

–

Minimize the fluctuation in resource demand

Downside of Smoothing Resource Demand
–

Loss of flexibility that occurs from reducing slack

–

Creates more critical activities and/or near-critical activities because of slack reduction

Botanical Garden

FIGURE 8.3

Resource-Constrained Projects
–

Resources are limited in quantity or availability.

–

Activities are scheduled using heuristics (rules of thumb) by following
the priority rules:
1. Minimum slack
2. Smallest (least) duration
3. Lowest activity identification number

–

The parallel method is used to apply heuristics.
• The parallel method is an iterative process that starts from the
beginning of project time and, when the resources needed exceed
the resources available, retains activities first by the priority rules.

Resource-Constrained Schedule through Period 2-3

FIGURE 8.4

Resource-Constrained Schedule through Period 5-6

FIGURE 8.5

8.5 Computer Demonstration of Resource-Constrained
Scheduling
EMR Project
–

The development of a hand-held electronic medical reference guide to
be used by emergency medical technicians and paramedics

Resource Problem
–

Only eight design engineers can be assigned to the project due to the
shortage of design engineers and commitments to other projects.

–

The peak demand is 21 design engineers.

EMR Project Network View Schedule before Resources Leveled

FIGURE 8.6

EMR Project before Resources Added

FIGURE 8.7

EMR Project—Time-Constrained Resource Usage View, January
15-23

FIGURE 8.8A

Resource Loading Chart for EMR Project, January 15-23

FIGURE 8.8B

EMR Project Network View Schedule after Resources Leveled

FIGURE 8.9

EMR Project Resources Leveled

FIGURE 8.10

The Impacts of Resource-Constrained Scheduling
–

Reduces slack; reduce flexibility

–

Increases the number of critical and near-critical activities

–

Increases scheduling complexity because resource constraints are
added to technical constraints

–

May make the traditional critical path no longer meaningful

–

Can break the sequence and leave the network with a set of disjointed
critical activities

–

May cause parallel activities to become sequential

–

Can change activities from critical to noncritical

8.6 Splitting Activities
Splitting Tasks
–

Is a scheduling technique used to get a better project schedule and/or
to increase resource utilization.

–

Involves interrupting the work and sending the resource to another
activity for a period of time and then having the resource resume work
on the original activity.

–

Can be useful if the work involved does not include large start-up or
shut-down costs.

–

Is considered a major reason why projects fail to meet schedule.

Splitting Activities

FIGURE 8.11

8.7 Benefits of Scheduling Resources
–

Leaves time for considering reasonable alternatives
• Cost-time tradeoffs
• Changes in priorities

–

Provides the information needed to prepare time-phased work
package budgets with dates
• To gauge the impact of unforeseen events
• To assess how much flexibility over certain resources

8.8 Assigning Project Work
Reasons why we should not always assign the best people the most difficult
tasks
•

Best people: resent to the fact that they are always given the toughest
assignments

•

Less experienced participants: resent to the fact that they are never
given the opportunity to expand their skill/knowledge base

Factors to be considered in deciding who should work together
•

Minimize unnecessary tension; complement each other

•

Experience: veterans team up with new hires

•

Future needs: have people work together early on so that they can
become familiar with each other

8.9 Multiproject Resource Schedules
Problems in a multiproject environment
1. Overall schedule slippage
• Shared resources causes a ripple effect—delays in one project
create delays for other projects.
2. Inefficient resource utilization
•

Different schedules and requirements by multiple projects create
the peaks and valleys in overall resource demands.

3. Resource bottlenecks
•

Shortages of critical resources required by multiple projects cause
delays and schedule extensions.

Managing Multiproject Scheduling
–

Create project offices or departments to oversee the scheduling of
resources across multiple projects

–

Use a project priority queuing system—first come, first served for resources

–

Treat individual projects as part of one big project and adapt the scheduling
heuristics to this “mega project”

–

Utilize project management software to prioritize resource allocation

–

Outsource projects to reduce the number of projects managing internally

–

Hire temporary workers to expedite certain activities that are falling behind
schedule

–

Contract project work during peak periods when there are insufficient
internal resources to meet the demands of all project

8.10 Using the Resource Schedule to Develop a Project Cost Baseline

Why a Time-Phased Budget Baseline Is Needed
–

To determine if the project is on, ahead, or behind schedule and over or
under its budgeted costs

–

To assess how much work has been accomplished for the allocated
money spent—the project cost baseline (planned value, PV)

Creating a Time-Phased Budget
–

Assign each work package to one responsible person or department and
deliverable

–

Compare planned schedule and costs using an integrative system called
earned value

–

Generate cash flow statements and resource usage schedules

Direct Labor Budget Rollup ($000)

FIGURE 8.12

Time-Phased Work Package Budget (labor cost only)

FIGURE 8.13

Two Time-Phased Work Packages (labor cost only)

FIGURE 8.14

Patient Entry Project Network

FIGURE 8.15

Patient Entry Time-Phased Work Packages Assigned

FIGURE 8.16

Project Monthly Cash Flow Statement

FIGURE 8.17

Project Weekly Resource Usage Schedule

FIGURE 8.18

Key Terms
Heuristics
Leveling
Planned value (PV)
Resource-constrained project
Resource-constrained scheduling
Resource smoothing
Splitting
Time-constrained project
Time-phased budget baseline

Because learning changes everything.

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Because learning changes everything.

Chapter Nine
Reducing Project
Duration

Where We Are Now

Learning Objectives
09-01

Understand the different reasons for crashing a project.

09-02

Identify the different options for crashing an activity when
resources are not constrained.

09-03

Identify the different options for crashing an activity when
resources are constrained.

09-04

Determine the optimum cost-time point in a project network.

09-05

Understand the risks associated with compressing or crashing
a project.

09-06

Identify different options for reducing the costs of a project.

Chapter Outline
9.1

Rationale for Reducing Project Duration

9.2

Options for Accelerating Project Completion

9.3

Project Cost-Duration Graph

9.4

Constructing a Project Cost-Duration Graph

9.5

Practical Considerations

9.6

What If Cost, Not Time, Is the Issue?

9.1 Rationale for Reducing Project Duration
Crash is a term that has emerged in the project management lexicon for
shortening the duration of an activity or a project beyond when it normally
can be done.

Reasons for attempting to reduce the duration of a project are:
–

Time-to-market pressures

–

Unforeseen delays

–

Incentive contracts (bonuses for early completion)

–

Imposed deadlines and contract commitments

–

Overhead costs

–

Pressure to reassign resources to other projects

9.2 Options for Accelerating Project Completion
Resources Are Not Constrained

Resources Are Constrained

–

Add resources

–

Improve project team efficiency

–

Outsource project work

–

Fast tracking

–

Schedule overtime

–

Use critical-chain management

–

Establish a core project team

–

Reduce project scope

–

Do it twice—fast and correctly

–

Compromise quality

9.3 Project Cost-Duration Graph

FIGURE 9.1

Explanation of Project Costs
Project Indirect Costs
–

Are costs that cannot be associated with any particular work package
or activity.
•

Examples are overhead costs such as supervision, administration,
consultants, and interest.

–

Are costs that vary directly with time.

Project Direct Costs
–

Are costs that assigned directly to a work package and activity.
•

–

Examples are labor, materials, equipment, subcontractors.

Represent normal costs (low-cost, efficient methods for a normal time).

9.4 Constructing a Project Cost-Duration Graph
The project cost-duration graph is used to compare additional cost
alternatives for benefits.
Three major steps are required to construct a project cost-duration graph:
1. Find total direct costs for selected project durations.
2. Find total indirect costs for selected project durations.
3. Sum direct and indirect costs for these selected durations.

Determining the Activities to Shorten
Which activities to shorten?
Look for critical activities that can be shortened with the smallest increase in
cost per unit of time.
Assumptions:
1. The cost-time relationship is linear.
2. Normal time assumes low-cost, efficient methods to complete the
activity.
3. Crash time represents a limit—the greatest time reduction possible
under realistic conditions.
4. Slope represents cost per unit of time.
5. All accelerations must occur within the normal and crash times.
© McGraw-Hill Education

Activity Graph

Rise Crash cost − Normal cost $ 800− $ 400
=
=
=$ 80 per unit of time
Run Normal time −Crash time
10 −5
FIGURE 9.2

Cost-Duration Trade-off Example

FIGURE 9.3

Cost-Duration Trade-off Example (Continued)

FIGURE 9.3 (Continued)

Cost-Duration Trade-off Example (Continued)

FIGURE 9.4

Cost-Duration Trade-off Example (Continued)

FIGURE 9.4 (Continued)

Summary Costs by Duration

FIGURE 9.5

Project Cost-Duration Graph

FIGURE 9.6

9.5 Practical Considerations
–

Using the project cost-duration graph

–

Crash times

–

Linearity assumption

–

Choice of activities to crash revisited

–

Time reduction decisions and sensitivity

9.6 What If Cost, Not Time, Is the Issue?
Commonly used options for cutting costs are:
–

Reduce project scope

–

Have owner take on more responsibility

–

Outsource project activities or even the entire project

–

Brainstorm cost savings options

Key Terms
Crash
Crash point
Crash time
Direct costs
Fast tracking
Indirect costs
Project cost-duration graph

Because learning changes everything.

www.mheducation.com

Because learning changes everything.

Chapter Ten
Being an Effective
Project Manager

Where We Are Now

Learning Objectives
10-01

Understand the difference between managing and leading a project.

10-02

Understand the need to engage project stakeholders.

10-03

Identify and apply different “influence currencies” to build positive
relations with others.

10-04

Create a stakeholder map and develop strategies for managing
project dependencies.

10-05

Understand the need for a highly interactive management style on
projects.

10-06

More effectively manage project expectations.

10-07

Develop strategies for managing upward relations.

10-08

Understand the importance of building trust and acting in an ethical
manner while working on a project.

10-09

Identify the qualities of an effective project manager.

Chapter Outline
10.1

Managing versus Leading a Project

10.2

Engaging Project Stakeholders

10.3

Influence as Exchange

10.4

Social Network Building

10.5

Ethics and Project Management

10.6

Building Trust: The Key to Exercising Influence

10.7

Qualities of an Effective Project Manager

10.1 Managing versus Leading a Project
Managing—coping with complexity

Leading—coping with change

–

Formulate plans and objectives

–

Monitor results

–

Take corrective action

–

Initiate change

–

Expedite activities

–

Provide direction and

–

Solve technical problems

–

Serve as peacemaker

–

Make tradeoffs among time, costs,
and project scope

Recognize the need to change
to keep the project on track

motivation
–

Innovate and adapt as
necessary

–

Integrate assigned resources

10.2 Engaging Project Stakeholders
Stakeholders are people and organizations that are actively involved in the project or whose
interests may be positively or negatively affected by the project.

Project Management Maxims
–

You can’t do it all and get it all done.
•

–

Projects usually involve a vast web of relationships.

Hands-on work is not the same as leading.

• More pressure and more involvement can reduce your effectiveness as a leader.
–

What’s important to you likely isn’t as important to someone else.
•

Different groups have different stakes (responsibilities, agendas, and priorities) in the
outcome of a project.

Remember: Project management is tough, exciting, and rewarding—endeavor to persevere.

Network of Stakeholders

FIGURE 10.1

10.3 Influence as Exchange
The Law of Reciprocity
–

One good deed deserves another, and likewise one bad deed
deserves another.

Quid pro Quo
–

Mutual exchange of resources and services build relationships.

–

You scratch my back, I’ll scratch yours.

Influence “Currencies” (Cohen and Bradford)
–

Cooperative relationships are built on the exchange of organizational
“currencies” (favors).

Commonly Traded Organizational Currencies

TABLE 10.1

10.4 Social Network Building
Mapping Stakeholder Dependencies
–

Project team’s perspective
• Whose cooperation will we need?
• Whose agreement or approval will we need?
• Whose opposition would keep us from accomplishing the project?

–

Stakeholder’s perspective
• What differences exist between the team and the people on whom the team
depends?
• How do the stakeholders view the project?
• What is the current status of the relationship the team has with the stakeholders?
• What sources of influence does the team have relative to the stakeholders on
whom the team depends?

Stakeholder Map for Financial Software Installation Project

FIGURE 10.2

Management by Wandering Around (MBWA)
Management by Wandering Around (MBWA) involves managers spending
the majority of their time outside their offices in order to have face-to-face
interactions with employees building cooperative relationships.
• Relationships should be built before they are needed.
Characteristics of Effective Project Managers
–

Initiate contact with key stakeholders to keep abreast of developments

–

Anticipate potential problems

–

Provide encouragement

–

Reinforce the objectives and vision of the project

–

Intervene to resolve conflicts and prevent stalemates from occurring

Managing Upward Relations
Project success is strongly affected by the degree to which a project has
the support of top management. Top management must
–

Provide an appropriate budget

–

Be responsive to unexpected needs

–

Send a clear signal to others in the organization of the importance of
the project and the need to cooperate

–

Rescind unreasonable demand

–

Provide additional resources

–

Recognize the accomplishments of team members

Leading by Example

FIGURE 10.4

10.5 Ethics and Project Management
Ethical Dilemmas—situations where it …
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